REGENERX BIOPHARMACEUTICALS INC - Quarter Report: 2010 September (Form 10-Q)
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Securities and Exchange Commission
Washington, DC 20549
FORM 10-Q
þ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2010
o | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number 001-15070
RegeneRx Biopharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 52-1253406 | |
(State of Incorporation) | (IRS Employer I.D. Number) |
15245 Shady Grove Road
Suite 470
Rockville, Maryland 20850
Suite 470
Rockville, Maryland 20850
(Address of Principal Executive Offices)
(301) 208-9191
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Securities Exchange
Act of 1934. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
73,531,578 shares of common stock, par value $0.001 per share, were outstanding as of November 10,
2010.
RegeneRx Biopharmaceuticals, Inc.
Form 10-Q
Quarterly Period Ended September 30, 2010
Form 10-Q
Quarterly Period Ended September 30, 2010
Index
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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Part I Financial Information
Item 1. Financial Statements
RegeneRx Biopharmaceuticals, Inc.
Balance Sheets
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 4,975,947 | $ | 4,355,768 | ||||
Accounts receivable |
15,603 | | ||||||
Prepaid expenses and other current assets |
582,225 | 196,546 | ||||||
Total current assets |
5,573,775 | 4,552,314 | ||||||
Fixed assets, net of accumulated depreciation of
$105,655 and $98,171 |
24,640 | 8,492 | ||||||
Other non-current assets |
17,255 | 22,948 | ||||||
Total assets |
$ | 5,615,670 | $ | 4,583,754 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 605,138 | $ | 140,206 | ||||
Accrued expenses |
544,732 | 740,198 | ||||||
Total current liabilities |
1,149,870 | 880,404 | ||||||
Commitments |
| | ||||||
Stockholders equity |
||||||||
Preferred stock, $.001 par value per
share, 1,000,000 authorized; no shares
issued |
| | ||||||
Common stock, par value $.001 per share,
200,000,000 shares authorized, 73,531,578
issued and outstanding as of September
30, 2010; 100,000,000 authorized,
60,406,828 issued and outstanding as of
December 31, 2009 |
73,531 | 60,407 | ||||||
Additional paid-in capital |
92,997,669 | 88,144,347 | ||||||
Accumulated deficit |
(88,605,400 | ) | (84,501,404 | ) | ||||
Total stockholders equity |
4,465,800 | 3,703,350 | ||||||
Total liabilities and stockholders equity |
$ | 5,615,670 | $ | 4,583,754 | ||||
The accompanying notes are an integral part of these financial statements.
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RegeneRx Biopharmaceuticals, Inc.
Statements of Operations
(Unaudited)
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Sponsored research revenues |
$ | 42,690 | $ | | $ | 53,819 | $ | | ||||||||
Operating expenses: |
||||||||||||||||
Research and development |
820,984 | 648,418 | 1,819,036 | 3,064,248 | ||||||||||||
General and administrative |
811,880 | 593,965 | 2,345,619 | 2,161,539 | ||||||||||||
Total operating expenses |
1,632,864 | 1,242,383 | 4,164,655 | 5,225,787 | ||||||||||||
Loss from operations |
(1,590,174 | ) | (1,242,383 | ) | (4,110,836 | ) | (5,225,787 | ) | ||||||||
Interest income |
2,327 | 1,254 | 6,840 | 10,304 | ||||||||||||
Net loss |
$ | (1,587,847 | ) | $ | (1,241,129 | ) | $ | (4,103,996 | ) | $ | (5,215,483 | ) | ||||
Basic and diluted net loss per
common share |
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.10 | ) | ||||
Weighted average number of common
shares outstanding |
73,531,578 | 54,675,122 | 66,729,519 | 54,216,430 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
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RegeneRx Biopharmaceuticals, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months ended September 30, | ||||||||
2010 | 2009 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (4,103,996 | ) | $ | (5,215,483 | ) | ||
Adjustments to reconcile net loss to net cash used in operating
activities: |
||||||||
Depreciation and amortization |
7,484 | 12,578 | ||||||
Non-cash share-based compensation |
361,195 | 607,440 | ||||||
Gain on settlement of accrued liabilities |
(141,016 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(15,603 | ) | | |||||
Prepaid expenses and other current assets |
(385,679 | ) | (29,592 | ) | ||||
Other non-current assets |
5,693 | | ||||||
Accounts payable |
464,932 | (13,804 | ) | |||||
Accrued expenses |
(54,450 | ) | (481,319 | ) | ||||
Net cash used in operating activities |
(3,861,440 | ) | (5,120,180 | ) | ||||
Investing activities: |
||||||||
Purchase of fixed assets |
(23,632 | ) | | |||||
Net cash used in investing activities |
(23,632 | ) | | |||||
Financing activities: |
||||||||
Net proceeds from issuance of common stock |
4,505,251 | 573,683 | ||||||
Net cash provided by financing activities |
4,505,251 | 573,683 | ||||||
Net increase (decrease) in cash and cash
equivalents |
620,179 | (4,546,497 | ) | |||||
Cash and cash equivalents: |
||||||||
Beginning of period |
4,355,768 | 5,655,367 | ||||||
End of period |
$ | 4,975,947 | $ | 1,108,870 | ||||
The accompanying notes are an integral part of these financial statements.
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RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
(Unaudited)
(Unaudited)
1.
Organization, Business
Overview and Basis of Presentation
Organization and Nature of Operations.
RegeneRx Biopharmaceuticals, Inc. (the Company, We, Us, Our), a Delaware corporation, was
incorporated in 1982. We are focused on the development of a novel therapeutic peptide, Thymosin
Beta 4 (Tß4), for tissue and organ protection, repair and regeneration. Our operations are
confined to one business segment: the development and marketing of product candidates based on Tß4.
Management Plans to Address Operating Conditions.
We incurred net losses of $6.5 million for the year ended December 31, 2009 and $4.1 million for
the nine months ended September 30, 2010. Since inception, and through September 30, 2010, we have
an accumulated deficit of $88.6 million and we had cash and cash equivalents of $5.0 million as of
September 30, 2010. Based on our operating plan and a recently awarded $733,438 cash grant more
fully described below, we believe that our cash and cash equivalents as of September 30, 2010 will
fund our operations into the second quarter of 2011, without additional capital. We anticipate
incurring substantial future losses as we continue development of Tß4-based product candidates, and
will therefore need substantial additional capital resources.
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our common
stock and warrants to purchase an additional 5,249,900 shares of our common stock in a public
offering for net proceeds of approximately $4.5 million. In May 2010, we were awarded a grant
from the National Institutes of Health under which we may receive up to $3.0 million for
development expenses that we may incur over a three-year period, as more fully described in Note 5
below. In October 2010, we were awarded a cash grant totaling $733,438 under Section 48D of the
Internal Revenue Code, as more fully described in Note 8 below, in support of our research and
development initiatives for our product candidates.
We will explore other funding alternatives, such as additional government funding, public or
private placements of our securities, debt financing, corporate collaborations and licensing
arrangements or the sale of our company or certain of our intellectual property rights. If we are
unable to obtain additional financing, we may not be able to continue as a going concern after our
funds have been exhausted, and we could be required to significantly curtail or cease operations,
file for bankruptcy or liquidate and dissolve.
These factors raise substantial doubt about our ability to continue as a going concern as of the
date of the accompanying financial statements. The accompanying financial statements have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates
the recovery of our assets and the satisfaction of our liabilities in the normal course of
business. The financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be
necessary should we be forced to take any such actions.
Even if we are able to obtain sufficient funding, other factors including competition, dependence
on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of
peptides and technology obsolescence could have a significant impact on us and our operations.
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To achieve profitability we, or a strategic partner, must successfully conduct pre-clinical studies
and clinical trials, obtain required regulatory approvals and successfully manufacture and market
those pharmaceutical products we wish to commercialize. The time required to reach profitability is
highly uncertain and there can be no assurance that we will be able to achieve sustained
profitability, if at all.
Basis of Presentation.
The accompanying unaudited interim financial statements reflect, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of
our financial position, results of operations and cash flows for each period presented. These
statements have been prepared without audit in accordance with U.S. generally accepted accounting
principles (GAAP) and with the rules and regulations of the Securities and Exchange Commission
(SEC) for interim financial statements. Accordingly, they do not include all of the information
and footnotes required by GAAP. The accounting policies underlying our unaudited interim financial
statements are consistent with those underlying our audited annual financial statements. These
unaudited interim financial statements should be read in conjunction with the audited annual
financial statements as of and for the year ended December 31, 2009, and related notes thereto,
included in our Annual Report on Form 10-K for the year ended December 31, 2009 (the Annual
Report).
The accompanying December 31, 2009 financial information was derived from our audited financial
statements. Operating results for the three- and nine-month periods ended September 30, 2010 are
not necessarily indicative of the results to be expected for the year ending December 31, 2010 or
any other future period.
Subsequent events have been evaluated through the filing date of these unaudited financial
statements.
Use of Estimates.
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. Actual results could differ materially from those estimates.
Sponsored Research Revenues.
We account for non-refundable grants as Sponsored research revenues in the accompanying
statements of operations. Revenues are recognized when the associated research has been performed
and the related underlying costs are incurred.
New Accounting Pronouncements.
In April 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2010-17, Revenue RecognitionMilestone Method, which provides guidance on defining a
milestone and determining when it may be appropriate to apply the milestone method of revenue
recognition for research or development transactions. Research or development arrangements
frequently include payment provisions whereby all or a portion of the consideration is contingent
upon milestone events such as successful completion of phases in a study or achieving a specific
result from the research or development efforts. The amendments in this ASU provide guidance on the
criteria that should be met for
determining whether the milestone method of revenue recognition is appropriate. The ASU is
effective for fiscal years and interim periods within those years beginning on or after June 15,
2010, with early adoption permitted. We are currently evaluating the impact, if any, of the
application of this ASU on our financial condition and results of operations.
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In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.
This legislation includes an exemption for companies with less than $75 million in market
capitalization from the requirement set forth in Section 404(b) of the Sarbanes-Oxley Act of 2002
to include an external auditors report on the effectiveness of a registrants internal control
over financial reporting. As a result of the new legislation, our independent registered public
accounting firm will not be required to issue an attestation report with respect to our internal
control over financial reporting. However, we will continue to be subject to the requirement of
Section 404 of the Sarbanes-Oxley Act of 2002 for our management to make an annual assessment of
the effectiveness of our internal control over financial reporting.
