UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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x
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Annual Report Pursuant to
Section 13 or 15(D) of the Securities Exchange Act of
1934
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for
the fiscal year ended December 31, 2009
or
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¨
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Transition Report Under Section
13 or 15(D) of the Securities Exchange Act of
1934
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For
the transition period
from to
Commission File Number:
001-34058
NILE
THERAPEUTICS, INC.
(Exact Name Of
Registrant As Specified In Its Charter)
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Delaware
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88-0363465
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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4
West 4th Ave.
Suite 400, San Mateo, California
(Address
of principal executive offices)
94402
(Zip
Code)
(650)
458-2670
(Registrant’s telephone number,
including area code)
Not Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common
Stock, par value $0.001 per share
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The
NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨ Yes þ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨ Yes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (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. þ
Yes ¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. 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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer Accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company þ
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). ¨ Yes þ No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
As of
June 30, 2009: $15,685,641
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the last practicable date.
As of
March 1, 2010, there were 27,085,824 shares of the issuer’s common stock, par
value $0.001 per share, issued and outstanding.
TABLE
OF CONTENTS
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Page
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Part
I
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Item 1.
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Business
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4
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Item 1A.
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Risk
Factors
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11
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Item 1B.
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Unresolved
Staff Comments
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26
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Item 2.
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Properties
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26
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Item 3.
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Legal
Proceedings
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27
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Item
4.
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[Reserved]
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27
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Part
II
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Item 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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28
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Item 6.
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Selected
Financial Data
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28
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Item 7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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29
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Item 7A.
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Quantitative
and Qualitative Disclosure About Market Risk
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35
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Item 8.
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Financial
Statements and Supplementary Data
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35
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Item 9.
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Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
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55
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Item 9A(T).
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Controls
and Procedures
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55
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Item
9B.
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Other
Information
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55
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Part
III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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57
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Item 11.
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Executive
Compensation
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59
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Item 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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64
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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67
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Item 14.
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Principal
Accountant Fees and Services
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68
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Part
IV
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Item 15.
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Exhibits,
Financial Statement Schedules
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69
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SIGNATURES
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INDEX
OF EXHIBITS FILED WITH THIS REPORT
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References
to “the Company,” “we”, “us” or “our” in this Annual Report on Form 10-K refer
to Nile Therapeutics, Inc., a Delaware corporation, unless the context indicates
otherwise.
FORWARD-LOOKING
STATEMENTS
This
Form 10-K contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, or the Exchange Act. The forward-looking
statements are only predictions and provide our current expectations or
forecasts of future events and financial performance and may be identified by
the use of forward-looking terminology, including the terms “believes,”
“estimates,” “anticipates,” “expects,” “plans,” “potential,” “projects,”
“intends,” “may,” “will” or “should” or, in each case, their negative, or other
variations or comparable terminology, though the absence of these words does not
necessarily mean that a statement is not
forward-looking. Forward-looking statements include all matters that
are not historical facts and include, without limitation, statements concerning
our business strategy, outlook, objectives, future milestones, plans,
intentions, goals, future financial conditions, obtaining financing of our
operations, our research and development programs and planning for and timing of
any clinical trials, the possibility, timing and outcome of submitting
regulatory filings for our products under development, potential investigational
new drug applications, or INDs, and new drug applications, or NDAs, research and
development of particular drug products, the development of financial, clinical,
manufacturing and marketing plans related to the potential approval and
commercialization of our drug products, and the period of time for which our
existing resources will enable us to fund our operations. These statements are
subject to risks and uncertainties that could cause actual results and events to
differ materially from those expressed or implied by such forward-looking
statements. For a detailed discussion of these risks and
uncertainties, see the “Risk Factors” section in Item 1A of this Form 10-K. We
caution the reader not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date of this Form
10-K.
We intend that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject
to many risks and uncertainties that could cause our actual results to differ
materially from any future results expressed or implied by the forward-looking
statements. Pharmaceutical and biotechnology companies have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
earlier trial results. Data obtained from such clinical trials are
susceptible to varying
interpretations, which could delay, limit or prevent regulatory
approval. Additional factors that could cause actual results to
differ materially from projected results include, but are not limited to, those
discussed in “Risk Factors” elsewhere in this Annual Report. Readers
are expressly advised to review and consider those Risk Factors, which include
risks associated with (1) our ability to successfully conduct clinical and
pre-clinical trials for our product candidates, (2) our ability to obtain
required regulatory approvals to develop and market our product candidates,
(3) our ability to raise additional capital or to license our products on
favorable terms, (4) our ability to execute our development plan on time
and on budget, (5) our ability to identify and obtain additional product
candidates, and (6) our ability to raise enough capital to fund our
operations. Although we believe that the assumptions underlying the
forward-looking statements contained in this Report are reasonable, any of the
assumptions could be inaccurate, and therefore there can be no assurance that
such statements will be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by us
or any other person that the results or conditions described in such statements
or our objectives and plans will be achieved. Furthermore, past
performance in operations and share price is not necessarily indicative of
future performance. Except to the extent required by applicable laws
or rules, we do not undertake to update any forward-looking statements or to
announce publicly revisions to any of our forward-looking statements, whether
resulting from new information, future events or
otherwise.
PART I
Company
Overview
We are a
development stage biopharmaceutical company in the business of commercially
developing innovative products for the treatment of cardiovascular diseases. We
currently have rights to develop two drug candidates:
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CD-NP,
our lead product candidate, is a chimeric natriuretic peptide that we are
developing for the treatment of heart failure. We are currently
studying CD-NP in Phase II clinical studies for the treatment of heart
failure. We believe CD-NP may be useful in several cardiovascular and
renal indications. We are currently developing CD-NP for an initial
indication of acute decompensated heart failure, or
ADHF.
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CU-NP,
is a pre-clinical rationally designed natriuretic peptide that consists of
amino acid chains identical to those produced by the human body,
specifically the ring structure of C-type natriuretic peptide, or CNP, and
the N- and C-termini of Urodilatin, or URO. We are currently evaluating
the potential for the chronic dosing of CU-NP, which could be used to
treat a number of cardiovascular and renal
diseases.
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We were
originally incorporated under Delaware law in August 2005 under the name Nile
Pharmaceuticals, Inc. and we changed our name to Nile Therapeutics, Inc. in
January 2007. On September 17, 2007, we were acquired by SMI Products, Inc., or
SMI, which was then a public shell company, in a reverse merger transaction
whereby a wholly-owned subsidiary of SMI merged with and into Nile Therapeutics,
with Nile Therapeutics remaining as the surviving corporation and a wholly-owned
subsidiary of SMI. In accordance with the terms of this transaction,
the stockholders of Nile Therapeutics exchanged all of their shares of Nile
Therapeutics common stock for shares of SMI common stock, which immediately
following the transaction represented approximately 95 percent of the issued and
outstanding common stock of SMI. Upon completion of the merger, the
sole officer and director of SMI resigned and was replaced by the officers and
directors of Nile Therapeutics. Additionally, following the merger,
Nile Therapeutics, or Old Nile, was merged into SMI, and SMI changed its name to
Nile Therapeutics, Inc. and adopted the business plan of Old Nile. We
collectively refer to these two merger transactions in this Annual Report as the
“Merger.” Because the Merger was accounted for as a reverse
acquisition under generally accepted accounting principles, the financial
statements for periods prior to September 17, 2007 reflect only the
operations of Old Nile.
Our
executive offices are located at 4 West 4th Ave.,
Suite 400, San Mateo, California 94402. Our telephone number is (650) 458-2670
and our Internet address is www.nilethera.com.
The information on, or accessible through, our website is not part of this Form
10-K.
Our
Product Candidates
The
following table summarizes our product development programs:
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Product
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Indications
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Commercial
Rights
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Ongoing Studies / Status
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CD-NP
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Heart
failure
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Nile
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Single-blind,
placebo-controlled Phase 2 study of CD-NP is ongoing in patients with
acute decompensated heart failure, or ADHF. The primary objective of the
study is to assess the safety and tolerability of IV administration of
CD-NP and the dose relationship of CD-NP on improvement of clinical
symptoms and renal function in ADHF patients.
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CU-NP
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Cardiovascular
/ Renal
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Nile
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Preclinical.
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Background
on Heart Failure
Heart
failure, or HF, is a condition that exists when the heart cannot pump blood to
the body as quickly as needed. Blood returning to the heart faster than the
heart can eject it congests the system behind it. Decreased blood flow to
organs, such as the kidneys, causes the body to retain more fluid, which further
complicates the problem. As a result, HF can often cause damage to the kidneys
and other organs, which in turn can worsens the condition of the
heart.
HF is the
fastest-growing clinical cardiac disease in the United States according to the
American Heart Association, affecting over 5 million Americans. Over
1 million patients in the U.S. each year are hospitalized with ADHF, an acute
exacerbation of their condition. This hospitalization rate is almost double the
rate seen 15 years ago. Heart failure is the most frequent cause of
hospital admission in the U.S. for patients older than 65 years, generating
annual inpatient costs of more than $33 billion. We believe that approval of a
novel agent with safety and efficacy improvements over existing therapies could
significantly expand the HF market.
Patients
with heart failure are treated with a combination of drugs in an attempt to
improve cardiac output and reverse fluid overload. Diuretics, such as
furosemide, are used as a first-line treatment to relieve the symptoms of ADHF
patients by helping to remove excess fluid from the body, which then helps to
increase cardiac output. However, some studies have correlated high doses of
intravenous (i.v.) furosemide , a diuretic, with a decreased kidney function and
some patients can become resistant to the effects of
furosemide. Second-line treatments are often palliative, and can come
at the cost of an increased mortality rate. Despite aggressive
therapy, 1 in 3 patients die of the disease within a year of diagnosis,
reflecting a substantial need for novel treatments.
Only one
new treatment for ADHF patients has been approved by the FDA in over 20 years:
nesiritide, which is also known as Natrecor®, or B-type natriuretic peptide, or
BNP. Nesiritide, a drug marketed by Johnson & Johnson, is a natriuretic
peptide that targets the A-type natriuretic peptide receptor and was approved in
2001 by the FDA. Sales of nesiritide achieved close to $400 million per year
until the emergence of a meta-analysis that suggests the possibility of
worsening renal function and a meta-analysis suggesting the possibility of
increased mortality at 30 days in patients who had been exposed to nesiritide.
Sales of nesiritide quickly dropped to below $100 million per year.
CD-NP Program
CD-NP is
a novel chimeric natriuretic peptide in clinical development for an initial
indication of ADHF. CD-NP was rationally designed by scientists at the Mayo
Clinic’s cardio-renal research labs. Current therapies for ADHF, including
B-type natriuretic peptide, have been associated with favorable pharmacologic
effects, but have also been associated with hypotension and decreased renal
function which limit their utility in clinical practice. CD-NP was designed to
preserve the favorable effects of existing natriuretic peptide therapies while
reducing or attenuating the hypotensive response and enhancing or preserving
renal function. In addition to an initial indication of ADHF, CD-NP has
potential utility in other indications, including preservation of cardiac
function following acute myocardial infarction and prevention of renal damage
following cardiac surgery.
Prior
Clinical Studies
In 2007,
we completed a Phase Ia dose-escalation study in healthy volunteers to examine
the safety and pharmacodynamic effects of various doses of CD-NP. The study
placed particular emphasis on the effects of CD-NP on blood pressure and renal
function. Data from the completed Phase Ia study in healthy volunteers was
consistent with several pre-clinical findings, including that CD-NP was
associated with increased levels of plasma cGMP, a secondary messenger of the
target receptor, preserved renal function, increased urinary excretion of
sodium, or natriuresis, and increased urination, or diuresis. The
study also showed that CD-NP had a minimal effect on mean arterial pressure, a
measurement of pumped blood flow in the arteries.
In 2008,
we initiated two additional dose-escalation studies to assess the safety and
pharmacodynamic profile of CD-NP in heart failure patients. The first study was
a Phase Ib study in chronic heart failure patients with signs of fluid overload
designed to understand the maximum tolerated dose of the product candidate.
Patients with chronic heart failure with signs of fluid overload were enrolled
into the study. The effects of 24 hours of CD-NP i.v. infusion was compared to
the patient’s baseline established in the 24 hours prior to CD-NP infusion. The
patient’s oral diuretic and vasoactive medications were withheld during the
CD-NP infusion. While the study was not powered for statistical
analysis, data from the Phase Ib study indicate the following:
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CD-NP
was tolerated at doses of up to 20
ng/kg/min;
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CD-NP
blood pressure effects were dose-dependent and well
characterized;
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CD-NP
infusion resulted in increases in diuresis at doses of 3, 10 and 20
ng/kg/min as compared to each patient’s base-line, which included oral
diuretic medication;
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With
a 24-hour infusion, CD-NP produced decreases in serum creatinine and
cystatin-c in stable heart failure patients, consistent with enhanced
renal function; and
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As
expected, the limiting toxicity of CD-NP was shown to be symptomatic
hypotension, which was experienced by one of six patients at the maximum
tolerated dose of 20 ng/kg/min, and by two of two patients at a dose of 30
ng/kg/min.
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The
second study was a Phase IIa study in acute heart failure patients designed to
better understand the hemodynamic properties of CD-NP, or how CD-NP affected
blood circulation. The subjects were enrolled 24-48 hours after admission to the
hospital for acute heart failure. In the first 24-48 hours after admission,
subjects were treated with the standard of care. The subjects were enrolled into
the study only after an investigator had determined that the patient needed a
Swan-Ganz catheter to better monitor pulmonary capillary wedge pressure, or
PCWP, and after the patient’s acute condition had stabilized. All patients
received a continuous i.v. infusion of furosemide throughout the administration
of CD-NP. Data from the Phase IIa study indicate the
following:
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CD-NP
was tolerated at all study doses, including 1, 3, 10 and 20
ng/kg/min;
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CD-NP
had minimal blood pressure effects at all
doses;
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In
the first cohort, where patients were dosed at 3 and then 10 ng/kg/min,
the CD-NP infusions produced clinically relevant reductions in
PCWP;
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In
the second cohort, where patients were dosed at 1 and 20 ng/kg/min, the
CD-NP infusions did not result in clinically relevant reductions in
PCWP;
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CD-NP
produced a clinically relevant increase in diuresis at doses
of 3, 10 and 20 ng/kg/min when administered concurrently with
i.v. furosemide; and
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There
was no clinically relevant change in serum creatinine and there were no
cases of symptomatic hypotension in any
subject.
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In March
2009, the FDA placed a clinical hold on the CD-NP program. The FDA requested
additional data on our Phase IIa clinical trial, which was finalized in March
2009, and modifications to CD-NP’s current investigator brochure. We submitted a
full response to the FDA in April 2009 and the CD-NP program was released from
clinical hold on May 15, 2009.
Current
Clinical Studies
In July
2009, we dosed the first patient in a single-blind, placebo-controlled Phase II
clinical trial designed to provide additional information on the safety and
tolerability of CD-NP when infused for up to 72 hours in hospitalized patients
with acute heart failure and renal function insufficiency. The purpose of the
study is to determine a safe and tolerable dose range of CD-NP that can be used
in ADHF patients in the acute setting in combination with the standard of care.
The standard of care includes the use of diuretics, such as furosemide, and
could also include agents that affect dilation or contraction of blood vessels
(vasoactive) or contraction of the heart muscle (inotropic). The study also
contains several exploratory efficacy endpoints to provide insight into the
potential for CD-NP to preserve or enhance renal function in acute heart failure
patients. The study was initially designed to enroll up to approximately 40
patients in three cohorts. In the study, the dosage of CD-NP was to
be increased in successive cohorts to assess the dose relationship of CD-NP on
improvement of clinical symptoms and renal function in ADHF
patients.
After
dosing seven subjects in the first cohort, four of whom received CD-NP at a dose
level of 5 ng/kg/min and three of whom received placebo, we suspended enrollment
of the study. While there were no study drug related serious adverse events
reported by investigators in these first seven subjects, the average blood
pressure decrease in both the placebo and CD-NP patients was larger than
predicted. We believed the greater than predicted response may have originated
from the timing and quantity of concomitant medications versus study
drug in the acute setting, as well as from the inclusion of patients who
were more susceptible to risks from blood pressure deviations. We therefore
submitted to the FDA a protocol amendment to (1) modify the exclusion criteria
relating to the timing and quantity of bolus IV furosemide administration
acceptable in the first 24 hours upon hospital admission, (2) provide additional
guidance on the concomitant use of vasoactive oral and IV medication, (3)
increase the entry blood pressure range, and (4) add additional dose levels to
be studied. Following the FDA’s approval of our amended protocol, we have
completed enrolling subjects in a second cohort beginning with a dose level of
1.25 ng/kg/min and we are currently enrolling a third cohort at a dose level of
2.5 ng/kg/min. At the end of 2009, we submitted an additional protocol amendment
to enable us to add up to three additional cohorts of patients, which increases
potential enrollment in the study to a total of approximately 75 patients. As of
March 1, 2010, we have completed dosing 30 subjects in the study.
Interim
top-line safety data from the on-going Phase II study suggests that CD-NP is
well-tolerated at dose levels of 1.25 and 2.5 ng/kg/min. We expect full results
from the expanded study to be available in the second half of 2010.
Following analysis of the ongoing Phase II data and subject to such data, we
expect to initiate a Phase IIb dose-ranging, placebo-controlled, double-blind
study in acute heart failure patients.
In
addition to our own studies, in July 2008, the Mayo Clinic initiated a Phase Ib
study, under an investigator-sponsored investigational new drug application, or
IND, to better understand CD-NP’s renal properties. Data from this study is
expected in 2010.
CU-NP
Program
CU-NP is
our novel natriuretic peptide rationally designed by scientists at the Mayo
Clinic’s cardio-renal research labs. CU-NP was designed to combine the favorable
hemodynamic venodilating effects of CNP generated via NPR-B receptor agonism,
with the beneficial renal effects of Urodilatin generated via NPR-A receptor
agonism. In animal models, CU-NP was shown to increase natriuresis, diuresis,
and glomerular filtration rate in a dose dependent manner, decrease cardiac
filling pressure, and inhibit the renin-angiotensin system without inducing
significant hypotension.
In 2009,
in partnership with the Mayo Clinic, we progressed toward the development of
formulations to enable the chronic administration of CU-NP. In 2010, we expect
to initiate and complete multiple in vivo pharmacological studies with chronic
formulations of CU-NP.
2NTX-99
Program
In
January 2009, we discontinued the development of 2NTX-99 and terminated our
license to certain patents and other intellectual property relating to that
product candidate. We decided to end the 2NTX-99 program in order to
focus our resources on the development of our natriuretic peptide
programs.
Intellectual
Property and License Agreements
Our goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of
other parties, both in the United States and abroad. Our policy is to actively
seek to obtain, where appropriate, the broadest intellectual property protection
possible for our current product candidates and any future product candidates,
proprietary information and proprietary technology through a combination of
contractual arrangements and patents, both in the United States and abroad. Even
patent protection, however, may not always afford us with complete protection
against competitors who seek to circumvent our patents. If we fail to
adequately protect or enforce our intellectual property rights or secure rights
to patents of others, the value of our intellectual property rights would
diminish.
We will
continue to depend upon the skills, knowledge and experience of our scientific
and technical personnel, as well as that of our advisors, consultants and other
contractors, none of which is patentable. To help protect our proprietary
know-how, which is not patentable, and for inventions for which patents may be
difficult to enforce, we currently rely and will in the future rely on trade
secret protection and confidentiality agreements to protect our interests. To
this end, we require all of our employees, consultants, advisors and other
contractors to enter into confidentiality agreements that prohibit the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
License
Agreements
CD-NP
On
January 20, 2006, we entered into an exclusive, worldwide, royalty-bearing
license agreement, or the CD-NP License Agreement, with Mayo Foundation for
Medical Education and Research, or the Mayo Foundation, for the rights to issued
patents, patent applications and know-how relating to the use of CD-NP in all
therapeutic uses. We were also entitled to rights to improvements to CD-NP that
arise out of the laboratory of Dr. John Burnett, the co-inventor of CD-NP, until
January 19, 2009.
Under the
terms of the CD-NP License Agreement, we paid the Mayo Foundation an up-front
cash payment and reimbursed it for past patent expenses. We issued to
the Mayo Foundation 1,379,419 shares of common stock. Additionally, we agreed to
make contingent cash payments up to an aggregate of $31.9 million upon
successful completion of specified clinical and regulatory milestones relating
to CD-NP. This aggregate amount is subject to increase upon the receipt of
regulatory approval for each additional indication of CD-NP as well as for
additional compounds or analogues contained in the intellectual property. In
July 2008, we made a milestone payment of $400,000 to the Mayo Foundation upon
the dosing of the first patient in a Phase II trial. Pursuant to the
CD-NP License Agreement, we will pay the Mayo Foundation an annual maintenance
fee and a percentage of net sales of licensed products, as well as $50,000 per
year for the consulting services of Dr. Burnett while serving as chairman of the
Company’s Scientific Advisory Board.
In
addition to the potential milestone payments discussed above, the CD-NP License
Agreement requires us to issue shares of common stock to the Mayo Foundation for
an equivalent dollar amount of grants received in excess of $300,000, but not to
exceed $575,000. For the period from August 1, 2005 (inception)
through December 31, 2009, the Company received $482,235 in grant income for
which it has issued to the Mayo Foundation 63,478 shares (representing $182,236)
of common stock.
The CD-NP
License Agreement, unless earlier terminated, will continue in full force and
effect until January 20, 2026. However, to the extent any patent
covered by the license is issued with an expiration date beyond January 20,
2026, the term of the agreement will continue until such expiration
date. Mayo may terminate the agreement earlier (i) for our material
breach of the agreement that remains uncured after 90 days’ written notice to
us, (ii) our insolvency or bankruptcy, or (iii) if we challenge the validity or
enforceability of any of the patents in any manner. We may terminate
the agreement without cause upon 90 days’ written notice.
Pursuant
to our CD-NP license agreement with Mayo Foundation, we have exclusive rights to
3 issued U.S. patents and 3 pending U.S. patent applications, 16 issued foreign
patents and 3 pending foreign applications, covering composition of matter and
methods of use. These patents and patent applications cover CD-NP, and other
similar natriuretic peptides, as well as methods of use of the peptides in the
treatment of multiple cardiovascular and renal indications. The issued
composition of matter patent expires in 2019 and, if allowed, the last of the
pending U.S. patents would expire in 2028.
CU-NP
On June
13, 2008, we entered into an exclusive, worldwide, royalty-bearing license
agreement, or the CU-NP License Agreement, with the Mayo Foundation for the
rights to intellectual property and to develop commercially CU-NP for all
therapeutic indications. We also hold the rights to improvements to CU-NP that
arise out of the Mayo Clinic laboratory of Dr. John Burnett and Dr. Candace
Lee, the inventors of CU-NP, until June 12, 2011.
Under the
terms of the CU-NP License Agreement, we made an up-front cash payment to the
Mayo Foundation and agreed to make future contingent cash payments up
to an aggregate of $24.3 million upon achievement of specific clinical and
regulatory milestones relating to CU-NP, including a milestone payment due in
connection with the initiation of the first Phase II clinical trial of the
licensed product. This aggregate amount of $24.3 million is subject to increase
upon the receipt of regulatory approval for each additional indication of CU-NP,
as well as for additional compounds or analogues contained in the intellectual
property. Pursuant to the agreement, we must also pay the Mayo Foundation an
annual maintenance fee and a percentage of net sales of licensed
products.
In
addition to these cash payments payable with respect to the CU-NP License
Agreement, we also agreed to issue shares of our common stock and warrants to
the Mayo Foundation. In June 2008, we issued 49,689 shares of common stock to
the Mayo Foundation having a fair market value as of June 13, 2008 equal to
$250,000. This amount has been recorded in research and development expenses in
the accompanying Statements of Operations. Additionally, Dr. Burnett has applied
for funding through Mayo’s Discovery-Translation Program. In the event Dr.
Burnett is awarded funding through this program, and the funding is used for the
development of the licensed product based on the patent applications, we agreed
to grant to the Mayo Foundation an equivalent dollar value in warrants to
purchase shares of our common stock. The number of shares purchasable under
these warrants will be calculated using the Black-Scholes option-pricing model
and the warrants will include a cashless exercise provision with language to be
negotiated in good faith between the parties.
The CU-NP
License Agreement, unless earlier terminated, will continue in full force and
effect until June 13, 2028. However, to the extent any patent covered
by the license is issued with an expiration date beyond June 13, 2028, the term
of the agreement will continue until such expiration date. The Mayo Foundation
may terminate the agreement earlier (i) for our material breach of the agreement
that remains uncured after 90 days’ written notice to us, (ii) our insolvency or
bankruptcy, (iii) if we challenge the validity or enforceability of any of the
patents in any manner, or (iv) or upon receipt of notice from us that we have
terminated all development efforts under the agreement. We may terminate the
agreement without cause upon 90 days’ written notice.
Pursuant
to our CU-NP license agreement with Mayo Foundation, we have exclusive rights to
1 pending U.S. patent application and 3 pending foreign applications, covering
composition of matter and methods of use. These patents and patent applications
cover CU-NP, and other similar natriuretic peptides, as well as methods of use
of the peptides in the treatment of multiple cardiovascular and renal
indications. If allowed, the pending U.S. patent would expire in
2028.
2NTX-99
In August
2007, we entered into an exclusive, worldwide, royalty-bearing license agreement
with Dr. Cesare Casagrande for the rights to the intellectual property and
know-how relating to a molecule known as 2NTX-99, and all of its human
therapeutic or veterinary uses. Under this license agreement, we made
an up-front cash payment to Dr. Casagrande and reimbursed him for past patent
expenses. We also issued to Dr. Casagrande 350,107 shares of our
common stock. In January 2009, we determined to discontinue the
2NTX-99 program in order to focus our resources on the development of our
natriuretic peptide programs, CD-NP and CU-NP. Accordingly, we
terminated the 2NTX-99 license agreement, returning the rights to the molecule
to Dr. Casagrande, effective April 16, 2009. As such, we recorded an impairment
charge of $48,500 for unamortized patent costs, which is included in research
and development expense in the accompanying Statements of
Operations.
Government
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our product candidates are
extensively regulated by governmental authorities in the United States and other
countries. In the United States, the Food and Drug Administration, or FDA,
regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and
its implementing regulations. Failure to comply with the applicable United
States requirements may subject us to administrative or judicial sanctions, such
as FDA refusal to approve a pending NDA, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution,
injunctions, and/or criminal prosecution.
Drug
Approval Process
A drug or
drug candidate may not be marketed or sold in the United States until it has
received FDA approval. The process to receiving such approval is long, expensive
and risky, and includes the following steps:
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pre-clinical
laboratory tests, animal studies, and formulation
studies;
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submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin;
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adequate
and well-controlled human clinical trials to establish the safety and
efficacy of the drug for each
indication;
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submission
to the FDA of an NDA;
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satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with current
good manufacturing practices, or cGMPs;
and
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FDA
review and approval of the NDA.
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Pre-clinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the pre-clinical tests
and formulation of the compounds for testing must comply with federal
regulations and requirements. The results of the pre-clinical tests, together
with manufacturing information and analytical data, are submitted to the FDA as
part of an IND, which must become effective before human clinical trials may
begin. An IND will automatically become effective 30 days after receipt by the
FDA, unless before that time the FDA raises concerns or questions about issues
such as the conduct of the trials as outlined in the IND. In such a case, the
IND sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. We cannot be sure that submission of an IND
will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials are typically conducted in three sequential “Phases”, although the Phases
may overlap. The study protocol and informed consent information for study
subjects in clinical trials must also be approved by an Institutional Review
Board for each institution where the trials will be conducted. Study subjects
must sign an informed consent form before participating in a clinical trial.
Phase I usually involves the initial introduction of the investigational drug
into human patients to evaluate its short-term safety, dosage tolerance,
metabolism, pharmacokinetics and pharmacologic actions, and, if possible, to
gain an early indication of its effectiveness. Phase II usually involves trials
in a limited patient population to (i) evaluate dosage tolerance and appropriate
dosage; (ii) identify possible adverse effects and safety risks; and (iii)
evaluate preliminarily the efficacy of the drug for specific indications. Phase
III trials usually further evaluate clinical efficacy and test further for
safety by using the drug in its final form in an expanded patient population.
There can be no assurance that Phase I, Phase II, or Phase III testing will be
completed successfully within any specified period of time, if at all.
Furthermore, we or the FDA may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
an unacceptable health risk.
The FDCA
permits the FDA and the IND sponsor to agree in writing on the design and size
of clinical studies intended to form the primary basis of an effectiveness claim
in an NDA. This process is known as Special Protocol Assessment. These
agreements may not be changed after the clinical studies begin, except in
limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
pre-clinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of the
drug, are submitted to the FDA in the form of an NDA requesting approval to
market the product for one or more indications. The testing and approval process
requires substantial time, effort, and financial resources. The FDA reviews the
application and may deem it to be inadequate to support the registration, and
companies cannot be sure that any approval will be granted on a timely basis, if
at all. The FDA may also refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation, and a
recommendation as to whether the application should be approved. The FDA is not
bound by the recommendations of the advisory committee.
The FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis of surrogate endpoints.
Generally, drugs that may be eligible for one or more of these programs are
those for serious or life-threatening conditions, those with the potential to
address unmet medical needs, and those that provide meaningful benefit over
existing treatments. We cannot be sure that any of our drugs will qualify for
any of these programs, or that, if a drug does qualify, the review time will be
reduced.
Section
505(b)(2) of the FDCA allows the FDA to approve a follow-on drug on the basis of
data in the scientific literature or a prior FDA approval of an NDA for a
related drug. This procedure potentially makes it easier for generic drug
manufacturers to obtain rapid approval of new forms of drugs based on
proprietary data of the original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities at
which the drug is manufactured and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As a
condition of NDA approval, the FDA may require post-marketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before we can
market our product candidates for additional indications, we must obtain
additional approvals from the FDA. Obtaining approval for a new indication
generally requires that additional clinical studies be conducted. We cannot be
sure that any additional approvals for new indications for any product candidate
will be approved on a timely basis, or at all.
Post-Approval
Requirements
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval requirements are
not satisfied, the FDA may withdraw its approval of the drug. In addition,
holders of an approved NDA are required to report certain adverse reactions to
the FDA, comply with certain requirements concerning advertising and promotional
labeling for their products, and continue to have quality control and
manufacturing procedures conform to cGMP after approval. The FDA periodically
inspects the sponsor’s records related to safety reporting and/or manufacturing
facilities; this latter effort includes assessment of compliance with cGMP.
Accordingly, manufacturers must continue to expend time, money, and effort in
the area of production and quality control to maintain cGMP compliance. We
intend to use third-party manufacturers to produce our products in clinical and
commercial quantities, and future FDA inspections may identify compliance issues
at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product after approval may result in restrictions
on a product, manufacturer, or holder of an approved NDA, including withdrawal
of the product from the market.
