Cellectar Biosciences, Inc. - Quarter Report: 2008 June (Form 10-Q)
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[mark
one]
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended: June 30, 2008
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|
o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to
______________
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Commission
File Number 333-119366
NOVELOS
THERAPEUTICS, INC.
(Exact
name of small business issuer as specified in its charter)
DELAWARE
|
04-3321804
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
One
Gateway Center, Suite 504, Newton, Massachusetts 02458
(Address
of principal executive offices)
(617)
244-1616
(Issuer’s
telephone number, including area code)
(Former
name, former address, if changed since last report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x
No
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
x
Number
of
shares outstanding of the issuer’s common stock as of the latest practicable
date: 39,360,272 shares of common stock, $.00001 par value per share, as of
August 1, 2008.
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(Check
one):
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
x
|
(Do
not
check if a smaller reporting company)
NOVELOS
THERAPEUTICS, INC.
FORM
10-Q INDEX
|
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||
Item
1.
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Financial
Statements
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3
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
Item
4.
|
Controls
and Procedures
|
18
|
|
||
PART
II. OTHER INFORMATION
|
|
|
|
||
Item
1.
|
Legal
Proceedings
|
19
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Item
1A.
|
Risk
Factors
|
19
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
28
|
Item
3.
|
Defaults
Upon Senior Securities
|
28
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
28
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Other
Information
|
28
|
|
Item
6.
|
Exhibits
|
28
|
2
PART
I. FINANCIAL INFORMATION
Item
1. Financial
Statements
NOVELOS
THERAPEUTICS, INC.
BALANCE
SHEETS
June
30,
|
December
31,
|
|||||||||
2008
|
2007
|
|||||||||
(unaudited)
|
(audited)
|
|||||||||
ASSETS
|
||||||||||
CURRENT
ASSETS:
|
||||||||||
Cash
and equivalents
|
$
|
5,524,114
|
$
|
9,741,518
|
||||||
Restricted
cash
|
—
|
1,184,702
|
||||||||
Prepaid
expenses and other current assets
|
175,528
|
133,281
|
||||||||
Total
current assets
|
5,699,642
|
11,059,501
|
||||||||
FIXED
ASSETS, NET
|
38,840
|
32,809
|
||||||||
DEPOSITS
|
15,350
|
15,350
|
||||||||
TOTAL
ASSETS
|
$
|
5,753,832
|
$
|
11,107,660
|
||||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
||||||||||
CURRENT
LIABILITIES:
|
||||||||||
Accounts
payable and accrued liabilities
|
$
|
7,505,038
|
$
|
6,372,478
|
||||||
Accrued
compensation
|
169,498
|
349,412
|
||||||||
Accrued
dividends
|
530,468
|
337,500
|
||||||||
Deferred
revenue – current
|
33,833
|
—
|
||||||||
Total
current liabilities
|
8,238,837
|
7,059,390
|
||||||||
DEFERRED
REVENUE – NONCURRENT
|
450,000
|
—
|
||||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||||
REDEEMABLE
PREFERRED STOCK:
|
||||||||||
Series
D convertible preferred stock, $0.00001 par value; 420 shares designated;
413.5 shares issued and outstanding at June 30, 2008 (liquidation
preference $21,140,188 at June 30, 2008) (Note 2)
|
13,904,100
|
—
|
||||||||
Series
B convertible preferred stock, $0.00001 par value; 400 shares designated;
300 shares issued and outstanding at December 31, 2007 (Note
2)
|
—
|
9,918,666
|
||||||||
13,904,100
|
9,918,666
|
|||||||||
STOCKHOLDERS’
DEFICIENCY:
|
||||||||||
Preferred
stock, $0.00001 par value; 7,000 shares authorized: Series C 8%
cumulative
convertible preferred stock; 272 shares issued and outstanding
at June 30,
2008 and December 31, 2007 (liquidation preference $3,329,280 at
June 30,
2008) (Note 2)
|
—
|
—
|
||||||||
Common
stock, $0.00001 par value; 150,000,000 shares authorized; 39,360,272
shares issued and outstanding at June 30, 2008; 39,260,272 shares
issued
and outstanding at December 31, 2007
|
393
|
392
|
||||||||
Additional
paid-in capital
|
38,179,983
|
37,370,959
|
||||||||
Accumulated
deficit
|
(55,019,481
|
)
|
(43,241,747
|
)
|
||||||
Total
stockholders’ deficiency
|
(16,839,105
|
)
|
(5,870,396
|
)
|
||||||
TOTAL
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’
DEFICIENCY
|
$
|
5,753,832
|
$
|
11,107,660
|
See
notes to financial statements.
3
NOVELOS
THERAPEUTICS, INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
REVENUE
|
$
|
45,676
|
$
|
—
|
$
|
54,009
|
$
|
—
|
|||||
COSTS
AND EXPENSES:
|
|||||||||||||
Research
and development
|
4,045,757
|
3,800,324
|
10,957,683
|
5,709,730
|
|||||||||
General
and administrative
|
716,698
|
636,250
|
979,772
|
1,243,972
|
|||||||||
Total
costs and expenses
|
4,762,455
|
4,436,574
|
11,937,455
|
6,953,702
|
|||||||||
LOSS
FROM OPERATIONS
|
(4,716,779
|
)
|
(4,436,574
|
)
|
(11,883,446
|
)
|
(6,953,702
|
)
|
|||||
OTHER
INCOME:
|
|||||||||||||
Interest
income
|
37,891
|
213,427
|
101,212
|
347,385
|
|||||||||
Miscellaneous
|
2,250
|
1,500
|
4,500
|
3,000
|
|||||||||
Total
other income
|
40,141
|
214,927
|
105,712
|
350,385
|
|||||||||
NET
LOSS
|
(4,676,638
|
)
|
(4,221,647
|
)
|
(11,777,734
|
)
|
(6,603,317
|
)
|
|||||
PREFERRED
STOCK DIVIDENDS
|
(530,468
|
)
|
(290,280
|
)
|
(933,248
|
)
|
(355,560
|
)
|
|||||
PREFERRED
STOCK DEEMED DIVIDENDS
|
(4,417,315
|
)
|
(9,003,083
|
)
|
(4,417,315
|
)
|
(9,003,083
|
)
|
|||||
NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$
|
(9,624,421
|
)
|
$
|
(13,515,010
|
)
|
$
|
(17,128,297
|
)
|
$
|
(15,961,960
|
)
|
|
BASIC
AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER
COMMON
SHARE
|
$
|
(0.24
|
)
|
$
|
(0.34
|
)
|
$
|
(0.44
|
)
|
$
|
(0.41
|
)
|
|
SHARES
USED IN COMPUTING BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO
COMMON
STOCKHOLDERS PER COMMON SHARE
|
39,360,272
|
39,235,272
|
39,351,432
|
39,235,272
|
See
notes to financial statements.
4
NOVELOS
THERAPEUTICS, INC.
STATEMENTS
OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
|
|||||||
2008
|
2007
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(11,777,734
|
)
|
$
|
(6,603,317
|
)
|
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|||||||
Depreciation
and amortization
|
7,748
|
6,424
|
|||||
Loss
on disposal of fixed assets
|
6,472
|
||||||
Stock-based
compensation
|
257,035
|
323,384
|
|||||
Changes
in:
|
|||||||
Prepaid
expenses and other current assets
|
(42,247
|
)
|
91,685
|
||||
Accounts
payable and accrued liabilities
|
1,132,560
|
1,477,658
|
|||||
Accrued
compensation
|
(179,914
|
)
|
(99,593
|
)
|
|||
Deferred
revenue
|
483,833
|
—
|
|||||
Cash
used in operating activities
|
(10,112,247
|
)
|
(4,803,759
|
)
|
|||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of property and equipment
|
(20,251
|
)
|
(15,214
|
)
|
|||
Change
in restricted cash
|
1,184,702
|
649,928
|
|||||
Deposits
|
—
|
(4,475
|
)
|
||||
Cash
provided by investing activities
|
1,164,451
|
630,239
|
|||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from issuance of Series B convertible preferred stock and warrants,
net
|
—
|
13,693,051
|
|||||
Proceeds
from issuance of Series D convertible preferred stock and warrants,
net
|
5,469,672
|
—
|
|||||
Dividends
paid to preferred stockholders
|
(740,280
|
)
|
(130,560
|
)
|
|||
Payment
to preferred stockholders in connection with exchange of shares
(1)
|
—
|
(40,000
|
)
|
||||
Proceeds
from exercise of stock option
|
1,000
|
—
|
|||||
Cash
provided by financing activities
|
4,730,392
|
13,522,491
|
|||||
INCREASE
(DECREASE) IN CASH AND EQUIVALENTS
|
(4,217,404
|
)
|
9,348,971
|
||||
CASH
AND EQUIVALENTS AT BEGINNING OF YEAR
|
9,741,518
|
9,938,428
|
|||||
CASH
AND EQUIVALENTS AT END OF PERIOD
|
$
|
5,524,114
|
$
|
19,287,399
|
|||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|||||||
Deemed
dividends on preferred stock
|
$
|
4,417,315
|
$
|
8,963,083
|
|||
Dividends
accrued but not paid to preferred stockholders
|
$
|
530,468
|
$
|
225,000
|
|||
Issuance
of warrants to Series D preferred stockholders
|
$
|
1,302,592
|
$
|
—
|
|||
Issuance
of warrants to Series B preferred stockholders
|
$
|
—
|
$
|
3,774,385
|
|||
Exchange
of Series B for Series D preferred stock
|
$
|
9,918,666
|
$
|
—
|
|||
Issuance
of warrants to Series C preferred stockholders
|
$
|
—
|
$
|
1,138,698
|
|||
Issuance
of warrants to placement agents
|
$
|
—
|
$
|
768,621
|
(1)
Included as a deemed dividend in the Statement of Operations.
See
notes to financial statements.
5
Novelos
Therapeutics, Inc.
Notes
to Financial Statements
1.
NATURE OF BUSINESS, BASIS OF PRESENTATION
Novelos
Therapeutics, Inc. (‘‘Novelos’’ or the ‘‘Company’’) is a drug development
company focused on the development of therapeutics for the treatment of various
cancers and infectious diseases. Novelos owns exclusive worldwide intellectual
property rights (excluding Russia and other states of the former Soviet Union)
related to certain clinical compounds and other pre-clinical compounds based
on
oxidized glutathione.
The
Company is subject to a number of risks similar to those of other companies
in
an early stage of development. Principal among these risks are dependence on
key
individuals, competition from substitute products and larger companies, the
successful development and marketing of its products in a highly regulated
environment and the need to obtain additional financing necessary to fund future
operations.
The
Company is devoting substantially all of its efforts toward the research and
development of its products and has incurred operating losses since inception.
The process of developing products will require significant research and
development, non-clinical testing, clinical trials and regulatory approval.
The
Company expects that these activities, together with general and administrative
costs, will result in continuing operating losses for the foreseeable future.
The Company’s ability to execute its operating plan is dependent on its ability
to obtain capital to fund these activities through the sale of equity and debt
securities and through collaborative arrangements with partners. If the Company
is unable to obtain capital through these sources, it may have to seek other
sources of capital or reevaluate its operating plans.
The
accompanying unaudited financial statements of the Company have been prepared
in
accordance with accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Form
10-Q. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation of these financial statements have been
included. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Interim results
are
not necessarily indicative of results to be expected for other quarterly periods
or for the entire year ending December 31, 2008. These unaudited financial
statements should be read in conjunction with the audited financial statements
and related notes thereto included in the Company’s latest annual report for the
year ended December 31, 2007 on Form 10-KSB, which was filed with the Securities
and Exchange Commission (“SEC”) on March 24, 2008.
Comprehensive
Income (Loss) –
The
Company had no components of comprehensive income (loss) other than the net
loss
in all periods presented.
2.
STOCKHOLDERS’ EQUITY (DEFICIENCY)
2005
PIPE
- From
May 27, 2005 through August 9, 2005, the Company completed a private offering
of
securities structured as a “PIPE” (Private Investment in Public Equity), exempt
from registration under the Securities Act of 1933, in which it sold to
accredited investors 4,000,000 shares of common stock and issued 2,000,000
common stock warrants (initially exercisable at $2.25 per share) for net cash
proceeds of approximately $3,715,000 (net of cash issuance costs of
approximately $735,000) and conversion of debt and accrued interest of $550,000.
