ACTAVIA LIFE SCIENCES, INC. - Annual Report: 2017 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Transition Period from ___ to ___
Commission file number 333-191083
RASNA THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 39-2080103 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
420 Lexington Ave, Suite 2525, New York, NY 10170
(Address of principal executive offices) (Zip Code)
Telephone: (646) 396-4087
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ¨ No x
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer x |
Non-accelerated filer ¨ | Smaller reporting company ¨ |
(Do not check if a smaller reporting company) | Emerging growth company x |
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. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 68,046,465 shares of common stock were issued and outstanding as of June 28, 2017.
DOCUMENTS INCORPORATED BY REFERENCE: None
TABLE OF CONTENTS
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PART I
Forward Looking Statements.
This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, any of which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to the common shares in our capital stock.
As used in this annual report, the terms “we”, “us”, “our”, “Rasna” and the “Company” mean Rasna Therapeutics, Inc. unless the context clearly requires otherwise.
ITEM 1. BUSINESS
General.
Rasna Therapeutics Inc. ("Rasna DE") was formed on May 28, 2013 by a highly experienced industry team together with field-leading scientists, to focus on developing therapeutics to address the unmet need that exists for Acute Myloid Leukemia ("AML") and other forms of leukemia and lymphoma.
The Company's primary indication is AML which may be fatal within weeks to months, has a 5-year survival rate of only about 25% and very poor prospects for long-term survival of patients.
The Company's clinical program is based around three druggable intervention points with potential to improve safety and efficacy of current AML combination therapies.
History
Rasna Therapeutics, Inc. ("the Company", formerly Active With Me Inc.) was a company formed to create online resources that seamlessly offer travelers unique, highly relevant and user-friendly information on activity-based travel.
On August 15, 2016 the Company, entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna DE and Rasna Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), providing for the merger of Merger Sub with and into Rasna DE (the “Merger”), with Rasna DE surviving the Merger as a wholly-owned subsidiary of Company. The Merger Agreement was approved by the Board of Directors of each of the Company, Merger Sub and Rasna DE, as well as the requisite stockholders. The Merger closed on August 15, 2016.
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Leukemia
Overview
Leukemia is a cancer of the blood or bone marrow involving abnormal proliferation of white blood cells, called WBCs or leukocytes. Leukemia is caused by a mutation of the DNA in bone marrow stem cells resulting in the abnormal multiplication of leukocytes. If untreated, surplus leukocytes will overwhelm the bone marrow, enter the bloodstream and eventually invade other parts of the body, such as the lymph nodes, spleen, liver, and central nervous system. In this way, the behavior of leukemia is different from that of other cancers, which usually begin in major organs and ultimately spread to the bone marrow. Leukemia is an umbrella term covering a large group of cancers.
Table 1 - Leukemia Subtypes
Type | Subtype | Features | ||
Acute Leukemia | Acute Lymphocytic Leukemia (ALL) | Most common among children Five-year survival rate of ~70% | ||
Acute Myelogenous Leukemia (AML) | Most common in adults, especially men Five-year survival rate of ~26% | |||
Chronic Leukemia | Chronic Lymphocytic Leukemia (CLL) | Most common in adults above 55 years old, especially men Five-year survival rate of ~85% | ||
Chronic Myelogenous Leukemi (CML) | Mainly in adults and rare in children Five-year survival rate of ~63% | |||
All leukemia arises from mutations or damage to the DNA within the blood cells. These mutations may occur spontaneously or as a result of exposure to radiation or carcinogenic substances. Ionizing radiation, as well as exposure to chemicals such as benzene, increases the risk of AML, while agricultural chemicals have been linked to an increased incidence of chronic lymphoctic Leukemia (“CLL”). A weak immune system, some virus forms such as human T-cell Leukemia virus I (“HTLV-1”), genetic predisposition, cigarette smoking, and reactions to some therapeutic drugs are also implicated in the etiology of leukemia.
Diagnosis, Treatment, and Management
The first symptoms of leukemia are often vague and are correlated with other disorders. Common symptoms include fatigue and malaise, excessive bruising, and abnormal bleeding due to low platelet count. Further symptoms can include weight loss, bone and joint pain, infection and fever, and an enlarged spleen, lymph nodes and liver. After a blood test, several blood abnormalities such as anemia, or leucopenia may be observed, and in most cases a bone marrow test is required to confirm the diagnosis.
The preliminary diagnostic test for leukemia is a blood cell count, which is followed by immune-phenotyping to assess whether the abnormal lymphocyte levels are caused by inflammation or cancer. The physician may also require additional confirmatory tests such as cytogenetic analysis or bone marrow sampling.
The specific variety and combination of anticancer drugs prescribed depends on the form and stage of the disease. For example, treatment for AML, the most common form of leukemia, usually involves chemotherapy with cytotoxic cytarabine in conjunction with an anthracycline such as daunorubicin or idarubicin. Because of the severity of the cytotoxic treatment, bone marrow transplants (“BMTs”) are sometimes necessary. By transplanting healthy bone marrow into the body, BMTs help rebuild tissue damaged by the treatment. Interferon (“INF”) therapy, particularly with INF-alpha, is an alternative or additional treatment offered to almost all newly diagnosed patients in these markets. However, it is very difficult to cure, even though early treatment indicates it will help people to live longer.
The standard first-line treatment strategy for CLL: Patients who might not be able to tolerate the side effects of strong chemotherapy (chemo) are often treated with chlorambucil alone or with a monoclonal antibody like rituximab (Rituxan) or obinutuzumab (Gazyva). Other options include ibrutinib (Imbruvica), rituximab alone, or a corticosteroid like prednisone.
In stronger and healthier patients, there are many options for treatment. Commonly used treatments include:
• | FCR: fludarabine (Fludara), cyclophosphamide (Cytoxan), and rituximab |
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• | Bendamustine (sometimes with rituximab) |
• | FR: fludarabine and rituximab |
• | CVP: cyclophosphamide, vincristine, and prednisone (sometimes with rituximab) |
• | CHOP: cyclophosphamide, doxorubicin, vincristine (Oncovin), and prednisone |
• | Chlorambucil combined with prednisone, rituximab, obinutuzumab, or ofatumumab |
• | PCR: pentostatin (Nipent), cyclophosphamide, and rituximab |
• | Alemtuzumab (Campath) |
• | Fludarabine (alone) |
• | Ibrutinib (alone) |
Other drugs or combinations of drugs may also be also used. If the only problem is an enlarged spleen or swollen lymph nodes in one region of the body, localized treatment with low-dose radiation therapy may be used. Splenectomy (surgery to remove the spleen) is another option if the enlarged spleen is causing symptoms.
Also, very high numbers of leukemia cells in the blood causes problems with normal circulation. This is called leukostasis. Leukapheresis is also sometimes used before chemo if there are very high numbers of leukemia cells (even when they aren’t causing problems) to prevent tumor lysis syndrome.
On the failure of first line therapy, the standard therapy is usually to administer many of the drugs and combinations listed above as potential second-line treatments. For many people who have already had fludarabine, alemtuzumab seems to be helpful as second-line treatment, but it carries an increased risk of infections. Other purine analog drugs, such as pentostatin or cladribine (2-CdA), may also be tried. Newer drugs such as ofatumumab, ibrutinib, idelalisib (Zydelig), and venetoclax (Venclexta) may be other options. If these types of chemotherapy fail, the next option is usually a bone marrow transplant. A stem cell transplant is a third treatment option depending on leukemia response.
Neucleophosmin (NPM1)
As noted above, leukemia arises due to DNA damage or mutations. Chromosomal aberrations involving NPM1 were found in patients with non-Hodgkin lymphoma, acute promyelocytic leukemia, myelodysplastic syndrome, and AML. NPM1 has been found in the cytoplasm in patients with primary AML.
NPM1 Roles in Tumorigenesis
NPM1 gene is up-regulated, mutated and chromosomally translocated in many tumor types. NPM1 is transferred from nucleolus to nucleoplasm and cytoplasm by anticancer drugs. When expressed at high level, NPM1 could promote tumor growth by inactivation of tumor suppressor p53/ARF pathway; when expressed at low level, NPM1 could suppress tumor growth by inhibition of centrosome duplication. NPM1 is haplo insufficient in hemizygous mice that are vulnerable to tumor development. NPM1c+ (cytoplasm form) translocation into cytoplasm could serve as an AML remission signal. NPM1 forms a pentamer that could serve as a potential anticancer target.
Our technology (the process of targeting the mutation of the NPM1 gene), is believed to inhibit the NPM1 gene, reducing levels of NPM1 and consequently reducing a tumor cell’s ability to duplicate. It anticipated that our NPM1 inhibitor will have therapeutic activity in patients with the NPM1 mutation and possibly in the broader NPM1 population.
RASP-101 (ACT D) Program
Falini, Brunetti, and Martelli (N Engl J Med, 2015, 373(12):1180-2) hypothesized that NPM1-mutated AML cells might be vulnerable to a drug like dactinomycin that triggers a nucleolar stress response. In an initial evaluation, a single patient was treated for six cycles of five consecutive daily intravenous doses of 12.5 µg/kg at intervals of 3 to 4 weeks. Morphologic and immunohistochemical complete remission was evident after the fourth cycle, and an assay for mutant copies of NPMA showed molecular complete remission after the fourth cycle. In a subsequent Phase II clinical trial (EudraCT number 2014-000693-18), completed in two and a half years, patients with refractory or relapsed NPM1-mutated AML were treated with dactinomycin at 15 µg/kg/day in cycles of 5 consecutive days. A complete response was achieved in 40% of the patients.
We are now developing RASP-101, a formulated dactinomycin product, to enable multi-center clinical studies in patients with NPMI-mutated AML.
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Lysine Specific Demethylase -1 (LSD1) Program
In 2012, a paper published in Nature Medicine established that inhibitors of an enzyme involved in the epigenetic regulation of gene expression known as LSD1 or KDM1A can make drug-insensitive forms of AML responsive to treatment with all-trans-retinoic acid (ATRA). ATRA is used to treat a subtype of AML called acute promyelocytic leukemia (APL), but it is normally not effective in non-APL AML because the drug does not cause proper transcriptional activation of retinoic acid receptor target genes. This is a result of reduced methylation (specifically histone 3lysine 4 (H3K4) demethylation) on the promoter regions of these target genes. Therefore, the authors of the article hypothesized that inhibiting LSD1 might facilitate ATRA-induced differentiation of AML cells, which is known to halt the division of these cells. The research highlights a crosstalk between the ATRA-induced myeloid differentiation pathway and H3K4 methylation, and suggests that ATRA combined with LSD1 inhibitors might be therapeutically beneficial in AML.
Working from this premise, Dr. Pelicci’s group has developed novel irreversible and reversible LSD1 regulators which have shown appropriate effect on the LSD1 gene in-vitro and in-vivo efficacy in two AML animal models to facilitate nomination of a lead and then a drug candidate for clinical trials by Rasna. We believe that this breakthrough program may have significant benefits across all forms of leukemia.
Market Potential of NPM1
There are estimated to be approximately 19,000 new AML cases in the United States each year and the projected cost of treatment attributable to drug administrations for each patient over the course of the disease can be estimated at US $100,000 per patient or US $1,900,000,000 in the aggregate from the different treatment cycles. Of this it is estimated that 50% of the costs will continue to be attributable to standard of care chemotherapy. Thus, it is estimated that the US market potential for AML is $1 billion annually. The rest of the world is estimated to constitute 50% of the AML market; thus, the total annual world market is estimated to be $2 billion. If Rasna’s NPM1 targeted therapy proves beneficial to only that 20% of AML patients with mutated NPM1 genes, the addressable market will be diminished. However, in that event, Rasna’s NPM1 targeted therapy would then be the only therapy which address that sub-population and may command higher pricing and reimbursement.
Table 2
Total Estimated Number of New Leukemia Cases in
the United States for 2014
Type | Total | Male | Female | |||||||||
Acute Lymphoblasti Leukemia | 6,020 | 3,140 | 2,880 | |||||||||
Chronic Lymphocytic Leukemia | 15,720 | 9,100 | 6,620 | |||||||||
Acute Myeloid Leukemia | 18,860 | 11,530 | 7,330 | |||||||||
Chronic Myeloid Leukemia | 5,980 | 3,130 | 2,850 | |||||||||
Other Leukemia | 5,800 | 3,200 | 2,600 | |||||||||
Total Estimated New Cases | 52,380 | 30,100 | 22,280 | |||||||||
Table 3
Cost Per AML Patient For Different Treatment Cycles
PROGRAM | United States | ||||||
Induction of remission (1 cycle) | $ 56,802 | ||||||
Consolidation (2 cycles) | $ 113,176 | ||||||
BSC | Chemotherapy | Transplantation | |||||
CR [outpatient clinic] | $14,861 (6 cycles) | $14,861 (6 cycles) | $2,477 (1 cycle) | ||||
Transplantation | $ 154,739 | ||||||
Relapse | $ 2,477 (BSC) | $56,588 (Chemo 1 cycle) | |||||
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Regulation
We operate in a highly regulated industry that is subject to significant federal, state, local and foreign regulation. Our present and future business has been, and will continue to be, subject to a variety of laws including, the Federal Food, Drug, and Cosmetic Act, or FDC Act, the Food and Drug Administration (FDA)/European Medicines Agency (EMA) and the Public Health Service Act, among others.
The FDC Act and other federal and state statutes and regulations govern the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our products. As a result of these laws and regulations, product development and product approval processes are very expensive and time-consuming.
FDA Approval Process
In the United States, pharmaceutical products, including biologics, are subject to extensive regulation by the FDA. The FDC Act and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications, or NDAs, or biologic license applications, or BLAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Pharmaceutical product development in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA/EMA of an Investigational New Drug (IND) application, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug or biologic for each indication for which FDA/EMA approval is sought. Satisfaction of FDA/EMA pre-market approval requirements typically takes many years (typically between 5-7 years post an IND submission) and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation as well as animal trials to assess the characteristics and potential pharmacology and toxicity of the product. The conduct of the preclinical tests must comply with federal regulations and requirements including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not objected to the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted in compliance with federal regulations and good clinical practices, or GCP, as well as under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The clinical trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs or BLAs, which are applications for marketing approval, are typically conducted in three sequential Phases, but the Phases may overlap. In Phase 1, the initial introduction of the investigational drug candidate into healthy human subjects or patients, the investigational drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population, to determine the effectiveness of the investigational drug for a particular indication or indications, dosage tolerance and optimum dosage, and identify common adverse effects and safety risks. In the case of product candidates for severe or life-threatening diseases such as pneumonia, the initial human testing is often conducted in patients rather than in healthy volunteers.
If an investigational drug demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials are undertaken to obtain additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the investigational drug and to provide adequate information for its labeling.
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After completion of the required clinical testing, an NDA or, in the case of a biologic, a BLA, is prepared and submitted to the FDA. FDA approval of the marketing application is required before marketing of the product may begin in the United States. The marketing application must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls.
The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of marketing applications. Most such applications for non-priority drug products are reviewed within ten months. The review process may be extended by the FDA for three additional months to consider new information submitted during the review or clarification regarding information already provided in the submission. The FDA may also refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving a marketing application, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
Additionally, the FDA will inspect the facility or the facilities at which the drug product is manufactured. The FDA will not approve the NDA or, in the case of a biologic, the BLA unless compliance with cGMPs is satisfactory and the marketing application contains data that provide substantial evidence that the product is safe and effective in the indication studied. Manufacturers of biologics also must comply with FDA’s general biological product standards.
After the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues an approval letter or a complete response letter. A complete response letter outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed in a resubmission of the marketing application, the FDA will re-initiate review. If the FDA is satisfied that the deficiencies have been addressed, the agency will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. It is not unusual for the FDA to issue a complete response letter because it believes that the drug product is not safe enough or effective enough or because it does not believe that the data submitted are reliable or conclusive.
An approval letter authorizes commercial marketing of the drug product with specific prescribing information for specific indications. As a condition of approval of the marketing application, the FDA may require substantial post-approval testing and surveillance to monitor the drug product’s safety or efficacy and may impose other conditions, including labeling restrictions, which can materially affect the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Once a NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of therapeutic products, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.
Biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement, before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs. We cannot be certain that the FDA or any other regulatory agency will grant approval for our product candidates for any other indications or any other product candidate for any indication on a timely basis, if at all.
Adverse event reporting and submission of periodic reports is required following FDA approval of a BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, risk evaluation and mitigation strategies, 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. In addition, quality control as well as product manufacturing, packaging, and labeling procedures must continue to conform to cGMPs after approval. Manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
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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 marketing practices in the biopharmaceutical and medical device industries in recent years. These laws include anti-kickback statutes and false claims statutes.
The federal health care program 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 health care item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs. This 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 practices that involve remuneration intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Recently, several pharmaceutical and other health care 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 Company’s marketing of the product for unapproved, and thus non-reimbursable, uses. The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment.
Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have a material adverse effect on our business, financial condition and results of operations.
Regulation in the European Union
Biologics are also subject to extensive regulation outside of the United States. In the European Union, for example, there is a centralized approval procedure that authorizes marketing of a product in all countries of the European Union, which includes most major countries in Europe. If this procedure is not used, approval in one country of the European Union can be used to obtain approval in another country of the European Union under two simplified application processes, the mutual recognition procedure or the decentralized procedure, both of which rely on the principle of mutual recognition. After receiving regulatory approval through any of the European registration procedures, pricing and reimbursement approvals are also required in most countries.
Environmental Laws
We expect to be subject to regulation under federal, state and local laws and regulations governing environmental protection and the use, storage, handling and disposal of hazardous substances. The cost of complying with these laws and regulations may be significant. Our activities as currently planned will require the controlled use of potentially harmful biological materials, hazardous materials and chemicals. We will not be able to eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have.
Other Regulations
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances and biological materials. We may incur significant costs to comply with such laws and regulations now or in the future.
Intellectual Property
In order to remain competitive, we must develop and maintain protection on the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality, material data transfer agreements, licenses and invention assignment agreements to protect our intellectual property rights. We also rely upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We generally protect this information with reasonable security measures.
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As of March 31, 2017, we currently have one pending US patent application relating to the composition of matter of the NPM1 inhibitors. We also have an exclusive license to three pending US patent applications and one issued US patent relating to our LSD1 program.