2. Net Loss per Common Share
Net loss per common share for the three- and nine-month periods ended September 30, 2010 and 2009,
respectively, is based on the weighted-average number of shares of common stock outstanding during
the periods. Basic and diluted loss per share are identical for all periods presented, as
potentially dilutive securities have been excluded from the calculation of the diluted net loss per
common share because the inclusion of such securities would be antidilutive. The potentially
dilutive securities include 19,545,363 shares and 9,998,860 shares for the nine months ended
September 30, 2010 and 2009, respectively, reserved for the exercise of outstanding options and
warrants.
3. Stock-Based Compensation
We recognized $116,605 and $203,577 in stock-based compensation expense for the three months ended
September 30, 2010 and 2009, respectively. We recognized $361,195 and $607,440 in stock-based
compensation expense for the nine months ended September 30, 2010 and 2009, respectively. Given our
current estimates of future forfeitures, we expect to recognize the compensation cost related to
non-vested options as of September 30, 2010 of $447,364 over the weighted average remaining
recognition period of 1.2 years.
We estimate the value of our stock option awards on the date of grant using the Black-Scholes
option pricing model. We used the following forward-looking range of assumptions to value each
stock option granted to employees and directors during the nine months ended September 30, 2010 and
2009:
2010 | 2009 | |||||||
Dividend yield |
0.0 | % | 0.0 | % | ||||
Risk-free rate of return |
1.6 | % | 1.9 | % | ||||
Expected life in years |
4.75 | 5.38 | ||||||
Volatility |
70 | % | 72 | % | ||||
Forfeiture rate |
2.6 | % | 2.6 | % |
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4. Fair Value Measurements
We have adopted authoritative guidance that defines fair value and establishes a framework for fair
value measurements. This authoritative guidance established a three-level hierarchy for fair value
measurements. The hierarchy is based upon the transparency of inputs and the valuation of an asset
or a liability as of the measurement date. The three levels of inputs are as follows:
| Level 1 Quoted prices in active markets for identical assets and liabilities. |
| Level 2 Observable inputs other than quoted prices in active markets
for identical assets and liabilities. |
| Level 3 Unobservable inputs. |
At September 30, 2010, we held no qualifying liabilities, and our only qualifying assets that
required measurement under the foregoing fair value hierarchy were money market accounts, insured
bank deposits and U.S. Treasury Bills, included in Cash and Cash Equivalents valued at $5.0 million
using Level 1 inputs.
5. NIH Grant
On May 13, 2010, we were awarded a grant from the National Institutes of Healths National Heart,
Lung and Blood Institute to support and accelerate the clinical development of our product
candidate RGN-352, an injectable formulation of Tß4 for patients who have suffered an acute
myocardial infarction, commonly known as a heart attack. The award was issued under the American
Reinvestment and Recovery Act of 2009. Subject to our compliance with the terms and conditions of
the award, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements for direct costs incurred for the purposes set forth in the grant, as well as
allocable indirect costs. We recorded sponsored research revenue of $42,690 for the three months
ended September 30, 2010 and $53,819 for the nine months ended September 30, 2010 from this grant.
6. Public Offering
During the quarter ended June 30, 2010, we sold an aggregate of 13,124,750 shares of our common
stock and warrants to purchase an additional 5,249,900 shares of our common stock for net proceeds
of approximately $4.5 million. These securities were sold as units, with each unit consisting of
one share of
common stock and a warrant to purchase 0.4 shares of our common stock. Each unit was sold at a
public offering price of $0.41.
Each warrant has a term of five years and represents the right to purchase one share of common
stock at an exercise price of $0.56 per share. In the event the closing sale price of our common
stock is at least $1.78 per share for any 20 trading days within a period of 30 consecutive trading
days, we may call these warrants for redemption, at a redemption price of $0.01 per warrant, by
providing at least 30 days notice to each warrant holder. The warrants were valued using the
Black-Scholes option-pricing model as of the closing date and accounted for in permanent equity.
The estimated fair value of the warrants at the date of issuance was approximately $725,000.
In addition, the representative of the underwriters in the public offering was granted a warrant to
purchase 805,000 shares of our common stock at an exercise price of $0.45 per share. This warrant
is exercisable beginning on November 17, 2010 and continuing until May 17, 2015. The
representatives warrant also provides for one demand registration until May 17, 2015. The
representatives warrant was also valued using the Black-Scholes option-pricing model as of the
closing date and accounted for as a cost of the offering. The estimated fair value of the
representatives warrant at the date of issuance was approximately $112,000.
The public offering was made pursuant to a registration statement on Form S-1 (Registration No.
333-166146), which was declared effective by the SEC on May 17, 2010, and a final prospectus filed
with the SEC on May 18, 2010.
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7. 2010 Equity Incentive Plan
On July 14, 2010, at the Companys Annual Meeting of Stockholders, the Companys stockholders
approved the 2010 Equity Incentive Plan (the 2010 Plan). The terms of the 2010 Plan provide for
the discretionary grant of incentive stock options, nonstatutory stock options, stock appreciation
rights, restricted stock awards, restricted stock unit awards, performance stock awards, other
stock awards and performance cash awards to our employees, directors and consultants. At inception
of the 2010 Plan, 5,000,000 shares of the Companys common stock were reserved for future issuance.
We previously adopted an equity incentive plan, known as the Amended and Restated 2000 Stock Option
and Incentive Plan (the 2000 Plan). The 2000 Plan has a term of ten years that will expire in
December 2010. Upon the adoption of the 2010 Plan, we anticipate that no further awards will be
granted under the 2000 Plan prior to its expiration, but all outstanding option awards granted
under the 2000 Plan will continue to be subject to the terms and conditions as set forth in the
agreements evidencing such option awards and the terms of the 2000 Plan. Shares remaining available
for issuance under the share reserve of the 2000 Plan will not be subject to future awards under
the 2010 Plan, and shares subject to outstanding awards under the 2000 Plan that are terminated or
forfeited in the future will not be subject to future awards under the 2010 Plan.
8. Subsequent Event
On October 29, 2010, we were notified by the Internal Revenue Service that we have been certified
to receive a total cash grant of $733,438 related to the previously filed applications under the
Qualifying Therapeutic Discovery Projects (Section 48D of the Internal Revenue Code). This amount
will be recognized as revenue and is expected to be received in 2010.
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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q, including this Part I., Item 2., Managements Discussion and
Analysis of Financial Condition and Results of Operations, contains forward-looking statements
regarding us and our business, financial condition, results of operations and prospects within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be
identified by the words project, believe, anticipate, plan, expect, estimate, intend,
should, would, could, will, may or other similar expressions or their negatives. In
addition, any statements that refer to projections of our future financial performance, our
clinical development programs and schedules, our future capital resources and funding requirements,
our anticipated growth and trends in our business and other characterizations of future events or
circumstances are forward-looking statements. We cannot guarantee that we will achieve the plans,
intentions or expectations expressed or implied in our forward-looking statements. There are a
number of important factors that could cause actual results, levels of activity, performance or
events to differ materially from those expressed or implied in the forward-looking statements we
make, including those described under Risk Factors set forth below in Part II., Item 1A. In
addition, any forward-looking statements we make in this report speak only as of the date of this
report, and we do not intend to update any such forward-looking statements to reflect events or
circumstances that occur after that date.
Overview
We are a biopharmaceutical company focused on the development of a novel therapeutic peptide,
Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have
formulated Tß4 into three distinct product candidates currently in clinical development:
| RGN-352, an injectable product candidate to treat cardiovascular diseases,
central nervous system diseases, and other medical indications that may be
treated by systemic administration; |
| RGN-259, a topical eye drop for regeneration of corneal tissues damaged by
injury, disease or other pathology; and |
| RGN-137, a topically applied gel for dermal wounds and reduction of scar tissue. |
We have a fourth product candidate, RGN-457, in preclinical development. RGN-457 is an
inhaled formulation of Tß4 targeting cystic fibrosis and other pulmonary diseases.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical
companies regarding the further clinical development of all of our product candidates.
During 2009, we completed a Phase 1 clinical trial evaluating the safety of RGN-352 in 60
healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy
data published in peer-reviewed journals, we are initiating a Phase 2 clinical trial in the second
half of 2010 to evaluate RGN-352s ability to salvage and regenerate damaged cardiac tissue and
improve cardiac function after an acute myocardial infarction, or AMI, commonly known as a heart
attack.
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Additionally, recent preclinical research published in the scientific journals Neuroscience
and the Journal of Neurosurgery indicate that RGN-352 may prove useful for patients with multiple
sclerosis,
or MS, as well as stroke and traumatic brain injury. In these studies, the administration of
Tß4 resulted in regeneration of neuronal tissue and improvement of neurological function. Based on
this preclinical research, we intend to support a proposed Phase 1/2 clinical trial to be conducted
at a major U.S. medical center under a physician-sponsored investigational new drug application, or
IND, in order to evaluate the therapeutic potential of RGN-352 in patients with MS. We are planning
to supply RGN-352 and provide clinical and regulatory guidance for the trial.
We are supporting a physician-sponsored clinical trial in patients with dry eye secondary to
graft versus host disease, or GvHD, in order to evaluate RGN-259s ability to repair and regenerate
damaged ophthalmic tissues. Our support includes manufacturing and supplying RGN-259 for the trial
and providing regulatory and clinical guidance. We are continuing to collaborate with the U.S.
military to evaluate the potential of RGN-259 to prevent or reduce eye damage caused by chemical
warfare agents.
We are evaluating the use of RGN-137 in the treatment of patients with epidermolysis bullosa,
or EB, which is a genetic defect that results in fragile skin and other epithelial tissues that can
blister at the slightest trauma or friction, creating a wound that at times does not heal or heals
poorly. A portion of this trial was funded by a grant from the U.S. Food and Drug Administration,
or FDA. Despite the small patient population with EB, we continue to enroll patients in this Phase
2 trial and expect to complete the trial in early 2011. Once we complete our Phase 2 EB trial, we
will analyze the data in conjunction with our two other completed Phase 2 trials of RGN-137, along
with preclinical data indicating Tß4s ability to reduce scarring, at which time we will further
evaluate our strategy for the clinical development of RGN-137. Additionally, we intend to discuss
with the FDA the possibility of converting the Phase 2 trial to a pivotal trial for marketing
approval, should the data from the Phase 2 trial warrant. We believe that there is precedent for
this process, particularly in cases of product candidates under development for ultra-orphan
indications, where patient accrual is limited but the clinical data confirms both safety and
efficacy.