In connection with the private placement, the Company also issued 125,000 shares
of common stock to placement agents with a value of approximately $156,000
and
issued 340,000 common stock warrants to placement agents and finders at an
initial exercise price of $2.00 per share. Pursuant to anti-dilution provisions,
the number of warrants issued to investors, placement agents and finders as
well
as the exercise price of the warrants have changed. As of June 30, 2008 the
warrants are exercisable for 7,969,171 shares of common stock at an exercise
price of $0.65 per share.
Series
A Preferred
- On
September 30, 2005 and October 3, 2005, the Company sold, in a private
placement, a total of 3,200 shares of its Series A 8% Cumulative Convertible
Preferred Stock (“Series A Preferred Stock”) and 969,696 common stock warrants
for net proceeds of $2,864,000, net of issuance costs of $336,000. See “Series C
Preferred” below for a description of the exchange of Series A Preferred Stock
that occurred in May 2007. The warrants issued in connection with the sale
of
Series A Preferred Stock had anti-dilution provisions that provided for
adjustments to the exercise price upon the occurrence of certain events.
Pursuant to these anti-dilution provisions the exercise price of the warrants
was subsequently adjusted and as of June 30, 2008, the warrants are exercisable
at $0.65 per share.
6
2006
PIPE
- On
March 7, 2006, the Company completed a private offering of securities, exempt
from registration under the Securities Act of 1933, in which it sold to
accredited investors 11,154,073 shares of common stock at $1.35 per share and
warrants to purchase 8,365,542 shares of its common stock exercisable at $2.50
per share for net cash proceeds of approximately $13,847,000 (net of issuance
costs of approximately $1,211,000, including placement agent fees of
approximately $1,054,000). In connection with the private placement, the Company
issued 669,244 common stock warrants (exercisable at $2.50 per share) to the
placement agents. The fair value of the warrants issued to investors and
placement agents was included as a component of permanent equity upon issuance.
Pursuant to anti-dilution provisions, as a result of subsequent financings,
the
number of shares of common stock issuable upon exercise of the warrants issued
to investors and placement agents was subsequently increased to 10,955,467
and
the exercise price was reduced to $2.06 per share.
Series
B Preferred
-
On
May 2,
2007, pursuant to a securities purchase agreement with accredited investors
dated April 12, 2007 (the “Purchase Agreement”), as amended May 2, 2007, the
Company sold 300 shares of a newly created series of preferred stock, designated
“Series B Convertible Preferred Stock”, with a stated value of $50,000 per share
(the “Series B Preferred Stock”) and issued warrants to purchase 7,500,000
shares of common stock for an aggregate purchase price of $15,000,000. The
Series B Preferred Stock was initially convertible into 15,000,000 shares of
common stock at $1.00 per share. See “Series D Preferred” below for a
description of the exchange of Series B Preferred Stock that occurred in April
2008.
The
common stock purchase warrants issued to investors were exercisable for an
aggregate of 7,500,000 shares of the Company’s common stock at an initial
exercise price of $1.25 per share and had an initial expiration date of May
2012. The warrant exercise price and/or number of warrants is subject to
adjustment only for stock dividends, stock splits or similar capital
reorganizations so that the rights of the warrant holders after such event
will
be equivalent to the rights of warrant holders prior to such event. If there
is
an effective registration statement covering the shares underlying the warrants
and the volume weighted average price (“VWAP”), as defined in the warrant, of
the Company’s common stock exceeds $2.50 for 20 consecutive trading days, then
on the 31st
day
following the end of such period any remaining warrants for which a notice
of
exercise was not delivered shall no longer be exercisable and shall be converted
into a right to receive $.01 per share. See “Series D Preferred” below for a
description of an amendment to these warrants that was executed in April 2008.
Upon
the
closing of the preferred stock and warrant financing the Company issued to
placement agents warrants to purchase a total of 900,000 shares of common stock
with the same terms as the warrants issued to the investors.
The
Company and the investors entered into a registration rights agreement in
connection with the closing of the sale of the Series B Preferred Stock. The
registration rights agreement was subsequently amended on April 11, 2008. The
agreement, as amended, requires the Company to use its best efforts to keep
a
registration statement covering 12,000,000 shares of common stock continuously
effective under the Securities Act until the earlier of the date when all
securities covered by the registration statement have been sold or the second
anniversary of the closing. In the event the Company does not fulfill the
requirements of the registration rights agreement, the Company is required
to
pay to the investors liquidated damages equal to 1.5% per month of the aggregate
purchase price of the preferred stock and warrants until the requirements have
been met. The 12,000,000 shares of common stock are included on a registration
statement that became effective on April 28, 2008.
Series
C Preferred -
As a
condition to closing of the sale of Series B Preferred Stock described above,
the Company entered into an agreement to exchange and consent with the holders
of the Series A Preferred Stock. Pursuant to that agreement, the holders of
the
Series A Preferred Stock exchanged their 3,264 shares of Series A Preferred
Stock for 272 shares of a new Series C convertible preferred stock (“Series C
Preferred Stock”), which were subordinated to the Series B Preferred Stock as
set forth in the Series C Certificate of Designations. The Series C Preferred
Stock is initially convertible at $1.00 per share into 3,264,000 shares of
common stock. As part of the exchange, the Company issued to the holders of
the
Series A Preferred Stock warrants to purchase 1,333,333 shares of common stock
expiring on May 2, 2012 at a price of $1.25 per share; paid them a cash
allowance to defray expenses totaling $40,000; and paid them an amount equal
to
unpaid dividends accumulated through the date of the exchange.
The
Series C Preferred Stock has an annual dividend rate of 8% until October 1,
2008
and thereafter has an annual dividend rate of 20%. The dividend rate also
increases to 20% upon certain events of default as defined in the Series C
Certificate of Designations. The dividends are payable quarterly. Such dividends
shall be paid only after all outstanding dividends on the Series B Preferred
Stock (with respect to the current fiscal year and all prior fiscal years)
shall
have been paid to the holders of the Series B Preferred Stock. The conversion
price is subject to adjustment for stock dividends, stock splits or similar
capital reorganizations.
7
In
connection with the sale of Series D Preferred Stock described below, the
conversion price of the Series C Preferred Stock was reduced to $0.65.
Series
D Preferred
- On
April
11, 2008, pursuant to a securities purchase agreement with accredited investors
dated March 26, 2008, as amended on April 9, 2008 (the “Purchase Agreement”),
the Company sold 113.5 shares of a newly created series of its preferred stock,
designated “Series D Convertible Preferred Stock”, par value $0.00001 per share
(the “Series D Preferred Stock”) and issued warrants to purchase 4,365,381
shares of its common stock for an aggregate purchase price of $5,675,000 (the
“Series D Financing”).
The
shares of Series D Preferred Stock are convertible into shares of common stock
any time after issuance at the option of the holder at $0.65 per share of common
stock. If there is an effective registration statement covering the shares
of
common stock underlying the Series D Preferred Stock and the VWAP, as defined
in
the Series D Certificate of Designations, of the Company’s common stock exceeds
$2.00 for 20 consecutive trading days, then the outstanding Series D Preferred
Stock will automatically convert into common stock at the conversion price
then
in effect. The conversion price will be subject to adjustment for stock
dividends, stock splits or similar capital reorganizations.
The
holders of Series D Preferred Stock are entitled to vote on all matters on
which
the holders of common stock are entitled to vote. The number of votes to which
each holder of Series D Preferred Stock is entitled is equal to the number
of
shares of common stock that would be issued to such holder if the Series D
Preferred Stock had been converted at the record date for the meeting of
stockholders.
The
Series D Preferred Stock has an annual dividend rate of 9%, payable
semi-annually on June 30 and December 31. Such dividends may be paid in cash
or
in registered shares of the Company’s common stock at the Company’s option,
subject to certain conditions.
The
Series D Preferred Stock ranks senior to all other outstanding series of
preferred stock and common stock as to the payment of dividends and the
distribution of assets upon voluntary or involuntary liquidation, dissolution
or
winding up of the Company’s affairs. The Series D preferred stockholders will be
entitled to receive first, $50,000 per share and all accrued and unpaid
dividends. Subject to any distributions that are required for any other series
of preferred stock, the Series D preferred stockholders are then entitled to
participate with the holders of the common stock in the distribution of
remaining assets on a pro rata basis. If, upon any winding up of the Company’s
affairs, assets available to pay the holders of Series D Preferred Stock are
not
sufficient to permit the payment in full, then all assets will be distributed
to
the holders of Series D Preferred Stock on a pro rata basis. If the Company
sells, leases or otherwise transfers substantially all of its assets,
consummates a business combination in which it is not the surviving corporation
or, if it is the surviving corporation, if the holders of a majority of the
common stock immediately before the transaction do not hold a majority of common
stock immediately after the transaction, in one or a series of events, change
the majority of the members of the board of directors, or if any person or
entity (other than the holders of Series D Preferred Stock) acquires more than
50% of the Company’s outstanding stock, then the holders of Series D Preferred
Stock are entitled to receive the same liquidation preference as described
above, except that after receiving $50,000 per preferred share and any accrued
but unpaid dividends, they are not entitled to participate with the holders
of
any other series of preferred or common stock in a distribution of the remaining
assets.
For
as
long as any shares of Series D Preferred Stock remain outstanding, the Company
is prohibited from (i) paying dividends to its common stockholders, (ii)
amending its certificate of incorporation, (iii) issuing any equity security
or
any security convertible into or exercisable for any equity security at a price
of $0.65 or less or with rights senior to the Series D Preferred Stock (except
for certain exempted issuances), (iv) increasing the number of shares of Series
D Preferred Stock or issuing any additional shares of Series D Preferred Stock,
(v) selling or otherwise disposing of all or substantially all of its assets
or
intellectual property or entering into a merger or consolidation with another
company unless the Company is the surviving corporation, the Series D Preferred
Stock remains outstanding and there are no changes to the rights and preferences
of the Series D Preferred Stock, (vi) redeeming or repurchasing any capital
stock other than Series D Preferred Stock, (vii) incurring any new debt for
borrowed money in excess of $500,000 and (viii) changing the number of
directors. The Company is required to reserve, out of authorized shares of
common stock, 100% of the number of shares of common stock into which Series
D
Preferred Stock is convertible.
8
Exchange
of Series B Preferred Stock for Series D Preferred Stock
In
connection with the closing of the Series D Financing, the holders of the
Company’s Series B Preferred Stock, exchanged all 300 of their shares of Series
B Preferred Stock for 300 shares of Series D Preferred Stock. Following the
exchange, no shares of Series B Preferred Stock are outstanding. The rights
and
preferences of the Series D Preferred Stock are substantially the same as the
Series B Preferred Stock. However, the conversion price of the Series D
Preferred Stock is $0.65. In addition, the holders of Series B Preferred Stock
waived liquidated damages that had accrued from September 7, 2007 through the
closing date as a result of the Company’s failure to register for resale 100% of
the shares of common stock underlying the Series B Preferred Stock and warrants.
As a result, in the six months ended June 30, 2008, the Company recorded a
reduction of general and administrative expenses of $395,000 relating to the
reversal of estimated liquidated damages that had been accrued through the
date
of the closing. The Purchase Agreement provided that the dividends that accrued
on the shares of Series B Preferred Stock from April 1, 2008 through the date
of
exchange be paid, out of legally available funds, on June 30, 2008. As of June
30, the Company did not have legally available funds for the payment of
dividends under Delaware corporate law and therefore has yet been unable to
pay
any dividends accrued in respect of the preferred stock.
Board
and Observer Rights
Pursuant
to the Purchase Agreement, from and after the closing, Xmark Opportunity Fund,
L.P., Xmark Opportunity Fund, Ltd. and Xmark JV Investment Partners, LLC
(collectively, the “Xmark Entities”), will have the right to designate one
member to the Company’s Board of Directors. This right shall last until such
time as the Xmark Entities no longer hold
at
least one-third of the Series D Preferred Stock issued to them at closing.