Our patents and patent applications for LSD-1 and Dactinomycin as of March 31, 2017 are set forth below:
Application Number | Title | Filing Date | Earliest Priority Date | Applicant | Inventors | IP Status | Next IP activities | |||||||
PCT/EP2011/ 055990 | Tranylcypromine derivatives as inhibitors of histone demethylase LSD1 and/or LSD2 | 15-Apr 2011 | 20-Apr 2010 | Universita’ delgi studi di Roma “La Sapienza” / Universita’ delgi studi di Pavia/ Universita’ delgi studi di Milano/ Fondazione IEO (Instituto Europeo di Oncologia as licensee) | Minucci/ Mai/ Mattevi | National Phase Granted in Australia, China, Eurasia (Russia), Europe (Switzerland, Germany, Spain, France, UK, Italy, Netherlands, Poland, Sweden), Japan, South Africa, USA Pending in Brasile, Canada, India | Granted or Examination in progress | |||||||
PCT/EP2013/ 075409 | Cyclopropylamine derivatives useful as inhibitors of histone demethylases KDM1A | 3-Dec- 2013 | 5-Dec 2012 | Istituto Europea di Oncologia | Varasi/ Vianello/ Thaler/ Trifiro’/ Mercurio/ Meroni | National Phase Pending in Australia, Canada, China, Europe, Japan, USA | Examination in progress | |||||||
PCT/EP2015/ 062037 | Cyclopropylamine derivatives as histone demethylase inhibitors | 29-May 2015 | 30-May 2014 | Istituto Europeo di Oncologia | Vianello/ Varasi / Mercurio/ Cappa/ Meroni/ Villa/ Mai/ Valente | National Phase Pending in Australia, Brazil, Canada, Europe, Israel, Japan, USA | Examination in progress | |||||||
PCT/IB2015/ 001953 | Thienopyrroles as Histone Demethylase Inhibitors | 4-Sept 2015 | 5-Sept 2014 | Istituto Europea di Oncologia | Vianello / Sartori/ Mercurio / Cappa / Villa / Meroni / Zagarri | National Phase Pending in Europe and USA | Examination in progress | |||||||
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PCT/EP2017/ 062009 | Imidazoles as Histone Demethylase Inhibitors | 18-May 2017 | 18-May 2016 | Istituto Europea di Oncologia | Vianello / Romussi/ Cappa/ Trifiro’/ Sartori/ Mercurio | International Phase | National Phase Entry 11/18/2018 | |||||||
PCT/EP2016/ 080156 | Combination of Caloric Restrction (CR) or IGF1/Insulin Receptor Inhibitor with LSD1 Inhibitor | 7-Dec 2016 | 7-Dec 2015 | Istituto Europea di Oncologia/ Universita’ delgi studi di Milano | ?Mazzarella/ Minucci/ Pelicci/ Pallavi/ Durfort/ | International Phase | National Phase Entry 6/7/2018 | |||||||
US 62/490,547 | Use of a Combinational Therapy of LSD1 Inhibitors With P21 Activators in the Treatment of Cancer | 26-Apr 2017 | n/a | Istituto Europea di Oncologia/ Universita’ delgi studi di Milano | Minucci/ Pelicci/ Hosseini | US Provisional | Conversion/ Foreign filing 26-Apr 2018 | |||||||
US 62/490,555 | Use of a Combinational Therapy of LSD1 Inhibitors With CDK2 Inhibitors in the Treatment of Cancer | 26-Apr 2017 | n/a | Shailubhai | Shailubhai | US Provisional | Conversion/ Foreign filing 26-Apr 2018 | |||||||
US 62/444,333 | Inhibitors of Nucleophosmin and Methods and Uses Thereof | 9-Jan 2017 | n/a | Rasna | Pellicciari | US Provisional | Conversion/ Foreign filing 9-Jan 2018 | |||||||
US 62/394,104 | Dactinomycin Compositions and Methods for the Treatment of Acute Myeloid Leukemia | 13-Sept 2016 | n/a | Shailubhai | Shailubhai | US Provisional | Conversion/ Foreign filing 13-Sept 2017 | |||||||
US 62/444,330 | Dactinomycin Compositions and Methods for the Treatment of Acute Myeloid Leukemia | 9-Jan 2017 | n/a | Rasna | Shailubhai | US Provisional | Conversion/ Foreign filing 9-Jan 2018 | |||||||
US 62/500,459 | Dactinomycin Compositions and Methods for the Treatment of Acute Myeloid Leukemia | 2-May 2017 | n/a | Shailubhai | Shailubhai | US Provisional | Conversion/ Foreign filing 2-May 2018 | |||||||
PCT/EP2016/ 071599 | Dactinomycin Compositions and Methods for the Treatment of Acute Myeloid Leukemia | 13-Sept 2016 | 14-Sept 2015 | Falini/ Martelli | Falini/ Martelli | International Phase | National Phase Entry 14-March 2018 | |||||||
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We intend to file additional patent applications in the US and abroad to strengthen our intellectual property rights. Our patent applications may not result in issued patents, and we cannot assure you that any patents that might issue will protect our technology.
Any patents issued to us in the future may be challenged by third parties as being invalid or unenforceable, or third parties may independently develop similar or competing technology that are not covered by our patents. We cannot be certain that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.
From time to time we may receive notices of claims of infringement, misappropriation or misuse of other parties’ proprietary rights. Some of these claims may lead to litigation. We cannot assure you that we will prevail in these actions, or that other actions alleging misappropriation or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or the validity of patents issued to us in the future, will not be asserted or prosecuted against us, or that any assertions of misappropriation, infringement or misuse or prosecutions seeking to establish the validity of our patents will not materially or adversely affect our business, financial condition and results of operations.
An adverse determination in litigation or interference proceedings to which we may become a party relating to any patents issued to us in the future or any patents owned by third parties could subject us to significant liabilities to third parties or require us to seek licenses from third parties. Furthermore, if we are found to willfully infringe these patents, we could, in addition to other penalties, be required to pay treble damages. Although patent and intellectual property disputes in this area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory or commercially feasible terms, if at all. If we do not obtain necessary licenses, we may not be able to complete our research and development, or such research and development may take considerable time, and force us to reassess our business plans. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from developing our targets, which would have a significant adverse impact on our business.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, development experience and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Several types of existing treatments may be used for people with AML. The main treatments include chemotherapy, bone marrow transplants, stem cell transplants and/or interferon therapy. In most cases AML can progress rapidly, so it is important to start treatment as soon as possible after the diagnosis is made. In addition to currently marketed therapies, there are also a number of products in late stage clinical development to treat AML. These products in development may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies. As a result, they may provide significant competition for any of our product candidates for which we obtain market approval.
There are other companies and research institutions working to develop therapies that target AML. Many of our competitors may have significantly greater financial resources and expertise in research and development, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
The key competitive factors affecting the success of all of our targets, if approved, are likely to be their efficacy, safety, convenience, price, the level of generic competition and the availability of reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. There are many generic products currently on the market for the indications that we are
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pursuing, and additional products are expected to become available on a generic basis over the coming years. If our therapeutic product candidates are approved, we expect that they will be priced at a significant premium over competitive generic products.
Employees
As of March 31, 2017 we had 4 full-time employees.
Recent Developments
On April 20, 2017, we announced the appointment of Dr. Kunwar Shailubhai as Chief Executive Officer.
On May 8, 2017, we published the results of Phase II of our NPM1 clinical trial in the New England Journal of Medicine. The Phase II clinical trial was initiated in 2014 and was completed in two and a half years, involved patients with refractory or relapsed NPM1-mutated AML treated with cycles of dactinomycin at a dose of 15µg per kilogram per day for 5 consecutive days. As earlier published, intravenous treatment of refractory or relapsed AML patients with dactinomycin (12.5µg or 15µg per day) for 5 consecutive days had produced hematological complete response in specific patients. We reported an update to these initial findings, which were corroborated by the follow up of a Phase II clinical trial which achieved complete response in 40% of patients.
ITEM 1A. RISK FACTORS
Risks Relating to Our Business
We are a development stage company with minimal operating history.
We are a development stage company with minimal operating history and no revenue. We currently have no product candidates ready for commercialization, have not generated any revenue from operations and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our molecular targets. We are unable to predict the extent of these future net losses, or when we may attain profitability, if at all. We may never be able to generate any revenues or royalties from the sales of our therapeutics or become profitable even if we do generate revenues or royalties.
We will require substantial additional funding which may not be available to us on acceptable terms, or at all. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates, or continue our development programs.
We expect to significantly increase our spending to advance the preclinical and clinical development of our product candidates and launch and commercialize any product candidate for which we receive regulatory approval, including building our own commercial organizations to address certain markets. We will require additional capital for the further development and commercialization of our product candidates, as well as to fund our other operating expenses and capital expenditures.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of our product candidate. We may also seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Any of these events could significantly harm our business, financial condition and prospects.
Our future capital requirements will depend on many factors, including:
• | the progress of the development of our product candidates; |
• | the number of product candidates we pursue; |
• | the time and costs involved in obtaining regulatory approvals; |
• | the costs involved in filing and prosecuting patent applications and enforcing or defending patent claims; |
• | our plans to establish sales, marketing and/or manufacturing capabilities; |
• | the effect of competing technological and market developments; |
• | the terms and timing of any collaborative, licensing and other arrangements that we may establish; |
• | general market conditions for offerings from biopharmaceutical companies; |
• | our ability to establish, enforce and maintain selected strategic alliances and activities required for product commercialization; and |
• | our revenues, if any, from successful development and commercialization of our product candidates. |
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In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank lines of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidate or marketing territories. Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.
If we are unable to manage our expected growth, we may not be able to develop our business.
Our ability to develop our business requires an effective planning and management process. We need to hire a significant number of employees in the near term. If we fail to identify, attract, retain and motivate highly skilled personnel, we may be unable to continue our development and commercialization activities.
If we lose key employees and consultants or are unable to attract or retain qualified personnel, our business could suffer.
Our success is highly dependent on our ability to attract and retain qualified scientific and management personnel. Our planned activities require expertise in areas such as research, development, clinical study management, regulatory affairs and commercialization, including reimbursement. Such activities require the addition of new personnel and the development of additional expertise by existing management personnel. We face intense competition for such personnel from other companies, academic institutions, government entities and other organizations, and there can be no assurance that we will be successful in hiring or retaining qualified personnel. Our inability to develop additional expertise or to hire and retain such qualified personnel could have a material adverse effect on our operations.
If we fail to select product candidates, fail to successfully complete clinical trials and commercialize product candidates or fail to obtain regulatory approval, our business would be harmed and the value of our securities would decline.
We must be evaluated in light of the uncertainties and complexities affecting a pre-commercial biopharmaceutical company. We have not completed preclinical or clinical research and have not yet selected product candidates or completed the development of such product candidates. Our failure to select product candidates and subsequently to develop and commercialize such product candidates successfully may cause us to cease operations. We are performing preclinical research on NPM1 and LSD1. This research will require significant additional development efforts by us prior to selection of product candidates and significant additional development efforts by us and regulatory approvals prior to commercialization. We cannot be certain that our efforts in this regard will lead to commercially viable therapeutics. We do not know what the final cost to select and commercialize product candidates will be.
We do not know whether any of our molecular targets under development ultimately will be selected as product candidates or whether our product candidates, if any, will be shown to be effective. Moreover, governmental authorities may enact new legislation or regulations that could limit or restrict our development efforts. We may receive unfavorable results from pre-clinical studies or clinical studies on the molecular targets, which may cause us to abandon the product selection process and further development efforts. If we are unable to select product candidates and then to successfully develop such product candidates, we will not have a source of revenue and will not achieve profitability.
Regulatory agencies, including the U.S. Food and Drug Administration, or FDA, must approve our product candidates, if any, before they can be marketed or sold. The approval process is lengthy, requires significant capital expenditures, and uncertain as to outcome. Our ability to obtain regulatory approval of any product candidate depends on, among other things, completion of additional clinical trials, whether our clinical trials demonstrate statistically significant efficacy with safety issues that do not potentially outweigh the therapeutic benefit of the product candidates, and whether the regulatory agencies agree that the data from our future clinical trials are sufficient to support approval for any of our product candidates. The final results of our current and future preclinical or clinical trials may not meet FDA or other regulatory agencies’ requirements to approve a product candidate for marketing, and the regulatory agencies may otherwise determine that our manufacturing processes or facilities are insufficient to support approval. We or our collaborators may need to conduct more preclinical or clinical trials than we currently anticipate. Even if we do receive FDA or other regulatory agency approval, we or our collaborators may not be successful in commercializing approved product candidates. If any of these events occur, our business could be materially harmed and the value of our securities would decline.
We, or our collaborators, may face delays in completing our pre-clinical or clinical trials, and may not be able to complete them at all.
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We have not completed the pre-clinical and clinical trials necessary to support an application for approval to market of product candidates, if any. Our or our collaborators’ current and future clinical trials may be delayed, unsuccessful, or terminated as a result of many factors, including:
• | delays in designing an appropriate clinical trial protocol and reaching agreement on trial design with investigators and regulatory authorities; |
• | governmental or regulatory delays, failure to obtain regulatory approval or changes in regulatory requirements, policy or guidelines; |
• | adding new clinical trial sites |
• | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
• | the actual performance of CROs and clinical trial sites in ensuring the proper and timely conduct of our clinical trials; |
• | adverse effects experienced by subjects in clinical trials; |
• | manufacturing sufficient quantities of product candidates for use in clinical trials; and |
• | delays in achieving study endpoints and completing data analysis for a trial. |
In addition to these factors, our trials may be delayed, unsuccessful or terminated because:
• | regulators or institutional review boards, or IRBs, may not authorize us to commence a clinical trial; |
• | regulators or IRBs may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or concerns about patient safety; |
• | we may suspend or terminate our clinical trials if we believe that they expose the participating patients to unacceptable health risks; |
• | patients may not complete clinical trials due to safety issues, side effects, such as injection site discomfort, a belief that they are receiving placebo instead of our product candidates, or other reasons; |
• | patients with serious diseases included in our clinical trials may die or suffer other adverse medical events for reasons that may not be related to our product candidates; |
• | in those trials where our product candidate is being tested in combination with one or more other therapies, deaths may occur that may be attributable to the other therapies; |
• | we may have difficulty in maintaining contact with patients after treatment, preventing us from collecting the data required by our study protocol; |
• | product candidates may demonstrate a lack of efficacy during clinical trials; |
• | personnel conducting clinical trials may fail to properly administer our product candidates; and |
• | our collaborators may decide not to pursue further clinical trials. |
We could encounter delays if our clinical trials are suspended or terminated by us, by IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Boards for such trials or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including potential for unacceptable safety risks to patients, inspection of the clinical trial operation or trial site, changes in government regulations or administrative actions.
In addition, we rely on academic institutions, physician practices and CROs to conduct, supervise or monitor some or all aspects of clinical trials involving our product candidates. We have less control over the timing and other aspects of these clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or applicable regulations. We also may rely on CROs to perform our data management and analysis. They may not provide these services as required or in a timely or compliant manner, and we may be held legally responsible for any or all of their performance failures or inadequacies.
Moreover, our development costs will increase because we will be required to complete additional or larger clinical trials for our product candidates prior to FDA or other regulatory approval. If we or our collaborators experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed or
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eliminated. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also lead to the denial of regulatory approval of our product candidates.
If we encounter difficulties enrolling patients in our clinical trials, our clinical trials could be delayed or otherwise adversely affected.
Clinical trials for our product candidates, if any, will require us to identify and enroll a large number of patients with the disease under investigation. We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics, in a timely manner. Patient enrollment is affected by factors including:
• | severity of the disease under investigation; |
• | design of the trial protocol; |
• | the size and nature of the patient population; |
• | eligibility criteria for the study in question; |
• | lack of a sufficient number of patients who meet the enrollment criteria for our clinical trials; |
• | delays required to characterize the infection to allow us to select a product candidate, which may lead patients to seek to enroll in other clinical trials or seek alternative treatments; |
• | perceived risks and benefits of the product candidate under study; |
• | availability of competing therapies and clinical trials; |
• | efforts to facilitate timely enrollment in clinical trials; |
• | scheduling conflicts with participating clinicians; |
• | patient referral practices of physicians; |
• | the ability to monitor patients adequately during and after treatment; and |
• | proximity and availability of clinical trial sites for prospective patients. |
If we have difficulty enrolling a sufficient number or diversity of patients to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have an adverse effect on our business.
Results of earlier studies and clinical trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates, if any, may not be predictive of the design or results of later-stage clinical trials. Any positive results generated to date do not ensure that later trials will demonstrate similar results. While we have observed statistically significant improvements in the outcomes of some of our clinical trials, many of the improvements we have seen have not reached statistical significance. Statistical significance is a statistical term that means that an effect is unlikely to have occurred by chance. In order to be approved, product candidates must demonstrate that their effect on patients’ diseases in the trial is statistically significant. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. Early clinical trials frequently enroll patient populations that are different from the patient populations in later trials, resulting in different outcomes in later clinical trials from those in earlier stage clinical trials. In addition, adverse events may not occur in early clinical trials and only emerge in larger, late-stage clinical trials or after commercialization. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials. If later stage clinical trials do not demonstrate efficacy and safety of our product candidates we will not be able to market them and our business will be materially harmed.
Regulatory authorities may not approve our product candidates, if any, even if they meet safety and efficacy endpoints in clinical trials.
Under certain circumstances, regulatory authorities may revise or retract previous guidance during the course of our clinical activities or after the completion of our clinical trials. A regulatory authority may also disqualify a clinical trial in whole or in part from consideration in support of approval of a potential product for commercial sale or otherwise deny approval of that product. Prior to regulatory approval, a regulatory authority may elect to obtain advice from outside experts regarding scientific issues and/or marketing applications under a regulatory authority review. In the United States, these outside experts are convened through the FDA’s Advisory Committee process, which would report to the FDA and make recommendations that
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may differ from the views of the FDA. Should an Advisory Committee be convened, it would be expected to lengthen the time for obtaining regulatory approval, if such approval is obtained at all.
The FDA and foreign regulatory agencies may delay, limit or deny marketing approval for many reasons, including:
• | a product candidate may not be considered safe or effective; |
• | our manufacturing processes or facilities may not meet the applicable requirements; |
• | changes in the agencies’ approval policies or adoption of new regulations may require additional work on our part, for example, the FDA may require us to change or expand the endpoints in our clinical trials; |
• | different divisions of the FDA are reviewing different product candidates and those divisions may have different requirements for approval; and |
• | changes in regulatory law, FDA or foreign regulatory agency organization, or personnel may result in different requirements for approval than anticipated. |
Our product candidates may not be approved even if they achieve their endpoints in clinical trials. Regulatory agencies, including the FDA, or their advisors may disagree with our trial design and our interpretations of data from preclinical studies and clinical trials. Regulatory agencies also may approve a product candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.
Any delay in or failure to receive or maintain approval for any of our product candidates could prevent us from ever generating revenues or achieving profitability.
We may be required to suspend, repeat or terminate our clinical trials if they are not conducted in accordance with regulatory requirements, the results are negative or inconclusive, or the trials are not well designed.
Clinical trials must be conducted in accordance with FDA regulations governing clinical studies, or other applicable foreign government guidelines, and are subject to oversight by the FDA, other foreign governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with product candidates produced under current Good Manufacturing Practices, or cGMP, and may require large numbers of test subjects. Clinical trials may be suspended by the FDA, other foreign governmental agencies or us for various reasons, including:
• | deficiencies in the conduct of the clinical trials, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols; |
• | deficiencies in the clinical trial operations or trial sites; |
• | the product candidate may have unforeseen adverse side effects; |
• | the time required to determine whether the product candidate is effective may be longer than expected; |
• | deaths or other adverse events arising during a clinical trial due to medical problems that may not be related to clinical trial treatments; |
• | the product candidate may not appear to be more effective than current therapies; |
• | the quality or stability of the product candidate may fall below acceptable standards; and |
• | insufficient quantities of the product candidate might be available to complete the trials. |
In addition, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. Due to these and other factors, our product candidates could take longer to gain regulatory approval than we expect or we may never gain approval for any product candidates, which could reduce or eliminate our revenue by delaying or terminating the commercialization of our product candidates.
Any product candidate for which we, or our collaborators, obtain marketing approval could be subject to restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product candidate that we or our collaborators obtain marketing approval for, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information, reports, registration and listing requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates
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the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use. If we market our products outside of their approved indications, we will be subject to enforcement action for off-label marketing.
In addition, later discovery of previously unknown problems with these products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
• | restrictions on such products, manufacturers or manufacturing processes; |
• | restrictions on the labeling or marketing of a product; |
• | restrictions on product distribution or use; |
• | requirements to conduct post-marketing clinical trials; |
• | warning or untitled letters; |
• | withdrawal of the products from the market; |
• | refusal to approve pending applications or supplements to approved applications that we submit; |
• | recall of products, fines, restitution or disgorgement of profits or revenue; |
• | suspension or withdrawal of marketing approvals; |
• | refusal to permit the import or export of our products; |
• | product seizure; and |
• | injunctions or the imposition of civil or criminal penalties. |
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we, or our collaborators, are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we, or our collaborators, are not able to maintain regulatory compliance, any marketing approval that was obtained could be lost, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
If we, or our collaborators, are unable to comply with foreign regulatory requirements or obtain foreign regulatory approvals, our ability to develop foreign markets for our products could be impaired.