In addition to our four pharmaceutical product candidates, we are also pursuing the commercial
development of peptide fragments and derivatives of Tß4 for potential cosmeceutical use. These
fragments are amino acid sequences, and variations thereof, within the Tß4 molecule that have
demonstrated activity in several in vitro preclinical research studies that we have sponsored. We
believe the biological activities of these fragments may be useful, for example, in developing
novel cosmeceutical products for the anti-aging market. Our strategy is to enter into a
collaboration with another company to develop cosmeceutical formulations based on these peptides.
As of the date of this report, we believe we have sufficient liquidity and capital resources
to fund our operations, including our ongoing clinical trials and other research initiatives, into
the second quarter of 2011. This estimate includes the $733,438 of Federal funds awarded as a
grant in October 2010, more fully described in Note 8 to the financial statements included in this
report, and does not consider any other sources of capital. During this time period we believe that
we will be able to complete our ongoing Phase 2 trial of RGN-137 in EB patients. We also expect to
be able to initiate and conduct a portion of our Phase 2 AMI trial for RGN-352 and to support
portions of the physician-sponsored Phase 2 GvHD trial for RGN-259 and the proposed Phase 1/2 trial
of RGN-352 for multiple sclerosis patients. However, we will need substantial additional funds in
order to initiate and complete further clinical trials beyond those currently contemplated and to
continue to fund our operations.
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Financial Operations Overview
We have never generated product revenues, and we do not expect to generate product revenues
until the FDA approves one of our product candidates, if ever, and we begin marketing it. Subject
to the availability of financing, we expect to invest increasingly significant amounts in the
furtherance of our current clinical programs and may add additional nonclinical studies and new
clinical trials as we explore the potential of our current product candidates in other indications
and explore new formulations of Tß4-based product candidates. As we expand our clinical development
initiatives, we expect to incur substantial and increasing losses. Accordingly, we will need to
generate significant product revenues in order to ultimately achieve and then maintain
profitability. Also, we expect that we will need to raise substantial additional capital in order
to meet product development requirements. We cannot assure investors that such capital will be
available when needed, on acceptable terms, or at all.
Most of our expenditures to date have been for research and development, or R&D, activities
and general and administrative, or G&A, activities. R&D costs include all of the wholly-allocable
costs associated with our various clinical programs passed through to us by our outsourced vendors.
Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product
candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology,
safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory
evaluations, statistical data analysis, regulatory compliance, quality assurance and other related
activities. R&D includes cash and non-cash compensation, employee benefits, travel and other
miscellaneous costs of our internal R&D personnel, seven persons in total, who are wholly dedicated
either on a full or part-time basis to R&D efforts. R&D also includes a proration of our common
infrastructure costs for office space and communications. We expense our R&D costs as they are
incurred.
R&D expenditures are subject to the risks and uncertainties associated with clinical trials
and the FDA review and approval process. As a result, these expenses could exceed our expectations,
possibly materially. We are uncertain as to what we will incur in future research and development
costs for our clinical studies, as these amounts are subject to the outcome of current studies,
managements continuing assessment of the economics of each individual research and development
project and the internal competition for project funding. As described below under Sources of
Liquidity, in May 2010 we were awarded a grant from the National Institutes of Health, or NIH, to
support the development of RGN-352. Subject to our compliance with the terms and conditions of the
grant, we are eligible to receive up to $3.0 million over a three-year period in cost
reimbursements related to the purposes set forth in the grant.
G&A costs include outside professional fees for legal, business development, audit and
accounting services. G&A also includes cash and non-cash compensation, employee benefits, travel
and other miscellaneous costs of our internal G&A personnel, three in total, who are wholly
dedicated to G&A efforts. G&A also includes a proration of our common infrastructure costs for
office space, and communications.
Our G&A expenses also include costs to maintain our intellectual property portfolio. During
2010, we have expanded our patent prosecution activities and have been reviewing our pending patent
applications in the United States, Europe and other countries with the advice of outside legal
counsel. In some cases, we have filed patent applications for non-critical strategic purposes
intended to prevent others from filing similar patent claims. We continue to closely monitor our
patent applications to determine if they will continue to provide strategic benefits. In cases
where we believe the benefit has been realized or it becomes unnecessary due to the issuance of
other patents, or for other reasons that
will not affect the strength of our intellectual property portfolio, we will abandon these
patent applications in order to reduce our costs of prosecution.
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Critical Accounting Policies
In Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations, of our Annual Report on Form 10-K for the year ended December 31, 2009, which was
filed with the SEC on March 31, 2010, which we refer to as the Annual Report, we included a
discussion of the most significant accounting policies and estimates used in the preparation of our
financial statements. There has been no material change in the policies and estimates used in the
preparation of our financial statements since the filing of our Annual Report.
Results of Operations
Comparison of the three months ended September 30, 2010 and 2009
Revenue. We recognized approximately $43,000 in revenue for the three months ended September
30, 2010 from the NIH grant awarded in May 2010. The revenue recognized was based on the costs
incurred during the period related to this grant. There were no revenue-generating grants or other
sources of revenue during 2009.
R&D Expenses. For the three months ended September 30, 2010, our R&D expenses increased by
approximately $173,000, or 27%, to $821,000, from approximately $648,000 for the same period in
2009. Approximately $148,000 of the increase was directly related to the initiation of several
research activities, including drug formulation and other preparatory work for our Phase 2 clinical
trial with AMI patients, our Phase 2 clinical trial with GvHD patients and two pre-clinical dry eye
studies. During both periods, we continued to enroll patients in our Phase 2 EB trial with
RGN-137, along with other supportive development activities for all of our drug candidates. The
remaining $25,000 of the increase relates to new technology licenses activated during the period.
G&A Expenses. For the three months ended September 30, 2010, our G&A expenses increased by
approximately $218,000, or 37%, to approximately $812,000, from approximately $594,000 for the same
period in 2009. This increase included an increase in outside legal fees of approximately $120,000
primarily in support of our intellectual property portfolio, an increase in our investor relations
activities of approximately $50,000 primarily due to the engagement of an outside investor
relations firm, and an increase of approximately $8,000 in insurance premiums. Additionally,
compensation expense for our G&A employees and Board members increased by a net $20,000. This
increase in compensation costs resulted from the restoration of cash-based compensation for most of
our employees and our Board, which had been reduced by 35% during the quarter ended September 30,
2009, along with the restoration of the companys matching contribution for retirement benefits and
variances in the amount of non-cash incentive stock compensation expense. The remainder of the
increase in G&A was due to timing differences, as we incurred administrative costs during the third
quarter of 2010 that were incurred during other periods in 2009.
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Comparison of the nine months ended September 30, 2010 and 2009
Revenue. We recognized approximately $54,000 in revenue for the nine months ended September
30, 2010 from the NIH grant awarded in May 2010. The revenue recognized was based on
the costs incurred during the period related to this grant. There were no revenue-generating
grants or other sources of revenue during 2009.
R&D Expenses. For the nine months ended September 30, 2010, our R&D expenses decreased by
approximately $1.3 million, or 41%, to approximately $1.8 million, from approximately $3.1 million
for the same period in 2009. The decrease was primarily the result of reduced clinical activity in
2010 as compared to 2009. During the nine months ended September 30, 2009, we concluded our Phase
2 clinical trials evaluating RGN-137 in patients with pressure ulcers and venous stasis ulcers, as
well as the clinical portion of our Phase 1 trial evaluating the safety of RGN-352 in healthy
subjects. We also terminated our Phase 2 clinical trial evaluating the safety and efficacy of
RGN-259 to treat diabetic patients whose corneal epithelium had been scraped during vitrectomy
surgery. Offsetting these cost reductions we commenced new clinical activities in the quarter
ended September 30, 2010 as described in the comparison of the three-month period analysis above.
G&A Expenses. For the nine months ended September 30, 2010, our G&A expenses increased by
approximately $200,000, or 9%, to approximately $2.4 million from approximately $2.2 million for
the same period in 2009. This net change included increases of approximately $310,000 in support
of our intellectual property portfolio, approximately $55,000 primarily due to the engagement of an
outside investor relations firm and other investor relations activities, approximately $10,000 in
additional compensation costs, and approximately $8,000 in additional insurance premiums. These
increases were offset by a reduction in legal and other outside consulting costs of approximately
$183,000.
Liquidity and Capital Resources
Overview
We have not commercialized any of our product candidates to date and have incurred significant
losses since inception. We have primarily financed our operations through the issuance of common
stock and common stock warrants in private and public financings, although as discussed below we
have recently been awarded government grants and will continue to pursue other governmental funding
sources. The report of our independent registered public accounting firm regarding our financial
statements for the year ended December 31, 2009 contains an explanatory paragraph regarding our
ability to continue as a going concern based upon our history of net losses and dependence on
future financing in order to meet our planned operating activities.
We incurred net losses of $6.5 million for the year ended December 31, 2009 and $4.1 million
for the nine months ended September 30, 2010. We had cash and cash equivalents totaling $5.0
million and $4.4 million at September 30, 2010 and December 31, 2009, respectively. The increase
during the nine months ended September 30, 2010 resulted from the sale of shares of our common
stock and warrants to purchase shares of our common stock, partially offset by our net loss during
the period. As of September 30, 2010, we had an accumulated deficit of $88.6 million. Based on
our current operations, we believe our cash resources, including the recent government grant of
$733,438 that we expect to receive in the fourth quarter of 2010, will be adequate to fund our
operations into the second quarter of 2011, without considering any other sources of capital.
Accordingly, we will continue to have a need for financing, which we may not be able to complete
either on favorable terms or at all.
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Cash Flows for the Nine Months Ended September 30, 2010 and 2009
Our net cash used in operating activities was approximately $3.9 million and $5.1 million for
the nine months ended September 30, 2010 and 2009, respectively. In both periods, the net cash
used in operating activities was primarily the result of our net losses during the periods.
Included in these net losses were non-cash expenses related to employee stock compensation and
depreciation of approximately $369,000 and $620,000 for the nine months ended September 30, 2010
and 2009, respectively. Also included in the net loss for the nine months ended September 30, 2010
was a $141,000 non-cash gain upon the settlement of accrued liabilities. Finally, changes in
working capital resulted in net cash inflows of approximately $15,000 during the nine months ended
September 30, 2010, as opposed to net cash outflows of $525,000 during the nine months ended
September 30, 2009. During the nine months ended September 30, 2010, we spent approximately
$24,000 for the purchase of furniture and equipment, which was our only investing activity during
the period, and there were no investing activities during the same period of 2009. During the nine
months ended September 30, 2010, we raised net cash proceeds of approximately $4.5 million from the
sale of units in a public offering as described elsewhere in this report. During the same period
of 2009, we raised approximately $574,000 in net proceeds from a private placement of our common
stock and warrants.