In
addition, the Xmark Entities, Caduceus Master Fund Limited, Caduceus Capital
II,
L.P., Summer Street Life Sciences Hedge Fund Investors, LLC, UBS Eucalyptus
Fund, LLC and PW Eucalyptus Fund, Ltd. (collectively, the “Lead Investors”) will
have the right to designate one observer to attend all meetings of the Company’s
Board of Directors, committees thereof and access to all information made
available to members of the Board. This right shall last until such time as
the
Lead Investors no longer hold
at
least one-third of the Series D Preferred Stock issued to them at
closing.
Common
Stock Purchase Warrants
The
common stock purchase warrants issued to the investors are exercisable for
an
aggregate of 4,365,381 shares of the Company’s common stock at an exercise price
of $0.65 and expire in April 2013. If after the six-month anniversary of the
date of issuance of the warrants there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares
issuable upon the exercise of the warrants, the holder may conduct a cashless
exercise whereby the holder may elect to pay the exercise price by having the
Company withhold, upon exercise, shares having a fair market value equal to
the
applicable aggregate exercise price. In the event of a cashless exercise, the
Company would receive no proceeds from the sale of common stock in connection
with such exercise.
The
warrant exercise price and/or number of warrants is subject to adjustment only
for stock dividends, stock splits or similar capital reorganizations so that
the
rights of the warrant holders after such event will be equivalent to the rights
of warrant holders prior to such event.
If
there
is an effective registration statement covering the shares underlying the
warrants and the VWAP, as defined in the warrant, of the Company’s common stock
exceeds $2.50 for 20 consecutive trading days, then on the 31st
day
following the end of such period any remaining warrants for which a notice
of
exercise was not delivered shall no longer be exercisable and shall be converted
into a right to receive $.01 per share.
Registration
Rights Agreement
The
Company entered into a registration rights agreement with the investors that
requires the Company to file with the Securities and Exchange Commission no
later than 5 business days following the six-month anniversary of the closing
of
the Series D Financing, a registration statement covering the resale of (i)
a
number of shares of common stock equal to 100% of the shares issuable upon
conversion of the Series D Preferred Stock (excluding 12,000,000 shares of
common stock issuable upon conversion of the Series D Preferred Stock that
were
included on a prior registration statement), (ii) a number of shares of common
stock equal to 100% of the shares issuable upon exercise of the warrants issued
in the Series D Financing and (iii) 7,500,000 shares of common stock issuable
upon exercise of warrants dated May 2, 2007 held by the investors. The Company
is required to use its best efforts to have the registration statement declared
effective and keep the registration statement continuously effective under
the
Securities Act until the earlier of the date when all the registrable securities
covered by the registration statement have been sold or the second anniversary
of the closing. In the event the Company fails to file the registration
statement within the timeframe specified by the Registration Rights Agreement,
the investors are entitled to receive liquidated damages equal to 1.5% per
month
(pro-rated on a daily basis for any period of less than a full month) of the
aggregate purchase price of the Series D Preferred Stock and warrants until
the
Company files the delinquent registration statement. The Company is allowed
to
suspend the use of the registration statement for not more than 15 consecutive
days or for a total of not more than 30 days in any 12-month period.
9
Placement
Agent Fee and Other Costs
Following
the closing of the Series D Financing, the Company paid Rodman & Renshaw LLC
a cash fee of $100,000 and paid other closing costs of approximately $105,000.
Amendments
to Prior Warrants and Registration Rights Agreement
At
the
closing, the Company entered into an amendment to the registration rights
agreement dated May 2, 2007 with the holders of its Series B Preferred Stock
to
revise the
definition of registrable securities under the agreement to include only the
12,000,000 shares of common stock that were included on a prior registration
statement and to extend the registration obligations under the agreement by
one
year. On April 28, 2008, the amended registration statement covering the
12,000,000 shares of common stock required to be registered was declared
effective. Accordingly, the Company has not accrued any liquidated damages
at
June 30, 2008 in connection with its registration obligation under the
agreement. If the Company is unable to maintain the effectiveness of that
registration statement through April 11, 2010, the Company may become liable
for
liquidated damages in future periods.
In
addition, in connection with the closing, the warrants to purchase common stock
issued in connection with the sale of Series B Preferred Stock were amended
to
conform the terms of those warrants to the terms of the warrants issued in
the
Series D Financing.
Accounting
Treatment of Series B and Series D Preferred Stock
The
terms
of the Series B Preferred Stock contained provisions that allow the holders
to
elect to receive a liquidation payment in circumstances that are beyond the
Company’s control. Therefore the shares have been recorded as redeemable
preferred stock outside of permanent equity in the balance sheet. The
shares were initially recorded at their estimated as-converted fair value of
$19,050,000, net of cash issuance costs of $1,306,949. That
value was further reduced by the intrinsic value of the beneficial conversion
feature of $7,824,385. As a result of the effective adjustment to the conversion
price of preferred stock and the adjustment to the exercise price of warrants
that occurred in connection with the exchange of all outstanding shares of
Series B Preferred Stock for shares of Series D Preferred Stock, in the quarter
ended June 30, 2008, a deemed dividend of $4,598,961 was recorded. This amount
represents the incremental fair value on the date of the exchange resulting
from
the adjustment to the conversion price of the Series B Preferred Stock from
$1.00 to $0.65 ($3,876,912) and the exercise price of the warrants from $1.25
to
$0.65 ($722,049). These amounts were recorded as both debits and credits to
temporary and permanent equity, respectively, in the quarter ended June 30,
2008. The incremental fair value of the adjustment to the conversion price
of
the Series B Preferred Stock was determined based on the market value of the
additional 8,076,900 shares of common stock that became issuable following
the
exchange. The incremental fair value of the modification to the warrants was
determined by the difference between the fair value of the warrants immediately
before and after modification using the Black-Scholes option pricing
model.
Since
the
terms of the Series D Preferred Stock also contain provisions that may require
redemption in circumstances that are beyond the Company’s control, the shares
have been recorded as redeemable preferred stock outside of permanent equity
in
the balance sheet as of June 30, 2008. The gross proceeds of $5,675,000 received
in conjunction with the Series D Financing were allocated on a relative fair
value basis between the Series D Preferred Stock and the warrants. The relative
fair value of the warrants issued to investors of $1,302,592 was recorded as
additional paid-in-capital while the relative fair value of the Series D
Preferred Stock of $4,372,408 was recorded as temporary equity. The carrying
value of the Series D Preferred Stock was immediately adjusted to its fair
value
of $4,190,762 based on the fair value of the as-converted common stock. The
difference of $181,646 was recorded as a reduction to the deemed dividend
described above. Issuance costs related to the Series D Financing of $205,328
were netted against temporary equity. The total carrying value of temporary
equity at June 30, 2008 of $13,904,100 consists of the $9,918,666 carrying
value
of the Series B Preferred Stock on the date of exchange plus the $3,985,434
carrying value of the Series D Preferred Stock issued in the Series D Financing
during the three months ended June 30, 2008.
10
Since
the
Company has concluded it is not probable that an event will occur which would
allow the holders of Series D Preferred Stock to elect to receive a liquidation
payment, the carrying value will not be adjusted until the time that such event
becomes probable. The liquidation preference (redemption value) is $21,140,188
at June 30, 2008.
Common
Stock Warrants — The
following table summarizes information with regard to outstanding warrants
issued in connection with equity and debt financings as of June 30, 2008.
Offering
|
Outstanding
(as adjusted)
|
Exercise
Price
(as adjusted)
|
Expiration Date
|
|||||||
2005
Bridge Loans
|
720,000
|
$
|
0.625
|
April 1, 2010
|
||||||
2005 PIPE:
|
||||||||||
Investors
|
6,923,028
|
$
|
0.65
|
August 11, 2008
|
||||||
Placement agents and finders
|
1,046,143
|
$
|
0.65
|
August 9, 2010
|
||||||
Series A Preferred (1):
|
||||||||||
Investors – September 30, 2005 closing
|
909,090
|
$
|
0.65
|
September 30, 2010
|
||||||
Investors – October 3, 2005 closing
|
60,606
|
$
|
0.65
|
October 3, 2010
|
||||||
2006 PIPE – Investors and placement agents
|
10,955,467
|
$
|
2.06
|
March 7, 2011
|
||||||
Series B Preferred:
|
||||||||||
Investors
|
7,500,000
|
$
|
0.65
|
April 11, 2013
|
||||||
Placement agents
|
900,000
|
$
|
1.25
|
May 2, 2012
|
||||||
Series C Exchange
|
1,333,333
|
$
|
1.25
|
May 2, 2012
|
||||||
Series D Preferred
|
4,365,381
|
$
|
0.65
|
April 11, 2013
|
||||||
Total
|
34,713,048
|
(1) Concurrently
with the Series B Financing, all shares of Series A Preferred Stock were
exchanged for shares of Series C Preferred Stock.
No
warrants have been exercised as of June 30, 2008. On August 11, 2008, warrants
to purchase 6,923,028 shares of common stock expired unexercised.
3.
COLLABORATION AGREEMENT
In
December 2007 the Company entered into a Collaboration Agreement with Lee’s
Pharmaceutical (HK) Ltd (“Lee’s Pharma”). Pursuant to the agreement, Lee’s
Pharma obtained an exclusive license to develop, manufacture and commercialize
NOV-002 and NOV-205 in Hong Kong, Macau, China and Taiwan (the “territory”).
Under the terms of the agreement the Company received an upfront license fee
of
$500,000 in March 2008 and is entitled to receive up to $1,700,000 in future
milestone payments upon the completion of development and marketing milestones
by Lee’s Pharma. The $500,000 milestone payment received is being amortized over
the estimated term of the agreement, 15 years. Accordingly, $16,667 of license
revenue was recognized in the six months ended June 30, 2008.
The
Company will receive royalty payments of 20-25% of net sales of NOV-002 in
the
territory and will receive royalty payments of 12-15% of net sales of NOV-205
in
the territory. Lee’s Pharma will also reimburse the Company for the
manufacturing cost of pharmaceutical products provided to Lee’s Pharma in
connection with the agreement. Lee’s Pharma has committed to spend certain
minimum amounts on development in the first four years of the agreement. The
agreement expires upon the expiration of the last patent covering any of the
licensed products, or twelve years from the date of the first commercial sale
in
China, whichever occurs later.
4.
STOCK-BASED COMPENSATION
The
following table summarizes amounts charged to expense for stock-based
compensation related to employee and director stock option grants and
stock-based compensation recorded in connection with stock options and
restricted stock awards granted to non-employee consultants:
11
Three months ended June 30,
|
Six months ended June 30,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Employee
and director stock option grants:
|
|||||||||||||
Research
and development
|
$
|
85,954
|
$
|
63,313
|
$
|
114,284
|
$
|
126,379
|
|||||
General
and administrative
|
57,665
|
41,819
|
116,552
|
83,461
|
|||||||||
143,619
|
105,132
|
230,836
|
209,840
|
||||||||||
Non-employee
consultants stock option grants and restricted stock
awards:
|
|||||||||||||
Research
and development
|
9,245
|
4,063
|
9,315
|
21,921
|
|||||||||
General
and administrative
|
16,482
|
51,643
|
16,884
|
91,623
|
|||||||||
25,727
|
55,706
|
26,199
|
113,544
|
||||||||||
Total
stock-based compensation
|
$
|
169,346
|
$
|
160,838
|
$
|
257,035
|
$
|
323,384
|
Determining
Fair Value
The
following table summarizes weighted-average values and assumptions used for
options granted to employees, directors and consultants in the periods
indicated:
Three Months
Ended
June 30, 2008
|
Three Months
Ended
June 30, 2007
|
Six Months
Ended
June 30, 2008
|
Six Months
Ended
June 30, 2007
|
||||||||||
Volatility
|
80
|
%
|
80
|
%
|
80
|
%
|
80
|
%
|
|||||
Weighted-average
volatility
|
80
|
%
|
80
|
%
|
80
|
%
|
80
|
%
|
|||||
Risk-free
interest rate
|
2.65
|
%
|
4.59
|
%
|
3.14
|
%
|
4.63
|
%
|
|||||
Expected
life (years)
|
5
|
5
|
5
|
5
|
|||||||||
Dividend
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
|||||
Weighted-average
exercise price
|
$
|
0.58
|
$
|
1.27
|
$
|
0.60
|
$
|
1.04
|
|||||
Weighted-average
grant-date fair value
|
$
|
0.38
|
$
|
0.85
|
$
|
0.39
|
$
|
0.70
|
A
summary
of stock option activity is as follows:
|
Options
Outstanding
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contracted
Term in
Years
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding
at January 1, 2008
|
4,847,651
|
$
|
0.67
|
||||||||||
Options
granted
|
435,000
|
$
|
0.60
|
||||||||||
Options
exercised
|
(100,000
|
)
|
$
|
0.01
|
|||||||||
Outstanding
at June 30, 2008
|
5,182,651
|
$
|
0.68
|
7.5
|
$
|
990,671
|
|||||||
Exercisable
at June 30, 2008
|
3,560,146
|
$
|
0.70
|
6.7
|
$
|
950,001
|
The
aggregate intrinsic value of options outstanding is calculated based on the
positive difference between the closing market price of the Company’s common
stock at the end of the respective period and the exercise price of the
underlying options.