Manufacturing
We do not
currently have our own manufacturing facilities. We intend to continue to use
our financial resources to accelerate development of our product candidates
rather than diverting resources to establish our own manufacturing facilities.
We meet our pre-clinical and clinical trial manufacturing requirements by
establishing relationships with third-party manufacturers and other service
providers to perform these services for us. We rely on individual proposals and
purchase orders to meet our needs and typically rely on terms and conditions
proposed by the third party or us to govern our rights and obligations under
each order (including provisions with respect to intellectual property, if any).
We do not have any long-term agreements or commitments for these
services. Likewise, we do not have any long-term agreements or
commitments with vendors to supply the underlying component materials of our
product candidates, some of which are available from only a single
supplier.
Should
any of our product candidates obtain marketing approval, we anticipate
establishing relationships with third-party manufacturers and other service
providers in connection with the commercial production of our products. We have
some flexibility in securing other manufacturers to produce our product
candidates; however, our alternatives may be limited due to proprietary
technologies or methods used in the manufacture of some of our product
candidates.
Competition
We face
significant competition from companies with substantial financial, technical,
and marketing resources, which could limit our future revenues from sales of
CD-NP and CU-NP. Our success will depend, in part, upon our ability to achieve
market share at the expense of existing and future products in the relevant
target markets. Existing and future products, therapies, technologies,
technological innovations, and delivery systems will likely compete directly
with our products.
The
development and commercialization of new products to treat cardiovascular
diseases is highly competitive, and there will be considerable competition from
major pharmaceutical, biotechnology, and other companies. With respect to CD-NP,
many therapeutic options are available for patients with acute decompensated
heart failure, including, without limitation, nitroglycerine, inotropic agents,
diuretics, as well as Natrecor®. Some of our competitors include, without
limitation, Scios (a Johnson & Johnson company), Bayer, Merck, Zealand
Pharma, and Novartis.
With
respect to CU-NP, competitors would include many of the same companies included
as competitors for CD-NP. Because of our intent to investigate the compound’s
potential for chronic administration, additional competitors could include,
without limitation, Teva Pharmaceuticals and Palatin Technologies.
Our
competitors generally have substantially more resources than we do, including
both financial and technical resources. In addition, many of these companies
have more experience than Nile in pre-clinical and clinical development,
manufacturing, regulatory, and global commercialization. We are also competing
with academic institutions, governmental agencies, and private organizations
that are conducting research in the field of cardiovascular disease. Competition
for highly qualified employees is intense.
Employees
As of
December 31, 2009, we had two employees. None of our employees are covered
by a collective bargaining unit. We believe our relations with our employees are
satisfactory.
We retain
several consultants who serve in various operational and administrative
capacities, and we utilize clinical research organizations and third parties to
perform our pre-clinical studies, clinical studies, and manufacturing. We may
hire additional research and development staff, as required, to support our
product development.
An investment in our securities is
speculative in nature, involves a high degree of risk, and should not be made by
an investor who cannot bear the economic risk of its investment for an
indefinite period of time and who cannot afford the loss of its entire
investment. You should carefully consider the following risk factors and the
other information contained elsewhere in this Annual Report before making an
investment in our common stock. If any of the following events or
outcomes actually occurs, our business, operating results, and financial
condition could be materially and adversely affected. As a result, the trading
price of our common stock could decline and you may lose all or part of the
money you paid to purchase our common stock.
Risks Relating to Our
Business
We
need substantial additional funding before we can complete the development of
our product candidates. If we are unable to raise capital, we will be
forced to delay, reduce or eliminate our product development programs and may
not have the capital required to otherwise operate our
business.
Developing
biopharmaceutical products, including conducting pre-clinical studies and
clinical trials and establishing manufacturing capabilities, is expensive. We
expect our research and development expenses to increase in connection with our
ongoing activities, particularly as we initiate our clinical programs and
conduct other clinical trials of our product candidates. In addition, our
expenses could increase beyond expectations if the FDA requires that we perform
additional studies to those that we currently anticipate, and the timing of any
potential product approval may be delayed. Other than our cash on hand, we
currently have no commitments or arrangements for any additional financing to
fund the research and development of our product candidates. We have not
generated any product revenues, and do not expect to generate any revenues
until, and only if, we receive approval to sell our drugs from the FDA and other
regulatory authorities for our product candidates. As of December 31, 2009, we
had cash and cash equivalents totaling $3.2 million. During the fiscal year
ended December 31, 2009, we used net cash totaling $5.8 million in
operating activities. We expect our negative cash flows from operations to
continue for the foreseeable future and beyond potential regulatory approval and
any product launch. Based on our current development plans, which include the
potential dosing of additional cohorts in the ongoing Phase II study, we expect
that our current resources will be sufficient to fund our operations through the
end of the third quarter of 2010. We will need to raise additional capital to
complete the study activities and analyze the results. Pending the results
of our ongoing Phase II study, we would need substantial additional capital in
order to initiate and fund the next clinical study of CD-NP, which we anticipate
would be a Phase IIb clinical trial.
Until we
can generate a sufficient amount of product revenue, if ever, we expect to
finance future cash needs through public or private equity offerings, debt
financings, or corporate collaboration and licensing arrangements. Additional
funds may not be available when we need them on terms that are acceptable to us,
or at all. If adequate funds are not available, we may be required to delay,
reduce the scope of, or eliminate one or more of our research or development
programs or our commercialization efforts. In addition, we could be forced to
discontinue product development and reduce or forego attractive business
opportunities. To the extent that we raise additional funds by issuing equity
securities, our stockholders may experience additional significant dilution, and
debt financing, if available, may involve restrictive covenants. To the extent
that we raise additional funds through collaboration and licensing arrangements,
it may be necessary to relinquish some rights to our technologies or our product
candidates, or grant licenses on terms that may not be favorable to us. We may
seek to access the public or private capital markets whenever conditions are
favorable, even if we do not have an immediate need for additional capital at
that time.
Our
forecast of the period of time through which our financial resources will be
sufficient 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 “Risk Factors”
section. We have based this estimate on assumptions that may prove to be wrong,
and we could utilize our available capital resources sooner than we currently
expect. Our future funding requirements will depend on many factors, including,
but not limited to:
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the
scope, rate of progress and cost of our clinical trials and other research
and development activities;
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the
costs and timing of regulatory
approval;
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the
costs of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property
rights;
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the
effect of competing technological and market
developments;
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the
terms and timing of any collaboration, licensing or other arrangements
that we may establish;
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the
cost and timing of completion of clinical and commercial-scale outsourced
manufacturing activities; and
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the
costs of establishing sales, marketing and distribution capabilities for
any product candidates for which we may receive regulatory
approval.
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Our
business is substantially dependent on the results of our ongoing Phase II study
of CD-NP and our ability to fund, either alone or with a strategic partner, its
further development.
A
substantial portion of our current human and financial resources is focused on
the development of CD-NP, our lead product candidate and our only product
candidate in clinical development. In July 2009, we commenced a
single-blind, placebo-controlled Phase II study designed to provide additional
information on the safety and tolerability of CD-NP when infused for up to 72
hours in patients with acute heart failure and renal function
insufficiency. The purpose of the study is to determine a safe and
tolerable dose range of CD-NP that can be used in ADHF patients in the acute
setting in combination with the standard of care, which includes the use of
diuretics and could also include vasoactive and inotropic agents. The study also
contains several exploratory efficacy endpoints to provide insight into the
potential for CD-NP to preserve or enhance renal function in acute heart failure
patients. We expect results from this Phase II study to be available in the
second half of 2010. Subject to the results of the Phase II study, we
plan to either collaborate with a strategic partner to continue further
development of CD-NP or undertake such further development on our
own. If we undertake the further development of CD-NP on our own, we
will require substantial additional capital to fund such
activities. If we are unable to identify and secure a partner to
continue the further development of CD-NP or obtain the additional funds
required to fund such development on our own, our business would be
substantially and adversely affected and we would be forced to significantly
curtail or even cease our operations. Further, our business and
future prospects will also be substantially and adversely affected if the data
from the ongoing Phase II study of CD-NP are insufficient to support any further
development of that drug compound, in which case, we may be forced to cease our
operations.
We
have a limited operating history upon which to base an investment decision, and
we expect a number of factors to cause our operating results to fluctuate on a
quarterly and annual basis, which may make it difficult to predict our future
performance.
Our
operations to date have been primarily limited to organizing and staffing our
company, developing our technology, and undertaking pre-clinical studies and
clinical trials of our product candidates. We have not yet obtained regulatory
approvals for any of our product candidates. Consequently, any predictions you
make about our future success or viability may not be as accurate as they could
be if we had a longer operating history. Specifically, our financial condition
and operating results have varied significantly in the past and will continue to
fluctuate from quarter-to-quarter and year-to-year in the future due to a
variety of factors, many of which are beyond our control. Factors relating to
our business that may contribute to these fluctuations include the following
factors, as well as other factors described elsewhere in this
prospectus:
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the
need to obtain regulatory approval of our two product candidates, CD-NP
and CU-NP;
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delays
in the commencement, enrollment, and timing of clinical
testing;
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the
success of our clinical trials through all phases of clinical
development;
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the
success of clinical trials of our CD-NP and CU-NP product candidates or
future product candidates;
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any
delays in regulatory review and approval of our product candidates in
clinical development;
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our
ability to receive regulatory approval or commercialize our products
within and outside the United
States;
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potential
side effects of our future products that could delay or prevent
commercialization or cause an approved treatment drug to be taken off the
market;
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regulatory
difficulties relating to products that have already received regulatory
approval;
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market
acceptance of our product
candidates;
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our
ability to establish an effective sales and marketing infrastructure once
our products are commercialized;
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competition
from existing products or new products that may
emerge;
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the
impact of competition in the market in which we compete on the
commercialization of CD-NP and
CU-NP;
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guidelines
and recommendations of therapies published by various
organizations;
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the
ability of patients to obtain coverage of or sufficient reimbursement for
our products;
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our
ability to maintain adequate insurance
policies;
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our
dependency on third parties to formulate and manufacture our product
candidates;
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our
ability to establish or maintain collaborations, licensing or other
arrangements;
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our
ability and third parties’ abilities to protect intellectual property
rights;
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costs
related to and outcomes of potential intellectual property
litigation;
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compliance
with obligations under intellectual property licenses with third
parties;
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our
ability to adequately support future
growth;
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our
ability to attract and retain key personnel to manage our business
effectively; and
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the
level of experience in running a public company of our senior management
who are relatively new to their current roles as managers of a public
company.
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We
have a history of net losses, expect to continue to incur substantial and
increasing net losses for the foreseeable future, and we may never achieve or
maintain profitability.
For the
years ended December 31, 2009 and 2008, respectively, we had a net loss of
$7.9 million and 13.1 million. Since our inception on August 1, 2005,
through December 31, 2009, we have accumulated a deficit of $33.9 million and
have stockholders’ equity of $3.0 million. We expect to incur substantial losses
and negative operating cash flow for the foreseeable future, and we may never
achieve or maintain profitability. Even if we succeed in developing and
commercializing one or more of our product candidates, we expect to incur
substantial losses for the foreseeable future, as we:
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continue
to undertake pre-clinical development and clinical trials for our product
candidates;
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seek
regulatory approvals for our product
candidates;
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in-license
or otherwise acquire additional products or product
candidates;
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implement
additional internal systems and infrastructure;
and
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hire
additional personnel.
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We also
expect to experience negative cash flow for the foreseeable future as we fund
our operating losses and capital expenditures. As a result, we expect to incur
substantial and increasing net losses and negative cash flows for the
foreseeable future. These losses and negative cash flows have had, and will
continue to have, an adverse effect on our stockholders’ equity and working
capital. Our failure to achieve or maintain profitability could negatively
impact the value of our common stock.
Because
of the numerous risks and uncertainties associated with pharmaceutical product
development, we are unable to accurately predict the timing or amount of
increased expenses or when, or if, we will be able to achieve or maintain
profitability. In addition, our expenses could increase beyond expectations if
we are required by the FDA to perform studies in addition to those that we
currently anticipate. Currently, we have no products approved for commercial
sale, and to date we have not generated any product revenue. We have financed
our operations primarily through the sale of equity securities and debt
financings. The size of our future net losses will depend, in part, on the rate
of growth of our expenses and the rate of growth, if any, of our revenues.
Revenues from potential strategic partnerships are uncertain because we may not
enter into any strategic partnerships. If we are unable to develop and
commercialize one or more of our product candidates, or if sales revenue from
any product candidate that receives marketing approval is insufficient, we will
not achieve profitability. Even if we do achieve profitability, we may not be
able to sustain or increase profitability.
There
are certain interlocking relationships between us and certain affiliates of Two
River Group Holdings, LLC that may present potential conflicts of
interest.
Arie S.
Belldegrun, Joshua A. Kazam and Peter M. Kash, each of whom are currently
directors of our company, and David M. Tanen, a director of our company until
September 2009, are the managing members of Two River Group Holdings, LLC, or
Two River, a merchant bank specializing in biotechnology companies, and are
officers and directors of Riverbank Capital Securities, Inc., or Riverbank, a
registered broker-dealer, which served as placement agent in connection with our
July 2009 private placement. Mr. Kazam also serves as our President
and Chief Executive Officer, and Scott Navins, the Vice President of Finance for
Two River and the Financial and Operations Principal of Riverbank, serves as our
Treasurer. Additionally, certain employees of Two River, who are also our
stockholders, perform limited activities for us, including without limitation
various clinical development, operational and administrative activities
currently being performed pursuant to a Services Agreement dated June 24, 2009,
between Nile and Two River Consulting, LLC, an entity owned and controlled by
Dr. Belldegrun and Messrs. Kazam and Tanen. Generally, Delaware corporate law
requires that any transactions between us and any of our affiliates be on terms
that, when taken as a whole, are substantially as favorable to us as those then
reasonably obtainable from a person who is not an affiliate in an arms-length
transaction. Nevertheless, none of our affiliates or Two River is obligated
pursuant to any agreement or understanding with us to make any additional
products or technologies available to us, nor can there be any assurance, and
the investors should not expect, that any biomedical or pharmaceutical product
or technology identified by such affiliates or Two River in the future will be
made available to us. In addition, certain of our current officers and directors
or certain of any officers or directors hereafter appointed may from time to
time serve as officers or directors of other biopharmaceutical or biotechnology
companies. There can be no assurance that such other companies will not have
interests in conflict with our own.
We
may not successfully manage our growth.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we may need to expand our facilities, augment our
operational, financial and management systems and hire and train additional
qualified personnel. If we are unable to manage our growth effectively, our
business would be harmed.
We
rely on key executive officers and scientific and medical advisors, whose
knowledge of our business and technical expertise would be difficult to
replace.
We
currently rely on certain key executive officers, the loss of any one or more of
whom could delay our development program. We are and will be highly dependent on
our principal scientific, regulatory and medical advisors. We do not have “key
person” life insurance policies for any of our officers. The loss of the
technical knowledge and management and industry expertise of any of our key
personnel could result in delays in product development, loss of customers and
sales and diversion of management resources, which could adversely affect our
operating results.
If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
Attracting
and retaining qualified personnel will be critical to our success. Our success
is highly dependent on the hiring and retention of key personnel and scientific
staff. While we are actively recruiting additional experienced members for the
management team, there is intense competition and demand for qualified personnel
in our area of business and no assurances can be made that we will be able to
retain the personnel necessary for the development of our business on
commercially reasonable terms, if at all. Certain of our current officers,
directors, scientific advisors and/or consultants or certain of the officers,
directors, scientific advisors and/or consultants hereafter appointed may, from
time to time, serve as officers, directors, scientific advisors and/or
consultants of other biopharmaceutical or biotechnology companies. We rely, in
substantial part, and for the foreseeable future will rely, on certain
independent organizations, advisors and consultants to provide certain services,
including substantially all aspects of regulatory approval, clinical management,
and manufacturing. There can be no assurance that the services of independent
organizations, advisors and consultants will continue to be available to us on a
timely basis when needed, or that we can find qualified
replacements.
We
face potential product liability exposure, and if successful claims are brought
against us, we may incur substantial liability for a product candidate and may
have to limit its commercialization.
The use
of our product candidates in clinical trials and the sale of any products for
which we obtain marketing approval, if at all, expose us to the risk of product
liability claims. Product liability claims might be brought against us by
consumers, health care providers or others using, administering or selling our
products. If we cannot successfully defend ourselves against these claims, we
will incur substantial liabilities. Regardless of merit or eventual outcome,
liability claims may result in:
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial
programs;
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costs
of related litigation;
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substantial
monetary awards to patients or other
claimants;
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decreased
demand for our product candidates;
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impairment
of our business reputation;
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the
inability to commercialize our product
candidates.
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We have
obtained product liability insurance coverage for our clinical trials, both
foreign and domestically. However, our insurance coverage may not reimburse us
or may not be sufficient to reimburse us for any expenses or losses we may
suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in
the future, we may not be able to maintain insurance coverage at a reasonable
cost or in sufficient amounts to protect us against losses due to liability. We
intend to expand our insurance coverage to include the sale of commercial
products if we obtain marketing approval for our product candidates in
development, but we may be unable to obtain commercially reasonable product
liability insurance for any products approved for marketing. On occasion, large
judgments have been awarded in class action lawsuits based on drugs that had
unanticipated side effects. A successful product liability claim or series of
claims brought against us could cause our stock price to fall and, if judgments
exceed our insurance coverage, could decrease our cash and adversely affect our
business.
We
may be exposed to liability claims associated with the use of hazardous
materials and chemicals.
Our
research and development activities may involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
using, storing, handling and disposing of these materials comply with federal,
state and local laws and regulations, we cannot completely eliminate the risk of
accidental injury or contamination from these materials. In the event of such an
accident, we could be held liable for any resulting damages and any liability
could materially adversely affect our business, financial condition and results
of operations. In addition, the federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous or
radioactive materials and waste products may require us to incur substantial
compliance costs that could materially adversely affect our business, financial
condition and results of operations.
We
are controlled by current directors, officers, and principal
stockholders.
Our
directors, officers, and principal stockholders beneficially own approximately
36% of our outstanding voting securities. Accordingly, our executive officers,
directors, and principal stockholders will have the ability to exert substantial
influence over the election of our Board of Directors and the outcome of issues
submitted to our stockholders.
We
are required to implement additional finance and accounting systems, procedures
and controls in order to satisfy requirements under the securities laws,
including the Sarbanes-Oxley Act of 2002, which increase our costs and divert
management’s time and attention.
We have
established processes, controls and procedures that will allow our management to
report on, and our independent registered public accounting firm to attest to,
our internal control over financial reporting when required to do so under
Section 404 of the Sarbanes-Oxley Act of 2002. Additionally, we
periodically review the effectiveness of our internal controls and procedures
with a continuous improvement philosophy.
As a
company with limited capital and human resources, we anticipate that more of
management’s time and attention will be diverted from our business to ensure
compliance with these regulatory requirements than would be the case with a
company that has well established controls and procedures. This diversion of
management’s time and attention may have a material adverse effect on our
business, financial condition and results of operations.
In the
event we identify significant deficiencies or material weaknesses in our
internal control over financial reporting that we cannot remediate in a timely
manner, or if we are unable to receive a positive attestation from our
independent registered public accounting firm with respect to our internal
control over financial reporting when we are required to do so, investors and
others may lose confidence in the reliability of our financial statements. If
this occurs, the trading price of our common stock, if any, and ability to
obtain any necessary equity or debt financing could suffer. In addition, in the
event that our independent registered public accounting firm is unable to rely
on our internal control over financial reporting in connection with its audit of
our financial statements, and in the further event that it is unable to devise
alternative procedures in order to satisfy itself as to the material accuracy of
our financial statements and related disclosures, we may be unable to file our
periodic reports with the SEC. This would likely have an adverse affect on the
trading price of our common stock, if any, and our ability to secure any
necessary additional financing, and could result in the delisting of our common
stock. In such event, the liquidity of our common stock would be severely
limited and the market price of our common stock would likely decline
significantly.
Recent
turmoil in the financial markets and the global recession has adversely affected
and may continue to adversely affect our industry, business and ability to
obtain financing.
Recent global market and economic
conditions have been unprecedented and challenging with tighter credit
conditions and recession in most major economies continuing into 2010. Continued
concerns about the systemic impact of potential long-term and wide-spread
recession, energy costs, geopolitical issues, the availability and cost of
credit, and the global housing and mortgage markets have contributed to
increased market volatility and diminished expectations for western and emerging
economies. In the second half of 2008, added concerns fueled by the U.S.
government conservatorship of the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association, the declared bankruptcy of Lehman
Brothers Holdings Inc., the U.S. government financial assistance to American
International Group Inc., Citibank, Bank of America and other federal government
interventions in the U.S. financial system lead to increased market uncertainty
and instability in both U.S. and international capital and credit markets. These
conditions, combined with volatile oil prices, declining business and consumer
confidence and increased unemployment, have contributed to volatility of
unprecedented levels.
As a result of these market
conditions, the cost and availability of credit has been and may continue to be
adversely affected by illiquid credit markets and wider credit spreads. Concern
about the stability of the markets generally and the strength of counterparties
specifically has led many lenders and institutional investors to reduce, and in
some cases, cease to provide credit to businesses and consumers. These factors
have lead to a decrease in spending by businesses and consumers alike, and a
corresponding decrease in global infrastructure spending. Continued turbulence
in the U.S. and international markets and economies and prolonged declines in
business consumer spending may adversely affect our liquidity and financial
condition, including our ability to refinance any maturing liabilities and
access the capital markets to meet liquidity needs. If the conditions in the
U.S. and world economic markets remain uncertain or continue to be volatile, or
if they deteriorate further, our industry and business may be adversely
affected.
Risks Relating to the
Clinical Testing, Regulatory Approval, Manufacturing
and Commercialization of Our
Product Candidates:
Delays in the commencement,
enrollment, and completion of clinical testing could result in increased costs
to us and delay or limit our ability to obtain regulatory approval for our
product candidates.
Delays in the commencement,
enrollment, and completion of clinical testing could also significantly affect
our product development costs. We do not know whether planned clinical trials
for CD-NP will begin on time or be completed on schedule, if at all. The
commencement and completion of clinical trials requires us to identify and
maintain a sufficient number of trial sites, many of which may already be
engaged in other clinical trial programs for the same indication as our product
candidates, may be required to withdraw from a clinical trial as a result of
changing standards of care, or may become ineligible to participate in clinical
studies.
The commencement, enrollment, and
completion of clinical trials can be delayed for a variety of other reasons,
including delays related to:
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reaching
agreements on acceptable terms with prospective clinical research
organizations, or CROs, and trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs
and trial sites;
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obtaining
regulatory approval to commence a clinical
trial;
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obtaining
institutional review board, or IRB, approval to conduct a clinical trial
at numerous prospective sites;
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recruiting
and enrolling patients to participate in clinical trials for a variety of
reasons, including meeting the enrollment criteria for our study and
competition from other clinical trial programs for the same indication as
our product candidates;
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retaining
patients who have initiated a clinical trial but may be prone to withdraw
due to the treatment protocol, lack of efficacy, personal issues, or side
effects from the therapy, or who are lost to further
follow-up;
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maintaining
and supplying clinical trial material on a timely
basis;
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complying
with design protocols of any applicable special protocol assessment we
receive from the FDA; and
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collecting,
analyzing and reporting final data from the clinical
trials.
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In addition, a clinical trial may be
suspended or terminated by us, the FDA, or other regulatory authorities due to a
number of factors, including:
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failure
to conduct the clinical trial in accordance with regulatory requirements
or our clinical protocols;
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inspection
of the clinical trial operations or trial sites by the FDA or other
regulatory authorities resulting in the imposition of a clinical
hold;
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unexpected
delays in approvals of protocol amendments by regulatory
authorities;
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unforeseen
safety issues or any determination that a trial presents unacceptable
health risks;
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lack
of adequate funding to continue the clinical trial, including the
incurrence of unforeseen costs due to enrollment delays;
or
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requirements
to conduct additional trials and studies, and increased expenses
associated with the services of our CROs and other third
parties.
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If we are required to conduct
additional clinical trials or other testing of our product candidates beyond
those that we currently contemplate, particularly for our CD-NP and CU-NP
product candidates, we may be delayed in obtaining, or may not be able to
obtain, marketing approval for these product candidates. Based upon our
discussions with the FDA, we intend to conduct clinical programs for each of our
CD-NP and CU-NP product candidates. We may not be able to obtain approval for
indications that are as broad as intended, or we may be able to obtain approval
only for indications that are entirely different than those indications for
which we sought approval.
Additionally, changes in regulatory
requirements and guidance may occur, and we may need to amend clinical trial
protocols to reflect these changes with appropriate regulatory authorities.
Amendments may require us to resubmit our clinical trial protocols to IRBs for
re-examination, which may impact the costs, timing, or successful completion of
a clinical trial. If we experience delays in the completion of, or if we
terminate, our clinical trials, the commercial prospects for our product
candidates will be harmed, and our ability to generate product revenues will be
delayed. In addition, many of the factors that cause, or lead to, a delay in the
commencement or completion of clinical trials may also ultimately lead to the
denial of regulatory approval of a product candidate. Even if we are able to
ultimately commercialize our product candidates, other therapies for the same or
similar indications may have been introduced to the market and established a
competitive advantage.
Any delays in obtaining regulatory
approvals may:
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delay
commercialization of, and our ability to derive product revenues from, our
product candidates;
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impose
costly procedures on us; or
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diminish
any competitive advantages that we may otherwise
enjoy.
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If we do not establish strategic
partnerships, we will have to undertake development and commercialization
efforts on our own, which would be costly and delay our ability to commercialize
any future products.
An element of our business strategy
includes potentially partnering with pharmaceutical, biotechnology and other
companies to obtain assistance for the development and potential
commercialization of our product candidates, including the cash and other
resources we need for such development and potentially commercialization. We
intend to enter into potential strategic partnerships with third parties to
develop and commercialize our product candidates that are intended for larger
markets, and we may enter into strategic partnerships for product candidates
that are targeted toward specialty markets. We face significant competition in
seeking appropriate strategic partners, and these potential strategic
partnerships can be intricate and time consuming to negotiate and document. We
may not be able to negotiate strategic partnerships on acceptable terms, or at
all. We are unable to predict when, if ever, we will enter into any potential
strategic partnerships because of the numerous risks and uncertainties
associated with establishing strategic partnerships. If we are unable to
negotiate strategic partnerships for our product candidates we may be forced to
curtail the development of a particular candidate, reduce or delay its
development program, delay its potential commercialization, reduce the scope of
our sales or marketing activities or undertake development or commercialization
activities at our own expense. In addition, we will bear all the risk related to
the development of that product candidate. If we elect to increase our
expenditures to fund development or commercialization activities on our own, we
will need to obtain additional capital, which may not be available to us on
acceptable terms, or at all. If we do not have sufficient funds, we will not be
able to bring our product candidates to market and generate product
revenue.
If we enter into strategic
partnerships, we may be required to relinquish important rights to and control
over the development of our product candidates or otherwise be subject to terms
unfavorable to us.
If we enter into any strategic
partnerships with pharmaceutical or biotechnology companies we will be subject
to a number of risks, including:
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we
may not be able to control the amount and timing of resources that our
strategic partners devote to the development or commercialization of
product candidates;
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strategic
partners may delay clinical trials, provide insufficient funding,
terminate a clinical trial or abandon a product candidate, repeat or
conduct new clinical trials or require a new version of a product
candidate for clinical testing;
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strategic
partners may not pursue further development and commercialization of
products resulting from the strategic partnering arrangement or may elect
to discontinue research and development
programs;
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strategic
partners may not commit adequate resources to the marketing and
distribution of any future products, limiting our potential revenues from
these products;
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disputes
may arise between us and our strategic partners that result in the delay
or termination of the research, development or commercialization of our
product candidates or that result in costly litigation or arbitration that
diverts management’s attention and consumes
resources;
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strategic
partners may experience financial
difficulties;
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strategic
partners may not properly maintain or defend our intellectual property
rights or may use our proprietary information in a manner that could
jeopardize or invalidate our proprietary information or expose us to
potential litigation;
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business
combinations or significant changes in a strategic partner’s business
strategy may also adversely affect a strategic partner’s willingness or
ability to complete its obligations under any arrangement;
and
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strategic
partners could independently move forward with a competing product
candidate developed either independently or in collaboration with others,
including our competitors.
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As the results of earlier clinical
trials are not necessarily predictive of future results, CD-NP, CU-NP or any
other product candidate we advance into clinical trials may not have favorable
results in later clinical trials or receive regulatory approval.
Even if our clinical trials are
completed as planned, we cannot be certain that their results will support the
claims of our product candidates. Success in pre-clinical testing and early
clinical trials does not ensure that later clinical trials will be successful,
and we cannot be sure that the results of later clinical trials will replicate
the results of prior clinical trials and pre-clinical testing. A number of
companies in the pharmaceutical industry, including those with greater resources
and experience, have suffered significant setbacks in Phase III clinical trials,
even after seeing promising results in earlier clinical trials.
Our clinical trial process may fail
to demonstrate that our product candidates are safe for humans and effective for
indicated uses. This failure would cause us to abandon a product candidate and
may delay development of other product candidates. Any delay in, or termination
of, our clinical trials will delay the filing of our NDAs with the FDA and,
ultimately, our ability to commercialize our product candidates and generate
product revenues. In addition, our clinical trials involve a small patient
population. Because of the small sample size, the results of these clinical
trials may not be indicative of future results.
Despite the results reported in
earlier clinical trials for our product candidates, we do not know whether any
Phase IIb, Phase III or other clinical programs we may conduct will demonstrate
adequate efficacy and safety to result in regulatory approval to market our
product candidates.
Each of our product candidates is in
an early stage of development.
Each of our product candidates, CD-NP
and CU-NP, is in an early stage of development and requires extensive clinical
testing before it will be approved by the FDA or another regulatory authority in
a jurisdiction outside the United States. We cannot predict with any certainty
the results of such clinical testing. We cannot predict with any certainty if,
or when, we might commence any such clinical trials or whether such trials will
yield sufficient data to permit us to proceed with additional clinical
development and ultimately submit an application for regulatory approval of our
product candidates in the United States or abroad, or whether such applications
will be accepted by the appropriate regulatory agency.
Our products use novel alternative
technologies and therapeutic approaches, which have not been widely
studied.
Our product development efforts focus
on novel alternative technologies and therapeutic approaches that have not been
widely studied. These approaches and technologies may not be successful. We are
applying these approaches and technologies in our attempt to discover new
treatments for conditions that are also the subject of research and development
efforts of many other companies.