Future Funding Requirements
The expenditures that will be necessary to execute our business plan are subject to numerous
uncertainties that may adversely affect our liquidity and capital resources. Currently, we are
actively enrolling patients in one Phase 2 trial, for RGN-137 in EB patients. We have also
commenced planning for a Phase 2 clinical trial of RGN-352 for AMI patients and intend to begin
enrolling patients in this trial in the first quarter of 2011. We are also supporting a
physician-sponsored Phase 2 clinical trial of RGN-259 in patients with dry eye secondary to GvHD,
and a planned Phase 1/2 clinical trial of RGN-352 for MS patients. We currently have sufficient
capital resources to continue clinical development into the second quarter of 2011, but will
require substantial capital resources to continue operations beyond that time.
The length of time required for clinical trials varies substantially according to the type,
complexity, novelty and intended use of a product candidate. Some of the factors that could impact
our liquidity and capital needs include, but are not limited to:
| the progress of our clinical trials; |
| the progress of our research activities; |
| the number and scope of our research programs; |
| the progress of our preclinical development activities; |
| the costs involved in preparing, filing, prosecuting, maintaining, enforcing
and defending patent and other intellectual property claims; |
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| the costs related to development and manufacture of preclinical, clinical
and validation lots for regulatory purposes and commercialization of drug
supply associated with our product candidates; |
| our ability to enter into corporate collaborations and the terms and success
of these collaborations; |
| the costs and timing of regulatory approvals; and |
| the costs of establishing manufacturing, sales and distribution capabilities. |
In addition, the duration and the cost of clinical trials may vary significantly over the life
of a project as a result of differences arising during the clinical trial protocol, including,
among others, the following:
| the number of patients that ultimately participate in the trial; |
| the duration of patient follow-up that seems appropriate in view of the results; |
| the number of clinical sites included in the trials; and |
| the length of time required to enroll suitable patient subjects. |
Also, we test our potential product candidates in numerous preclinical studies to identify
indications for which they may be product candidates. We may conduct multiple clinical trials to
cover a variety of indications for each product candidate. As we obtain results from trials, we may
elect to discontinue clinical trials for certain product candidates or for certain indications in
order to focus our resources on more promising product candidates or indications.
Our proprietary product candidates also have not yet achieved FDA regulatory approval, which
is required before we can market them as therapeutic products. In order to proceed to subsequent
clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our
clinical data establish safety and efficacy. Historically, the results from preclinical studies and
early clinical trials have often not been predictive of results obtained in later clinical trials.
A number of new drugs and biologics have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory
approvals.
In addition to our obligations under clinical trials, we are committed under an office space
lease through January 2013 that requires average base rental payments of approximately $7,300 per
month.
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Sources of Liquidity
We have not commercialized any of our product candidates to date and have primarily financed
our operations through the issuance of common stock and common stock warrants in private and public
financings. Our largest stockholder group, which we refer to in this report as Sigma-Tau, has
historically provided significant equity capital to us. Since we began development of our
Tß4-based product candidates in 2000, we have raised approximately $52 million, of which Sigma-Tau
has contributed approximately $32 million. As described elsewhere in this report, during the first
half of 2010 we raised approximately $4.5 million from a public offering of our securities. During
2009, we raised approximately $3.7 million from a public offering of our securities and an
additional $1.6 million from private placements of our securities issued to Sigma-Tau.
We are also party to a license agreement with Sigma-Tau that provides the opportunity for us
to receive milestone payments upon specified events and royalty payments in connection with
commercial sales of Tß4 in Europe. However, we have not received any milestone payments to date,
and there can be no assurance that we will be able to attain such milestones and generate any such
payments under the agreement.
We are also aggressively pursuing government funding and were recently awarded a grant from
the NIHs National Heart, Lung and Blood Institute to support the requisite nonclinical development
of RGN-352 for patients who have suffered a heart attack. These nonclinical activities are being
conducted in parallel with our ongoing Phase 2 clinical trial of RGN-352. Subject to our
compliance with the terms and conditions of the grant, we are eligible to receive up to $3.0
million over a three-year period in cost reimbursements for our associated costs incurred for the
purposes set forth in the grant. Revenue from the grant will be recorded during the same periods
when we incur eligible expenses.
The recently enacted Patient Protection and Affordable Care Act included a new incentive for
biotechnology companies like ours, known as the Qualifying Therapeutic Discovery Project grant
program. Under this program, small businesses were able to apply for a federal grant in an amount
equal to 50% of their eligible investment in qualifying therapeutic discovery projects for 2009 and
2010. Qualifying therapeutic discovery projects include those designed to treat or prevent
diseases or conditions by conducting pre-clinical or clinical activities for the purpose of
securing FDA approval of a product. We submitted three applications covering each of our
clinical-stage product candidates. In October 2010, we were notified that we received an award of
$733,438 under this program, which we will record as revenue in the fourth quarter of 2010.
Additionally, the U.S. government is evaluating RGN-259, our sterile eye drop formulation, in
animals exposed to chemical warfare agents. We believe our other formulations may also be of
interest in healing damaged tissues for indications that result from battlefield or homeland
security situations. As such, we have engaged a consulting firm to help us identify other sources
of funding from U.S. government agencies. There can be no assurance, however, that we will be able
to secure additional funds from the U.S. government or other governmental sources.
Other potential sources of outside capital include entering into strategic business
relationships, additional issuances of equity securities, or debt financing or other similar
financial instruments. If we raise additional capital through a strategic business relationship,
we may have to give up valuable rights to our intellectual property. If we raise funds by selling
additional shares of our common stock or
securities convertible into our common stock, the ownership interest of our existing
stockholders may be significantly diluted. In addition, if additional funds are raised through the
issuance of preferred stock or debt securities, these securities are likely to have rights,
preferences and privileges senior to our common stock and may involve significant fees, interest
expense, restrictive covenants and the granting of security interests in our assets.
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Our failure to successfully address ongoing liquidity requirements would have a materially
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials, or ceasing operations. There
can be no assurance that we will be able to obtain additional capital in sufficient amounts, on
acceptable terms, or at all.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4)
of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our cash equivalents, which are generally comprised of federally insured bank deposits, are
subject to default, changes in credit rating and changes in market value. These investments are
also subject to interest rate risk and could decrease in value if market interest rates increase.
As of September 30, 2010, our cash and cash equivalents totaled $5.0 million. Due to the short-term
nature of our cash equivalents, if market interest rates differed by 10% from their levels as of
September 30, 2010, the change in fair value of our financial instruments would not have been
material.
Item 4. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended) as of September 30, 2010. Based upon this
evaluation, management has concluded that, as of September 30, 2010, our disclosure controls and
procedures were effective to provide reasonable assurance that the information required to be
disclosed is recorded, processed, summarized and reported within the time periods specified under
applicable rules of the SEC, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosures.
b) Changes in Internal Controls
There were no changes in our internal control over financial reporting during the quarter
ended September 30, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
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Part II Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Set forth below and elsewhere in this report and in other documents we file with the SEC are
risks and uncertainties that could cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report. The descriptions below
include any material changes to and supersede the description of the risk factors affecting our
business previously disclosed in Part II, Item 1A. Risk Factors of the Annual Report.
Risks Related to Our Liquidity and Need for Financing
We estimate that our existing capital resources will only be sufficient to fund our operations into
the second quarter of 2011.
We intend to use our existing capital resources to fund our ongoing research and development
activities; however, we may not be able to complete all of the trials we intend to initiate in 2010
without additional funding. Our research initiatives include support for a Phase 1/2 clinical trial
of RGN-352 in patients with multiple sclerosis and a physician-sponsored clinical trial in patients
with dry eye secondary to GvHD using RGN-259, and completing our ongoing Phase 2 trial of RGN-137
in patients with EB. We also intend to initiate and conduct a portion of a Phase 2 clinical trial
of RGN-352 in patients who have suffered an acute myocardial infarction. We expect that the Phase 2
trial design will allow for an interim review of patient data, which, if positive, we believe will
facilitate discussions with potential strategic partners.
Our forecast of the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement and involves risks and uncertainties, and
actual results could vary as a result of a number of factors, including the factors discussed
elsewhere in this report. We have based this estimate on assumptions that may prove to be wrong,
and we could use our available capital resources sooner than we currently expect.
In addition to our current development objectives, we will need substantial additional capital for
the continued development of product candidates through marketing approval and for our longer-term
future operations.
Beyond our current liquidity needs, we anticipate that substantial new capital resources will
be required to continue our longer-term independent product development efforts, including any and
all follow-on trials that will result from our current clinical programs beyond those currently
contemplated, and to scale up manufacturing processes for our product candidates. The actual amount
of funds that we will need will be determined by many factors, some of which are beyond our
control. These factors include, without limitation:
| the scope of our clinical trials, which is significantly influenced by
the quality of clinical data achieved as trials are completed and the
requirements established by regulatory authorities; |
| the speed with which we complete our clinical trials, which depends on
our ability to attract and enroll qualifying patients and the quality
of the work performed by our clinical investigators; |
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| the time required to prosecute, enforce and defend our intellectual
property rights, which depends on evolving legal regimes and
infringement claims that may arise between us and third parties; |
| the ability to manufacture at scales sufficient to supply commercial
quantities of any of our product candidates that receive regulatory
approval, which may require levels of effort not currently
anticipated; and |
| the successful commercialization of our product candidates, which will
depend on our ability to either create or partner with an effective
commercialization organization and which could be delayed or prevented
by the emergence of equal or more effective therapies. |
Emerging biotechnology companies like us may raise capital through corporate collaborations
and by licensing intellectual property rights to other biotechnology or pharmaceutical enterprises.
We intend to pursue this strategy, but there can be no assurance that we will be able to license
our intellectual property or product development programs on commercially reasonable terms, if at
all. There are substantial challenges and risks that will make it difficult to successfully
implement any of these alternatives. If we are successful in raising additional capital through
such a license or collaboration, we may have to give up valuable rights to our intellectual
property. In addition, the business priorities of a strategic partner may change over time, which
creates the possibility that the interests of the strategic partner in developing our technology
may diminish and could have a potentially material negative impact on the value of our interest in
the licensed intellectual property or product candidates.