As
of
June 30, 2008, there was approximately $501,000 of total unrecognized
compensation cost related to unvested stock-based compensation arrangements.
Of
this total amount, 37%, 48% and 15% are expected to be recognized during 2008,
2009 and 2010, respectively. The Company expects 1,622,505 unvested options
to
vest in the future. The weighted-average grant-date fair value of vested and
unvested options outstanding at June 30, 2008 was $0.41 and $0.40, respectively.
12
On
May
13, 2008, the Company entered into a separation agreement with M. Taylor Burtis,
a former officer of the Company, that provided, among other things that all
166,667 unvested options held by Ms. Burtis as of May 13, 2008 were immediately
vested and that she will have until December 31, 2009 to exercise the total
350,000 options held by her, at which time any unexercised options will expire.
During the three months ended June 30, 2008, incremental stock-based
compensation expense of $23,700 was recorded in connection with the modification
of the option terms.
5.
NET LOSS PER SHARE
Basic
net
loss per share is computed by dividing net loss attributable to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock and the dilutive potential common stock
equivalents then outstanding. Potential common stock equivalents consist of
stock options, warrants and convertible preferred stock. Since the Company
has a
net loss for all periods presented, the inclusion of common stock equivalents
in
the computation would be antidilutive. Accordingly, basic and diluted net loss
per share are the same.
The
following potentially dilutive securities have been excluded from the
computation of diluted net loss per share since their inclusion would be
antidilutive:
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
Stock
options
|
5,182,651
|
3,692,651
|
5,182,651
|
3,692,951
|
|||||||||
Warrants
|
34,713,048
|
26,873,047
|
34,713,048
|
26,873,047
|
|||||||||
Conversion
of preferred stock
|
36,829,192
|
18,264,000
|
36,829,192
|
18,264,000
|
6.
INCOME TAXES
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 109, Accounting
for Income Taxes (SFAS
109). Under SFAS 109, deferred tax assets or liabilities are computed based
on
the difference between the financial-statement and income-tax basis of assets
and liabilities, and net operating loss carryforwards, using the enacted tax
rates. Deferred income tax expense or benefit is based on changes in the asset
or liability from period to period. The Company did not record a provision
or
benefit for federal, state or foreign income taxes for the six months ended
June
30, 2008 and 2007 because the Company has experienced losses since inception.
The Company has not recorded a benefit for deferred tax assets as their
realization is uncertain.
7.
COMMITMENTS AND RELATED PARTY TRANSACTIONS
The
Company is obligated to ZAO BAM under a royalty and technology transfer
agreement. Mark Balazovsky, a director of the Company until November 2006,
is
the majority shareholder of ZAO BAM. Pursuant to the royalty and technology
transfer agreement between the Company and ZAO BAM, the Company is required
to
make royalty payments of 1.2% of net sales of oxidized glutathione-based
products. The Company is also required to pay ZAO BAM $2 million for each new
oxidized glutathione-based drug within eighteen months following FDA approval
of
such drug.
If
a
royalty is not being paid to ZAO BAM on net sales of oxidized glutathione
products, then the Company is required to pay ZAO BAM 3% of all license
revenues. If license revenues exceed the Company’s cumulative expenditures
including, but not limited to, preclinical and clinical studies, testing, FDA
and other regulatory agency submission and approval costs, general and
administrative costs, and patent expenses, then the Company would be required
to
pay ZAO BAM an additional 9% of the amount by which license revenues exceed
the
Company’s cumulative expenditures. During the six months ended June 30, 2008,
the Company paid ZAO BAM $15,000, which was 3% of license payments received
under the collaboration agreement described in Note 3.
As
a
result of the assignment to Novelos of the exclusive worldwide intellectual
property and marketing rights of oxidized glutathione (excluding Russia and
the
other states of the former Soviet Union), Novelos is obligated to the Oxford
Group, Ltd. for future royalties. One of the Company’s directors, Simyon
Palmin, is president of Oxford Group, Ltd. Pursuant to the agreement, as
revised May 26, 2005, Novelos is required to pay Oxford Group, Ltd. a royalty
in
the amount of 0.8% of the Company’s net sales of oxidized glutathione-based
products.
8. SUBSEQUENT
EVENT
On
August
12, 2008 Simyon Palmin, a founder of the Company, resigned from the Company’s
board of directors for personal reasons. Mr. Palmin currently remains an
employee of the Company as director of Russian relations. We expect that he
will
transition to the role of a non-employee consultant prior to year
end.
13
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
This
quarterly report on Form 10-Q includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which
we refer to as the Exchange Act. For this purpose, any statements contained
herein regarding our strategy, future operations, financial position, future
revenues, projected costs, prospects, plans and objectives of management, other
than statements of historical facts, are forward-looking statements. The words
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,”
“projects,” “will,” “would” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We cannot guarantee that we actually will achieve
the
plans, intentions or expectations disclosed in our forward-looking statements.
There are a number of important factors that could cause actual results or
events to differ materially from those disclosed in the forward-looking
statements we make. These important factors include our “critical accounting
estimates” and the risk factors set forth below under the caption “Factors That
May Affect Future Results.” Although we may elect to update forward-looking
statements in the future, we specifically disclaim any obligation to do so,
even
if our estimates change, and readers should not rely on those forward-looking
statements as representing our views as of any date subsequent to the date
of
this quarterly report.
Overview
We
are a
biopharmaceutical company, established in 1996, commercializing oxidized
glutathione-based compounds for the treatment of cancer and hepatitis.
NOV-002,
our lead compound currently in Phase 3 development for non-small cell lung
cancer (NSCLC), acts as a chemoprotectant and a chemopotentiator. In May 2006,
we finalized a Special Protocol Assessment (SPA) with the FDA for a single
pivotal Phase 3 trial in advanced NSCLC in combination with first-line
chemotherapy, and received Fast Track designation in August 2006. The primary
endpoint of this trial is improvement in median overall survival. Patient
enrollment commenced in November 2006 and targeted enrollment was reached in
March 2008. We anticipate that results from this trial will be available in
mid-2009. NOV-002 is also in Phase 2 development for chemotherapy-resistant
ovarian cancer and early-stage breast cancer.
NOV-205,
our second compound, acts as a hepatoprotective agent with immunomodulating
and
anti-inflammatory properties. Our Investigational New Drug Application for
NOV-205 as monotherapy for chronic hepatitis C has been accepted by the FDA.
A
U.S. Phase 1b clinical trial in patients who previously failed treatment with
pegylated interferon plus ribavirin was completed in December 2007. Based on
favorable safety results of that trial, we plan to initiate a longer duration
proof-of-concept trial in the fourth quarter of 2008.
Both
compounds have completed clinical trials in humans and have been approved for
use in Russia, where they were originally developed. We own all intellectual
property rights worldwide (excluding Russia and other states of the former
Soviet Union) related to compounds based on oxidized glutathione, including
NOV-002 and NOV-205. Our patent portfolio includes six U.S. issued patents,
two
European issued patents and one Japanese issued patent.
Plan
of Operation
14
Capital
Structure and Financings
In
2005
following the settlement of certain of our indebtedness, we completed a two-step
reverse merger with Common
Horizons, Inc. (“Common Horizons”), a Nevada-based developer of web portals, and
its wholly-owned subsidiary Nove Acquisition, Inc. After the completion of
the
reverse merger Novelos became the surviving corporation, the business of Common
Horizons, which was insignificant, was abandoned and the business of
Novelos was adopted. The transaction was therefore treated as a
reverse-acquisition recapitalization with Novelos as the acquiring party and
Common Horizons as the acquired party for accounting purposes.
Since
2005 we have completed various private placements of securities. In May through
August of 2005 we sold an aggregate of 4,000,000 shares of common stock and
warrants to purchase 2,000,000 shares of common stock for net cash proceeds
of
$3,715,000 and the conversion of $550,000 of convertible debt and accrued
interest. In September and October 2005, we sold in a private placement 3,200
shares of Series A preferred stock and warrants to purchase 969,696 shares
of
common stock for aggregate net proceeds of $2,864,000. On March 7, 2006, we
sold
11,154,073 shares of our common stock and warrants to purchase 8,365,542 shares
of our common stock for net proceeds of $13,847,000.
On May 2, 2007, we sold 300 shares of our Series B preferred stock and warrants
to purchase 7,500,000 shares of our common stock for net proceeds of
$13,693,000. In connection with that financing, the
holders of the existing Series A preferred stock exchanged their 3,264 shares
of
Series A preferred stock for 272 shares of a new Series C convertible preferred
stock, which are convertible into 3,264,000 shares of common stock. On April
11,
2008, we sold 113.5 shares of our Series D preferred stock and warrants to
purchase 4,365,381 shares of common stock for net proceeds of $5,470,000 (net
of
issuance costs). The shares of Series D preferred stock sold in the financing
are convertible into 8,730,755 shares of common stock. In connection with that
financing, the holders of the existing Series B preferred stock exchanged their
300 shares of Series B preferred stock for 300 shares of Series D preferred
stock, which are convertible into 23,076,900 shares of common stock.
Results
of Operations
Revenue.
Revenue
consists of amortization of upfront license fees received in connection with
partner agreements and income received from a grant from the U.S. Department
of
Health and Human Services.
Research
and development expense.
Research
and development expense consists of costs incurred in identifying, developing
and testing product candidates, which primarily consist of salaries and related
expenses for personnel, fees paid to professional service providers for
independent monitoring and analysis of our clinical trials, costs of contract
research and manufacturing and costs to secure intellectual property. We are
currently developing two proprietary compounds, NOV-002 and NOV-205. To date,
most of our research and development costs have been associated with our NOV-002
compound.
General
and administrative expense.
General
and administrative expense consists primarily of salaries and other related
costs for personnel in executive, finance and administrative functions. Other
costs include facility costs, insurance, costs for public and investor
relations, directors’ fees and professional fees for legal and accounting
services.
Three
Months Ended June 30, 2008 and 2007
Revenue.
During
the three months ended June 30, 2008 we recognized $8,000 in license fees in
connection with our collaboration with Lee’s Pharmaceutical (HK) Ltd (“Lee’s
Pharma”). Under the terms of the agreement the Company received an upfront
license fee of $500,000 in March 2008 and is entitled to receive up to
$1,700,000 in future milestone payments upon the completion of development
and
marketing milestones by Lee’s Pharma. The $500,000 milestone payment received is
being amortized over the estimated term of the agreement, 15 years. No such
agreement existed during the second quarter of 2007. During the three months
ended June 30, 2008, we also recognized $37,000 in grant revenue related to
a
grant received from the Department of Health and Human Services.
Research
and Development.
Research
and development expense for the three months ended June 30, 2008 was $4,046,000
compared to $3,800,000 for the three months ended June 30, 2007. The $246,000,
or 6%, increase in research and development expense was due to a combination
of
factors. In March 2008, we reached the enrollment target for our pivotal Phase
3
clinical trial of NOV-002. As a result certain clinical costs have flattened
or
declined. Contract research and consulting services increased by $64,000, the
cost of chemotherapy drug to be provided to patients in Europe decreased by
$505,000 and drug manufacturing and distribution costs (including storing and
shipping chemotherapy drug) decreased by $194,000. Clinical investigator
expenses, which are affected by the number of patients participating in a
clinical trial, increased by $637,000. Salaries and overhead costs such as
travel and related expenses increased $216,000 principally from the addition
of
employees in the first half of 2008. There was also an increase of $28,000
in
stock-based compensation expense.