Our drug-development program depends
upon third-party researchers who are outside our control.
We will depend upon independent
investigators and collaborators, such as universities and medical institutions,
to conduct our pre-clinical and clinical trials under agreements with us. These
collaborators are not our employees, and we cannot control the amount or timing
of resources that they devote to our programs. These investigators may not
assign as great a priority to our programs or pursue them as diligently as we
would if we were undertaking such programs ourselves. If outside collaborators
fail to devote sufficient time and resources to our drug-development programs,
or if their performance is substandard, the approval of our FDA applications, if
any, and our introduction of new drugs, if any, will be delayed. These
collaborators may also have relationships with other commercial entities, some
of whom may compete with us. If our collaborators assist our competitors at our
expense, our competitive position would be harmed.
We rely exclusively on third parties
to formulate and manufacture our product candidates.
We have no experience in drug
formulation or manufacturing and do not intend to establish our own
manufacturing facilities. We lack the resources and expertise to formulate or
manufacture our own product candidates. We currently, and intend in the future
to, contract with one or more manufacturers to manufacture, supply, store, and
distribute drug supplies for our clinical trials. If any of our product
candidates receive FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a
limited number of third-party manufacturers exposes us to the following
risks:
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We
may be unable to identify manufacturers on acceptable terms or at all,
because the number of potential manufacturers is limited, and subsequent
to NDA approval, the FDA must approve any replacement contractor. This
approval would require new testing and compliance inspections. In
addition, a new manufacturer may have to be educated in, or develop
substantially equivalent processes for, production of our products after
receipt of FDA approval, if any.
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Our
third-party manufacturers might be unable to formulate and manufacture our
drugs in the volume and of the quality required to meet our clinical and
commercial needs, if any.
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Our
future contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to supply our
clinical trials or to successfully produce, store, and distribute our
products.
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Drug
manufacturers are subject to ongoing periodic unannounced inspection by
the FDA, the Drug Enforcement Agency, and corresponding state agencies to
ensure strict compliance with good manufacturing practice and other
government regulations and corresponding foreign standards. We do not have
control over third-party manufacturers’ compliance with these regulations
and standards.
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Each of these risks could delay our
clinical trials, the approval, if any, of our product candidates by the FDA, or
the commercialization of our product candidates, or result in higher costs or
deprive us of potential product revenues.
Our product candidates may have
undesirable side effects and cause our approved drugs to be taken off the
market.
If any of our product candidates
receive marketing approval and we or others later identify undesirable side
effects caused by such products:
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regulatory
authorities may require the addition of labeling statements, specific
warnings, a contraindication, or field alerts to physicians and
pharmacies;
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regulatory
authorities may withdraw their approval of the
product;
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we
may be required to change the way the product is administered, conduct
additional clinical trials or change the labeling of the
product;
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we
may have limitations on how we promote our
drugs;
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regulatory
authorities may require us to take our approved drug off the
market;
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sales
of products may decrease
significantly;
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we
may be subject to litigation or product liability claims;
and
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our
reputation may suffer.
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Any of these events could prevent us
from achieving or maintaining market acceptance of the affected product or could
substantially increase our commercialization costs and expenses, which in turn
could delay or prevent us from generating significant revenues from its
sale.
We are largely dependent on the
success of our two product candidates, CD-NP and CU-NP, and we cannot be certain
that either of these product candidates will receive regulatory approval to be
commercialized.
We will need FDA approval to
commercialize our product candidates in the United States and approvals from the
FDA-equivalent regulatory authorities in foreign jurisdictions to commercialize
our product candidates in those jurisdictions. In order to obtain FDA approval
of any of our product candidates, we must submit to the FDA an NDA demonstrating
that the product candidate is safe for humans and effective for its intended
use. This demonstration requires significant research and animal tests, which
are referred to as pre-clinical studies, as well as human tests, which are
referred to as clinical trials. Satisfaction of the FDA’s regulatory
requirements typically takes many years, depends upon the type, complexity, and
novelty of the product candidate, and requires substantial resources for
research, development, and testing. We cannot predict whether our research and
clinical approaches will result in drugs that the FDA considers safe for humans
and effective for indicated uses. The FDA has substantial discretion in the drug
approval process and may require us to conduct additional pre-clinical and
clinical testing or to perform post-marketing studies. The approval process may
also be delayed by changes in government regulation, future legislation, or
administrative action or changes in FDA policy that occur prior to or during our
regulatory review.
Even if we comply with all FDA
requests, the FDA may ultimately reject one or more of our NDAs. We cannot be
sure that we will ever obtain regulatory clearance for our product candidates.
Failure to obtain FDA approval of any of our product candidates will severely
undermine our business by reducing our number of salable products and,
therefore, corresponding product revenues, and will have a material and adverse
impact on our business.
Even if our product candidates
receive regulatory approval in the United States, we may never receive approval
or commercialize our products outside of the United States.
In order to market and commercialize
any products outside of the United States, we must establish and comply with
numerous and varying regulatory requirements of other countries regarding safety
and efficacy. Approval procedures vary among countries and can involve
additional product testing and additional administrative review periods. For
example, European regulatory authorities generally require a trial comparing the
efficacy of the new drug to an existing drug prior to granting approval. The
time required to obtain approval in other countries might differ from that
required to obtain FDA approval. The regulatory approval process in other
countries may include all of the risks detailed above regarding FDA approval in
the United States as well as other risks. Regulatory approval in one country
does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may have a negative effect on the
regulatory approval process in others. Failure to obtain regulatory approval in
other countries or any delay or setback in obtaining such approval could have
the same adverse effects detailed above regarding FDA approval in the United
States. Such effects include the risks that our product candidates may not be
approved for all indications requested, which could limit the uses of our
product candidates and have an adverse effect on product sales and potential
royalties, and that such approval may be subject to limitations on the indicated
uses for which the product may be marketed or require costly, post-marketing
follow-up studies.
If clinical trials of our CD-NP and
CU-NP product candidates or future product candidates do not produce results
necessary to support regulatory approval in the United States or elsewhere or
show undesirable side effects, we will be unable to commercialize these
products.
To receive regulatory approval for
the commercial sale of CD-NP, CU-NP or any other product candidates, we
must conduct adequate and well-controlled clinical trials to demonstrate
efficacy and safety in humans. Clinical testing is expensive, takes many years
and has an uncertain outcome. Clinical failure can occur at any stage of the
testing. Our clinical trials may produce negative or inconclusive results, and
we may decide, or regulators may require us, to conduct additional clinical
and/or non-clinical testing. In addition, the results of our clinical trials may
show that our product candidates may cause undesirable side effects, which could
interrupt, delay or halt clinical trials, resulting in the denial of regulatory
approval by the FDA and other regulatory authorities.
In light of widely publicized events
concerning the safety risk of certain drug products, regulatory authorities,
members of Congress, the Government Accounting Office, medical professionals and
the general public have raised concerns about potential drug safety issues.
These events have resulted in the withdrawal of drug products, revisions to drug
labeling that further limit use of the drug products and establishment of risk
management programs that may, for instance, restrict distribution of drug
products. The increased attention to drug safety issues may result in a more
cautious approach by the FDA to clinical trials. Data from clinical trials may
receive greater scrutiny with respect to safety, which may make the FDA or other
regulatory authorities more likely to terminate clinical trials before
completion, or require longer or additional clinical trials that may result in
substantial additional expense and a delay or failure in obtaining approval or
approval for a more limited indication than originally sought.
Our failure to adequately demonstrate
the efficacy and safety of CD-NP, CU-NP or any other product candidates
would prevent regulatory approval and, ultimately, the commercialization of that
product candidate.
We have no experience selling,
marketing, or distributing products and no internal capability to do so. If we
are unable to establish an effective and focused sales force and marketing
infrastructure, we will not be able to commercialize our product candidates
successfully.
We currently have no sales,
marketing, or distribution capabilities. We do not anticipate having resources
in the foreseeable future to allocate to the sales and marketing of our proposed
products. Our future success depends, in part, on our ability to enter into and
maintain sales and marketing collaborative relationships, or on our ability to
build sales and marketing capabilities internally. If we enter into a sales and
marketing collaborative relationship, then we will be dependent upon the
collaborator’s strategic interest in the products under development, and such
collaborator’s ability to successfully market and sell any such products. We
intend to pursue collaborative arrangements regarding the sales and marketing of
our products, however, there can be no assurance that we will be able to
establish or maintain such collaborative arrangements, or if able to do so, that
they will have effective sales forces. To the extent that we decide not to, or
are unable to, enter into collaborative arrangements with respect to the sales
and marketing of our proposed products, significant capital expenditures,
management resources, and time will be required to establish and develop an
in-house marketing and sales force with technical expertise. There can also be
no assurance that we will be able to establish or maintain relationships with
third-party collaborators or develop in-house sales and distribution
capabilities. To the extent that we depend on third parties for marketing and
distribution, any revenues we receive will depend upon the efforts of such third
parties, and there can be no assurance that such efforts will be successful. In
addition, there can also be no assurance that we will be able to market and sell
our product in the United States or overseas.
We will experience intense
competition with respect to our existing and future product
candidates.
The pharmaceutical industry is highly
competitive, with a number of established, large pharmaceutical companies, as
well as many smaller companies. Many of these companies have greater financial
resources, marketing capabilities, and experience in obtaining regulatory
approvals for product candidates. There are many pharmaceutical companies,
biotechnology companies, public and private universities, government agencies,
and research organizations actively engaged in research and development of
products which may target the same indications as our product candidates. We
expect any future products we develop to compete on the basis of, among other
things, product efficacy and safety, time to market, price, extent of adverse
side effects, and convenience of treatment procedures. One or more of our
competitors may develop products based upon the principles underlying our
proprietary technologies earlier than us, obtain approvals for such products
from the FDA more rapidly than us, or develop alternative products or therapies
that are safer, more effective and/or more cost effective than any products
developed by us.
Competitors may seek to develop
alternative formulations of our product candidates that address our targeted
indications. The commercial opportunity for our product candidates could be
significantly harmed if competitors are able to develop alternative formulations
outside the scope of our products. Compared to us, many of our potential
competitors have substantially greater:
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development
resources, including personnel and
technology;
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clinical
trial experience;
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expertise
in prosecution of intellectual property
rights;
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manufacturing
and distribution experience; and
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sales
and marketing experience.
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As a result of these factors, our
competitors may obtain regulatory approval of their products more rapidly than
we are able to or may obtain patent protection or other intellectual property
rights that limit our ability to develop or commercialize our product
candidates. Our competitors may also develop drugs that are more effective,
useful, and less costly than ours, and may also be more successful than us in
manufacturing and marketing their products.
Developments by competitors may
render our products or technologies obsolete or non-competitive.
The biotechnology and pharmaceutical
industries are intensely competitive and subject to rapid and significant
technological change. The drugs that we are attempting to develop will have to
compete with existing therapies. In addition, a large number of companies are
pursuing the development of pharmaceuticals that target the same diseases and
conditions that we are targeting. We face competition from pharmaceutical and
biotechnology companies in the United States and abroad. In addition, companies
pursuing different but related fields represent substantial competition. Many of
these organizations competing with us have substantially greater capital
resources, larger research and development staffs and facilities, longer drug
development history in obtaining regulatory approvals, and greater manufacturing
and marketing capabilities than we do. These organizations also compete with us
to attract qualified personnel and parties for acquisitions, joint ventures, or
other collaborations.
If any of our product candidates for
which we receive regulatory approval do not achieve broad market acceptance, the
revenues that we generate from their sales will be limited.
The commercial success of our product
candidates for which we obtain marketing approval from the FDA or other
regulatory authorities will depend upon the acceptance of these products among
physicians, the medical community, and patients, and coverage and reimbursement
of them by third-party payors, including government payors. The degree of market
acceptance of any of our approved products will depend on a number of factors,
including:
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limitations
or warnings contained in a product’s FDA-approved
labeling;
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changes
in the standard of care for the targeted indications for any of our
product candidates, which could reduce the marketing impact of any claims
that we could make following FDA
approval;
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limitations
inherent in the approved indication for any of our product candidates
compared to more commonly understood or addressed
conditions;
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lower
demonstrated clinical safety and efficacy compared to other
products;
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prevalence
and severity of adverse effects;
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ineffective
marketing and distribution efforts;
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lack
of availability of reimbursement from managed care plans and other
third-party payors;
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lack
of cost-effectiveness;
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timing
of market introduction and perceived effectiveness of competitive
products;
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availability
of alternative therapies at similar costs;
and
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potential
product liability claims.
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Our ability to effectively promote and
sell our product candidates in the marketplace will also depend on pricing and
cost effectiveness, including our ability to manufacture a product at a
competitive price. We will also need to demonstrate acceptable evidence of
safety and efficacy and may need to demonstrate relative convenience and ease of
administration. Market acceptance could be further limited depending on the
prevalence and severity of any expected or unexpected adverse side effects
associated with our product candidates. If our product candidates are approved
but do not achieve an adequate level of acceptance by physicians, health care
payors, and patients, we may not generate sufficient revenue from these
products, and we may not become or remain profitable. In addition, our efforts
to educate the medical community and third-party payors on the benefits of our
product candidates may require significant resources and may never be
successful. If our approved drugs fail to achieve market acceptance, we will not
be able to generate significant revenue, if any.
Even if our product candidates
receive regulatory approval, we may still face future development and regulatory
difficulties.
Even if United States regulatory
approval is obtained, the FDA may still impose significant restrictions on a
product’s indicated uses or marketing, or impose ongoing requirements for
potentially costly post-approval studies. Given the number of recent
high-profile adverse safety events with certain drug products, the FDA may
require, as a condition of approval, costly risk management programs which may
include safety surveillance, restricted distribution and use, patient education,
enhanced labeling, special packaging or labeling, expedited reporting of certain
adverse events, pre-approval of promotional materials, and restrictions on
direct-to-consumer advertising. Furthermore, heightened Congressional scrutiny
on the adequacy of the FDA’s drug approval process and the agency’s efforts to
assure the safety of marketed drugs has resulted in the proposal of new
legislation addressing drug safety issues. If enacted, any new legislation could
result in delays or increased costs during the period of product development,
clinical trials, and regulatory review and approval, as well as increased costs
to assure compliance with any new post-approval regulatory requirements. Any of
these restrictions or requirements could force us to conduct costly studies or
increase the time for us to become profitable. For example, any labeling
approved for CD-NP, CU-NP, or any other product candidates may include a
restriction on the term of its use, or it may not include one or more of our
intended indications.
Our product candidates will also be
subject to ongoing FDA requirements for the labeling, packaging, storage,
advertising, promotion, record-keeping, and submission of safety and other
post-market information on the drug. In addition, approved products,
manufacturers, and manufacturers’ facilities are subject to continual review and
periodic inspections. If a regulatory agency discovers previously unknown
problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, a
regulatory agency may impose restrictions on that product or us, including
requiring withdrawal of the product from the market. If our product candidates
fail to comply with applicable regulatory requirements, such as current cGMPs, a
regulatory agency may:
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require
us to enter into a consent decree, which can include imposition of various
fines, reimbursements for inspection costs, required due dates for
specific actions, and penalties for
noncompliance;
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impose
other civil or criminal penalties;
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suspend
regulatory approval;
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suspend
any ongoing clinical trials;
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refuse
to approve pending applications or supplements to approved applications
filed by us;
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impose
restrictions on operations, including costly new manufacturing
requirements; or
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seize
or detain products or require a product
recall.
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Our ability to generate product
revenues will be diminished if our drugs sell for inadequate prices or patients
are unable to obtain adequate levels of reimbursement.
Successful sales of our products
depend on the availability of adequate coverage and reimbursement from
third-party payors. Healthcare providers that purchase medicine or medical
products for treatment of their patients generally rely on third-party payors to
reimburse all or part of the costs and fees associated with the products.
Adequate coverage and reimbursement from governmental, such as Medicare and
Medicaid, and commercial payors is critical to new product acceptance. Patients
are unlikely to use our products if they do not receive reimbursement adequate
to cover the cost of our products.
In addition, the market for our
future products will depend significantly on access to third-party payors’ drug
formularies, or lists of medications for which third-party payors provide
coverage and reimbursement. Industry competition to be included in such
formularies results in downward pricing pressures on pharmaceutical companies.
Third-party payors may refuse to include a particular branded drug in their
formularies when a generic equivalent is available.
All third-party payors, whether
governmental or commercial, whether inside the United States or outside, are
developing increasingly sophisticated methods of controlling healthcare costs.
In addition, in the United States, no uniform policy of coverage and
reimbursement for medical technology exists among all these payors. Therefore,
coverage of and reimbursement for medical products can differ significantly from
payor to payor.
Further, we believe that future
coverage and reimbursement may be subject to increased restrictions both in the
United States and in international markets. Third-party coverage and
reimbursement for our products may not be available or adequate in either the
United States or international markets, limiting our ability to sell our
products on a profitable basis.
Significant uncertainty exists as to
the reimbursement status of newly approved healthcare products. Healthcare
payors, including Medicare, are challenging the prices charged for medical
products and services. Government and other healthcare payors increasingly
attempt to contain healthcare costs by limiting both coverage and the level of
reimbursement for drugs. Even if our product candidates are approved by the FDA,
insurance coverage may not be available, and reimbursement levels may be
inadequate, to cover our drugs. If government and other healthcare payors do not
provide adequate coverage and reimbursement levels for any of our products, once
approved, market acceptance of our products could be reduced.
Risks Related to Our
Intellectual Property
It is difficult and costly to protect
our proprietary rights, and we may not be able to ensure their protection. If we
fail to protect or enforce our intellectual property rights adequately or secure
rights to patents of others, the value of our intellectual property rights would
diminish.
Our commercial success will depend in
part on obtaining and maintaining patent protection and trade secret protection
of our product candidates, and the methods used to manufacture them, as well as
successfully defending these patents against third-party challenges. Our ability
to stop third parties from making, using, selling, offering to sell, or
importing our products is dependent upon the extent to which we have rights
under valid and enforceable patents or trade secrets that cover these
activities.
We license certain intellectual
property from third parties that covers our product candidates. We rely on
certain of these third parties to file, prosecute, and maintain patent
applications, and otherwise protect the intellectual property to which we have a
license, and we have not had and do not have primary control over these
activities for certain of these patents or patent applications and other
intellectual property rights. We cannot be certain that such activities by third
parties have been or will be conducted in compliance with applicable laws and
regulations, or will result in valid and enforceable patents and other
intellectual property rights. Our enforcement of certain of these licensed
patents or defense of any claims asserting the invalidity of these patents would
also be subject to the cooperation of the third parties.
The patent positions of
pharmaceutical and biopharmaceutical companies can be highly uncertain and
involve complex legal and factual questions for which important legal principles
remain unresolved. No consistent policy regarding the breadth of claims allowed
in biopharmaceutical patents has emerged to date in the United States. The
biopharmaceutical patent situation outside the United States is even more
uncertain. Changes in either the patent laws or in interpretations of patent
laws in the United States and other countries may diminish the value of our
intellectual property. Accordingly, we cannot predict the breadth of claims that
may be allowed or enforced in the patents we own or to which we have a license
or third-party patents. Further, if any of our patents are deemed invalid and
unenforceable, it could impact our ability to commercialize or license our
technology.
The degree of future protection for
our proprietary rights is uncertain because legal means afford only limited
protection and may not adequately protect our rights or permit us to gain or
keep our competitive advantage. For example:
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others
may be able to make compounds that are similar to our product candidates
but that are not covered by the claims of any of our
patents;
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we
might not have been the first to make the inventions covered by any issued
patents or patent applications we may have (or third parties from whom we
license intellectual property may
have);
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we
might not have been the first to file patent applications for these
inventions;
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others
may independently develop similar or alternative technologies or duplicate
any of our technologies;
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it
is possible that any pending patent applications we may have will not
result in issued patents;
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any
issued patents may not provide us with any competitive advantages, or may
be held invalid or unenforceable as a result of legal challenges by third
parties;
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we
may not develop additional proprietary technologies that are patentable;
or
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the
patents of others may have an adverse effect on our
business.
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We also may rely on trade secrets to
protect our technology, especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect.
Although we use reasonable efforts to protect our trade secrets, our employees,
consultants, contractors, outside scientific collaborators, and other advisors
may unintentionally or willfully disclose our information to competitors.
Enforcing a claim that a third party illegally obtained and is using any of our
trade secrets is expensive and time consuming, and the outcome is unpredictable.
In addition, courts outside the United States are sometimes less willing to
protect trade secrets. Moreover, our competitors may independently develop
equivalent knowledge, methods, and know-how.
If
any of our trade secrets, know-how or other proprietary information is
disclosed, the value of our trade secrets, know-how and other proprietary rights
would be significantly impaired and our business and competitive position would
suffer.
Our success also depends upon the
skills, knowledge and experience of our scientific and technical personnel, our
consultants and advisors as well as our licensors and contractors. To help
protect our proprietary know-how and our inventions for which patents may be
unobtainable or difficult to obtain, we rely on trade secret protection and
confidentiality agreements. To this end, we require all of our employees,
consultants, advisors and contractors to enter into agreements which prohibit
the disclosure of confidential information and, where applicable, require
disclosure and assignment to us of the ideas, developments, discoveries and
inventions important to our business. These agreements may not provide adequate
protection for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure or the lawful development by
others of such information. If any of our trade secrets, know-how or other
proprietary information is disclosed, the value of our trade secrets, know-how
and other proprietary rights would be significantly impaired and our business
and competitive position would suffer.
We may incur substantial costs as a
result of litigation or other proceedings relating to patent and other
intellectual property rights and we may be unable to protect our rights to, or
use of, our technology.
If we choose to go to court to stop
someone else from using the inventions claimed in our patents, that individual
or company has the right to ask the court to rule that these patents are invalid
and/or should not be enforced against that third party. These lawsuits are
expensive and would consume time and other resources even if we were successful
in stopping the infringement of these patents. In addition, there is a risk that
the court will decide that these patents are not valid and that we do not have
the right to stop the other party from using the inventions. There is also the
risk that, even if the validity of these patents is upheld, the court will
refuse to stop the other party on the ground that such other party’s activities
do not infringe our rights to these patents. In addition, the United States
Supreme Court has recently invalidated some tests used by the United States
Patent and Trademark Office, or USPTO, in granting patents over the past 20
years. As a consequence, several issued patents may be found to contain invalid
claims according to the newly revised standards. Some of our own or in-licensed
patents may be subject to challenge and subsequent invalidation in a
re-examination proceeding before the USPTO or during litigation under the
revised criteria which make it more difficult to obtain patents.
Furthermore, a third party may claim
that we or our manufacturing or commercialization partners are using inventions
covered by the third party’s patent rights and may go to court to stop us from
engaging in our normal operations and activities, including making or selling
our product candidates. These lawsuits are costly and could affect our results
of operations and divert the attention of managerial and technical personnel.
There is a risk that a court would decide that we or our commercialization
partners are infringing the third party’s patents and would order us or our
partners to stop the activities covered by the patents. In addition, there is a
risk that a court will order us or our partners to pay the other party damages
for having violated the other party’s patents. We have agreed to indemnify
certain of our commercial partners against certain patent infringement claims
brought by third parties. The biotechnology industry has produced a
proliferation of patents, and it is not always clear to industry participants,
including us, which patents cover various types of products or methods of use.
The coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. If we are sued for patent infringement, we
would need to demonstrate that our products or methods of use either do not
infringe the patent claims of the relevant patent and/or that the patent claims
are invalid, and we may not be able to do this. Proving invalidity, in
particular, is difficult since it requires a showing of clear and convincing
evidence to overcome the presumption of validity enjoyed by issued
patents.
Because some patent applications in
the United States may be maintained in secrecy until the patents are issued,
because patent applications in the United States and many foreign jurisdictions
are typically not published until eighteen months after filing, and because
publications in the scientific literature often lag behind actual discoveries,
we cannot be certain that others have not filed patent applications for
technology covered by our issued patents or our pending applications, or that we
were the first to invent the technology. Our competitors may have filed, and may
in the future file, patent applications covering technology similar to ours. Any
such patent application may have priority over our patent applications or
patents, which could further require us to obtain rights to issued patents
covering such technologies. If another party has filed a United States patent
application on inventions similar to ours, we may have to participate in an
interference proceeding declared by the USPTO to determine priority of invention
in the United States. The costs of these proceedings could be substantial, and
it is possible that such efforts would be unsuccessful if unbeknownst to us, the
other party had independently arrived at the same or similar invention prior to
our own invention, resulting in a loss of our United States patent position with
respect to such inventions.
Some of our competitors may be able
to sustain the costs of complex patent litigation more effectively than we can
because they have substantially greater resources. In addition, any
uncertainties resulting from the initiation and continuation of any litigation
could have a material adverse effect on our ability to raise the funds necessary
to continue our operations.
If requirements under our license
agreements are not met, we could suffer significant harm, including losing
rights to our products.
We depend on licensing agreements
with third parties to maintain the intellectual property rights to our products
under development. Presently, we have licensed rights from Mayo for both of our
products. These agreements require us and our licensors to perform certain
obligations that affect our rights under these licensing agreements. All of
these agreements last either throughout the life of the patents, or with respect
to other licensed technology, for a number of years after the first commercial
sale of the relevant product. If we fail to comply with our obligations in our
intellectual property licenses with third parties, we could lose license rights
that are important to our business.
In addition, we are responsible for
the cost of filing and prosecuting certain patent applications and maintaining
certain issued patents licensed to us. If we do not meet our obligations under
our license agreements in a timely manner, we could lose the rights to our
proprietary technology.
Finally, we may be required to obtain
licenses to patents or other proprietary rights of third parties in connection
with the development and use of our products and technologies. Licenses required
under any such patents or proprietary rights might not be made available on
terms acceptable to us, if at all.
Risks Relating to Our
Securities
We
expect that our stock price will fluctuate significantly, and you may not be
able to resell your shares at or above your investment price.
The stock
market, particularly in recent years, has experienced significant volatility,
particularly with respect to pharmaceutical, biotechnology and other life
sciences company stocks. The volatility of pharmaceutical, biotechnology and
other life sciences company stocks often does not relate to the operating
performance of the companies represented by the stock. Factors that could cause
volatility in the market price of our common stock include, but are not limited
to:
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results
from, delays in, or discontinuation of, any of the clinical trials for our
drug candidates, and including delays resulting from slower than expected
or suspended patient enrollment or discontinuations resulting from a
failure to meet pre-defined clinical
end-points;
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announcements
concerning clinical trials;
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failure
or delays in entering additional drug candidates into clinical
trials;
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failure
or discontinuation of any of our research
programs;
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issuance
of new or changed securities analysts’ reports or
recommendations;
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developments
in establishing new strategic
alliances;
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market
conditions in the pharmaceutical, biotechnology and other healthcare
related sectors;
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actual
or anticipated fluctuations in our quarterly financial and operating
results;
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developments
or disputes concerning our intellectual property or other proprietary
rights;
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introduction
of technological innovations or new commercial products by us or our
competitors;
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issues
in manufacturing our drug candidates or
drugs;
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market
acceptance of our drugs;
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third-party
healthcare coverage and reimbursement
policies;
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FDA
or other United States or foreign regulatory actions affecting us or our
industry;
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litigation
or public concern about the safety of our drug candidates or
drugs;
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additions
or departures of key personnel; or
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volatility
in the stock prices of other companies in our
industry.
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These and
other external factors may cause the market price and demand for our common
stock to fluctuate substantially, which may limit or prevent investors from
readily selling their shares of common stock and may otherwise negatively affect
the liquidity of our common stock. In addition, when the market price of a stock
has been volatile, holders of that stock have instituted securities class action
litigation against the company that issued the stock. If any of our stockholders
brought a lawsuit against us, we could incur substantial costs defending the
lawsuit. Such a lawsuit could also divert our management’s time and
attention.
We
have never paid dividends.
We have
never paid dividends on our capital stock and do not anticipate paying any
dividends for the foreseeable future. As a result, capital appreciation, if any,
of our common stock will be your sole source of gain for the foreseeable
future.
There
may be additional issuances of shares of blank check preferred stock in the
future.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of preferred stock, none of which are issued or currently outstanding. The Board
of Directors will have the authority to fix and determine the relative rights
and preferences of preferred shares, as well as the authority to issue such
shares, without further stockholder approval. As a result, the Board of
Directors could authorize the issuance of a series of preferred stock that is
senior to the our common stock that would grant to holders preferred rights to
our assets upon liquidation, the right to receive dividends, additional
registration rights, anti-dilution protection, the right to the redemption to
such shares, together with other rights, none of which will be afforded holders
of our common stock.
Following
a holding period or registration period under SEC regulations following a
financing event, a significant numbers of shares of our common stock may become
eligible for sale over a short period of time, which could depress the market
price of our common stock.
Following
the holding period prescribed under SEC regulations, some or all of our shares
may be offered from time to time in the open market pursuant to Rule 144, and
these sales may have a depressive effect on the market for our common stock. In
general, a person who has held restricted shares for a period of one year may,
upon filing with the SEC a notification on Form 144, sell into the market common
stock in an amount equal to the greater of 1% of the outstanding shares or the
average weekly number of shares sold in the last four weeks prior to such sale.
Such sales may be repeated once every three months, and any of the restricted
shares may be sold by a non-affiliate after they have been held two
years.
We
cannot assure you that we will continue to meet NASDAQ listing
requirements.
Our
common stock is listed and traded on the NASDAQ Capital Market. To
remain eligible to be listed on the NASDAQ Capital Market, we are required to
satisfy a number of qualitative and quantitative continued listing standards,
which include maintaining a minimum bid price of our stock at $1.00 and having
total stockholders’ equity of at least $2.5 million. For extended
periods during 2008 and 2009, our stock price fell below
$1.00. In addition, as of December 31, 2009, our total
stockholders’ equity was approximately $3.0 million.
Listing on NASDAQ may provide our
shareholders with greater liquidity and provide us with greater access to
capital. However, if we are unable to continue satisfying NASDAQ’s continued
listing standards, our common stock may be de-listed from the NASDAQ Capital
Market. We cannot assure you that we will be able to maintain a
listing of our common stock on NASDAQ Capital Market. If for any
reason our common stock is de-listed from the NASDAQ Capital Market, trading in
our common stock would likely occur on the OTC Bulletin Board, where our
stockholders may experience increased difficulty selling their shares of our
common stock at desired times and prices. In addition, we may
experience increased difficulty raising additional capital by selling shares of
our common stock.
Because we became
public by means of a reverse merger, we may not be able to attract the attention
of major brokerage firms.
Additional
risks may exist since we became public through a “reverse merger.” Security
analysts of major brokerage firms may not provide coverage of us since there is
no incentive to brokerage firms to recommend the purchase of our common stock.