Sales of our product candidates, if any, outside the United States will be subject to foreign regulatory requirements governing clinical trials, marketing approval, manufacturing, product licensing, pricing and reimbursement. These regulatory requirements vary greatly from country to country. As a result, the time required to obtain approvals outside the United States may differ from that required to obtain FDA approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our products.
Competitive products for treatment of AML may reduce or eliminate the commercial opportunity for our product candidates, if any.
The clinical and commercial landscape for AML is rapidly changing. New data from commercial and clinical-stage products continue to emerge. It is possible that these data may alter current standards of care, completely precluding us from further developing our product candidates, if any, or getting them approved by regulatory agencies. Further, it is possible that we may initiate a clinical trial or trials for these product candidates, only to find that data from competing products make it impossible for us to complete enrollment in these trials, resulting in our inability to file for marketing approval with regulatory agencies. Even if these products are approved for marketing in a particular indication or indications, they may have limited sales due to particularly intense competition in these markets.
We will need to develop or acquire additional manufacturing and distribution capabilities in order to commercialize our product candidates, if any, that obtain marketing approval, and we may encounter unexpected costs or difficulties in doing so.
If we independently develop and commercialize one or more of our product candidates, if any, we will need to invest in acquiring or building additional capabilities and effectively manage our operations and facilities to successfully pursue and complete future research, development and commercialization efforts. We will require additional investment and validation process development in order to qualify our commercial-scale manufacturing process to manufacture clinical trial materials and commercial material if any of our products are approved for marketing. This investment and validation process development may be expensive and time-consuming. We will require additional personnel with experience in commercial-scale
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manufacturing, managing of large-scale information technology systems and managing a large-scale distribution system. We will need to add personnel and expand our capabilities, which may strain our existing managerial, operational, regulatory compliance, financial and other resources. To do this effectively, we must:
• | recruit, hire, train, manage and motivate a growing employee base; |
• | accurately forecast demand for our products; |
• | assemble and manage the supply chain to ensure our ability to meet demand; and |
• | expand existing operational, manufacturing, financial and management information systems. |
We may seek FDA approval for our production process and facilities simultaneously with seeking approval for sale of our product candidates. Should we not complete the development of adequate capabilities, including manufacturing capacity, or fail to receive timely approval of our manufacturing process and facilities, our ability to supply clinical trial materials for planned clinical trials or supply products following regulatory approval for sale could be delayed, which would further delay our clinical trials or the period of time when we would be able to generate revenues from the sale of such products, if we are even able to obtain approval or generate revenues at all.
Additionally, we may decide to outsource some or all of our manufacturing activities to a third party commercial manufacturing organization, or CMO. Under any agreement with a CMO, we would have less control over the timing and quality of manufacturing than if we were to perform such manufacturing ourselves. A CMO would be manufacturing other pharmaceutical products in the same facilities as our product candidates, increasing the risk of cross product contamination. Further, there is no guarantee that any CMO will continue ongoing operations, causing potential delays in product supply, reduced revenues and other liabilities for us.
Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial condition and results of operations.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates, if any, could cause us, our collaborators, or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities. As a result of any side effects, our clinical trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development, or deny approval, of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally if one or more of our product candidates receives marketing approval, and we, our collaborators, or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
• | regulatory authorities may withdraw approvals of such product; |
• | regulatory authorities may require additional warnings on the label; |
• | we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; |
• | we may be sued and held liable for harm caused to patients; and |
• | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
If we cannot demonstrate an acceptable toxicity profile for our product candidates, if any, in non-clinical studies, we will not be able to initiate or continue clinical trials or obtain approval for our product candidates.
In order to move a product candidate into human clinical trials, we must first demonstrate an acceptable toxicity profile in preclinical testing. Furthermore, in order to obtain approval, we must also demonstrate safety in various non-clinical tests. We may not have conducted or may not conduct the types of non-clinical testing required by regulatory authorities, or future non-clinical tests may indicate that our product candidates are not safe for use. Preclinical and non-clinical testing is expensive, time-consuming and has an uncertain outcome. In addition, success in initial non-clinical testing does not ensure that later non-clinical testing will be successful. We may experience numerous unforeseen events during, or as a result of, the non-clinical testing process, which could delay or prevent our ability to develop or commercialize our product candidates, including:
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• | our preclinical and non-clinical testing may produce inconclusive or negative safety results, which may require us to conduct additional non-clinical testing or to abandon product candidates; |
• | our product candidates may have unfavorable pharmacology or toxicity characteristics; |
• | our product candidates may cause undesirable side effects such as negative immune responses that lead to complications; |
• | our enrolled patients may have allergies that lead to complications after treatment; and |
• | the FDA or other regulatory authorities may determine that additional safety testing is required. |
Any such events would increase our costs and could delay or prevent our ability to commercialize our product candidates, which could adversely impact our business, financial condition and results of operations.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.
We do not have a sales and marketing infrastructure or any experience in the sales, marketing or distribution of pharmaceutical products. We may seek additional third-party collaborators for the commercialization of our other product candidates. In the future, we may choose to build a focused sales and marketing infrastructure to market or co-promote some of our product candidates if and when they are approved, which would be expensive and time-consuming. Alternatively, we may elect to outsource these functions to third parties. Either approach carries significant risks. For example, recruiting and training a sales force is expensive and time-consuming and, if done improperly, could delay a product launch and result in limited sales. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
• | our inability to recruit, manage and retain adequate numbers of effective sales and marketing personnel; |
• | the inability of marketing personnel to develop effective marketing materials; |
• | the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products; |
• | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and |
• | unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
The availability and amount of reimbursement, if approved, for our product candidates, if any, and the manner in which government and private payors may reimburse for any potential products, are uncertain.
In both U.S. and foreign markets, sales of any products will depend in part on the availability of reimbursement from third-party payors such as government health administration authorities, private health insurers and other organizations. The future magnitude of our revenues and profitability may be affected by the continuing efforts of governmental and third-party payors to contain or reduce the costs of health care. We cannot predict the effect that private sector or governmental health care reforms may have on our business, and there can be no assurance that any such reforms will not have a material adverse effect on our business, financial condition and results of operations.
In addition, in both the United States and elsewhere, sales of prescription drugs are dependent in part on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans. The ability to obtain reimbursement of our products from these parties is a critical factor in the commercial success for any of our products. Failure to obtain appropriate reimbursement could result in reduced or no sales of our products.
Third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly-approved health care products. There can be no assurance that our products will be considered cost-effective or that adequate third-party reimbursement will be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Legislation and regulations affecting the pricing of pharmaceuticals may change before any of our products are approved for marketing. Adoption of such legislation could further limit reimbursement for medical products and services. We, or our collaborators, may elect not to market future products in certain markets.
We may expend our limited resources to pursue a particular research program, product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
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Because we have limited financial and managerial resources, we focus on research programs and eventually product candidates for the indications that we believe are the most scientifically and commercially promising. Our resource allocation decisions may cause us to fail to capitalize on viable scientific or commercial products or profitable market opportunities. In addition, we may spend valuable time and managerial and financial resources on research programs and product candidates for specific indications that ultimately do not yield any scientifically or commercially viable products. If we do not accurately evaluate the scientific and commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in situations where it would have been more advantageous for us to retain sole rights to development and commercialization.
Risks Relating to Our Stock
Our common stock is deemed a “penny stock,” which would make it more difficult for our investors to sell their shares.
Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
We have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.
Our stock price may be volatile.
The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
• | changes in our industry; |
• | competitive pricing pressures; |
• | our ability to obtain working capital financing; |
• | additions or departures of key personnel; |
• | sales of our common stock; |
• | our ability to execute our business plan; |
• | operating results that fall below expectations; |
• | loss of any strategic relationship; |
• | regulatory developments; and |
• | economic and other external factors. |
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Risks Relating to Our Industry
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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we obtain regulatory approval for any of our product candidates and begin commercializing such product candidates in the United States, our operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal anti-kickback statute. These laws may impact, among other things, our proposed sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
• | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
• | HIPAA, as amended by the Health Information Technology and Clinical Health Act and its implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information; and |
• | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing 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. |
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with governmental regulations, comply with federal and state health-care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
Health care reform measures could adversely affect our business.
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs. In March 2010 the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, was enacted, which includes measures to significantly change the way health care is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the pharmaceutical and biotechnology industry are the following:
• | new requirements to report certain financial arrangements with physicians and others, including reporting any “transfer of value” made or distributed to prescribers and other healthcare providers and reporting any investment interests held by physicians and their immediate family members; |
• | 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, since 2014, has had the 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 |
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• | establishment of a Center for Medicare Innovation at the Centers for Medicare & Medicaid Services 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, given recent federal and state government initiatives directed at lowering the total cost of healthcare, Congress and state legislatures will likely continue to focus on healthcare reform, the cost of prescription drugs, biologics, and diagnostic tests and the reform of the Medicare and Medicaid programs. While we cannot predict the full outcome of any such legislation, it may result in decreased reimbursement. This could harm our ability to generate revenues. It is also possible that other legislative proposals having similar effects will be adopted.
Furthermore, regulatory authorities’ assessment of the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, changing policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.
The industry in which we operate is highly regulated and the failure to obtain, or any delays in obtaining, regulatory approvals could adversely affect our ability to commercialize our candidates, if any, and generate revenue.
The industry in which we operates is highly regulated. Ultimate commercial success may be dependent upon its ability to obtain the necessary regulatory approvals for its product candidates, if any. To date we have neither submitted for, nor received, any regulatory certificates or approvals required to commercialize any product candidates. The task of obtaining appropriate regulatory clearance or approval for tests may be time consuming and costly. We will be required to demonstrate through clinical studies that our tests are effective for their intended purpose. There is no guarantee that its tests or processes will meet the applicable regulatory standards. The regulatory clearance or approval process may also require the expenditure of substantial resources, is uncertain and subject to delays. In addition, approval by a regulatory authority in one country does not ensure the approval by regulatory authorities of other countries. Failure to obtain, or any delays in obtaining, regulatory clearances or approvals could adversely affect our ability to commercialize its tests and generate revenue.
Risks Related to Third Parties
We may rely on third parties to conduct our non-clinical studies and our clinical studies. If these third parties do not perform as contractually required or expected, we may not be able to select product candidates or obtain market acceptance for our product candidates, if any, or we may be delayed in doing so.
We often rely on third parties, such as CROs, medical institutions, academic institutions, clinical investigators and contract laboratories, to conduct our clinical studies. We are responsible for confirming that our clinical studies are conducted in accordance with applicable regulations and in accordance with its general investigational plan and protocol. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical studies do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with Good clinical practice (GCP), do not adhere to our clinical study protocols or otherwise fail to generate reliable clinical data, we may need to enter into new arrangements with alternative third parties and our clinical study may be more costly than expected or budgeted, extended, delayed or terminated or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the target molecules or product candidates, if any, tested in such studies.
We may explore strategic collaborations that may never materialize or may fail.
We may, in the future, periodically explore a variety of possible strategic collaborations including international distributors and partners, in an effort to gain access to new product candidates or resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and these strategic collaborations can be complicated and time-consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any additional strategic collaborations because of the numerous risks and uncertainties associated with establishing strategic collaborations.
Risks Related to Our Intellectual Property
If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.
Our success will depend, in part, on our ability to obtain patents, operate without infringing the proprietary rights of others and maintain trade secrets, both in the United States and other countries. Patent matters in the biotechnology and pharmaceutical industries can be highly uncertain and involve complex legal and factual questions. Accordingly, the validity, breadth and
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enforceability of our patents and the existence of potentially blocking patent rights of others cannot be predicted, either in the United States or in other countries.
There can be no assurance that we will discover or develop patentable products or processes or that patents will issue from any of the currently pending patent applications or that claims granted on issued patents will be sufficient to protect our technology or adequately cover the actual products we may actually sell. Potential competitors or other researchers in the field may have filed patent applications, been issued patents, published articles or otherwise created prior art that could restrict or block our efforts to obtain additional patents. There also can be no assurance that our issued patents or pending patent applications, if issued, will not be challenged, invalidated, rendered unenforceable or circumvented or that the rights granted hereunder will provide us with proprietary protection or competitive advantages. Our patent rights also depend on our compliance with technology and patent licenses upon which our patent rights are based and upon the validity of assignments of patent rights from consultants and other inventors that were, or are, not employed by us.
In addition, competitors may manufacture and sell our potential products in those foreign countries where we have not filed for patent protection or where patent protection may be unavailable, not obtainable or ultimately not enforceable. In addition, even where patent protection is obtained, third-party competitors may challenge our patent claims in the various patent offices, for example via opposition in the European Patent Office or reexamination or interference proceedings in the United States Patent and Trademark Office, or USPTO. The ability of such competitors to sell such products in the United States or in foreign countries where we have obtained patents is usually governed by the patent laws of the countries in which the product is sold.
We will incur significant ongoing expenses in maintaining our patent portfolio. Should we lack the funds to maintain our patent portfolio or to enforce our rights against infringers, we could be adversely impacted. Even if claims of infringement are without merit, any such action could divert the time and attention of management and impair our ability to access additional capital and/or cost us significant funds to defend.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
• | Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed. |
• | We or our licensors or strategic collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed. |
• | We or our licensors or strategic collaborators might not have been the first to file patent applications covering certain of our inventions. |
• | Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights. |
• | It is possible that our pending patent applications will not lead to issued patents. |
• | Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors. |
• | Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. |
• | We may not develop additional proprietary technologies that are patentable. |
• | The patents of others may have an adverse effect on our business. |
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act will not become effective until one year or 18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business, our current and pending patent portfolio and future intellectual property strategy. However, the Leahy-Smith Act and its implementation could increase the uncertainties and
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costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue and uncertain in its outcome.
Our success also will depend, in part, on our refraining from infringing patents or otherwise violating intellectual property owned or controlled by others. Pharmaceutical companies, biotechnology companies, universities, research institutions and others may have filed patent applications or have received, or may obtain, issued patents in the United States or elsewhere relating to aspects of our technology. It is uncertain whether the issuance of any third-party patents will require us to alter our products or processes, obtain licenses, or cease certain activities. Some third-party applications or patents may conflict with our issued patents or pending applications. Any such conflict could result in a significant reduction of the scope or value of our issued or licensed patents.
In addition, if patents issued to other companies contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to these patents or to develop or obtain alternative non-infringing technology and cease practicing those activities, including potentially manufacturing or selling any products deemed to infringe those patents. If any licenses are required, there can be no assurance that we will be able to obtain any such licenses on commercially favorable terms, if at all, and if these licenses are not obtained, we might be prevented from pursuing the development and commercialization of certain of our potential products. Our failure to obtain a license to any technology that we may require to commercialize our products on favorable terms may have a material adverse impact on our business, financial condition and results of operations.
Litigation, which could result in substantial costs to us (even if determined in our favor), may also be necessary to enforce any patents issued or licensed to us or to determine the scope and validity of the proprietary rights of others. The FDA has only recently published draft guidance documents for implementation of the Biologics Price Competition and Innovation Act (BPCIA) under the PPACA, related to the development of follow-on biologics (biosimilars), and detailed guidance for patent litigation procedures under this act has not yet been provided. If another company files for approval to market a competing follow-on biologic, and/or if such approval is given to such a company, we may be required to promptly initiate patent litigation to prevent the marketing of such biosimilar version of our product prior to the normal expiration of the patent. There can be no assurance that our issued or licensed patents would be held valid by a court of competent jurisdiction or that any follow-on biologic would be found to infringe our patents.
In addition, if our competitors file or have filed patent applications in the United States that claim technology also claimed by us, we may have to participate in interference proceedings to determine priority of invention. These proceedings, if initiated by the USPTO, could result in substantial costs to us, even if the eventual outcome is favorable to us. Such proceedings can be lengthy, are costly to defend and involve complex questions of law and fact, the outcomes of which are difficult to predict. Moreover, we may have to participate in post-grant proceedings or third-party ex parte or inter partes reexamination proceedings under the USPTO. An adverse outcome with respect to a third-party claim or in an interference proceeding could subject us to significant liabilities, require us to license disputed rights from third parties, or require us to cease using such technology, any of which could have a material adverse effect on our business, financial condition and results of operations.
We also rely on trade secrets to protect technology, especially where patent protection is not believed to be appropriate or obtainable or where patents have not issued. For example, our manufacturing process involves a number of trade secret steps, processes, and conditions. We attempt to protect our proprietary technology and processes, in part, with confidentiality agreements and assignment of invention agreements with our employees and confidentiality agreements with our consultants and certain contractors. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by competitors. We may fail in certain circumstances to obtain the necessary confidentiality agreements, or their scope or term may not be sufficiently broad to protect our interests.
If our trade secrets or other intellectual property become known to our competitors, it could result in a material adverse effect on our business, financial condition and results of operations. To the extent that we or our consultants or research collaborators use intellectual property owned by others in work for us, disputes may also arise as to the rights to related or resulting know-how and inventions.
The patent protection and patent prosecution for some of our target molecules and product candidates, if any, is dependent or may be dependent in the future on third parties.
While we normally seek and gain the right to fully prosecute the patents relating to our target molecules and product candidates, if any, there may be times when platform technology patents or product-specific patents that relate to the target molecules or product candidates are controlled by our licensors. In addition, our licensors and/or licensees may have back-up rights to prosecute patent applications in the event that we do not do so or choose not to do so, and our licensees may have the right to assume patent prosecution rights after certain milestones are reached. If any of our licensing collaborators fails to appropriately
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prosecute and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
We have licensed, or will license, from third parties certain technology necessary to develop and commercialize its therapeutics. If these licenses terminate, or if these third parties do not comply with the terms of the license, or if the underlying licensed patents are found to be invalid, our business could be negatively impacted.
We have licensed, or will license, from third parties, technology necessary to research, develop and commercialize LSD1. In return for the use of their technology, we have paid or agreed, or will agree, to pay the licensor certain fees. We may need to license additional technology to in the future. If these licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or if we are unable to enter into necessary licenses on acceptable terms, our business could be negatively impacted.
We may incur significant expenses or be prevented from developing or commercializing our product candidates, if any, as a result of an intellectual property infringement claim.
Our commercial success depends in part on its ability to operate without infringing the patents and other proprietary rights of third parties. Infringement proceedings in the biopharmaceutical industry may be lengthy, costly and time-consuming and their outcome is uncertain. If we become involved in any patent litigation, interference or other administrative proceedings, it will incur substantial expense and the efforts of its technical and management personnel will be significantly diverted. As a result of such litigation or proceedings, we could lose our proprietary position and be restricted or prevented from developing, manufacturing and selling its product candidates, if any, incur significant damage awards, including punitive damages, or be required to seek third-party licenses that may not be available on commercially acceptable terms, if at all.
Risks Relating to Litigation
We are exposed to potential product liability or similar claims, and insurance against these claims may not be available to us at a reasonable rate in the future.
Our business exposes us to potential liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Clinical trials involve the testing of product candidates on human subjects or volunteers under a research plan, and carry a risk of liability for personal injury or death to patients due to unforeseen adverse side effects, improper administration of the product candidate, or other factors. Many of these patients are already seriously ill and are therefore particularly vulnerable to further illness or death.
We currently do not carry clinical trial liability insurance but we will need to once we begin clinical trials. There can be no assurance that we will be able to obtain such insurance or that the amount of such insurance will be adequate to cover claims. We could be materially and adversely affected if we were required to pay damages or incur defense costs in connection with a claim outside the scope of indemnity or insurance coverage, if the indemnity is not performed or enforced in accordance with its terms, or if our liability exceeds the amount of applicable insurance. In addition, there can be no assurance that insurance will continue to be available on terms acceptable to us, if at all, or that if obtained, the insurance coverage will be sufficient to cover any potential claims or liabilities. Similar risks would exist upon the commercialization or marketing of any products by us or our collaborators.
