Oragenics Inc 10-K for FY2023
Oragenics Inc (OGEN)
About this 10-K
Oragenics Inc filed this 10-K on March 29, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $37.65K
- down 71.4% from $131.52K a year earlier
- Net loss
- $20.66M
- compared with a net loss of $14.29M a year earlier
- Diluted EPS
- -$9.18
- compared with -$7.11 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended
| TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from__________ to ___________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) | |
| 34326 | ||
| (Address of Principal Executive Offices) | (Zip Code) | |
(Registrant’s Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
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 ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No
The
aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the registrant, was approximately $
As of March 26, 2024, there were shares of the registrant’s Common stock outstanding.
Note Regarding Reverse Stock Splits
On January 20, 2023, we filed an amendment to our Amended and Restated Articles of Incorporation with the Secretary of State of the State of Florida to effect a reverse split of our authorized, issued and outstanding common stock at a ratio of one for sixty. All historical share and per share amounts reflected in this report have been adjusted to reflect the reverse stock split.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS AND CERTAIN CONSIDERATIONS
This report, along with other documents that are publicly disseminated by us, contains or might contain forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included in this report and in any subsequent filings made by us with the Securities and Exchange Commission (the “SEC”) other than statements of historical fact, that address activities, events or developments that we or our management expect, believe or anticipate will or may occur in the future are forward-looking statements. These statements represent our reasonable judgment on the future based on various factors and using numerous assumptions and are subject to known and unknown risks, uncertainties and other factors that could cause our actual results and financial position to differ materially. We claim the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. Examples of forward-looking statements include: (i) projections of revenue, earnings, capital structure and other financial items, (ii) statements of our plans and objectives, (iii) statements of expected future economic performance, and (iv) assumptions underlying statements regarding us or our business. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as “believes,” “expects,” “estimates,” “may,” “will,” “should,” “could,” “seeks,” “plans,” “intends,” “anticipates” or “scheduled to” or the negatives of those terms, or other variations of those terms or comparable language, or by discussions of strategy or other intentions.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that could cause our actual results to be materially different from the forward-looking statements include the following risks and other factors discussed under the Item 1A “Risk Factors” in this Annual Report on Form 10-K. These factors include:
| ● | We have incurred significant operating losses since our inception and cannot assure you that we will generate revenues or achieve profitability; | |
| ● | We need to raise additional capital to continue to implement our business strategy and we may not be able to do so; | |
| ● | Our financial capacity and performance, including our ability to obtain funding, non-dilutive or otherwise, necessary to do the research, development, manufacture, and commercialization of any one or all of our product candidates; | |
| ● | Our ability to maintain our listing on the NYSE American and the trading market of our common stock; | |
| ● | The timing, progress and results of clinical trials of our product candidates; | |
| ● | Uncertainties regarding submission, approval and scope of filings for regulatory approval of our product candidates and our ability to obtain and maintain regulatory approvals for our product candidates for any indication; | |
| ● | Uncertainties regarding the potential benefits, activity, effectiveness and safety of our product candidates including as to administration, distribution and storage; | |
| ● | Uncertainties regarding the size of the patient populations, market acceptance and opportunity for and clinical utility of our product candidates, if approved for commercial use; | |
| ● | Our manufacturing capabilities and strategy, including the scalability and commercial viability of our manufacturing methods and processes, and those of our contractual partners; | |
| ● | Our ability to successfully commercialize our product candidates; | |
| ● | The potential benefits of, and our ability to maintain, our relationships and collaborations with the NIAID, the NIH, the NRC and other potential collaboration or strategic relationships; |
| i |
| ● | Uncertainties regarding our expenses, ongoing losses, future revenue, capital requirements; | |
| ● | Our ability to identify, recruit and retain key personnel and consultants; | |
| ● | Our ability to obtain, retain, protect, and enforce our intellectual property position for our product candidates, and the scope of such protection; | |
| ● | Our ability to advance the development of our new and existing product candidate under the timelines and in accord with the milestones projected; | |
| ● | Our need to comply with extensive and costly regulation by worldwide health authorities, who must approve our product candidates prior to substantial research and development and could restrict or delay the future commercialization of certain of our product candidates; | |
| ● | Our ability to successfully complete pre-clinical and clinical development of, and obtain regulatory approval of our product candidates and commercialize any approved products on our expected timeframes or at all; | |
| ● | The safety, efficacy, and benefits of our product candidates; | |
| ● | The effects of government regulation and regulatory developments, and our ability and the ability of the third parties with whom we engage to comply with applicable regulatory requirements; | |
| ● | The capacities and performance of our suppliers and manufacturers and other third parties over whom we have limited control; and | |
| ● | Our competitive position and the development of and projections relating to our competitors or our industry. |
We caution investors that actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to, those described above and in the Risk Factors section of this report. We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. Readers should not place undue reliance on forward-looking statements. Except as required by applicable law, we undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.
| ii |
PART I
ITEM 1. BUSINESS.
This description contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements as a result of certain of the risks set forth herein. We assume no obligation to update any forward-looking statements contained herein.
Overview
We are a development-stage company dedicated to the research and development of nasal delivery pharmaceutical medications in neurology and fighting infectious diseases. Our lead product ONP-002 is a fully synthetic, non-naturally occurring neurosteroid, is lipophilic, and can cross the blood-brain barrier to rapidly reduce swelling, oxidative stress and inflammation while restoring proper blood flow through gene amplification.
Our ONP-002 Neurology Asset for Brain Related Illness and Injury
Following our December 2023 acquisition of certain assets from Odyssey Health, Inc. (“Odyssey”) related to the segment of Odyssey’s business focused on developing medical products that treat brain related illnesses and diseases (the “Neurology Assets”) our lead product and focus is on the development and commercialization of ONP-002 for the treatment of mild traumatic brain injury (“mTBI” or “Concussion”).
ONP-002 to date has been shown to be stable up to 104 degrees for 18-months. The drug candidate is spray-dry manufactured into a powder and filled into the novel intranasal device. The drug is then administered through the nasal passage from the device. The novel intranasal device is lightweight and easy to use in the field.
We believe the proprietary powder formulation and intranasal administration allows for rapid and direct accessibility to the brain. The device is breath propelled and we expect it to allow patients to blow into the device which closes the soft palate in the back of the nasopharynx, preventing the flow of drug to the lungs or esophagus, minimizes system exposure and side effects, and easily crosses the blood brain barrier. This mechanism traps ONP-002 in the nasal cavity allowing for more abundant and faster drug availability in the traumatized brain.
Expected ONP-002 Product Development Timeline:
| Pre-clinical Animal Studies | Phase 1 | Phase 2a | Phase 2b | Phase 3 | ||||
| Complete | Complete | Estimated Q2/Q3 2024 start | Estimated Q4 2024 start | Estimated Q4 2026 start |
This product development plan is an estimate and is subject to change based on funding, technical risks and regulatory approvals.
Validation and Stability of ONP-002
A Certificate of Analysis (“COA”) was issued by the manufacturer of the drug, indicating that testing methods were standard and include appearance, identification by 1H NMR, identification by Mass Spectroscopy (MS), optical purity by HPLC, residual solvent analysis, elemental impurities, percent water, and residue on ignition. The manufacturer has shown both the specifications and the results, indicating that the material supplied passes all criteria. ONP-002 is supplied in pure form. As such, no excipients are present. Stability studies were performed by storing samples under carefully controlled conditions with respect to temperature and humidity. The stability testing protocol included storage at 25 °C± 2 °C at 60% relative humidity ± 5% relative humidity for 24 months and 40 °C± 2 °C at 75% relative humidity ± 5% for 18 months. Samples were pulled at the scheduled time and analyzed for appearance, purity, assay, optical purity, and water content. No changes in ONP-002 were seen.
| 1 |
Intellectual Property
Patents on ONP-002 have been filed and/or issued and a patent has been filed on the nasal delivery device as follows:
| ● | New chemical entity IP filing– USPTO pending, approved Europe and Canada |
| ○ | C-20 steroid compounds, composition and uses thereof to treat traumatic brain injury (TBI), including concussion. | |
| ○ | The invention relates to ONP-002 composition and methods of use thereof to treat, minimize and/or prevent traumatic brain injury (TBI), including severe TBI, moderate TBI, and mild TBI, including concussions. | |
| ○ | Patent expiration with max patent term extension – 9/17/2040 | |
| ○ | Patent expiration with no patent term extension – 9/17/2035 |
| ● | Method of intranasal delivery and device components – USPTO pending |
ONP-002 Pre-Clinical Trials
The drug has completed toxicology studies in rats and dogs. Those studies show that ONP-002 has a large safety margin of its predicted efficacious dose. In preclinical animal studies, the drug demonstrated rapid and broad biodistribution throughout the brain while simultaneously reducing swelling, inflammation, and oxidative stress, along with an excellent safety profile.
Results from the preclinical studies suggest that ONP-002 has an equivalent, and potentially superior, neuroprotective effect compared to related neurosteroids. The animals treated with the drug post-concussion showed positive behavioral outcomes using various testing platforms including improved memory and sensory-motor performance, and reduced depression/anxiety like behavior.
ONP-002 Induction of PXR
The induction of the human CYP450 enzymes, CYP2B6, and CYP3A4 by ONP-002, as measured by mRNA expression, was tested in human hepatocytes from 3 donors at 3 concentrations: 1 μM, 10 μM and 100 μM.. Results reflected that ONP-002 through the known PXR-mechanism produced a modest induction of CYP3A4, up to 17% of the positive control, and a greater induction of CYP2B6, of up to 59% of the positive control, both at a concentration of 100 μM. Past data reflected that ONP-001 (ent-Progesterone) and Progesterone induce the PXR receptor. Receptor binding studies have been performed showing neither ONP-001 or -002 activate the classical Progesterone Receptor.
ONP-002 Animal Studies
All surgical animals (male Sprague-Dawley rats approx. 250 grams) were anesthetized with an initial isoflurane induction for 4 min-the minimum time necessary to sedate the animal. The scalp was shaved and cleaned with isopropanol and betadine. During the stereotaxic surgery, anesthesia was maintained with isoflurane. A medial incision was made, and the scalp was pulled back over the medial frontal cortex. A 6-mm diameter craniotomy was performed exposing the brain tissue. An electrically controlled injury device using a 5 mm metal impactor was positioned over the exposed brain. An impact speed of 1.6 m/s at a 90-degree angle from vertical was used to produce an open head injury at a depth of 1mm to create a milder TBI. All treatments were given intranasal (IN) as a liquid solution with a micro atomizer. Vehicle for all administrations was 22.5% Hydroxy-Propyl-β-cyclodextrin (HPβCD).
Molecular Studies - Brain tissue was taken from the penumbral region of injury.
Cerebral Edema
In Figure 2, we show that ONP-002 reduces swelling in rats compared to vehicle-treated at 24-hrs after brain injury by measure of brain water content through speed-vacuum dehydration and tissue weight comparisons. ONP-002-treated (4mg/kg) and vehicle-treated were compared to sham which was set at zero. Local edema can occur after mTBI. Severe cerebral edema is associated with poor outcomes including increased mortality after mTBI with Second Impact Syndrome (2). *Denotes significance at p<0.05, n=6
| 2 |
Figure 2
Inflammation
mTBI causes vascular and neuronal stress. Microglia and reactive astrocytes infiltrate the areas of injury and release inflammatory mediators, like TNF-alpha. We show that ONP-002 (4mg/kg) reduces TNF-alpha-mediated neuroinflammation in brain tissue of rats compared to vehicle at 24-hrs after mTBI (ELISA).
Pharmacokinetics and Safety of IN ONP-002 in Dog
This pivotal GLP 14-day study used repeat dosing of ONP-002, 3X a day, approximately 4 hours apart, for 14 consecutive days at concentrations of 0, 3, 10 or 23 mg/mL at a volume of 1 mL/nostril to beagle dogs (both nostrils had drug administered). The IN treatment was given as a liquid solution using a micro atomizer using 22.5% HPβCD as the vehicle. IN ONP-002 dosing revealed that ONP-002 was well tolerated up to the highest dose of 23 mg/ml or 46mg in total per dosing. Clinical observations were limited to increased salivation in dogs which occurred in a dose-dependent manner. There were no effects on body weight, food consumption, ophthalmic parameters, clinical chemistry, haematology, or organ weights at any of the doses tested. Microscopic analysis revealed purulent exudates in the nasal turbinate and evidence of inflammatory infiltrates and fibrin deposition in the lungs. All of these events were classified as mild, reversed during the recovery period, and did not appear to show any dose dependency. Similar findings were evident in vehicle control treated dogs indicating the findings were vehicle related. The highest dose of 23 mg/ml was thus determined to be the NOAEL which is equivalent to a ONP-002 dose of 1.5mg/kg and 2.3mg/kg in male and female dogs, respectively. Testing shows the dose-dependent increase in plasma exposure of ONP-002 in male and female dogs following IN administration. Plasma exposure levels were similar in males and females and there did not appear to be any evidence of drug accumulation following multiple doses.
Cardiopulmonary Safety Pharmacology
The effect of ONP-002 on the human ether-a-go-go related gene (hERG) tail currents was assessed in a non-Good Laboratory Practice (GLP) study using manual whole-cell patch clamp. ONP-002 tested at a single concentration of 10 μM inhibited hERG tail currents by 42.6% (n=3). In order to achieve a safety factor of 30-fold between in vitro hERG IC50 and free plasma levels of ONP-002 in clinical studies, Cmax should not exceed a free drug concentration of 0.33 μM (99 ng/ml). ONP-002 is 97.2% human plasma protein bound and is estimated to reach a plasma Cmax of 12.5 nM, the highest dose of 0.533 mg/kg to be administered in the planned first in human (FIH) study, which provides a safety factor of 800-fold. A GLP study is planned at Charles River, Inc. and will be performed prior to IND submission.
ONP-002 Clinical Trials
ONP-002 has completed a Phase 1 clinical trial in healthy human subjects showing it is safe and well tolerated.
| 3 |
Safety studies have established a dosing regimen of 2X/day for fourteen days. The Phase I clinical trial was performed in Melbourne, Australia with a Contract Research Organization (CRO), Avance Clinical Pty Ltd and Nucleus Network Pty Ltd. The country of Australia provides a currency exchange advantage and a tax rebate at the end of our fiscal year from the Australian government on all Research and Development performed in Australia.
The Phase 1 study was double-blinded, randomized and placebo controlled (3:1, drug:placebo). Phase 1 used a Single Ascending/Multiple Ascending (SAD/MAD) drug administration design. The SAD component was a 1X treatment (low, medium, or high dose) and the MAD component was a 1X/day treatment for five consecutive days (low and medium dose). Blood and urine samples were collected at multiple time points for safety pharmacokinetics. Standard safety monitoring was provided for each body system.
Forty human subjects (31 males, 9 females) were successfully enrolled in Phase I. The Safety Review Board, made up of medical doctors, has reviewed the trial data and has determined the drug is safe and well tolerated at all dosing levels.
We anticipate preparing for Phase 2 clinical trials to further evaluate ONP-002’s safety and efficacy. Based on the Phase I data, we plan to apply for an Investigational New Drug application with the FDA and conduct a Phase II trial in the United States.
We anticipate a Phase 2 clinical trial will be performed administering ONP-002 intranasally in concussed patients 2x a day for up to fourteen days. The Phase 2a feasibility study is expected to be performed in Australia with a target initiation date in the second or third quarter of 2024 to be followed closely by a Phase 2b proof of concept study in the US.
Our SARS-CoV-2 Vaccine Product Candidate – NT-CoV2-1
Prior to the purchase of the Neurology Assets, starting in May 2020 with the acquisition of one hundred percent (100%) of the total issued and outstanding common stock of Noachis Terra, Inc. (“Noachis Terra”) and through December 31, 2023, we were focused on the development and commercialization of a vaccine produce candidate to provide long-lasting immunity from SARS-CoV-2, which causes COVID-19. During that time, we conducted testing in animal models, including SARS-CoV-2 challenge studies in hamsters, using specific formulations for intramuscular administration and intranasal administration, both based on the NIAID pre-fusion stabilized spike protein antigens.
In June of 2021 we initiated an immunogenicity study in mice and on August 30, 2021, we announced the successful completion of the mouse studies that supported further development using either intramuscular or intranasal routes of administration. In September of 2021 we initiated a hamster challenge to assess inhibition of viral replication using adjuvants specific for intramuscular and intranasal administration. In December of 2021, we announced that both formulations generated robust immune responses and reduced the SARS-CoV-2 viral loads to undetectable levels in the nasal passages and lungs five days following a viral challenge. On June 14, 2022, we announced that the results of these studies were published in Nature Scientific Reports.
In March of 2022, following a positive assessment of a rabbit-based pilot study, we initiated a Good Laboratory Practice toxicology study to evaluate the safety profile and immunogenicity of NT-CoV2-1 in rabbits. This preclinical study was designed to provide data required to advance our intranasal vaccine candidate into human clinical studies.