No assurance can be given that brokerage firms will want to conduct any
secondary offerings on behalf of our company in the future. The lack of such
analyst coverage may decrease the public demand for our common stock, making it
more difficult for you to resell your shares when you deem
appropriate.
If
our results do not meet analysts’ forecasts and expectations, our stock price
could decline.
In the future, analysts who cover our
business and operations may provide valuations regarding our stock price and
make recommendations whether to buy, hold or sell our stock. Our stock price may
be dependent upon such valuations and recommendations. Analysts’ valuations and
recommendations are based primarily on our reported results and their forecasts
and expectations concerning our future results regarding, for example, expenses,
revenues, clinical trials, regulatory marketing approvals and competition. Our
future results are subject to substantial uncertainty, and we may fail to meet
or exceed analysts’ forecasts and expectations as a result of a number of
factors, including those discussed above under the sections “Risks Related to
Our Business” and “Risks Related to the Clinical Testing, Regulatory Approval,
Manufacturing and Commercialization of Our Product Candidates.” If our results
do not meet analysts’ forecasts and expectations, our stock price could decline
as a result of analysts lowering their valuations and recommendations or
otherwise.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our
principal offices are located at 4 West 4th, Ave.
Suite 400, San Mateo, CA, 94402. Under the terms of an open-ended lease,
cancellable upon 60 days notice, the base rent is $2,000 per month. The office
space is approximately 1,200 square feet. In connection with this lease, we have
made a $2,000 cash security deposit.
We
relocated our principal offices effective August 15, 2009 from San Francisco,
California to San Mateo, California. The San Francisco, California office was
under a non-cancelable operating lease that was to expire in March 2012. In
October 2009, we entered into a lease termination and surrender of premises
agreement with the landlord.
As our
operations expand, we expect our space requirements and related expenses to
increase.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
We are
not involved in any pending legal proceedings and are not aware of any
threatened legal proceedings against us.
PART
II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
Market
Information
Our
common stock was traded on the OTC Bulletin Board, or the OTCBB, under
the trading symbol “SPDU.OB” until October 11, 2007. Following the Merger, our
trading symbol was changed to “NILT.OB”. As of May 13, 2008, our common stock
has been listed on the NASDAQ Capital Market, or the NASDAQ, under the trading
symbol “NLTX”. Set forth below are the high and low bid or sale prices for our
common stock by quarter for the fiscal years ended December 31, 2009 and
December 31, 2008, respectively, as reported by Commodity Systems, Inc. Although
our common stock is quoted on the NASDAQ, it has traded sporadically with
minimal volume. The quotations reflect inter-dealer prices, without retail
markup, markdown, or commission, and may not represent actual transactions.
Consequently, the information provided below may not be indicative of our common
stock price under different conditions.
|
|
|
High
|
|
|
Low
|
|
|
Year
ended December 31, 2009
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
1.02 |
|
|
$ |
0.28 |
|
|
Second
quarter
|
|
$ |
1.10 |
|
|
$ |
0.25 |
|
|
Third
quarter
|
|
$ |
2.30 |
|
|
$ |
0.89 |
|
|
Fourth
quarter
|
|
$ |
1.70 |
|
|
$ |
1.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
5.51 |
|
|
$ |
3.75 |
|
|
Second
quarter
|
|
$ |
5.50 |
|
|
$ |
4.25 |
|
|
Third
quarter
|
|
$ |
5.26 |
|
|
$ |
3.28 |
|
|
Fourth
quarter
|
|
$ |
4.73 |
|
|
$ |
0.27 |
|
Holders
According
to the records of our transfer agent, American Stock Transfer & Trust
Company, as of March 1, 2010, we had 195 holders of record of common stock, not
including those held in “street name.”
Dividends
We have
never declared or paid a dividend on our common stock and do not anticipate
paying any cash dividends in the foreseeable future.
Recent Sales of Unregistered
Securities; Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity
Securities
None.
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
Not
Applicable.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the notes to those
statements included elsewhere in this Annual Report. This discussion includes
forward-looking statements that involve risks and uncertainties. As a result of
many factors, such as those set forth under “Risk Factors” in Item 1A of
this Annual Report, our actual results may differ materially from those
anticipated in these forward-looking statements.
Overview
We are a
development stage biopharmaceutical company in the business of commercially
developing innovative products for the treatment of cardiovascular diseases. We
currently have rights to develop and commercialize two product candidates,
described as follows:
|
|
·
|
CD-NP
– Our lead compound is CD-NP, a chimeric natriuretic peptide currently in
Phase II clinical studies for the treatment of heart failure. We believe
CD-NP may be useful in several cardiovascular and renal indications. We
are currently developing CD-NP for an initial indication of acute
decompensated heart failure, or ADHF. In July 2009, we began
enrolling patients in a 40 patient open-label Phase II study of CD-NP in
patients with ADHF and mild to moderate renal dysfunction. As of March 1,
we have completed the dosing of 30 patients. Following the
completion of the ongoing Phase II study, and subject to its results, we
plan to initiate a Phase IIb study in a large number of patients, which,
if successful, would serve as the basis for dose selection for a Phase III
program. We would require substantial additional funding to complete the
Phase IIb study.
|
|
|
·
|
CU-NP
– We are also developing CU-NP, a pre-clinical rationally designed
natriuretic peptide that consists of amino acid chains identical to those
produced by the human body, specifically the ring structure of C-type
natriuretic peptide, or CNP, and the N- and C-termini of Urodilatin, or
URO. In 2009, in partnership with the Mayo Clinic, we
progressed toward the development of formulations to enable the chronic
administration of CU-NP. In 2010, we expect to initiate and complete
multiple in vivo pharmacological studies with chronic formulations of
CU-NP.
|
We have
no product sales to date and we will not generate any product revenue until we
receive approval from the U.S. Food and Drug Administration, or the FDA, or
equivalent foreign regulatory bodies to begin selling our pharmaceutical product
candidates. Developing pharmaceutical products is a lengthy and very expensive
process. Assuming we do not encounter any unforeseen safety issues during the
course of developing our product candidates, we do not expect to complete the
development of a product candidate for several years, if ever. To date, most of
our development expenses have related to our lead product candidate, CD-NP. As
we proceed with the clinical development of CD-NP and as we further develop
CU-NP, our second product candidate, our research and development expenses will
further increase. To the extent we are successful in acquiring additional
product candidates for our development pipeline, our need to finance further
research and development will continue increasing. Accordingly, our success
depends not only on the safety and efficacy of our product candidates, but also
on our ability to finance the development of the products. Our major sources of
working capital have been proceeds from private sales of our common stock and
debt financings.
Research
and development, or R&D, expenses consist primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers for
pre-clinical, clinical, and manufacturing development, legal expenses resulting
from intellectual property prosecution, contractual review, and other expenses
relating to the design, development, testing, and enhancement of our product
candidates. We expense our R&D costs as they are
incurred.
General
and administrative, or G&A, expenses consist primarily of salaries and
related expenses for executive, finance and other administrative personnel,
personnel recruiting fees, accounting, legal and other professional fees,
business development expenses, rent, business insurance and other corporate
expenses.
Our
results include non-cash compensation expense as a result of the issuance of
stock, stock options, and warrants. We expense the fair value of stock options
and warrants over the vesting period. When more precise pricing data is
unavailable, we determine the fair value of stock options using the
Black-Scholes option-pricing model. The terms and vesting schedules for
share-based awards vary by type of grant and the employment status of the
grantee. Generally, the awards vest based upon time-based or performance-based
conditions. Performance-based conditions generally include the attainment of
goals related to our financial performance and product development. Stock-based
compensation expense is included in the respective categories of expense in the
statements of operations. We expect to record additional non-cash compensation
expense in the future, which may be significant.
Results
of Operations
General and Administrative
Expenses. G&A expenses for the years ended December 31, 2009 and 2008
were approximately $3.4 million and $3.9 million, respectively. The decrease of
approximately $0.5 million over 2008 is primarily due to an approximately $0.5
million decrease in stock based compensation expense as a result of a reduction
in personnel.
Research and Development
Expenses. R&D expenses for the years ended December 31, 2009 and 2008
were approximately $4.5 million and $9.5 million, respectively. The
decrease of approximately $5.0 million from 2008 is primarily due to an
approximately $1.9 million decrease in clinical expenses in our CD-NP program,
an approximately $1.3 million reduction in expenses relating to the 2NTX-99
program, an approximately $0.8 million reduction in R&D personnel expenses,
and an approximately $0.4 million reduction in CD-NP manufacturing expenses. The
decrease in clinical expenses is primarily the result of having two ongoing
clinical trials during 2008, and having only one ongoing clinical trial in 2009.
The decrease in 2NTX-99 expenses is a result of terminating the program in
January 2009. The decrease in R&D personnel expenses is primarily
attributable to our decision in the second quarter of 2009 to outsource
significant R&D functions to a consultant instead of maintaining employees
to perform such functions.
CD-NP. Although
the development of CD-NP is still in its early stages, we believe that it has
potential applications to treat heart failure. We expect to spend an additional
$1.2 to $1.4 million in external development costs in fiscal 2010 in order to
complete the ongoing Phase II clinical trial and analyze its data. We
would expect to spend an additional $0.3 to $1 million in external development
costs in fiscal 2010 should we decide to add an additional one to three cohorts
to the ongoing Phase II clinical trial. Our strategy for further development of
CD-NP in 2010 will depend to a large degree on the outcome of this ongoing
clinical trial. If the data from the ongoing Phase II trial is
positive, we may then initiate a larger Phase IIb clinical trial in 2010, which
will require significant additional capital to fund.
CU-NP. Since
acquiring our rights to CU-NP in June 2008, we have incurred a total of
approximately $0.6 million through December 31, 2009. CU-NP has only
undergone preclinical studies and has yet to be studied in
humans. Based on our current development plans for CU-NP, we
anticipate that we will expend a minimal amount on external development costs
until we have obtained significant additional capital.
Our
expenditures on current and future clinical development programs, particularly
our CD-NP program, are expected to be substantial, particularly in relation to
our available capital resources, and to increase. However, these
planned expenditures are subject to many uncertainties, including the results of
clinical trials and whether we develop any of our drug candidates with a partner
or independently. As a result of such uncertainties, we cannot predict with any
significant degree of certainty the duration and completion costs of our
research and development projects or whether, when and to what extent we will
generate revenues from the commercialization and sale of any of our product
candidates. The duration and cost of clinical trials may vary significantly over
the life of a project as a result of unanticipated events arising during
clinical development and a variety of factors, including:
|
|
·
|
the
number of trials and studies in a clinical
program;
|
|
|
·
|
the
number of patients who participate in the
trials;
|
|
|
·
|
the
number of sites included in the
trials;
|
|
|
·
|
the
rates of patient recruitment and
enrollment;
|
|
|
·
|
the
duration of patient treatment and
follow-up;
|
|
|
·
|
the
costs of manufacturing our drug candidates;
and
|
|
|
·
|
the
costs, requirements, timing of, and the ability to secure regulatory
approvals.
|
Interest Income. Interest
income for the years ended December 31, 2009 and 2008 were approximately $47,200
and $333,000, respectively. This significant decrease in interest
income over 2008 is due to lower interest rates earned on cash in bank accounts,
and substantially lower average cash balances in 2009 than 2008
levels.
Liquidity
and Capital Resources
The
following table summarizes our liquidity and capital resources as of and for
each of the last two fiscal years, and intended to supplement the more detailed
discussion that follows. The amounts stated are expressed in
thousands.
|
|
|
December 31,
|
|
|
Liquidity and capital
resources
|
|
2009
|
|
|
2008
|
|
|
Cash
and cash equivalents
|
|
$ |
3,176 |
|
|
$ |
5,501 |
|
|
Working
Capital
|
|
|
2,796 |
|
|
|
4,714 |
|
|
Stockholders'
equity
|
|
|
2,982 |
|
|
|
5,104 |
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31,
|
|
|
|
|
|
Cash
flow data
|
|
2009
|
|
|
2008
|
|
|
Dec.
31, 2009
|
|
|
Cash
provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
(5,795 |
) |
|
$ |
(10,640 |
) |
|
$ |
(23,737 |
) |
|
Investing
activities
|
|
|
(34 |
) |
|
|
(93 |
) |
|
|
(470 |
) |
|
Financing
activities
|
|
|
3,505 |
|
|
|
— |
|
|
|
27,382 |
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$ |
(2,325 |
) |
|
$ |
(10,733 |
) |
|
$ |
3,176 |
|
Our total
cash resources as of December 31, 2009 were $3.2 million compared to $5.5
million as of December 31, 2008. As of December 31, 2009, we had approximately
$0.6 million in liabilities, and $2.8 million in net working
capital. We incurred a net loss of $7.9 million and had negative cash
flow from operating activities of $5.8 million for the year ended December 31,
2009. Since August 1, 2005 (inception) through December 31, 2009, we
have incurred an aggregate net loss of approximately $33.9 million, while
negative cash flow from operating activities has amounted to $23.7
million. As we continue to develop our product candidates, we expect
to continue to incur substantial and increasing losses, which will continue to
generate negative net cash flows from operating activities as we expand our
technology portfolio and engage in further research and development activities,
particularly the conducting of pre-clinical studies and clinical
trials.
From
inception through December 31, 2009, we have financed our operations through
private sales of our equity and debt securities. As we have not
generated any revenue from operations to date, and we do not expect to generate
revenue for several years, if ever, we will need to raise substantial additional
capital in order to continue to fund our research and development, including our
long-term plans for clinical trials and new product development, as well as to
fund operations generally. We may seek to raise additional funds
through various potential sources, such as equity and debt financings, or though
strategic collaborations and license agreements. We can give no
assurances that we will be able to secure such additional sources of funds to
support or operations, or if such funds are available to us, that such
additional financing will be sufficient to meet our needs.
Based on
our resources at December 31, 2009, and the current plan of expenditure, which
includes the potential dosing of additional cohorts in the ongoing Phase II
study, we believe we have sufficient capital to fund our operations through the
end of the third quarter of 2010. Pending results of our ongoing Phase II
clinical trial of CD-NP, we would need substantial additional capital in order
to initiate and fund the next clinical study of CD-NP, which is expected to be a
Phase IIb clinical trial. Cost savings implemented in the quarter ended June 30,
2009 included a significant staff reduction and the increased use of part-time
consultants. Our actual cash requirements may vary materially from those now
planned, however, because of a number of factors, including the changes in the
focus and direction of our research and development programs, including the
acquisition and pursuit of development of new product candidates; competitive
and technical advances; costs of commercializing any of the product candidates;
and costs of filing, prosecuting, defending and enforcing any patent claims and
any other intellectual property rights. If we are unable to raise
additional funds when needed, we may not be able to market our products as
planned or continue development and regulatory approval of our products, we
could be required to delay, scale back or eliminate some or all our research and
development programs and we may need to wind down our operations
altogether. Each of these alternatives would likely have a material
adverse effect on our business.
Our
forecasted average monthly cash expenditures for the next three months are
approximately $0.4 million, which is a decrease from our average monthly
expenses from the previous six months. Because our plan includes the
potential for dosing additional cohorts in the ongoing current Phase II study,
we will need to raise additional capital to complete the study activities and
fund operations into 2011. Following the completion of our ongoing Phase II
study, we will need substantial additional capital, whether from a
financing or strategic transaction, in order to initiate and complete
the next clinical study of CD-NP.
The
actual amount of funds we will need to operate is subject to many factors, some
of which are beyond our control. These factors include the
following:
|
|
·
|
the
progress of our research
activities;
|
|
|
·
|
the
number and scope of our research
programs;
|
|
|
·
|
the
progress of our pre-clinical and clinical development
activities;
|
|
|
·
|
the
progress of the development efforts of parties with whom we have entered
into research and development
agreements;
|
|
|
·
|
our
ability to maintain current research and development programs and to
establish new research and development and licensing
arrangements;
|
|
|
·
|
the
cost involved in prosecuting and enforcing patent claims and other
intellectual property rights; and the cost and timing of regulatory
approvals.
|
We have
based our estimate on assumptions that may prove to be wrong. We may need to
obtain additional funds sooner than planned or in greater amounts than we
currently anticipate. Potential sources of financing include strategic
relationships, public or private sales of equity or debt and other sources. We
may seek to access the public or private equity markets when conditions are
favorable due to our long-term capital requirements. We do not have any
committed sources of financing at this time, and it is uncertain whether
additional funding will be available when we need it on terms that will be
acceptable to us, or at all. If we raise funds by selling additional shares of
common stock or other securities convertible into common stock, the ownership
interests of our existing stockholders will be diluted. If we are not able to
obtain financing when needed, we may be unable to carry out our business plan.
As a result, we may have to significantly limit our operations and our business,
financial condition and results of operations would be materially harmed. In
such an event, we will be required to undertake a thorough review of our
programs and the opportunities presented by such programs and allocate our
resources in the manner most prudent.
To the
extent that we raise additional funds by issuing equity or convertible or
non-convertible debt securities, our stockholders may experience additional
significant dilution and such financing may involve restrictive covenants. To
the extent that we raise additional funds through collaboration and licensing
arrangements, it may be necessary to relinquish some rights to our technologies
or our product candidates, or grant licenses on terms that may not be favorable
to us. These things may have a material adverse effect on our
business.
The
continuation of our business beyond 2010 is dependent upon obtaining further
long-term financing, the successful development of our drug product candidates
and related technologies, the successful and sufficient market acceptance of any
product offerings that we may introduce, and, finally, the achievement of a
profitable level of operations. The issuance of additional equity securities by
us may result in a significant dilution in the equity interests of current
stockholders. Obtaining commercial loans, assuming those loans would be
available, on acceptable terms or even at all, will increase our liabilities and
future cash commitments.
Financing
Activities
July 2009
Financing. On July 7, 2009, we entered into a securities
purchase agreement with various accredited investors pursuant to which we agreed
to sell in a private placement an aggregate of 2,691,394 shares of our common
stock and five-year warrants to purchase an equal number of additional shares of
common stock. The purchase price for each unit of one share of common stock and
one warrant was $1.25. The sale of the shares and warrants resulted in aggregate
gross proceeds of approximately $3.37 million, before deducting expenses. The
issuance and sale of the units pursuant to the securities purchase agreement was
completed on July 15, 2009.
In
accordance with the terms of the securities purchase agreement, the warrants
issued to the investors are evidenced by three separate certificates, which
collectively represented at issuance the right to purchase a number of shares of
common stock equal to the number of shares purchased by such investor in the
private placement, as follows:
|
|
·
|
A
warrant representing the right to purchase 25% of the warrant shares at an
exercise price equal to $1.25, which represented 110% of the $1.14
consolidated closing bid price of our common stock on the date of the
securities purchase agreement;
|
|
|
·
|
A
warrant representing the right to purchase 25% of the warrant shares at an
exercise price equal to $1.71, which represented 150% of the closing bid
price of our common stock on the date of the securities purchase
agreement; and
|
|
|
·
|
A
warrant representing the right to purchase 50% of the warrant shares at an
exercise price equal to $2.28, which represented 200% of the closing bid
price of our common stock on the date of the securities purchase
agreement.
|
These
warrants are redeemable by us, at a redemption price of $0.001 per warrant
share, upon 30 days’ notice, if at any time, the volume weighted average price
of our common stock for any 20 consecutive business days is equal to or greater
than 200% of the then applicable exercise price of the warrants.
Issuance
costs related to the financing were $282,773, including the issuance of warrants
to purchase 218,300 shares of common stock to designees of Riverbank Capital
Securities, Inc., or Riverbank, which served as our placement agent in
connection with the private placement. Certain of our officers and
directors are principals of Riverbank. See “Item 13 – Certain
Relationships and Related Transactions, and Director Independence” of this Form
10-K.
September 2007
Financing. As a condition to the closing of our merger
transaction with SMI Products, Inc., on September 11, 2007, we completed a
private placement offering whereby we raised gross proceeds of $19,974,747
through the sale of 6,957,914 shares of common stock in a private placement to
certain qualified investors. Issuance costs related to this private placement
were $102,000.
July 2007 Note
Issuance. On July 24, 2007, we issued an 8% promissory note to
an existing shareholder in the amount of $1,500,000. The note was due and
payable on November 24, 2007. An upfront fee of $30,000 was netted against the
gross proceeds. The note was paid in full on September 11, 2007, along with an
additional fee of $120,000. The upfront and additional fees were charged to
interest expense in the period ended September 30, 2007.
March 2006 Convertible Note
Financing. During March 2006, we completed a private placement
offering of $4,000,000 aggregate principal amount of 6% convertible promissory
notes. The notes matured on March 28, 2008. The aggregate principal
amount and accrued but unpaid interest on the notes, which totaled $4,351,165,
automatically converted upon the closing of our September 2007 common stock
private placement into 1,684,085 shares of common stock at a conversion price of
$2.58, which was equal to 90% of the per share price of the shares sold in the
September 2007 private placement. Due to the beneficial conversion feature
resulting from the discounted conversion price, a discount of $483,463 was
recorded as interest expense with a corresponding credit to additional paid-in
capital. In addition, in conjunction with the conversion of the convertible
debt, we issued fully vested warrants to purchase 168,337 shares of common stock
to the note holders. The warrants were valued at $288,000 using the
Black-Scholes option-pricing model and the following assumptions: exercise price
$2.71, a 3.98% risk-free interest rate, a five year contractual term, a dividend
rate of 0%, and 68% expected volatility. The cost of the warrants was included
in interest expense and as an increase in additional paid-in
capital.
License
Agreement Commitments
CD-NP
License Agreement
Pursuant
to our license agreement with Mayo for CD-NP, in July 2008 we made a milestone
payment of $400,000 to Mayo upon the dosing of the first patient in a Phase II
trial. Subsequent milestones achieved will require us to make additional
milestone payments to Mayo. We agreed to make contingent cash payments up to an
aggregate of $31.9 million upon successful completion of specified clinical and
regulatory milestones relating to CD-NP. This aggregate amount is subject to
increase upon the receipt of regulatory approval for each additional indication
of CD-NP as well as for additional compounds or analogues contained in the
intellectual property.
The CD-NP
license agreement, unless earlier terminated, will continue in full force and
effect until January 20, 2026. However, to the extent any patent
covered by the license is issued with an expiration date beyond January 20,
2026, the term of the agreement will continue until such expiration
date. Mayo may terminate the agreement earlier (i) for our material
breach of the agreement that remains uncured after 90 days’ written notice to
us, (ii) our insolvency or bankruptcy, or (iii) if we challenge the validity or
enforceability of any of the patents in any manner. We may terminate
the agreement without cause upon 90 days’ written notice.
CU-NP
License Agreement
On June
13, 2008, we entered into a second license agreement with Mayo pursuant to which
we acquired the rights to CU-NP. Under the terms of the agreement, Mayo granted
to us a worldwide, exclusive license for the rights to commercially develop
CU-NP for all therapeutic indications. We also have the rights to improvements
to CU-NP and know-how that arise out of the laboratory of Dr. John Burnett and
Dr. Candace Lee, the inventors of CU-NP and employees of the Mayo Clinic, until
June 12, 2011.
Under the
terms of the CU-NP license agreement, we made an up-front cash payment to Mayo
and agreed to make future contingent cash payments up to an aggregate of $24.3
million upon achievement of specific clinical and regulatory milestones relating
to CU-NP, including a milestone payment due in connection with the initiation of
the first Phase II clinical trial of the licensed product. This aggregate amount
of $24.25 million is subject to increase upon the receipt of regulatory approval
for each additional indication of CU-NP, as well as for additional compounds or
analogues contained in the intellectual property. Pursuant to the agreement, we
must also pay Mayo an annual maintenance fee and a percentage of net sales of
licensed products.
In
addition to these cash payments payable with respect to the CU-NP license
agreement, we also agreed to issue shares of our common stock and warrants to
Mayo. In June 2008, we issued 49,689 shares of common stock to Mayo having a
fair market value as of June 13, 2008 equal to $250,000. This amount has been
recorded in research and development expenses in the accompanying Statements of
Operations. Additionally, Dr. Burnett has applied for funding through Mayo’s
Discovery-Translation Program. In the event Dr. Burnett is awarded funding
through this program, and the funding is used for the development of the
licensed product based on the patent applications, we agreed to grant to Mayo an
equivalent dollar value in warrants to purchase shares of our common stock. The
number of shares purchasable under these warrants will be calculated using the
Black-Scholes option-pricing model and the warrants will include a cashless
exercise provision with language to be negotiated in good faith between the
parties.
The CU-NP
License Agreement, unless earlier terminated, will continue in full force and
effect until June 13, 2028. However, to the extent any patent covered
by the license is issued with an expiration date beyond June 13, 2028, the term
of the agreement will continue until such expiration date. Mayo may terminate
the agreement earlier (i) for our material breach of the agreement that remains
uncured after 90 days’ written notice to us, (ii) our insolvency or bankruptcy,
(iii) if we challenge the validity or enforceability of any of the patents in
any manner, or (iv) or upon receipt of notice from the Company that we have
terminated all development efforts under the agreement. We may terminate the
agreement without cause upon 90 days’ written notice.
Off
- -Balance Sheet Arrangements
There
were no off-balance sheet arrangements as of December 31,
2009.
Critical
Accounting Policies and Estimates
Our
financial statements are prepared in accordance with generally accepted
accounting principles. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures. We evaluate our
estimates and assumptions on an ongoing basis, including research and
development and clinical trial accruals, and stock-based compensation estimates.
Our estimates are based on historical experience and various other assumptions
that we believe to be reasonable under the circumstances. Our actual results
could differ from these estimates. We believe the following critical accounting
policies reflect the more significant judgments and estimates used in the
preparation of our financial statements and accompanying notes.
Research
and Development Expenses and Accruals
R&D
expenses consist primarily of salaries and related personnel costs, fees paid to
consultants and outside service providers for pre-clinical, clinical, and
manufacturing development, legal expenses resulting from intellectual property
prosecution, contractual review, and other expenses relating to the design,
development, testing, and enhancement of our product candidates. Except for
capitalized patent expenses, R&D costs are expensed as incurred. Amounts due
under such arrangements may be either fixed fee or fee for service, and may
include upfront payments, monthly payments, and payments upon the completion of
milestones or receipt of deliverables.
Our cost
accruals for clinical trials and other R&D activities are based on estimates
of the services received and efforts expended pursuant to contracts with
numerous clinical trial centers and CROs, clinical study sites, laboratories,
consultants, or other clinical trial vendors that perform the activities.
Related contracts vary significantly in length, and may be for a fixed amount, a
variable amount based on actual costs incurred, capped at a certain limit, or
for a combination of these elements. Activity levels are monitored through close
communication with the CRO’s and other clinical trial vendors, including
detailed invoice and task completion review, analysis of expenses against
budgeted amounts, analysis of work performed against approved contract budgets
and payment schedules, and recognition of any changes in scope of the services
to be performed. Certain CRO and significant clinical trial vendors provide an
estimate of costs incurred but not invoiced at the end of each quarter for each
individual trial. The estimates are reviewed and discussed with the CRO or
vendor as necessary, and are included in R&D expenses for the related
period. For clinical study sites, which are paid periodically on a per-subject
basis to the institutions performing the clinical study, we accrue an estimated
amount based on subject screening and enrollment in each quarter. All estimates
may differ significantly from the actual amount subsequently invoiced, which may
occur several months after the related services were performed.
In the
normal course of business we contract with third parties to perform various
R&D activities in the on-going development of our product candidates. The
financial terms of these agreements are subject to negotiation and vary from
contract to contract and may result in uneven payment flows. Payments under the
contracts depend on factors such as the achievement of certain events, the
successful enrollment of patients, and the completion of portions of the
clinical trial or similar conditions. The objective of our accrual policy is to
match the recording of expenses in our financial statements to the actual
services received and efforts expended. As such, expense accruals related to
clinical trials and other R&D activities are recognized based on our
estimate of the degree of completion of the event or events specified in the
specific contract.
No
adjustments for material changes in estimates have been recognized in any period
presented.
Stock-Based
Compensation
Our
results include non-cash compensation expense as a result of the issuance of
stock, stock options and warrants. We have issued stock options to employees,
directors, consultants and Scientific Advisory Board members under our Amended
and Restated 2005 Stock Option Plan.
We
expense the fair value of stock-based compensation over the vesting period. When
more precise pricing data is unavailable, we determine the fair value of stock
options using the Black-Scholes option-pricing model. This valuation model
requires us to make assumptions and judgments about the variables used in the
calculation. These variables and assumptions include the weighted-average period
of time that the options granted are expected to be outstanding, the volatility
of our common stock, the risk-free interest rate and the estimated rate of
forfeitures of unvested stock options.
Stock
options or other equity instruments to non-employees (including consultants and
all members of the Company’s Scientific Advisory Board) issued as consideration
for goods or services received by the Company are accounted for based on the
fair value of the equity instruments issued (unless the fair value of the
consideration received can be more reliably measured). The fair value of stock
options is determined using the Black-Scholes option-pricing model and is
periodically remeasured as the underlying options vest. The fair value of any
options issued to non-employees is recorded as expense over the applicable
service periods.
The terms
and vesting schedules for share-based awards vary by type of grant and the
employment status of the grantee. Generally, the awards vest based upon
time-based or performance-based conditions. Performance-based conditions
generally include the attainment of goals related to our financial and
development performance. Stock-based compensation expense is included in the
respective categories of expense in the Statements of Operations. We expect to
record additional non-cash compensation expense in the future, which may be
significant.
In the
quarter ending March 31, 2009, with two years of employee performance and
forfeiture history, we began to estimate forfeitures of performance-based stock
options. Prior to December 31, 2008, we did not include an estimate for
forfeitures in our compensation expenses on a quarterly basis. Instead,
adjustments to the performance-based stock compensation expense for the full
year were made in the fourth quarter at the time of performance
assessment.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Financial
Statements Index
|
|
Page
|
|
|
|
|
Reports
of Independent Registered Public Accounting Firm
|
36
|
|
|
|
|
Balance
Sheets
|
38
|
|
|
|
|
Statements
of Operations
|
39
|
|
|
|
|
Statement
of Stockholders’ Equity
|
40
|
|
|
|
|
Statements
of Cash Flows
|
41
|
|
|
|
|
Notes
to Financial Statements
|
42
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and stockholders
Nile
Therapeutics, Inc.