Regardless of their merit or eventual outcome, product liability claims may result in:
• | decreased demand for our product; |
• | injury to our reputation and significant negative media attention; |
• | withdrawal of clinical trial volunteers; |
• | costs of litigation; |
• | distraction of management; and |
• | substantial monetary awards to plaintiffs. |
Should any of these events occur, it could have a material adverse effect on our business and financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
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As disclosed herein, the Company has been engaged in a comment letter process with the Staff of the SEC relating to questions raised by the SEC regarding the Company’s accounting for its acquired In- process research and development intangible asset. As of the date of this filing, the Company has not yet resolved those questions with the Staff of the SEC. If the Company is unable to satisfy the Staff’s questions, then the intangible asset could be written off in a yet to be determined period.
ITEM 2. PROPERTIES
Our executive offices are located at 420 Lexington Avenue, 25th Floor, New York, NY 10170. We do not own any real property.
We are currently sharing approximately 3,011 square feet of laboratory and office space for our headquarters in Lexington Avenue, New York with Tiziana Therapeutics Inc. The lease is under Tiziana Therapeutic's Inc. name and we are being charged for a portion of the space via a Shared Services agreement.
In January 2017, we also leased approximately 451 square feet of lab and office space in Doylestown, Pennsylvania under a lease agreement that expires January 31, 2018. We believe that our facilities are adequate for our needs for the immediate future and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any pending legal proceeding or litigations and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on us.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Securities
Our common shares are currently quoted on the OTCQX under the trading symbol “RASP”. Our shares were previously quoted on the OTCQB Market from September 27, 2016 to April 21, 2017. Prior to September 27, 2016, our shares were quoted on the OTC Market under the trading symbol “ATVM.”. Prior to September 27, 2016, there were no trades in our common stock. The following table sets forth the range of high and low per share sales prices of our common stock during the periods indicated, as reported on the OTC Markets.
2017 | ||||
High | Low | |||
First Quarter | $1.31 | $1.31 | ||
Second Quarter | $1.31 | $1.31 | ||
Third Quarter | $2.80 | $1.05 | ||
Fourth Quarter | $2.18 | $1.85 | ||
Our transfer agent is Philadelphia Stock Transfer, Inc., 2320 Haverford Road, Ardmore, PA 19003.
Holders of our Common Stock
As of June 15, 2017, there were 64 registered stockholders our issued and outstanding common stock.
Dividend Policy
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We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any dividends or making any other distributions in the foreseeable future. The payment by us of dividends, if any, in the future, rests within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements and financial condition.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes information about our equity compensation plans as of March 31, 2017.
Number of Shares of Common Stock to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Options Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) | |
Equity Compensation Plans Approved by Stockholders | 3,162,375 | $0.29 | 6,587,625 |
Equity Compensation Plans Not Approved by Stockholders | - | - | - |
Total | 3,162,375 | $0.29 | 6,587,625 |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes and other information that are included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the cautionary note regarding “Forward-Looking Statements” contained elsewhere in this Form 10-K. Additionally, you should read the “Risk Factors” section of this Form 10-K 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.
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Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
We assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms "Rasna,",” the “Company,” “we,” “us,” and “our” refer to Rasna Therapeutics, Inc., a Nevada corporation, and, where appropriate, its wholly owned subsidiaries.
Company Background
The Company was incorporated in the State of Nevada on December 6, 2012.
Arna Therapeutics Limited (“Arna”) is a company incorporated in the British Virgin Islands under applicable law and regulation on December 31, 2013. Arna only has one segment of activity which is that of a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia.
Rasna Therapeutics Limited (“Rasna UK”) is a private limited company incorporated in England and Wales under the U.K. Companies Act on February 10, 2014 (inception). Rasna UK only has one segment of activity which is that of research and development in clinical drugs for the treatment of leukemia. Rasna UK has a wholly owned subsidiary, Falconridge Holdings Limited (“Falconridge”) which has been dormant since its inception.
On April 27, 2016, Rasna UK sold its stake in Falconridge to Rasna DE for $1. This entity had no operations, no assets or liabilities as of this date.
On May 17, 2016, Rasna DE and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) with Arna. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna DE in exchange for shares of Arna.
On August 15, 2016, the Company, entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna DE, and Rasna Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), providing for the merger of Merger Sub with and into Rasna DE. (the “Merger”), with Rasna DE. surviving the Merger as a wholly-owned subsidiary of the Company. As a result of the Merger, Rasna DE is a wholly owned subsidiary of the Company.
On September 20, 2016, the Company filed a Certificate of Change in Nevada which effected a 3.25 for 1 forward stock split of its common stock for shareholders of record as of August 16, 2016 and increased the authorized number of shares of common stock to 200,000,000 shares.
The Company only has one segment of activity which is that of a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of leukemia.
Acquisitions
Falconridge
The following transactions were accounted for using the purchase accounting method which requires, among other things, that the assets acquired and liabilities assumed are recognized at their acquisition date fair value.
On May 5, 2016, Rasna UK sold its intellectual property to Falconridge, a subsidiary of Rasna DE, for a note payable in the amount of $236,269. The fair value of the intellectual property was deemed to be the $236,269 based on the consideration received.
On May 17, 2016, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna DE, in exchange for shares of Arna. On this day, Rasna DE, and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization with Arna. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna DE, in exchange for shares of Arna. Arna was deemed to be the accounting acquirer because Rasna DE and Falconridge Holdings Limited were non-trading holding companies and Arna’s operations will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management of the combined entity. Further, 65% of
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the voting interest in Rasna DE, was acquired in connection with the transaction. Therefore, the assets and liabilities of the acquired entity, Rasna DE, were written to fair value in accordance with the Acquisition Method prescribed in ASC 805, Business Combinations.
The consideration transferred was measured based upon the share price recently received during a non-public equity raise in Rasna DE, during which non-related investors paid $0.40 per share of common stock. During the acquisition transaction, 19,187,500 of 54,837,790 shares were issued to legacy Rasna DE, shareholders, which results in consideration transferred to the acquiree’s shareholders of $7,675,000.
In addition, $607,159 of a related party receivable due to Arna from Rasna UK, was forgiven as part of the consideration transferred.
Rasna
On August 15, 2016, Active With Me, Inc., entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna DE, and Rasna Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Active With Me, Inc. (“Merger Sub”), providing for the merger of Merger Sub with and into Rasna DE, (the “Merger”), with Rasna DE, surviving the Merger as a wholly-owned subsidiary of Active With Me, Inc. As a result of the Merger, the resulting company, Rasna Therapeutics, Inc., is a biotechnology company that is engaged in modulating the molecular targets NPM1 and LSD1, which are implicated in the disease progression of leukemia and lymphoma.
The Merger is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Active With Me’s operations were disposed of prior to the consummation of the transaction. Rasna DE is treated as the accounting acquirer as its stockholders control the Company after the Exchange Agreement, even though Active With Me, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of Rasna DE as if Rasna DE had always been the reporting company. Since Active With Me, Inc. had no operations upon the Merger Agreement taking place, the transaction was treated as a reverse recapitalization for accounting purposes and no goodwill or other intangible assets were recorded by the Company as a result of the Merger Agreement.
Thereafter, pursuant to a Stock Purchase Agreement, the Company transferred all of the outstanding capital stock of Rasna DE to a former officer and director of Active With Me, Inc. in exchange for cancellation of an aggregate of 1,500,000 shares of Rasna DE's common stock held by such person.
In connection with the share exchange, each share of Rasna DE was exchanged for the right to receive .33 shares in Active With Me, Inc. Once issued, the new shares were combined with the 3,305,000 common shares held by legacy Active With Me, Inc. shareholders. Immediately following the Merger, 1,500,000 shares were canceled, which related to one legacy Active With Me shareholder that effectively spun off the remaining assets of Active With Me in connection with the transaction. Finally, subsequent to the transaction, the legal acquirer executed a 3.25 for 1 stock split on its common shares. Historical common stock amounts and additional paid-in capital have been retroactively adjusted for the effect of the share splits executive in connection with the Merger transaction. Following the closing of the Merger and Rasna DE’s cancellation of 1,500,000 shares in the Split-Off, there were 19,901,471 shares of Rasna DE issued and outstanding, which once effected for the 3.25 for 1 reverse stock split, resulted in 64,679,798 shares outstanding in the combined entity.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with US GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our audited financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements.
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Basis of preparation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Principles of Consolidation
In accordance with ASC 810, Consolidation, the Company consolidates any entity in which it has a controlling financial interest. Further, the Company consolidates any variable interest entity that it is deemed to be the primary beneficiary of, and have the power to direct its significant activities. Upon review of the relationship between Rasna Therapeutics (“Rasna UK”) and the Company. Management noted that equity investment in Rasna UK is not sufficient to fund its operations. Accordingly,the Company. is considered to be the primary beneficiary of the assets held within Rasna UK, which primarily consist of cash received from the Company. to fund its operations, and has power to direct its significant activities. As a result, the Company consolidates this variable interest entity.
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, Rasna DE, and Rasna DE’s subsidiary, Arna Therapeutics Limited. All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements.
Business Combinations
Management accounts for business combinations under the provisions of Accounting Standards Codification ("ASC") Topic 805-10, Business Combinations ("ASC 805-10"), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.
Management is required to complete the purchase price allocation within 12 months of the acquisition date. If such completion of the allocation results in a change in the preliminary values, the measurement period adjustment will be recognized in the period in which the adjustment amount is determined in accordance with ASU 2015-16. The amounts reflected within the Note 3 - Acquisitions are the results of a purchase price allocation based on a final valuation report.
Liquidity
The Company is subject to a number of risks similar to those of other pre-commercial stage companies, including its dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with research, development, testing, and obtaining related regulatory approvals of its pipeline products, suppliers and collaborators, successful protection of intellectual property, competition with larger, better-capitalized companies, successful completion of the Company's development programs and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company's cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past two years, and as at March 31, 2017, had accumulated deficit of $9,257,780, a net loss for the year ended March 31, 2017 of $4,433,732 and net cash used in operating activities of $2,963,858.
We expect to continue to incur net losses and have significant cash outflows for at least the next twelve months. We have sufficient funds to continue operating until the end of the second fiscal quarter of 2019, but will require significant additional cash resources to launch new development phases of existing products in its pipeline. In the event that the Company is unable to secure the necessary additional cash resources needed, the Company may slow current development phases or halt new development phases in order to mitigate the effects of the costs of development.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimates on an ongoing basis, including those related to the fair values of stock based awards, income taxes and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to our consolidated financial position and results of operations.
Fair Value of Financial Instruments
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, approximate fair value because of the short-term nature of such financial instruments. Management measures certain other assets, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of related party receivables.
Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and bear minimal risk. Management believes that the institutions that hold our instruments are financially sound and are subject to minimal credit risk.
Cash and cash equivalents
Cash and cash equivalents consists of cash on deposit with banks with an original maturity of three months or less.
From time to time, the Company’s balances in its bank accounts exceed Federal Deposit Insurance Corporation limits. The Company will periodically evaluate the risk of exceeding insured levels and might transfer funds if it deems appropriate. The Company has not experienced any losses with regards to balances in excess of insured limits or as a result of other concentrations of credit risk
Goodwill and Intangible assets
Intangible assets are made up of in-process research and development, (“IPR&D”) and certain intellectual property (“IP”). The balance of IPR&D represents IPR&D acquired in 2013, which, at the time, was determined to have alternative future uses. IPR&D assets also represent the fair value assigned to acquired technologies in a business combination, which at the time of the business combination have not reached technological feasibility and have no alternative future use. IP assets represent the fair value assigned to technologies, which at the time of acquisition have reached technological feasibility, however, have not yet been put into service. Intangible assets are considered to have an indefinite useful life until the completion or abandonment of the associated research and development projects.
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. Goodwill is assessed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. An impairment charge is recognized only when the implied fair value of the Company’s reporting unit’s goodwill is less than its carrying amount.
Management evaluates indefinite life intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets requires significant management estimates and judgment. Management reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges as of the year ended March 31, 2017 and March 31, 2016.
Risks and Uncertainties
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The Company intends to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory, and other risks associated with an early stage company, including the potential risk of business failure.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2017 presentation. These reclassifications have no impact on the previously reported net loss.
Research and development
Expenditure on research and development is charged to the statements of operations in the year in which it is incurred with the exception of expenditures incurred in respect of the development of major new products where the outcome of those projects is assessed as being reasonably certain in regards to viability and technical feasibility. Such expenditure is capitalized and amortized straight line over the estimated period of sale for each product, commencing in the year that sales of the product are first made. To date, the Company has not capitalized any such expenditures other than certain IPR&D & IP recorded in connection with certain acquisition or equity transactions.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevant factors. A valuation allowance may be established to reduce deferred tax assets to the amount that management believes is more likely than not to be realized. Due to inherent complexities arising from the nature of the business, future changes in income tax law and variances between actual and anticipated operating results, management makes certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.
The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. The Company records a liability for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company incurred no liability and, therefore, did not need to record interest and penalties during the year ended March 31, 2017 and 2016.
Foreign Currency
Items included in the financial statements are measured using their functional currency, being the currency of the primary economic environment in which the company operates. The financial statements are presented in United States Dollar (“USD”), which is the company’s functional and presentational currency.
Foreign currency transactions are translated using the rate of exchange applicable at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-translation at the year-end of monetary assets and liabilities denominated in foreign currencies are recognized in the statements of operations.
Net Loss per Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.
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The following table sets forth potential common shares issuable upon the exercise of outstanding options and the exercise of warrants, all of which have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive, including the impact on dilutive net loss per share of in-the-money warrants as per ASC 260-10-45-35 through ASC 260-10-45-37:
March 31, 2017 | March 31, 2016 | ||||
Stock options | 3,162,375 | 1,662,375 | |||
Warrants | 1,440,501 | — | |||
Total shares issuable upon exercise or conversion | 4,602,876 | 1,662,375 | |||
Warrants
In April 2016, in connection with the issuance of equity, the Company committed to issue warrants as compensation to the placement agents. On February 28, 2017, the Company issued a ten year warrant to purchase 1,440,501 shares of common stock at an exercise price of $0.37 per share.
The liability to issue warrants was marked to market each period until the grant date, at which point the Company determined that in accordance with ASC 815-40-25-7, the warrants were classified in stockholder’s equity.
Equity-Based Payments
ASC Topic 718 “Compensation-Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. The Company accounts for shares of common stock, stock options and warrants issued to employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received.
The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity -Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.
Recent Accounting Pronouncements Not Yet Adopted
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and disclosures.
On August 26, 2016, the FASB issued Accounting Standards Update (ASU) 2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows.
The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in ASU 2016-15 should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively
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as of the earliest date practicable. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force (“ASU 2016-18”). ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effects of ASU 2016-18 on its unaudited condensed consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which includes numerous technical corrections and clarifications to GAAP that are designed to remove inconsistencies in the board’s accounting guidance. Several provisions in this accounting guidance are effective immediately which did not have an impact on the Company’s consolidated financial statements. Additional provisions in this accounting guidance are effective for the Company in annual financial reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of the additional provisions in this accounting guidance may have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies 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. The guidance is effective for annual financial reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which addresses the concerns over the cost and complexity of the two-step impairment test, and removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of good will allocated to the reporting unit. The guidance is effective for annual and interim goodwill impairment tests performed for periods beginning after December 15, 2019 with early adoption permitted in January 2017.The Company is currently evaluating the impact of adopting this guidance.
Results of Operations
The following paragraphs set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
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Results of Operations for the Years Ended March 31, 2017 and 2016
The following table sets forth the summary statements of operations for the periods indicated:
For the Year Ended March 31, | ||||||||
2017 | 2016 | |||||||
Revenue | $ | — | $ | — | ||||
Cost of revenue | — | — | ||||||
Gross profit | — | — | ||||||
Operating expenses: | ||||||||
General and administrative | 1,009,240 | — | ||||||
Research and development | 1,564,353 | — | ||||||
Consultancy fees third parties | 1,071,777 | 128,176 | * | |||||
Consultancy fees related parties | 150,000 | 350,000 | ||||||
Legal and professional fees | 739,158 | 99,930 | ||||||
Total operating expenses | 4,534,528 | 578,106 | ||||||
Loss from operations | (4,534,528 | ) | (578,106 | ) | ||||
Other income/(expense): | ||||||||
Foreign currency transaction gain | 100,796 | — | ||||||
Other income | 100,796 | — | ||||||
Net loss | $ | (4,433,732 | ) | $ | (578,106 | ) | ||
* Equity based payments to Non- Employees have been reclassified to consultancy fees third parties.
Revenues
There were no revenues for the year ended March 31, 2017 and 2016 because Rasna Therapeutics, Inc. does not have any commercial biopharmaceutical products.
Operating Expenses
Operating expenses consisting of, research and development costs, consultancy fees, legal and professional fees and general and administrative expenses for the year ended March 31, 2017 increased to $4,534,528 from $578,106 for the year ended March 31, 2016, an increase of $3,956,422. The increase is primarily attributable to the development of the LSD1, NPM1 and ACT D projects which have led to an increase in research and development, consultancy and general administrative costs.
Net Loss
Net loss for the year ended March 31, 2017 increased to $4,433,732 from $578,106 for the year ended March 31, 2016, an increase of $3,855,626. The increase is primarily attributable to the development of the LSD1, NPM1 and ACT D projects which have led to an increase in research and development, consultancy and general administrative costs.
Liquidity and Capital Resources
On December 20, 2016, the Company issued an aggregate of 3,366,667 shares of common stock at $0.60 per share for aggregate gross proceeds of $2,020,000, in connection with a securities purchase agreement with certain accredited investors, as defined in Regulation D promulgated under Securities Act of 1933. The net proceeds to the Company were $2,007,500.
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The Company has sufficient cash to carry out its activities until the second fiscal quarter of 2019. The Company will be required to raise additional capital to continue the development and commercialization of current product candidates and to fund operations. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. Any debt financing, if available, may (i) involve restrictive covenants that impact our ability to conduct, delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize its self on unfavorable terms.
Capital Resources
The following table summarizes total current assets, liabilities and working capital as of the periods indicated:
March 31, 2017 | March 31, 2016 | Change | |||||||||
Current assets | $ | 4,199,874 | $ | 607,159 | $ | 3,592,715 | |||||
Current liabilities | $ | 1,528,002 | $ | 628,227 | $ | 899,775 | |||||
Working capital | $ | 2,671,872 | $ | (21,068 | ) | $ | 2,692,940 | ||||
The Company had a cash balance of $4,048,962 and $0, as of March 31, 2017 and March 31, 2016, respectively.
Liquidity
The following table sets forth a summary of our cash flows for the periods indicated:
For the Year Ended March 31, | |||||||||||
2017 | 2016 | Increase/(Decrease) | |||||||||
Net cash used in operating activities | $ | (2,963,858 | ) | $ | — | $ | (2,963,858 | ) | |||
Net cash provided by investing activities | $ | 5,106,116 | $ | — | $ | 5,106,116 | |||||
Net cash provided by financing activities | $ | 2,007,500 | $ | — | $ | 2,007,500 | |||||
Net Cash Used in Operating Activities
Net cash used in operating activities consists of net loss adjusted for the effect of changes in operating assets and liabilities.