Following the successful results of the animal studies previously referenced and a Type B Pre-IND Meeting with the FDA we determined to focus our development efforts and financial resources on the intranasal delivery vaccine produce candidate, NT-CoV2-1. As part of this intranasal development focus, during 2023 we entered into strategic license agreements and announced an award of a grant from CQDM.
However, due to lack of financial resources our research and development activities for our NT-CoV2-1 vaccine product were suspended as of December 31, 2023, and are not currently active. We will continue to evaluate opportunities and funding resources for our SARS-CoV-2 and NT-CoV2-1 candidate products in the future of which there can be no assurances. These opportunities and funding resources could include, without limitation, sublicensing agreements, joint ventures or partnerships, sales or licensing of technology, government grants and public or private financings, through the sale of debt or equity securities or by securing a line of credit or other loan. There can be no assurances that we will be able to secure any such opportunity or funding.
| 4 |
Our Lantibiotic Product Candidate
Members of our scientific team discovered that a certain bacterial strain of Streptococcus mutans, produces Mutacin 1140 (MU1140), a molecule belonging to the novel class of antibiotics known as lantibiotics. Lantibiotics, such as MU1140, are highly modified peptide antibiotics made by a small group of Gram-positive bacterial species. Over 60 lantibiotics have been discovered, to date. We believe lantibiotics are generally recognized by the scientific community to be potent antibiotic agents.
In nonclinical testing, MU1140 has shown activity against all Gram-positive bacteria against which it has been tested, including those responsible for a number of healthcare associated infections, or HAIs. A high percentage of hospital-acquired infections are caused by highly antibiotic-resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA) or multidrug-resistant Gram-negative bacteria. We believe the need for novel antibiotics is increasing because of the growing resistance of target pathogens to existing FDA approved antibiotics on the market.
Lantibiotics have been difficult to investigate for their clinical usefulness as therapeutic agents in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of these molecules. Traditional fermentation methods can only produce minute amounts of the lantibiotic.
While lantibiotics are promising, in 2023 we concluded we needed to make several changes to reduce the cash used in operations. In September of 2023, we terminated our lease for the building where some of the research and development activities for the lantibiotic program were undertaken. The closing of the laboratory was part of the continued focus on preserving cash resources while seeking additional funding through various mechanisms.
As of December 31, 2023, research and development activities related to the lantibiotic program are inactive. We will evaluate opportunities for the lantibiotic program; however, moving forward our focus is to strengthen our focus and expertise on developing our intranasal drug delivery platform and drug candidates that treat brain related illnesses and diseases.
Our Business Development Strategy
Success in the biopharmaceutical and product development industry relies on the continuous development of novel product candidates. Most product candidates do not make it past the clinical development stage, which forces companies to look externally for innovation. Accordingly, we expect, from time to time, to seek strategic opportunities through various forms of business development, which can include strategic alliances, licensing deals, joint ventures, collaborations, equity or debt-based investments, dispositions, mergers, and acquisitions. We view these business development activities as a necessary component of our strategies, and we seek to enhance shareholder value by evaluating business development opportunities both within and complementary to our current business, as well as opportunities that may be new and separate from the development of our existing product candidates. Consistent therewith, in December 2023 we acquired our Neurology Assets.
Our ONP-002
Market Opportunity
Currently, we are focused on expanding our nasal drug delivery platform to the treatment of neurological brain disorders, illnesses and injuries, or concussions. We believe concussion is a significant unmet need, and that, currently, there are no therapeutic treatments available for moderate to severe concussion. We further believe nasal delivery offers many advantages over standard systemic delivery systems, such as i) its non-invasive character, ii) fast onset of action, and iii) in most cases, reduced side effects due to a more targeted delivery.
| 5 |
Systemic approaches often fail to efficiently supply the central nervous system with drugs for the treatment of neurological disorders, which, we believe, presents a unique opportunity for intranasal drug delivery. The global nasal drug delivery technology market is projected to grow to $112 billion by 2030.
Our Growth Strategy
If the FDA clears or approves our product candidates to be marketed commercially, we intend to enter into agreements with industry partners or qualified distributors throughout the United States. We intend to pursue a similar approach will be pursued if our product candidates are cleared or approved for marketing outside of the United States. We intend to require such partners or distributors to pay us an initial license fee, as well as royalties based on gross sales. Retaining exclusivity is expected to be based on a mutually agreeable semi-annual or quarterly sales minimum. We also anticipate focusing on international growth because, generally, we believe such international license agreements provide a stronger path to revenue and earnings than purely domestic products.
Our objective is to eventually grow revenue through marketing and sales of ONP-002 if it gains regulatory approvals. Although no assurances can be given, management anticipates company growth from the following areas:
| 1) | Distribution or License Agreements. Once any of our products in development are approved by the appropriate regulatory agency, we hope to enter into distribution agreements with companies that have sales professionals with experience selling through a variety of sales methods. These distribution agreements should allow us to achieve sales and revenue more quickly in the medical products industries. |
| 2) | Identify and develop our products for additional proprietary uses. When funding allows, we intend to utilize our proprietary nasal delivery system to deliver other drugs to the brain to treat brain related medical issues. |
| 3) | The development and acquisition of new products. We intend to pursue the development and acquisition of other product candidates and market any new products, if cleared or approved. We intend, as capital resources permit, to develop such opportunities if and when they present themselves. |
| 4) | Seek partners to assist in the further development of our drug device combination products. We intend to seek partners to assist with the further development and clinical trials of ONP-002. Partnerships could be in the form of government grants or from industry pharmaceutical companies who have an interest in brain-related drug therapies. |
We currently have no products authorized for commercial distribution in the United States, Europe, or any other country. We have development programs for devices and pharmaceutical drugs, which are in various stages of development. Currently we are only funding the development of ONP-002 intended to treat concussion. Due to funding constraints and market conditions, our NT-CoV2-1 vaccine product and our antibiotic product candidate have been suspended. All of our products require regulatory clearance or approvals, and we cannot begin marketing and selling our product candidates until we obtain applicable authorizations from the respective regulatory agency.
Our License Agreements
Our Inspirevax License Agreement
On February 23, 2023, we entered into a Commercial License Agreement (the “License Agreement”) with Inspirevax Inc. (“Inspirevax”) for our vaccine product candidate. Pursuant to the License Agreement Inspirevax granted us an exclusive worldwide license to use Inspirevax’s inventions, patents, trade secrets, know-how, copyright, biological material, designs, and/or technical information created by or on behalf of Inspirevax (the “Inspirevax Technologies”) relating to its novel lipid-protein based intranasal adjuvants, to make, research, and develop an intra-nasal vaccine in combination with an antigen (“Combination Product”) to be used in an intranasal vaccine for use against diseases caused by coronaviruses and any genetic variants thereof to be sold by us.
| 6 |
As consideration for the grant of the license, we paid an upfront signing fee of $50,000. We will be subject to certain milestone payments as follows: (a) $75,000 upon our decision on an appropriate nasal spray device, (b) $100,000 upon a first patient being dosed in a phase 2a clinical trial, (c) $200,000 upon a first patient being dosed in a Phase 2b/3 clinical trial, (d) $800,000 upon a biologics License Application being submitted to the FDA, (e) $400,000 upon first filing of marketing authorization outside of the United States, and $200,000 for each such additional filing up to five filings, (f) $2,000,000 upon first commercial sale in the United States, (g) $1,000,000 upon first commercial sale in Europe, (h) $500,000 upon first commercial sale outside of United States and Europe and $250,000 for each other country or region up to five. Additionally, during the term we will pay Inspirevax a 7% royalty on net sales subject to certain gross revenue limitations at which time the royalty will decrease to 4%.
The Inspirevax License Agreement requires that we use our best efforts to develop a product using the Inspirevax technology including the following: (a) first subject enrollment in first clinical study by December 31, 2023, (b) the first subject enrolled in a Phase 2a study by September 30, 2024, (c) first subject enrolled in a phase 3 registration trial by December 31, 2026, and (d) first marketing approval application submitted by June 30, 2028.
Unless terminated earlier, the License Agreement will terminate the later of (i) twenty (20) years from the first commercial sale of a product, (ii) the last date a product is covered by a valid patent claim, or (iii) the expiration of regulatory exclusivity. We may terminate the License Agreement by giving thirty (30) days written notice to Inspirevax. Either party may terminate, if the other party defaults or is in breach of the License Agreement, provided that if the defaulting party cures the breach within sixty (60) days after the notice is given, the License Agreement shall continue in full force and effect. The License Agreement contains customary confidentiality obligations.
The companies formed a Joint Development Committee (JDC) comprising representatives of both companies to oversee the development efforts collaboratively. Additionally, the agreement provides a certain period of time for the companies to expand their collaboration to pursue the development of additional intranasal vaccine candidates using Inspirevax’s adjuvants.
We paid the upfront signing fee. However, none of the additional consideration milestones have been met, as of December 31, 2023, we have suspended all research and development activity for the COVID-19 vaccine candidate.
Government Regulations
In the United States, foods (including dietary supplements), drugs (including biological products), medical devices, cosmetics, tobacco products and radiation-emitting products are subject to extensive regulation by the FDA. The FDC Act and other federal and state statutes and regulations govern, among other things, the manufacture, distribution and sale of these products. These laws and regulations prescribe criminal and civil penalties that can be assessed, and violation of these laws and regulations can result in enforcement action by the FDA and other regulatory agencies.
FDA Regulation of Drugs-New Drug Approval Process
Pharmaceutical products are subject to extensive regulation by the FDA. The FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs or Biologics License Applications (“BLA “)s, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves the following steps before a biological product or new drug may be marketed in the United States:
| ● | pre-clinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s Good Laboratory Practice and Good Manufacturing Practice regulations; |
| ● | submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials may commence; |
| ● | performance of adequate and well-controlled clinical trials in three phases, as described below, to establish the safety and efficacy of the drug for each indication according to Good Clinical Practices; |
| 7 |
| ● | submission of an NDA or BLA to the FDA for review; |
| ● | random inspections of clinical sites to ensure validity of clinical safety and efficacy data; |
| ● | 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; |
| ● | FDA approval of the NDA or BLA; and |
| ● | payment of user and establishment fees, if applicable. |
Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Pre-clinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the IND to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board or IRB for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, after the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 clinical trial with other confirmatory evidence may be sufficient in rare instances where the trial is a large multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
| 8 |
The length of time and related costs necessary to complete clinical trials varies significantly and may be difficult to predict. Clinical trial results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. Additional factors that can cause delay or termination of our clinical trials, or cause the costs of these clinical trials to increase, include:
| ● | slow patient enrollment due to the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the trial, competition with clinical trials for other drug candidates or other factors; |
| ● | inadequately trained or insufficient personnel at the trial site to assist in overseeing and monitoring clinical trials; |
| ● | delays in approvals from a trial site’s IRB; |
| ● | longer than anticipated treatment time required to demonstrate effectiveness or determine the appropriate product dose; |
| ● | lack of sufficient supplies of the drug candidate for use in clinical trials; |
| ● | adverse medical events or side effects in treated patients; and |
| ● | lack of effectiveness of the drug candidate being tested. |
Any drug is likely to produce some toxicities or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for sufficiently long periods of time. Unacceptable toxicities or side effects may occur at any dose level, and at any time in the course of animal studies designed to identify unacceptable effects of a drug candidate, known as toxicological studies, or in clinical trials of our drug candidates. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our drug candidates and could ultimately prevent their marketing approval by the FDA or foreign regulatory authorities for any or all targeted indications.
The FDA’s fast track and breakthrough therapy designation programs are intended to facilitate the development and expedite the review of drug candidates intended for the treatment of serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs for these conditions. Under these programs, FDA can, for example, review portions of an NDA or BLA for a drug candidate before the entire application is complete, thus potentially beginning the review process at an earlier time.
We cannot guarantee that the FDA will grant any of our requests for fast track or breakthrough therapy designations, that any such designations would affect the time of review or that the FDA will approve the NDA or BLA submitted for any of our drug candidates, whether or not these designations are granted. Additionally, FDA approval of a fast track/breakthrough product can include restrictions on the product’s use or distribution (such as permitting use only for specified medical conditions or limiting distribution to physicians or facilities with special training or experience). Approval of such designated products can be conditioned on additional clinical trials after approval.
In addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.
After completion of the required clinical testing, an NDA or BLA is prepared and submitted to the FDA. FDA approval of the NDA or BLA is required before marketing of the product may begin in the U.S. The NDA or the BLA must include the results of all pre-clinical, clinical and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial.
| 9 |
The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be filed based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. If the NDA or BLA submission is filed, the FDA reviews the NDA or BLA to determine, among other things, whether the proposed product is safe and effective for its intended use. The FDA has agreed to certain performance goals in the review of NDAs or BLAs. Most such applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment or provide a treatment where no adequate therapy exists. For biologics, priority review is further limited to drugs intended to treat a serious or life-threatening disease relative to the currently approved products. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee – typically a panel that includes clinicians and other experts – for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMPs is satisfactory and the NDA or BLA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA or BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but is not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained, or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or BLA supplement before the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA or BLA supplements as it does in reviewing NDAs or BLAs.
The required testing, data collection, analysis and compilation of an IND and a BLA or NDA are labor intensive and costly and may take a great deal of time. Tests may have to be redone or new tests performed in order to comply with FDA requirements. It can take considerable time (e.g., 5-10 years) and resources to achieve enrollment sufficient to commence such trials and complete Phase 2 or 3 clinical trials. Moreover, there is no guarantee a product will be approved.
The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven-year exclusive marketing period in the United States for the orphan drug indication. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug, even though for the same indication, may also obtain approval in the United States during the seven-year exclusive marketing period.
| 10 |
Under the FDA Modernization Act of 1997, designation as a Fast-Track product for a new drug or biological product means that the FDA will take such actions as are appropriate to expedite the development and review of the application for approval of such product.
Legislation similar to the Orphan Drug Act has been enacted in other countries outside of the United States, including the EU. The orphan legislation in the EU is available for therapies addressing conditions that affect five or fewer out of 10,000 persons, are life-threatening or chronically debilitating conditions and for which no satisfactory treatment is authorized. The market exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence establishes that the product does not justify maintenance of market exclusivity.
Expedited Development and Review Programs
The FDA has the authority to facilitate and expedite the development and review of a drug through various programs, such as fast track designation, breakthrough therapy designation and priority review designation. Each program may be utilized by the FDA in the context of particular circumstances. For example, fast track designation would generally be used to facilitate the development and review of a drug that addresses an unmet medical need. Breakthrough therapy designation applies similarly in cases where a drug demonstrates substantial improvement over existing and available therapies. Priority review designation suggests the FDA will take action on an application within six months of filing.
Accelerated approval is also possible in the event a product treats a serious or life-threatening condition and provides a meaningful advantage over available therapies. Products in this category must also meet a number of additional requirements. While a product may qualify for one or more of the foregoing programs, the FDA reserves the right to later decide the product no longer qualifies or that the product is no longer subject to priority regarding its review or approval.
Emergency Use Authorization
The FDA also has the authority to grant an Emergency Use Authorization (“EUA”) to allow unapproved medical products to be used in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions when there are no adequate, approved, and available alternatives, as designated by the U.S. government. An EUA granted by the FDA would permit a drug candidate to be able to be distributed under the conditions set forth in the EUA prior to FDA approval. Furthermore, the FDA may revoke an EUA for a variety of reasons, including where it is determined that the underlying health emergency no longer exists or warrants such authorizations.
Pediatric Information
Under the Pediatric Research Equity Act, or PREA, NDAs, BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted, except a product with a new active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA submitted on or after August 18, 2020.
The Best Pharmaceuticals for Children Act, (“BPCA”), provides NDA holders a six-month extension of any exclusivity – patent or non-patent – for a drug if certain conditions are met. For BLAs, the BPCA provides a six-month extension for non-patent exclusivity if certain conditions are met. Conditions for exclusivity include the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
| 11 |
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
The Hatch-Waxman Amendments
Orange Book Listing
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant’s product or method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been received by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity
Exclusivity provisions under the FDC Act also can delay the submission or the approval of certain applications. The FDC Act provides a five-year period of non-patent exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity, or NCE. A drug is entitled to NCE exclusivity if it contains a drug substance with no active moiety of which has been previously approved by the FDA. During the exclusivity period, the FDA may not accept for review an ANDA or file a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph IV certification. The FDC Act also provides three years of market exclusivity for an NDA, including a 505(b)(2) NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions for use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs for the original conditions of use, such as the originally approved indication. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all the non-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
| 12 |
Patent Term Extension
After NDA approval, the owner of relevant drug patent may apply for up to a five-year patent term extension. Only one patent may be extended for each regulatory review period, which is composed of two parts: a testing phase, and an approval phase. The allowable patent term extension is calculated as half of the drug’s testing phase – the time between the day the IND becomes effective and NDA submission – and all of the review phase – the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years and only one patent may be extended.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The Director of the U.S. Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2), or 505(b)(2), NDA, which enables the applicant to rely, in part, on studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use, such as the FDA’s findings of safety and/or effectiveness for a similar previously approved product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicants can establish that reliance on the FDA’s previous approval is scientifically appropriate, it may eliminate the need to conduct certain pre-clinical or clinical trials of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Post-Approval Requirements
Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
| 13 |
Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA or BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered. In addition, prescription drug manufacturers in the United States must comply with applicable provisions of the Drug Supply Chain Security Act and provide and receive product tracing information, maintain appropriate licenses, ensure they only work with other properly licensed entities, and have procedures in place to identify and properly handle suspect and illegitimate products.