Further, if we raise additional funds by selling shares of our common stock or securities
convertible into our common stock, the ownership interest of our existing stockholders may be
significantly diluted. If additional funds are raised through the issuance of preferred stock or
debt securities, these securities are likely to have rights, preferences and privileges senior to
our common stock and may involve significant fees, interest expense, restrictive covenants or the
granting of security interests in our assets.
Our failure to successfully address long-term liquidity requirements would have a material
negative impact on our business, including the possibility of surrendering our rights to some
technologies or product opportunities, delaying our clinical trials or ceasing our operations.
We have incurred losses since inception and expect to incur significant losses in the foreseeable
future and may never become profitable.
We have not commercialized any product candidates to date and incurred net operating losses
every year since our inception in 1982. We believe these losses will continue for the foreseeable
future, and may increase, as we pursue our product development efforts related to Tß4. As of
September 30, 2010, our accumulated deficit totaled approximately $88.6 million.
As we expand our research and development efforts and seek to obtain regulatory approval of
our product candidates to make them commercially viable, we anticipate substantial and increasing
operating losses. Our ability to generate additional revenues and to become profitable will depend
largely on our ability, alone or through the efforts of third-party licensees and collaborators, to
efficiently and successfully complete the development of our product candidates, obtain necessary
regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities
either internally or through
third-party suppliers, and market our product candidates. There can be no assurance that we
will achieve any of these objectives or that we will ever become profitable or be able to maintain
profitability. Even if we do achieve profitability, we cannot predict the level of such
profitability. If we sustain losses over an extended period of time and are not otherwise able to
raise necessary funds to continue our development efforts and maintain our operations, we may be
forced to cease operations.
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We are currently not in compliance with NYSE Amex rules regarding the minimum stockholders equity
requirement and are at risk of being delisted from the NYSE Amex stock exchange, which may subject
us to the SECs penny stock rules and decrease the liquidity of our common stock.
Because of our historical losses from operations, NYSE Amex rules require that we maintain
minimum stockholders equity of $6 million, unless our market capitalization exceeds $50 million.
We were previously operating under a compliance plan intended to allow us to regain compliance with
the Exchanges stockholders equity requirement by October 25, 2010. On October 26, 2010, the
Company was notified by the NYSE Amex that the Company has not timely regained compliance under its
plan. As a result, the notice indicated that the Companys securities are subject to delisting
from the Exchange. The Company has been granted a hearing before the Exchanges Listing
Qualifications Panel that is scheduled for December 17, 2010. Pending the hearing and the Listing
Qualifications Panels final decision following the hearing, the Companys common stock will remain
listed and eligible for trading. There can be no assurance that the Exchange will grant the
Companys request for continued listing.
If our common stock is delisted from the Exchange, it may be traded over-the-counter on the
OTC Bulletin Board or on the pink sheets. These alternative markets, however, are generally
considered to be less efficient than, and not as broad as, the NYSE Amex exchange. If our common
stock is delisted from NYSE Amex, there may be a limited market for our stock, trading in our stock
may become more difficult and our share price could decrease. Specifically, you may not be able to
resell your shares of common stock at or above the price you paid for such shares or at all.
In addition, if our common stock is delisted, our ability to raise additional capital may be
impaired because of the less liquid nature of the over-the-counter markets. While we cannot
guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we
believe that dilution from any equity financing while our shares are quoted on an over-the-counter
market would likely be substantially greater than if we were to complete a financing while our
common stock is traded on the NYSE Amex exchange.
In the event our common stock is delisted, it may also become subject to penny stock rules.
The SEC generally defines penny stock as an equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. We are not currently subject to the penny stock
rules because our common stock qualifies for an exception to the SECs penny stock rules for
companies that have an equity security that is quoted on an exchange. However, if we were delisted,
our common stock would become subject to the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell our common stock. If our common stock were
considered penny stock, the ability of broker-dealers to sell our common stock and the ability of
our stockholders to sell their shares in the secondary market would be limited and, as a result,
the market liquidity for our common stock would likely be adversely affected. We cannot assure you
that trading in our securities will not be subject to these or other regulations in the future.
The report of our independent registered public accounting firm contains explanatory language that
substantial doubt exists about our ability to continue as a going concern.
The report of our independent registered public accounting firm on our financial statements
for the year ended December 31, 2009 contains explanatory language that substantial doubt exists
about our ability to
continue as a going concern, without raising additional capital. We estimate that our
existing capital resources will only be sufficient to fund our operations into the second quarter
of 2011. As a result, unless we obtain significant additional financing, the report of our
independent registered public accounting firm for the year ending December 31, 2010 will continue
to express substantial doubt about our ability to continue as a going concern.
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Risks Related to Our Business and Operations
All of our drug candidates are based on a single compound that has yet to be proven effective in
human subjects.
Our current primary business focus is the development of Tß4, and its analogues, derivatives
and fragments, for the improvement of cardiac function, the acceleration of corneal healing, the
treatment of non-healing wounds and other conditions. Unlike many pharmaceutical companies that
have a number of unique chemical entities in development, we are dependent on a single molecule,
formulated for different routes of administration and different clinical indications, for our
potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based
products that cross formulations would have a much greater impact on our business prospects than if
our product pipeline were more diversified.
We may never be able to commercialize our product candidates.
Although Tß4 has shown biological activity in in vitro and animal models, we cannot assure you
that our product candidates will exhibit activity or importance in humans. Our drug candidates are
still in research and development, and we do not expect them to be commercially available for the
foreseeable future, if at all. Only a small number of research and development programs ultimately
result in commercially successful drugs. Potential products that appear to be promising at early
stages of development may not reach the market for a number of reasons. These include the
possibility that the potential products may:
| be found ineffective or cause harmful side effects during preclinical
studies or clinical trials; |
| fail to receive necessary regulatory approvals; |
| be precluded from commercialization by proprietary rights of third parties; |
| be difficult to manufacture on a large scale; or |
| be uneconomical or otherwise fail to achieve market acceptance. |
If any of these potential problems occurs, we may never successfully market Tß4-based
products.
We are subject to intense government regulation, and we may not receive regulatory approvals for
our drug candidates.
Our product candidates will require regulatory approvals prior to sale. In particular,
therapeutic agents are subject to stringent approval processes, prior to commercial marketing, by
the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and
corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such
approvals will be granted. Also, the regulations we are subject to change frequently and such
changes could cause delays in the development of our product candidates.
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Three of our drug candidates are currently in the clinical stage, and we cannot be certain
that we or our collaborators will successfully complete the clinical trials necessary to receive
regulatory product
approvals. The regulatory approval process is lengthy, unpredictable and expensive. To obtain
regulatory approvals in the United States, we or a collaborator must ultimately demonstrate to the
satisfaction of the U.S. Food and Drug Administration, or FDA, that our product candidates are
sufficiently safe and effective for their proposed administration to humans. Many factors, known
and unknown, can adversely impact clinical trials and the ability to evaluate a product candidates
safety and efficacy, including:
| the FDA or other health regulatory authorities, or institutional
review boards, or IRBs, do not approve a clinical trial protocol or
place a clinical trial on hold; |
| suitable patients do not enroll in a clinical trial in sufficient
numbers or at the expected rate, for reasons such as the size of the
patient population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the perceptions of investigators
and patients regarding safety, and the availability of other treatment
options; |
| clinical trial data is adversely affected by trial conduct or patient withdrawal
prior to completion of the trial; |
| there may be competition with ongoing clinical trials and scheduling conflicts with
participating clinicians; |
| patients experience serious adverse events, including adverse side effects of our
drug candidates, for a variety of reasons that may or may not be related to our
product candidates, including the advanced stage of their disease and other medical
problems; |
| patients in the placebo or untreated control group exhibit greater than expected
improvements or fewer than expected adverse events; |
| third-party clinical investigators do not perform the clinical trials on the
anticipated schedule or consistent with the clinical trial protocol and good
clinical practices, or other third-party organizations do not perform data
collection and analysis in a timely or accurate manner; |
| service providers, collaborators or co-sponsors do not adequately perform their
obligations in relation to the clinical trial or cause the trial to be delayed or
terminated; |
| we are unable to obtain a sufficient supply of manufactured clinical trial materials; |
| regulatory inspections of manufacturing facilities, which may, among other things,
require us or a co-sponsor to undertake corrective action or suspend the clinical
trials; |
| the interim results of the clinical trial are inconclusive or negative; |
| the clinical trial, although approved and completed, generates data that is not
considered by the FDA or others to be sufficient to demonstrate safety and efficacy;
and |
| changes in governmental regulations or administrative actions affect the conduct of
the clinical trial or the interpretation of its results. |
There can be no assurance that our clinical trials will in fact demonstrate, to the
satisfaction of the FDA and others, that our product candidates are sufficiently safe or effective.
The FDA or we may also restrict or suspend our clinical trials at any time if either believes that
we are exposing the subjects participating in the trials to unacceptable health risks.
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Clinical trials for product candidates such as ours are often conducted with patients who have
more advanced forms of a particular condition or other unrelated conditions. For example, in
clinical trials for our product candidate RGN-137, we have studied patients who are not only
suffering from chronic epidermal wounds but who are also older and much more likely to have other
serious adverse conditions. During the course of treatment with our product candidates, patients
could die or suffer other adverse events for reasons that may or may not be related to the drug
candidate being tested. Further, and as a consequence of all of our drug candidates being based on
Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug
candidate, and that adverse event may have implications for our other trials and other drug
candidates. However, even if unrelated to our product candidates, such adverse events can
nevertheless negatively impact our clinical trials, and our business prospects would suffer.
These factors, many of which may be outside of our control, may have a negative impact on our
business by making it difficult to advance product candidates or by reducing or eliminating their
potential or perceived value. As a consequence, we may need to perform more or larger clinical
trials than planned. Further, if we are forced to contribute greater financial and clinical
resources to a study, valuable resources will be diverted from other areas of our business. If we
fail to complete or if we experience material delays in completing our clinical trials as currently
planned, or we otherwise fail to commence or complete, or experience delays in, any of our other
present or planned clinical trials, including as a result of the actions of third parties upon
which we rely for these functions, our ability to conduct our business as currently planned could
materially suffer.
We may not successfully establish and maintain development and testing relationships with
third-party service providers and collaborators, which could adversely affect our ability to
develop our product candidates.