San
Mateo, California
We have
audited the accompanying balance sheet of Nile Therapeutics, Inc. (a development
stage company) as of December 31, 2009, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended and for
the period from August 1, 2005 (inception) through December 31,
2009. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of
Nile Therapeutics, Inc. for the period from August 1, 2005 (inception) through
December 31, 2008 were audited by other auditors whose report dated March 10,
2009 expressed an unqualified opinion and included an explanatory paragraph
regarding the Company’s ability to continue as a going concern. Our
opinion on the statements of operations, stockholders’ equity, and cash flows
for the period from August 1, 2005 (inception) through December 31, 2009,
insofar as it relates to the amounts for prior periods through December 31,
2008, is based solely on the report of other auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Nile Therapeutics, Inc. (a
development stage company) as of December 31, 2009, and the results of its
operations and its cash flows for the year then ended and the period from August
1, 2005 (inception) through December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in its development stage, has not generated
any revenues and has incurred recurring losses from operations that raise
substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Crowe
Horwath LLP
New York,
New York
March 2,
2010
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and stockholders
Nile
Therapeutics, Inc.
We have
audited the accompanying balance sheet of Nile Therapeutics, Inc. (a development
stage company) as of December 31, 2008 and the related statements of
operations, stockholders’ equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Nile Therapeutics, Inc. as of
December 31, 2008, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company is in its development stage, has not generated any
revenues and has incurred recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
|
/s/ Hays & Company
LLP
|
|
|
|
March 10,
2009
|
|
New
York, New York
|
NILE
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
BALANCE
SHEETS
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
3,175,718 |
|
|
$ |
5,500,790 |
|
|
Prepaid
expenses and other current assets
|
|
|
257,732 |
|
|
|
544,834 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,433,450 |
|
|
|
6,045,624 |
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
27,486 |
|
|
|
73,699 |
|
|
Intangible
assets, net
|
|
|
106,830 |
|
|
|
209,549 |
|
|
Other
noncurrent assets
|
|
|
51,938 |
|
|
|
106,597 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,619,704 |
|
|
$ |
6,435,469 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
150,628 |
|
|
$ |
738,895 |
|
|
Accrued
expenses and other current liabilities
|
|
|
402,772 |
|
|
|
586,256 |
|
|
Due
to related party
|
|
|
84,154 |
|
|
|
6,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
637,554 |
|
|
|
1,331,851 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
none
issued and outstanding
|
|
|
- |
|
|
|
- |
|
|
Common
stock, $0.001 par value, 100,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
27,085,824
and 24,149,405 shares issued and outstanding
|
|
|
27,086 |
|
|
|
24,150 |
|
|
Additional
paid-in capital
|
|
|
36,853,767 |
|
|
|
31,105,874 |
|
|
Deficit
accumulated during the development stage
|
|
|
(33,898,703 |
) |
|
|
(26,026,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
2,982,150 |
|
|
|
5,103,618 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
3,619,704 |
|
|
$ |
6,435,469 |
|
See
accompanying notes to financial statements
NILE
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF OPERATIONS
|
|
|
Year ended December 31,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
|
|
|
2009
|
|
|
2008
|
|
|
through December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
income
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
482,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
4,466,536 |
|
|
|
9,477,823 |
|
|
|
21,778,056 |
|
|
General
and administrative
|
|
|
3,417,174 |
|
|
|
3,922,164 |
|
|
|
11,996,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
7,883,710 |
|
|
|
13,399,987 |
|
|
|
33,774,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(7,883,710 |
) |
|
|
(13,399,987 |
) |
|
|
(33,292,583 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
47,194 |
|
|
|
332,715 |
|
|
|
767,582 |
|
|
Interest
expense
|
|
|
- |
|
|
|
(137 |
) |
|
|
(1,273,734 |
) |
|
Other
expense
|
|
|
(35,781 |
) |
|
|
(64,187 |
) |
|
|
(99,968 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
11,413 |
|
|
|
268,391 |
|
|
|
(606,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(7,872,297 |
) |
|
$ |
(13,131,596 |
) |
|
$ |
(33,898,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$ |
(0.31 |
) |
|
$ |
(0.54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
25,466,655 |
|
|
|
24,126,398 |
|
|
|
|
|
See
accompanying notes to financial statements
NILE
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENT
OF STOCKHOLDERS’ EQUITY (DEFICIT)
Period
from
August
1, 2005 (inception) through December 31, 2009
|
|
|
COMMON STOCK
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
|
SHARES
|
|
|
AMOUNT
|
|
|
ADDITIONAL
PAID-IN
CAPITAL
|
|
|
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE
|
|
|
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
Issuance
of common shares to founders
|
|
|
13,794,132 |
|
|
$ |
13,794 |
|
|
$ |
(8,794 |
) |
|
$ |
- |
|
|
$ |
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Founders
shares returned to treasury
|
|
|
(1,379,419 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(10,043 |
) |
|
|
(10,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
12,414,713 |
|
|
|
13,794 |
|
|
|
(8,794 |
) |
|
|
(10,043 |
) |
|
|
(5,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares pursuant to licensing agreement
|
|
|
1,379,419 |
|
|
|
- |
|
|
|
500 |
|
|
|
- |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock options for services
|
|
|
- |
|
|
|
- |
|
|
|
10,000 |
|
|
|
- |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,581,972 |
) |
|
|
(2,581,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
13,794,132 |
|
|
|
13,794 |
|
|
|
1,706 |
|
|
|
(2,592,015 |
) |
|
|
(2,576,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares pursuant to licensing agreement
|
|
|
63,478 |
|
|
|
64 |
|
|
|
182,172 |
|
|
|
- |
|
|
|
182,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares pursuant to licensing agreement
|
|
|
350,107 |
|
|
|
350 |
|
|
|
999,650 |
|
|
|
- |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares sold in private placement, net of issuance costs of
$102,000
|
|
|
6,957,914 |
|
|
|
6,958 |
|
|
|
19,865,789 |
|
|
|
- |
|
|
|
19,872,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in connection with note conversion
|
|
|
- |
|
|
|
- |
|
|
|
288,000 |
|
|
|
- |
|
|
|
288,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable upon event of merger
|
|
|
1,684,085 |
|
|
|
1,684 |
|
|
|
4,349,481 |
|
|
|
- |
|
|
|
4,351,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
discount arising from beneficial conversion feature
|
|
|
- |
|
|
|
- |
|
|
|
483,463 |
|
|
|
- |
|
|
|
483,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reverse
merger transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination
of accumulated deficit
|
|
|
- |
|
|
|
- |
|
|
|
(234,218 |
) |
|
|
- |
|
|
|
(234,218 |
) |
|
Previously
issued SMI stock
|
|
|
1,250,000 |
|
|
|
1,250 |
|
|
|
232,968 |
|
|
|
- |
|
|
|
234,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,902,298 |
|
|
|
- |
|
|
|
1,902,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee
stock-based compensaton
|
|
|
- |
|
|
|
- |
|
|
|
(667 |
) |
|
|
- |
|
|
|
(667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,302,795 |
) |
|
|
(10,302,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
24,099,716 |
|
|
|
24,100 |
|
|
|
28,070,642 |
|
|
|
(12,894,810 |
) |
|
|
15,199,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in satisfaction of accrued liabilities
|
|
|
- |
|
|
|
- |
|
|
|
334,992 |
|
|
|
- |
|
|
|
334,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
2,436,603 |
|
|
|
- |
|
|
|
2,436,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
13,687 |
|
|
|
- |
|
|
|
13,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares pursuant to licensing agreement
|
|
|
49,689 |
|
|
|
50 |
|
|
|
249,950 |
|
|
|
- |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,131,596 |
) |
|
|
(13,131,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
24,149,405 |
|
|
|
24,150 |
|
|
|
31,105,874 |
|
|
|
(26,026,406 |
) |
|
|
5,103,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,772,597 |
|
|
|
- |
|
|
|
1,772,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee
stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
473,584 |
|
|
|
- |
|
|
|
473,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units sold
in private placement, net of issuance costs of $282,773
|
|
|
2,691,394 |
|
|
|
2,691 |
|
|
|
3,083,284 |
|
|
|
- |
|
|
|
3,085,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to placement agent in connection with private
placement
|
|
|
|
|
|
|
|
|
|
|
201,200 |
|
|
|
- |
|
|
|
201,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option and warrant exercises
|
|
|
245,025 |
|
|
|
245 |
|
|
|
217,228 |
|
|
|
- |
|
|
|
217,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,872,297 |
) |
|
|
(7,872,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
27,085,824 |
|
|
$ |
27,086 |
|
|
$ |
36,853,767 |
|
|
$ |
(33,898,703 |
) |
|
$ |
2,982,150 |
|
See
accompanying notes to financial statements
NILE
THERAPEUTICS, INC.
(A
DEVELOPMENT STAGE COMPANY)
STATEMENTS
OF CASH FLOWS
|
|
|
Year ended December 31,
|
|
|
Period from
|
|
| |
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
| |
|
2009
|
|
|
2008
|
|
|
through December 31, 2009
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(7,872,297 |
) |
|
$ |
(13,131,596 |
) |
|
$ |
(33,898,703 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
159,589 |
|
|
|
113,289 |
|
|
|
300,215 |
|
|
Stock-based
compensation
|
|
|
2,246,181 |
|
|
|
3,035,282 |
|
|
|
8,375,830 |
|
|
Warrants
issued in connection with note conversion
|
|
|
- |
|
|
|
- |
|
|
|
288,000 |
|
|
Note
discount arising from beneficial conversion feature
|
|
|
- |
|
|
|
- |
|
|
|
483,463 |
|
|
Loss
on disposal of assets
|
|
|
23,569 |
|
|
|
11,654 |
|
|
|
35,223 |
|
|
Noncash
interest expense
|
|
|
- |
|
|
|
- |
|
|
|
351,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
287,102 |
|
|
|
(18,531 |
) |
|
|
(257,732 |
) |
|
Other
non-current assets
|
|
|
54,659 |
|
|
|
(92,597 |
) |
|
|
(51,938 |
) |
|
Accounts
payable
|
|
|
(588,267 |
) |
|
|
80,122 |
|
|
|
150,628 |
|
|
Accrued
expenses and other current liabilities
|
|
|
(183,484 |
) |
|
|
(329,163 |
) |
|
|
402,772 |
|
|
Due
to related party
|
|
|
77,454 |
|
|
|
(308,504 |
) |
|
|
84,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(5,795,494 |
) |
|
|
(10,640,044 |
) |
|
|
(23,736,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(4,422 |
) |
|
|
(45,314 |
) |
|
|
(126,663 |
) |
|
Proceeds
from sale of assets
|
|
|
2,500 |
|
|
|
- |
|
|
|
2,500 |
|
|
Cash
paid for intangible assets
|
|
|
(32,304 |
) |
|
|
(47,316 |
) |
|
|
(345,591 |
) |
|
Net
cash used in investing activities
|
|
|
(34,226 |
) |
|
|
(92,630 |
) |
|
|
(469,754 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable
|
|
|
- |
|
|
|
- |
|
|
|
5,500,000 |
|
|
Repayment
of notes payable
|
|
|
- |
|
|
|
- |
|
|
|
(1,500,000 |
) |
|
Proceeds
from exercise of stock options and warrants
|
|
|
217,473 |
|
|
|
- |
|
|
|
217,473 |
|
|
Proceeds
from sale of common stock to founders
|
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
Proceeds
from sale of common stock in private placement
|
|
|
3,287,175 |
|
|
|
- |
|
|
|
23,159,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
3,504,648 |
|
|
|
- |
|
|
|
27,382,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(2,325,072 |
) |
|
|
(10,732,674 |
) |
|
|
3,175,718 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
5,500,790 |
|
|
|
16,233,464 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
3,175,718 |
|
|
$ |
5,500,790 |
|
|
$ |
3,175,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of cash flows information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued in sastisfaction of accrued liability
|
|
$ |
- |
|
|
$ |
334,992 |
|
|
$ |
334,992 |
|
|
Warrants
issued to placement agent and investors, in connection with private
placement
|
|
$ |
2,872,200 |
|
|
$ |
- |
|
|
$ |
2,872,200 |
|
|
Conversion
of notes payable and interest to common stock
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,351,165 |
|
|
Common
shares of SMI issued in reverse merger transaction
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,250 |
|
See
accompanying notes to financial statements
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION
OF BUSINESS
|
Nile
Therapeutics, Inc. (“Nile” or the “Company”) develops innovative products for
the treatment of cardiovascular diseases. Nile’s lead compound is CD-NP, a
chimeric natriuretic peptide currently in Phase II clinical studies for the
treatment of heart failure. The Company is also developing CU-NP, a pre-clinical
rationally designed natriuretic peptide that consists of amino acid chains
identical to those produced by the human body, specifically the ring structure
of C-type Natriuretic Peptide (“CNP”) and the N- and C-termini of Urodilatin
(“URO”).
The
Company was incorporated in the State of Nevada on June 17, 1996 and
reincorporated in Delaware on February 9, 2007, at which time its name was SMI
Products, Inc. (“SMI”). On September 17, 2007, the Company completed a merger
transaction whereby Nile Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of SMI, merged with and into Nile Therapeutics, Inc., a
privately held Delaware corporation (“Old Nile”), with Old Nile becoming a
wholly-owned subsidiary of SMI. Immediately following the merger
described above, Old Nile was merged with and into the Company, with the Company
remaining as the surviving corporation to that merger. In connection with that
short-form merger, the Company changed its name to “Nile Therapeutics, Inc.”
These two merger transactions are hereinafter collectively referred to as the
“Merger.” All costs incurred in connection with the Merger have been
expensed. Upon completion of the Merger, the Company adopted Old
Nile’s business plan.
2.
BASIS OF PRESENTATION AND GOING CONCERN
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (the “ASC”). The ASC has become the single
source of non-governmental accounting principles generally accepted in the
United States (“GAAP”) recognized by the FASB in the preparation of
financial statements. The ASC does not supersede the rules or regulations of the
Securities and Exchange Commission (“SEC”), therefore, the rules and
interpretive releases of the SEC continue to be additional sources of GAAP for
the Company. The Company adopted the ASC as of July 1, 2009. The ASC does not
change GAAP and did not have an effect on the Company’s financial position,
results of operations or cash flows.
The
Company is a development stage enterprise since it has not yet generated any
revenue from the sale of products and, through December 31, 2009, its efforts
have been principally devoted to developing its licensed technologies,
recruiting personnel, establishing office facilities, and raising capital.
Accordingly, the accompanying financial statements have been prepared in
accordance with the provisions of ASC 915, “Development Stage Entities.”
The Company’s financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company has experienced
net losses since its inception and has an accumulated deficit of approximately
$33.9 million at December 31, 2009. The Company expects to incur substantial and
increasing losses and have negative net cash flows from operating activities as
it expands its technology portfolio and engages in further research and
development activities, particularly the conducting of pre-clinical and clinical
trials.
Cash
resources as of December 31, 2009 were approximately $3.2 million, compared
to $5.5 million as of December 31, 2008. Based on its resources at
December 31, 2009, and the current plan of expenditure on continuing
development of current products which includes the potential dosing of
additional cohorts in the ongoing Phase II study, the Company believes that it
has sufficient capital to fund its operations through the end of the third
quarter of 2010. The Company will need to raise additional capital to complete
the study and analyze the results. Additionally, the Company will need
substantial additional financing in the future until it can achieve
profitability, if ever. The Company’s continued operations will depend on its
ability to raise additional funds through various potential sources, such as
equity and debt financing, or to license its compounds to another pharmaceutical
company. The Company will continue to fund operations from cash on hand and
through sources of capital similar to those previously described. The Company
can not assure that it will be able to secure such additional financing, or if
available, that it will be sufficient to meet its needs.
The
success of the Company depends on its ability to discover and develop new
products to the point of FDA approval and subsequent revenue generation and,
accordingly, to raise enough capital to finance these developmental efforts.
Management plans to raise additional equity capital or license one or more of
its products to finance the continued operating and capital requirements of the
Company. Amounts raised will be used to further develop the Company’s products,
acquire additional product licenses and for other working capital purposes.
While the Company will extend its best efforts to raise additional capital to
fund all operations for the next 12 to 24 months, management can provide no
assurances that the Company will be able to raise sufficient funds. The
uncertainty of this situation raises substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
(a)
Description of the Merger and Private Placement Offering
On
September 17, 2007, the Company completed the Merger. In
accordance with the terms of the Merger, each share of common stock of Old Nile
that was outstanding immediately prior to the Merger was exchanged for 2.758838
shares of the Company’s common stock, and one share of Old Nile common stock was
issued to SMI. In addition, all securities convertible into or
exercisable for shares of Old Nile common stock outstanding immediately prior to
the Merger were cancelled, and the holders thereof received similar securities
convertible into or exercisable for the purchase of an aggregate of 3,572,350
shares of the Company’s common stock. In consideration for their shares of the
Company’s pre-merger common stock, the Company’s shareholders received an
aggregate of 22,849,716 shares of SMI common stock. Immediately prior
to the effective time of the Merger, 755,100 shares of SMI’s common stock were
issued and outstanding. In addition, prior to the effective time of
the Merger, 56,364 shares of SMI’s common stock were issued to Fountainhead
Capital Partners Limited and 438,536 shares of SMI’s common stock were issued to
Ko Zen Asset Management, Inc. pursuant to the conversion of convertible
promissory notes and accrued interest. Upon completion of the Merger, the Old
Nile shareholders owned approximately 95% of the Company’s issued and
outstanding common stock, assuming the exercise of all of the issued and
outstanding common stock options and warrants.
Following
the Merger, the business conducted by the Company is the business conducted by
Old Nile prior to the Merger. In addition, the director and officer of SMI was
replaced by the directors and officers of Old Nile.
As a
condition to the closing of the Merger, on September 11, 2007, Old Nile
completed a financing whereby it received gross proceeds of $19,974,747 through
the sale of 6,957,914 shares of common stock in a private placement to certain
qualified investors (the “Financing”). Contemporaneously with the Financing, the
Company converted $4,351,165 of convertible debt and interest into 1,684,085
shares of common stock, and issued five-year warrants to purchase an aggregate
of 168,337 shares of common stock at an exercise price of $2.71per
share.
All
references to share and per share amounts in these financial statements have
been restated to retroactively reflect the number of common shares of Nile
common stock issued pursuant to the Merger.
(b)
Accounting Treatment of the Merger; Financial Statement
Presentation
The
Merger was accounted for as a reverse acquisition pursuant to the guidance in
Appendix B of SEC Accounting Disclosure Rules and Practices Official Text, which
provides that the “merger of a private operating company into a
non-operating public shell corporation with nominal net assets
typically results in the owners and management of the private company
having actual or effective operating control of the combined company after
the transaction, with the shareholders of the former public shell
continuing only as passive investors. These transactions are
considered by the Securities and Exchange Commission to be
capital transactions in substance, rather than business combinations. That
is, the transaction is equivalent to the issuance of stock by the private
company for the net monetary assets of the shell corporation, accompanied
by a recapitalization.” Accordingly, the Merger has been
accounted for as a recapitalization, and, for accounting purposes, Old Nile is
considered the acquirer in a reverse acquisition.
SMI’s historical
accumulated deficit for periods prior to September 17, 2007, in the amount of
$234,218, was eliminated against additional-paid-in-capital, and the
accompanying financial statements present the previously issued shares of SMI
common stock as having been issued pursuant to the Merger on September 17, 2007.
The shares of common stock of the Company issued to the Old Nile stockholders in
the Merger are presented as having been outstanding since August 2005 (the month
when Old Nile first sold its equity securities).
Because
the Merger was accounted for as a reverse acquisition under GAAP, the financial
statements for periods prior to September 17, 2007 reflect only the
operations of Old Nile.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of
Estimates
The
preparation of financial statements in conformity with GAAP requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Estimates and assumptions principally
relate to services performed by third parties but not yet invoiced, estimates of
the fair value of stock options issued to employees, directors and consultants,
and estimates of the probability and potential magnitude of contingent
liabilities. Actual results could differ from those estimates.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
(b)
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a remaining maturity of
three months or less at the time of acquisition to be cash
equivalents.
(c)
Restricted Cash
In
October 2009, the Company terminated the lease agreement for the office in San
Francisco, California. In connection with the lease, the Company held an
irrevocable stand-by and unconditional letter of credit in the amount of
approximately $55,000 as a security deposit, with the landlord as the
beneficiary in case of default or failure to comply with the lease requirements.
In order to fund the letter of credit, the Company deposited a compensating
balance of approximately $55,000 into a certificate of deposit with a financial
institution, which was classified as restricted cash and included in prepaid
expenses and other current assets on the accompanying balance sheet as of
December 31, 2008. Subsequent to the termination of the lease, the Company
terminated the letter of credit and the compensating balance was released from
restriction and made available for operations.
Property
and equipment are stated at cost. Repairs and maintenance costs are expensed in
the period incurred. Depreciation is computed using the straight-line method
over the related estimated useful lives, except for leasehold improvements,
which are depreciated over the shorter of the useful life of the asset or the
lease term.
|
Description
|
|
Estimated Useful Life
|
| |
|
|
|
Office
equipment & furniture
|
|
5 –
7 years
|
| |
|
|
|
Leasehold
improvements
|
|
3
years
|
| |
|
|
|
Computer
equipment
|
|
3
years
|
(e)
Intangible Assets and Intellectual Property
Intangible
assets consist of costs related to acquiring patents and to prosecuting and
maintaining intellectual property rights, and are amortized using the
straight-line method over the estimated useful lives. Beginning in 2008, the
Company changed its estimate of the expected useful life of its recorded
intangibles from twenty years to three years. The Company believes that a three
year useful life better reflects the uncertainty of the future benefit of the
patent assets. The change in the useful life of the Company’s patent assets did
not have a material affect on the Company’s financial position or results of
operations. Certain costs of acquiring intellectual property rights to be used
in the research and development process, including licensing fees and milestone
payments, are charged to research and development expense as
incurred.
(f)
Impairment or Disposal of Long-lived Assets
The
Company evaluates its long-lived assets, primarily its intellectual property,
for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell. On January 16, 2009, the Company announced that it will focus resources on
the development of its natriuretic peptide franchise, including CD-NP which is
in Phase II development for acute heart failure, and CU-NP which is a
pre-clinical compound. The Company terminated the 2NTX-99 program and returned
the rights to the molecule to Dr. Cesare Casagrande. As such, the Company
recorded an impairment of the intangibles related to 2NTX-99 of approximately
$48,000 in the first quarter of 2009, which is included in research and
development expense in the accompanying Statement of Operations for the year
ended December 31, 2009.
(g)
Fair Value of Financial Instruments
The
Company measures fair value in accordance with generally accepted accounting
principles. Fair value measurements are applied under other accounting
pronouncements that require or permit fair value measurements. The provisions
are to be applied prospectively as of the beginning of the fiscal year in which
it is initially adopted, with any transition adjustment recognized as a
cumulative-effect adjustment to the opening balance of retained earnings. The
adoption of this standard had no significant impact on the Company’s financial
statements.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
(h) Concentration of Credit
Risk
Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents. The Company deposits cash
and cash equivalents with high credit quality financial institutions and is
insured to the maximum limitations. Balances in these accounts may exceed
federally insured limits at times, which expose the Company to institutional
risk.
(i)
Research and Development
Research
and development costs are charged to expense as incurred. Research and
development includes employee costs, fees associated with operational
consultants, contract clinical research organizations, contract manufacturing
organizations, clinical site fees, contract laboratory research organizations,
contract central testing laboratories, licensing activities, and allocated
office, insurance, depreciation, and facilities expenses. The Company
accrues for costs incurred as the services are being provided by monitoring the
status of the trial and the invoices received from its external service
providers. As actual costs become known, the Company adjusts its accruals in the
period when actual costs become known. Costs related to the acquisition of
technology rights for which development work is still in process are charged to
operations as incurred and considered a component of research and development
costs.
(j)
Grant income
Grant
income is recorded when funding is received and qualifying expenses are
incurred.
(k)
Stock-Based Compensation
Stock-based
compensation cost is measured at the grant date based on the value of the award
and is recognized as expense over the required service period, which is
generally equal to the vesting period. Share-based compensation is recognized
only for those awards that are ultimately expected to vest; therefore, the
Company has applied an estimated forfeiture rate to unvested awards for the
purpose of calculating compensation cost. These estimates will be revised, if
necessary, in future periods if actual forfeitures differ from estimates.
Changes in forfeiture estimates impact compensation cost in the period in which
the change in estimate occurs.
Common
stock, stock options or other equity instruments issued to non-employees
(including consultants and all members of the Company’s Scientific Advisory
Board) as consideration for goods or services received by the Company are
accounted for based on the fair value of the equity instruments issued (unless
the fair value of the consideration received can be more reliably measured). The
fair value of stock options is determined using the Black-Scholes option-pricing
model and is periodically remeasured as the underlying options
vest. The fair value of any options issued to non-employees is
recorded as expense over the applicable service periods.
(l)
Loss per Common Share
Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similarly to basic loss per share except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive.
For all
periods presented, potentially dilutive securities are excluded from the
computation of fully diluted loss per share as their effect is
anti-dilutive.
Potentially
dilutive securities include:
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
Warrants
to purchase common stock
|
|
|
886,149 |
|
|
|
- |
|
|
Options
to purchase common stock
|
|
|
1,658,063 |
|
|
|
317,940 |
|
|
Total
potentially dilutive securities
|
|
|
2,544,212 |
|
|
|
317,940 |
|
For the years ending December 31 2009, and 2008, 5,916,463 and
4,628,828 warrants and options have been excluded from the computation of the
dilutive earnings per share, respectively, as their exercise prices are greater
than the 200 day moving average market price per common share as of March 1,
2009, and their effects are potentially anti-dilutive.
(m)
Comprehensive Loss
The
Company has no components of other comprehensive loss other than its net loss,
and accordingly, comprehensive loss is equal to net loss for all periods
presented.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
(n)
Income Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the period in which the
differences are expected to affect taxable income. The Company provides a
valuation allowance when it appears more likely than not that some or all of the
net deferred tax assets will not be realized.
A tax
position is recognized as a benefit only if it is “more likely than not” that
the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For
tax positions not meeting the “more likely thank not” test, no tax benefit is
recorded.
(o)
Recently Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards Codification (the “ASC”). The ASC has become the single
source of non-governmental accounting principles generally accepted in the
United States (“GAAP”) recognized by the FASB in the preparation of financial
statements. The ASC does not supersede the rules or regulations of the
Securities and Exchange Commission (“SEC”), therefore, the rules and
interpretive releases of the SEC continue to be additional sources of GAAP for
the Company. The Company adopted the ASC as of June 30, 2009.
Effective
June 30, 2009, the Company adopted a new accounting standard issued by the
FASB related to the disclosure requirements of the fair value of financial
instruments. This standard expands the disclosure requirements of fair value
(including the methods and significant assumptions used to estimate fair value)
of certain financial instruments to interim period financial statements that
were previously only required to be disclosed in financial statements for annual
periods. In accordance with this standard, the disclosure requirements have been
applied on a prospective basis and did not have a material impact on the
Company’s financial statements.
In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis. This standard clarifies how a company should measure the fair
value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard. The adoption of this standard did not have a
material impact on the Company’s financial statements
Management
does not believe that any other recently issued, but not yet effective,
accounting pronouncements, if currently adopted, would have a material effect on
the Company’s financial statements.
5. PROPERTY AND
EQUIPMENT
Property
and equipment as of December 31, 2009 and 2008 consist of the
following:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$ |
28,135 |
|
|
$ |
33,930 |
|
|
Office
furniture and equipment
|
|
|
38,521 |
|
|
|
64,469 |
|
|
Leasehold
improvements
|
|
|
— |
|
|
|
9,528 |
|
|
Total
property and equipment
|
|
|
66,656 |
|
|
|
107,927 |
|
|
Accumulated
depreciation
|
|
|
(39,170 |
) |
|
|
(34,228 |
) |
|
Total
property and equipment, net
|
|
$ |
27,486 |
|
|
$ |
73,699 |
|
Depreciation
expense related to property and equipment for the years ended December 31, 2009
and 2008 totaled $24,566 and $22,798, respectively, and $61,454 for the period
from August 1, 2005 (inception) to December 31, 2009.
6.
INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY
Patents
At
December 31, 2009, intangible assets consisted of patents and patent
applications acquired from a third party for the CD-NP and CU-NP products.
Amortization expense was $135,023 and $90,491 for the years ended December 31,
2009 and 2008, respectively, and $ 238,762 for the period from August 1, 2005
(inception) to December 31, 2009. Estimated aggregate amortization expense of
the Company’s current intellectual property is approximately $100,000, for each
of the next two fiscal years. In addition, there was an impairment charge of
approximately $48,000 in 2009 for the disposal of patents and patent
applications associated with 2NTX-99.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
License
Agreements
CD-NP
On
January 20, 2006, the Company entered into an exclusive, worldwide,
royalty-bearing license agreement, or the CD-NP License Agreement, with Mayo
Foundation for Medical Education and Research (“Mayo”) for the rights to issued
patents, patent applications and know-how relating to the use of CD-NP in all
therapeutic indications. The Company was also entitled to rights to
improvements to CD-NP that arise out of the laboratory of Dr. John Burnett, the
co-inventor of CD-NP, until January 19, 2009.
Under the
terms of the CD-NP License Agreement, the Company paid Mayo an up-front cash
payment, reimbursed it for past patent expenses and issued to Mayo 1,379,419
shares of common stock. Additionally, the Company agreed to make contingent cash
payments up to an aggregate of $31.9 million upon successful completion of
specified clinical and regulatory milestones relating to CD-NP. This aggregate
amount is subject to increase upon the receipt of regulatory approval for each
additional indication of CD-NP as well as for additional compounds or analogues
contained in the intellectual property. In July 2008, the Company made a
milestone payment of $400,000 to Mayo upon the dosing of the first patient in a
Phase II trial. Pursuant to the CD-NP License Agreement, the
Company will pay Mayo an annual maintenance fee and a percentage of net
sales of licensed products, as well as $50,000 per year for the consulting
services of Dr. Burnett while serving as chairman of the Company’s Scientific
Advisory Board.
In
addition to the potential milestone payments discussed above, the CD-NP License
Agreement requires the Company to issue shares of common stock to Mayo for an
equivalent dollar amount of grants received in excess of $300,000, but not to
exceed $575,000. For the period from August 1, 2005 (inception)
through December 31, 2009, the Company received $482,235 in grant income for
which it has issued to Mayo 63,478 shares (representing $182,236) of common
stock.
The CD-NP
License Agreement, unless earlier terminated, will continue in full force and
effect until January 20, 2026. However, to the extent any patent
covered by the license is issued with an expiration date beyond January 20,
2026, the term of the agreement will continue until such expiration
date. Mayo may terminate the agreement earlier (i) for the Company’s
material breach of the agreement that remains uncured after 90 days’ written
notice, (ii) the Company’s insolvency or bankruptcy, or (iii) if the Company
challenge the validity or enforceability of any of the patents in any
manner. The Company may terminate the agreement without cause upon 90
days’ written notice.