Failure to comply with the applicable FDA requirements may subject manufacturers and distributors to administrative or judicial sanctions. These sanctions could include, among other things, warning letters, product seizures, total or partial suspension of production or distribution, injunctions, civil money penalties, fines, restitution, disgorgement, or civil or criminal penalties. Further, the FDA has authority to issue mandatory recalls for medical devices and biologics, and we may need to undertake a voluntary recall for any of our products.
In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials and radioactive compounds.
Biologics
Biological products used for the prevention, treatment or cure of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of NDAs. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a BLA. However, the application process and requirements for approval of BLAs are very similar to those for NDAs, and biologics are associated with similar approval risks and costs as drugs. To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases in the US and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics, manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.
| 14 |
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity and potency. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical trial, absent a waiver by the Secretary. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. To date, only four biosimilar products and no interchangeable products have been approved under the BPCIA. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, particularly with respect to interchangeability, are still being evaluated by the FDA.
A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable biosimilar, (ii) eighteen months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) eighteen months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or (iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing within the 42-month period.
Regulation Outside the United States
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
Regulation and Marketing Authorization in the European Union
The process governing approval of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise, generally involves satisfactorily completing each of the following:
| ● | pre-clinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice regulations; |
| ● | submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved before human clinical trials may begin; |
| ● | performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication; |
| ● | submission to the relevant competent authorities of a marketing authorization application, or MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labeling; |
| ● | satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current cGMP; |
| ● | potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and |
| ● | review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product. |
| 15 |
Pre-clinical Studies
Pre-clinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the pre-clinical tests and formulation of the compounds for testing must comply with the relevant EU regulations and requirements. The results of the pre-clinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.
Clinical Trial Approval
Requirements for the conduct of clinical trials in the European Union including GCP are implemented in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of an EU member state in which a study is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.
In April 2014, the EU legislators passed the new Clinical Trials Regulation, (EU) No 536/2014, which replaced the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new EU clinical trials legislation was passed as a regulation that is directly applicable in all EU member states. All clinical trials performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until the new Clinical Trials Regulation (EU) No 536/2014 becomes applicable. According to the current plans of the European Medicines Agency, or EMA, the new Clinical Trials Regulation became applicable in 2019. The Clinical Trials Directive 2001/20/EC will, however, still apply three years from the date of entry into application of the Clinical Trials Regulation to (i) clinical trials applications submitted before the entry into application and (ii) clinical trials applications submitted within one year after the entry into application if the sponsor opts for old system.
The new Regulation (EU) No 536/2014 aims to simplify and streamline the approval of clinical trials in the European Union. The main characteristics of the regulation include:
| ● | A streamlined application procedure via a single-entry point, the EU portal. |
| ● | A single set of documents to be prepared and submitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately to various bodies and different member states. |
| ● | A harmonized procedure for the assessment of applications for clinical trials, which is divided into two parts. Part I is assessed jointly by all member states concerned. Part II is assessed separately by each member state concerned. |
| ● | Strictly defined deadlines for the assessment of clinical trial application. |
| ● | The involvement of the ethics committees in the assessment procedure in accordance with the national law of the member state concerned but within the overall timelines defined by the Regulation (EU) No 536/2014. |
| 16 |
Marketing Authorization
Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure, or a national procedure.
Centralized Authorization Procedure
The centralized procedure enables applicants to obtain a marketing authorization that is valid in all EU member states based on a single application. Certain medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 EU member states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.
Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for:
| ● | medicinal products developed by means of one of the following biotechnological processes: |
| ● | recombinant DNA technology; |
| ● | controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and |
| ● | hybridoma and monoclonal antibody methods; |
| ● | advanced therapy medicinal products as defined in Article 2 of Regulation (EC) No. 1394/2007 on advanced therapy medicinal products; |
| ● | medicinal products for human use containing a new active substance that, on the date of effectiveness of this regulation, was not authorized in the European Union, and for which the therapeutic indication is the treatment of any of the following diseases: |
| ● | acquired immune deficiency syndrome; |
| ● | cancer; |
| ● | neurodegenerative disorder; |
| ● | diabetes; |
| ● | auto-immune diseases and other immune dysfunctions; and |
| ● | viral diseases; |
| ● | medicinal products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000. |
The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients in the European Union.
| 17 |
Administrative Procedure
Under the centralized authorization procedure, the EMA’s Committee for Human Medicinal Products, or CHMP, serves as the scientific committee that renders opinions about the safety, efficacy, and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by each member state’s national authority for medicinal products, with an expert appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may be pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days, but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the E.U. member states, which in total can take more than 60 days.
Conditional Approval
In specific circumstances, EU legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
Marketing Authorization under Exceptional Circumstances
Under Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.
Market Authorizations Granted by Authorities of E.U. Member States
In general, if the centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:
| ● | The decentralized procedure allows applicants to file identical applications to several EU member states and receive simultaneous national approvals based on the recognition by EU member states of an assessment by a reference member state. |
| ● | The national procedure is only available for products intended to be authorized in a single EU member state. |
| ● | A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at least one E.U. member state. |
A marketing authorization may be granted only to an applicant established in the European Union.
| 18 |
Pediatric Studies
Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.
Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.
Periods of Authorization and Renewals
A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the EU market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).
Regulatory Data Protection
EU legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder, or MAH, obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical test, pre-clinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of ten years of orphan market exclusivity. Depending upon the timing and duration of the EU marketing authorization process, products may be eligible for up to five years’ supplementary protection certificates, or SPCs, pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.
| 19 |
Regulatory Requirements After a Marketing Authorization has been Obtained
If we obtain authorization for a medicinal product in the European Union, we will be required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:
Pharmacovigilance and other requirements
We will, for example, have to comply with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in accordance with good manufacturing practice standards. EU regulators may conduct inspections to verify our compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the European Union. Similarly, failure to comply with the EU’s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual EU member states may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.
Manufacturing
The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the EMA’s Good Manufacturing Practices, or GMP, requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its current GMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.
Marketing and Promotion
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.
Patent Term Extension
In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each E.U. member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “product” means the active ingredient or combination of active ingredients for a medicinal product and the term “patent” means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent’s filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.
A six-month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.
| 20 |
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.
There has been an increased focus on drug pricing in recent years in the United States. Although there are no direct government price controls over private sector purchases in the United States, there are rebates and other financial requirements for federal and state health care programs. The Medicare Modernization Act, enacted in December 2003, established the Medicare Part D outpatient prescription drug benefit, which is provided primarily through private entities that attempt to negotiate price concessions from pharmaceutical manufacturers. The health care reform legislation enacted in 2010, known as the Affordable Care Act, requires drug manufacturers to pay 50% of the Medicare Part D coverage gap, also known as the “donut hole,” on prescriptions for branded products filled when the beneficiary reaches this coverage. The Deficit Reduction Act of 2005 resulted in changes to the way drug prices are reported to the government and the formula using such information to calculate the required Medicaid rebates. The Affordable Care Act increased the minimum basic Medicaid rebate for branded prescription drugs from 15.1% to 23.1% and requires pharmaceutical manufacturers to pay states rebates on prescription drugs dispensed to Medicaid managed care enrollees. In addition, the Affordable Care Act increased the additional Medicaid rebate on “line extensions” (such as extended-release formulations) of solid oral dosage forms of branded products, revised the definition of average manufacturer price by changing the classes of purchasers included in the calculation, and expanded the entities eligible for discounted pricing under the federal 340B drug pricing program. Current orphan drugs are excluded from the expanded 340B hospitals eligible for discounts.
The Affordable Care Act imposes a significant annual fee on companies that manufacture or import branded prescription drug products. The fee (which is not deductible for federal income tax purposes) is based on the manufacturer’s market share of sales of branded drugs and biologics (excluding orphan drugs) to, or pursuant to coverage under, specified U. S. government programs. The Affordable Care Act also contains a number of provisions, including provisions governing the way that health care is financed by both governmental and private insurers, enrollment in federal health care programs, reimbursement changes, the increased use of comparative effectiveness research in health care decision-making, and enhancements to fraud and abuse requirements and enforcement, that are affecting existing government health care programs and will result in the development of new programs. The Affordable Care Act also contains requirements for manufacturers to publicly report certain payments or other transfers of value made to physicians and teaching hospitals. We are unable to predict the future course of federal or state health care legislation and regulations, including regulations that will be issued to implement provisions of the Affordable Care Act. The Affordable Care Act and further changes in the law or regulatory framework that reduce our revenues or increase our costs could also have a material adverse effect on our business, financial condition and results of operations and cash flows.
| 21 |
Public and private health care payers control costs and influence drug pricing through a variety of mechanisms, including through negotiating discounts with the manufacturers and through the use of tiered formularies and other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payers also set other criteria to govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. Payers may require physicians to seek approval from them before a product will be reimbursed or covered, commonly referred to as prior authorization. In particular, many public and private health care payers limit reimbursement and coverage to the uses of a drug that are either approved by the FDA or appear in a recognized drug compendium. Drug compendia are publications that summarize the available medical evidence for particular drug products and identify which uses of a drug are supported or not supported by the available evidence, whether or not such uses have been approved by the FDA. For example, in the case of Medicare Part D coverage for oncology drugs, the Medicare Modernization Act, with certain exceptions, provides for Medicare coverage of unapproved uses of an FDA-approved drug if the unapproved use is reasonable and necessary and is supported by one or more citations in CMS-approved compendia, such as the National Comprehensive Cancer Network Drugs and Biologics Compendium. Different pricing and reimbursement schemes exist in other countries. For example, in the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits and may limit or restrict reimbursement. The downward pressure on health care costs in general, and prescription drugs in particular, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified by the actions of the National Institute for Clinical Excellence in the United Kingdom, which evaluates the data supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports) exert a commercial pressure on pricing within a country.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of our drug candidate to currently available therapies (so called health technology assessment) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. E.U. member states may approve a specific price for a drug product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, there can be considerable pressure from governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various E.U. member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare Law and Regulation
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:
| ● | the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid; |
| ● | the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
| 22 |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
| ● | the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; |
| ● | the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and | |
| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers. |
An increasing number of states have enacted legislation requiring pharmaceutical and biotechnology companies to file periodic reports of expenses relating to the marketing and promotion of drug products and gifts and payments to individual healthcare practitioners in these states; to make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities; to report information pertaining to and justifying price increases; or to register their sales representatives. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals; price gouging; or pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing. In addition, states such as California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Environmental, Health and Safety Matters
The manufacturing facilities of the third-parties that develop our product candidates are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, governing, among other things: the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals, waste materials and sewage.
These laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation if, among other things, our operations result in contamination of the environment or breach of regulatory obligations or expose individuals to harm. If the third-party manufacturers fail to comply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and results of operations.
In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities that were previously permitted.
| 23 |
Competition
Our industry is subject to rapid and intense technological change. Competition is intense among manufacturers of nutritional, non-prescription, and prescription pharmaceuticals. We face, and will continue to face, competition from nutraceutical, pharmaceutical, biopharmaceutical, medical device and biotechnology companies developing similar products and technologies both in the United States and abroad, as well as numerous academic and research institutions, governmental agencies and private organizations engaged in drug funding or research and discovery activities both in the United States and abroad. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research and clinical development of technologies and products similar to ours. We also face competition from entities and healthcare providers using more traditional methods. We believe there are a substantial number of products under development by numerous nutraceutical, pharmaceutical, biopharmaceutical, medical device and biotechnology companies, and it is likely that other competitors will emerge.
Many of our existing and potential competitors are large, well-established pharmaceutical, chemical or healthcare companies with considerably greater research and product development capabilities and financial, scientific, marketing and human resources than we have. Large and established companies, such as Merck & Co., Inc., GlaxoSmithKline plc, CSL Ltd., Sanofi Pasteur, SA, Pfizer Inc., Johnson & Johnson, AstraZeneca, and Moderna, among others, compete in the same or similar markets. In particular, these companies have greater experience and expertise in securing government contracts and grants to support their research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, manufacturing such products on a broad scale and marketing approved products. As a result, these competitors may succeed in developing competing products earlier than we do; obtain patents that block or otherwise inhibit our ability to further develop and commercialize our product candidates; obtain approvals from the FDA or other regulatory agencies for products more rapidly than we do; or develop treatments or cures that are safer or more effective than those we propose to develop. These competitors may also devote greater resources to marketing or selling their products and may be better able to withstand price competition. In addition, these competitors may introduce or adapt more quickly to new technologies or scientific advances, which could render our technologies obsolete, and may introduce products or technologies that make the continued development, production, or marketing of our product candidates uneconomical. These competitors may also be more successful in negotiating third-party licensing or collaborative arrangements and may be able to take advantage of acquisitions or other strategic opportunities more readily than we can. These actions by competitors or potential competitors could materially affect our business, financial condition and results of operations. We cannot assure you that we will be able to compete successfully.
Regardless of the disease, smaller or early-stage companies and research institutions also may prove to be significant competitors, particularly through collaborative arrangements with large and established pharmaceutical companies. As these companies develop their technologies, they may develop proprietary positions, which may prevent or limit our product development and commercialization efforts. We will also face competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and participant registration for clinical trials and in acquiring and in-licensing technologies and products complementary to our programs or potentially advantageous to our business. If any of our competitors succeed in obtaining approval from the FDA or other regulatory authorities for their products sooner than we do or for products that are more effective or less costly than ours, our commercial opportunity could be significantly reduced.
We have a limited ability to predict how competitive our products and product candidates will be in the marketplace.
Our Intellectual Property
We rely upon a combination of licenses, patents, trade secrets, know-how, and licensing opportunities to develop our business. Our future prospects depend on our ability to protect our intellectual property. We also need to operate without infringing the proprietary rights of third parties.
Patents
We attempt to protect our technology and products through patents and patent applications. As part of the December 2023 acquisition of ONP-002 and related intellectual property, we acquired the following patents for ONP-002 which have been filed and/or issued and a patent has been filed on the nasal delivery device.
| 24 |
The list below outlines the ONP-002 and nasal delivery device patents.
Patent applications that concern ONP-002 and the nasal delivery device have been filed as follows:
| ● | New chemical entity patent filing concerning the C-20 Steroid compounds has been filed with the USPTO and is pending in the U.S. and approved in Europe and Canada. |
| ○ | C-20 steroid compounds, composition and uses thereof to treat traumatic brain injury (TBI), including concussion. | |
| ○ | Inventions relate to, inter alia, ONP-002 compositions, methods of use to treat, minimize and/or prevent traumatic brain injury (TBI), including severe TBI, moderate TBI, and mild TBI, including concussions, methods of manufacture and/or synthesis, products by process, and intermediates. | |
| ○ | An issued U.S. patent expiration with 5-year maximum patent term extension - 9/17/2040. | |
| ○ | An issued U.S. patent expiration without patent term extension - 9/17/2035. |
| ● | New nasal delivery device filing concerning the Breadth-Powered Nasal Devices has been filed with the USPTO as a utility patent application and with the USPTO PCT Receiving Office as a PCT application. |
| ○ | Breadth-Powered Nasal Devices for Treatment of Traumatic Brain Injury (TBI), Including Concussion, and Methods. | |
| ○ | Inventions relate to, inter alia, breadth-powered nasal devices, single-directional breath-powered nasal devices for providing dual airflow for propelling a drug substance into a nasal cavity for targeted delivery to the olfactory region in high drug substance concentration for rapid diffusion into the brain for the treatment of local or systemic and/or central nervous system (“CNS”) injury, disease or disorder, and methods of treating local or systemic and/or central nervous system (“CNS”) injury, disease or disorder with such devices. | |
| ○ | An issued U.S. patent expiration - 10/19/2042. |
The effect of issued patents is that they provide patent protection for the claims covered by the patents. While the expiration of a product patent normally results in a loss of market exclusivity for the covered product or product candidate, commercial benefits may continue to be derived from: (i) later-granted patents on processes and intermediates related to the most economical method of manufacture of the active ingredient of such product; (ii) patents relating to the use of such product; (iii) patents relating to novel compositions and formulations; and (iv) in the United States and certain other countries, market exclusivity that may be available under relevant law. The effect of patent expiration on products or product candidates also depends upon many other factors such as the nature of the market and the position of the product in it, the growth of the market, the complexities and economics of the process for manufacture of the active ingredient of the product and the requirements of new drug provisions of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in other countries.