15
General
and Administrative.
General
and administrative expense for the three months ended June 30, 2008 was $717,000
compared to $636,000 for the three months ended June 30, 2007. The $81,000,
or
13%, increase in general and administrative expense was due to two factors.
Professional and consulting costs increased by $50,000 as a result of increased
activities related to partnering, investor relations and financing. Salaries
and
overhead costs also increased by $50,000. These increases were offset by a
$19,000 decrease in stock-based compensation.
Interest
Income.
Interest
income for the three months ended June 30, 2008 was $38,000 compared to $213,000
for the same period in 2007. This decrease is a result of lower cash balances
as
well as a decline in prevailing interest rates.
Preferred
Stock Dividends and Deemed Dividends. During
the three months ended June 30, 2008 we accrued $465,000 of dividends due to
our
Series D preferred stockholders and accrued $65,000 in dividends due to our
Series C preferred stockholders. These
dividends have not been paid because we do not have legally available funds
for
the payment of dividends under Delaware corporate law. During
the three months ended June 30, 2008 we also recorded deemed dividends to
preferred stockholders totaling $4,417,000. This amount represents the value
attributed to the reduction in exercise and conversion prices of the warrants
and Series B preferred stock issued in May 2007 in connection with the financing
that occurred in April 2008, as described in Note 2.
During
the three months ended June 30, 2007 we paid cash dividends to Series A and
C
preferred stockholders of $65,000 and declared $225,000 of dividends to our
Series B preferred stockholders. During the three months ended June 30, 2007
we
also recorded deemed dividends to preferred stockholders totaling $9,003,000.
This amount represents the value attributed to the beneficial conversion feature
of the Series B convertible preferred stock of $7,824,000 and the fair value
of
warrants and cash totaling $1,179,000 transferred to the former Series A
preferred stockholders in connection with the exchange of their shares for
shares of Series C preferred stock that were subordinated to the Series B
shares.
The
deemed dividends and cash dividends have been included in the calculation of
net
loss
attributable to common stockholders of $9,624,000, or $0.24 per share, for
the
three months ended June 30, 2008 and $13,515,000, or $0.34 per share, for the
three months ended June 30, 2007. The deemed dividends and cash dividends are
excluded from net loss (from operating activities) of $4,677,000, or $0.12
per
share, for the three months ended June 30, 2008 and $4,222,000, or $0.11 per
share, for the three months ended June 30, 2007.
Six
Months Ended June 30, 2008 and 2007
Revenue.
During
the six months ended June 30, 2008 we recognized $17,000 in license fees in
connection with our collaboration with Lee’s Pharmaceutical (HK) Ltd (“Lee’s
Pharma”). Under the terms of the agreement the Company received an upfront
license fee of $500,000 in March 2008 and is entitled to receive up to
$1,700,000 in future milestone payments upon the completion of development
and
marketing milestones by Lee’s Pharma. The $500,000 milestone payment received is
being amortized over the estimated term of the agreement, 15 years. No such
agreement existed during the first six months of 2007. During the six months
ended June 30, 2008, we also recognized $37,000 in grant revenue related to
a
grant received from the Department of Health and Human Services.
Research
and Development.
Research
and development expense for the six months ended June 30, 2008 was $10,958,000
compared to $5,710,000 for the six months ended June 30, 2007. The $5,248,000,
or 92%, increase in research and development expense was due to increased
funding of our clinical, contract manufacturing and non-clinical activities.
The
overall increase resulted principally from expanded activities relating to
our
pivotal Phase 3 clinical trial of NOV-002 for non-small cell lung cancer,
particularly in the first quarter of 2008 leading up to full enrollment in
March
2008. The increase includes $1,769,000 in additional contract research and
consulting services, an increase of $1,854,000 in clinical investigator
expenses, an increase of $95,000 in drug manufacturing and distribution costs
(including storing and shipping chemotherapy drugs) and an increase of $336,000
related to salaries and overhead costs such as travel and related expenses.
We
also purchased $1,723,000 of chemotherapy drugs during the first six months
of
2008 to be used in the Phase 3 clinical trial, specifically for clinical sites
in Eastern and Western Europe. This represents a $1,218,000 increase over the
first six months of 2007. Since we do not anticipate recovering any of the
costs
of the chemotherapy and we do not have a reliable method for tracking the drugs
that have been administered to patients or evaluating any losses associated
with
spoilage, we recorded the entire amount as an expense in the period purchased.
The increases discussed above were offset by a decrease of $24,000 in
stock-based compensation expense during the first six months of 2008 as compared
to the same period in 2007.
16
General
and Administrative.
General
and administrative expense for the six months ended June 30, 2008 was $980,000
compared to $1,244,000 for the six months ended June 30, 2007. The $264,000,
or
21%, decrease in general and administrative expense was due principally to
three
factors. First, we reduced our accrual for potential liquidated damages
associated with registration rights agreements by $404,000. Liquidated damages
had accrued resulting from our registration of less than 100% of the securities
required by the registration rights agreements with investors in our Series
B
Preferred Stock financing. Those damages were waived in connection with the
sale
of Series D Preferred Stock described in Note 2. The registration obligations
associated with 2005 and 2006 financings have expired. Stock-based compensation
decreased $42,000 in the six months ended June 30, 2008 compared to the same
period of the prior year. These decreases were partially offset by an $124,000
increase in salary, directors fees and overhead costs and a $58,000 increase
in
professional and consulting fees.
Interest
Income.
Interest
income for the six months ended June 30, 2008 was $101,000 compared to $347,000
for the same period in 2007. This decrease is a result of lower cash balances
as
well as a decline in prevailing interest rates.
Preferred
Stock Dividends. During
the six months ended June 30, 2008 we paid cash dividends to Series C preferred
stockholders of $740,000 and accrued $530,000 of dividends due to our Series
B
and D preferred stockholders. These
dividends have not been paid because we do not have legally available funds
for
the payment of dividends under Delaware corporate law. During
the six months ended June 30, 2008 we also recorded deemed dividends to
preferred stockholders totaling $4,417,000. This amount represents the value
attributed to the reduction in exercise and conversion prices of the warrants
and preferred stock issued in May 2007 in connection with the financing that
occurred in April 2008, as described in Note 2.
During
the six months ended June 30, 2007 we paid cash dividends to Series A and C
preferred stockholders of $131,000 and declared $225,000 of dividends to our
Series B preferred stockholders. During the three months ended June 30, 2007
we
also recorded deemed dividends to preferred stockholders totaling $9,003,000.
This amount represents the value attributed to the beneficial conversion feature
of the Series B convertible preferred stock of $7,824,000 and the fair value
of
warrants and cash totaling $1,179,000 transferred to the former Series A
preferred stockholders in connection with the exchange of their shares for
shares of Series C preferred stock that were subordinated to the Series B
shares.
The
deemed dividends and cash dividends have been included in the calculation of
net
loss
attributable to common stockholders of $17,128,000, or $0.44 per share, for
the
six months ended June 30, 2008 and $15,962,000, or $0.41 per share, for the
six
months ended June 30, 2007. The deemed dividends and cash dividends are excluded
from net loss (from operating activities) of $11,778,000, or $0.30 per share,
for the six months ended June 30, 2008 and $6,603,000, or $0.17 per share,
for
the six months ended June 30, 2007.
Liquidity
and Capital Resources
We
have
financed our operations since inception through the sale of securities and
the
issuance of debt (which was subsequently paid off or converted into equity).
As
of June 30, 2008, we had $5,524,114 in cash and equivalents.
During
the six months ended June 30, 2008, approximately $10,112,000 in cash was used
in operations, primarily due to a net loss of $11,778,000 and an increase in
prepaid expenses of $42,000. The cash impact of the loss was offset by non-cash
stock-based compensation expense of $257,000, depreciation, amortization and
loss on disposal of fixed assets totaling $14,000, a net increase in accounts
payable, accrued liabilities and accrued compensation of $953,000 and an
increase in deferred revenue of $484,000. The significant increase in accounts
payable and accrued liabilities is principally a result of delays in invoicing
from clinical research organizations. During the six months ended June 30,
2008,
cash of approximately $1,164,000 was provided by investing activities resulting
from the release of restrictions on $1,185,000 of cash that had been previously
restricted, offset by payments of $20,000 to purchase fixed assets.
During
the six months ended June 30, 2008, we received net proceeds of $5,470,000
from
the sale of our Series D Preferred stock (see Note 2) and proceeds of $1,000
from the exercise of stock options. We paid dividends totaling $740,000 to
our
Series B and Series C preferred stockholders.
Based
on
our current and anticipated spending, we believe that our
available cash and equivalents will fund our operations into the fourth quarter
of 2008. We will need to raise additional capital in order to complete the
pivotal Phase 3 clinical trial for NOV-002 in NSCLC and other research and
development activities. We plan to seek additional funding through collaborative
arrangements and public or private financings. Our ability to continue to
execute our operating plan is dependent on our ability to obtain such funding.
Additional funding may not be available to us on acceptable terms or at all.
In
addition, the terms of any financing may adversely affect the holdings or the
rights of our stockholders. For example, if we raise additional funds by issuing
equity securities, further dilution to our existing stockholders may result.
If
we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs.
We
also could be required to seek funds through arrangements with collaborators
or
others that may require us to relinquish rights to some of our technologies,
product candidates, or products which we would otherwise pursue on our own.
17
Even
if
we are able to raise additional funds in a timely manner, our future capital
requirements may vary from what we expect and will depend on many factors,
including the following:
·
|
the
resources required to successfully complete our clinical trials;
|
·
|
the
time and costs involved in obtaining regulatory approvals;
|
·
|
continued
progress in our research and development programs, as well as the
magnitude of these programs;
|
·
|
the
cost of manufacturing activities;
|
·
|
the
costs involved in preparing, filing, prosecuting, maintaining, and
enforcing patent claims;
|
·
|
the
timing, receipt, and amount of milestone and other payments, if any,
from
collaborators; and
|
·
|
fluctuations
in foreign exchange rates.
|
Item
4. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer and our Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of June 30, 2008. Disclosure controls and procedures, as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
are
controls and procedures that are designed to ensure that information required
to
be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms and that such
information is accumulated and communicated to our management, including our
principal executive and financial officers, to allow timely decisions regarding
required disclosures.
Based
on
the evaluation of our disclosure controls and procedures as of June 30, 2008,
our Chief Executive Officer and our Chief Financial Officer concluded that,
as
of such date, our disclosure controls and procedures were operating effectively.
Change
in Internal Control over Financial Reporting
The
Company’s management, in connection with its evaluation of internal controls
(with the participation of the Company’s principal executive officer and
principal financial officer), did not identify any change in internal control
over the financial reporting process that occurred during the Company’s second
fiscal quarter of 2008 that would have materially affected, or would have been
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Limitations
on Effectiveness of Controls
In
designing and evaluating our disclosure controls and procedures, our management
recognizes that any system of controls, however well designed and operated,
can
provide only reasonable, and not absolute, assurance that the objectives of
the
system are met. In addition, the design of any control system is based in part
on certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
18
PART
II. OTHER INFORMATION
Item
1. Legal
Proceedings
None.
Item
1A. Risk Factors
The
report from our independent registered public accounting firm included in our
annual report on Form 10-KSB indicates that there is substantial doubt about
whether we will be able to continue as a going concern for a period of one
year
from the date of their report.
The
report from our independent registered public accounting firm included with
our
annual report on Form 10-KSB indicates that factors exist that raise substantial
doubt about our ability to continue as a going concern through March 2009.
We
have estimated that the cash on hand at June 30, 2008 will fund our obligations
into the fourth quarter of 2008. Our ability to continue as a going concern
is
dependent on our ability to obtain capital (through the sale of equity and
debt
securities and through collaborative arrangements with partners) to fund our
development activities. If we are unable to obtain additional capital through
these sources, we may have to seek other sources of capital or reevaluate our
operating plans, including slowing or stopping the Phase 3 clinical development
of our lead drug candidate, NOV-002.