CU-NP
On June
13, 2008, the Company entered into an exclusive, worldwide, royalty-bearing
license agreement, or the CU-NP License Agreement, with Mayo for the rights to
intellectual property and to develop commercially CU-NP for all therapeutic
indications. The Company also holds the rights to improvements to CU-NP that
arise out of the laboratory of Dr. John Burnett and Dr. Candace Lee, the
inventors of CU-NP, until June 12, 2011.
Under the
terms of the CU-NP License Agreement, the Company made an up-front cash payment
to Mayo and agreed to make future contingent cash payments up to an
aggregate of $24.3 million upon achievement of specific clinical and regulatory
milestones relating to CU-NP, including a milestone payment due in connection
with the initiation of the first Phase II clinical trial of the licensed
product. This aggregate amount of $24.3 million is subject to increase upon the
receipt of regulatory approval for each additional indication of CU-NP, as well
as for additional compounds or analogues contained in the intellectual property.
Pursuant to the agreement, the Company must also pay Mayo an annual maintenance
fee and a percentage of net sales of licensed products.
In
addition to these cash payments payable with respect to the CU-NP License
Agreement, the Company also agreed to issue shares of its common stock and
warrants to Mayo. In June 2008, the Company issued 49,689 shares of common stock
to Mayo having a fair market value as of June 13, 2008 equal to $250,000. This
amount has been recorded in research and development expenses in the
accompanying Statements of Operations. Additionally, Dr. Burnett has applied for
funding through Mayo’s Discovery-Translation Program. In the event Dr. Burnett
is awarded funding through this program, and the funding is used for the
development of the licensed product based on the patent applications, the
Company agreed to grant to Mayo an equivalent dollar value in warrants to
purchase shares of the Company’s common stock. The number of shares purchasable
under these warrants will be calculated using the Black-Scholes option-pricing
model and the warrants will include a cashless exercise provision with language
to be negotiated in good faith between the parties.
The CU-NP
License Agreement, unless earlier terminated, will continue in full force and
effect until June 13, 2028. However, to the extent any patent covered
by the license is issued with an expiration date beyond June 13, 2028, the term
of the agreement will continue until such expiration date. Mayo may terminate
the agreement earlier (i) for the Company’s material breach of the agreement
that remains uncured after 90 days written notice, (ii) the Company’s insolvency
or bankruptcy, (iii) if the Company challenge the validity or enforceability of
any of the patents in any manner, or (iv) or upon receipt of notice from the
Company that it has terminated all development efforts under the agreement. The
Company may terminate the agreement without cause upon 90 days’ written
notice.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
2NTX-99
On August
6, 2007, the Company entered into an exclusive, worldwide, royalty-bearing
license agreement, or the 2NTX-99 License Agreement, with Dr. Cesare Casagrande
for the rights to the intellectual property and know-how relating to 2NTX-99,
and all of its human therapeutic or veterinary uses. Under the
2NTX-99 License Agreement, the Company made an up-front cash payment to Dr.
Casagrande and reimbursed him for past patent expenses. The Company
also issued to Dr. Casagrande 350,107 shares of common stock. In January 2009,
the Company determined to discontinue the 2NTX-99 program so that it could focus
its resources on the development of its natriuretic peptide franchise, including
CD-NP which is in Phase II development for acute heart failure, and CU-NP which
is a pre-clinical compound. Accordingly, the Company terminated the
2NTX-99 License Agreement, returning the rights to the molecule to Dr.
Casagrande, effective April 16, 2009. As such, the Company recorded an
impairment charge of $48,500 for unamortized patent costs, which is included in
research and development expense in the accompanying Statements of
Operations.
7.
ACCRUED LIABILITIES
Accrued
liabilities as of December 31, 2009 and 2008 consist of the
following:
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Accrued
compensation and related benefits
|
|
$ |
52,232 |
|
|
$ |
205,919 |
|
|
Accrued
research and development expense
|
|
|
341,207 |
|
|
|
364,143 |
|
|
Accrued
other expense
|
|
|
9,333 |
|
|
|
16,194 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
accrued liabilities
|
|
$ |
402,772 |
|
|
$ |
586,256 |
|
8.
CONVERTIBLE AND OTHER NOTES PAYABLE
During
March 2006, the Company completed a private placement offering for an aggregate
$4,000,000 principal amount of 6% convertible promissory notes, or the Notes,
due on March 28, 2008. The aggregate principal amount and accrued but unpaid
interest on the Notes, which totaled $4,351,165, automatically converted upon
the closing of the September 2007 equity financing into 1,684,085 shares of
common stock at a conversion price of $2.58, which was equal to 90% of the per
share price of the shares sold in the Financing. Due to the beneficial
conversion feature resulting from the discounted conversion price, a discount of
$483,463 was recorded as interest expense with a corresponding credit to
additional paid-in capital. In addition, in conjunction with the conversion of
the convertible debt, the Company issued fully vested warrants to the note
holders to purchase 168,337 shares of common stock to the holders of the Notes.
The warrants were valued at $288,000 using the Black-Scholes option-pricing model
and the following assumptions: exercise price $2.71, a 3.98% risk-free
interest rate, a 5 year contractual term, a dividend rate of 0%, and 68%
expected volatility. The cost of the warrants was included in interest expense
in the accompanying Statements of Operations, and as an increase in additional
paid-in capital.
On July
24, 2007, the Company issued an 8% promissory note to an existing shareholder in
the amount of $1,500,000. The note was due and payable on November 24, 2007. An
upfront fee of $30,000 was netted against the gross proceeds. The note was paid
in full on September 11, 2007, along with an additional fee of $120,000. The
upfront and additional fees were charged to interest expense in the period ended
September 30, 2007.
9. STOCKHOLDERS’
EQUITY
(a)
Common Stock
In August
2005, the Company issued an aggregate of 13,794,132 shares of common stock to
its founders for $5,000. The founders subsequently returned 1,379,419
of these shares to the Company for issuance to Mayo. In January 2006 the Company
issued 1,379,419 shares of common stock to Mayo, pursuant to the terms of the
Mayo Licensing Agreement. The fair value of these shares of $500 was recorded as
stock-based compensation and is included in research and development expense in
the accompanying Statements of Operations.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
In August
2007, pursuant to the terms of the 2NTX-99 License Agreement, the Company issued
350,107 shares of common stock to Dr. Casagrande. The fair value of the shares
was $1,000,000 and was recorded as research and development expense in the
accompanying Statements of Operations.
In
September 2007, also pursuant to the terms of the CD-NP License Agreement, the
Company issued 63,478 shares of common stock to Mayo. The fair value of the
shares, $182,236, was recorded as research and development expense in the
accompanying Statements of Operations.
As a
condition to the closing of the Merger, on September 11, 2007, Old Nile
completed a financing whereby it received gross proceeds of $19,974,747 through
the sale of 6,957,914 shares of common stock in a private placement to certain
qualified investors. Issuance costs related to the financing were $102,000.
Contemporaneously with the financing, the Company converted $4,351,165 of
convertible debt and interest into 1,684,085 shares of common
stock.
In June
2008, pursuant to the CU-NP License Agreement, the Company issued 49,689 shares
of common stock to Mayo. The fair value of the shares on June 13, 2008 was
$250,000 and was recorded as research and development expense in the
accompanying Statements of Operations.
1,250,000
shares of common stock that were held by the original stockholders of SMI prior
to the Merger are reflected in the Company’s common stock outstanding in the
accompanying Balance Sheets.
On July
7, 2009, the Company entered into a Securities Purchase Agreement with certain
qualified investors pursuant to which it agreed to sell 2,691,394 units of its
securities in a private placement in exchange for an aggregate gross purchase
price of $3,368,748. Each unit included one share of common stock and one
warrant to purchase a share of common stock. See Note 9(b). Issuance costs
related to the financing were $282,773, including the issuance of warrants
(“Placement Warrants”) to purchase 218,300 shares of common stock to designees
of Riverbank Capital Securities, Inc. (“Riverbank”), a FINRA member broker
dealer that acted as placement agent for the Company in connection with the
private placement. See Note 13. The issuance and sale of
the units pursuant to the Securities Purchase Agreement was completed on July
15, 2009.
The
Company agreed to file a registration statement with the SEC in order to
register the resale of the shares of common stock, including shares of common
stock issuable pursuant to the exercise of warrants and Placement Warrants,
issued in the private placement. In the event the Company did not
file the registration statement within 60 days following the closing of the
financing, the Company agreed to pay liquidated damages to the investors in the
amount of 1% of such investor’s aggregate investment amount each month until the
registration statement is filed. The Company filed such registration
statement with the SEC on August 13, 2009.
In
conjunction with the conversion of $4,351,165 of convertible debt prior to the
Merger, the Company issued fully vested warrants to purchase 168,337 shares of
common stock to the holders of such debt. The warrants were issued with an
exercise price of $2.71 and expire in September 2012. The fair value of the
warrants was determined to be $288,000. None of these warrants have been
exercised to date.
In 2007,
as consideration for the performance of consulting and due diligence efforts
related to the licensing of 2NTX-99, the Company granted and accrued for fully
vested warrants to purchase 206,912 shares of its common stock. The warrants
were valued at $334,992 using the Black-Scholes option-pricing model and the
following assumptions: an exercise price of $2.71, a 4.02% risk-free interest
rate, a 5 year contractual term, a dividend rate of 0%, and 68% expected
volatility. Of the total warrants granted, 137,567 warrants with an aggregate
value of $222,770 were granted to employees of Two River Group Holdings, LLC
(“Two River”), a related party, and its affiliates. See Note 13. The remaining
warrants were granted to outside consultants. The warrants were recorded as an
expense and a liability during the year ended December 31, 2007. In March
2008, these warrants were issued in satisfaction of the accrued
liability.
In
connection with its July 2009 private placement, as discussed above, the Company
issued 2,691,394 shares of common stock and five-year warrants to purchase an
additional 2,691,394 shares of common stock. The warrants were issued in three
separate tranches, as follows:
|
|
·
|
Warrants
to purchase 672,849 shares, representing 25% of the total warrant shares
issued to investors, have an exercise price equal to $1.25, which
represents 110% of the $1.14 consolidated closing bid price of the
Company’s common stock on July 7, 2009 (the “Closing Bid
Price”);
|
|
|
·
|
Warrants
to purchase 672,848 shares, representing 25% of the total warrant shares
issued to investors, have an exercise price equal to $1.71, which
represents 150% of the Closing Bid Price;
and
|
|
|
·
|
Warrants
to purchase 1,345,697 shares, representing 50% of the total warrant shares
issued to investors, have an exercise price equal to $2.28, which
represents 200% of the Closing Bid
Price.
|
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
The
warrants issued to investors in the July 2009 private placement are redeemable
by the Company upon 30 days’ notice, if at any time, the volume weighted average
price of the common shares for any 20 consecutive business days is equal to or
greater than 200% of the applicable exercise price of each warrant.
As
consideration for its services as placement agent in connection with the July
2009 private placement, the Company also issued to designees of Riverbank
five-year warrants to purchase 218,300 shares of common stock at a price of
$1.375 per share. These warrants have an aggregate fair-value of
$201,200.
10. STOCK-BASED COMPENSATION
The
Company’s Amended and Restated 2005 Stock Option Plan (the “Plan”) was initially
adopted by the Board of Directors on August 10, 2005. The Plan authorized a
total of 2,000,000 shares of common stock for issuance. On September 17,
2007, pursuant to the Merger, the Plan was amended and each share of common
stock then subject to the Plan was substituted with 2.758838 shares of common
stock, resulting in an aggregate of 5,517,676 shares available under the Plan.
Under the Plan, incentives may be granted to officers, employees, directors,
consultants, and advisors. Incentives under the Plan may be granted in any one
or a combination of the following forms: (a) incentive stock options and
non-statutory stock options, (b) stock appreciation rights, (c) stock awards,
(d) restricted stock and (e) performance shares.
The Plan
is administered by the Board of Directors, or a committee appointed by the
Board, which determines the recipients and types of awards to be granted, as
well as the number of shares subject to the awards, the exercise price and the
vesting schedule. The term of stock options granted under the Plan cannot exceed
ten years. Currently, stock options are granted with an exercise price equal to
closing price of the Company’s common stock on the date of grant, and generally
vest over a period of three to five years.
A summary
of the status of the options issued under the Plan at December 31, 2009, and
information with respect to the changes in options outstanding is as
follows:
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
Shares
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
Aggregate
|
|
|
|
|
Available for
|
|
|
Stock
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
Grant
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
|
5,310,766 |
|
|
|
206,910 |
|
|
$ |
0.09 |
|
|
|
|
|
Options
granted under the Plan
|
|
|
(2,802,329 |
) |
|
|
2,802,329 |
|
|
$ |
2.85 |
|
|
|
|
|
Options
forfeited
|
|
|
96,558 |
|
|
|
(96,558 |
) |
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
2,604,995 |
|
|
|
2,912,681 |
|
|
$ |
2.72 |
|
|
|
|
|
Options
granted under the Plan
|
|
|
(1,152,588 |
) |
|
|
1,152,588 |
|
|
$ |
4.09 |
|
|
|
|
|
Options
forfeited
|
|
|
87,500 |
|
|
|
(87,500 |
) |
|
$ |
4.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
1,539,907 |
|
|
|
3,977,769 |
|
|
$ |
3.08 |
|
|
$ |
- |
|
|
Options
granted under the Plan
|
|
|
(2,015,148 |
) |
|
|
2,015,148 |
|
|
$ |
1.17 |
|
|
|
|
|
|
Options
exercised
|
|
|
|
|
|
|
(240,025 |
) |
|
$ |
0.88 |
|
|
|
|
|
|
Options
forfeited
|
|
|
1,311,490 |
|
|
|
(1,311,490 |
) |
|
$ |
3.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
836,249 |
|
|
|
4,441,402 |
|
|
$ |
2.22 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2009
|
|
|
|
|
|
|
3,034,941 |
|
|
$ |
2.38 |
|
|
$ |
- |
|
During
the three months ended March 31, 2009, the Company granted options in
exchange for accrued performance cash bonuses (“Cash Bonus Options”). Employees
received a certain amount of options in exchange for up to 50% of their accrued
performance cash bonus. The Company estimated the fair value of these options to
be equal to the amount of cash bonus exchanged for the options divided by the
number of options granted. The options were 100% vested on the date of the
grant, January 16, 2009. In addition, employees were given the option of
exchanging the remaining 50% of their performance cash bonus for 50% more
options than were exchanged for the first 50% of their performance cash bonus.
An additional $23,293 in compensation costs was expensed in the first quarter as
a result of this incremental incentive to preserve the Company’s
cash.
Excluding
Cash Bonus Options, for the year ended December 31, 2009, the Company estimated
the fair value of each option award granted to employees using the Black-Scholes
option-pricing model and the following assumptions for the year ended December
31, 2009 and 2008:
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
|
|
|
|
|
Expected
volatility
|
|
117%
to 123%
|
|
75%
to 137%
|
|
|
|
|
|
|
|
Expected
term
|
|
3
years
|
|
5.50
to 6.25 years
|
|
|
|
|
|
|
|
Dividend
yield
|
|
0%
|
|
0%
|
|
|
|
|
|
|
|
Risk-free
interest rates
|
|
1.4%
to 1.7%
|
|
1.6%
to 3.4%
|
Due to
the Company’s short period of publicly traded stock history, management’s
estimate of expected volatility is based on the average expected volatilities of
a sampling of five companies with similar attributes to the Company, including:
industry, stage of life cycle, size and financial leverage.
Share-based
compensation is recognized only for those awards that are ultimately expected to
vest, therefore, the Company has applied an estimated forfeiture rate to
unvested awards for the purpose of calculating compensation cost. These
estimates will be revised, if necessary, in future periods if actual forfeitures
differ from estimates. Changes in forfeiture estimates impact compensation cost
in the period in which the change in estimate occurs.
Employee
stock-based compensation costs for the year ended December 31, 2009 and 2008 and
for the cumulative period from August 1, 2005 (inception) through December 31,
2009, are as follows:
|
|
|
Year ended December 31,
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
August 1, 2005 (inception)
|
|
|
|
|
2009
|
|
|
2008
|
|
|
through December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$ |
1,507,938 |
|
|
$ |
1,990,438 |
|
|
$ |
5,360,988 |
|
|
Research
and development
|
|
|
146,907 |
|
|
|
563,917 |
|
|
|
757,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,654,845 |
|
|
$ |
2,554,355 |
|
|
$ |
6,118,323 |
|
The
following table summarizes information about stock options outstanding at
December 31, 2009:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Range of
Exercise
Prices
|
|
Shares
|
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
|
Weighted-Average
Exercise Price
|
|
|
Total
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
$0.09
to $0.93
|
|
|
1,248,063 |
|
|
|
8.57 |
|
|
$ |
0.81 |
|
|
|
455,563 |
|
|
$ |
0.69 |
|
|
$1.14
to $2.71
|
|
|
2,544,490 |
|
|
|
8.46 |
|
|
$ |
2.33 |
|
|
|
1,614,281 |
|
|
$ |
2.15 |
|
|
$4.45
to $5.75
|
|
|
648,849 |
|
|
|
8.23 |
|
|
$ |
4.54 |
|
|
|
333,289 |
|
|
$ |
4.56 |
|
|
Total
|
|
|
4,441,402 |
|
|
|
8.67 |
|
|
$ |
2.72 |
|
|
|
2,403,133 |
|
|
$ |
2.59 |
|
The fair
value of shares vested under the Plan for the year ended December 31, 2009 and
2008 and for the period from August 1, 2005 (inception) through December 31,
2009 were $2,394,048, $1,622,317, and $4,487,114 respectively.
Certain
employees have been granted performance-based stock options that are subject to
forfeiture based on the failure to achieve specified goals. The Company analyzed
two years of annual performance measurements, and, based on that analysis,
estimated forfeiture rates on performance-based stock options for future
periods. For the cumulative period from August 1, 2005 (inception)
through December 31, 2009, employees forfeited 302,214 shares related to
performance-based options, which had a fair value of $560,798. During the year
ended December 31, 2009, employment stock options and performance-based stock
options relating to 894,271 shares, which had a fair value of $2,182,485, were
forfeited as a result of the corporate lay-offs. Based on the forfeiture rates
of the performance-based stock options, the Company estimates that options
relating to an additional 140,630 shares of common stock will be forfeited in
the future. This estimated compensation cost of these forfeited shares is
$221,617.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
During
the year ended December 31, 2009, in accordance with the terms of the separation
agreements of certain former employees, the Company agreed to extend to December
31, 2009 the exercise period relating to vested stock options held by those
employees. In total, stock options relating to 177,049 shares of common stock
with a weighted average exercise price of $2.93 were affected by such extension.
No additional stock-option compensation expense was required to be recorded as a
result of the extended exercise period based on the Company’s analysis of
modifications made to the stock option grants.
In
addition, pursuant to the terms of a separation agreement of a former executive
dated June 10, 2009, the Company accelerated the vesting of 329,857 shares
subject to a stock option, resulting in additional stock compensation expense of
approximately $676,000 during the six months ended June 30, 2009. The Company
also agreed to extend to June 10, 2014 the exercise period relating to the
vested stock options owned by the former executive. This extended exercise
period did not result in any incremental stock compensation cost required to be
recorded. In total, the former executive has stock options to purchase 1,381,202
shares of common stock at a weighted average exercise price of $2.51 per
share.
During
the year ended December 31, 2009, in accordance with the terms of a separation
agreement with a former member of the Company’s Board of Directors, the Company
accelerated the vesting of 123,334 shares subject to a stock option, resulting
in additional compensation expense of approximately $159,515.
At
December 31, 2009, total unrecognized estimated employee (including directors)
compensation cost related to stock options granted prior to that date was
$1,339,029, which is expected to be recognized over a weighted-average vesting
period of 1.0 year. This unrecognized estimated employee compensation cost does
not include $221,617 in management estimated forfeitures of performance-based
stock options.
Common
stock, stock options or other equity instruments issued to non-employees
(including consultants and all members of the Company’s Scientific Advisory
Board) as consideration for goods or services received by the Company are
accounted for based on the fair value of the equity instruments issued (unless
the fair value of the consideration received can be more reliably measured). The
fair value of stock options is determined using the Black-Scholes option-pricing
model and is periodically remeasured as the underlying options
vest. The fair value of any options issued to non-employees is
recorded as expense over the applicable service periods.
On June
24, 2009, in conjunction with a services agreement, the Company issued to named
employees of Two River Consulting, LLC (“TRC”) stock options to purchase 187,500
shares of common stock that vested on issuance and have a fair-value of
$116,309; and stock options to purchase 562,500 shares that vest based on the
achievement of certain milestones and have an estimated fair-value of $363,028.
TRC is an entity controlled by two of the Company’s officers and
directors. For the year ended December 31, 2009, the Company recorded
an expense of $326,563 related to these options and will record additional
expense in the future as the remaining options are expected to
vest.
Stock-based
compensation costs incurred for services by non-employees for the year ended
December 31, 2009 and 2008, and for the cumulative period from August 1, 2005
(inception) through December 31, 2009 totaled $473,584, $13,687,
and $496,604, respectively. These amounts were included in research
and development expense in the accompanying Statements of
Operations.
In
addition to the options issued under the Plan, in September 2007 the Company
issued fully vested options to purchase 593,750 shares outside of the Plan to a
former executive of the Company pursuant to his separation agreement. The
options were issued at an exercise price of $2.71 per share.
11.
401(k) SAVINGS PLAN
On April
1, 2007, the Company adopted a 401(k) savings plan (the “401(k) Plan”) for the
benefit of its employees. Under the 401(k) Plan the Company is required to make
contributions equal to 3% of eligible compensation for each eligible employee
whether or not the employee contributes to the 401(k) Plan. The Company recorded
compensation expenses of $5,291, $9,011 and $21,947 for the years ended December
31, 2009 and 2008 and for the cumulative period from August 1, 2005 (inception)
through December 31, 2009, respectively. For the year ended
December 31, 2009, the Company has fully funded the 401(k)
Plan.
The
Company accounts for income taxes using the liability method, which requires the
determination of deferred tax assets and liabilities, based on the differences
between the financial statement and tax bases of assets and liabilities, using
enacted tax rates in effect for the year in which differences are expected to
reverse. The net deferred tax asset is adjusted by a valuation allowance, if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the net deferred tax asset will not be realized. The income
tax returns of the Company are subject to examination by federal and state
taxing authorities. Such examination could result in adjustments to net income
or loss, which changes could affect the income tax liabilities of the Company.
The Company’s tax returns are open for inspection for the four years ended
December 31, 2009.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
The
Company’s policy is to include interest and penalties related to unrecognized
tax benefits within the Company’s provision for (benefit from) income taxes. The
Company recognized no amounts for interest and penalties related to unrecognized
tax benefits in 2009, 2008 and the period from August 1, 2005 (inception)
through December 31, 2009 and as of December 31, 2009 and 2008, had no
amounts accrued for interest and penalties.
At
December 31, 2009, the Company had no federal income tax expense or benefit but
did have federal tax net operating loss carry-forwards of approximately
$8,484,156, and a R&D credit carry-forward of $934,172. The federal net
operating loss carry-forwards will begin to expire in 2026, unless previously
utilized.
Deferred
income taxes reflect the net effect of temporary difference between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company’s
net deferred tax assets at December 31, 2009 are shown below. A
valuation allowance of $11,966,004 has been established to offset the net
deferred tax assets at December 31, 2009, as realization of such assets is
uncertain.
|
|
|
For Years Ended December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Current
deferred tax asset
|
|
|
|
|
|
|
|
Non-cash
stock issue
|
|
$ |
- |
|
|
$ |
- |
|
|
Others
|
|
|
- |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax assets
|
|
|
|
|
|
|
|
|
|
Research
tax credit
|
|
|
935,172 |
|
|
|
661,882 |
|
|
Net
operating loss carry forwards
|
|
|
8,484,156 |
|
|
|
5,902,875 |
|
|
Others
|
|
|
2,546,676 |
|
|
|
1,923,460 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax asset
|
|
|
11,966,004 |
|
|
|
8,488,217 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax liability
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total
net deferred tax asset
|
|
|
11,966,004 |
|
|
|
8,488,217 |
|
|
Loss
valuation allowance
|
|
|
(11,966,004 |
) |
|
|
(8,488,217 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$ |
- |
|
|
$ |
- |
|
13.
RELATED PARTIES
On June
24, 2009, the Company entered into a services agreement with TRC to provide
various clinical development, operational and administrative services to the
Company for a period of one year. Joshua A. Kazam, the Company’s
President and Chief Executive Officer and director, and Arie S. Belldegrun, who
was appointed to serve as a member of the Company’s Board of Directors on
September 24, 2009, are each partners of TRC. David M. Tanen, who
served as the Company’s Secretary and director until his resignation from both
positions on September 24, 2009, is also a partner of TRC. The terms of the
Services Agreement were reviewed and approved by a special committee of the
Company’s Board of Directors consisting of independent
directors. None of the members of the special committee has any
interest in TRC or the services agreement. As compensation for the
services contemplated by the services agreement, the Company will pay to TRC a
monthly cash fee of $65,000 and issued stock options to purchase up to an
aggregate of 750,000 shares of the Company’s common stock at a price per share
equal to $0.89, the closing sale price of the Company’s common stock on June 24,
2009. The total estimated fair-value of the stock options is
$479,338.Twenty-five percent of the shares subject to the stock option vested
immediately and the remaining 75% vest pursuant to the achievement of certain
milestones relating to the clinical development of CD-NP. On
occasion, some of the Company’s expenses are paid by TRC. No interest is charged
by TRC on any outstanding balance owed by the Company. For the years ended
December 31, 2009 and 2008 and for the period from August 1, 2005
(inception) through December 31, 2009, total cash services and reimbursed
expenses totaled $482,840 $0 and $482,840, respectively. As of
December 31, 2009 the Company has a payable to TRC of $84,154.
NILE
THERAPEUTICS, INC
(A
DEVELOPMENT STAGE COMPANY)
NOTES TO
FINANCIAL STATEMENTS
Prior to
June 24, 2009, some of the Company’s expenses were paid by Two River Group
Holdings, LLC (“Two River”), a company owned by three of the Company’s directors
and founders. No interest is charged by Two River on any outstanding balance
owed by the Company. For the years ended December 31, 2009 and 2008 and for
the period from August 1, 2005 (inception) through December 31, 2009,
reimbursable expenses totaled $26,374, $22,364 and
$153,238, respectively. In addition, during 2007 the Company paid $70,245
to Two River for consulting and due diligence efforts performed by Two River
employees related to the licensing of 2NTX-99 and were included in research and
development expense in the statement of operations. As of December 31, 2009 the
Company has no balance payable to Two River.
As
consideration for the performance of consulting and due diligence efforts
related to the licensing of 2NTX-99, the Company issued fully vested warrants to
purchase 206,912 shares of its common stock at an exercise price of
$2.71. Of the total issued, warrants to purchase 137,567 shares were
issued to employees of Two River. The remaining warrants were granted to outside
consultants. The warrants were recorded as an expense and a liability during the
year ended December 31, 2007. In March 2008, these warrants were issued in
satisfaction of the accrued liability.
As
discussed in Notes 9(a) and 9(b), pursuant to a Securities Purchase Agreement
dated July 7, 2009 between the Company and certain qualified investors
identified therein, the Company sold 2,691,394 units of its securities resulting
in gross proceeds of $3,368,748. The sale of the units was completed
on July 15, 2009. The Company engaged Riverbank Capital Securities, Inc.
(“Riverbank”) to serve as its placement agent. Riverbank was not paid a cash
commission for its services, however, the Company issued Riverbank (or its
designees) five-year warrants to purchase 218,300 shares of the Company’s common
stock. The warrants are exercisable at a price of $1.375 per share, which is
equal to 110% of the per unit purchase price paid by investors, and have a
cashless (net) exercise provision. The Company also paid Riverbank an
expense allowance of $50,000 to cover expenses incurred during the financing.
These costs were incurred in connection with the private placement of units and
therefore, have been deducted from the capital raised on the statement of
changes in stockholders’ equity.
Peter M.
Kash, the Chairman of the Company’s Board of Directors, Joshua A. Kazam, the
Company’s President and Chief Executive Officer and director, and David M.Tanen,
a director of the Company until September 24, 2009, are each officers of and
collectively control Riverbank. In light of the relationship between Messrs.
Kash, Kazam and Tanen and Riverbank, the selection and terms of the engagement
were reviewed and approved by a special committee of the Company’s Board
consisting of independent directors, none of whom had any interest or other
relationship in Riverbank or its affiliates.
14.
COMMITMENTS AND CONTINGENCIES
On March
3, 2008 the Company signed a non-cancelable operating lease agreement to lease
office space in San Francisco, California. In October 2009, the Company entered
into a lease termination agreement for the office space in San Francisco. The
Company paid $130,000 to satisfy the remaining lease liability. The
standby letter of credit that served as a security deposit was cancelled and the
corresponding restricted cash, approximately $55,000, held by the Company will
no longer be subject to restriction.
On August
15,
2009, the Company relocated its primary office space to San Mateo,
California. Under the terms of an open-ended lease, cancellable upon 60 days
notice, the base rent is $2,000 per month. The office space is approximately
1,200 square feet. In connection with this lease, the Company made a $2,000 cash
security deposit.
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Not applicable.
|
ITEM 9A(T).
|
CONTROLS
AND PROCEDURES
|
Management's
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal controls over financial reporting. Our internal control system over
financial reporting is a process designed under the supervision of our Chief
Executive Officer and our Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the financial statements in accordance with U.S. generally accepted
accounting principles. Our disclosure controls and procedures are designed based
on criteria established in Internal Control – Integrated framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission, or COSO
Framework of information that is required to be disclosed in the reports that we
file under the Securities Exchange Act of 1934 and to make sure the information
we are required to disclose is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and that such information is accumulated and communicated to
our management to allow timely decisions regarding required
disclosures. All internal control systems, however, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions.
As of
December 31, 2009, we carried out an evaluation, under the supervision and
with the participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures as of that date were effective to ensure that
information required to be disclosed in the reports filed under the Securities
and Exchange Act was recorded, processed, summarized and reported on an accurate
and timely basis. There were no changes in our internal controls over financial
reporting during the quarter ended December 31, 2009 that have materially
affected, or are likely to materially affect, our internal controls over
financial reporting.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over our financial reporting. Our
management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the company to provide only management’s report in this
annual report.