Net cash used in operating activities was $2,963,858 for the year ended March 31, 2017 compared to $0 for the year ended March 31, 2016. The change is principally attributable to net loss of $4,433,732 excluding non-cash items such as share based compensation of $1,023,555 and changes in operating assets and liabilities of $442,856 and for the year ended March 31, 2017 as compared to a net loss of $578,106, adjusted for non-cash share based compensation of $60,676 and changes in operating assets and liabilities of $517,430 for the year ended March 31, 2016.
Net Cash Provided by Investing Activities
Net cash provided by investing activities consists primarily of cash and cash equivalents acquired in the business combination on May 17, 2016 of $5,116,609 for the year ended March 31, 2017 compared to $0 for the year ended March 31, 2016.
Net Cash Provided by Financing Activities
Net cash provided by financing activities consists of shares of common stock issued in a private placement to accredited investors of $2,007,500 for the year ended March 31, 2017 compared to $0 for the year ended March 31, 2016.
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Off-Balance Sheet Arrangements
We consolidate variable interest entities (“VIE”) in which we hold a controlling financial interest as evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE and therefore are deemed to be the primary beneficiary. We take into account our entire involvement in a VIE (explicit or implicit) in identifying variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Capital Market Risk.
We currently do not have any revenues because we do not have any commercial products and therefore depend on funds raised through other sources. One source of funding is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited consolidated financial statements as of March 31, 2017 and 2016, and for the years ended March 31, 2017 and 2016 begins on page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
This annual report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following persons are our executive officers and directors as of June 29, 2017 and hold the positions set forth opposite their respective names.
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Name | Age | Position | ||
Kunwar Shailubhai | 59 | Chief Executive Officer, Director | ||
Riccardo Dalla-Favara | 65 | Director | ||
Jim Mervis | 69 | Director | ||
John Brancaccio | 68 | Director | ||
Alessandro Padova | 48 | Chairman | ||
John Alex Martin | 49 | Director | ||
James Tripp | 47 | Director | ||
Tiziano Lazzaretti | 58 | Chief Financial Officer | ||
Kunwar Shailubhai
Chief Executive Officer, Director
Dr. Shailubhai is a Co-Founder of Synergy Pharmaceuticals Inc. and has served as Chief Scientific Officer since 2008. From March 2004 until July 2008 he served as Senior Vice President, Drug Discovery, of Synergy which at that time was a subsidiary of Callisto Pharmaceuticals, Inc. (“Synergy DE”). From May 2003 until March 2004, Dr. Shailubhai served as Executive Vice President, Research and Development of Synergy DE. From 2001 to April 2003, Dr. Shailubhai held the position of Vice President, Drug Discovery at Synergy DE where he was chiefly responsible for the preclinical development of our GC-C agonist program for drugs to treat colon cancer and GI inflammation. Between 1993 and 2000, he was with Monsanto Company, serving as Group Leader of the cancer chemoprevention group. Dr. Shailubhai previously served as a Senior Staff Fellow at the National Institutes of Health, and as an Assistant Professor at the University of Maryland. Dr. Shailubhai received his Ph.D. in microbiology in 1984 from the University of Baroda, India, and his M.B.A. in 2001 from the University of Missouri, St. Louis. We believe that Dr Shailubhai's scientific background and clinical experience make him well qualified to serve as a director on our board.
Dr. Riccardo Dalla-Favera, MD
Director
Dr. Dalla-Favera is a leader in the field of molecular oncology and has made fundamental contributions to the field of cancer, especially in the study of the molecular genetics of B cell malignancies. As a researcher, he has contributed much of the current knowledge on the genetic lesions responsible for human B cell lymphoma, which have led to the development of diagnostic tests and are being tested as targets in clinical trials with lymphoma patients. A Columbia faculty member for more than 15 years, Dr. Dalla-Favera helped found and has led the Institute for Cancer Genetics at Columbia University since 1999. He is the Percy and Joanne Uris Professor of Pathology and Professor of Genetics & Development at the Columbia University College of Physicians and Surgeons. He is also a director of the Specialised Center for research on Lymphoma at Columbia University funded by the Leukemia Lymphoma Society. Dr. Dalla-Favera joined Columbia’s College of Physicians and Surgeons in the Department of Pathology in 1989. He completed a fellowship at the National Cancer Institute and was previously a faculty member at New York University School of Medicine. Dr. Dalla-Favera currently serves as a director of Tiziana Life Sciences plc. Dr. Dalla-Favera co-founded Therasis, Inc. in 2007 and has since served as a director of that company. He has been a member of the Scientific Advisory Board of Trovagene, Inc. since April 2010. He serves as a member of the Scientific Advisory Board of Xigen SA. Dr. Dalla-Favera was a director of the Herbert Irving Comprehensive Cancer Centre (HICCC) from 2005 to 2011. He has served as the Chair of the Scientific Advisory Board of the Yale Cancer Centre. He served as the Co-Chair of the National Centre Institute Program Review Group for Leukemia, Lymphoma and Myeloma and as a member of the boards of the Scientific Counsellors of the National Institute of Environmental Health and the National Cancer Institute. We believe that Dr Dalla-Favera's medical experience and scientific background make him well qualified to serve as a director on our board.
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Jim Mervis
Director
Mr. Mervis has been Managing Director of Bioscience Strategies NZ Limited, a consulting company, since March 2009. In addition, Mr. Mervis has been Chairman of CoDa Therapeutics, Inc. since 2006 and a director of Engender Technologies Ltd. since 2013. Mr. Mervis has been a Senior Advisor to the University of Auckland’s technology transfer arm Auckland Uniservices since 2010 and the New Zealand government’s Return On Science investment committee since 2013. Mr. Mervis has been Senior Advisor to Professor Roberto Pellicciari and his lab TES Pharma since 2012. He was a litigation associate at the New York firm of Rubin Wachtell Baum & Levin from 1973 to 1978. From 1979 to 1985, Mr. Mervis held senior executive positions in the pioneering days of cable television, pay television and home video, at Viacom International, Showtime Pay Television, CBS Video Enterprises and MGM/UA Home Entertainment. From 1985 to 1989, he was a key business development consultant to Virgin Communications, Childrens Television Workshop, EMI Music, Roy Orbison, Sergio Leone and Island Pictures. In 1990, he co-founded one of the first interactive media companies where he produced the interactive version of Stephen Hawking’s A Brief History of Time (released 1993). Mr. Mervis obtained his BS from Cornell University in 1969 and his JD from Fordham University School of Law in 1972. We believe that Mr Mervis's business experience and legal background makes him well qualified to serve as a director on our board.
John Brancaccio
Director
Since April 2004, Mr. Brancaccio has been the Chief Financial Officer of Accelerated Technologies, Inc., an incubator for medical device companies. Mr. Brancaccio served as a director of Callisto Pharmaceuticals, Inc. from April 2004 until its merger with Synergy Pharmaceuticals, Inc. in January 2013 and has been a director of Tamir Biotechnology, Inc. (formerly Alfacell Corporation) since April 2004, as well as a director of Trovagene, Inc. since December 2005, Synergy Pharmaceuticals Inc. since July 2008 and ContraVir Pharmaceuticals, Inc. since December 2013. We believe that Mr Brancaccio's business acumen and experience as an accounting officer makes him well qualified to serve as a director on our board.
Alessandro Padova
Chairman
Since October 2015, Dr. Padova has served as Chief Executive Officer of Fondazione Ri.MED, a foundation based in Sicily, that promotes, supports and leads biomedical and biotechnological research projects. From July 2014 to September 2015, Dr. Padova was Senior Director, Strategy and Business Development and from June 2013 to June 2014, Director of Strategic Alliances for IRBM Group in Rome, Italy, a diversified industrial group operating within the biotech and pharmaceutical sector. From May 2004 to March 2013, Dr. Padova was held various positions with Siena Biotech S.p.A., a drug discovery and development company, most recently as General Manager. Dr. Padova graduated from University of Kent with a degree in Chemistry and received his Ph.D. in Chemistry from University of Exeter. We believe that Dr Padova's business experience in the medial industry makes him well qualified to serve as a director on our board.
John Alex Martin
Director
Mr. Martin has been Chief Executive Officer of Puricore Inc., a biopharmaceutical company focused on dermatology, ophthalmology, and rare diseases since 2015. From 2011 to 2015, Mr. Martin was President of Moksha8 Pharmaceuticals, Inc., an emerging markets pharmaceutical company. From 2009 to 2011, Mr. Martin was Managing Director of The Sophocles Group, a private consulting company. From 2007 to 2009, Mr. Martin was Chief Operating Officer of Intercept Pharmaceuticals, Inc. Mr. Martin graduated from Cornell University with a BA degree in Government and received his MBA from Harvard Graduate School of Business Administration. We believe that Mr Martin's experience as a biotechnology company executive makes him well qualified to serve as a director on our board.
James Tripp
Director
Mr. Tripp is a global bio/pharmaceutical executive with over twenty years’ experience in biopharmaceutical operations and clinical R&D management. He has been involved in all phases of drug development from discovery through commercialization. He started his career in pharmaceuticals while attending Harvard School of Public Health and at Massachusetts General Hospital in Boston, MA. From 2012 to 2014 he was Director, Clinical Management at Novo Nordisk, A/S, where he managed
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the US project teams overseeing the insulin/GLP-1, Victoza®, and Saxenda® portfolios. From 2007 to 2012, Mr. Tripp was a Director at Regeneron Pharmaceuticals where he started as a Therapeutic Area Project Manager (TAPM) for inflammation programs, focusing on developing IL-1 Trap (Arcalyst®) and then creating and heading up the Compliance & Training group for the Clinical & Project Management Office. Earlier Mr. Tripp has also had senior roles on both Nasonex® and Clarinex® at Schering-Plough (now Merck) and overseeing global operations/managing the successful co-development collaborations with GSK, while at Bayer Pharmaceuticals on Baycol®, and while at Hoffman-La Roche on Boniva®. We believe that Mr Tripp''s experience as a pharmaceutical executive makes him well qualified to serve as a director on our board.
Tiziano Lazzaretti
Chief Financial Officer
Mr Lazzaretti has extensive experience in the healthcare and pharmaceutical industry and joined Tiziana from Pharmentis Srl, a spin-off from Teva Ratiopharm, where he served as Group Finance Director from 2011. Prior to this, Mr Lazzaretti was Executive Director at Alliance Boots Healthcare, and held senior positions at Accenture and SNIA Spa, Italian listed company.
Before, he served as Corporate Finance Director and Deputy Chairman at Fiat Group based in London for 15 years, spanning activities through all different sectors from automotive to financial services. Mr Lazzaretti has a Bachelor of Science (BSc Hons) in Economics and Accounting from the University of Turin, Italy, and he was awarded a Master in Business Administration (MBA) from Bocconi University (Milan ) on FIAT Group’s scholarship, and studied Corporate Finance at the London Business School.
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Board Independence
We currently have seven directors serving on our board of directors. Our Board of Directors has adopted the definition of “independence” as described in NASDAQ Rules 4200 and 4350. Independent directors would not include anyone who, within the past three years, be employed by our Company or any parent or subsidiary of our Company or any of their family members; or any director who is, or who has a family member who is, a controlling shareholder. Our Board of Directors has determined that a majority of our directors do meet the independence requirements.
Family Relationships and Other Arrangements
There are no family relationships among our directors and executive officers. There are no arrangements or understandings between or among our executive officers and directors pursuant to which any director or executive officer was or is to be selected as a director or executive officer.
Audit Committee
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Audit Committee’s responsibilities include, among other things: (i) selecting and retaining an independent registered public accounting firm to act as our independent auditors, setting the compensation for our independent auditors, overseeing the work done by our independent auditors and terminating our independent auditors, if necessary, (ii) periodically evaluating the qualifications, performance and independence of our independent auditors, (iii) pre-approving all auditing and permitted non-audit services to be provided by our independent auditors, (iv) reviewing with management and our independent auditors our annual audited financial statements and our quarterly reports prior to filing such reports with the Securities and Exchange Commission, or the SEC, including the results of our independent auditors’ review of our quarterly financial statements, and (v) reviewing with management and our independent auditors significant financial reporting issues and judgments made in connection with the preparation of our financial statements. The Audit Committee also prepares the Audit Committee report that is required to be included in our annual proxy statement pursuant to the rules of the SEC.
The Audit Committee currently consists of John P. Brancaccio, chairman of the Audit Committee, Jim Mervis and John Alex Martin. Under the applicable rules and regulations of NASDAQ, each member of a company’s audit committee must be considered independent in accordance with NASDAQ Listing Rule 5605(c)(2)(A)(i) and (ii) and Rule 10A-3(b)(1) under the Exchange Act. The Board has determined that each of Messrs. Brancaccio, Mervis and Martin is “independent” as that term is defined under applicable NASDAQ and SEC rules. Mr. Brancaccio is our audit committee financial expert. The Board plans to adopt a written charter setting forth the authority and responsibilities of the Audit Committee.
Compensation Committee
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The purpose of the Compensation Committee is to discharge the Board’s responsibilities relating to compensation of our directors and executive officers. The Compensation Committee has responsibility for, among other things, (i) recommending to the Board for approval the overall compensation philosophy for our company and periodically reviewing the overall compensation philosophy for all employees to ensure it is appropriate and does not incentivize unnecessary and excessive risk taking, (ii) reviewing annually and making recommendations to the Board for approval, as necessary or appropriate, with respect to our compensation plans, (iii) based on an annual review, determining and approving, or at the discretion of the Compensation Committee, recommending to the Board for determination and approval, the compensation and other terms of employment of each of our officers, (iv) reviewing and making recommendations to the Board with respect to the compensation of directors, (v) overseeing our regulatory compliance with respect to compensation matters, (vi) reviewing and discussing with management, prior to the filing of our annual proxy statement or annual report on Form 10-K, our disclosure relating to executive compensation, including our Compensation Discussion and Analysis and executive and director compensation tables as required by SEC rules, and (vii) preparing an annual report regarding executive compensation for inclusion in our annual proxy statement or our annual report on Form 10-K. The Compensation Committee has the power to form one or more subcommittees, each of which may take such actions as may be delegated by the Compensation Committee.
The Compensation Committee currently consists of John Bracaccio, Chairman of the Compensation Committee, John Alex Martin and Riccardo Dalla-Favera. The Board has determined that all of the members are “independent” under NASDAQ Listing Rule 5602(a)(2), except for Dr Shailubhai. The Board plans to adopt a written charter setting forth the authority and responsibilities of the Compensation Committee.
Corporate Governance/Nominating Committee
The Corporate Governance/Nominating Committee has responsibility for assisting the Board in, among other things, (i) effecting Board organization, membership and function, including identifying qualified board nominees, (ii) effecting the organization, membership and function of the committees of the Board, including the composition of the committees of the Board and recommending qualified candidates for the committees of the Board, (iii) evaluating and providing successor planning for the chief executive officer and our other executive officers, (iv) identifying and evaluating candidates for director in accordance with certain general and specific criteria, (v) developing and recommending to the Board Corporate Governance Guidelines and any changes thereto, setting forth the corporate governance principles applicable to us, and overseeing compliance with the our Corporate Governance Guidelines, and (vi) reviewing potential conflicts of interest involving directors and determining whether such directors may vote on issues as to which there may be a conflict. The Corporate Governance/Nominating Committee is responsible for identifying and evaluating candidates for director. Potential nominees are identified by the Board based on the criteria, skills and qualifications that are deemed appropriate by the Corporate Governance/Nominating Committee.
The Corporate Governance/Nominating Committee currently consists of John P. Brancaccio, chairman of the Corporate Governance/Nominating Committee and Dr. Kunwar Shailubhai. The Board has determined that all of the members are “independent” under NASDAQ Listing Rule 5605(a)(2). The Board plans to adopt a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.
Code of Business Conduct and Ethics
We have adopted a formal Code of Business Conduct and Ethics applicable to all Board members, officers and employees. That code is available on our coporate website www.rasna.com. A copy will also be provided free of charge upon request to:
Rasna Therapeutics Inc, 420 Lexington Ave, Suite 2525, New York, NY 10170.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
None of our executive officers have received any compensation for the last two fiscal years.
Grants of Plan-Based Awards During Fiscal Year
The following table shows for fiscal year 2017, certain information regarding grants of plan-based awards to our executive officers:
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All Other Option Awards: Number of Shares of Stock or Units (#) (#) | Exercise or Base Price Per Share of Option Awards($) (($/sh)($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(1) | |||
Name Officer | Grant Date | ||||
Tiziano Lazzaretti | 9/1/16 | 100,000 | 0.40 | 128,952 | |
Tiziano Lazzaretti | 11/25/16 | 200,000 | 0.40 | 267,230 | |
James Tripp | 9/1/16 | 125,000 | 0.40 | 161,190 | |
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of March 31, 2017. Except for the options set forth in the table below, no other equity awards were held by any our named executive officers as of March 31, 2017.
Number of Securities Underlying Unexercised Options (#) | Option Exercise Price ($) | Option Expiration Date | ||||
Name | Exercisable | Unexercisable | ||||
Tiziano Lazaretti | — | 100,000 | 0.40 | 9/1/2026 | ||
Tiziano Lazaretti | — | 200,000 | 0.40 | 11/28/2026 | ||
James Tripp | — | 125,000 | 0.40 | 9/1/2026 | ||
Director Compensation
The following table sets forth summary information concerning the total compensation paid to our non-employee directors for the year ended March 31, 2017 for services to our company.
Director Compensation for 2017 | ||||||
Name | Fees Earned or Paid in Cash ($) | Option Awards ($) (1) | Total ($) | |||
Kunwar Shalubhai | 12,500 | 128,952 | 141,452 | |||
Riccardo Dalla-Favara | 12,500 | 256,499 | 268,999 | |||
Jim Mervis | 12,500 | 256,499 | 268,999 | |||
John Brancaccio | 12,500 | 128,952 | 141,452 | |||
Alessandro Padova | 12,500 | 161,190 | 173,690 | |||
John Alex Martin | 12,500 | 128,952 | 141,452 | |||
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(1) Represents the fair value of incentive stock options granted during the year ended March 31, 2017 using the Black-Scholes model for computing stock-based compensation expense as of the date of grant.
Employment Agreements
Kunwar Shailubhai
On May 24, 2017, we entered into an employment agreement with Dr. Kunwar Shailubhai (the “Employment Agreement”) pursuant to which Dr. Shailubhai shall act as Chief Executive Officer and Chief Scientific Officer. Pursuant to the Employment Agreement, Dr. Shailubhai’s current base compensation is $300,000 per year. Dr. Shailubhai is eligible to receive a cash bonus of up to 35% of his base salary per year based on meeting certain performance objectives and bonus criteria. Pursuant to the Employment Agreement, Dr. Shailubhai received a grant of stock options to purchase 1,200,000 shares of common stock which vest over 4 years.
If Dr. Shailubhai’s employment is terminated by us for cause or as a result of Dr. Shailubhai’s death or permanent disability or if Dr. Shailubhai terminates his employment agreement voluntarily, Dr. Shailubhai will be entitled to receive (i) any portion of unpaid base compensation then due for periods prior to termination, (ii) all business expenses reasonably and necessarily incurred by Dr. Shailubhai prior to the date of termination and (iii) benefits owed to Dr. Shailubhai under any qualified retirement plan or health and welfare benefit plan in which Dr. Shailubhai was a participant. If Dr. Shailubhai’s employment is terminated by us without cause or by Dr. Shailubhai for good reason, Dr. Shailubhai will be entitled to receive the amounts due upon termination of his employment by us for cause, or as a result of his death or permanent disability or upon termination by Dr. Shailubhai of his employment voluntarily, in addition to (provided that Dr. Shailubhai executes a written release with respect to certain matters) a severance payment equal to his base compensation for 12 months from the date of termination and the benefits that Dr. Shailubhai would be eligible for during such 12-month period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set forth certain information regarding the ownership of our common stock as of March 31, 2017, by:
• | each director; |
• | each person known by us to own beneficially 5% or more of our Common Stock; |
• | each executive officer; and |
• | all directors and executive officers as a group. |
The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.