We
may have difficulty raising needed capital because of our limited operating
history and our business risks.
We
currently generate insignificant revenue from our proposed products or
otherwise. We do not know when this will change. We have expended and will
continue to expend substantial funds in the research, development and clinical
and pre-clinical testing of our drug compounds. We will require additional
funds
to conduct research and development, establish and conduct clinical and
pre-clinical trials, establish commercial-scale manufacturing arrangements
and
provide for the marketing and distribution of our products. Additional funds
may
not be available on acceptable terms, if at all. If adequate funding is not
available to us, we may have to delay, reduce the scope of or eliminate one
or
more of our research or development programs or product launches or marketing
efforts, which may materially harm our business, financial condition and results
of operations.
Our
long-term capital requirements are expected to depend on many factors,
including:
·
|
the
number of potential products and technologies in
development;
|
·
|
continued
progress and cost of our research and development
programs;
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
·
|
the
time and costs involved in obtaining regulatory
clearance;
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
·
|
costs
of developing sales, marketing and distribution channels and our
ability
to sell our drugs;
|
·
|
costs
involved in establishing manufacturing capabilities for clinical
trial and
commercial quantities of our drugs;
|
·
|
competing
technological and market
developments;
|
·
|
market
acceptance of our products;
|
·
|
costs
for recruiting and retaining management, employees and consultants;
|
·
|
costs
for training physicians;
|
·
|
our
status as a Bulletin-Board listed company and the prospects for our
stock
to be listed on a national exchange;
and
|
·
|
uncertainty
and economic instability resulting from terrorist acts and other
acts of
violence or war.
|
We
may
consume available resources more rapidly than currently anticipated, resulting
in the need for additional funding. We may seek to raise any necessary
additional funds through the issuance of warrants, equity or debt financings
or
executing collaborative arrangements with corporate partners or other sources,
which may be dilutive to existing stockholders or otherwise have a material
effect on our current or future business prospects. In addition, in the event
that additional funds are obtained through arrangements with collaborative
partners or other sources, we may have to relinquish economic and/or proprietary
rights to some of our technologies or products under development that we would
otherwise seek to develop or commercialize by ourselves. If adequate funds
are
not available, we may be required to significantly reduce or refocus our
development efforts with regard to our drug compounds. Currently, we believe
that we have available cash sufficient to meet our working capital requirements
into the fourth quarter of 2008, assuming our expense levels do not exceed
our
current plan. If we do not generate revenues or raise additional capital, we
will not be able to sustain our operations at existing levels beyond that date
or earlier if expense levels increase.
19
The
failure to complete development of our therapeutic technology, obtain government
approvals, including required U.S. Food and Drug Administration (FDA) approvals,
or to comply with ongoing governmental regulations could prevent, delay or
limit
introduction or sale of proposed products and result in failure to achieve
revenues or maintain our ongoing business.
Our
research and development activities and the manufacture and marketing of our
intended products are subject to extensive regulation for safety, efficacy
and
quality by numerous government authorities in the United States and abroad.
Before receiving FDA clearance to market our proposed products, we will have
to
demonstrate that our products are safe and effective on the patient population
and for the diseases that are to be treated. Clinical trials, manufacturing
and
marketing of drugs are subject to the rigorous testing and approval process
of
the FDA and equivalent foreign regulatory authorities. The Federal Food, Drug
and Cosmetic Act and other federal, state and foreign statutes and regulations
govern and influence the testing, manufacturing, labeling, advertising,
distribution and promotion of drugs and medical devices. As a result, clinical
trials and regulatory approval can take many years to accomplish and require
the
expenditure of substantial financial, managerial and other
resources.
In
order
to be commercially viable, we must successfully research, develop, obtain
regulatory approval for, manufacture, introduce, market and distribute our
technologies. For each drug utilizing oxidized glutathione-based compounds,
including NOV-002 and NOV-205, we must successfully meet a number of critical
developmental milestones including:
·
|
demonstrating
benefit from delivery of each specific drug for specific medical
indications;
|
·
|
demonstrating
through pre-clinical and clinical trials that each drug is safe and
effective; and
|
·
|
demonstrating
that we have established a viable Good Manufacturing Practices capable
of
potential scale-up.
|
The
timeframe necessary to achieve these developmental milestones may be long and
uncertain, and we may not successfully complete these milestones for any of
our
intended products in development.
In
addition to the risks previously discussed, our technology is subject to
additional developmental risks that include the following:
·
|
uncertainties
arising from the rapidly growing scientific aspects of drug therapies
and
potential treatments;
|
·
|
uncertainties
arising as a result of the broad array of alternative potential treatments
related to cancer, hepatitis and other diseases;
and
|
·
|
anticipated
expense and time believed to be associated with the development and
regulatory approval of treatments for cancer, hepatitis and other
diseases.
|
In
order
to conduct the clinical trials that are necessary to obtain approval by the
FDA
to market a product, it is necessary to receive clearance from the FDA to
conduct such clinical trials. The FDA can halt clinical trials at any time
for
safety reasons or because we or our clinical investigators do not follow the
FDA’s requirements for conducting clinical trials. If we are unable to receive
clearance to conduct clinical trials or the trials are halted by the FDA, we
would not be able to achieve any revenue from such product, as it is illegal
to
sell any drug for human consumption in the U.S. without FDA approval.
20
Data
obtained from clinical trials is susceptible to varying interpretations, which
could delay, limit or prevent regulatory clearances.
Data
already obtained, or in the future obtained, from pre-clinical studies and
clinical trials does not necessarily predict the results that will be obtained
from later pre-clinical studies and clinical trials. Moreover, pre-clinical
and
clinical data are susceptible to varying interpretations, which could delay,
limit or prevent regulatory approval. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. The failure to
adequately demonstrate the safety and effectiveness of an intended product
under
development could delay or prevent regulatory clearance of the potential drug,
resulting in delays to commercialization, and could materially harm our
business. Our clinical trials may not demonstrate sufficient levels of safety
and efficacy necessary to obtain the requisite regulatory approvals for our
drugs, and our proposed drugs may not be approved for marketing.
We
may
encounter delays or rejections based on additional government regulation from
future legislation or administrative action or changes in FDA policy during
the
period of development, clinical trials and FDA regulatory review. We may
encounter similar delays in foreign countries. Sales of our products outside
the
U.S. would be subject to foreign regulatory approvals that vary from country
to
country. The time required to obtain approvals from foreign countries may be
shorter or longer than that required for FDA approval, and requirements for
foreign licensing may differ from FDA requirements. We may be unable to obtain
requisite approvals from the FDA and foreign regulatory authorities, and even
if
obtained, such approvals may not be on a timely basis, or they may not cover
the
uses that we request.
Even
if
we do ultimately receive FDA approval for any of our products, it will be
subject to extensive ongoing regulation. This includes regulations governing
manufacturing, labeling, packaging, testing, dispensing, prescription and
procurement quotas, record keeping, reporting, handling, shipment and disposal
of any such drug. Failure to obtain and maintain required registrations or
comply with any applicable regulations could further delay or preclude us from
developing and commercializing our drugs and subject us to enforcement
action.
Our
drugs or technology may not gain FDA approval in clinical trials or be effective
as a therapeutic agent, which could affect our future profitability and
prospects.
In
order
to obtain regulatory approvals, we must demonstrate that each drug is safe
and
effective for use in humans and functions as a therapeutic against the effects
of a disease or other physiological response. To date, studies conducted in
Russia involving our NOV-002 and NOV-205 products have shown what we believe
to
be promising results. In fact, NOV-002 has been approved for use in Russia
for
general medicinal use as an immunostimulant in combination with chemotherapy
and
antimicrobial therapy, and specifically for indications such as tuberculosis
and
psoriasis. NOV-205 has been approved in Russia as a monotherapy agent for the
treatment of hepatitis B and C. Russian regulatory approval is not equivalent
to
FDA approval. Pivotal Phase 3 studies with a large number of patients, typically
required for FDA approval, were not conducted for NOV-002 and NOV-205 in Russia.
Further, all of our Russian clinical studies were completed prior to 2000 and
may not have been conducted in accordance with current guidelines either in
Russia or the United States.
A
U.S.-based Phase 1/2 clinical trial of NOV-002 involving 44 non-small cell
lung
cancer patients provided what we believe to be a favorable outcome. As a result,
we enrolled the first patient in the pivotal Phase 3 trial of NOV-002 for
non-small cell lung cancer in November 2006. We reached our enrollment target
in
March 2008 and we expect trial conclusion mid-2009. We enrolled the first
patient in the Phase 2 clinical study for NOV-002 for chemotherapy-resistant
ovarian cancer in July 2006 and presented what we believe to be encouraging
results in May 2008. We also commenced a Phase 2 clinical study for NOV-002
for
early-stage breast cancer, and achieved an interim efficacy target in May 2008,
earlier than expected. In December 2007, we concluded a U.S. Phase 1b clinical
trial of NOV-205 for chronic hepatitis C non-responders based on favorable
safety profile. There can be no assurance that we can demonstrate that these
products are safe or effective in advanced clinical trials. We are also not
able
to give assurances that the results of the tests already conducted can be
repeated or that further testing will support our applications for regulatory
approval. As a result, our drug and technology research program may be
curtailed, redirected or eliminated at any time.
21
There
is no guarantee that we will ever generate substantial revenue or become
profitable even if one or more of our drugs are approved for
commercialization.
We
expect
to incur increasing operating losses over the next several years as we incur
increasing costs for research and development and clinical trials. Our ability
to generate revenue and achieve profitability depends on our ability, alone
or
with others, to complete the development of, obtain required regulatory
approvals for and manufacture, market and sell our proposed products.
Development is costly and requires significant investment. In addition, if
we
choose to license or obtain the assignment of rights to additional drugs, the
license fees for such drugs may increase our costs.
To
date,
we have not generated any revenue from the commercial sale of our proposed
products or any drugs and do not expect to receive such revenue in the near
future. Our primary activity to date has been research and development. A
substantial portion of the research results and observations on which we rely
were performed by third parties at those parties’ sole or shared cost and
expense. We cannot be certain as to when or whether to anticipate
commercializing and marketing our proposed products in development, and do not
expect to generate sufficient revenues from proposed product sales to cover
our
expenses or achieve profitability in the near future.
We
rely solely on research and manufacturing facilities at various universities,
hospitals, contract research organizations and contract manufacturers for all
of
our research, development, and manufacturing, which could be materially delayed
should we lose access to those facilities.
At
the
present time, we have no research, development or manufacturing facilities
of
our own. We are entirely dependent on contracting with third parties to use
their facilities to conduct research, development and manufacturing. Our
inability to have the facilities to conduct research, development and
manufacturing may delay or impair our ability to gain FDA approval and
commercialization of our drug delivery technology and products.
We
currently maintain a good working relationship with our contractors. Should
the
situation change and we are required to relocate these activities on short
notice, we do not currently have an alternate facility where we could relocate
our research, development and/or manufacturing activities. The cost and time
to
establish or locate an alternate research, development and/or manufacturing
facility to develop our technology would be substantial and would delay gaining
FDA approval and commercializing our products.
We
are dependent on our collaborative agreements for the development of our
technologies and business development, which expose us to the risk of reliance
on the viability of third parties.
In
conducting our research, development and manufacturing activities, we rely
and
expect to continue to rely on numerous collaborative agreements with
universities, hospitals, governmental agencies, charitable foundations,
manufacturers and others. The loss of or failure to perform under any of these
arrangements, by any of these entities, may substantially disrupt or delay
our
research, development and manufacturing activities including our anticipated
clinical trials.
We
may
rely on third-party contract research organizations, service providers and
suppliers to support development and clinical testing of our products. Failure
of any of these contractors to provide the required services in a timely manner
or on reasonable commercial terms could materially delay the development and
approval of our products, increase our expenses and materially harm our
business, financial condition and results of operations.
We
are exposed to product, clinical and preclinical liability risks that could
create a substantial financial burden should we be sued.
Our
business exposes us to potential product liability and other liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. We cannot assure that such potential claims will not be asserted
against us. In addition, the use in our clinical trials of pharmaceutical
products that we may develop and then subsequently sell or our potential
collaborators may develop and then subsequently sell may cause us to bear a
portion of or all product liability risks. A successful liability claim or
series of claims brought against us could have a material adverse effect on
our
business, financial condition and results of operations.