We believe that the protection of discoveries in connection with our development activities, our proprietary products, technologies, processes and know-how and all of our intellectual property are important to our business. To achieve a competitive position, we rely on trade secrets, non-patented proprietary know-how and continuing technological innovation, where patent protection is not believed to be appropriate or attainable. In addition, as outlined above, we have a number of patent licenses from third parties, some of which may be important to our business. There can be no assurance that any of our patents, licenses or other intellectual property rights will afford us any protection from competition.
Trademarks
Our trademarks are important to our business. We currently use the following unregistered trademarks: SMaRT Replacement Therapy™, MU1140™, and LPT3-04™. In March 2022, the USPTO issued a Notice of Allowance in connection with our application for registration of the mark of ORAGENICS™ (therapeutic products; anti-infectives and vaccine products). Registration of the mark of ORAGENICS™ is pending, subject to our filing of a Statement of Use and the subsequent acceptance thereof by the USPTO. We also have rights to use other names essential to our business. Federally registered trademarks have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. We regard our trademarks and other proprietary rights as valuable assets and believe they have significant value to us.
Protection of Trade Secrets
We attempt to protect our trade secrets, including the processes, concepts, ideas and documentation associated with our technologies, through the use of confidentiality agreements and non-competition agreements with our current employees and with other parties to whom we have divulged such trade secrets. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that other third parties will not otherwise gain access to our trade secrets and other intellectual property. If our employees or other parties breach our confidentiality agreements and non-competition agreements or if these agreements are not sufficient to protect our technology or are found to be unenforceable, our competitors could acquire and use information that we consider to be our trade secrets and we may not be able to compete effectively. Most of our competitors have substantially greater financial, marketing, technical and manufacturing resources than we have and we may not be profitable if our competitors are also able to take advantage of our trade secrets.
| 25 |
We may find it necessary to initiate litigation to enforce our patent rights, to protect our intellectual property or to determine the scope and validity of the proprietary rights of others. Litigation is costly and time-consuming, and there can be no assurance that our litigation expenses will not be significant in the future or that we will prevail in any such litigation.
Human Capital
Employees
We have five full-time employees. We enjoy good relations with our employees. None of our employees are a member of any labor union, and we are not a party to any collective bargaining agreement.
Consultants
We have consulting agreements with a number of scientists, clinicians and regulatory experts. They serve as important contacts for us throughout the broader scientific and clinical communities. They are distinguished individuals with expertise in numerous fields, including vaccine development and regulatory matters.
We retain each consultant according to the terms of the consulting agreement. Under such agreements, we pay them a consulting fee and reimburse them for out-of-pocket expenses incurred in performing their services for us. In addition, some consultants hold options to purchase our common stock, subject to the vesting requirements contained in separate award agreements. Our consultants may be employed by other entities and therefore may have commitments to their employer or may have other consulting or advisory agreements that may limit their availability to us.
Corporate Information
We were incorporated in November 1996 and commenced operations in 1999. We consummated our initial public offering in June 2003. Our corporate office is located at 1990 Main Street Suite 750 Sarasota, Florida 34236.
Available Information
Our website is www.oragenics.com. On our website we make available at no cost our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as soon as reasonably practicable after we electronically file such material with, or furnish them to, the United States Securities and Exchange Commission (“SEC”). The information contained on our website is not a part of this annual report on Form 10-K.
ITEM 1A. RISK FACTORS.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below before making an investment decision in our securities. These risk factors are effective as of the date of this Form 10-K and shall be deemed to be modified or superseded to the extent that a statement contained in our future filings modifies or replaces such statement. All of these risks may impair our business operations. The forward-looking statements in this Form 10-K involve risks and uncertainties and actual results may differ materially from the results we discuss in the forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our stock could decline, and you may lose all or part of your investment.
| 26 |
Risk Factor Summary
The below summary of risk factors provides an overview of many of the risks we are exposed to in the normal course of our business activities. As a result, the below summary risks do not contain all of the information that may be important to you, and you should read the summary risks together with the more detailed discussion of risks set forth following this section as well as elsewhere in this Annual Report. Additional risks, beyond those summarized below or discussed elsewhere in this Annual Report, may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with the following:
| ● | We have incurred significant losses since our inception, have limited financial resources, do not generate any revenues and will need to raise additional capital in the future. |
| ● | We may not be able to secure additional funding. |
| ● | Our auditor has expressed substantial doubt about our ability to continue as a going concern. |
| ● | We have limited neurology-specific research, development, manufacturing, testing, regulatory, commercialization, sales, distribution, and marketing experience, and we may need to invest significant financial and management resources to establish these capabilities. |
| ● | None of our product candidates have been approved for sale and if we are unable to successfully develop our product candidates, we may not be able to continue as a going concern. |
| ● | Our product candidates, if approved, will face significant competition; many of our competitors have significantly greater resources and experience. |
| 27 |
| ● | Our ONP-002 concussion candidate may face competition from biosimilars approved through an abbreviated regulatory pathway. |
| ● | The market opportunities for our neurology product candidates may be smaller than we believe them to be and we cannot assure you that the market and consumers will accept our products or product candidates. |
| ● | If our manufacturers and suppliers fail to meet our requirements and the requirements of regulatory authorities, our research and development may be materially adversely affected. |
| ● | We rely on the significant experience and specialized expertise of our senior management and scientific team and the loss of any of our key personnel or our inability to successfully hire their successors could harm our business. |
| ● | If any of our product candidates are shown to be ineffective or harmful in humans, we will be unable to generate revenues from these product candidates. |
| ● | We might not be successful at acquiring, investing in or integrating businesses, entering into joint ventures or divesting businesses. |
| 28 |
| ● | Our concussion and neurology related research and development efforts are to a large extent dependent upon our intellectual property and biologicals materials licenses. |
| ● | We cannot prevent the Licensors or other companies, including our competitors, from licensing the same intellectual property and biological materials that we have licensed or from otherwise duplicating our business model and operations. |
| ● | If we fail to comply with our obligations under our intellectual property license agreements, we could lose our license rights that are important to our business and development of our product candidates. |
| ● | We may incur additional expenses and obligations in connection with our licenses. “Licenses Agreements”. |
| ● | We may not be able to protect our intellectual property and if we are unable to protect our trademarks or other intellectual property from infringement, our business prospects may be harmed. |
| ● | We may be subject to claims challenging the inventorship of our patents and other intellectual property rights. |
| ● | If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming and an unfavorable outcome in that litigation could have a material adverse effect on our business. |
| ● | Our success will depend on our ability to partner or sub-license our product candidates. |
| ● | Security breaches and other disruptions to our information technology systems or those of the vendors on whom we rely on could compromise our information and expose us to liability, reputational damage, or other costs. |
| 29 |
| ● | Our product candidates are subject to substantial government regulation. |
| ● | We may be unable to obtain regulatory approval for our product candidates under applicable regulatory requirements. |
| ● | Delays or difficulties in the enrollment of patients in clinical trials may result in additional costs and delays. |
| ● | Any product candidates that we commercialize will be subject to ongoing and continued regulatory review and we may also be subject to healthcare laws, regulation and enforcement. |
| ● | Our product candidates may cause serious or undesirable side effects. |
| ● | Our employees, independent contractors, principal investigators, consultants, vendors and CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. |
| ● | Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of health care payers, physician and patient adoption and use necessary for commercial success. |
| ● | We may not be able to satisfy the continued listing standards of the NYSE American and may be delisted from the NYSE American. |
| 30 |
| ● | The issuance of additional equity securities by us in the future will result in dilution and the conversion of our outstanding preferred stock will result in significant dilution. |
| ● | Our Series A and Series B preferred stock, if not converted into common stock, has a distribution and liquidation preference senior to our common stock in liquidation which could negatively affect the value of our common stock and impair our ability to raise additional capital. |
| ● | Certain provisions of our articles of incorporation, bylaws, executive employment agreements and stock option plan may prevent a change of control of our company that a shareholder may consider favorable. |
| ● | The price and volume of our common stock has been volatile and fluctuates substantially. |
| ● | The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified members for our Board of Directors. |
| ● | If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud, we previously identified a material weakness in our internal control over financial reporting, which has been remediated during the year ended December 31, 2023. |
Risks Related to Our Business
We have incurred significant losses since our inception and expect to continue to experience losses for the foreseeable future and may not be able to continue as a going concern.
We have incurred significant net losses and negative cash flow in each year since our inception, including net losses of approximately $21 million and $14 million for the years ended December 31, 2023, and 2022, respectively. As of December 31, 2023, our accumulated deficit was approximately $206 million. We have devoted a significant amount of our financial resources to research and development, including our nonclinical development activities and clinical trials. We expect that the costs associated with our plans to begin Phase 2 work on ONP-002 will be significant. Additionally, our License Agreements also require the payment of certain recurring and performance-based royalties that may negatively impact our financial capabilities. In addition, Ladenburg Thalmann has sent us an invoice and demand letter claiming it is owed $2,500,000 in connection with our purchase of the Neurology Assets (the “Ladenburg Claim”). We strongly disagree with such claim and have filed a confidential action for arbitration against Ladenburg through FINRA on March 12, 2024, seeking, among other things, a declaratory action ruling that no such fee is owed, the litigation expenses related thereto will put further strain on our limited resources. As a result, we expect to continue to incur substantial net losses and negative cash flow for the foreseeable future. These losses and negative cash flows have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. Because of the numerous risks and uncertainties associated with product development and commercialization, we are unable to accurately predict the timing or amount of substantial expenses or when, or if, we will be able to generate the revenue necessary to achieve or maintain profitability.
| 31 |
We will need to raise additional capital in the future to complete the development and commercialization of our product candidates and operate our business.
Developing and commercializing biopharmaceutical products, including Phase 2 work for our ONP-002 product candidate and conducting nonclinical studies and clinical trials and establishing manufacturing capabilities, and the progress of our efforts to develop and commercialize our product candidates, is expensive, and can cause us to use our limited, available capital resources faster than we currently anticipate. We anticipate that our estimated cash resources of approximately $3.5 million as of December 31, 2023, will be sufficient to fund our operations as presently structured through the second quarter of 2024. We are currently evaluating cost-saving initiatives, including restructuring that could allow further cash runway through 2024 to the extent such initiatives are undertaken but there can be no assurances we will be able to implement them. Our auditor has previously expressed substantial doubt about our ability to continue as a going concern and absent additional financing we may be unable to remain a going concern. Our actual costs may ultimately vary from our current expectations, which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations. Our current cash, cash equivalents and short-term investments are not sufficient to fully implement our business strategy and sustain our operations. Accordingly, we will need to seek additional sources of financing and such additional financing may not be available on favorable terms, if at all. 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 or government collaboration and licensing arrangements. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete existing nonclinical and planned clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities. We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure, and research and development activities. Specifically, we need to raise additional capital to, among other things:
| ● | Conduct Phase 2 clinical trials for our ONP-002 product candidate; | |
| ● | engage in GMP and non-GMP manufacturing for our product candidates at the preclinical research and clinical trial stages; | |
| ● | fund our clinical validation study activities; | |
| ● | expand our research and development activities; and | |
| ● | finance our capital expenditures and general and administrative expenses. |
Our present and future funding requirements will depend on many factors, including:
| ● | the level of research and development investment budgeted to develop our current and future product candidates through each phase of development; | |
| ● | the timing, scope, progress, results and cost of research and development, testing, screening, manufacturing, preclinical and non-clinical studies and clinical trials. | |
| ● | costs of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; | |
| ● | our need or decision to acquire or license complementary technologies or acquire complementary businesses; | |
| ● | changes in test development plans needed to address any difficulties in product candidate selection for commercialization; | |
| ● | competing neurological, vaccine and technological and market developments; | |
| ● | our interaction and relationship with the FDA, or other, regulatory agencies; and | |
| ● | changes in regulatory policies or laws that affect our operations. |
| 32 |
In addition, we have previously discontinued and could be forced to discontinue future product development and commercialization of one or more of our product candidates, curtail or forego sales and marketing efforts, and/or forego licensing attractive business opportunities.
Given our current cash position and significant uncertainties related to future funding opportunities and our 2023 financials, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that the financial statements included in this Annual Report were issued.
Our ability to fund our operations is dependent upon funding from grants and/or equity financing. New financing may not be available to us on commercially acceptable terms, or at all. The Ladenburg Claim may make it more difficult to obtain financing. Also, any collaborations, strategic alliances, and marketing, distribution, or licensing arrangements may require us to give up some or all of our rights to a product candidate, which in some cases may be at less than the full potential value of such rights. In addition, the regulatory and commercial success of our product candidates remains uncertain. If we are unable to obtain additional capital, we will assess our capital resources and may be required to delay, pivot, reduce the scope of, or eliminate some or all of our operations, or downsize our organization, any of which may have a material adverse effect on our business, financial condition, results of operations, and ability to operate as a going concern.
Our management believes that, given the significance of these uncertainties, substantial doubt exists regarding our ability to continue as a going concern through one year from the date that these financials statements are issued.
Our auditor has expressed substantial doubt about our ability to continue as a going concern and absent additional financing we may be unable to remain a going concern.
In light of our recurring losses, accumulated deficit and negative cash flow as described in our notes to our audited consolidated financial statements, the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2023, contained an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. Our financial statements did not include any adjustments that may have been necessary in the event we were unable to continue as a going concern. If we are unable to establish to the satisfaction of our independent registered public accounting firm that the net proceeds from our financing efforts will be sufficient to allow for the removal of this going concern qualification, we may need to significantly modify our operational plans for us to continue as a going concern. We believe we can continue our current level of operations with the cash we have on hand without additional financing through the second quarter of 2024. Absent sufficient additional financing, we may be unable to remain a going concern.
We require additional funding to be able to maintain our current level of operations and to fund the further development of our new ONP-002 product candidate; we may not be able to obtain additional funding.
To date, we have never developed any product candidate, and we cannot assure investors that we will be able to successfully develop any drug candidate, including without limitation a drug treatment for mild traumatic brain injury, with our current resources and capabilities. Because our new ONP-002 concussion drug product candidate is in early stages of development and contemplates nasal administration it will require extensive pre-clinical and clinical testing, and we will need significant additional funding to conduct such research and testing. We do not expect to generate revenue from product sales, licensing fees, royalties, milestones, contract research or other sources of funds in amounts sufficient to fully fund our operations for the foreseeable future, and we will therefore use our cash resources, and expect to require additional funds, to maintain our existing operations, continue our research and development programs, commence Phase II clinical studies and clinical trials for our ONP-002 product candidate, and to seek regulatory approvals. Additionally, we expect our operating expenses to increase, both due to additional employment costs and operating costs required to pursue the development of the Neurology Assets.
In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of assets, public or private debt or equity financing, collaborative relationships or other arrangements. We are unable to provide any assurance or guarantee that additional capital will be available when needed by our company or that such capital will be available under terms acceptable to our company or on a timely basis. If adequate funds are not available, we may have to scale back our operations or limit our research and development activities, which may cause us to grow at a slower pace, or not at all, and our business could be adversely affected. With limited capital, we have put the research and development of our COVID vaccine program and our lantibiotics program on hold and have chosen instead to focus the limited capital on the development of ONP-002.
We anticipate seeking such additional funds through a combination of public or private equity or debt financings, as well as potential collaborations, strategic alliances and marketing, distribution or licensing arrangements and non-dilutive funding from government and nongovernment funding entities, as well as other sources to further the research, development, manufacturing, testing, and regulatory approval our concussion drug product. While we may continue to apply for contracts or grants from academic institutions, nonprofit organizations and governmental entities, we may not be successful.
Adequate additional funding may not be available to us on acceptable terms, if at all. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive products by others. If we cannot raise the additional funds required for our anticipated operations or to support our development efforts, we may be required to delay significantly, reduce the scope of or eliminate one or more of our research or development programs, downsize our organization, or seek alternative measures to avoid insolvency, including arrangements with collaborative partners or others that may require us to relinquish rights to certain of our technologies or our concussion drug candidate.
Furthermore, if we raise additional funds by issuing equity securities, dilution to our existing stockholders could result. Any equity securities issued also may provide for rights, preferences or privileges senior to those of holders of our common and preferred stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. Additionally, future offerings also could have a material and adverse effect on the price of our common stock. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or our products under development or grant licenses on terms that are not favorable to us, which could lower the economic value of those programs to us. If additional funds are raised through the issuance of equity, convertible debt or similar securities of our company, the percentage of ownership of our company by our company’s stockholders will be reduced, our company’s stockholders may experience additional dilution upon conversion, and such securities may have rights or preferences senior to those of our common stock. The preferential rights granted to the providers of such additional financing may include preferential rights to payments of dividends, super voting rights, a liquidation preference, protective provisions preventing certain corporate actions without the consent of the fund providers, or a combination thereof. We are unable to provide any assurance that additional financing will be available on terms favorable to us or at all.