We have only limited resources, experience with and capacity to conduct requisite testing and
clinical trials of our drug candidates. As a result, we rely and expect to continue to rely on
third-party service providers and collaborators, including corporate partners, licensors and
contract research organizations, or CROs, to perform a number of activities relating to the
development of our drug candidates, including the design and conduct of clinical trials, and
potentially the obtaining of regulatory approvals. For example, we currently rely on several
third-party contractors to manufacture and formulate Tß4 into the product candidates used in our
clinical trials, develop assays to assess Tß4s effectiveness in complex biological systems,
recruit clinical investigators and sites to participate in our trials, manage the clinical trial
process and collect, evaluate and report clinical results.
We may not be able to maintain or expand our current arrangements with these third parties or
maintain such relationships on favorable terms. Our agreements with these third parties may also
contain provisions that restrict our ability to develop and test our product candidates or that
give third parties rights to control aspects of our product development and clinical programs. In
addition, conflicts may arise with our collaborators, such as conflicts concerning the
interpretation of clinical data, the achievement of milestones, the interpretation of financial
provisions or the ownership of intellectual property developed during the collaboration. If any
conflicts arise with our existing or future collaborators, they may act in their self-interest,
which may be adverse to our best interests. Any failure to maintain our collaborative agreements
and any conflicts with our collaborators could delay or prevent us from developing our product
candidates. We and our collaborators may fail to develop products covered by our present and future
collaborations if, among other things:
| we do not achieve our objectives under our collaboration agreements; |
| we or our collaborators are unable to obtain patent protection for the products
or proprietary technologies we develop in our collaborations; |
| we are unable to manage multiple simultaneous product development collaborations; |
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| our collaborators become competitors of ours or enter into agreements with our
competitors; |
| we or our collaborators encounter regulatory hurdles that prevent
commercialization of our product candidates; or |
| we develop products and processes or enter into additional collaborations that
conflict with the business objectives of our other collaborators. |
We also have less control over the timing and other aspects of our clinical trials than if we
conducted the monitoring and supervision entirely on our own. Third parties may not perform their
responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical
trial protocol or applicable regulations. We also rely on clinical research organizations to
perform much of our data management and analysis. They may not provide these services as required
or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures,
including procedures required by law, the preclinical studies and clinical trials may take longer
than expected, may be delayed or may be terminated, which would have a materially negative impact
on our product development efforts. If we were forced to find a replacement entity to perform any
of our preclinical studies or clinical trials, we may not be able to find a suitable entity on
favorable terms or at all. Even if we were able to find a replacement, resulting delays in the
tests or trials may result in significant additional expenditures and delays in obtaining
regulatory approval for drug candidates, which could have a material adverse impact on our results
of operations and business prospects.
We are subject to intense competition from companies with greater resources and more mature
products, which may result in our competitors developing or commercializing products before or more
successfully than we do.
We are engaged in a business that is highly competitive. Research and development activities
for the development of drugs to treat indications within our focus are being sponsored or conducted
by private and
public research institutions and by major pharmaceutical companies located in the United States and
a number of foreign countries. Most of these companies and institutions have financial and human
resources that are substantially greater than our own and they have extensive experience in
conducting research and development activities and clinical trials and in obtaining the regulatory
approvals necessary to market pharmaceutical products that we do not have. As a result, they may
develop competing products more rapidly that are safer, more effective, or have fewer side effects,
or are less expensive, or they may develop and commercialize products that render our product
candidates non-competitive or obsolete.
We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most
large pharmaceutical companies and many smaller biomedical companies are vigorously pursuing the
development of therapeutics to treat patients after heart attacks and other cardiovascular
indications. With respect to our product candidate RGN-259 for corneal defects, there are also
numerous ophthalmic companies developing drugs for corneal wound healing and other
outside-of-the-eye diseases and injuries. Amniotic membranes have been successfully used to treat
corneal wounds in certain cases, as have topical steroids and antibacterial agents. With respect to
our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed
Regranex TM for this purpose in patients with diabetic foot ulcers. Other companies,
such as Novartis, are developing and marketing artificial skins, which we believe could also
compete with RGN-137. Moreover, wound healing is a large and highly fragmented marketplace
attracting many companies, large and small, to develop products for treating acute and chronic
wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy, and low frequency
cavitational ultrasound.
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We are also developing potential cosmeceutical products, which are loosely defined as products
that bridge the gap between cosmetics and pharmaceuticals, for example, by improving skin texture
and reducing the appearance of aging. This industry is intensely competitive, with potential
competitors ranging from large multinational companies to very small specialty companies. New
cosmeceutical products often have a short product life and are frequently replaced with newer
products developed to address the latest trends in appearance and fashion. We may not be able to
adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies.
Further, larger cosmetics companies have the financial and marketing resources to effectively
compete with smaller companies like us in order to sell products aimed at larger markets.
Even if approved for marketing, our technologies and product candidates are unproven and they may
fail to gain market acceptance.
Our product candidates, all of which are based on the molecule Tß4, are new and unproven and
there is no guarantee that health care providers or patients will be interested in our product
candidates, even if they are approved for use. If any of our product candidates are approved by the
FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits,
reliability, safety, and cost effectiveness of our product candidates relative to other approaches,
as well as on our ability to continue to develop our product candidates to respond to competitive
and technological changes. If the market does not accept our product candidates, when and if we are
able to commercialize them, then we may never become profitable. Factors that could delay, inhibit
or prevent market acceptance of our product candidates may include:
| the timing and receipt of marketing approvals; |
| the safety and efficacy of the products; |
| the emergence of equivalent or superior products; |
| the cost-effectiveness of the products; and |
| ineffective marketing. |
It is difficult to predict the future growth of our business, if any, and the size of the
market for our product candidates because the markets are continually evolving. There can be no
assurance that our product candidates will prove superior to products that may currently be
available or may become available in the future or that our research and development activities
will result in any commercially profitable products.
We have no marketing experience, sales force or distribution capabilities. If our product
candidates are approved, and we are unable to recruit key personnel to perform these functions, we
may not be able to commercialize them successfully.
Although we do not currently have any marketable products, our ability to produce revenues
ultimately depends on our ability to sell our product candidates if and when they are approved by
the FDA and other regulatory authorities. We currently have no experience in marketing or selling
pharmaceutical products, and we do not have a marketing and sales staff or distribution
capabilities. Developing a marketing and sales force is also time-consuming and could delay the
launch of new products or expansion of existing product sales. In addition, we will compete with
many companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful marketing and sales
capabilities or fail to enter into successful marketing arrangements with third parties, our
ability to generate revenues will suffer.
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If we enter markets outside the United States our business will be subject to political, economic,
legal and social risks in those markets, which could adversely affect our business.
There are significant regulatory and legal barriers to entering markets outside the United
States that we must overcome if we seek regulatory approval to market our product candidates in
countries other than the United States. We would be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting
laws. We also may experience difficulties adapting to new cultures, business customs and legal
systems. Any sales and operations outside the United States would be subject to political, economic
and social uncertainties including, among others:
| changes and limits in import and export controls; |
| increases in custom duties and tariffs; |
| changes in currency exchange rates; |
| economic and political instability; |
| changes in government regulations and laws; |
| absence in some jurisdictions of effective laws to protect our
intellectual property rights; and |
| currency transfer and other restrictions and regulations that may
limit our ability to sell certain product candidates or repatriate
profits to the United States. |
Any changes related to these and other factors could adversely affect our business if and to
the extent we enter markets outside the United States.
Governmental and third-party payors may subject any product candidates we develop to sales and
pharmaceutical pricing controls that could limit our product revenues and delay profitability.
The successful commercialization of our product candidates, if they are approved by the FDA,
will likely depend on our ability to obtain reimbursement for the cost of the product and
treatment. Government authorities, private health insurers and other organizations, such as health
maintenance organizations, are increasingly seeking to lower the prices charged for medical
products and services. Also, the trend toward managed health care in the United States, the growth
of healthcare maintenance organizations, and recently enacted legislation reforming healthcare and
proposals to reform government insurance programs could have a significant influence on the
purchase of healthcare services and products, resulting in lower prices and reducing demand for our
product candidates. The cost containment measures that healthcare providers are instituting and any
healthcare reform could reduce our ability to sell our product candidates and may have a material
adverse effect on our operations. We cannot assure you that reimbursement in the United States or
foreign countries will be available for any of our product candidates, and that any reimbursement
granted will be maintained, or that limits on reimbursement available from third-party payors will
not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of
third-party reimbursements for our product candidates would decrease the potential profitability of
our operations. We cannot forecast what additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what
effect the legislation or regulation would have on our business.
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We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers
to provide us with our product candidates. If these suppliers do not manufacture our product
candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we
are unable to identify suitable replacement suppliers if needed, our clinical development efforts
could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities and have little experience in manufacturing
pharmaceutical products. We currently rely, and expect to continue to rely, primarily on peptide
manufacturers to supply us with Tß4 for further formulation into our product candidates. We have
engaged three separate smaller drug formulation contractors for the formulation of clinical grade
product candidates, one for each of our three product candidates in clinical development. We
currently do not have an alternative source of supply for either Tß4 or the individual drug
candidates. If these suppliers, together or individually, are not able to supply us with either Tß4
or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels
of quality and at a competitive price, or if we are unable to identify a replacement manufacturer
to perform these functions on acceptable terms as needed, our development programs could be
seriously jeopardized.
The risks of relying solely on single suppliers for each of our product candidates include:
| their respective abilities to ensure quality and compliance with
regulations relating to the manufacture of pharmaceuticals; |
| their manufacturing capacity may not be sufficient or available to
produce the required quantities of our product candidates based on our
planned clinical development schedule, if at all; |
| they may not have access to the capital necessary to expand their
manufacturing facilities in response to our needs; |
| commissioning replacement suppliers would be difficult and time-consuming; |
| individual suppliers may have used substantial proprietary know-how
relating to the manufacture of our product candidates and, in the event
we must find a replacement or supplemental supplier, our ability to
transfer this know-how to the new supplier could be an expensive and/or
time-consuming process; |
| an individual supplier may experience events, such as a fire or natural
disaster, that force it to stop or curtail production for an extended
period; |
| an individual supplier could encounter significant increases in labor,
capital or other costs that would make it difficult for them to produce
our products cost-effectively; or |
| an individual supplier may not be able to obtain the raw materials or
validated drug containers in sufficient quantities, at acceptable costs
or in sufficient time to complete the manufacture, formulation and
delivery of our product candidates. |
Our suppliers may use hazardous and biological materials in their businesses. Any claims relating
to improper handling, storage or disposal of these materials could be time-consuming and costly to
us, and we are not insured against such claims.