22
Although
we have not received any product liability claims to date, we have an insurance
policy of $5,000,000 per occurrence and $5,000,000 in the aggregate to cover
such claims should they arise. There can be no assurance that material claims
will not arise in the future or that our insurance will be adequate to cover
all
situations. Moreover, there can be no assurance that such insurance, or
additional insurance, if required, will be available in the future or, if
available, will be available on commercially reasonable terms. Any product
liability claim, if successful, could have a material adverse effect on our
business, financial condition and results of operations. Furthermore, our
current and potential partners with whom we have collaborative agreements or
our
future licensees may not be willing to indemnify us against these types of
liabilities and may not themselves be sufficiently insured or have a net worth
sufficient to satisfy any product liability claims. Claims or losses in excess
of any product liability insurance coverage that may be obtained by us could
have a material adverse effect on our business, financial condition and results
of operations.
Acceptance
of our products in the marketplace is uncertain and failure to achieve market
acceptance will prevent or delay our ability to generate
revenues.
Our
future financial performance will depend, at least in part, on the introduction
and customer acceptance of our proposed products. Even if approved for marketing
by the necessary regulatory authorities, our products may not achieve market
acceptance. The degree of market acceptance will depend on a number of factors
including:
·
|
the
receipt of regulatory clearance of marketing claims for the uses
that we
are developing;
|
·
|
the
establishment and demonstration of the advantages, safety and efficacy
of
our technologies;
|
·
|
pricing
and reimbursement policies of government and third-party payers such
as
insurance companies, health maintenance organizations and other health
plan administrators;
|
·
|
our
ability to attract corporate partners, including pharmaceutical companies,
to assist in commercializing our intended products;
and
|
·
|
our
ability to market our products.
|
Physicians,
patients, payers or the medical community in general may be unwilling to accept,
utilize or recommend any of our products. If we are unable to obtain regulatory
approval or commercialize and market our proposed products when planned, we
may
not achieve any market acceptance or generate revenue.
We
may face litigation from third parties who claim that our products infringe
on
their intellectual property rights, particularly because there is often
substantial uncertainty about the validity and breadth of medical
patents.
We
may be
exposed to future litigation by third parties based on claims that our
technologies, products or activities infringe on the intellectual property
rights of others or that we have misappropriated the trade secrets of others.
This risk is exacerbated by the fact that the validity and breadth of claims
covered in medical technology patents and the breadth and scope of trade-secret
protection involve complex legal and factual questions for which important
legal
principles are unresolved. Any litigation or claims against us, whether or
not
valid, could result in substantial costs, could place a significant strain
on
our financial and managerial resources and could harm our reputation. Most
of
our license agreements would likely require that we pay the costs associated
with defending this type of litigation. In addition, intellectual property
litigation or claims could force us to do one or more of the
following:
·
|
cease
selling, incorporating or using any of our technologies and/or products
that incorporate the challenged intellectual property, which would
adversely affect our future
revenue;
|
·
|
obtain
a license from the holder of the infringed intellectual property
right,
which license may be costly or may not be available on reasonable
terms,
if at all; or
|
·
|
redesign
our products, which would be costly and
time-consuming.
|
23
If
we are unable to adequately protect or enforce our rights to intellectual
property or secure rights to third-party patents, we may lose valuable rights,
experience reduced market share, assuming any, or incur costly litigation to
protect such rights.
Our
ability to obtain licenses to patents, maintain trade secret protection and
operate without infringing the proprietary rights of others will be important
to
our commercializing any products under development. Therefore, any disruption
in
access to the technology could substantially delay the development of our
technology.
The
patent positions of biotechnology and pharmaceutical companies, including us,
that involve licensing agreements, are frequently uncertain and involve complex
legal and factual questions. In addition, the coverage claimed in a patent
application can be significantly reduced before the patent is issued or in
subsequent legal proceedings. Consequently, our patent applications and any
issued and licensed patents may not provide protection against competitive
technologies or may be held invalid if challenged or circumvented. Our
competitors may also independently develop products similar to ours or design
around or otherwise circumvent patents issued or licensed to us. In addition,
the laws of some foreign countries may not protect our proprietary rights to
the
same extent as U.S. law.
We
also
rely on trade secrets, technical know-how and continuing technological
innovation to develop and maintain our competitive position. We generally
require our employees, consultants, advisors and collaborators to execute
appropriate confidentiality and assignment-of-inventions agreements. Our
competitors may independently develop substantially equivalent proprietary
information and techniques, reverse engineer our information and techniques,
or
otherwise gain access to our proprietary technology. We may be unable to
meaningfully protect our rights in trade secrets, technical know-how and other
non-patented technology.
Although
our trade secrets and technical know-how are important, our continued access
to
the patents is a significant factor in the development and commercialization
of
our products. Aside from the general body of scientific knowledge from other
drug delivery processes and technology, these patents, to the best of our
knowledge and based on our current scientific data, are the only intellectual
property necessary to develop our products, including NOV-002 and NOV-205.
We do
not believe that we are or will be violating any patents in developing our
technology.
We
may
have to resort to litigation to protect our rights for certain intellectual
property, or to determine their scope, validity or enforceability. Enforcing
or
defending our rights is expensive, could cause diversion of our resources and
may not prove successful. Any failure to enforce or protect our rights could
cause us to lose the ability to exclude others from using our technology to
develop or sell competing products.
We
have limited manufacturing experience and, if our products are approved, we
may
not be able to manufacture sufficient quantities at an acceptable cost, or
may
be subject to risk that contract manufacturers could experience shut-downs
or
delays.
We
remain
in the research and development and clinical and pre-clinical trial phase of
product commercialization. Accordingly, if our products are approved for
commercial sale, we will need to establish the capability to commercially
manufacture our products in accordance with FDA and other regulatory
requirements. We have limited experience in establishing, supervising and
conducting commercial manufacturing. If we fail to adequately establish,
supervise and conduct all aspects of the manufacturing processes, we may not
be
able to commercialize our products.
We
presently plan to rely on third-party contractors to manufacture our products.
This may expose us to the risks of not being able to directly oversee the
production and quality of the manufacturing process. Furthermore, these
contractors, whether foreign or domestic, may experience regulatory compliance
difficulties, mechanical shutdowns, employee strikes or other unforeseeable
acts
that may delay production.
Due
to our limited marketing, sales and distribution experience, we may be
unsuccessful in our efforts to sell our products, enter into relationships
with
third parties or develop a direct sales organization.
24
We
have
not yet had to establish marketing, sales or distribution capabilities for
our
proposed products. Until such time as our products are further along in the
regulatory process, we will not devote any meaningful time and resources to
this
effort. At the appropriate time, we intend to enter into agreements with third
parties to sell our products or we may develop our own sales and marketing
force. We may be unable to establish or maintain third-party relationships
on a
commercially reasonable basis, if at all. In addition, these third parties
may
have similar or more established relationships with our
competitors.
If
we do
not enter into relationships with third parties for the sale and marketing
of
our products, we will need to develop our own sales and marketing capabilities.
We have limited experience in developing, training or managing a sales force.
If
we choose to establish a direct sales force, we may incur substantial additional
expenses in developing, training and managing such an organization. We may
be
unable to build a sales force on a cost-effective basis or at all. Any such
direct marketing and sales efforts may prove to be unsuccessful. In addition,
we
will compete with many other companies that currently have extensive marketing
and sales operations. Our marketing and sales efforts may be unable to compete
against these other companies. We may be unable to establish a sufficient sales
and marketing organization on a timely basis, if at all.
We
may be
unable to engage qualified distributors. Even if engaged, these distributors
may:
· | fail to adequately market our products |
·
|
fail
to satisfy financial or contractual obligations to
us;
|
·
|
offer,
design, manufacture or promote competing products ;
or
|
·
|
cease
operations with little or no
notice.
|
If
we
fail to develop sales, marketing and distribution channels, we would experience
delays in product sales and incur increased costs, which would harm our
financial results.
If
we are unable to convince physicians as to the benefits of our intended
products, we may incur delays or additional expense in our attempt to establish
market acceptance.
Achieving
broad use of our products may require physicians to be informed regarding these
products and their intended benefits. The time and cost of such an educational
process may be substantial. Inability to successfully carry out this physician
education process may adversely affect market acceptance of our products. We
may
be unable to timely educate physicians regarding our intended products in
sufficient numbers to achieve our marketing plans or to achieve product
acceptance. Any delay in physician education may materially delay or reduce
demand for our products. In addition, we may expend significant funds towards
physician education before any acceptance or demand for our products is created,
if at all.
Fluctuations
in foreign exchange rates could increase costs to complete international
clinical trial activities.
We
have
initiated a portion of our clinical trial activities in both Western and Eastern
Europe. We anticipate that approximately 40% of the remaining Phase 3 clinical
trial budget of approximately $12 million will be incurred in Euros. Significant
depreciation in the value of the U.S. Dollar against principally the Euro could
adversely affect our ability to complete the trials, particularly if we are
unable to redirect funding or raise additional funds. Since the timing and
amount of foreign-denominated payments are uncertain and dependent on a number
of factors, it is difficult to cost-effectively hedge the potential exposure.
Therefore, to date, we have not entered into any foreign currency hedges to
mitigate the potential exposure.
The
market for our products is rapidly changing and competitive, and new
therapeutics, new drugs and new treatments that may be developed by others
could
impair our ability to maintain and grow our business and remain
competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial
technological change. Developments by others may render our technologies and
intended products noncompetitive or obsolete, or we may be unable to keep pace
with technological developments or other market factors. Technological
competition from pharmaceutical and biotechnology companies, universities,
governmental entities and others diversifying into the field is intense and
is
expected to increase. Most of these entities have significantly greater research
and development capabilities and budgets than we do, as well as substantially
more marketing, manufacturing, financial and managerial resources. These
entities represent significant competition for us. Acquisitions of, or
investments in, competing pharmaceutical or biotechnology companies by large
corporations could increase such competitors’ financial, marketing,
manufacturing and other resources.
25
We
are an
early-stage enterprise that operates with limited day-to-day business
management, serves as a vehicle to hold certain technology for possible future
exploration, and has been and will continue to be engaged in the development
of
new drugs and therapeutic technologies. As a result, our resources are limited
and we may experience management, operational or technical challenges inherent
in such activities and novel technologies. Competitors have developed or are
in
the process of developing technologies that are, or in the future may be, the
basis for competition. Some of these technologies may have an entirely different
approach or means of accomplishing similar therapeutic effects from our
technology. Our competitors may develop drugs and drug delivery technologies
that are more effective than our intended products and, therefore, present
a
serious competitive threat to us.
The
potential widespread acceptance of therapies that are alternatives to ours
may
limit market acceptance of our products even if commercialized. Many of our
targeted diseases and conditions can also be treated by other medication or
drug
delivery technologies. These treatments may be widely accepted in medical
communities and have a longer history of use. The established use of these
competitive drugs may limit the potential for our technologies and products
to
receive widespread acceptance if commercialized.
If
users of our products are unable to obtain adequate reimbursement from
third-party payers, or if new restrictive legislation is adopted, market
acceptance of our products may be limited and we may not achieve anticipated
revenues.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs
of
health care may affect our future revenues and profitability, and the future
revenues and profitability of our potential customers, suppliers and
collaborative partners and the availability of capital. For example, in certain
foreign markets, pricing or profitability of prescription pharmaceuticals is
subject to government control. In the United States, given recent federal and
state government initiatives directed at lowering the total cost of health
care,
the U.S. Congress and state legislatures will likely continue to focus on
healthcare reform, the cost of prescription pharmaceuticals and the reform
of
the Medicare and Medicaid systems. While we cannot predict whether any such
legislative or regulatory proposals will be adopted, the announcement or
adoption of such proposals could materially harm our business, financial
condition and results of operations.
Our
ability to commercialize our products will depend in part on the extent to
which
appropriate reimbursement levels for the cost of our products and related
treatment are obtained by governmental authorities, private health insurers
and
other organizations, such as health maintenance organizations (HMOs).