We may rely on government funding and collaboration with government entities for our product development, which adds uncertainty to our research and development efforts and may impose requirements that increase the costs of development, commercialization and production of any programs developed under those government-funded programs.
Because we anticipate the resources necessary to develop our new ONP-002 concussion drug candidate will be substantial, we may explore funding and development collaboration opportunities with the U.S. or foreign governments and their agencies. We have no control or input over whether an application for grant funding or any other funding will be accepted or approved, in full or in part, and we cannot provide investors with any assurances that we will receive such funding.
Additionally, contracts and grants funded by the U.S. or foreign governments and their agencies, contain provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:
| ● | reduce or modify the government’s obligations under such agreements without the consent of the other party; | |
| ● | claim rights, including IP rights, in products and data developed under such agreements; | |
| ● | audit contract-related costs and fees, including allocated indirect costs; | |
| ● | suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations; | |
| ● | impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements; |
| 33 |
| ● | suspend or debar the contractor or grantee from doing future business with the government; | |
| ● | control and potentially prohibit the export of products; | |
| ● | pursue criminal or civil remedies under the False Claims Act, False Statements Act, and similar remedy provisions specific to government agreements; and | |
| ● | limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal-year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period. |
In addition, government contracts and grants, ordinarily contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions, including the following:
| ● | specialized accounting systems unique to government contracts and grants; | |
| ● | mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent; | |
| ● | public disclosures of certain contract and grant information, which may enable competitors to gain insights into our research program; and | |
| ● | mandatory socioeconomic compliance requirements, including labor standards, non-discrimination, and affirmative action programs, and environmental compliance requirements. |
If we received such grants or agreements, we may not have the right to prohibit the U.S. government from using certain technologies developed by us, and we may not be able to prohibit third-parties, including our competitors, from using those technologies in providing products and services to the U.S. government. Further, under such agreements we could be subject to obligations to and the rights of the U.S. government set forth in the Bayh-Dole Act of 1980, meaning the U.S. government may have rights in certain inventions developed under these government-funded agreements, including a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government could have the right to require us to grant exclusive, partially exclusive, or nonexclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations, also referred to as “march-in rights.” Although the U.S. government’s historic restraint with respect to these rights indicates they are unlikely to be used, any exercise of the march-in rights could harm our competitive position, business, financial condition, results of operations, and prospects. In the event we would be subject to the U.S. government’s exercise such march-in rights, we may receive compensation that is deemed reasonable by the U.S. government in its sole discretion, which may be less than what we might be able to obtain in the open market.
Additionally, the U.S. government requires that any products embodying any invention generated through the use of U.S. government funding be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. manufacturers for products covered by such intellectual property.
Although we will need to comply with some of these obligations, not all of the aforementioned obligations may be applicable to us unless and only to the extent that we receive a government grant, contract or other agreement. However, as an organization, we are relatively new to government contracting and new to the regulatory compliance obligations that such contracting entails. If we were to fail to maintain compliance with those obligations, we may be subject to potential liability and to termination of our contracts.
| 34 |
We have limited concussion and neurology-specific research, development, manufacturing, testing, regulatory, commercialization, sales, distribution, and marketing experience, and we may need to invest significant financial and management resources to establish these capabilities. Despite such investments and our best efforts, our strategic acquisition of the ONP-002 and ONP-001 neurology drug assets may turn out to be unsuccessful.
As part of our business strategy, we monitor and analyze strategic acquisition opportunities that we believe will be strategic fits for the Company and beneficial to the Company’s shareholders. As demonstrated by our acquisition of the Neurology Assets in December of 2023, we may acquire companies, businesses, products and technologies that complement, augment or transform our existing business. However, such acquisitions could involve numerous risks that may prevent us from fully realizing the benefits that we anticipated as a result of such transactions.
Prior to our acquisition of the Neurology Assets, we had little-to-no experience in the development and commercialization of neurology or concussion related drugs. Although, in connection with the acquisition, we added experienced neurology researchers and consultants, given our size and current pre-clinical stage of development, we still have limited neurology-specific research, development, manufacturing, testing, regulatory, commercialization, sales, distribution, and marketing experience. To successfully develop our neurology product candidate, we will need to dedicate significant amounts of our limited financial and management resources to bolster our expertise in this area. Our success depends significantly on the continued contributions of our executive officers, financial, scientific and technical personnel and consultants, and on our ability to attract additional personnel.
During our operating history, many essential responsibilities have been assigned to a relatively small number of individuals, and we currently depend heavily upon the efforts and abilities of our management team. However, as we advance into neurology development, the demands on our key employees will expand and we will need to recruit additional qualified employees or consultants for our Company. The competition for such qualified personnel is intense. The loss of services of any of our existing consultants or our inability to attract additional personnel to fill critical positions could adversely affect our ability to efficiently develop our neurology product candidates. The loss or unavailability of the services of any of these individuals could have a material adverse effect on our business, prospects, financial condition and results.
Alternatively, or in addition to the above, we may enter into strategic alliances or partnership with other industry entities to utilize their research, development, manufacturing, testing, regulatory or commercialization skills, but we may be unable to enter into such agreements on favorable terms, if at all. If our future strategic collaborators do not commit sufficient resources to our alliances or partnerships and the progress of our development, if any, and we are unable to develop the necessary capabilities on our own, we may be unable to advance the development of our neurology asset product candidates to the point of commercialization, even if we obtain regulatory approval. We will be competing with many companies that currently have existing, extensive and well-funded operations, and without a significant internal team or the support of a third party to perform essential functions related to neurology research, development, manufacturing, testing, regulatory approval, and commercialization, we may be unable to compete successfully against these more established companies and our neurology product candidates may fail.
Any failure by us to effectively limit such risks as we implement our strategic acquisition could have a material adverse effect on our business, financial condition or results of operations and cause the price of our securities to fall.
| 35 |
Our success with regard to the Neurology Assets depends on the viability of our business strategy with regard to those assets, which is unproven and may be unfeasible.
Our revenue and income potential with regard to the Neurology Assets, in particular the concussion asset, are unproven, and we continue to develop our strategy for such assets. Our anticipated business model is based on a variety of assumptions based on a growing trend in the healthcare systems in the United States and many other countries. These assumptions may not reflect the business and market conditions we actually face. As a result, our operating results could differ materially from those projected under our business model, and our business model may prove to be unprofitable. The product candidate ONP-002 (the concussion asset) being developed is in its early stages and will require extensive testing and clinical trials before it is commercialized. There is no guarantee that ONP-002 will be approved for commercial use. The product candidate ONP-001 (the potential treatment for Niemann Pick Disease Type C) is in its early stages and will require extensive testing and clinical trials before it is commercialized. There is no guarantee that ONP-001 will be approved for commercial use. Further, we own 50% of the rights to this product candidate, with the other 50% owner by a third party. We anticipate this product candidate will be developed through a joint venture with a third party. However, the joint venture with that third party has not been finalized. If we fail to obtain marketing authorization for these product candidates, our business, financial condition, and results of operations will be materially adversely affected.
There are substantial inherent risks in attempting to commercialize newly developed products, and, as a result, we may not be able to successfully develop any products.
We hope to conduct research and development of the purchased Neurology Assets. However, commercial feasibility and acceptance of such product candidates are unknown. Scientific research and development require significant amounts of capital and takes an extremely long time to reach commercial viability, if at all. During the research and development process, we may experience technological barriers that we may be unable to overcome. Because of these uncertainties, it is possible that some or all of our future product candidates will never be successfully developed. If we are unable to successfully develop new products, we may be unable to generate new revenue sources or build a sustainable or profitable business.
With limited resources we have paused our other product candidate research and development and now rely on the progress and success of ONP-002.
With limited capital, we have put the research and development of our COVID vaccine program and our lantibiotics program on hold and have chosen instead to focus the limited capital on the development of ONP-002. As such, our future success currently depends on the successful development of ONP-002, our concussion asset, of which there can be no assurances.
We will need to achieve commercial acceptance of our products, if cleared or approved, to generate revenues and achieve profitability.
Superior products may be introduced that compete with the Neurology Assets, which would diminish or extinguish the uses for those products candidates, if cleared or approved. We cannot predict when significant commercial market acceptance for such products, if cleared or approved, will develop, if at all, and we cannot reliably estimate the projected size of any such potential market. If markets fail to accept such products, then we may not be able to generate revenue from them. Our revenue growth and achievement of profitability will depend substantially on our ability to introduce new products that are accepted by customers. Our competitors in the industry are predominantly large companies with longer operating histories, with significantly easier access to capital and other resources and an established product pipeline than us. There can be no assurance that we will be able to establish ourselves in our targeted markets, or, if established, that we will be able to maintain our market position, if any. Our commercial opportunity may be reduced if our competitors develop new or improved products that are more convenient, more effective or less expensive than our product candidates are. Competitors also may obtain FDA or other regulatory marketing authorization for their products more rapidly or earlier than we may obtain marketing authorization for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. If we are unable to cost-effectively achieve acceptance of our products by customers, or if our products do not achieve wide market acceptance, then our business will be materially and adversely affected.
The products candidates included in the Neurology Assets are still in development and we have not obtained authorization from any regulatory agency to commercially distribute such products in any country and we may never obtain such authorizations.
We currently have no products authorized for commercial distribution in either the United States, Europe or any other country. All of our product candidates require regulatory clearance or approvals. We cannot begin marketing and selling product candidates until we obtain applicable authorizations from the applicable regulatory agencies. The process of obtaining regulatory authorization is expensive and time-consuming and can vary substantially based upon, among other things, the type, complexity and novelty of a product candidate. Changes in regulatory policy, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application may cause delays in the authorization of a product candidate or rejection of a regulatory application altogether.
| 36 |
The FDA has substantial discretion in the review process and may refuse to accept our application or may decide that data are insufficient to grant the request and require additional pre-clinical, clinical, or other studies. In addition, varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit, or prevent marketing authorization from the FDA or other regulatory authorities. Any marketing authorization from the FDA we ultimately obtain may be limited or subject to restrictions or post-market commitments that render the product candidate not commercially viable. If our attempts to obtain marketing authorization are unsuccessful, we may be unable to generate sufficient revenue to sustain and grow our business, and our business, financial condition, and results of operations will be materially adversely affected.
Our concussion drug product candidate is at the Phase II clinical stage and has not been approved for sale. We have not conducted substantial research and development for a concussion product candidate, and we may be unable to produce a concussion drug that successfully treats mild traumatic brain injury in a timely and economical manner, if at all.
Our Neurology Asset development program is in the early stages of research and development, and currently includes only one product candidate, which has completed Phase I clinical trials but has not commenced Phase II clinical trials. Limited data exist regarding the safety and efficacy of our concussion product candidate, and we must conduct a substantial amount of additional research, development and clinical testing before any regulatory authority will approve our concussion product candidate. The success of our efforts to develop and commercialize our product candidates could fail for a number of reasons. For example, we could experience delays in product development and clinical trials or unsatisfactory clinical trial results.
In addition, adverse events, or the perception of adverse events, relating to a concussion product candidate administered intranasally and delivery technologies may negatively impact our ability to develop commercially successful products. Regardless of the veracity of or the data supporting these claims, these and other claims may influence public perception of the use of intranasal delivery product candidates and could result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approval of our potential product candidate. Such greater government regulation could have a material effect on our ability to develop and market our concussion product candidate.
Only a small fraction of biotechnology development programs ultimately result in commercial products or even product candidates and a number of events could delay our development efforts and negatively impact our ability to obtain regulatory approval for, and to manufacture, market and sell, a nasally administered vaccine. Additionally, our ability to develop an effective concussion drug will depend on our ability to work on an accelerated timeline, with uncertain access to financial resources beyond those that we currently possess, and in competition with a significant number of better-funded and more experienced development companies. Even if a market exists, our concussion drug product candidate could be found to be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances. Our concussion drug product candidate, even if safe and effective, could be difficult to manufacture on a large scale or uneconomical to market, or our competitors could develop superior products more quickly and efficiently or more effectively market their competing products. Accordingly, our inability to develop a commercially successful concussion product will materially harm our business.
We are, and will continue to be, dependent in significant part on outside scientists and third-party research institutions for our research and development in order to be able to commercialize our product candidates.
We currently have a limited number of employees and resources available to perform the research and development necessary to commercialize our product candidates and potential future product candidates. We therefore rely, and will continue to rely, on third-party research institutions, collaborators and consultants for this capability. While the Company continues to seek additional funding, it is taking steps to reduce the use of its cash resources, which include the determination to terminate the Lease.
| 37 |
The third party upon whom we rely for the supply of ONP-002 is our sole source of supply, and the loss of this supplier could significantly harm our business.
ONP-002 is a fully synthetic, non-naturally occurring neurosteroid. We have one manufacturer as our current partner in the development of synthetic chemistry and manufacturing of the ONP-002 (Molecular Formula: C20H28O2, Molecular Weight: 300.14 g/mol). Our ability to successfully develop our ONP-002 product candidates, and to ultimately supply our commercial products in quantities sufficient to meet the market demand, depends in part on our ability to obtain the drug product and drug substance for our product candidates in accordance with regulatory requirements and in sufficient quantities for commercialization and clinical testing. We do not currently have arrangements in place for a redundant or second-source supply of any products or substances in the event our current supplier ceases their operations or stops offering us sufficient quantities of these materials for any reason.
We are not certain that our single-source supplier will be able to meet our demand, either because of the nature of our agreement with the supplier, our limited experience with the supplier or our relative importance as a customer to the supplier. It may be difficult for us to assess its ability to timely meet our demand in the future based on past performance. While our supplier has generally met our demand on a timely basis in the past, they may subordinate our needs in the future to their other customers.
Moreover, if there is a disruption to our third-party manufacturers’ or suppliers’ relevant operations the supply of ONP-002 and its components will be delayed until such manufacturer or supplier restores the affected facilities or we or they procure alternative manufacturing facilities or sources of supply. Our ability to progress our pre-clinical and clinical programs could be materially and adversely impacted if any of the third-party suppliers upon which we rely were to experience a significant business challenge, disruption or failure due to issues such as financial difficulties or bankruptcy, issues relating to other customers such as regulatory or quality compliance issues, or other financial, legal, regulatory or reputational issues. Additionally, any damage to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture our product candidates on a timely basis.
Establishing additional or replacement suppliers for drug products and drug substance used in our product candidates, if required, may not be accomplished quickly and can take several years, if at all. Furthermore, despite our efforts, we may be unable to procure a replacement supplier or do so on commercially reasonable terms, which could have a material adverse impact upon our business. If we are able to find a replacement supplier, such replacement supplier would need to be qualified and may require additional regulatory approval, which could result in further delay. While we seek to maintain adequate inventory of the drug product and drug substance used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain such drug product and drug substance from alternate sources at acceptable prices in a timely manner could impede, delay, limit or prevent our development efforts, which could harm our business, results of operations, financial condition and prospects.
| 38 |
Certain raw materials required in the manufacture and the formulation of our product candidates are derived from biological sources. Such raw materials are difficult to procure and may be subject to contamination or recall. Access to and supply of sufficient quantities of raw materials which meet the technical specifications for the production process is challenging, and often limited to single-source suppliers. Finding an alternative supplier could take a significant amount of time and involve significant expense due to the nature of the products and the need to obtain regulatory approvals. If we or our manufacturers are unable to purchase the raw materials necessary for the manufacture of our product candidates on acceptable terms in a timely manner, at sufficient quality levels, or in adequate quantities, if at all, our ability to produce sufficient quantities of our products for clinical or commercial requirements would be negatively impacted. A material shortage, contamination, recall or restriction on the use of certain biologically derived substances or any raw material used in the manufacture of our products could adversely impact or disrupt manufacturing, which would impair our ability to generate revenues from the sale of such product candidates, if approved or cleared.
If Odyssey were to convert all of its Series F Convertible Preferred Stock, they would own more than a majority of our outstanding shares of common stock.
At the closing of the Odyssey transaction, we issued 8,000,000 shares of Series F Convertible Preferred Stock to Odyssey, which are convertible into our common stock on a one-for-one basis. The Series F Convertible Preferred Stock is non-voting, but if Odyssey were to convert all of its shares of Series F Convertible Preferred Stock into our common stock, they would control the vote of more than a majority of our outstanding common stock. Such a conversion would likely be considered a change of control under the rules of the NYSE American, requiring us to apply for and meet the NYSE Americans initial listing standards. We do not currently meet those standards. Accordingly, our Certificate of Designation creating the Series F Preferred Stock specifies that the remainder of the Series F Convertible Preferred shares are not convertible until the occurrence of all of the following: (i) Oragenics’ shall have applied for and been approved for initial listing on the NYSE American or another national securities exchange or shall have been delisted from the NYSE American, which Oragenics’ does not anticipate undertaking until it meets the NYSE American’s initial listing standards, and (ii) if required by the rules of the NYSE American, Oragenics’ shareholders shall have approved any change of control that could be deemed to occur upon the conversion of the Series F Preferred Stock into common stock, based on the fact and circumstances existing at such time.
| 39 |
The market opportunities for our concussion drug product candidate may be smaller than we believe them to be, or alternative drugs or technologies may be adopted, before our concussion drug achieve regulatory approval.