As a
non-accelerated filer with a fiscal year end of December 31, we must first
begin to comply with certain requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 for the fiscal year ending December 31, 2010. We
believe that our present internal control program has been effective at a
reasonable assurance level to ensure that our financial reporting has not been
materially misstated. Nonetheless, during the remaining periods through
December 31, 2010, we will review, and where necessary, enhance our
internal control design and documentation, management review, and ongoing risk
assessment as part of our internal control program, including implementing the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting during the
three months ended December 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
At the
Annual Meeting of Stockholders held on December 10, 2009, we submitted to a vote
of our stockholders the following matters, which received the indicated
votes:
| |
1.
|
To
elect seven directors to hold office until our 2010 Annual Meeting of
Stockholders, or until their respective successors have been elected and
have qualified, or until their earlier resignation or
removal:
|
|
|
|
For
|
|
|
Withhold
|
|
|
Arie
S. Belldegrun
|
|
13,953,196
|
|
|
14,525
|
|
|
Pedro
Granadillo
|
|
13,953,196
|
|
|
14,525
|
|
|
Peter
M. Kash
|
|
13,780,802
|
|
|
186,919
|
|
|
Joshua
A. Kazam
|
|
13,819,402
|
|
|
148,319
|
|
|
Frank
Litvack
|
|
13,953,196
|
|
|
14,525
|
|
|
Paul
A. Mieyal
|
|
13,953,196
|
|
|
14,525
|
|
|
Gregory
W. Schafer
|
|
13,953,196
|
|
|
14,525
|
|
|
|
2.
|
To ratify the
appointment of Crowe Horwath LLP as our independent registered public
accounting firm for our fiscal year ending December 31,
2009:
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
13,947,011
|
|
|
20,610
|
|
|
100
|
|
Part III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
The following table lists our executive
officers and directors and their respective ages and positions as of the date of
this report:
|
Name
|
|
Age
|
|
Position
|
| |
|
|
|
|
|
Joshua
A. Kazam
|
|
33
|
|
President
and Chief Executive Officer, Director
|
|
Daron
Evans
|
|
36
|
|
Chief
Financial Officer
|
|
Hsiao
Lieu, M.D.
|
|
38
|
|
Vice
President, Clinical Research
|
|
Arie
S. Belldegrun, M.D.
|
|
59
|
|
Director
|
|
Pedro
Granadillo
|
|
63
|
|
Director
|
|
Peter
M. Kash
|
|
48
|
|
Chairman
of the Board
|
|
Frank
Litvack, M.D.
|
|
54
|
|
Director
|
|
Paul
A. Mieyal, Ph.D.
|
|
40
|
|
Director
|
|
Gregory
W. Schafer
|
|
45
|
|
Director
|
Joshua A. Kazam
has served as our non-employee President and Chief Executive Officer
since June 2009, and has served as a director of the Company since inception in
August 2005. In September 2004, Mr. Kazam co-founded Two River Group Holdings,
LLC, and currently serves as Vice President and Director of Two River’s managing
member, Two River Group Management, LLC. Mr. Kazam also serves as an Officer and
Director of Riverbank Capital Securities, Inc. From 1999 to 2004, Mr. Kazam was
a Managing Director of Paramount BioCapital, Inc. where he was responsible for
ongoing operations of venture investments, and as the Director of Investment for
the Orion Biomedical Fund, LP. Mr. Kazam currently serves as a director of
several privately-held biotechnology and biopharmaceutical companies, including
Arno Therapeutics, Inc. (since its August 2005 inception), and Velcera, Inc.
(since its inception in May 2004). Mr. Kazam is a graduate of the Wharton School
of the University of Pennsylvania.
Daron Evans
has been our Chief Financial Officer since September 2007 and was our
Chief Operating Officer from February 2007 to September 2007. Mr. Evans has over
fifteen years of professional experience in drug development financial analysis
and fiscal control. From 2006 to 2007, Mr. Evans served as Director of Business
Assessment at Vistakon, a Johnson & Johnson company, where he led efforts to
improve R&D efficiency and speed to market. From 2004 to 2006, he was a
Director of Portfolio & Business Analytics for Scios R&D, a Johnson
& Johnson company, where he was responsible for financial controls and
reporting for portfolio of six clinical stage programs and five preclinical
stage programs. While at Scios, Mr. Evans also served as Project Manager for the
European Registration Trial of Nesiritide. Mr. Evans also has experience as
co-founder of a biotechnology diagnostic company, and has worked as a Management
Consultant in the pharmaceutical industry with Booz Allen Hamilton. Mr. Evans
received his M.B.A. from The Fuqua School of Business at Duke University, his
M.S. in Biomedical Engineering from Southwestern Medical School and University
of Texas at Arlington and his B.S. in Chemical Engineering from Rice
University.
Hsiao D. Lieu,
M.D., F.A.C.C. has been the Company’s Vice President of Clinical Research
since March 2008. Dr. Lieu has over 13 years of experience in the
biopharmaceutical/biotech industry including academic medicine (cardiology),
molecular cardiology research, translational and clinical drug development
including execution of large multinational Phase III clinical trials and
responsibility for interactions with regulatory authorities and key opinion
leaders in the U.S., Canada, and Europe. From 2006 to 2008, Dr. Lieu was
Director of Clinical Development for Portola Pharmaceuticals, Inc. From 2003 to
2006 Dr. Lieu worked at CV Therapeutics, Inc., where he served as Director,
Clinical Research and Development. Dr. Lieu also worked as a researcher at the
J. David Gladstone Institute of Cardiovascular Disease at the University of
California at San Francisco (“UCSF”) from 2001 to 2003 where he conducted
molecular cardiology research. Dr. Lieu currently serves as an Adjunct Assistant
Clinical Professor of Medicine, Cardiology Division at UCSF. Dr. Lieu completed
his clinical cardiology fellowship at UCSF and his residency in internal
medicine at Columbia University. He received his M.D. from the Albert Einstein
College of Medicine with distinction in molecular biology research, and his B.A.
from New York University. Dr. Lieu is a Fellow of the American College of
Cardiology.
Arie S.
Belldegrun, M.D., FACS has been a director of Nile since
September 2009. Dr. Belldegrun is Director of the Institute of
Urologic Oncology at UCLA, Professor of Urology and Chief of the Division of
Urologic Oncology. He holds the Roy and Carol Doumani Chair in Urologic Oncology
at the David Geffen School of Medicine at the University of California, Los
Angeles (UCLA). In 1997, Dr. Belldegrun founded Agensys, Inc., an early-stage
privately-held biotechnology company based in Los Angeles, California, that is
focused on the development of fully human monoclonal antibodies to treat solid
tumor cancers in a variety of cancer targets. Dr. Belldegrun served as founding
Chairman of Agensys from 1997 to 2002 and then as a director until December
2007, when the company was acquired by Astellas Pharma. Dr. Belldegrun served as
Vice Chairman of the Board and Chairman of the Scientific Advisory Board of
Cougar Biotechnology, Inc., a Los Angeles-based biopharmaceutical company, from
December 2003 until its acquisition by Johnson & Johnson in July
2009. From February 2004 to December 2009, Dr. Belldegrun also served
on the Board of Directors of Hana Biosciences, Inc., a publicly-held
biopharmaceutical company. He is also Chairman and Partner of Two River Group
Holdings LLC, a New York based venture capital firm. Dr. Belldegrun’s prior
experience also includes serving as principal investigator of more than 50
clinical trials of anti-cancer drug candidates and therapies. Dr. Belldegrun
completed his M.D. at the Hebrew University Hadassah Medical School in
Jerusalem, his post graduate fellowship at the Weizmann Institute of Science and
his residency in Urological Oncology at Harvard Medical School. Prior to UCLA,
Dr. Belldegrun was at the National Cancer Institute/NIH as a research fellow in
surgical oncology under Steven A. Rosenberg, M.D., Ph.D. He is certified by the
American Board of Urology and is a Fellow of the American College of Surgeons
and the American Association of Genitourinary Surgeons.
Pedro
Granadillo has served as a director of the Company since October 2007,
and also serves as Chairman of the Compensation Committee and as a member of the
Nominating and Corporate Governance Committee and Audit Committee. Mr.
Granadillo served as Senior Vice President for Eli Lilly and Company, or Lilly,
until 2004 when he retired after 34 years of service. He was a member of Lilly’s
Policy Committee, which was comprised of its top seven executives. As Lilly’s
top human resources, manufacturing and quality executive, he was responsible for
policies affecting a global workforce of more than 45,000 employees, as well as
a broad network of manufacturing facilities for its extensive line of products.
He also oversaw more than 20 sites and 13,000 employees involved in the
manufacturing of Lilly’s conventional “small-molecule” pharmaceuticals and
“large-molecule” biotech therapies. Mr. Granadillo currently serves as a
director of Dendreon Corp., Noven Pharmaceuticals, Inc. and Haemonetics
Corporation, all of which are publicly-held biopharmaceutical companies. Mr.
Granadillo received his B.S. in Industrial Engineering from Purdue
University.
Peter M. Kash
has served as a director of the Company since its inception in August
2005, and also currently serves as the non-executive Chairman of the Board,
Chairman of the Nominating and Corporate Governance Committee and a member of
the Compensation Committee. Mr. Kash has also served as a director of Arno
Therapeutics, Inc., a New Jersey-based biopharmaceutical company focused on the
treatment of cancer patients, since its inception in August 2005. From December
2004 to December 2006, Mr. Kash served as a director of Javelin Pharmaceuticals,
Inc., a publicly-held biopharmaceutical company focused on pain management. In
September 2004, Mr. Kash co-founded Two River Group Holdings, LLC, a venture
capital firm that specializes in the creation of new companies to acquire rights
to commercially develop early stage biotechnology products. He serves as
President of Two River Group Management, LLC, the managing member of Two River
Group Holdings, LLC. Mr. Kash is also the President and Chairman of Riverbank
Capital Securities, Inc., a broker-dealer registered with the Financial Industry
Regulatory Authority, or FINRA (formerly NASD). From 1992 until 2004, Mr. Kash
was a Senior Managing Director of Paramount BioCapital, Inc., a FINRA member
broker-dealer, specializing in conducting private financings for public and
private development stage biotechnology companies as well as Paramount
BioCapital Investments, LLC, a venture capital company. Mr. Kash also served as
Director of Paramount Capital Asset Management, Inc., the general partner of
several biotechnology-related hedge funds and as member of the General Partner
of the Orion Biomedical Fund, LP, a private equity fund. Mr. Kash received his
B.S. in Management Science from SUNY Binghamton and his M.B.A. in Banking and
International Finance from Pace University. Mr. Kash is currently completing his
doctorate in education at Yeshiva University.
Frank Litvack,
M.D. has been a director of the Company since September
2009. Dr. Litvack served as Chairman (from 2002) and CEO (from 2003)
of Conor MedSystems, Inc., a publicly-held company focused on the development of
vascular drug delivery systems, until its acquisition by Johnson & Johnson
in February 2007. From 2000 to 2005, Dr. Litvack was Chairman of Savacor, Inc.,
a medical device company that was acquired by St. Jude Medical, Inc. in late
2005. Since 2000, Dr. Litvack has been a Professor of Medicine at University of
California, Los Angeles. From 1989 until 1997, Dr. Litvack was a founder and
director of Progressive Angioplasty Systems Inc., which was acquired by United
States Surgical Corporation. Since 1996, Dr. Litvack has been a member of
Calmedica, LLC. Since 1985, Dr. Litvack has been an attending cardiologist at
Cedars-Sinai Medical Center. Dr. Litvack co-directed the Cardiovascular
Intervention Center at Cedars-Sinai Medical Center from 1986 to 2000. Dr.
Litvack currently serves as a director of several privately-held corporations.
Dr. Litvack holds an M.D. from McGill University.
Paul Mieyal,
Ph.D., CFA has served as a director of the Company since September 2007,
and also serves as a member of the Audit Committee. Since 2006, Dr. Mieyal has
served as a Vice President of Wexford Capital LP, or Wexford, an SEC registered
investment advisor located in Greenwich, CT. Prior to that, from 2000 to 2006,
he was Vice President in charge of healthcare investments for Wechsler &
Co., Inc., a private investment firm and registered broker-dealer. Dr. Mieyal
serves as a director of Nephros, Inc. a publicly held company. Dr. Mieyal
received his Ph.D. in Pharmacology from New York Medical College, a B.A. in
chemistry and psychology from Case Western Reserve University, and is a
Chartered Financial Analyst.
Gregory W.
Schafer has served as a director of the Company since January 2008, and
also serves as Chairman of the Audit Committee. Since April 2009, Mr.
Schafer has served as an independent consultant to private and public
biotechnology companies. From April 2006 to January 2009, Mr. Schafer served as
the Vice President and Chief Financial Officer of Onyx Pharmaceuticals, Inc.
Prior to Onyx, from 2004 to 2006, Mr. Schafer served as a consultant to several
private and public biotechnology companies. From 1997 to 2004, Mr. Schafer held
various executive positions at Cerus Corporation, a public biotechnology
company, including Vice President and Chief Financial Officer. Prior to joining
Cerus, Mr. Schafer worked as a management consultant for Deloitte & Touche
LLP. Mr. Schafer holds an M.B.A from the Anderson Graduate School of Management
at UCLA and a BSE in Mechanical Engineering from the University of
Pennsylvania.
We look to our directors to lead us
through our continued growth as an early-stage public biopharmaceutical
company. Our directors bring their leadership experience from a
variety of life science companies and professional backgrounds which we require
to continue to grow and bring value to our stockholders. Dr. Litvack’s clinical
expertise in cardiology offers a unique perspective into the development and
practical application of our product candidates. Mr. Kash, Mr. Kazam
and Dr. Mieyal have venture capital or investment banking backgrounds and offer
expertise in financing and growing small biopharmaceutical
companies. Each of Dr. Belldegrun, Mr. Kash, Mr. Kazam, Dr. Litvack,
Dr. Mieyal and Mr. Schafer have significant experience with early stage private
and public companies and bring depth of knowledge in building stockholder value,
growing a company from inception and navigating significant corporate
transactions and the public company process. Mr. Granadillo has extensive
experience in the pharmaceutical industry, allowing him to contribute his
significant operational experience. Mr. Kazam’s current position as our CEO also
allows him to provide a unique insight into our development and
growth. As a result of his experience in the role of chief financial
officer of public companies, Mr. Schafer also bring extensive finance,
accounting and risk management knowledge to us.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities
Exchange Act of 1934, as amended, requires the Company’s directors and officers
and persons who own more than ten percent of a registered class of the Company’s
equity securities to file reports of ownership and reports of changes in the
ownership with the SEC. Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely
on its review of the copies of the forms submitted to it during the last fiscal
year, the Company believes that, during the last fiscal year, all such reports
were timely filed. With respect to the prior fiscal year, however,
Dr. Mieyal filed a Form 4 on January 22, 2009 to report an option grant made on
December 23, 2008.
Code
of Business Conduct and Ethics
The Board
of Directors has adopted a Code of Business Conduct and Ethics, or the Code,
that applies to all directors, officers, employees, consultants, contractors and
agents, wherever they are located and whether they work for us on a full- or
part-time basis. The Code was designed to help such directors, employees and
other agents to resolve ethical issues encountered in the business environment.
The Code covers topics such as conflicts of interest, compliance with laws,
confidentiality of Company information, encouraging the reporting of any illegal
or unethical behavior, fair dealing and use of Company assets. You
can access the Code at the Corporate Governance page of our website at
www.nilethera.com. Please note that information contained on our
website is not incorporated by reference in, or considered to be a part of, this
Annual Report. We may post amendments to or waivers of the provisions of the
Code, if any, made with respect to any directors and employees on that
website.
Audit
Committee
The
current members of our Audit Committee are Mr. Schafer (Chair), Mr. Granadillo
and Dr. Mieyal. Our Board of Directors has reviewed the definition
of independence for Audit Committee members and has determined that each member
of our Audit Committee is independent (as independence is currently defined in
the applicable Nasdaq listing standards). The Board has further
determined that Mr. Schafer qualifies as an “audit committee financial expert,”
as defined by applicable rules of the Securities and Exchange
Commission.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
Summary
Compensation Table
Name and Principal Position
|
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option Awards
($)(1)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Joshua
Kazam
|
(2 |
) |
2009
|
|
|
- |
|
|
|
- |
|
|
|
80,963 |
|
|
|
|
|
|
80,963 |
|
|
Chief
Executive Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
M. Strumph
|
(3 |
) |
2009
|
|
|
143,559 |
|
|
|
- |
|
|
|
54,774 |
|
|
|
250,404 |
(4)
|
|
|
448,737 |
|
|
Former
CEO, Director
|
|
|
2008
|
|
|
316,329 |
|
|
|
- |
|
|
|
— |
|
|
|
1,210 |
(5) |
|
|
317,539 |
|
|
Daron
Evans
|
|
|
2009
|
|
|
200,000 |
|
|
|
20,000 |
(6)
|
|
|
80,034 |
|
|
|
530 |
(5)
|
|
|
300,564 |
|
|
Chief
Financial Officer
|
|
|
2008
|
|
|
175,000 |
|
|
|
- |
|
|
|
— |
|
|
|
530 |
(5)
|
|
|
175,530 |
|
|
Hsiao
Lieu
|
(7 |
) |
2009
|
|
|
187,504 |
|
|
|
30,750 |
(9) |
|
|
130,394 |
|
|
|
- |
|
|
|
348,648 |
|
|
VP,
Clinical Development
|
(8 |
) |
2008
|
|
|
202,724 |
|
|
|
55,685 |
(10) |
|
|
1,011,300 |
|
|
|
- |
|
|
|
1,269,709 |
|
|
(1)
|
Amounts
reflect the grant date fair value of awards granted under the Company’s
Amended and Restated Stock Option Plan, computed pursuant to Financial
Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock
Compensation”. Assumptions used in the calculation of these amounts
are included in Note 10 of the Notes to Audited Financial Statements
included in this Annual Report. For awards that are subject to
performance conditions, amounts reflect the assumption that the highest
level of performance conditions will be achieved. See the “Outstanding Equity Awards at
Fiscal Year-End” table in this report for information regarding all
option awards outstanding as of December 31,
2009.
|
|
(2)
|
Mr.
Kazam was appointed President and CEO on June 11,
2009. Mr. Kazam, who also serves as a director, does not
receive additional compensation for his service as President and
CEO.
|
|
(3)
|
Mr.
Strumph’s employment with Nile terminated on June 10, 2009, on which date
Mr. Strumph also resigned as a
director.
|
|
(4)
|
Consists
of (i) $230,000 in severance benefits, (ii) $19,194 in vacation accrual
payout, and (ii) a life insurance premium of
$1,210.
|
|
(5)
|
Represents premiums paid for life
insurance. |
|
(6)
|
Represents
a performance bonus for the period from January 1, 2009 to December 31,
2009, pursuant to the terms of Mr. Evans’ employment agreement, which was
paid in January 2010.
|
|
(7)
|
Effective
July 7, 2009, Dr. Lieu transitioned to part-time (50%) employment, which
reduced his base salary to
$125,000.
|
|
(8)
|
Dr.
Lieu joined the Company in March
2008.
|
|
(9)
|
Consists
of (i) a retention bonus of $12,000 in connection with Dr. Lieu’s
transition to part-time employment, and (ii) a performance bonus in the
amount of $17,500 for the period from January 1, 2009 to December 31,
2009, which was paid in January
2010.
|
|
(10)
|
Consists
of (i) a performance bonus in the amount of $13,685 for the period from
March 10, 2008 to December 31, 2008 and (ii) a signing bonus of
$42,000.
|
Employment
Agreements and Post-Termination Benefits
Peter
M. Strumph – Former Chief Executive Officer
Mr. Strumph’s employment with us was
governed by an employment agreement dated May 11, 2007, as amended on March 4,
2008 and March 10, 2009, respectively. The employment agreement
provided for Mr. Strumph’s employment as Chief Executive Officer for a
three-year term commencing on June 4, 2007, unless terminated
earlier. The agreement provided for an initial annual base salary of
$310,000, which amount was to be reviewed by the Board on an annual basis and
never decreased. Effective as of January 1, 2009, Mr. Strumph’s
annual base salary was increased to $320,000. Under the agreement,
Mr. Strumph was entitled to an annual performance bonus of up to $150,000 upon
the successful completion of annual corporate and individual
milestones. Mr. Strumph was also entitled to a bonus upon a “change
of control,” the amount of which varied from $50,000 to $200,000 depending on
the valuation ascribed to the Company at the time of the change of control. The
agreement also provided for the awarding of certain stock options to Mr.
Strumph, referred to as Employment Options, Performance Options, and Technology
Options.
Mr. Strumph’s employment with us
terminated on June 10, 2009, pursuant to the terms of a separation agreement and
release executed on such date. The separation agreement provides for
a lump sum payment to Mr. Strumph in the amount of $230,000, and for us to
continue providing for Mr. Strumph’s participation in our health and dental
plans for a period of six months. The separation agreement also
provides that Mr. Strumph is entitled to a payment of $100,000 if, within
24 months following the separation date, we complete a transaction resulting in
a change of control. We further agreed to accelerate the vesting of
the remaining unvested installment of Mr. Strumph’s Employment Options
relating to 329,857 shares of our common stock. The separation agreement also
provides that all vested stock options held by Mr. Strumph as of the
separation date will remain exercisable for a period of five years following the
separation date. As of the separation date, after taking into account the
acceleration of vesting discussed above, Mr. Strumph held vested Employment
Options representing the right to purchase 989,572 shares of our common stock
and vested Performance Options representing the right to purchase 242,482 shares
of our common stock, in both cases at an exercise price of $2.71 per share. In
addition, Mr. Strumph held a vested stock option to purchase 149,148 shares
of our common stock at an exercise price of $0.88 per share, which was granted
in January 2009 and subsequently exercised.
The term “change of control” under both
the employment and separation agreements means any of the following: (A) a
private transaction (or series of related private transactions) leading to a
merger, acquisition, consolidation, or sale of substantially all of the assets
of the Company; (B) any transaction resulting in a single party (or group of
affiliated parties) acquiring or holding capital stock of the Company
representing a majority of the Company’s outstanding voting power; or (C) the
disposition by us of all or substantially all of our business and/or assets in
one transaction or series of related transactions (other than a merger effected
exclusively for the purpose of changing our state of
domicile). Notwithstanding the forgoing, neither of the following
shall be considered a change of control: (i) if the stockholders prior to such
transaction(s) continue to hold more than 50% of the securities or assets of the
surviving or resulting company; or (ii) a private placement of our equity
securities in connection with the financing of our on-going
operations.
Daron
Evans – Chief Financial Officer
Mr.
Evans’ employment with us was initially governed by an employment agreement
dated January 19, 2007, as amended on August 19, 2007 and March 4, 2008,
respectively. The employment agreement, which initially provided for
Mr. Evans’s employment as Chief Operating Officer of our predecessor entity, a
privately-held Delaware corporation, or Old Nile, provides for a term that
expired on February 13, 2010. Despite the expiration of the
employment agreement, Mr. Evans employment with us continues on an indefinite
basis on substantially the same compensation terms. Under his former
employment agreement, Mr. Evans was initially entitled to an annual base salary
of $175,000. As of January 1, 2009, his annual base salary was
increased to $200,000. In addition, Mr. Evans is eligible to receive
an annual performance bonus of up to $60,000 upon the successful completion of
annual corporate and individual milestones.
Mr. Evans’ former employment agreement
also provided for the awarding of certain stock options, referred to as
Employment Options, Performance Options, and Technology Options. On
September 17, 2007, Mr. Evans was granted Employment Options to purchase 239,896
shares of our common stock at an exercise price of $2.71, vesting in three equal
installments on the day before each anniversary of his employment
agreement. Mr. Evans was also granted Performance Options to purchase
288,458 shares of our common stock at an exercise price of $2.71, vesting up to
one-third in each calendar year, or a pro-rata portion thereof for a period less
than a full year, based on the successful completion of annual corporate and
individual milestones as determined by our Board of Directors or its
Compensation Committee. To the extent our Board or Compensation
Committee declines to vest the maximum amount of Performance Options in any
given calendar year, or a pro-rata portion thereof for a period less than a full
year, such unvested amount are deemed forfeited by Mr. Evans. On
March 4, 2008, the Compensation Committee determined that, for the pro-rated
period ending December 31, 2007, Mr. Evans’ Performance Options would vest in
the amount of 76,528 shares out of a possible 84,562 shares, resulting in the
forfeiture of Performance Options to purchase 8,034 shares. On
January 16, 2009, the Compensation Committee determined that, for the calendar
year ending December 31, 2008, Mr. Evans’ Performance Options would vest in the
amount of 43,269 shares out of a possible 96,153 shares, resulting in the
forfeiture of Performance Options to purchase 52,884 shares. On
January 19, 2010, the Compensation Committee determined that, for the calendar
year ending December 31, 2009, Mr. Evans’ Performance Options would vest in the
amount of 50,000 shares out of a possible 96,153 shares, resulting in the
forfeiture of Performance Options to purchase 46,153 shares.
Hsiao
Lieu, M.D., F.A.C.C. – Vice President, Clinical Research
Dr. Lieu’s employment with us is
governed by an offer letter dated February 22, 2008, as amended on March 10,
2009. The offer letter provides for Dr. Lieu’s employment as our Vice President,
Clinical Research as of March 10, 2008, on an at-will basis. Under
the offer letter, Dr. Lieu is entitled to an annual base salary of $250,000,
which was reduced by 50% to $125,000 effective July 7, 2009 in connection with
Dr. Lieu’s transition to part-time (50%) employment. In addition, Dr.
Lieu is eligible to receive an annual performance bonus of up to 30% of his base
salary upon the successful completion of annual corporate and individual
milestones. Pursuant to the offer letter, Dr. Lieu also received a
signing bonus of $42,000.
The offer letter also provides for the
awarding of certain stock options to Dr. Lieu, referred to as Employment
Options, Performance Options, and Technology Options. On March 10,
2008, Dr. Lieu was granted Employment Options to purchase 200,000 shares of our
common stock at an exercise price of $4.45, with one-fourth vesting after one
year and the remainder vesting in 36 equal monthly installments
thereafter. Dr. Lieu was also granted Performance Options to purchase
100,000 shares of our common stock at an exercise price of $4.45, vesting up to
one-fourth in each calendar year, or a pro-rata portion thereof for a period
less than a full year, based on the successful completion of annual corporate
and individual milestones as determined by our Board of Directors or its
Compensation Committee. To the extent our Board or Compensation
Committee declines to vest the maximum amount of Performance Options in any
given calendar year, or a pro-rata portion thereof for a period less than a full
year, such unvested amount are deemed forfeited by Dr. Lieu. On
January 16, 2009, the Board determined that, for the pro-rated period ending
December 31, 2008, Dr. Lieu’s Performance Options would vest in the amount of
9,123 shares out of a possible 20,274 shares, resulting in the forfeiture of
Performance Options to purchase 11,151 shares. On January 19, 2010,
the Board determined that, for the calendar year ending December 31, 2009, Dr.
Lieu’s Performance Options would vest in the amount of 12,500 shares out of a
possible 25,000 shares, resulting in the forfeiture of Performance Options to
purchase 12,500 shares. In the event that we acquire by license,
acquisition or otherwise, an additional product for development that is first
identified by Dr. Lieu, he will receive Technology Options to purchase 50,000
shares of our common stock if the product is in pre-clinical development or
75,000 shares if the product is in human clinical trials.
The offer letter further provides that,
immediately following a “change in control,” all Employment Options and any
subsequently granted options that vest over a period of time, and not based on
performance, shall immediately vest and shall become exercisable immediately and
shall remain exercisable for a period equal to the lesser of five years
from the date of the change of control or ten years from the date of grant of
such options. If within the twelve-month period following a change in
control, Dr. Lieu experiences a “covered termination” or a “constructive
termination,” and if, within 60 days of such covered termination or constructive
termination, Dr. Lieu executes and does not revoke during any applicable
revocation period a general release of all claims against the Company and our
affiliates in a form acceptable to us, then, as a severance benefit, he shall be
entitled to (i) six months of his base salary then in effect, payable in
full within 30 days of his last day of employment; (ii) immediate vesting
of all Performance Options (including the initial Performance Options and any
subsequently granted performance-based stock options), to the extent that the
shares subject to such options have not been terminated or forfeited pursuant to
the option agreements, which shall become exercisable immediately and shall
remain exercisable for a period equal to the lesser of five years from the date
of Dr. Lieu’s covered termination or constructive termination or ten years from
the date of grant of such Performance Options; and (iii) a prorated portion
of his maximum annual performance bonus.
The term “change of control” under the
offer letter means a transaction or series of transactions (other than an
offering of the Company’s stock to the general public through a registration
statement filed with the Securities and Exchange Commission) resulting in a
single party (or group of affiliated parties) acquiring or holding capital stock
of the Company representing a majority of the Company’s outstanding voting
power. Notwithstanding the forgoing, neither of the following shall be
considered a change of control: (i) if the stockholders prior to such
transaction(s) continue to hold more than 50% of the securities or assets of the
surviving or resulting company; or (ii) a private placement of our equity
securities in connection with the financing of our on-going
operations.
The term “covered termination” means
the termination of Dr. Lieu’s employment by the Company other than for “cause,”
which constitutes a “separation from service” within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),
and the Department of Treasury regulations and other guidance promulgated
thereunder. The term “cause” means the following conduct or actions
taken by Dr. Lieu: (i) gross negligence or willful misconduct in the
performance of his duties to the Company; (ii) repeated unexplained or
unjustified absence from the Company; (iii) a material and willful
violation of any federal or state law; (iv) commission of any act of fraud
with respect to the Company; (v) conviction of a felony or a crime
involving moral turpitude causing material harm to the standing and reputation
of the Company; or (vi) a material failure to perform his duties or to
follow the instructions of our Chief Executive Officer, in each case as
determined in good faith by our Chief Executive Officer.
The term “constructive termination”
means Dr. Lieu’s resignation which constitutes a “separation from service”
within the meaning of Section 409A of the Code and the Department of
Treasury regulations and other guidance promulgated thereunder within 90 days of
the first to occur of one or more of the following events which remains uncured
30 days after Dr. Lieu’s delivery to the Company of written notice thereof:
(i) any change in Dr. Lieu’s position with the Company that diminishes in
any material respect the duties and responsibilities of his position as in
effect immediately preceding such action; provided, however, that a reduction in
duties, level of responsibilities or the requirements of his position solely by
virtue of the Company being acquired and made part of a larger entity shall not
by itself constitute grounds for a constructive termination; (ii) any
material reduction by the Company in Dr. Lieu’s base salary or in the percentage
of his annual bonus opportunity as a percentage of his base salary; or
(iii) the Company’s relocation of our principal office to a place more than
a material distance from our present headquarters (except that required travel
on the Company’s business to an extent substantially consistent with Dr. Lieu’s
present business travel obligations shall not be considered a
relocation).