Third-party payers are increasingly challenging the prices charged for medical
drugs and services. Also, the trend toward managed health care in the United
States and the concurrent growth of organizations such as HMOs that could
control or significantly influence the purchase of healthcare services and
drugs, as well as legislative proposals to reform health care or reduce
government insurance programs, may all result in lower prices for or rejection
of our drugs. The cost containment measures that healthcare payers and providers
are instituting and the effect of any healthcare reform could materially harm
our ability to operate profitably.
We
depend on key personnel who may terminate their employment with us at any time,
and we would need to hire additional qualified personnel.
Our
success will depend to a significant degree on the continued services of key
management and advisors to us. There can be no assurance that these individuals
will continue to provide service to us. In addition, our success will depend
on
our ability to attract and retain other highly skilled personnel. We may be
unable to recruit such personnel on a timely basis, if at all. Our management
and other employees may voluntarily terminate their employment with us at any
time. The loss of services of key personnel, or the inability to attract and
retain additional qualified personnel, could result in delays in development
or
approval of our products, loss of sales and diversion of management resources.
26
Compliance
with changing corporate governance and public disclosure regulations may result
in additional expense.
Keeping
abreast of, and in compliance with, changing laws, regulations and standards
relating to corporate governance, public disclosure and internal controls,
including the Sarbanes-Oxley Act of 2002, new SEC regulations and, in the event
we seek and are approved for listing on a registered national securities
exchange, the stock exchange rules will require an increased amount of
management attention and external resources. We intend to continue to invest
all
reasonably necessary resources to comply with evolving standards, which may
result in increased general and administrative expense and a diversion of
management time and attention from revenue-generating activities to compliance
activities. Beginning with the annual report for the fiscal year ending December
31, 2007 we were required to include a report of our management on internal
control over financial reporting. In our annual report for the fiscal year
ending December 31, 2009 we will be required to include an attestation report
of
our independent registered public accounting firm on internal control over
financial reporting.
Our
executive officers, directors and principal stockholders have substantial
holdings, which could delay or prevent a change in corporate control favored
by
our other stockholders.
Our
directors, officers and holders of our Series D preferred stock beneficially
own, in the aggregate, approximately 51% of our outstanding voting shares.
The
interests of our current officers, directors and Series D investors may differ
from the interests of other stockholders. Further, our current officers,
directors and Series D investors may have the ability to significantly affect
the outcome of all corporate actions requiring stockholder approval, including
the following actions:
·
|
the
election of directors;
|
·
|
the
amendment of charter documents;
|
·
|
issuance
of blank-check preferred or convertible stock, notes or instruments
of
indebtedness which may have conversion, liquidation and similar features,
or completion of other financing arrangements;
or
|
·
|
the
approval of certain mergers and other significant corporate transactions,
including a sale of substantially all of our assets, or merger with
a
publicly-traded shell or other company.
|
Our
common stock could be further diluted as the result of the issuance of
additional shares of common stock, convertible securities, warrants or
options.
In
the
past, we have issued common stock, convertible securities, such as convertible
preferred stock, and warrants in order to raise money. We have also issued
options and warrants as compensation for services and incentive compensation
for
our employees and directors. We have shares of common stock reserved for
issuance upon the conversion and exercise of these securities and may increase
the shares reserved for these purposes in the future. Our issuance of additional
common stock, convertible securities, options and warrants could affect the
rights of our stockholders, and could reduce the market price of our common
stock.
We
are prohibited from taking certain actions and entering into certain
transactions as a result of the issuance of our Series D preferred stock.
For
as
long as any shares of Series D Preferred Stock remain outstanding we are
prohibited from taking certain actions or entering into certain transactions
without the prior consent of the holders of outstanding shares of Series D
preferred stock. We are prohibited from paying dividends to common stockholders,
amending our certificate of incorporation, issuing any equity security or any
security convertible into or exercisable for any equity security at a price
of
$0.65 or less or with rights senior to the Series D Preferred Stock (except
for
certain exempted issuances), increasing the number of shares of Series D
Preferred Stock or issuing any additional shares of Series D Preferred Stock
other than the 420 shares designated in the Series D Certificate of
Designations, or changing the number of our directors. We are also prohibited
from entering into certain transactions such as selling or otherwise disposing
of all or substantially all of our assets or intellectual property or entering
into a merger or consolidation with another company unless we are the surviving
corporation, the Series D Preferred Stock remains outstanding and there are
no
changes to the rights and preferences of the Series D Preferred Stock, redeeming
or repurchasing any capital stock other than Series D Preferred Stock, or
incurring any new debt for borrowed money in excess of $500,000.
27
If
the
board of directors determines that any of these actions are in the best interest
of the Company or our shareholders, we may be unable to complete them if we
do
not get the approval of the holders of the outstanding shares of Series D
preferred stock.
We
were unable to pay dividends to our preferred stockholders on June 30, 2008
and
may be unable to pay dividends to preferred stockholders when due in future
periods.
As
a
result of continuing losses during the year ended December 31, 2007 and the
three months ended March 31, 2008 and June 30, 2008, as of June 30, 2008, we
did
not have legally available funds for the payment of dividends under Delaware
corporate law. Accordingly, we were unable to pay dividends totaling $530,468
that were accrued in respect of the Series D and Series C preferred stock as
of
that date. Our ability to pay dividends on stated future dividend payment dates
will be dependent on a number of factors including the timing of future
financings and the amount of net losses in future periods.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
On
April
11, 2008, we issued 113.5 shares of our Series D convertible preferred stock
and
warrants to purchase 4,365,381 shares of our common stock to institutional
investors. We received gross proceeds of $5,675,000 and paid approximately
$205,000 in fees and expenses. In connection with this transaction, 300 shares
of Series B convertible preferred stock were exchanged for 300 shares of Series
D convertible preferred stock. Following the closing of the transaction we
paid
dividends of $740,280 to preferred stockholders that had accrued in respect
of
the Series B and Series C preferred stock through March 31, 2008.
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
Item
5. Other
Information
None.
Item
6. Exhibits
Filed
|
Incorporated by Reference
|
||||||||||
Exhibit
No
|
Description
|
with
this
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
||||||
2.1
|
Agreement and
plan of merger among Common Horizons, Inc., Nove Acquisition, Inc.
and
Novelos Therapeutics, Inc. dated May 26, 2005
|
8-K
|
June
2, 2005
|
99.2
|
|||||||
2.2
|
Agreement
and plan of merger between Common Horizons and Novelos Therapeutics,
Inc.
dated June 7, 2005
|
10-QSB
|
August
15, 2005
|
2.2
|
28
Filed
|
Incorporated by Reference
|
||||||||||
Exhibit
No
|
Description
|
with
this
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
||||||
3.1
|
Amended and
Restated Certificate of Incorporation filed as Exhibit A to the
Certificate of Merger merging Nove Acquisition, Inc. with and into
Novelos
Therapeutics, Inc. dated May 26, 2005
|
10-QSB
|
August
10, 2007
|
3.1
|
|||||||
3.2
|
Certificate
of Merger merging Common Horizons, Inc. with and into Novelos
Therapeutics, Inc. dated June 13, 2005
|
10-QSB
|
August
10, 2007
|
3.2
|
|||||||
3.3
|
Certificate
of Correction dated March 3, 2006
|
10-QSB
|
August
10, 2007
|
3.3
|
|||||||
3.4
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation
dated
July 16, 2007
|
10-QSB
|
August
10, 2007
|
3.4
|
|||||||
3.5
|
Certificate
of Designations of Series B convertible preferred stock
|
10-QSB
|
August
10, 2007
|
3.5
|
|||||||
3.6
|
Certificate
of Designations of Series C cumulative convertible preferred
stock
|
10-QSB
|
August
10, 2007
|
3.6
|
|||||||
3.7
|
Certificate
of Designations of Series D convertible preferred stock
|
8-K
|
April
14, 2008
|
4.1
|
|||||||
3.8
|
Certificate
of Elimination Series A 8% Cumulative Convertible Preferred Stock
of
Novelos Therapeutics, Inc.
|
8-K
|
April
14, 2008
|
4.2
|
|||||||
3.9
|
By-Laws
|
8-K
|
June
17, 2005
|
2
|
|||||||
10.1
|
Securities
Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
10.1
|
|||||||
10.2
|
Amendment
to Securities Purchase Agreement dated April 9, 2008
|
8-K
|
April
14, 2008
|
10.2
|
|||||||
10.3
|
Registration
Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.3
|
|||||||
10.4
|
Form
of Common Stock Purchase Warrant dated April 11, 2008 issued pursuant
to
the Securities Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
4.3
|
|||||||
10.5
|
Warrant
Amendment Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.5
|
|||||||
10.6
|
Amendment
to Registration Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.4
|
|||||||
31.1
|
Certification
of the chief executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
31.2
|
Certification
of the chief financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
X
|
29
Filed
|
Incorporated by Reference
|
||||||||||
Exhibit
No
|
Description
|
with
this
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
||||||
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
X
|
30
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
NOVELOS
THERAPEUTICS, INC.
|
|||
Date:
August 12, 2008
|
By:
|
/s/
Harry S. Palmin
|
|
Harry
S. Palmin
|
|||
President
and Chief Executive Officer
|
31
EXHIBIT
INDEX
Filed
|
Incorporated by Reference
|
||||||||||
Exhibit
No.
|
Description
|
with
this
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
||||||
2.1
|
Agreement
and plan of merger among Common Horizons, Inc., Nove Acquisition,
Inc. and
Novelos Therapeutics, Inc. dated May 26, 2005
|
8-K
|
June
2, 2005
|
99.2
|
|||||||
2.2
|
Agreement
and plan of merger between Common Horizons and Novelos Therapeutics,
Inc.
dated June 7, 2005
|
10-QSB
|
August
15, 2005
|
2.2
|
|||||||
3.1
|
Amended
and Restated Certificate of Incorporation filed as Exhibit A to the
Certificate of Merger merging Nove Acquisition, Inc. with and into
Novelos
Therapeutics, Inc. dated May 26, 2005
|
10-QSB
|
August
10, 2007
|
3.1
|
|||||||
3.2
|
Certificate
of Merger merging Common Horizons, Inc. with and into Novelos
Therapeutics, Inc. dated June 13, 2005
|
10-QSB
|
August
10, 2007
|
3.2
|
|||||||
3.3
|
Certificate
of Correction dated March 3, 2006
|
10-QSB
|
August
10, 2007
|
3.3
|
|||||||
3.4
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation
dated
July 16, 2007
|
10-QSB
|
August
10, 2007
|
3.4
|
|||||||
3.5
|
Certificate
of Designations of Series B convertible preferred stock
|
10-QSB
|
August
10, 2007
|
3.5
|
|||||||
3.6
|
Certificate
of Designations of Series C cumulative convertible preferred
stock
|
10-QSB
|
August
10, 2007
|
3.6
|
|||||||
3.7
|
Certificate
of Designations of Series D convertible preferred stock
|
8-K
|
April
14, 2008
|
4.1
|
|||||||
3.8
|
Certificate
of Elimination Series A 8% Cumulative Convertible Preferred Stock
of
Novelos Therapeutics, Inc.
|
8-K
|
April
14, 2008
|
4.2
|
|||||||
3.9
|
By-Laws
|
8-K
|
June
17, 2005
|
2
|
|||||||
10.1
|
Securities
Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
10.1
|
|||||||
10.2
|
Amendment
to Securities Purchase Agreement dated April 9, 2008
|
8-K
|
April
14, 2008
|
10.2
|
|||||||
10.3
|
Registration
Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.3
|
|||||||
10.4
|
Form
of Common Stock Purchase Warrant dated April 11, 2008 issued pursuant
to
the Securities Purchase Agreement dated March 26, 2008
|
8-K
|
April
14, 2008
|
4.3
|
|||||||
10.5
|
Warrant
Amendment Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.5
|
|||||||
10.6
|
Amendment
to Registration Rights Agreement dated April 11, 2008
|
8-K
|
April
14, 2008
|
10.4
|
32
Filed
|
Incorporated by Reference
|
||||||||||
Exhibit
No.
|
Description
|
with
this
Form
10-Q
|
Form
|
Filing Date
|
Exhibit
No.
|
||||||
31.1
|
Certification
of the chief executive officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
31.2
|
Certification
of the chief financial officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
X
|
|||||||||
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
X
|
33