Our product candidates and processes involve the controlled storage, use and disposal by our
suppliers of certain hazardous and biological materials and waste products. We and our suppliers
and other
collaborators are subject to federal, state and local regulations governing the use,
manufacture, storage, handling and disposal of materials and waste products. Even if we and these
suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of
accidental contamination or injury from hazardous materials cannot be completely eliminated. In the
event of an accident, we could be held liable for any damages that result, and we do not carry
insurance for this type of claim. We may also incur significant costs to comply with current or
future environmental laws and regulations.
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We face the risk of product liability claims, which could adversely affect our business and
financial condition.
We may be subject to product liability claims as a result of our testing, manufacturing, and
marketing of drugs. In addition, the use of our product candidates, when and if developed and sold,
will expose us to the risk of product liability claims. Product liability may result from harm to
patients using our product candidates, such as a complication that was either not communicated as a
potential side effect or was more extreme than anticipated. We require all patients enrolled in our
clinical trials to sign consents, which explain various risks involved with participating in the
trial. However, patient consents provide only a limited level of protection, and it may be alleged
that the consent did not address or did not adequately address a risk that the patient suffered.
Additionally, we will generally be required to indemnify our clinical product manufacturers,
clinical trial centers, medical professionals and other parties conducting related activities in
connection with losses they may incur through their involvement in the clinical trials.
Our ability to reduce our liability exposure for human clinical trials and commercial sales,
if any, of Tß4 is dependent in part on our ability to obtain sufficient product liability insurance
or to collaborate with third parties that have adequate insurance. Although we intend to obtain and
maintain product liability insurance coverage if we gain approval to market any of our product
candidates, we cannot guarantee that product liability insurance will continue to be available to
us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims
against us. A product liability claim, even one without merit or for which we have substantial
coverage, could result in significant legal defense costs, thereby potentially exposing us to
expenses significantly in excess of our revenues, as well as harm to our reputation and distraction
of our management.
If any of our key employees discontinue their services with us, our efforts to develop our business
may be delayed.
We are highly dependent on the principal members of our management team. The loss of our
chairman and chief scientific advisor, Allan Goldstein, or our chief executive officer, J.J.
Finkelstein, could prevent or significantly delay the achievement of our goals. We have employment
agreements with Dr. Goldstein and Mr. Finkelstein. For part of 2009, we effected salary reductions
for certain of our employees, including Dr. Goldstein and Mr. Finkelstein. Although their salaries
were restored effective as of October 1, 2009, we cannot assure you that they, or other key
employees, will not elect to terminate their employment as a result of the salary reductions or for
other reasons. In addition, we do not maintain a key man life insurance policy with respect to Dr.
Goldstein or Mr. Finkelstein. In the future, we anticipate that we may need to add additional
management and other personnel. Competition for qualified personnel in our industry is intense, and
our success will depend in part on our ability to attract and retain highly skilled personnel. We
cannot assure you that our efforts to attract or retain such personnel will be successful.
Mauro Bove, a member of our Board, is also a director and officer of entities affiliated with
Sigma-Tau, a relationship which could give rise to a conflict of interest involving Mr. Bove.
Mauro Bove, a member of our Board of Directors, is also a director and officer of entities
affiliated
with Sigma-Tau, which collectively make up our largest stockholder group. Sigma-Tau has
provided us with significant funding, may continue doing so in the future, and is also our
strategic partner in Europe with respect to the development of certain of our drug candidates.
During 2008 and 2009, we issued shares of common stock and common stock warrants to Sigma-Tau in
four separate private placement financing transactions, but we retained the right to repurchase
some of these shares under certain circumstances.
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We have licensed certain rights to our product candidates generally for the treatment of
dermal and internal wounds to Sigma-Tau. Under the license agreement, upon the completion of a
Phase 2 clinical trial of either of these product candidates that yields positive results in terms
of clinical efficacy and safety, Sigma-Tau is obligated to either make a $5 million milestone
payment to us or to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In
2009, we completed two Phase 2 clinical trials of RGN-137 in the treatment of pressure ulcers and
venous stasis ulcers. However, due to the lack of statistical significance of the reported efficacy
results, these trials are not sufficient to trigger the milestone obligation described above. There
can be no assurance that we will ever receive this payment or be able to initiate a pivotal Phase 3
clinical trial of RGN-137 that would be funded by Sigma-Tau. As a result of Mr. Boves relationship
with Sigma-Tau, there could be a conflict of interest between Sigma-Tau and our other stockholders
with respect to these and other agreements and circumstances that may require the exercise of the
Boards discretion with respect to Sigma-Tau. Any decision in the best interests of Sigma-Tau may
not be in the best interest of our other stockholders.
Risks Related To Our Intellectual Property
We are heavily reliant on our license from the National Institutes of Health for the rights to Tß4,
and any loss of these rights would adversely affect our business.
We have received an exclusive worldwide license to intellectual property discovered at the
National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing and tissue
repair. The intellectual property rights from this license form the basis for our current
commercial development focus with Tß4. This license terminates upon the last to expire of the
patent applications that are filed, or any patents that may issue from such applications, in
connection with the license. This license requires us to pay a minimum annual royalty to the NIH,
regardless of the success of our product development efforts, plus certain other royalties upon the
sale of products created by the intellectual property granted under the license. This license may
be terminated for a number of reasons, including our non-payment of the royalty or lack of
continued product development, among others. While to date we believe that we have complied with
all requirements to maintain the license, the loss of this license would have a material adverse
effect on our business and business prospects and may require us to cease development of our
current line of Tß4-based product candidates.
If we are not able to maintain adequate patent protection for our product candidates, we may be
unable to prevent our competitors from using our technology or technology that we license.
Our success will depend in substantial part on our ability to obtain, defend and enforce
patents, maintain trade secrets and operate without infringing upon the proprietary rights of
others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the
NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents
covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when
corresponding patents will be issued, or the scope of any patents that may be issued, in other
countries. We have attempted to create a substantial intellectual property portfolio, submitting
patent applications for various compositions of matter, methods of use and fragments and
derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties
that could be subject to the same risks as our own patents. If any of these patent
applications do not issue, or do not issue in certain countries, or are not enforceable, the
ability to commercialize Tß4 in various medical indications could be substantially limited or
eliminated.
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In addition, the patent positions of the products being developed by us and our collaborators
involve complex legal and factual uncertainties. As a result, we cannot assure you that any patent
applications filed by us, or by others under which we have rights, will result in patents being
issued in the United States or foreign countries. In addition, there can be no assurance that any
patents will be issued from any pending or future patent applications of ours or our collaborators,
that the scope of any patent protection will be sufficient to provide us with competitive
advantages, that any patents obtained by us or our collaborators will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents and other
proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects
of our product candidates and technologies or obtain and use information we consider proprietary.
Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no
harm or threat will be made to our or our collaborators intellectual property. In addition,
changes in, or different interpretations of, patent laws in the United States and other countries
may also adversely affect the scope of our patent protection and our competitive situation.
Due to the significant time lag between the filing of patent applications and the publication
of such patents, we cannot be certain that our licensors were the first to file the patent
applications we license or, even if they were the first to file, also were the first to invent,
particularly with regards to patent rights in the United States. In addition, a number of
pharmaceutical and biotechnology companies and research and academic institutions have developed
technologies, filed patent applications or received patents on various technologies that may be
related to our product candidates. Some of these technologies, applications or patents may conflict
with our or our licensors technologies or patent applications. A conflict could limit the scope of
the patents, if any, that we or our licensors may be able to obtain or result in denial of our or
our licensors patent applications. If patents that cover our activities are issued to other
companies, we may not be able to develop or obtain alternative technology.
Additionally, there is certain subject matter that is patentable in the United States but not
generally patentable outside of the United States. Differences in what constitutes patentable
subject matter in various countries may limit the protection we can obtain outside of the United
States. For example, methods of treating humans are not patentable in many countries outside of the
United States. These and other issues may prevent us from obtaining patent protection outside of
the United States, which would have a material adverse effect on our business, financial condition
and results of operations.
Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.
The value of our patents depends in part on their duration. A shorter period of patent
protection could lessen the value of our rights under any patents that may be obtained and may
decrease revenues derived from its patents. For example, the U.S. patent laws were previously
amended to change the term of patent protection from 17 years following patent issuance to 20 years
from the earliest effective filing date of the application. Because the time from filing to
issuance of biotechnology applications may be more than three years depending on the subject
matter, a 20-year patent term from the filing date may result in substantially shorter patent
protection. Future changes to patent laws could shorten our period of patent exclusivity and may
decrease the revenues that we might derive from the patents and the value of our patent portfolio.
We may not have adequate protection for our unpatented proprietary information, which could
adversely affect our competitive position.
In addition to our patents, we also rely on trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive position. However,
others
may independently develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose our technology. To protect our trade
secrets, we may enter into confidentiality agreements with employees, consultants and potential
collaborators. However, we may not have such agreements in place with all such parties and, where
we do, these agreements may not provide meaningful protection of our trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information. Also, our trade
secrets or know-how may become known through other means or be independently discovered by our
competitors. Any of these events could prevent us from developing or commercializing our product
candidates.
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We may be subject to claims that we or our employees have wrongfully used or disclosed alleged
trade secrets of former employers.
As is commonplace in the biotechnology industry, we employ now, and may hire in the future,
individuals who were previously employed at other biotechnology or pharmaceutical companies,
including competitors or potential competitors. Although there are no claims currently pending
against us, we may be subject to claims that we or certain employees have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of former employers.
Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial costs and would be a significant
distraction to management.
Risks Related To Our Securities
Our common stock price is volatile and has had limited trading volume, and any investment in our
securities could decline substantially in value.
For the period from January 1, 2009 through October 31, 2010, our closing stock price has
fluctuated between prices of $0.24 to $1.75 per share, with an average daily trading volume of
approximately 107,000 shares. In light of our small size and limited resources, as well as the
uncertainties and risks that can affect our business and industry, our stock price is expected to
continue to be highly volatile and can be subject to substantial drops, with or even in the absence
of news affecting our business. The following factors, in addition to the other risk factors
described in this report, and the potentially low volume of trades in our common stock, may have a
significant impact on the market price of our common stock, some of which are beyond our control:
| results of preclinical studies and clinical trials; |
| commercial success of approved products; |
| corporate partnerships; |
| technological innovations by us or competitors; |
| changes in laws and government regulations both in the U.S. and overseas; |
| changes in key personnel at our company; |
| developments concerning proprietary rights, including patents and litigation matters; |
| public perception relating to the commercial value or safety of any of our product
candidates; |
| future sales of our common stock; |
| future issuance of our common stock causing dilution; |
| anticipated or unanticipated changes in our financial performance; |
| general trends related to the biopharmaceutical and biotechnological industries; and |
| general conditions in the stock market. |
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The stock market in general has recently experienced relatively large price and volume
fluctuations. In particular, the market prices of securities of smaller biotechnology companies
have experienced dramatic fluctuations that often have been unrelated or disproportionate to the
operating results of these companies. Continued market fluctuations could result in extreme
volatility in the price of our common stock, which could cause a decline in its value. You should
also be aware that price volatility may be worse if the trading volume of the common stock remains
limited or declines.