The primary area of focus for our future research and product development activities is the development of a nasally administered treatment of moderate-to-severe concussion (“mTBI”) in the acute through subacute phases, ONP-002. Our current projections of both the number of people who are or will be affected by this disease, as well as the subset of people who may be affected by this disease and who have the potential to benefit from treatment through our ONP-002 product candidate are based on estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations, or market research, and may prove to be incorrect. The number of clinical trial participants in the United States, Australia, and elsewhere may turn out to be lower than expected, potential clinical trial participants may not be otherwise amenable to treatment with our products, or new clinical trial participants may become increasingly difficult to identify or gain access to, all of which would adversely affect our ability to conduct the research and development necessary to complete the concussion product candidate.
If we are unable to successfully develop our product candidates, our operating results and competitive position could be harmed. Research and development involves a lengthy and complex process, and we may not be successful in our efforts to develop and commercialize our product candidates. The further development and ultimate commercialization of our Neurology Assets, as well as our other product candidates, are keys to our strategy.
A key element of our business strategy is to discover, develop, validate, and commercialize a treatment product candidate for mTBI, which we aim to market globally to both public and private payers. We cannot assure you that we will be able to successfully complete development of or commercialize any or all of our planned future product candidates, or that they will be clinically usable. The product development process involves a high degree of risk and may take up to several years or more. Our new product development efforts may fail for many reasons, including:
| ● | our recent entry into the neurology research and development industry; | |
| ● | failure of future tests at the research or development stages; | |
| ● | lack of clinical validation data to support effectiveness; |
| ● | delays resulting from the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-effective manner; | |
| ● | regulatory delays at the FDA or from other independent oversight authorities, particularly in light of the demands placed on public health resources during and following the COVID-19 pandemic; | |
| ● | failure to obtain or maintain necessary certifications, licenses, clearances or approvals to market or perform the test; or | |
| ● | lack of commercial acceptance by the health care marketplace. |
Few research and development projects result in commercial products, and success in early clinical trials often is not replicated in later trials. At any point, we may abandon development of products in favor of the development or acquisition of new products, or we may be required to expend considerable resources repeating clinical studies or trials, which would adversely impact the timing for generating potential revenues from those new products. In addition, as we advance the development of new products through to the commercialization stage, we will have to make additional investments in our sales and marketing operations, which may be prematurely or unnecessarily incurred if the commercial launch of a product is abandoned or delayed.
| 40 |
If we are successful in producing a treatment for mTBI (concussion), we may need to devote significant resources to its scale-up and development, including for use by the U.S. government or other foreign authorities. Moreover, government involvement may limit the commercial success of our concussion product candidate.
We have not manufactured a concussion treatment to date, but if we were to do so, the economic value of such a treatment to us could be limited by such government action or inaction. Various government entities, including the U.S. government, offer, but may not continue to offer, incentives, grants and contracts to encourage the research and development of new drug technologies, which may have the effect of increasing the number of competitors and/or providing advantages to known competitors. Accordingly, there can be no assurance that we will be able to successfully establish a competitive market share for our concussion treatment product candidate.
In the event that any of the pre-clinical research or, if an IND is accepted by the FDA, the Phase II clinical trials for our concussion treatment product candidate are perceived to be successful, we may need to work toward the large-scale technical development, manufacturing scale-up and larger scale deployment of this potential treatment through a variety of U.S. government-sponsored mechanisms, such as an Expanded Access Program or an Emergency Use Authorization program. In this case we may need to divert significant resources to this program, which would require diversion of resources from our other existing product candidate programs. In addition, since the path to licensure of any concussion drug treatment is unclear there could be a negative impact on our receipt of marketing approval. Unexpected safety issues in these circumstances could lead to significant reputational damage for us and our technology platform going forward and other issues, including delays in our other programs, the need for re-design of our clinical trials and the need for significant additional financial resources.
Our product candidates, if approved, will face significant competition and our failure to compete effectively may prevent us from achieving significant market penetration.
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of healthcare products competitive with those that we are developing. We face competition from a number of sources, such as pharmaceutical companies, including generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than us. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, certain of our product candidates, if approved, may compete with other products, for a share of some patients’ discretionary budgets and for physicians’ attention within their clinical practices.
We anticipate that, if we obtain regulatory approval of our product candidates, we will face significant competition from other approved therapies and may need to compete with unregulated, unapproved, and off-label treatments. Certain of our product candidates, if approved, will present novel therapeutic approaches for the approved indications, and will have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, we will have to demonstrate that the relative cost, safety, and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies. Such competition could lead to a reduced market share for our product candidates and contribute to downward pressure on the pricing of our product candidates, which could harm our business, financial condition, operating results, and prospects.
Due to less stringent regulatory requirements in certain foreign countries, there are many more products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that our competitors can make about the effectiveness of their products and the manner in which they can market them. As a result, we expect to face more competition in these markets than in the United States.
Many of our competitors have significantly greater resources and experience, which may negatively impact our commercial opportunities.
The biotechnology and pharmaceutical industries are subject to intense competition and rapid and significant technological change. We have many potential competitors, including major pharmaceutical companies, specialized biotechnology firms, academic institutions, government agencies and private and public research institutions. Many of our competitors have significantly greater financial and technical resources, experience and expertise in:
| ● | research and development; | |
| ● | pre-clinical testing; | |
| ● | designing and implementing clinical trials; | |
| ● | regulatory processes and approvals; | |
| ● | production and manufacturing; and | |
| ● | sales and marketing of approved products. |
Principal competitive factors in our industry include:
| ● | the quality and breadth of an organization’s technology; | |
| ● | management of the organization and the execution of the organization’s strategy; | |
| ● | the skill and experience of an organization’s employees and its ability to recruit and retain skilled and experienced employees; | |
| ● | an organization’s intellectual property portfolio; | |
| ● | the range of capabilities, from target identification and validation to drug discovery and development to manufacturing and marketing; and | |
| ● | the availability of substantial capital resources to fund discovery, development and commercialization activities. |
Large and established companies, such as Merck & Co., Inc., GlaxoSmithKline plc, CSL Ltd., Sanofi Pasteur, SA, Pfizer Inc., Johnson & Johnson, AstraZeneca, and Moderna, among others, compete in the market. In particular, these companies have greater experience and expertise in securing government contracts and grants to support their research and development efforts, conducting testing and clinical trials, obtaining regulatory approvals to market products, manufacturing such products on a broad scale and marketing approved products.
Regardless of the disease, smaller or early-stage companies and research institutions also may prove to be significant competitors, particularly through collaborative arrangements with large and established pharmaceutical companies. As these companies develop their technologies, they may develop proprietary positions, which may prevent or limit our product development and commercialization efforts. If any of our competitors succeed in obtaining approval from the FDA or other regulatory authorities for their products sooner than we do or for products that are more effective or less costly than ours, our commercial opportunity could be significantly reduced.
In order to effectively compete, we will have to make substantial investments in development, testing, manufacturing and sales and marketing or partner with one or more established companies. We may not be successful in gaining any market share. Our technologies and neurology product candidates also may be rendered obsolete or non-competitive as a result of products introduced by our competitors to the marketplace more rapidly and at a lower cost.
| 41 |
We may choose not to continue developing or commercializing any of our product candidates at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
At any time, we may decide to discontinue the development or commercialization of any of our products or product candidates for a variety of reasons, including inadequate financial resources the appearance of new technologies that render our product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to allocate those resources to potentially more productive uses.
If any of our product candidates are shown to be ineffective or harmful in humans, we will be unable to generate revenues from these product candidates.
Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through nonclinical testing and clinical trials that our products are safe and effective for use in humans. To date ONP-002 has successfully completed Phase I clinical trials but has not yet completed Phase II clinical trials. It is possible that when and if future clinical trials are conducted in humans, they will show that our ONP-002 is ineffective or harmful in humans. If ONP-002 is shown to be ineffective or harmful to humans, we will be unable to commercialize and generate revenues from sales of such product candidate.
We intend to seek licensing partners to cover a portion of the costs associated with obtaining regulatory approval for, and manufacturing and marketing of, our product candidates. If we are unable to obtain agreements with third parties to fund these costs, we will have to fund such costs ourselves or we may be unable to extract any value from these technologies.
As we continue our development of product candidates, we intend to either license these product candidates to, or partner with, one or more major pharmaceutical companies at the earliest possible time in their product development. If we do so, we intend for these licensees or partners to pay the costs associated with any remaining development work, regulatory submissions, clinical trials and the manufacturing and marketing of our product candidates. If we are unable to license our product candidates or otherwise partner with third parties, we will have to fund the costs of our clinical trials ourselves or we will be unable to extract any value from these technologies. We may also have to establish our own manufacturing facilities and find our own distribution channels. This would greatly increase our future capital requirements and we cannot assure you that we will be able to obtain the necessary financing to pay these costs. If we are unable to cover the associated costs or we cannot obtain financing on acceptable terms or at all, our business, financial condition and results of operations will be materially adversely affected.
Our dependence on collaborative arrangements with third parties subjects us to a number of risks. These collaborative arrangements may not be on terms favorable to us. Agreements with collaborative partners typically allow partners significant discretion in electing whether or not to pursue any of the planned activities. We cannot control the amount and timing of resources our collaborative partners may devote to products based on the collaboration, and our partners may choose to pursue alternative products. Our partners may not perform their obligations as expected. Business combinations or significant changes in a collaborative partner’s business strategy may adversely affect a partner’s willingness or ability to complete its obligations under the arrangement. Moreover, we could become involved in disputes with our partners, which could lead to delays or termination of the collaborations and time-consuming and expensive litigation or arbitration. Even if we fulfill our obligations under a collaborative agreement, our partner may be able to terminate the agreement under certain circumstances. If any collaborative partner were to terminate or breach our agreement with it, or otherwise fail to complete its obligations in a timely manner, our chances of successfully commercializing our product candidates would be materially and adversely affected.
We are heavily dependent upon the ability and expertise of our management team and a very limited number of employees, and the loss of such individuals could have a material adverse effect on our business, operating results or financial condition.
We currently have a very small management team. Our success is dependent upon the ability, expertise and judgment of our senior management. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on our business, operating results or financial condition.
We believe that our future success with regard to the Neurology Assets will depend significantly on the skills and efforts of Joseph Michael Redmond, our President, and other key personnel, including Jacob VanLandingham, Ph.D., one of the Company’s independent contractors. The loss of the services of any of these individuals could harm our ability to successfully pursue the development of the Neurology Assets. If any of our executive officers or key personnel left or was otherwise unable to work and we were unable to find a qualified replacement and/or to obtain adequate compensation for such loss, we may be unable to manage our business, which could harm our operating results and financial condition.
Mr. Redmond continues to serve as President and CEO of Odyssey, which may give rise to conflicts of interest. Additionally, while we expect Mr. Redmond to devote substantially all of his business time and efforts to the Company, we can make no assurance of this given his continuing role with Odyssey.
Prevacus, Inc., is the Company from whom Odyssey purchased the Neurology Assets in 2021. On December 5, 2022, the Mississippi Department of Human Services (“MDHS”) filed an Amended Complaint in the Circuit Court of Hinds County, Mississippi First Judicial District against Mississippi Community Education Center, Inc., a non-profit corporation, Nancy New, its director, Prevacus, Dr. VanLandingham its founder, and several other defendants, alleging, among other things, a conspiracy to defraud the MDHS. The MDHS is designated by Mississippi law as the State agency exclusively responsible for administering the federally-authorized and federally-funded anti-poverty (or “welfare”) program known as the Temporary Assistance for Needy Families program, or “TANF.” With regard to Prevacus and Dr. VanLandingham, the complaint alleges that $2.1 million was funneled through the Mississippi Community Education Center, a nonprofit run by Nancy New, to Prevacus and PresolMD, another company founded by Dr. VanLandingham. The MDHS, among other things, is seeking to recover $2.1 million it alleges went to Prevacus and PresolMD. Prevacus and Dr. VanLandingham have denied any wrongdoing and have denied being aware that the funds received from Community Education Center, Inc. were TANF funds. When Odyssey agreed to purchase the Prevacus assets, it did not agree to assume any liability for refunding MDHS. Similarly, any such liabilities would be deemed excluded liabilities under the Company’s asset purchase agreement with Odyssey. As such, the Company does not believe it has any financial exposure related to the reimbursement of the funds paid to Prevacus and does not believe there are any grounds on which the Company could become embroiled in the foregoing legal proceedings. Dr. VanLandingham is not an Officer or Director of Oragenics but is instead an independent contractor. Nevertheless, any negative media related to foregoing legal proceedings, and in particular any negative media related to the concussion assets or Dr. VanLandingham, may negatively impact the Company’s ability to raise capital and otherwise continue the development of the Neurology Assets. Furthermore, Dr. VanLandingham’s ability to continue to assist in the development of the Neurology Assets may be negatively impacted by his need to respond to, and participate in, the foregoing legal proceedings.
We need to hire and retain additional qualified scientists and other highly skilled personnel to maintain and grow our business.
Our future success depends on our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial and research personnel in all areas within our organization. We plan to continue to execute on our business strategy and expect to hire additional personnel to support our product development efforts. We believe that there are only a limited number of individuals with the requisite skills to serve in many of our key positions, and we compete for key personnel with other more established biotechnology companies, as well as universities and research institutions. It is often difficult to hire and retain these persons, and we may be unable to replace key persons if they leave or be unable to fill new positions requiring key persons with appropriate experience. If we fail to attract, integrate and retain the necessary personnel, our ability to maintain and grow our business could suffer significantly.
| 42 |
We might not be successful at acquiring, investing in or integrating businesses, entering into joint ventures or divesting businesses.
We expect to continue pursuing strategic acquisitions, investments and joint ventures to enhance or add to our skills and capabilities or offerings of services and solutions, or to enable us to expand in certain geographic and other markets. Depending on the opportunities available, we may increase the amount of capital invested in such opportunities. We may not succeed in completing targeted transactions, including as a result of the market becoming increasingly competitive, or achieve desired results of operations. Furthermore, we face risks in successfully integrating any businesses we might acquire or create through a joint venture. Ongoing business may be disrupted, and our management’s attention may be diverted by acquisition, investment, transition or integration activities. In addition, we might need to dedicate additional management and other resources, and our organizational structure could make it difficult for us to efficiently integrate acquired businesses into our ongoing operations and assimilate and retain employees of those businesses into our culture and operations. The loss of key executives, employees, customers, suppliers, vendors and other business partners of businesses we acquire may adversely impact the value of the assets, operations or businesses. Furthermore, acquisitions or joint ventures may result in significant costs and expenses, including those related to retention payments, equity compensation, severance pay, early retirement costs, intangible asset amortization and asset impairment charges, assumed litigation and other liabilities, and legal, accounting and financial advisory fees, which could negatively affect our profitability. We may have difficulties as a result of entering into new markets where we have limited or no direct prior experience or where competitors may have stronger market positions. We might fail to realize the expected benefits or strategic objectives of any acquisition, investment or joint venture we undertake. We might not achieve our expected return on investment or may lose money. We may be adversely impacted by liabilities that we assume from a company we acquire or in which we invest, including from that company’s known and unknown obligations, intellectual property or other assets, terminated employees, current or former clients or other third parties. In addition, we may fail to identify or adequately assess the magnitude of certain liabilities, shortcomings or other circumstances prior to acquiring, investing in or partnering with a company, including potential exposure to regulatory sanctions or liabilities resulting from an acquisition target’s previous activities, internal controls and security environment. If any of these circumstances occurs, they could result in unexpected legal or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes or other adverse effects on our business. In addition, we have a lesser degree of control over the business operations of the joint ventures and businesses in which we have made minority investments or in which we have acquired less than 100% of the equity. This lesser degree of control may expose us to additional reputational, financial, legal, compliance or operational risks. Litigation, indemnification claims and other unforeseen claims and liabilities may arise from the acquisition or operation of acquired businesses. For example, we may face litigation or other claims as a result of certain terms and conditions of the acquisition agreement, such as earnout payments or closing net asset adjustments. Alternatively, shareholder litigation may arise as a result of proposed acquisitions. If we are unable to complete the number and kind of investments for which we plan, or if we are inefficient or unsuccessful at integrating any acquired businesses into our operations, we may not be able to achieve our planned rates of growth or improve our market share, profitability or competitive position in specific markets or services. We also periodically evaluate, and have engaged in, the disposition of assets and businesses. Divestitures could involve difficulties in the separation of operations, services, products and personnel, the diversion of management’s attention, the disruption of our business and the potential loss of key employees. After reaching an agreement with a buyer for the disposition of a business, the transaction may be subject to the satisfaction of pre-closing conditions, including obtaining necessary regulatory and government approvals, which, if not satisfied or obtained, may prevent us from completing the transaction. Divestitures may also involve continued financial involvement in or liability with respect to the divested assets and businesses, such as indemnities or other financial obligations, in which the performance of the divested assets or businesses could impact our results of operations. Any divestiture we undertake could adversely affect our results of operations.
| 43 |
We may face product liability exposure, and if successful claims are brought against us, we may incur substantial liability if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. This risk exists even if a product is approved for commercial sale by the FDA and manufactured in facilities regulated by the FDA or an applicable foreign regulatory authority. Our products and product candidates are designed to affect bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our product candidates could result in injury and possibly death to a patient. An inability to obtain sufficient insurance coverage on commercially reasonable terms or otherwise to protect against potential product liability claims could inhibit our business.