Unless otherwise indicated below, to the best of our knowledge each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Unless otherwise indicated, the address of each beneficial owner is c/o 420 Lexington Avenue, New York, NY 10170.
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Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage Beneficially Owned (1) | |||||
Executive Officers and Directors : | |||||||
James Tripp | — | — | |||||
Tiziano Lazzaretti | — | — | |||||
Kunwar Shailubhai | 3,101 | * | |||||
Riccardo Dalla-Favara | 328,700 | (2) | * | ||||
Jim Mervis | 328,700 | (2) | * | ||||
John Alex Martin | — | ||||||
John Brancaccio | — | ||||||
Alessandro Padova | — | ||||||
All executive officers and directors as a group (8 persons) | 374,701 | * | |||||
5% or Greater Stockholders: | |||||||
Panetta Partners Ltd.(3) | 8,909,054 | (4) | 13.0 | ||||
TES Pharma Srl (5) | 5,684,250 | (6) | 8.3 | ||||
Eurema Consulting Srl (7) | 5,684,250 | (6) | 8.3 | ||||
MS Investment Holding, Inc. (8) | 7,773,167 | 11.4 | |||||
Howard I. Freedberg Revocable Trust (9) | 6,758,188 | 9.9 | |||||
*less than 1%
(1) | Based on 68,046,465 shares of our common stock issued and outstanding as of March 31,2017. | |
(2) | Consists of shares of common stock issuable upon exercise of vested stock options. | |
(3) | Gabriele Cerrone is a director of Panetta Partners Ltd. and in such capacity holds voting and dispositive power over our securities held by such entity. Panetta Partners Ltd. address is, c/o Cooley Services Limited, Dashwood, 60 Old Broad Street, London EC2M 1QS | |
(4) | Includes 421,750 shares of common stock issuable upon exercise of vested stock options held by Mr Cerrone. | |
(5) | Dr. Roberto Pellicciari holds voting and dispositive power over securities of the company held by such entity. | |
(6) | Includes 321,750 shares of common stock issuable upon exercise of vested stock options. | |
(7) | Brunangelo Falini holds voting and dispositive power over securities of the company held by such entity. | |
(8) | Morris Silverman holds voting and dispositive power over securities of the company held by such entity. | |
(9) | Howard Freedberg is the trustee of the Howard I. Freedberg Revocable Trust and in such capacity holds voting and dispositive power over securities of the company held by such entity. | |
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following is a description of transactions or series of transactions since April 1, 2015, or any currently proposed transaction, to which we were or are to be a participant and in which the amount involved in the transaction or series of transactions exceeds $120,000, and in which any of our directors, executive officers or persons who we know hold more than five percent of our common stock, including their immediate family members, had or will have a direct or indirect material interest, other than compensation arrangements with our directors and executive officers.
Rasna Therapeutics Ltd
As at March 31, 2016, the Company was owed $607,159 from Rasna Therapeutics Ltd (UK), a Company of which Gabriele Cerrone, James Mervis and Riccardo Dalla Favera were also common directors with Arna. In the year ended 31 March 2016, Rasna Therapeutics Ltd (UK) paid $113,651 of expenses on behalf of the Company. The $607,159 was forgiven as part of the consideration transferred in the business combination noted in Note 3. See Note 2 for Principles of Consolidation.
Eurema Consulting
Eurema Consulting S.r.l. is a principal stockholder. During the twelve months ended March 31, 2017 and twelve months ended March 31, 2016, Eurema Consulting S.r.l. supplied us with consulting services amounting to $50,000 and $100,000, respectively. As of March 31, 2017, and March 31, 2016, Eurema Consulting S.r.l was owed $275,000 and $225,000, respectively, by us.
Gabriele Cerrone
Gabriele Cerrone is affiliated with one of our principal stockholders.. During the twelve months ended March 31, 2017 and 2016, Mr. Cerrone charged us $50,000, and $75,000, respectively, in respect of consultancy fees. As of March 31, 2017, and March 31, 2016, the balance due to Mr. Cerrone was $175,000 and $125,000, respectively.
Roberto Pellicceri
Roberto Pellicceri is the sole shareholder of TES Pharma Srl, one of our principal stockholders. During the twelve months ended March 31, 2017 and 2016, Roberto Pellicceri charged us $50,000 and $75,000 respectively, in respect of consultancy fees. As of March 31, 2017, and March 31, 2016, the balance due to Roberto Pellicceri was $175,000 and $125,000, respectively.
Tiziana Life Sciences Plc
As at March 31, 2017, the Company owed $103,672 to Tiziana Life Sciences PLC,a Company of which Kunwar Shailubhai, and Riccardo Dalla Favera were also common directors with. This was in respect of a Shared Services agreement whereby the Company is charged for shared services such as the payroll and rent, see Note 13 for more details. Tiziana Life Sciences PLC was owed $65,000 by the Company in respect of payments made on behalf of the Company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed to the Company by Marcum LLP, the Company’s current independent registered public accounting firm, BDO and Grant Thornton, the Company’s previous independent registered public accounting firm, for the indicated services for each of the last two fiscal years were as follows:
2017 | 2016 | |
Audit fees(1) | $354,431 | $246,500 |
Tax fees(2) | — | — |
Other fees(3) | — | — |
Total fees | $354,431 | $246,500 |
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_______________
(1) | Audit fees consist of fees for professional services performed by Marcum LLP, BDO and Grant Thornton for the audit and review of our financial statements, preparation and filing of our registration statements, including issuance of comfort letters. |
(2) | Tax fees consist of fees for professional services performed with respect to tax compliance. |
(3) | Other fees consist of fees for professional services performed in connection with consultations, due diligence procedures and related matters. |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit Number | Description | |
2.1 | Agreement and Plan of Merger, dated as of August 15, 2016, by and among Active With Me, Inc., Rasna Therapeutics, Inc. and Rasna Acquisition Corp. (incorporated by reference to Exhibit 2.1 to Form 8-K filed on August 16, 2016). | |
3.1(a) 3.1(b) | Amended and Restated Articles of Incorporation as filed with the Nevada Secretary of State on September 26, 2016 and effective September 20, 2016 (incorporated by reference to Exhibit 3.2 to Form 8-K filed on September 26, 2016) Certificate of Change of Active With Me, Inc., as filed with the Nevada Secretary of State on September 19, 2016 and effective September 20, 2016 (incorporated by reference to Exhibit 3.1 to Form 8-K filed on September 26, 2016). | |
3.2 | Amended and Restated Bylaws | |
4.1* | 2016 Incentive Equity Plan (incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 16, 2016). | |
10.1 | Agreement of Conveyance, Transfer and Assignment of Assets and Assumption of Obligations dated as of August 15, 2016 by Active With Me, Inc. and Active With Me Holdings, Inc. (Split-off) (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 16, 2016). | |
10.2 | Stock Purchase Agreement dated as of August 15, 2016 (Split-off) (incorporated by reference to Exhibit 10.2 to Form 8-K filed on August 16, 2016). | |
10.3* | Executive Employment Agreement entered into effective May 24,2017 by and between Kunwar Shailubhai and Rasna Therapeutics, Inc. | |
10.1 | Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 27, 2016). | |
14 | Code of Business Conduct and Ethics | |
21 | List of Subsidiaries | |
24 | Power of Attorney (included on signature page hereto) | |
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Principal Executive Officer pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Principal Financial Officer pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002 | |
101 | Financial statements from the annual report on Form 10-K of Rasna Therapeutics, Inc. for the year ended March 31, 2017, filed on June 29, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Changes in Stockholders Equity (Deficit) (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements tagged as blocks of text. | |
* Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: June 29, 2017 | RASNA THERAPEUTICS, INC. | |||
By: | /s/ Kunwar Shailubhai | |||
Kunwar Shailubhai | ||||
Director and Chief Executive Officer | ||||
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Kunwar Shailubhai, his attorney-in-fact, each with full power of substitution and resubstitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title(s) | Date | ||
/s/ Kunwar Shailubhai | ||||
Kunwar Shailubhai | Director, Chief Executive Officer | June 29, 2017 | ||
(Principal Executive Officer) | ||||
/s/ Tiziano Lazzaretti | ||||
Tiziano Lazzaretti | Chief Financial Officer | June 29, 2017 | ||
(Principal Accounting and Financial Officer) | ||||
/s/ Riccardo Dalla-Favera | ||||
Riccardo Dalla-Favera | Director | June 29, 2017 | ||
/s/ Jim Mervis | ||||
Jim Mervis | Director | June 29, 2017 | ||
/s/ John Brancaccio | ||||
John Brancaccio | Director | June 29, 2017 | ||
/s/ Alessandro Padova | ||||
Alessandro Padova | Director | June 29, 2017 | ||
/s/ Alex Martin | ||||
John Alex Martin | Director | June 29, 2017 | ||
Jim Tripp | Director | June 29, 2017 | ||
49
RASNA THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Rasna Therapeutics, Inc.
We have audited the accompanying consolidated balance sheet of Rasna Therapeutics, Inc. (the “Company”) as of March 31, 2017, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Rasna Therapeutics, Inc. as of March 31, 2017, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/Marcum LLP
Marcum llp
New York, NY
June 29, 2017
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Rasna Therapeutics Inc.
Tortola, British Virgin Islands
We have audited the balance sheet of Rasna Therapeutics Inc. as of 31 March 2016 and the related statements of comprehensive loss, shareholders’ equity, and cash flows for the year ended 31 March 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Arna Therapeutics Limited as of 31 March 2016 and the results of its operations and its cash flows for the year ended 31 March 2016, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
We draw attention to note 9 to the accompanying financial statements, which describes significant transactions and relationships with certain related parties.
/s/ BDO LLP
BDO LLP
London, United Kingdom
16 August 2016
F-2
RASNA THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2017 | March 31, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,048,962 | $ | — | |||
Prepayments and other receivables | 65,846 | — | |||||
Related party receivable | 85,066 | 607,159 | |||||
Total current assets | 4,199,874 | 607,159 | |||||
Property and Equipment, net | 7,030 | — | |||||
Other intangible assets | 236,269 | — | |||||
In-process research and development | 1,913,100 | 1,300,000 | |||||
Goodwill | 2,722,985 | — | |||||
Total non-current assets | 4,879,384 | 1,300,000 | |||||
Total assets | $ | 9,079,258 | $ | 1,907,159 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
Liabilities: | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 903,002 | $ | 78,227 | |||
Related party payables | 625,000 | 550,000 | |||||
Total current liabilities | 1,528,002 | 628,227 | |||||
Total liabilities | 1,528,002 | 628,227 | |||||
Commitments and Contingencies | |||||||
Shareholders' equity | |||||||
Common stock, $0.001 and $0.01 par value, respectively; 200,000,000 shares and 100,000,000 shares authorized respectively; of which 68,046,465 and 35,650,289 are issued. and outstanding respectively at March 31, 2017 and 2016 | 68,047 | 356,503 | |||||
Additional paid-in capital | 16,740,989 | 5,746,477 | |||||
Accumulated deficit | (9,257,780 | ) | (4,824,048 | ) | |||
Total shareholders' equity | 7,551,256 | 1,278,932 | |||||
Total liabilities and shareholders' equity | $ | 9,079,258 | $ | 1,907,159 | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
RASNA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended March 31, | ||||||||
2017 | 2016 | |||||||
Revenue | $ | — | $ | — | ||||
Cost of revenue | — | — | ||||||
Gross profit | — | — | ||||||
Operating expenses: | ||||||||
General and administrative | 1,009,240 | — | ||||||
Research and development | 1,564,353 | — | ||||||
Consultancy fees third parties | 1,071,777 | 128,176 | ||||||
Consultancy fees related parties | 150,000 | 350,000 | ||||||
Legal and professional fees | 739,158 | 99,930 | ||||||
Total operating expenses | 4,534,528 | 578,106 | ||||||
Loss from operations | (4,534,528 | ) | (578,106 | ) | ||||
Other income/(expense): | ||||||||
Foreign currency transaction gain | 100,796 | — | ||||||
Other income | 100,796 | — | ||||||
Loss from operations before income taxes | (4,433,732 | ) | (578,106 | ) | ||||
Income tax provision | — | — | ||||||
Net loss | $ | (4,433,732 | ) | $ | (578,106 | ) | ||
Basic and diluted loss per share attributable to common shareholders | $ | (0.07 | ) | $ | (0.02 | ) | ||
Basic and diluted weighted average common shares outstanding | 60,816,068 | 35,650,289 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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RASNA THERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Common Stock | Additional Paid-In | Accumulated | Total Shareholders’ | |||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||
Balance at March 31, 2015 | 35,650,289 | $ | 356,503 | $ | 5,685,801 | $ | (4,245,942 | ) | $ | 1,796,362 | ||||||||
Share based compensation | — | — | 60,676 | — | 60,676 | |||||||||||||
Net loss | — | — | — | (578,106 | ) | (578,106 | ) | |||||||||||
Balance at March 31, 2016 | 35,650,289 | $ | 356,503 | $ | 5,746,477 | $ | (4,824,048 | ) | $ | 1,278,932 | ||||||||
Shares cancelled pursuant to reverse merger transaction | (35,650,289 | ) | (356,503 | ) | 356,503 | — | — | |||||||||||
Shares issued pursuant to reverse merger transaction | 54,837,790 | 548,378 | 7,126,622 | — | 7,675,000 | |||||||||||||
.33 share exchange | (36,741,319 | ) | (367,413 | ) | — | — | (367,413 | ) | ||||||||||
Recapitalization | 3,305,000 | (159,563 | ) | 528,477 | — | 368,914 | ||||||||||||
Cancellation of shares | (1,500,000 | ) | (1,500 | ) | — | — | (1,500 | ) | ||||||||||
3.25 for 1 Stock Split | 44,778,327 | 44,778 | (44,778 | ) | — | — | ||||||||||||
Common stock issued in connection with offering | 3,366,667 | 3,367 | 2,004,133 | — | 2,007,500 | |||||||||||||
Share based compensation | — | — | 1,023,555 | — | 1,023,555 | |||||||||||||
Obligation for warrants to be issued | — | — | (484,009 | ) | — | (484,009 | ) | |||||||||||
Increase in fair value of warrants to date of issuance | — | — | (2,430,875 | ) | — | (2,430,875 | ) | |||||||||||
Warrant obligation reclassified to additional paid-in capital upon warrant issuance | — | — | 2,914,884 | — | 2,914,884 | |||||||||||||
Net loss | — | — | — | (4,433,732 | ) | (4,433,732 | ) | |||||||||||
Balance at March 31, 2017 | 68,046,465 | $ | 68,047 | $ | 16,740,989 | $ | (9,257,780 | ) | $ | 7,551,256 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
RASNA THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ | (4,433,732 | ) | $ | (578,106 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Share based compensation | 1,023,555 | 60,676 | |||||
Depreciation | 3,463 | — | |||||
Changes in operating assets and liabilities: | |||||||
Other receivables and prepayments | (65,843 | ) | — | ||||
Related party receivable | (85,412 | ) | 113,651 | ||||
Accounts and other payables | 519,111 | 53,779 | |||||
Related party payables | 75,000 | 350,000 | |||||
Net cash used in operating activities | (2,963,858 | ) | — | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Purchase of property, plant and equipment | (10,493 | ) | — | ||||
Cash and cash equivalents acquired in reverse merger/business combination | 5,116,609 | — | |||||
Net cash provided by investing activities | 5,106,116 | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of shares of common stock | 2,007,500 | — | |||||
Net cash provided by financing activities | 2,007,500 | — | |||||
Effect of foreign exchange rate | (100,796 | ) | — | ||||
Net increase in cash and cash equivalents | 4,048,962 | — | |||||
Cash and cash equivalent, beginning of period | — | — | |||||
Cash and cash equivalent, end of period | $ | 4,048,962 | $ | — | |||
Non-cash investing and financing activities: | |||||||
Expenses paid by Rasna Therapeutics Limited on behalf of the Company | $ | — | $ | 113,651 | |||
Common stock issued for acquisition | 7,675,000 | — | |||||
Shares cancelled pursuant to reverse merger transaction | (356,503 | ) | — | ||||
Shares issued pursuant to reverse merger transaction | 548,378 | — | |||||
.33 share exchange | (367,413 | ) | — | ||||
Recapitalization | (159,563 | ) | — | ||||
Cancellation of shares | (1,500 | ) | — | ||||
Shares issued in 3.25 for 1 stock split | 44,778 | — | |||||
Related party receivable balance canceled in acquisition | $ | 607,159 | $ | — | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
RASNA THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Rasna Therapeutics, Inc. (formerly Active With Me, Inc.) (the “Company” or “Rasna Successor”), is a company incorporated in the State of Nevada.
Rasna Therapeutics, Inc. (“Rasna DE.”), is a company incorporated in the State of Delaware on March 28 2016 . Prior to May 17, 2016 Rasna Therapeutics, Inc. was a non-trading holding company with an investment in one subsidiary company, and also controlled an entity, Rasna Therapeutics Limited (“Rasna UK”), in which it was deemed the primary beneficiary.
Arna Therapeutics Limited (“Arna”) was a company incorporated in the British Virgin Islands under applicable law and regulation. Arna was incorporated on September 30, 2013. Arna only has one segment of activity which is that of a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of Leukemia.
On May 17, 2016, Rasna UK and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) with Arna. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna UK in exchange for shares of Arna.
The Merger is being treated as a reverse acquisition effected by a share exchange for financial accounting and reporting purposes since Arna’s operations, Board of Directors and Management will remain subsequent to the consummation of the transaction, however, the legal aquiror is Rasna Inc. As a result, the historical operations that are reflected in these financial statements are those of Arna, and the assets acquired and liabilities assumed in the transaction with Rasna UK have been written to fair value in accordance with ASC 805, Business Combinations. Refer to Note 3 - Acquisitions, for more information related to the transaction.
On August 15, 2016, Active With Me, Inc., entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna, Inc., and Rasna Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Active With Me, Inc. (“Merger Sub”), providing for the merger of Merger Sub with and into Rasna, Inc. (the “Merger”), with Rasna, Inc. surviving the Merger as a wholly-owned subsidiary of Active With Me, Inc. As a result of the Merger, the resulting company, Rasna Therapeutics, Inc., is a biotechnology company that is focused on targeted drugs to treat diseases in oncology and immunology, mainly focusing on the treatment of Leukemia.
The Merger is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Active With Me’s operations were disposed of prior to the consummation of the transaction. Rasna Successor is treated as the accounting acquirer as its stockholders control the Company after the Exchange Agreement, even though Active With Me, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of Rasna Successor as if Rasna Successor had always been the reporting company. Since Active With Me, Inc. had no operations upon the Merger Agreement taking place, the transaction was treated as a reverse recapitalization for accounting purposes and no goodwill or other intangible assets were recorded by the Company as a result of the Merger Agreement.
These financial statements are presented in United States dollars (“USD”) which is also the functional currency of the primary economic environment in which the Company operates. See Note 2, Foreign currency policy.
2. ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all the periods presented unless otherwise stated.
Basis of preparation
These consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission (“SEC”) and United States generally accepted accounting principles (“GAAP”) for annual reporting. In the opinion of management,
F-7
the accompanying consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial information.
Principles of Consolidation
In accordance with ASC 810, Consolidation, the Company consolidates any entity in which it has a controlling financial interest. Further, the Company consolidates any variable interest entity that it is deemed to be the primary beneficiary of, and have the power to direct its significant activities. Upon review of the relationship between Rasna Therapeutics Limited (“Rasna UK”) and Rasna Inc., Management noted that equity investment in Rasna UK is not sufficient to fund its operations. Accordingly, Rasna Inc. is considered to be the primary beneficiary of the assets held within Rasna UK, which primarily consist of cash received from Rasna Inc. to fund its operations, and has power to direct its significant activities. As a result, Rasna Inc. consolidates this variable interest entity.