Our principal stockholders have significant voting power and may take actions that may not be in
the best interests of our other stockholders.
As of October 31, 2010, our officers, directors and principal stockholders together controlled
approximately 42% of our outstanding common stock. Included in this group is Sigma-Tau, which held
approximately 36% of our outstanding common stock as of October 31, 2010. A portion of the shares
of common stock currently held by Sigma-Tau, representing approximately 13% of our outstanding
common stock, is subject to voting agreements under which we control the voting power of these
shares. We cannot assure you that these voting agreements would prevent Sigma-Tau from taking
actions not in your best interests and effectively exercising control over us. These voting
agreements are currently scheduled to expire between December 2010 and September 2012. After their
expiration, we will have no control over the voting of these shares controlled by Sigma-Tau,
including with respect to the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying or preventing a
change in control and might adversely affect the market price of our common stock, and therefore
may not be in the best interest of our other stockholders.
If securities or industry analysts do not publish research or reports or publish unfavorable
research about our business, the price of our common stock and other securities and their trading
volume could decline.
The trading market for our common stock and other securities will depend in part on the
research and reports that securities or industry analysts publish about us or our business. We do
not currently have and may never obtain research coverage by securities and industry analysts. If
securities or industry analysts do not commence or maintain coverage of us, the trading price for
our common stock and other securities would be negatively affected. In the event we obtain
securities or industry analyst coverage, if one or more of the analysts who covers us downgrades
our securities, the price of our securities would likely decline. If one or more of these analysts
ceases to cover us or fails to publish regular reports on us, interest in the purchase of our
securities could decrease, which could cause the price of our common stock and other securities and
their trading volume to decline.
Our rights to repurchase certain shares of stock held by Sigma-Tau expire over time, and we may
never be able or elect to exercise these rights.
We have the right to repurchase at any time until December 31, 2010, for $2.50 per share, up
to 5,000,000 shares of common stock issued to Sigma-Tau in connection with a private placement of
securities in February 2008. After December 31, 2010, our rights to repurchase common stock held by
Sigma-Tau will expire. These provisions could, under certain circumstances, allow us to reduce
dilution by
repurchasing these shares at prices lower than the then-prevailing market price of our common
stock. However, we cannot assure you that our share price will increase sufficiently to make such
repurchases economically feasible or that we would avail ourselves of the opportunity to make such
repurchases even if our share price had risen to such a level.
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The exercise of options and warrants and other issuances of shares of common stock or securities
convertible into common stock will dilute your interest.
As of October 31, 2010, there were outstanding options to purchase an aggregate of 5,348,863
shares of our common stock at exercise prices ranging from $0.27 per share to $3.82 per share, of
which options to purchase 3,708,653 shares were exercisable as of such date. As of October 31,
2010, there were warrants outstanding to purchase 13,988,751 shares of our common stock, at a
weighted average exercise price of $1.38 per share. The exercise of options and warrants at prices
below the market price of our common stock could adversely affect the price of shares of our common
stock. Additional dilution may result from the issuance of shares of our capital stock in
connection with collaborations or manufacturing arrangements or in connection with other financing
efforts.
Any issuance of our common stock that is not made solely to then-existing stockholders
proportionate to their interests, such as in the case of a stock dividend or stock split, will
result in dilution to each stockholder by reducing his, her or its percentage ownership of the
total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in
the future and those options or warrants are exercised or we issue restricted stock, stockholders
may experience further dilution. Holders of shares of our common stock have no preemptive rights
that entitle them to purchase their pro rata share of any offering of shares of any class or
series.
In addition, certain warrants to purchase shares of our common stock currently contain an
exercise price above the current market price for the common stock, or above-market warrants. As a
result, these warrants may not be exercised prior to their expiration and we may not realize any
proceeds from their exercise.
Our certificate of incorporation, our stockholder rights plan and Delaware law contain provisions
that could discourage or prevent a takeover or other change in control, even if such a transaction
would be beneficial to our stockholders, which could affect our stock price adversely and prevent
attempts by our stockholders to replace or remove our current management.
Our certificate of incorporation provides our Board with the power to issue shares of
preferred stock without stockholder approval. In addition, under our stockholder rights plan, our
Board has the discretion to issue certain rights to purchase our capital stock to our stockholders
when a person acquires in excess of 25% of our outstanding common shares. These provisions may make
it more difficult for stockholders to take corporate actions and may have the effect of delaying or
preventing a change in control, even if such actions or change in control would be in your best
interests. In addition, we are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Subject to specified exceptions, this section provides that a
corporation may not engage in any business combination with any interested stockholder, as defined
in that statute, during the three-year period following the time that such stockholder becomes an
interested stockholder. This provision could also have the effect of delaying or preventing a
change of control of our company. The foregoing factors could reduce the price that investors or an
acquirer might be willing to pay in the future for shares of our common stock.
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We may become involved in securities class action litigation that could divert managements
attention and harm our business and our insurance coverage may not be sufficient to cover all costs
and
damages.
The stock market has from time to time experienced significant price and volume fluctuations
that have affected the market prices for the common stock of pharmaceutical and biotechnology
companies. These broad market fluctuations may cause the market price of our common stock to
decline. In the past, following periods of volatility in the market price of a particular companys
securities, securities class action litigation has often been brought against that company. We may
become involved in this type of litigation in the future. Litigation often is expensive and diverts
managements attention and resources, which could hurt our business, operating results and
financial condition.
As a public company, we continue to be subject to the requirements of Section 404 of the
Sarbanes-Oxley Act. If we are unable to comply with Section 404 in a timely manner it may affect
the reliability of our internal control over financial reporting.
Assessing our staffing and training procedures to improve our internal control over financial
reporting is an ongoing process. We are currently required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 and to make an assessment of the effectiveness of our internal control
over financial reporting. However, our independent registered public accounting firm has not been
engaged to express, nor have they expressed, an opinion on the effectiveness of our internal
control over financial reporting.
We plan to continue to assess our internal controls and procedures and intend to take further
action as necessary or appropriate to address any other matters we identify. We cannot be certain
at this time that we will be able to successfully complete the attestation requirements of Section
404 or that we will not identify material weaknesses in our internal control over financial
reporting. If we fail to comply with the requirements of Section 404 or if we identify and report a
material weakness, it may affect the reliability of our internal control over financial reporting,
which could adversely affect our stock price.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Reserved
Item 5. Other Information
None.
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Item 6. Exhibits
Exhibit No. | Description of Exhibit | Reference* | ||||
3.1 | Restated Certificate of Incorporation
|
Exhibit 3.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
3.2 | Certificate of Amendment to Restated
Certificate of Incorporation
|
Exhibit 3.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
3.3 | Certificate of Amendment to Restated
Certificate of Incorporation
|
Exhibit 3.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
3.4 | Certificate of Amendment to Restated
Certificate of Incorporation
|
Exhibit 3.4 to Registration Statement on Form S-8 (File No. 333-168252) (filed July 21, 2010) | ||||
3.5 | Certificate of Designation of Series
A Participating Cumulative Preferred
Stock
|
Exhibit 3.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
3.6 | Amended and Restated Bylaws adopted
July 26, 2006
|
Exhibit 3.4 to the Companys Quarterly Report on Form 10-Q (filed August 14, 2006) | ||||
3.7 | Amendment to Amended and Restated
Bylaws
|
Exhibit 3.6 to the Companys Registration Statement on Form S-8 (File No. 333-152250) (filed July 10, 2008) | ||||
4.1 | Specimen Stock Certificate
|
Exhibit 4.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
4.2 | Specimen Rights Certificate
|
Exhibit 4.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
4.3 | Rights Agreement, dated April 29,
1994, between the Company and
American Stock Transfer & Trust
Company, as Rights Agent
|
Exhibit 4.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) | ||||
4.4 | Amendment No. 1 to Rights Agreement,
dated March 4, 2004, between the
Company and American Stock Transfer
& Trust Company, as Rights Agent
|
Exhibit 4.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010) |
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Exhibit No. | Description of Exhibit | Reference* | ||||
10.1 | RegeneRx Biopharmaceuticals, Inc. 2010 Equity
Incentive Plan
|
Exhibit 10.1 to the Companys Current Report on Form 8-K (File No. 001-15070) (filed July 20, 2010) | ||||
10.2 | Forms of Stock Option Grant Notice
and Option Agreement under 2010
Equity Incentive Plan
|
Exhibit 10.2 to the Companys Current Report on Form 8-K (File No. 001-15070) (filed July 20, 2010) | ||||
31.1 | Certification of Principal Executive
Officer pursuant to Rules 13a-14 and
15d-14 promulgated under the
Securities Exchange Act of 1934
|
Filed herewith | ||||
31.2 | Certification of Principal Financial
Officer pursuant to Rules 13a-14 and
15d-14 promulgated under the
Securities Exchange Act of 1934
|
Filed herewith | ||||
32.1 | Certification of Principal Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
|
Filed herewith** | ||||
32.2 | Certification of Principal Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002
|
Filed herewith** |
* | Except where noted, the exhibits referred to in this column have
heretofore been filed with the Securities and Exchange Commission as
exhibits to the documents indicated and are hereby incorporated by
reference thereto. The Registration Statements referred to are
Registration Statements of the Company. |
|
** | These certifications are being furnished solely to accompany this
quarterly report pursuant to 18 U.S.C. Section 1350, and are not being
filed for purposes of Section 18 of the Securities Exchange Act of
1934 and are not to be incorporated by reference into any filing of
the registrant, whether made before or after the date hereof,
regardless of any general incorporation language in such filing. |
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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.
RegeneRx Biopharmaceuticals, Inc. (Registrant) |
||||
Date: November 12, 2010 | /s/ J.J. Finkelstein | |||
J.J. Finkelstein | ||||
President and Chief Executive Officer (duly authorized officer) |
||||
/s/ C. Neil Lyons | ||||
C. Neil Lyons | ||||
Chief Financial Officer (principal financial officer) |
39