In addition, a liability claim may be brought against us even if our product candidates merely appear to have caused an injury. Product liability claims may be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our product candidates, among others. If we cannot successfully defend ourselves against product liability claims we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:
| ● | withdrawal of clinical trial participants; | |
| ● | termination of clinical trial sites or entire trial programs; | |
| ● | the inability to commercialize our product candidates; | |
| ● | decreased demand for our product candidates; | |
| ● | impairment of our brand and/or reputation; | |
| ● | product recall or withdrawal from the market or labeling, marketing or promotional restrictions; | |
| ● | substantial costs of any related litigation or similar disputes; | |
| ● | distraction of management’s attention and other resources from our primary business; | |
| ● | substantial monetary awards to patients or other claimants against us that may not be covered by insurance; or | |
| ● | loss of potential revenue. |
Although we may maintain product liability insurance coverage for clinical trials, our insurance coverage may not be sufficient to cover all of our product liability-related expenses or losses and may not cover us for any expenses or losses we 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, in sufficient amounts or upon adequate terms to protect us against losses due to product liability, particularly if any of our product candidates receive regulatory approval. Further, a successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and harm our business, financial condition, operating results and prospects.
| 44 |
We may be adversely affected by natural disasters, pandemics and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters is located in Sarasota, Florida, a hurricane zone. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as enterprise financial systems, manufacturing resource planning or enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. Our contract manufacturers’ and suppliers’ facilities are located in multiple locations, where other natural disasters or similar events, such as blizzards, tornadoes, fires, explosions or large-scale accidents or power outages, and other public health emergencies could severely disrupt our operations and have a material adverse effect on our business, financial condition, operating results and prospects. For example, the recent COVID-19 pandemic may cause significant disruption to our business operations, the operations of our third-party contractors and suppliers and the operations of our clinical trials, including as a result of significant restrictions or bans on travel into and within the geographic areas in which our manufacturers product our product candidates or where we conduct our clinical trials. A public health emergency could also affect the operations of the FDA and other regulatory or public health authorities, resulting in delays to meetings related to planned or completed clinical trials and ultimately of reviews and approvals of our product candidates. Such disruption could impede, delay, limit or prevent our employees and third-party contractors from beginning or continuing research and development or clinical trial-related activities, which may impede, delay, limit or prevent initiation or completion of our ongoing clinical trials and pre-clinical research and ultimately lead to the delay or denial of regulatory approval of our product candidates, which could seriously harm our operations and financial condition.
In addition, acts of terrorism and other geo-political unrest could cause disruptions in our business or the businesses of our partners, manufacturers or the economy as a whole. All of the aforementioned risks may be further increased if we do not implement a disaster recovery plan or our partners’ or manufacturers’ disaster recovery plans prove to be inadequate. To the extent that any of the above should result in delays in the regulatory approval, manufacture, distribution or commercialization of our product candidates, our business, financial condition, operating results and prospects would suffer.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited, each of which could harm our business.
As of December 31, 2023, we had U.S. federal and state net operating loss carryforwards of approximately $153,575,836 and $137,731,183, respectively. We also accumulated U.S. federal and state research tax credits of approximately $4,169,354 as of December 31, 2023. Under Sections 382 and 383 of the Internal Revenue Code (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-ownership change net operating loss carryforwards and other pre-ownership change tax attributes, such as research tax credits, to offset its post-ownership change income and taxes may be limited. In general, an ownership change will occur when the percentage of the Corporation’s ownership (by value) of one or more “5-percent shareholders” (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). Similar rules may apply under state tax laws. An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. In the event that it is determined that we have in the past experienced an ownership change as a result of transactions in our stock, or if we experience one or more ownership changes as a result of future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any limitations on the ability to use our net operating loss carryforwards and other tax assets could harm our business.
The restatement of certain of our financial statements may subject us to risks and uncertainties, including the increased possibilities of legal proceedings.
On April 4, 2023, the management and the Audit Committee of the Company’s Board of Directors concluded that an error impacted certain filings of the Company’s unaudited financial statements filed in 2022. The error that impacted such financials was: not properly analyzing research and development contracts. Management and the Audit Committee of the Company’s Board of Directors concluded that the error had a material effect on the Company’s unaudited financial statements and that the affected unaudited financial statements should be restated and should no longer be relied upon. These filings were as follows:
| i. | The Company’s unaudited consolidated financial statements for the three months ended March 31, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 13 2022 (the “Q1 2022 10-Q”); and | |
| ii. | The Company’s unaudited consolidated financial statements for the three and six months ended June 30, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2022 (the “Q2 2022 10-Q”); and | |
| iii. | The Company’s unaudited consolidated financial statements for the three and nine months ended September 30, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2022 (the “Q3 2022 10-Q”). |
The Company filed all amendments related to the Q1 2022 10-Q, Q2 2022 10-Q, and Q3 2022 10-Q with the SEC on April 14, 2023.
As a result of the restatement, we may become subject to additional risks and uncertainties, including, among others, the increased possibility of legal proceedings or a review by the SEC and other regulatory bodies. The costs of defending against such legal proceedings or administrative actions could be significant. In addition, we could face monetary judgments, penalties or other sanctions that could have a material adverse effect on our business, financial condition and operating results. In addition, the restatements:
| ● | May have the effect of eroding the investor confidence in us and our financial reporting and accounting practice and processes; | |
| ● | May negatively impact the trading price of our common stock; | |
| ● | Diverted, and may continue to divert management’s attention from the operation of our business; | |
| ● | Requiring that we incur additional expenses and may require that we incur significant expenses relating to any litigation or regulatory examinations, investigations, proceedings or orders; | |
| ● | May make it more difficult, expensive and time consuming for us to raise capital, if necessary, on acceptable terms, if at all; and | |
| ● | May make it more difficult to pursue transactions or implement business strategies that might otherwise be beneficial to our business. |
The occurrence or continued occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud.
We previously identified a material weakness in our internal control over financial reporting, which was subsequently remediated during the year ended December 31, 2023.
The material weakness related to the review of research and development contracts. For additional information on the material weakness identified and our remedial efforts, see “Item 9A. Controls and Procedures”. The material weakness resulted in material errors in the unaudited financial statements for the three-month period ended March 31, 2022, the three- and six- month periods ended June 30, 2022, and the three- and nine- month periods ended September 30, 2022. As a result, we restated certain information contained in its previously issued unaudited interim consolidated financial statements for the Q1 2022 10-Q, Q2 2022 10-Q, and Q3 2022 10-Q. All such amendments were filed with the SEC on April 14, 2023.
Although we have completed our remediation of the material weakness, if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain misstatements and we could be required to restate our financial results. In addition, if we are unable to produce accurate consolidated financial statements in the future, our stock price, liquidity and access to the capital markets may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements. Further, because of its inherent limitations, even our remediated and effective internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our conditions, or that the degree of compliance with our policies or procedures may deteriorate.
| 45 |
Risks Related to Our Intellectual Property and Data Security and Privacy
Our limited resources and decision to pause the development of our COVID-19 vaccine candidate to focus on the development of ONP-002 may result in our breach of certain contracts.
We previously began the research and development stage for our Terra CoV-2 and NT-CoV2-1 vaccine product candidates. In connection therewith, we hold a non-exclusive, worldwide intellectual property license agreement for certain research, patent applications and biological materials relating to the use of pre-fusion coronavirus spike proteins for the development and commercialization of a vaccine against SARS-CoV-2. We also hold a non-exclusive license with the NRC that enables us to pursue the rapid development of next-generation vaccines against SARS-CoV-2 (the “NIH License”) and its variants (the “NRC License”) and an exclusive global license with Inspirevax (the “Inspirevax License” and, together with the NIH License and NRC License, the “License Agreements”).
Under the License Agreements we must use reasonable commercial efforts to bring to market a vaccine product candidate covered by our licenses, which means we must adhere to an existing commercial development plan and existing performance benchmarks. Additionally, we are obliged to pay to the licensors certain minimum annual royalties, certain benchmark-related royalties and royalties based upon a share of any net sales of our vaccine product candidate, following regulatory approval and the first commercial sale. Additionally, among other obligations, we must provide regular written reports to the licensors on the development status of our vaccine product candidate and pay for our pro rata share of the NIH’s patent prosecution-related expenses and fees. Moreover, we must use reasonable commercial efforts to develop, manufacture, and commercialize the vaccine product candidate, to manufacture the vaccine product candidate substantially within the United States and or Canada and provide the United States and Canadian public with reasonable access to the vaccine, if approved for commercialization by the FDA and Canadian regulatory agencies.
Due to our limited resources and recent acquisition of the Neurology Assets, which we believe hold great promise, we have chosen to pause our vaccine product candidates. It is uncertain when, if ever, we will recommence the research and development of our vaccine product candidates as it will require significant additional financing. We may not be able to obtain the additional financing on terms acceptable to us, or at all. As a result, we may be unable to meet our obligations under the License Agreements, which may be terminated, and we may be unable to proceed with the development of our vaccine product candidates in the future.
If we fail to comply with our obligations under our intellectual property license agreements, we could lose our license rights that are important to our vaccine and development of our vaccine product candidates.
The License Agreements impose various royalties and other obligations on us as well as development plans. If we fail to comply with these obligations, our licensors may have the right to terminate the license, in which event we may not be able to develop or market the affected product candidate. The License Agreements may be terminated in the event of a breach. The loss of such rights could materially adversely affect our business, financial condition, operating results and prospects.
| 46 |
We cannot prevent Inspirevax, the NRC or NIH (the “licensors”) or other companies related to our vaccine program development, including our competitors, from licensing the same intellectual property and biological materials related to vaccine products that we have licensed or from otherwise duplicating our business model and operations related to vaccine products.
Our vaccine License Agreements (except our Inspirevax License) are nonexclusive licenses, and we are not permitted to sublicense the intellectual property or biological materials covered by the license. Therefore, we cannot be certain that the Licensors have not previously licensed, or that the Licensors will not, in the future, license the intellectual property or biological materials to other biotechnology companies, including those who intend to develop a vaccine product candidate for SARS-CoV-2, some or all of the nonexclusive intellectual property and biological materials available to us under the License Agreements. Moreover, we do not currently own any exclusive rights or licenses necessary to fully develop our NT-CoV2-1 vaccine product candidate, and such rights or licenses, if in existence, could be held by our competitors or used by other third parties to otherwise directly compete against us. If our competitors or others have or acquire exclusive rights or licenses that they could enforce against us, then we may be required to alter our products, pay licensing fees or cease activities. If our products conflict with rights or licenses of others, third parties could bring legal actions against us or our collaborators, licensees, suppliers or customers, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all. Accordingly, while we may develop, acquire or license the additional technologies necessary to the development of our vaccine candidate we cannot assure you that we will be able to develop, acquire or license such technologies or that alternatives will be sufficient to enable development of our NT-CoV2-1 vaccine product candidate or to prevent others from competing with us and developing substantially-similar products.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
We or the Licensors may be subject to claims that former employees, collaborators or other third parties have an interest in the licensed patents or other intellectual property as an inventor or co-inventor. For example, we or the Licensors may have inventorship disputes arise from conflicting obligations of employees, consultants or others who are involved in developing the intellectual property covered by the License Agreements or our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or our license or the Licensors’ ownership, as applicable, of the licensed patents, trade secrets or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as our right to use intellectual property that is important to our product candidate development and commercialization. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.
Changes in patent law or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent United States Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. Moreover, patent law and protection in foreign countries, particularly developing countries, may be insufficient or otherwise unclear in its efficacy to protect our intellectual property. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the scope and value of patents, once obtained.
| 47 |
For our U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern the administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact(s) the AIA will have on the operation of our business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business. One important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party who files a patent application with the USPTO after such date but prior to us may therefore be awarded a patent covering an invention of ours even if we were the first to invent. This “first-inventor-to-file” system will require us both to remain cognizant, going forward, of the timing between invention and filing of a patent application.
Among some of the other changes introduced by the AIA are those that (i) limit where a patentee may file a patent infringement suit and (ii) provide opportunities for third parties to challenge any issued patent in the USPTO. Such changes apply to all of our U.S. patents, even those issued prior to March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings, as compared to the evidentiary standard applied in U.S. federal courts, necessary to invalidate a patent claim, a third party could potentially present evidence in a USPTO proceeding sufficient for the USPTO to find a claim invalid, notwithstanding that the same evidence would be insufficient to invalidate a claim first presented in a district court action. Accordingly, a third party may attempt opportunistically to use USPTO procedures to invalidate our patent claims.
Depending on decisions by the United States Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ abilities to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
If we are unable to protect our trademarks or other intellectual property from infringement, our business prospects may be harmed.
We have applied for trademark protection for trademarks in the United States, the European Union and China. Although we take steps to monitor the possible infringement or misuse of our trademarks, it is possible that third parties may infringe, dilute or otherwise violate our trademark rights. Any unauthorized use of our trademarks or other intellectual property rights could harm our reputation or commercial interests. Moreover, our License Agreements do not commit to defend any declaratory judgment action alleging the invalidity of any of the licensed patent rights covered by the license, nor does the NIAID commit to commence legal actions against third parties alleged to infringe upon those licensed patent rights. Our enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and any remedy obtained may constitute insufficient redress relative to the damages we may suffer.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection insufficient to guard against such infringement. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
| 48 |
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals. In such instances, we may be unable to enjoin or otherwise prevent infringement of our patents or marketing of competing products in violation of our proprietary rights, generally. Proceedings to enforce our patent rights in foreign jurisdictions could (i) result in substantial costs and divert our efforts and attention from other aspects of our business, (ii) put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and (iii) provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may be unable to seek adequate remedies to address infringement and/or material diminishment of the value of our patents, which could limit our potential revenue opportunities in such jurisdictions. Accordingly, our efforts to establish or enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from our intellectual property. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming and an unfavorable outcome in that litigation could have a material adverse effect on our business.
Our commercial success depends upon our ability to develop, manufacture, market, and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We cannot guarantee that engaging in such actions and using such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields relating to our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that others may assert that our product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including us, which patents cover various drugs, biologics, drug delivery systems or their methods of use, and which of these patents may be valid and enforceable. Thus, due to the large number of patents issued and patent applications filed in our fields, third parties may allege they have patent rights encompassing our product candidates, technologies or methods.
In addition, our product candidates or proprietary technologies may infringe patents owned and/or filed by third parties, or third parties may allege such infringement. Because (i) some patent applications in the United States may be maintained in secrecy until the patents are issued, (ii) patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing and (iii) 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 own and in-licensed issued patents or our pending applications. Our competitors may have filed, and may in the future file, patent applications covering our product candidates or technology similar to ours. Any such patent application may have priority over our own and in-licensed patent applications or patents, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to us, we or, in the case of in-licensed technology, the licensor may have to participate, in the United States, in an interference proceeding to determine priority of invention.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product candidates or proprietary technologies infringe such third parties’ intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. Such lawsuits can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if we do not infringe such patents or the patents asserted against us are later invalidated. A court may, however, decide that we are infringing the third party’s patents and order us to cease the activities covered by the patents. In addition, there is a risk that a court will order us to pay for such third-party damages for having violated the other party’s patents.
| 49 |
As a result of patent infringement claims, or to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on commercially acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property, or such rights might be restrictive and limit our present and future activities. Ultimately, we or a licensee could be prevented from commercializing a product or forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
In addition to possible infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation, re-examination or other post-grant proceedings declared or granted by the USPTO, and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future products.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, generally. To date, no litigation asserting infringement claims has ever been brought against us. If a third-party claims that we infringe its intellectual property rights, we may face a number of issues, including:
| ● | infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business; | |
| ● | substantial damages for infringement, which we may have to pay if a court decides that the product or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees; | |
| ● | a court prohibiting us from selling or licensing the product or using the technology unless the third party licenses its intellectual property rights to us, which it is not required to do; | |
| ● | if a license is available from a third party, we may have to pay substantial royalties or upfront fees or grant cross-licenses to intellectual property rights for our products or technologies; and | |
| ● | redesigning our products or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time. |
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 harm our ability to raise additional funds or otherwise adversely affect our business, financial condition, operating results and prospects.