The consolidated financial statements include the financial statements of the Company and its subsidiary, Arna Therapeutics Limited as well as the operations of Rasna Inc. for the period from May 17, 2016 through December 31, 2016. All significant intercompany accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements.
Business Combinations
Management accounts for business combinations under the provisions of Accounting Standards Codification ("ASC") Topic 805-10, Business Combinations ("ASC 805-10"), which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.
The amounts reflected within the Note 3 - Acquisitions are the results of the final valuation report of the purchase price allocation.
Liquidity
The Company is subject to a number of risks similar to those of other pre-commercial stage companies, including its dependence on key individuals, uncertainty of product development and generation of revenues, dependence on outside sources of capital, risks associated with research, development, testing, and obtaining related regulatory approvals of its pipeline products, suppliers and collaborators, successful protection of intellectual property, competition with larger, better-capitalized companies, successful completion of the Company's development programs and, ultimately, the attainment of profitable operations are dependent on future events, including obtaining adequate financing to fulfill its development activities and generating a level of revenues adequate to support the Company's cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past two years, and as at March 31, 2017, had an accumulated deficit of $9,257,780, a net loss for the for the year ended March 31, 2017 of $4,433,732 and net cash used in operating activities of $2,963,858.
We expect to continue to incur net losses and have significant cash outflows for at least the next twelve months. The Company has sufficient funds to continue operating until the end of the second fiscal quarter of 2019, but will require significant additional cash resources to launch new development phases of existing products in its pipeline. In the event that the Company is unable to secure the necessary additional cash resources needed, the Company may slow current development phases or halt new development phases in order to mitigate the effects of the costs of development.The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company's cost structure.
F-8
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, including those related to the fair values of stock based awards, income taxes and contingent liabilities, among others. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates and such differences could be material to the consolidated financial position and results of operations.
Fair Value
The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued liabilities, approximate fair value because of the short-term nature of such financial instruments. Management measures certain other assets at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of related party receivables.
Deposits held with banks, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand and bear minimal risk. Management believes that the institutions that hold our instruments are financially sound and are subject to minimal credit risk.
Cash and cash equivalents
Cash and cash equivalents consists of cash on deposit with banks with an original maturity of three months or less.
From time to time, the Company’s balances in its bank accounts exceed Federal Deposit Insurance Corporation limits. The Company will periodically evaluate the risk of exceeding insured levels and might transfer funds if it deems appropriate. The Company has not experienced any losses with regards to balances in excess of insured limits or as a result of other concentrations of credit risk.
Prepayments and other receivables
Prepayments consists of prepaid Directors and Officers liability insurance.
Property and Equipment
Expenditures for additions, renewals and improvements are capitalized at cost. Depreciation is computed in a straight line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets are 2 to 5 years for equipment and furniture and fixtures. Expenditures for repairs and maintenance are charged to operations as incurred. The Company periodically evaluates whether current events or circumstances indicate that the carrying life of the depreciable assets may not be recoverable.
Goodwill and Intangible assets
Intangible assets are made up of in-process research and development, (“IPR&D”) and certain intellectual property (“IP”). The balance of IPR&D represents IPR&D acquired in 2013, which, at the time, was determined to have alternative future uses. IPR&D assets also represent the fair value assigned to acquired technologies in a business combination, which at the time of the business combination have not reached technological feasibility and have no alternative future use. IP assets represent the fair value assigned to technologies, which at the time of acquisition have reached technological feasibility, however, have not yet been put into service. Intangible assets are considered to have an indefinite useful life until the completion or abandonment of the associated research and development projects.
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets acquired in business combinations. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. Goodwill is assessed for impairment on an annual basis or more frequently if events or changes in
F-9
circumstances indicate that the asset might be impaired. An impairment charge is recognized only when the implied fair value of the Company’s reporting unit’s goodwill is less than its carrying amount.
Management evaluates indefinite life intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual impairment tests indicate that the asset might be impaired. The ongoing evaluation for impairment of its indefinite life intangible assets requires significant management estimates and judgment. Management reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges during the year ended March 31, 2017 and 2016.
Risks and Uncertainties
The Company intends to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory, and other risks associated with an early stage company, including the potential risk of business failure.
Reclassifications
Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2017 presentation. These reclassifications have no impact on the previously reported net loss.
Research and development
Expenditure on research and development is charged to the statements of operations in the year in which it is incurred with the exception of expenditures incurred in respect of the development of major new products where the outcome of those projects is assessed as being reasonably certain in regards to viability and technical feasibility. Such expenditure is capitalized and amortized straight line over the estimated period of sale for each product, commencing in the year that sales of the product are first made. To date, the Company has not capitalized any such expenditures other than certain IPR&D & IP recorded in connection with certain acquisition or equity transactions.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available for tax reporting purposes, as well as other relevant factors. A valuation allowance may be established to reduce deferred tax assets to the amount that management believes is more likely than not to be realized. Due to inherent complexities arising from the nature of the business, future changes in income tax law and variances between actual and anticipated operating results, management makes certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.
The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position. The Company records a liability for the difference between the benefit recognized and measured and the tax position taken or expected to be taken on the Company’s tax return. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company incurred no liability and, therefore, did not need to record interest and penalties during the year ended March 31, 2017 and 2016.
Foreign Currency
Items included in the financial statements are measured using their functional currency, being the currency of the primary economic environment in which the company operates. The financial statements are presented in United States Dollar (“USD”), which is the company’s functional and presentational currency.
F-10
Foreign currency transactions are translated using the rate of exchange applicable at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-translation at the year-end of monetary assets and liabilities denominated in foreign currencies are recognized in the statements of operations.
Net Loss per Share
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.
The following table sets forth potential common shares issuable upon the exercise of outstanding options and the exercise of warrants, all of which have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive:
March 31, 2017 | March 31, 2016 | ||||
Stock options | 3,162,375 | 1,662,375 | |||
Warrants | 1,440,501 | — | |||
Total shares issuable upon exercise or conversion | 4,602,876 | 1,662,375 | |||
The following is the computation of net loss per share for the following periods:
For the Year Ended March 31, | ||||||||
2017 | 2016 | |||||||
Net loss for the period | $ | (4,433,732 | ) | $ | (578,106 | ) | ||
Weighted average number of shares | 60,816,068 | 35,650,289 | ||||||
Net loss per share (basic and diluted) | $ | (0.07 | ) | $ | (0.02 | ) | ||
Warrants
In April 2016, the Company committed to issue warrants as compensation to the placement agents relating to fundraising. On February 28, 2017, the Company issued a ten year warrant to purchase 1,440,501 shares of common stock at an exercise price of $0.37 per share.
The Company had determined that the service inception date preceded the grant date, and accordingly, recorded a liability to issue warrants in the Company as of the date that the equity was issued, with an offset charge to additional paid-in capital as these are offering costs. The liability to issue warrants was marked to market each period until the grant date, at which point the Company determined that in accordance with ASC 815-40-25-7, the warrants should be classified in stockholder’s equity. See Note 6 for additional information.
Equity-Based Payments
ASC Topic 718 “Compensation-Stock Compensation” requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award. The Company accounts for shares of common stock, stock options and warrants issued to employees based on the fair value of the stock, stock option or warrant, if that value is more reliably measurable than the fair value of the consideration or services received.
The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 “Equity -Based Payment to Non-Employees” and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which
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the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being “marked to market” quarterly until the measurement date is determined.
Recent Accounting Pronouncements Not Yet Adopted
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-9 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-9”). The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and disclosures.
On August 26, 2016, the FASB issued Accounting Standards Update (ASU) 2016-15, Classification of Certain Cash Receipts and Cash Payments, seeking to eliminate diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows.
The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in ASU 2016-15 should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash a consensus of the FASB Emerging Issues Task Force (“ASU 2016-18”). ASU 2016-18 requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement cash flows. The new standard is expected to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the effects of ASU 2016-18 on its consolidated financial statements.
In December 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements, which includes numerous technical corrections and clarifications to GAAP that are designed to remove inconsistencies in the board’s accounting guidance. Several provisions in this accounting guidance are effective immediately which did not have an impact on the Company’s consolidated financial statements. Additional provisions in this accounting guidance are effective for the Company in annual financial reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact that the adoption of the additional provisions in this accounting guidance may have on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-1, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies 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. The guidance is effective for annual financial reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued ASU 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which addresses the concerns over the cost and complexity of the two-step impairment test, and removes the second step of the test. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of good will allocated to the reporting unit. The guidance is effective for annual and interim goodwill impairment tests performed for periods beginning after December 15, 2019 with early adoption permitted in January 2017.The Company is currently evaluating the impact of adopting this guidance.
3. ACQUISITIONS
The following transactions were accounted for using the purchase accounting method which requires, among other things, that the assets acquired and liabilities assumed are recognized at their acquisition date fair value.
F-12
On May 5, 2016, Rasna UK sold its intellectual property to Falconridge, a subsidiary of Rasna, for a note payable in the amount of $236,269. Rasna UK is considered a VIE and consolidated in these financial statements, however, is not an entity under common control as Rasna controlled both Falconridge and Rasna UK at the time of the transaction, this transaction eliminates on consolidation.
On May 17, 2016, Rasna and its subsidiary Falconridge entered into an Agreement of Merger and Plan of Reorganization with Arna. Pursuant to the agreement, Arna was merged into Falconridge and the shareholders of Arna were issued shares of Rasna in exchange for shares of Arna. Arna was deemed to be the accounting acquirer because Rasna and Falconridge Holdings Limited were non-trading holding companies and Arna’s operations will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management of the combined entity. Further, 65% of the voting interest in Rasna was acquired by Arna shareholders in connection with the transaction. Therefore, the assets and liabilities of the acquired entity, Rasna, were written to fair value in accordance with the Acquisition Method prescribed in ASC 805, Business Combinations.
The consideration transferred was measured based upon the share price recently received during a non-public equity raise in Rasna, during which non-related investors paid $0.40 per share of common stock. During the acquisition transaction, 19,187,500 of 54,837,790 shares were issued to legacy Rasna shareholders, which results in consideration transferred to the acquiree’s shareholders of $7,675,000.
In addition, $607,159 of a related party receivable due to Arna from Rasna Uk, was forgiven as part of the consideration transferred.
The purchase price allocation as of the date of acquisition is set forth in the table below. As per the purchase accounting method, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill.
The Company’s allocation of the purchase price in connection with the acquisition was calculated as follows:
Balance as of | |||
May 17, 2016 | |||
Share consideration transferred | $ | 7,675,000 | |
Forgiveness of receivable | 607,159 | ||
Consideration transferred | $ | 8,282,159 | |
Less: Fair value of assets acquired | |||
Cash and cash equivalents | (5,116,609 | ) | |
Other receivables | (14,187 | ) | |
Prepayment | (66,856 | ) | |
Related party receivables | (20,412 | ) | |
Intellectual property | (236,269 | ) | |
In-Process research and development | (613,100 | ) | |
Plus: Liabilities assumed | |||
Accounts payable and accrued expenses | 492,603 | ||
Related party payables | 15,656 | ||
Goodwill | $ | 2,722,985 | |
Of the above assets acquired and liabilities assumed, the intellectual property acquired was owned by Falconridge and the remaining assets acquired and liabilities were Rasna UK.
Acquired In-Process Research and Development
Acquired IPR&D is the fair value of the LSD-1 asset at the acquisition date. The Company determined that the fair value of LSD-1 was $613,100 as of the acquisition date using the cost approach. This was based on the fact that LSD-1 was not yet technologically feasible or in use as of the valuation date. Also as no prospective revenue stream could be determined, the cost approach was deemed to be the most appropriate.
F-13
The Company retained a Clinical Research Organisation ("CRO") to perform all related research and development associated with LSD-1. As all research and development associated with LSD‐1 was performed by the CRO and no other contributions to LSD‐1 IPR&D were made beyond payments to the CRO, the Company considered the payments made to estimate the fair value of LSD‐1.
Active With Me, Inc.
On August 15, 2016, Active With Me, Inc., entered into an Agreement of Merger and Plan of Reorganization (the “Merger Agreement”) with Rasna, Inc., and Rasna Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Active With Me, Inc. (“Merger Sub”), providing for the merger of Merger Sub with and into Rasna, Inc. (the “Merger”), with Rasna, Inc. surviving the Merger as a wholly-owned subsidiary of Active With Me, Inc. As a result of the Merger, the resulting company, Rasna Therapeutics, Inc., is a biotechnology company that is engaged in modulating the molecular targets NPM1 and LSD1, which are implicated in the disease progression of leukemia and lymphoma.
The Merger is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Active With Me’s operations were disposed of prior to the consummation of the transaction. Rasna Successor is treated as the accounting acquirer as its stockholders control the Company after the Exchange Agreement, even though Active With Me, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of Rasna Successor as if Rasna Successor had always been the reporting company. Since Active With Me, Inc. had no operations upon the Merger Agreement taking place, the transaction was treated as a reverse recapitalization for accounting purposes and no goodwill or other intangible assets were recorded by the Company as a result of the Merger Agreement.
Thereafter, pursuant to a Stock Purchase Agreement, the Company transferred all of the outstanding capital stock of Rasna Successor to a former officer and director of Active With Me, Inc. in exchange for cancellation of an aggregate of 1,500,000 shares of Rasna Successor’s common stock held by such person.
In connection with the share exchange, each share of Rasna, Inc was exchanged for the right to receive .33 shares in Active With Me, Inc. Once issued, the new shares were combined with the 3,305,000 common shares held by legacy Active With Me, Inc. shareholders. Immediately following the Merger, 1,500,000 shares were canceled, which related to one legacy Active With Me shareholder that effectively spun off the remaining assets of Active With Me in connection with the transaction. Finally, subsequent to the transaction, the legal acquirer executed a 3.25 for 1 stock split on its common shares. Following the closing of the Merger and Rasna Successor’s cancellation of 1,500,000 shares in the Split-Off, there were 19,901,471 shares of Rasna Successor issued and outstanding, which once effected for the 3.25 for 1 reverse stock split, resulted in 64,679,798 shares outstanding in the combined entity.
The net loss presented on the consolidated income statement is representative of the operating losses of Arna Therapeutics Ltd, Falconridge and Rasna Inc for the period April 1, 2016 to March 31, 2017. The legal acquirer, Active With Me Inc, did not have any losses for this period.
The Company incurred approximately $170,000 in transaction costs in connection with the acquisition, which were included within the legal and professional, consultancy and general and administrative expenses within the consolidated statements of operations for the year ended March 31, 2017.
The following supplemental unaudited proforma information presents the Company's financial results as if the business combination had occurred on April 1, 2015:
Year Ended March 31, | ||||||||
2017 | 2016 | |||||||
Total Revenues, net | $ | — | $ | — | ||||
Net Loss | (4,693,223 | ) | (2,080,061 | ) | ||||
Basic and diluted net loss per share | $ | (0.08 | ) | $ | (1.05 | ) | ||
F-14
The above unaudited pro forma information was determined based on the historical GAAP results of Arna Therapeutics Ltd, Rasna Therapeutics Ltd and Rasna Therapeutics Inc. The unaudited pro forma condensed consolidated results are provided for informational purposes only and are not necessarily indicative of what the Company's consolidated results of operations actually would have been if the acquisition was completed on April 1, 2016 or what the consolidated results of operations will be in the future.
4. GOODWILL AND INTANGIBLE ASSETS
As noted in Note 3 - Acquisitions, on May 17, 2016, there was a transaction where the Company acquired an entity and, at initial purchase price, it was determined that there was $236,269 of intellectual property, $613,100 of In-process research and development, and $2,722,985 Goodwill.
Goodwill
Goodwill represents the excess of the purchase price over the fair value f =of net assets acquired in business combinations accounted for under the purchase method of accounting. The following table summarizes the Company’s goodwill for the periods indicated resulting from the acquisitions by the Company:
Goodwill | |||
Balance at March 31, 2016 | $ | — | |
Acquisition of Rasna and its subsidiaries | 2,722,985 | ||
Balance at March 31, 2017 | $ | 2,722,985 | |
The company performed an impairmant analysis and no impairment was determined. Hence no impairment was recorded for the year ended March 31, 2017 and 2016.
Intangible Assets
On December 17, 2013 the Company’s shareholder, Panetta Partners Limited, transferred 5,000,000 of its shares in Arna Therapeutics Limited to Eurema Consulting S.r.l. and 5,000,000 shares in Arna Therapeutics Limited to TES Pharma S.r.l. In exchange for the shares, Panetta Partners Limited obtained intellectual property in the form of IPR&D from TES Pharma S.r.l and Eurema Consulting S.r.l. Panetta Partners Limited then assigned the IPR&D to Arna Therapeutics Limited, which was accounted for as a capital contribution. The fair value of the shares exchanged for the IPR&D was $0.13 per share; in addition the issue price for shares in October 2013 was $0.13 per share (shares issued post acquisition of the IPR&D were issued at $0.28) and accordingly the Company valued the IPR&D at $1.3 million.
IPR&D relating to LSD-1, was acquired in the reverse acquisition of Rasna UK by Arna as of May 17, 2016. The Company retained a Clinical Research Organisation ("CRO") to perform all related research and development associated with LSD‐1. Based on review of the license agreement dated January 1, 2015, between the CRO and Rasna, the Company agreed to pay 100,002 Euros for costs incurred to date and to perform research and development on a going forward basis. Additionally, the Company entered into an amended license agreement whereby Rasna agreed to pay TTFactor an additional 435,000 Euros as of May 17, 2016, regarding services rendered between September 9, 2014 to May 17, 2016. Based on the cost approach, the IPR&D was valued at $613,100.
The IPR&D and intellectual property are considered to have an indefinite life and there were no impairment charges recognized during the periods ended March 31, 2017 and March 31, 2016.
The following table summarizes the Company’s intangible assets as of the following periods:
F-15
March 31, 2017 | |||||||||||||||||
Estimated Useful Life | Gross Carrying Amount | Additions | Accumulated Amortization | Net Book Value | |||||||||||||
In-process research and development | Indefinite | $ | 1,300,000 | $ | 613,100 | $ | — | $ | 1,913,100 | ||||||||
Intellectual Property | Indefinite | — | 236,269 | — | 236,269 | ||||||||||||
$ | 1,300,000 | $ | 849,369 | $ | — | $ | 2,149,369 | ||||||||||
March 31, 2016 | |||||||||||||||||
Estimated | Gross | ||||||||||||||||
Useful | Carrying | Accumulated | Net Book | ||||||||||||||
Life | Amount | Additions | Amortization | Value | |||||||||||||
In-process research and development | Indefinite | $ | 1,300,000 | $ | — | $ | — | $ | 1,300,000 | ||||||||
$ | 1,300,000 | $ | — | $ | — | $ | 1,300,000 | ||||||||||
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of office equipment which are recorded at cost with an estimated useful life of 3 years, depreciated on a straight line basis. For the year ended March 31, 2017, there were additions to property, plant and equipment of $10,493.
March 31, 2017 | ||||||||
Estimated Useful Life | Gross carrying amount | Accumulated depreciation | Net book value | |||||
Office Equipment | 3 years | $10,493 | $3,463 | $7,030 | ||||
Depreciation expense was $3,463 and $0 for the years ended March 31, 2017 and 2016 respectively.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table summarizes the Company’s accounts payable and accrued expenses as of the following periods:
March 31, 2017 | March 31, 2016 | |||||||
Accounts payable | $ | 548,514 | $ | — | ||||
Accrued expenses | 354,488 | 78,227 | ||||||
$ | 903,002 | $ | 78,227 | |||||
Accounts payable is predominantly made up of unpaid invoices relating to research and development, accounting and professional fees. Included within the accrued expenses balance is $103,672 owed to Tiziana Life Sciences PLC (“Tiziana”) under a shared services agreement (see Note 13), $114,736 relating to vendors for research and development expenses and approximately $136,080 of accrued legal, accounting and professional fees.