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information concerning stock options held by the
named executive officers at December 31, 2009:
|
|
|
Number of
Securities
Underlying
Unexercised Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised Options
Unexercisable
|
|
|
Equity Incentive Plan Awards:
Number of Securities
Underlying Unexercised
Unearned Options
|
|
|
Option
Exercise
Price ($)
|
|
Option
Expiration
Date
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joshua
Kazam
|
|
|
— |
|
|
|
25,000 |
|
|
|
— |
|
|
|
0.93 |
|
12/23/2018
|
(1)
|
|
|
|
|
— |
|
|
|
65,000 |
|
|
|
— |
|
|
|
1.77 |
|
7/21/2019
|
(1)
|
|
|
|
|
33,333 |
|
|
|
16,667 |
|
|
|
— |
|
|
|
4.50 |
|
1/25/2018
|
(1)
|
|
Peter
M. Strumph
|
|
|
989,572 |
|
|
|
— |
|
|
|
— |
|
|
|
2.71 |
|
6/10/2015
|
(2)
|
|
|
|
|
242,482 |
|
|
|
— |
|
|
|
— |
|
|
|
2.71 |
|
6/10/2015
|
(3)
|
|
Daron
Evans
|
|
|
49,020 |
|
|
|
— |
|
|
|
— |
|
|
|
0.88 |
|
1/16/2019
|
(4)
|
|
|
|
|
25,000 |
|
|
|
— |
|
|
|
75,000 |
|
|
|
0.89 |
|
6/24/2019
|
(5)
|
|
|
|
|
159,933 |
|
|
|
79,966 |
|
|
|
— |
|
|
|
2.71 |
|
9/14/2017
|
(6)
|
|
|
|
|
119,797 |
|
|
|
— |
|
|
|
107,743 |
|
|
|
2.71 |
|
9/14/2017
|
(7)
|
|
Hsiao
Lieu
|
|
|
31,103 |
|
|
|
— |
|
|
|
— |
|
|
|
0.88 |
|
1/16/2019
|
(8)
|
|
|
|
|
37,500 |
|
|
|
— |
|
|
|
112,500 |
|
|
|
1.14 |
|
6/24/2019
|
(9)
|
|
|
|
|
87,503 |
|
|
|
112,497 |
|
|
|
— |
|
|
|
4.45 |
|
3/10/2018
|
(10)
|
|
|
|
|
9,123 |
|
|
|
— |
|
|
|
79,726 |
|
|
|
4.45 |
|
3/10/2018
|
(11)
|
|
(1)
|
Mr.
Kazam’s options were granted as compensation for his service as a
director.
|
|
(2)
|
Options were scheduled to vest in
equal amounts annually over three years, commencing on May 15,
2008. The first two annual installments vested on May 15, 2008
and May 15, 2009, respectively, and the final installment vested on June
10, 2009, pursuant to the terms of Mr. Strumph’s separation
agreement.
|
|
(3)
|
Options with respect to 886,919
shares were scheduled to vest, subject to milestone achievements
determined by the Board, up to a maximum of one third in each calendar
year, or a pro rata portion thereof for a period less than a full
year. On March 4, 2008, the Board determined that options for
the prorated period ending December 31, 2007 would vest in the amount of
139,008 shares, with options in the amount of 29,466 shares consequently
being forfeited. On January 16, 2009, the Board determined that
options for the 2008 calendar year would vest in the amount of 103,474
shares, with options in the amount of 192,166 shares consequently being
forfeited. The remainder of the options were forfeited on June
10, 2009, as a result of the termination of Mr. Strumph’s
employment.
|
|
(4)
|
Options
were granted in exchange for 2008 accrued performance cash
bonuses.
|
|
(5)
|
Options
with respect to 25,000 shares vested immediately upon grant. Options with
respect to 75,000 shares are subject to milestone achievements determined
by the Board.
|
|
(6)
|
Options vest in equal amounts
annually over three years, commencing on January 18,
2008.
|
|
(7)
|
Options with respect to 288,458
shares vest, subject to milestone achievements determined by the Board, up
to a maximum of one third in each calendar year, or a pro rata portion
thereof for a period less than a full year. On March 4, 2008,
the Board determined that options for the prorated period ending December
31, 2007 would vest in the amount of 76,528 shares out of a possible
84,562 shares, with options in the amount of 8,034 shares consequently
being forfeited. On January 16, 2009, the Board determined that
options for the 2008 calendar year would vest in the amount of 43,269
shares out of a possible 96,153 shares, with options in the amount of
52,884 shares consequently being forfeited. On January 19, 2010, the Board
determined that options for the 2009 calendar year would vest in the
amount of 50,000 shares out of a possible 96,153 shares, with options in
the amount of 46,153 shares consequently being
forfeited.
|
|
(8)
|
Options
were granted in exchange for 2008 accrued performance cash
bonuses.
|
|
(9)
|
Options
with respect to 37,500 shares vested immediately upon grant. Options with
respect to 112,500 shares are subject to milestone achievements determined
by the Board.
|
|
(10)
|
Options vested in the amount of
50,000 shares on March 10, 2009; the remainder vest in 36 monthly
installments of 4,167 shares, commencing on April 10,
2009.
|
|
(11)
|
Options with respect to 100,000
shares vest, subject to milestone achievements determined by the Board, up
to a maximum of one fourth in each calendar year, or a pro rata portion
thereof for a period less than a full year. On January 16,
2009, the Board determined that options for the prorated period ending
December 31, 2008 would vest in the amount of 9,123 shares out of a
possible 20,274 shares, with options in the amount of 11,151 shares
consequently being forfeited. On January 19, 2010, the Board determined
that options for the 2009 calendar year would vest in the amount of 12,500
shares out of a possible 25,000 shares, with options in the amount of
12,500 shares consequently being
forfeited.
|
Director
Compensation
On July 21, 2009, the Compensation
Committee of our Board of Directors approved a compensation plan for our
non-employee directors. Under the newly adopted plan, the Company will not pay
cash compensation to its directors, who are instead entitled to receive annual
stock option grants relating to 65,000 shares of the Company’s common stock. The
chairmen of our Board of Directors and of its Audit and Compensation Committees
are entitled to annual stock options to purchase an additional 15,000 shares.
Newly appointed directors are entitled to an initial stock option to purchase
130,000 shares.
Prior to
the adoption of this plan, our non-employee directors did not receive any cash
fees for their service, but were periodically awarded stock
options. The following table sets forth the compensation received by
our directors for their service in 2009.
|
Name (1)
|
|
Fees Earned or
Paid in Cash
|
|
|
Option
Awards (2)
|
|
|
Total
|
|
|
Arie
Belldegrun, M.D.
|
|
$
|
|
|
|
$
|
136,514
|
|
|
$
|
136,514
|
|
|
Pedro
Granadillo
|
|
|
-
|
|
|
|
99,646
|
|
|
|
99,646
|
|
|
Peter
M. Kash
|
|
|
-
|
|
|
|
99,646
|
|
|
|
99,646
|
|
|
Joshua
A. Kazam
|
|
|
-
|
|
|
|
80,963
|
|
|
|
80,963
|
|
|
Frank
Litvack, M.D.
|
|
|
-
|
|
|
|
136,514
|
|
|
|
136,514
|
|
|
Paul
A. Mieyal, Ph.D.
|
|
|
-
|
|
|
|
80,963
|
|
|
|
80,963
|
|
|
Gregory
W. Schafer
|
|
|
-
|
|
|
|
99,646
|
|
|
|
99,646
|
|
|
David
M. Tanen (3)
|
|
|
-
|
|
|
|
80,963
|
|
|
|
80,963
|
|
|
|
(1)
|
Peter M. Strumph, our former
Chief Executive Officer, has been omitted from this table since he
received no additional compensation for serving on our Board; his
compensation is described
above.
|
|
|
(2)
|
Amounts
reflect the grant date fair value of awards granted under the Company’s
Amended and Restated Stock Option Plan, computed pursuant to Financial
Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock
Compensation”. Assumptions used in the calculation of these amounts
are included in Note 10 of the Notes to Audited Financial Statements
included in this Annual
Report.
|
|
|
(3)
|
Mr. Tanen resigned as a director
effective as of the appointment of Drs. Belldegrun and Litvack as
directors in September 2009.
|
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information known to us regarding the
beneficial ownership of our common stock as of March 1, 2010 by:
|
|
•
|
each
named executive officer as defined and named in the Summary Compensation
Table appearing herein,
|
|
|
•
|
all
of our directors and named executive officers as a group,
and
|
|
|
•
|
each
person known by us to beneficially own more than five percent of our
common stock (based on information supplied in Schedules 13D and 13G filed
with the Securities and Exchange
Commission).
|
Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all capital stock shown to be held by that person. The address of
each named executive officer and director, unless indicated otherwise, is c/o
Nile Therapeutics, Inc., 4 West 4th Ave., Suite 400, San Mateo, California
94402.
|
|
|
Shares of Common Stock
Beneficially Owned (#)
|
|
|
Percentage of
Common Stock
Beneficially
Owned (%)(1)
|
|
| |
|
|
|
|
|
|
|
Directors
and Named Executive Officers
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Arie
Belldegrun (2)
|
|
|
1,315,630 |
|
|
|
4.75 |
% |
| |
|
|
|
|
|
|
|
|
|
Daron
Evans (3)
|
|
|
553,920 |
|
|
|
2.01 |
% |
| |
|
|
|
|
|
|
|
|
|
Pedro
Granadillo (4)
|
|
|
102,588 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
Peter
M. Kash (5)
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
2,558,193 |
|
|
|
9.34 |
% |
| |
|
|
|
|
|
|
|
|
|
Joshua
A. Kazam (6)
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
2,510,740 |
|
|
|
9.17 |
% |
| |
|
|
|
|
|
|
|
|
|
Hsiao
Lieu (7)
|
|
|
258,147 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
Frank
Litvack (8)
|
|
|
400,000 |
|
|
|
1.47 |
% |
| |
|
|
|
|
|
|
|
|
|
Paul
Mieyal
c/o
Wexford Capital LP
411
West Putnam Avenue
Greenwich,
CT 06830
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
Gregory
W. Schafer (9)
|
|
|
75,100 |
|
|
|
* |
|
| |
|
|
|
|
|
|
|
|
|
Peter
M. Strumph (10)
|
|
|
1,240,034 |
|
|
|
4.38 |
% |
| |
|
|
|
|
|
|
|
|
|
Directors
and executive officers as a group,
10
individuals
|
|
|
9,014,352 |
|
|
|
29.41 |
% |
| |
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
David
M. Tanen (11)
689
Fifth Avenue, 12th Floor
New
York, NY 10022
|
|
|
1,830,296 |
|
|
|
6.71 |
% |
| |
|
|
|
|
|
|
|
|
|
Wexford
Capital LP (12)
411
West Putnam Avenue
Greenwich,
CT 06830
|
|
|
2,681,952 |
|
|
|
9.87 |
% |
|
*
|
Represents less than
1%.
|
|
(1)
|
Assumes 27,085,824 shares of our
common stock are outstanding. Beneficial ownership is determined in
accordance with Rule 13d-3 under the Exchange Act, and includes any shares
as to which the security or stockholder has sole or shared voting power or
investment power, and also any shares which the security or stockholder
has the right to acquire within 60 days of March 1, 2010, whether through
the exercise or conversion of any stock option, convertible security,
warrant or other right. The indication herein that shares are beneficially
owned is not an admission on the part of the security or stockholder that
he, she or it is a direct or indirect beneficial owner of those
shares.
|
|
(2)
|
Consists
of (i) 76,935 shares and warrants to purchase an additional 4,210 shares
held by Leumi Overseas Trust Corp. Ltd. as Trustee of the BTL Trust, (ii)
64,800 shares and warrants to purchase an additional 64,800 shares held by
the Belldegrun Family Trust, (iii) 243,200 shares and warrants to purchase
an additional 243,200 shares held by the Arie S. Belldegrun M.D. Inc.
Profit Sharing Plan, (iv) 292,000 shares and warrants to purchase an
additional 292,000 shares held by Leumi Overseas Trust Corp. Ltd. as
Trustee of the Tampere Trust, and (v) 34,485 shares held by Bellco
Capital, LLC. Dr. Belldegrun disclaims beneficial ownership of
the shares and warrants held by Leumi Overseas Trust Corp. Ltd. as Trustee
of each of the BTL Trust and the Tampere Trust, except to the extent of
his beneficiary interest
therein.
|
|
(3)
|
Includes (i) 526,216 shares
issuable upon the exercise of stock options, (ii) 3,952 shares issuable
upon the exercise of warrants, (iii) 10,200 shares held by Mr. Evans’
wife, and (iv) 400 shares held by Mr. Evans’ wife as custodian for
the benefit of their minor children under the
UGMA.
|
|
(4)
|
Includes
75,000 shares issuable upon the exercise of stock
options.
|
|
(5)
|
Includes (i) 75,000 shares
issuable upon the exercise of stock options, (ii) 224,866 shares issuable
upon the exercise of warrants, and (iii) 165,530 shares held by the Kash
Family Foundation. Also includes 496,589 shares held by Mr. Kash’s
wife as custodian for the benefit of their minor children under the UGMA,
to which Mr. Kash disclaims beneficial ownership except to the extent of
his pecuniary interest
therein.
|
|
(6)
|
Includes (i) 58,333 shares
issuable upon the exercise of stock options, (ii) 229,278 shares issuable
upon the exercise of warrants, (iii) 613,841 shares held by the Kazam
Family Trust, and (iv) 165,530 shares held by the Kash Family
Foundation. Also includes 165,530 shares held by
Mr. Kazam’s wife as custodian for the benefit of their minor daughter
under the UGMA, to which Mr. Kazam disclaims beneficial ownership except
to the extent of his pecuniary interest therein. Mr. Kazam is
the trustee and controls the right to vote and dispose of, but has no
pecuniary interest in, the shares held by the Kash Family
Foundation.
|
|
(7)
|
Includes 258,047 shares issuable
upon the exercise of stock
options.
|
|
(8)
|
Consists of 200,000 shares and
warrants to purchase an additional 200,000 shares held by Calmedica
Capital L.P., a limited partnership of which Dr. Litvack is a limited
partner. Dr. Litvack disclaims beneficial ownership of these
shares and warrants except to the extent of his pecuniary interest
therein.
|
|
(9)
|
Includes 75,000 shares issuable
upon the exercise of stock
options.
|
|
(10)
|
Includes 1,232,054 shares
issuable upon the exercise of stock options and 400 shares held by
Mr. Strumph’s wife as custodian for the benefit of their minor
children under the Uniform Gift to Minors Act
(UGMA).
|
|
(11)
|
Includes 140,000 shares issuable
upon the exercise of stock options and 31,650 shares issuable upon the
exercise of warrants. Also includes 137,941 shares held by
Mr. Tanen’s wife as custodian for the benefit of their minor daughter
under the UGMA, to which Mr. Tanen disclaims beneficial ownership except
to the extent of his pecuniary interest therein. Mr. Tanen was
a director of the Company from its inception until September
2009.
|
|
(12)
|
Includes (i) 1,910,103 shares
held by Iota Investors LLC, a Delaware limited liability company (“Iota
Investors”), (ii) five year warrants to purchase 16,841 shares at an
exercise price of $2.71 per share held by Iota Investors, and (iii)
696,675 shares held by Wexford Spectrum Investors LLC, a Delaware limited
liability company (“Wexford Spectrum”). Wexford Capital LP, a Delaware
limited partnership (“Wexford Capital”), is a registered Investment
Advisor and also serves as an investment advisor or sub-advisor to the
members of Iota Investors and Wexford Spectrum. Wexford GP LLC,
a Delaware limited liability company (“Wexford GP”), is the general
partner of Wexford Capital. Mr. Charles E. Davidson is
chairman, a managing member and a controlling member of Wexford GP and Mr.
Joseph M. Jacobs is president, a managing member and a controlling member
of Wexford GP. Beneficial ownership also includes 58,333 shares
issuable upon the exercise of stock options that have been assigned to
Wexford Capital by Mr. Mieyal, a director of Nile and vice president of
Wexford Capital.
|
Securities
Authorized for Issuance Under Equity Compensation Plans
Our 2005
Stock Option Plan, which is currently our only equity compensation
plan, has been approved by our stockholders. The following table sets forth
certain information as of December 31, 2009 with respect to our 2005 Stock
Option Plan:
|
|
|
Number of
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
Securities to be
|
|
|
|
|
|
Remaining Available for
|
|
|
|
|
Issued Upon
|
|
|
Weighted-
Average
|
|
|
Future Issuance Under
|
|
|
|
|
Exercise of
|
|
|
Exercise Price
|
|
|
Equity Compensation
|
|
|
|
|
Outstanding
|
|
|
of Outstanding
|
|
|
Plans (Excluding
|
|
|
|
|
Options
|
|
|
Options
|
|
|
Securities Reflected in Column
|
|
|
Plan category
|
|
(A)
|
|
|
(B)
|
|
|
(A))
|
|
|
Equity compensation plans
approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated 2005 Stock Option Plan
|
|
|
4,441,402 |
|
|
$ |
2.22 |
|
|
|
836,249 |
|
|
Equity
compensation plans not approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None.
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total
|
|
|
4,441,402 |
|
|
$ |
2.22 |
|
|
|
836,249 |
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Certain
Relationships and Related Transactions
On June
24, 2009, we entered into a services agreement with Two River Consulting, LLC,
or TRC, to provide us with various clinical development, operational and
administrative services for a period of one year. As compensation for such
services, we will pay to TRC a monthly cash fee of $65,000 and we issued stock
options to purchase up to an aggregate of 750,000 shares of our common stock at
a price per share equal to $0.89, the closing sale price of our common stock on
June 24, 2009. Shares relating to 25% of this option vested immediately and the
remaining shares will vest pursuant to the achievement of certain milestones
relating to the development of CD-NP. In February 2010, an additional 318,750
shares subject to this option vested and 56,250 shares subject to the option
were forfeited. As of March 1, 2010, an additional 187,500 shares
currently remain unvested and will vest pursuant to the achievement of a final
clinical development milestone. Instead of issuing the stock option
to TRC, at TRC’s direction, the options were issued to designated employees of
TRC who are engaged in performing the services under the services
agreement.
Joshua A. Kazam, our President &
Chief Executive Officer and director, Arie S. Belldegrun, a current director,
and David M. Tanen, a director of the Company until September 2009, are the
principal owners of TRC. None of Messrs. Kazam and Tanen and Dr.
Belldegrun received any of the stock options issued by us pursuant to the
services agreement. The terms of the services agreement with TRC were reviewed
and approved by a special committee of our Board of Directors consisting of
Pedro Granadillo, Paul Mieyal and Greg Schafer. None of the members of the
special committee has any interest in TRC or the agreement.
In connection with our July 2009
private placement, we engaged Riverbank Capital Securities, Inc., or Riverbank,
a FINRA member broker dealer, to serve as our placement agent. Riverbank was not
paid a cash commission for its services in connection with the financing.
However, we issued Riverbank (or its designees) warrants to purchase 218,300
shares of our common stock. The warrants issued to Riverbank have an exercise
price of $1.375, which is equal to 110% of the closing price of the units sold
to investors, and have a cashless (net) exercise provision. We also paid
Riverbank an expense allowance of $50,000 to cover expenses incurred during the
financing.
Each of Messrs. Kazam, Tanen and Peter
M. Kash, also a member of our board of directors, are officers of and
collectively control Riverbank. The selection of Riverbank as placement agent
and the terms of the engagement were reviewed and approved by a special
committee of our Board consisting of Pedro Granadillo, Paul Mieyal and Gregory
Schaefer, none of whom has any interest or other relationship in Riverbank or
its affiliates. .
Director
Independence
The listing standards of the Nasdaq
Stock Market require that a majority of the members of a listed company’s board
of directors must qualify as “independent,” as determined by the board. Our
Board of Directors consults with our legal counsel to ensure that the Board’s
determinations are consistent with all relevant securities and other laws and
regulations regarding the definition of “independent,” including those set forth
in the applicable Nasdaq listing standards. Consistent with these
considerations, and after review of all relevant transactions or relationships
between each director, or any of his family members, and Nile, its senior
management and its independent registered public accounting firm, the Board has
determined that Messrs. Granadillo, Kash and Schafer and Drs. Litvack and Mieyal
are independent directors within the meaning of the applicable Nasdaq listing
standards.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Fees
Billed to the Company by Its Independent Registered Public Accounting
Firm
The following is a summary of the
fees billed to us by Hays & Company LLP and Crowe Horwath LLP, our
independent registered public accounting firms for professional services
rendered for fiscal years ended December 31, 2009 and 2008:
|
|
|
Fiscal Year Ended
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
| |
|
|
|
|
|
|
|
|
|
Audit
Fees
|
|
$ |
112,100 |
|
|
$ |
108,351 |
|
| |
|
|
|
|
|
|
|
|
|
Audit-Related
Fees
|
|
|
0 |
|
|
|
5,528 |
|
| |
|
|
|
|
|
|
|
|
|
Tax
Fees
|
|
|
6,000 |
|
|
|
6,000 |
|
| |
|
|
|
|
|
|
|
|
|
All
Other Fees
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Fees
|
|
$ |
118,100 |
|
|
$ |
119,879 |
|
In the above table, in accordance
with the SEC’s definitions and rules, “audit fees” are fees for professional
services for the audit and review of our annual financial statements, as well as
the audit and review of our financial statements included in our registration
statements filed under the Securities Act and issuance of consents and for
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements except those not required by
statute or regulation; “audit-related fees” are fees for assurance and related
services that were reasonably related to the performance of the audit or review
of our financial statements, including attestation services that are not
required by statute or regulation, due diligence and services related to
acquisitions; “tax fees” are fees for tax compliance, tax advice and tax
planning; and “all other fees” are fees for any services not included in the
first three categories.
Audit
Committee Pre-Approval Process
Pursuant to our Audit Committee Charter,
before the independent registered public accounting firm is engaged by the
Company or its subsidiaries to render audit or non-audit services, the Audit
Committee pre-approves the engagement. Audit Committee pre-approval of audit and
non-audit services is not required if the engagement for the services is entered
into pursuant to pre-approval policies and procedures established by the Audit
Committee regarding the Company’s engagement of the independent registered
public accounting firm, provided the policies and procedures are detailed as to
the particular service, the Audit Committee is informed of each service provided
and such policies and procedures do not include delegation of the Audit
Committee’s responsibilities under the Exchange Act to the Company’s management.
The Audit Committee may delegate to one or more designated members of the Audit
Committee the authority to grant pre-approvals, provided such approvals are
presented to the Audit Committee at a subsequent meeting. If the Audit Committee
elects to establish pre-approval policies and procedures regarding non-audit
services, the Audit Committee must be informed of each non-audit service
provided by the independent registered public accounting firm. Audit Committee
pre-approval of non-audit services (other than review and attest services) also
is not be required if such services fall within available exceptions established
by the SEC. None of the services provided by our independent
registered public accounting firm for fiscal 2008 or 2009 were obtained in
reliance on the waiver of the pre-approval requirement afforded in SEC
regulations.
PART IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
|
|
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, by and among SMI Products, Inc., Nile Merger Sub,
Inc., and Nile Therapeutics, Inc. dated as of August 15, 2007
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K filed August 17, 2007).
|
|
|
|
|
3.1
|
|
Certificate
of Incorporation of SMI Products, Inc. (incorporated by reference to
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 9,
2007).
|
|
|
|
|
3.2
|
|
Bylaws
of SMI Products, Inc. (incorporated by reference to Exhibit 3.2 to the
Company’s Current Report on Form 8-K filed February 9,
2007).
|
|
|
|
|
4.1
|
|
Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed September 21,
2007).
|
|
|
|
|
4.2
|
|
Form
of Nile Therapeutics, Inc. Common Stock Purchase Warrant (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed September 21, 2007).
|
|
|
|
|
4.3
|
|
Form
of Warrant issued to investors in July 2009 private placement
(incorporated by reference to Exhibit 4.1 to the Company’s Registration
Statement on Form S-3 filed August 13, 2009).
|
|
|
|
|
|
4.4
|
|
Form
of Warrant issued to placement agent in July 2009 private placement
(incorporated by reference to Exhibit 4.2 to the Company’s Registration
Statement on Form S-3 filed August 13, 2009).
|
|
|
|
|
|
10.1
|
|
Employment
Agreement between Nile Therapeutics, Inc. and Daron Evans dated January
19, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed September 21, 2007).*
|
|
|
|
|
10.2
|
|
Amendment
No. 1 to Employment Agreement between Nile Therapeutics, Inc. and Daron
Evans dated August 19, 2007 (incorporated by reference to Exhibit 10.4 to
the Company’s Current Report on Form 8-K filed September 21,
2007).*
|
|
|
|
|
10.3
|
|
Amendment
of Employment Agreement, by and between Nile Therapeutics, Inc. and Daron
Evans, dated March 4, 2008 (incorporated by reference to Exhibit 10.3 to
the Company’s Current Report on Form 8-K filed March 5,
2008).*
|
|
|
|
|
10.4
|
|
Amendment
of Incentive Stock Option Agreement, by and between Nile Therapeutics,
Inc. and Daron Evans, dated March 4, 2008 (incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed March 5,
2008).*
|
|
|
|
|
10.5
|
|
Letter
Agreement between Nile Therapeutics, Inc. and Jennifer L. Hodge, dated
August 31, 2007 (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K filed September 21,
2007).*
|
|
|
|
|
10.6
|
|
Offer
Letter between the Company and Hsiao Dee Lieu, M.D., F.A.C.C. entered into
on February 22, 2008 (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed February 27,
2008).*
|
|
|
|
|
10.7
|
|
License
Agreement between the Company and Mayo Foundation for Medical Education
and Research, dated January 20, 2006 (incorporated by reference to Exhibit
10.6 to the Company’s Current Report on Form 8-K filed September 21,
2007).+
|
|
|
|
|
10.8
|
|
Amended
and Restated 2005 Stock Option Plan (incorporated by reference to Exhibit
10.9 to the Company’s Current Report on Form 8-K filed September 21,
2007).*
|
|
|
|
|
10.9
|
|
Form
of Stock Option Agreement (incorporated by reference to Exhibit 10.10 to
the Company’s Current Report on Form 8-K filed September 21,
2007).*
|
|
|
|
|
10.10
|
|
Form
of Incentive Stock Option Agreement (incorporated by reference to Exhibit
10.11 to the Company’s Current Report on Form 8-K filed September 21,
2007).*
|
|
|
|
|
10.11
|
|
Amendment
to Offer Letter, dated as of March 10, 2009, by and between Nile
Therapeutics, Inc. and Hsiao D. Lieu, M.D., F.A.C.C. (incorporated by
reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K
filed March 12, 2009).*
|
|
10.12
|
|
Technology
License Agreement between the Company and Mayo Foundation for Medical
Education and Research, effective as of June 17, 2008 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed August 14, 2008).+
|
|
Exhibit No.
|
|
Description
|
| |
|
|
|
10.13
|
|
Separation
Agreement and General Release between the Company and Peter M. Strumph
dated June 10, 2009 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed June 12,
2009).*
|
|
|
|
|
|
10.14
|
|
Form
of Indemnification Agreement entered into between the Company and each of
its executive officers and directors.*
|
|
|
|
|
|
10.15
|
|
Form
of Securities Purchase Agreement entered into among the Company and
various accredited investors on July 7, 2009 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 13,
2009).
|
|
|
|
|
|
10.16
|
|
Summary
terms of compensation plan for directors of Nile Therapeutics, Inc., as
adopted July 21, 2009 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed July 24,
2009).*
|
|
|
|
|
|
10.17
|
|
Services
Agreement dated June 24, 2009 between Nile Therapeutics, Inc. and Two
River Consulting, LLC (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed August 13,
2009).
|
|
|
|
|
|
23.1
|
|
Consent
of Crowe Horwath LLP.
|
| |
|
|
| 23.2 |
|
Consent
of Hays and Company LLP. |
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer.
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer.
|
|
|
|
|
32.1
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.2
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
+
|
Confidential treatment has been
granted as to certain omitted portions of this exhibit pursuant to Rule
24b-2 of the Exchange Act.
|
|
*
|
Indicates a management contract
or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on March 3, 2010.
|
NILE
THERAPEUTICS, INC.
|
|
|
|
|
|
By:
|
|
/s/ Joshua Kazam
|
|
|
|
Joshua
Kazam
Chief
Executive Officer
|
KNOW ALL
MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Nile
Therapeutics, Inc., hereby severally constitute Joshua Kazam and Daron Evans,
and each of them singly, our true and lawful attorneys with full power to them,
and each of them singly, to sign for us and in our names in the capacities
indicated below, the Form 10-K filed herewith and any and all amendments to said
Form 10-K, and generally to do all such things in our names and in our
capacities as officers and directors to enable Nile Therapeutics, Inc. to comply
with the provisions of the Securities Exchange Act of 1934, and all requirements
of the U.S. Securities and Exchange Commission, hereby ratifying and confirming
our signatures as they may be signed by our said attorneys, or any of them, to
said Form 10-K and any and all amendments thereto.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Joshua Kazam
|
|
Chief Executive Officer and Director
|
|
March 3, 2010
|
|
Joshua Kazam
|
|
(Principal Executive Officer)
|
|
|
| |
|
|
|
|
|
/s/ Daron Evans
|
|
Chief Financial Officer
|
|
March 3, 2010
|
|
Daron Evans
|
|
(Principal Financial and Accounting Officer)
|
|
|
| |
|
|
|
|
|
/s/ Peter Kash
|
|
Chairman of the Board of Directors
|
|
March 3, 2010
|
|
Peter M. Kash
|
|
|
|
|
| |
|
|
|
|
|
/s/ Arie Belldegrun
|
|
Director
|
|
March 3, 2010
|
|
Arie Belldegrun, M.D.
|
|
|
|
|
| |
|
|
|
|
|
/s/ Pedro Granadillo
|
|
Director
|
|
March 3, 2010
|
|
Pedro Granadillo
|
|
|
|
|
| |
|
|
|
|
|
/s/ Frank Litvack
|
|
Director
|
|
March 3, 2010
|
|
Frank Litvack, M.D.
|
|
|
|
|
| |
|
|
|
|
|
/s/ Paul Mieyal
|
|
Director
|
|
March 3, 2010
|
|
Paul A. Mieyal, Ph.D.
|
|
|
|
|
| |
|
|
|
|
|
/s/ Gregory Schafer
|
|
Director
|
|
March 3, 2010
|
|
Gregory W. Schafer
|
|
|
|
|
INDEX
OF EXHIBITS FILED WITH THIS REPORT
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10.14
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Form
of Indemnification Agreement entered into between the Company and each of
its executive officers and directors.
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23.1
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Consent
of Crowe Horwath LLP
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| 23.2 |
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Consent
of Hays and Company LLP |
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31.1
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Certification
of Chief Executive Officer.
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31.2
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Certification
of Principal Financial Officer.
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32.1
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Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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32.2
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Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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