7. WARRANTS
On April 10, 2016, the Company incurred the obligation to issue warrants to placement agents relating to fundraising. The Company accounted for the obligation based on an estimate of the fair value of warrants issued using the Black-Scholes Model (“BSM”).
F-16
On the date of recognition of the associated obligation, the Company recorded $484,009 as a reduction to proceeds of the equity offering (additional paid-in-capital). The Company assessed the fair value for each reporting period and recorded changes to additional paid-in capital. At February 28, 2017, the date the warrants were issued, the obligation was reversed to additional paid-in capital and no outstanding liability existed.
Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Equity”, the Company determined that the warrants issued as placement agent warrants are classified as equity in additional paid in capital.
The fair value of the warrants at February 28, 2017 was $2,914,884 based on the following inputs and assumptions using the Black Scholes Model:
April 10, 2016 | February 28, 2017 | |
Warrants to be issued and Issued respectively | 1,440,501 | 1,440,501 |
Exercise Price | $0.40 | $0.37 |
Stock Price | $0.40 | $2.10 |
Expected Term (Years) | 10 | 10 |
Volatility % | 104% | 105% |
Discount Rate - Bond Equivalent Yield | 1.93% | 2.55% |
Dividend Yield | —% | —% |
The input assumptions used are as follows:
Discount rate —Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock options.
Dividend yield —The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
Expected volatility —Based on the historical volatility of seven different comparable Companys’ stock.
Expected term —The Company has used the life of the warrant.
8. ISSUANCE OF COMMON STOCK
On December 20, 2016, the Company issued an aggregate of 3,366,667 shares of common stock, at $0.60 per share for aggregate net proceeds of $2,007,500, in connection with a securities purchase agreement with certain accredited investors, as defined in Regulation D promulgated under Securities Act of 1933.
The securities purchase agreement contained the following features:
• | Anti-dilution provision – if the Company issues any common stock or any securities of the Company which would entitle the holder thereof to acquire at any time common stock, in a subsequent financing entitling any person or entity to acquire shares of common stock at an effective price per share less $0.60 (subject to prior adjustment for reverse and forward stock splits and the like), the Company shall issue to the holder a number of additional common stock shares equal to (a) the amount paid by the holder divided by 0.60 (subject to prior adjustment for reverse and forward stock splits and the like), less (b) the common stock issued to the holder. |
The Company has determined that host instrument was more akin to equity than debt and that the above financial instruments were clearly and closely related to the host instrument, with bifurcation and classification as a derivative liability not required. The host instrument, was classified as permanent equity and the above identified embedded feature will not be bifurcated from the host and therefore classified as permanent equity with the common stock.
As discussed in Note 3 - Acquisitions, on May 17, 2016, the Company completed a reverse merger whereby 35,650,289 shares of Arna were canceled and converted to a right to receive 35,650,289 shares of the Company’s stock. In effect, as a result of the share exchange, an additional 19,187,500 shares were ultimately issued to previous Rasna non-affiliate shareholders at a price of $0.40
F-17
per share of common stock totaling 54,837,789. Management used the price of $0.40 per share of common stock based on the value of shares used by Rasna in its equity raise that occurred in April 2016, where such shares were issued in contemplation of the merger transaction occurring in May 2016.
In addition, as noted in the Reverse Recapitalization section of Note 1, the Company effectively completed a 1 for 3 share exchange prior to the Merger, and then issued 3,305,000 common shares to legacy Active With Me shareholders. Immediately following the Merger, 1,500,000 shares were canceled, which related to one legacy Active With Me shareholder that effectively spun off the remaining assets of Active With Me in connection with the transaction. Finally, subsequent to the transaction, the Company executed a 3.25 for 1 stock split on its common shares. Common stock amounts and additional paid-in capital have been adjusted for the effect of the share splits executed in connection with the Merger transaction at the time of the Merger, as the stock splits occurred in conjunction with the Merger transaction.
9. RELATED PARTY TRANSACTIONS
During the normal course of its business, the Company enters into various transactions with entities that are both businesses and individuals. The following is a summary of the related party transactions as of March 31, 2017 and March 31, 2016.
Rasna Therapeutics Ltd
As at March 31, 2016, the Company was owed $607,159 from Rasna Therapeutics Ltd (UK), a Company of which Gabriele Cerrone, James Mervis and Riccardo Dalla Favera were also common directors with Arna. In the year ended 31 March 2016, Rasna Therapeutics Ltd (UK) paid $113,651 of expenses on behalf of the Company. The $607,159 was forgiven as part of the consideration transferred in the business combination noted in Note 3. See Note 2 for Principles of Consolidation.
Eurema Consulting
Eurema Consulting S.r.l.is a significant shareholder of the Company. During the year ended March 31, 2017 and year ended March 31, 2016, Eurema Consulting S.r.l. supplied the Company with consulting services amounting to $50,000 and $100,000, respectively. As of March 31, 2017, and March 31, 2016, Eurema Consulting S.r.l was owed $275,000 and $225,000, respectively, by the Company.
Riccardo Dalla Favera
Riccardo Dalla Favera was a Director of Arna Therpeutics Limited and is a current Director of Rasna Therapeutics Inc. During the year ended March 31, 2017 and 2016 Riccardo Dalla Favera charged the Company $12,500 and $25,000, respectively, in respect of directors fees. As of March 31, 2017, and March 31, 2016 the balance due to Riccardo Dalla Fevera was $0 and $43,750, respectively.
James Mervis
James Mervis was a Director of Arna Therpeutics Limited and is a current Director of Rasna Therapeutics Inc. During the year ended March 31, 2017 and 2016, James Mervis charged the Company $12,500 and $25,000, respectively, in respect of directors fees, travel and reimbursement of professional fees. As of March 31, 2017, and March 31, 2016 the balance due to James Mervis was $0 and $31,250 respectively.
Gabriele Cerrone
Gabriele Cerrone was a Director of Arna Therpeutics Limited. During the year ended March 31, 2017 and 2016, Gabriele Cerrone charged the Company $50,000, and $100,000, respectively, in respect of consultancy fees. As of March 31, 2017, and March 31, 2016, the balance due to Gabriele Cerrone was $175,000 and $125,000, respectively.
Roberto Pellicceri
Roberto Pellicceri was a Director of Arna Therpeutics Limited. and sole shareholder of TES Pharma Srl. During the year ended March 31, 2017 and 2016, Roberto Pellicceri charged the Company $50,000 and $100,000 respectively, in respect of consultancy fees. As of March 31, 2017, and March 31, 2016, the balance due to Roberto Pellicceri was $175,000 and $125,000, respectively.
F-18
Tiziana Life Sciences PLC
As at March 31, 2017, the Company owed $103,672 to Tiziana Life Sciences PLC,a Company of which Kunwar Shailubhai, and Riccardo Dalla Favera were also common directors with. This was in respect of a Shared Services agreement whereby the Company is charged for shared services such as the payroll and rent, see Note 13 for more details. Tiziana Life Sciences PLC was owed $65,000 by the Company in respect of payments made on behalf of the Company.
There is no interest charged on the balances with related parties. There are no defined repayment terms and such amounts can be called for payment at any time.
10. STOCK-BASED COMPENSATION
2016 EQUITY INCENTIVE PLAN
On July 19, 2016, the Company adopted its 2016 Equity Incentive Plan (the "Equity Incentive Plan"). The plan was established to attract, motivate, retain and reward selected employees and other eligible persons. For the Equity Incentive Plan, employees, officers, directors and consultants who provide services to the Company or one of the Company’s subsidiaries may be selected to receive awards. A total of 9,750,000 shares of the Company’s common stock was authorized for issuance with respect to awards granted under the Equity Incentive Plan. During the year ended March 31, 2017, an aggregate of 1,500,000 shares were granted under the Equity Incentive Plan.
The fair values of stock option grants during the year ended March 31, 2017 were calculated on the date of the grant using the Black-Scholes option pricing model. Compensation expense is recognized over the period of service, generally the vesting period. During the year ended March 31, 2017, 1,500,000 options were granted by the Company. No stock options were granted in the year ended March 31, 2016. The following assumptions were used in the Black-Scholes options pricing model to estimate the fair value of stock options for the year ended March 31, 2017:
Directors and Employees – Vesting period | Non – Employees – Vesting Period | ||||||||||||||||
Immediate | 1 Year | 2 Years | 3 Years | Immediate | 1 Year | 2 Years | 3 Years | ||||||||||
Stock Price | $1.495-$1.55 | $1.495-$1.55 | $1.495-$1.55 | $1.495-$1.55 | $1.495 | $1.495-$1.85 | $1.495-$1.85 | $1.495-$1.85 | |||||||||
Expected life (years) | 5 | 5.5 | 5.75 | 6 | 5 | 5.5 | 5.75 | 6 | |||||||||
Expected volatility | 85-89% | 85-89% | 85-89% | 85-89% | 85-89% | 85-89% | 85-89% | 85-89% | |||||||||
Expected dividend yield | —% | —% | —% | —% | —% | —% | —% | —% | |||||||||
Risk-free interest rate | 0.91% | 0.91% | 0.91% | 0.91% - 1.57% | 1.57% | 1.57% | 1.57% | 1.57% | |||||||||
The input assumptions used are as follows:
Discount rate —Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company’s stock options.
Dividend yield —The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
Expected volatility —Based on the historical volatility of seven different comparable Companys’ stock.
Expected term —The Company has had minimal stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment , (“SAB No. 107”), which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. Under SAB No. 107, options are considered to be “plain vanilla” if they have the following basic characteristics: (i) granted “at-the-money” (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.
The Company will continue to use the simplified method for the expected term until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the
F-19
Company has “plain-vanilla” stock options, and therefore used a simple average of the vesting period and the contractual term for options granted subsequent to January 1, 2006 as permitted by SAB No. 107.
Forfeitures —ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated zero forfeiture.
The following table summarizes stock option activity for the year ended March 31, 2017:
Number of Options | Weighted Average Exercise Price Per Option | Weighted Average remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||
Outstanding balance at March 31, 2016 | 1,662,375 | 0.20 | 7.32 | ||||||||
Granted | 1,500,000 | 0.40 | |||||||||
Exercised | — | — | |||||||||
Forfeited and Expired | — | — | |||||||||
Outstanding balance at March 31, 2017 | 3,162,375 | 0.29 | 8.09 | $ | 5,975,874 | ||||||
Options exercisable at March 31, 2017 | 1,629,825 | 0.24 | 7.29 | $ | 3,162,350 | ||||||
The weighted-average grant-date fair value of options granted to employees during the year ended March 31, 2017 was $1.33 per share.
There were no options exercised during the year ended March 31, 2017 or 2016. As of March 31, 2017, there was approximately $1,076,368 of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 2.5 years. The charge related to share based compensation to directors and non employees is included within the Consultancy fees third parties expense category in the consolidated financial statements.
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The Company’s consolidated results of operations are shown below:
Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||
Fiscal year ended March 31, 2017 | ||||||||||||||||
Total revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
Costs of revenues | — | — | — | — | ||||||||||||
Gross profit | — | — | — | — | ||||||||||||
Operating expenses | 990,202 | 1,377,545 | 1,836,946 | 329,834 | ||||||||||||
Loss from operations | (990,202 | ) | (1,377,545 | ) | (1,836,946 | ) | (329,834 | ) | ||||||||
Other income (expense) | 42,274 | 21,461 | 34,400 | 2,661 | ||||||||||||
Income tax provision | — | — | — | — | ||||||||||||
Net (loss) income | $ | (947,928 | ) | $ | (1,356,084 | ) | $ | (1,802,546 | ) | $ | (327,173 | ) | ||||
Earnings per share - Basic and diluted | (0.01 | ) | (0.02 | ) | (0.03 | ) | (0.01 | ) | ||||||||
F-20
Fourth Quarter | Third Quarter | Second Quarter | First Quarter | |||||||||||||
Fiscal year ended March 31, 2016 | ||||||||||||||||
Total revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
Costs of revenues | — | — | — | — | ||||||||||||
Gross profit | — | — | — | — | ||||||||||||
Operating expenses | 213,041 | 140,746 | 117,343 | 106,976 | ||||||||||||
Loss from operations | (213,041 | ) | (140,746 | ) | (117,343 | ) | (106,976 | ) | ||||||||
Other income (expense) | — | — | — | — | ||||||||||||
Income tax provision | — | — | — | — | ||||||||||||
Net (loss) income | $ | (213,041 | ) | $ | (140,746 | ) | $ | (117,343 | ) | $ | (106,976 | ) | ||||
Earnings per share - Basic and diluted | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
12. INCOME TAXES
The components of Income/(loss) before income taxes consisted of the following:
March 31, 2017 | ||||
US | $ | (2,913,073 | ) | |
Foreign | (1,520,659 | ) | ||
Total | $ | (4,433,732 | ) | |
As of March 31, 2017, the Company is expected to have net operating loss carryforwards of $2 million for federal tax purposes, which will expire in 2037.
Income tax expenses attributable to income for continuing operations consists of:
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March 31, 2017 | ||
Federal: | ||
Current | — | |
Deferred | (791,171 | ) |
Foreign: | ||
Current | — | |
Deferred | 421,925 | |
State and local: | ||
Current | — | |
Deferred | (258,265 | ) |
Change in valuation allowance | 627,511 | |
Income tax provision/(benefit) | — | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of the asset and liabilities for financial reporting purposes and amounts used for income tax purposes. The temporary differences that gave rise to the deferred tax assets and liabilities are as follows:
March 31, 2017 | ||
Deferred tax assets: | ||
Stock Compensation | 224,984 | |
Net operating losses | 823,898 | |
Fixed assets | 554 | |
1,049,436 | ||
Total gross deferred tax asset | 1,049,436 | |
Less: valuation allowance | (1,049,436 | ) |
Net deferred tax asset | — | |
In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, net operating loss carryback potential, and tax planning strategies in making these assessments.
Based upon the above criteria, the Company believes that it is more likely than not that the remaining net deferred tax assets will not be realized. Accordingly, the Company has recorded a full valuation allowance of approximately $1.0 million against the deferred tax asset that is not realizable.
The Company recognizes interest accrued to unrecognized tax benefits and penalties as income tax expense. The Company accrued no penalties and interest during the year ended March 31, 2017, and as of March 31, 2017 has not recognized any penalties and interest.
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A reconciliation of the statutory Federal Income tax rate and effective tax rate of the provision for income taxes is as follows:
March 31, 2017 | ||
Federal statutory rate | 34 | % |
Permanent items | (3.68 | )% |
Foreign rate differential | (4.11 | )% |
Write off UK non operating losses due to liquidation | (15.82 | )% |
State taxes | 3.69 | % |
Increase in valuation allowance | (14.2 | )% |
Other | 0.12 | % |
Effective income tax rate | — | % |
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which they operate. In the normal course of business, the Company is subject to examination by federal and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. As of March 31, 2017, open years related to the Federal jurisdiction are fiscal years ending 2016, 2015 and 2014. Open years related to the foreign jurisdiction are 2015 and 2014.
The Company has no open tax audits for the returns that were filed, with any tax authority as of March 31, 2017. Accordingly, there were no material uncertain tax positions in any of the jurisdictions that the Company operated in.
13. COMMITMENTS AND CONTINGENCIES
Research Agreements
Arna Therapeutics Limited previously entered into a research agreement with TES Pharma SRL to collaborate on a research program to discover and optimize compounds for the diagnosis or treatment of Acute Myloid Leukemia. On the May 3, 2016, the existing agreement was novated from Arna Therapeutics Limited to Rasna Therapeutics Inc and the Company entered in an amendment into the research agreement whereby work on the original research plan was to continue inconsideration for EUR 500,000 for one year through to May 2017. As of March 31, 2017, the Company had incurred approximately $341,000 of research and development expenses related to this agreement.
In February 2017, the Company entered into a research agreement with Ascendia Pharmaceutical to conduct feasibility studies into a formulation for Actinomycin D. Under the agreement, the Company is committed to pay $200,000 for services provided over a period of 4 months to June 2017.
In February 2017, the Company entered into a research agreement with Particle Sciences Inc to carry out formulation development for Actinomycin D. Under the agreement, the Company is committed to pay $105,800 for services provided over a period of 3 months to May 2017.
License Agreements
In November 2016, the Company entered into a license agreement with Profs. Falini and Martellii, wherein it obtained the exclusive rights related to the use or reformulation of Actinomycin D and intends to utilize these rights for the development of new product. In connection with this agreement, the Company is committed to paying milestone payments, the first being a EUR 50,000 payment to be paid 6 months after the agreement was signed. The specific timing of the remaining milestones cannot be predicted and depend upon research and clinical developments.
Lease Agreements
In January 2017, the Company entered into a lease agreement with Bucks County Biotechnology Centre Inc in Doylestown Pennsylvania, where certain employees of the Company are based. The lease provides for annual basic lease payments from February 1, 2017 to January 31, 2018 of $13,480, plus and utility expense estimate of $237 per month.
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Employment and Consultancy Agreements
Rasna Therapeutics Ltd entered into a consultancy agreement with James Tripp in which he agreed to consult on clinical operations for a fee of $10,000 per calendar quarter.
Mr. Tripp is also eligible to earn a target cash bonus of up to $10,000 per calendar year based on meeting certain performance objectives and bonus criteria. In September 2016, the board of Directors awarded Mr Tripp 125,000 options to vest over a 3 year period, with an exercise price of $0.40.
In October 2016, the Company entered into a consultancy agreement with Tiziano Lazzaretti in which he agreed to serve as Chief Financial Officer for a fee of $50,000 per year. In September 2016, the board of Directors awarded Mr Lazzaretti 100,000 options to vest over a 3 year period. An additional 200,000 options with a 3 year vesting period, were also awarded in November 2016. The options under both awards have an exercise price of $0.40.
The Company has entered a number of employment agreements commencing in January 2017. These appointments relate to clinical and non clinical employees, and are reviewable on an annual basis. The Company's committed to paying $278,500 for the period to December 2017.
Shares Services Agreement
The Company has entered into a shared services agreement with Tiziana Life Sciences Plc. Under the terms of this agreement, the Company will be charged for shared services including payroll and rent for the Lexingtom Avenue premises, on a monthly basis based on allocated costs incurred. This agreement is effective from January 1, 2017. At March 31, 2017, $103,672 is due to Tiziana Life Sciences PLC.
Other Commitments
The Company has entered into certain licensing agreements for products currently under development. The Company may be obligated in future periods to make additional payments, which would become due and payable only upon the achievement of certain research and development, regulatory, and approval milestones. The specific timing of such milestones cannot be predicted and depend upon future discretionary research and clinical developments, as well as, regulatory agency actions. Further, under the terms of certain agreements the Company may be obligated to pay commercial milestones contingent upon the realization of sales revenues and sublicense revenues. Due to the long range nature of such commercial milestones, they are neither probable at this time nor predictable, and consequently are not considered contingent milestone payment amounts.
14. SUBSEQUENT EVENTS
On April 14, 2017, Kunwar Shailubhai, Ph.D., M.B.A. was appointed Chief Executive Officer of the Company. In connection with his appointment, Dr. Shailubhai was granted incentive stock options to purchase 1,700,000 shares of common stock at $0.85 per share. 425,000 of such stock options vest on each of the 1st, 2nd, 3rd and 4th anniversary of the date of grant.
As of April 14, 2017, James Tripp, formerly acting Chief Executive Officer of the Company, was appointed Chief Operating Officer of the Company.
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