Because we rely on certain third-party licensors and partners, and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly. In addition to facing litigation risks, we have agreed to indemnify certain third-party licensors and partners against claims of infringement caused by our proprietary technologies, and we have entered or may enter into cost-sharing agreements with some our licensors and partners that could require us to pay some of the costs of patent litigation brought against those third parties whether or not the alleged infringement is caused by our proprietary technologies. In certain instances, these cost-sharing agreements could also require us to assume greater responsibility for infringement damages than our technology alone would otherwise suggest.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe upon our intellectual property, including our patent applications or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. Such proceedings and/or litigation can be expensive – particularly for a company of our size – and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable or may refuse to enjoin the other party from using the technology at issue on the grounds that our patent claims do not cover its technology or that the factors necessary to grant an injunction are not satisfied. An adverse determination in such a case could put one or more of our patents at risk of being invalidated, interpreted narrowly or amended such that they fail to cover or otherwise protect our product candidates. Moreover, such adverse determinations could subject our patent applications to the risk that they will not issue, or issue with limited and potentially inadequate scope to cover our product candidates.
| 50 |
Interference, derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patent applications or those of our licensors or potential partners. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation, or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or potential partners, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that we may, intentionally or incidentally, disclose some of our confidential results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.
If our intellectual property rights do not adequately protect our products or product candidates, or if third parties claim we are infringing their intellectual property rights, others could compete against us more directly or we could be subject to significant litigation. Such results could prevent us from marketing our products or product candidates and hurt our profitability.
Our product candidates are protected by patents and patent applications. Our success depends in part on our ability to obtain patents or rights to patents, protect trade secrets, operate without infringing upon the proprietary rights of others, and prevent others from infringing on our patents, trademarks and other intellectual property rights. We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that it is covered by valid and enforceable patents, trademarks and licenses. Patent protection generally involves complex legal and factual questions and, therefore, enforceability of patent rights cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that we own or license from others may not provide adequate protection against competitors. In addition, any future patent applications may fail to result in patents being issued. Also, those patents that are issued may not provide us with adequate proprietary protection or competitive advantages against competitors with similar product candidates. Moreover, the laws of certain foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.
In addition to patents and trademarks, we rely on trade secrets and proprietary know-how. We seek protection of these rights, in part, through confidentiality and proprietary information agreements. These agreements may not provide meaningful protection or adequate remedies for violation of our rights in the event of unauthorized use or disclosure of confidential and proprietary information. Failure to protect our proprietary rights could seriously impair our competitive position.
In the event of an infringement or violation, we may face litigation and may be prevented from pursuing product development or commercialization. We may receive in the future notice of claims of infringement of other parties’ proprietary rights. We may not have the financial resources to defend against claims of infringement by other parties or to prosecute third parties for infringement of our intellectual property. Infringement or other claims could be asserted or prosecuted against us in the future, and it is possible that past or future assertions or prosecutions could harm our business.
Our business and operations would suffer in the event of cybersecurity/information systems risk.
Despite the implementation of security measures, our internal computer systems, and those of our manufacturers and other third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, unauthorized access, natural disasters, fire, explosions or large-scale accidents, power outages or surges, terrorism, successful breaches, employee malfeasance, or human or technological error, war and telecommunication and electrical failures. In addition, our systems safeguard important confidential personal data regarding our subjects. If a disruption event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.
| 51 |
Security breaches and other disruptions to our information technology systems or those of the vendors on whom we rely could compromise our information and expose us to liability, reputational damage, or other costs.
In the ordinary course of our business, we and our current and future strategic partners, vendors, contractors, and consultants collect and store sensitive data, including intellectual property, our proprietary business information and data about our clinical participants, suppliers and business partners and personally identifiable information. The secure maintenance of this information is critical to our operations and business strategy. Some of this information represents an attractive target of criminal attack by malicious third parties with a wide range of motives and expertise, including nation-states, organized criminal groups, “hacktivists,” patient groups, disgruntled current or former employees and others. Our ongoing operating activities also depend on functioning information technology systems. Cyberattacks are of ever-increasing levels of sophistication, and, despite our security measures, our information technology systems and infrastructure and those of our vendors and partners are not immune to such attacks or breaches.
Any such attack could result in a material compromise of our networks, and the information stored there could be accessed, publicly disclosed, lost, rendered, permanently or temporarily, inaccessible. Furthermore, we may not promptly discover a system intrusion. Attacks could have a material impact on our business, operations or financial results. Any access, disclosure or other loss of information, whether stored by us or our partners, or other cyberattack causing disruption to our business, including ransomware, could result in reputational, business, and competitive harms, significant costs related to remediation and strengthening our cyber defenses, legal claims or proceedings, government investigations, liability including under laws that protect the privacy of personal information, and increased insurance premium, all of which could adversely affect our business. We also may need to pay a ransom if a “ransomware” infection prevents access or use of our systems and we may face reputational and other harms in addition to the cost of the ransom if an attacker steals certain critical data in the course of such an attack.
We may incur costs of addressing a cybersecurity incident.
Cybersecurity incidents have increased in number and severity recently and it is expected that these trends will continue. Should we be affected by such an incident, we may incur substantial costs and suffer other negative consequences, which may include:
| ● | investigation costs and costs to engage specialized consultants or costs of ransom demands; | |
| ● | remediation costs, such as liability for stolen assets or information, repairs of system damage, and incentives to customers or business partners in an effort to maintain relationships after an attack; and | |
| ● | litigation and legal risks, including regulatory actions by state and federal regulators. |
| 52 |
Risks Related to Government Regulations
Our product candidates are subject to substantial government regulation, including the regulation of nonclinical testing and clinical trials. If we are unable to obtain regulatory approval for our product candidates, we will be unable to generate revenues.
The production and marketing of products which may be developed from our Neurology Assets, or otherwise, and our research and development, nonclinical testing and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities. Most of the product candidates we are developing must undergo rigorous nonclinical testing and clinical trials and an extensive regulatory approval process before they can be marketed in the United States or internationally.
If we fail to obtain regulatory approval for our product candidates, we may have to cease further development. Clinical trials on our product candidates are expected to take several years to fully complete. The commencement or completion of nonclinical studies or clinical trials can be delayed or prevented for a number of reasons, including:
| ● | an inability to raise sufficient capital to commence, conduct, or complete pre-clinical testing and clinical trials; | |
| ● | insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials; | |
| ● | difficulties in finding a partner with the resources to support large and expensive clinical development and commercialization costs; | |
| ● | findings in nonclinical trials; | |
| ● | difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial; | |
| ● | delays in reaching or failing to reach agreement on acceptable terms with prospective contract 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; | |
| ● | difficulties obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site; | |
| ● | challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including the size and nature of patient population, proximity of patients to clinical sites, eligibility criteria for the trial, nature of the trial protocol, the availability of approved effective treatments for the relevant condition and competition from other clinical trial programs for similar indications; | |
| ● | severe or unexpected drug or biologic-related side effects experienced by patients in a clinical trial; and | |
| ● | difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the trial, lack of efficacy, side effects, or personal issues, or who are lost to further follow up. |
Clinical trials also may be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a trial, or a data safety monitoring board, or DSMB, overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors, including:
| ● | failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; | |
| ● | inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities; |
| 53 |
| ● | inspection of manufacturing and drug packaging operations by regulatory authorities; | |
| ● | unforeseen safety issues or lack of effectiveness; and | |
| ● | lack of adequate funding to continue the clinical trial. |
We cannot assure you that clinical trials will demonstrate the safety or effectiveness of any of our product candidates or will otherwise satisfy regulatory requirements. Our nonclinical studies or clinical trials may produce negative or inconclusive results, there may be inconsistencies between early clinical trial results and results obtained in later clinical trials, and we may decide, or regulators may require us, to conduct additional nonclinical studies or clinical trials. Moreover, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtain FDA approval for their products. If we are unable to resolve the FDA’s concerns, we will not be able to obtain regulatory approval for these product candidates.
The pre-marketing approval process can be particularly expensive, uncertain and lengthy, and a number of products for which FDA or other governmental regulatory approval has been sought by other companies have never been approved for marketing. In addition to testing and approval procedures, extensive regulations also govern marketing, manufacturing, distribution, labeling, and record-keeping procedures. If we do not comply with applicable regulatory requirements, such violations could result in warning letters, non-approval, suspensions of regulatory approvals or ongoing clinical trials, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution.
We may encounter such delays and rejection of our product candidates by the FDA or other regulatory authority may also adversely affect our business. Such delays or rejection may be encountered due to, among other reasons, government or regulatory delays, lack of efficacy during clinical trials, unforeseen safety issues, or changes in regulatory policy during the period of product development. More stringent regulatory approval processes in product clearance and enforcement activities could result in our experiencing longer approval cycles, more uncertainty, greater risk, and higher expenses. Even if regulatory approval of a product is granted, this approval may entail limitations on uses for which the product may be labeled and promoted. It is possible, for example, that we may not receive FDA approval to market products based on our licensed, patented product candidates for different indications or to market updated products that represent extensions of our basic product candidates. In addition, we may not receive FDA approval to export our products based on our licensed, patented product candidates in the future, and countries to which products are to be exported may not approve them for import.
From time to time, legislative or regulatory proposals are introduced that could alter the review and approval process relating to our product candidates. It is possible that the applicable regulatory authority will issue additional regulations further restricting the sale of our product candidates. Any change in legislation or regulations that govern the review and approval process relating to our future product candidates could make it more difficult and costlier to obtain approval for new products based on our product candidates, or to produce, market, and distribute such products if approved.
We may be unable to obtain regulatory approval for our concussion candidate, or other early-stage product candidates under applicable regulatory requirements. The FDA and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would adversely impact commercialization, our potential to generate revenue, our business and our operating results.
We are not permitted to market any of our current product candidates in the United States until we receive approval of an NDA or BLA from the FDA. We are also not permitted to market any of our current product candidates in any foreign countries until we receive the requisite approval from the applicable regulatory authorities of such countries. Failure to obtain such regulatory approvals will delay or prevent us from commercializing any of our current or future product candidates.
| 54 |
To gain approval to market a new product such as ONP-002, we must provide the FDA and/or foreign regulatory authorities with, among other things, extensive pre-clinical and clinical data that adequately demonstrates the safety and efficacy of the drug in its intended indication and information to demonstrate the adequacy of the manufacturing methods to assure the drug’s identity, strength, quality and purity. The development and approval of new drug product candidates involves a long, expensive and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical industries have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier pre-clinical studies or clinical trials. These setbacks have been caused by, among other things, observations during clinical trials regarding safety or efficacy, such as previously unreported adverse events. Success in pre-clinical testing and early clinical trials does not ensure success in later clinical trials, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct. Further, different results may be achieved depending upon whether the “per protocol”, or PP, analysis is used to report data results or whether the “modified intent-to-treat,” or MITT, approach is used. Accordingly, regardless of the outcome of any Phase 2 trials, any Phase 3 trials we may conduct may not be successful.
The FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons. The FDA or the applicable foreign regulatory body may:
| ● | disagree with the design or implementation of one or more clinical trials; | |
| ● | decline to deem a product candidate safe and effective for its proposed indication, or deem a product candidate’s safety or other perceived risks to outweigh its clinical or other benefits; | |
| ● | find the data from pre-clinical studies and clinical trials does not sufficiently support approval, or the results of clinical trials may not meet the level of statistical or clinical significance required for approval; | |
| ● | disagree with our interpretation of data from pre-clinical studies or clinical trials performed by us or third parties; | |
| ● | determine the data collected from clinical trials are insufficient to support the submission or approval of an NDA or other applicable regulatory filing; | |
| ● | require additional pre-clinical studies or clinical trials; | |
| ● | identify deficiencies in the formulation, quality control, labeling or specifications of our current or future product candidates; | |
| ● | grant approval contingent on the performance of costly additional post-approval clinical trials; |
| ● | approve our current or any future product candidates for a more limited indication or a narrower patient population than we originally requested or with strong warnings that may affect marketability; | |
| ● | decline to approve the labeling that we believe is necessary or desirable for the successful commercialization of our product candidates; | |
| ● | require a Risk Evaluation and Mitigation Strategy, or REMS, with monitoring requirements or distribution limitations. For example, it is possible that the FDA could require distribution controls in the approval, if any, of our product candidates to prevent inadvertent exposure to pregnant women; | |
| ● | decline to approve of the manufacturing processes, controls or facilities of third-party manufacturers or testing labs with whom we contract; or | |
| ● | change its approval policies or adopt new regulations in a manner rendering our clinical data or regulatory filings insufficient for approval. |
Any delay, limitation or denial of any regulatory approval would adversely impact commercialization, our potential to generate revenue, our business, and our operating results.
| 55 |
Delays or difficulties in the enrollment of patients in clinical trials may result in additional costs and delays in our ability to generate significant revenues and may delay or prevent our receipt of any regulatory approvals necessary to commercialize our planned and future products.
We may not be able to initiate, or continue, or complete in a timely fashion clinical trials for ONP-002 or our other product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States.
Patient enrollment is affected by other factors including:
| ● | the severity of the disease under investigation; | |
| ● | the eligibility criteria for the study in question; | |
| ● | the perceived risks and benefits of the product candidate under study; | |
| ● | the efforts to facilitate timely enrollment in clinical trials; | |
| ● | the patient referral practices of physicians; | |
| ● | the ability to monitor patients adequately during and after treatment; and | |
| ● | the proximity and availability of clinical trial sites for prospective patients. |
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and impede our ability to obtain additional financing.
Any product candidates that we commercialize will be subject to ongoing and continued regulatory review.
Even after we achieve U.S. regulatory approval for a product candidate, if any, we will be subject to continued regulatory review and compliance obligations. For example, the FDA may impose significant restrictions on the approved indicated uses for which our product candidates may be marketed or on the conditions of approval. A product candidate’s approval may contain requirements for potentially costly post-approval studies and surveillance, including Phase 4 clinical trials or a REMS to monitor the safety and efficacy of the product. We will also be subject to ongoing FDA obligations and continued regulatory review with respect to, among other things, the manufacturing, processing, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for our product candidates. These requirements include submissions of safety and other post-marketing information and reports, registration, continued compliance with the FDA’s good clinical practice, or GCP, requirements and good laboratory practice requirements, which are regulations and guidelines the FDA would apply to all of our product candidates in clinical and pre-clinical development, along with any clinical trials that we conduct post-approval, and continued compliance with the FDA’s cGMP requirements pursuant to which manufacturing facilities are subject to continual review and periodic inspections by the FDA. To the extent that a product candidate is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
If we, our product candidates, or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
| ● | impose restrictions on the marketing or manufacturing of the product, suspend or withdraw product approvals or revoke necessary licenses; |
| 56 |
| ● | issue warning letters, show cause notices or untitled letters describing alleged violations, which may be publicly available; | |
| ● | mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners; | |
| ● | 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; commence criminal investigations and prosecutions; | |
| ● | impose injunctions; | |
| ● | impose other civil or criminal penalties; |
| ● | suspend any ongoing clinical trials; | |
| ● | delay or refuse to approve pending applications or supplements to approved applications filed by us; | |
| ● | refuse to permit drugs or active ingredients to be imported or exported to or from the United States; | |
| ● | suspend or impose restrictions on operations, including costly new manufacturing requirements; or | |
| ● | seize or detain products or require us to initiate a product recall. |
The regulations, policies or guidance of the FDA and other applicable government agencies may change and new or additional statutes or government regulations may prevent or delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our product candidates, which would materially and adversely affect our ability to generate revenue and achieve or maintain profitability.
Our product candidates may cause serious or undesirable side effects or possess other unexpected properties that could delay or prevent their regulatory approval, limit the commercial profile of approved labeling or result in post-approval regulatory action.
Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after marketing such product. Undesirable side effects caused by product candidates could cause us or regulatory authorities to interrupt, modify, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign authorities. Results of clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in product liability claims. Any of these occurrences may harm our business, financial condition, operating results and prospects.
Additionally, if we or others identify undesirable side effects, or other previously unknown problems, caused by our product candidates after obtaining U.S. or foreign regulatory approval or other products with the same or related active ingredients, a number of potentially negative consequences could result, including:
| ● | regulatory authorities may withdraw their approval of the product; | |
| ● | regulatory authorities may require a recall of the product or we may voluntarily recall a product; | |
| ● | regulatory authorities may require the addition of warnings or contraindications in the product labeling, narrowing of the indication in the product label or issuance of field alerts to physicians and pharmacies; |
| 57 |
| ● | we may be required to create a medication guide outlining the risks of such side effects for distribution to patients or institute a risk evaluation and mitigation strategy, or REMS; | |
| ● | we may be subject to limitations as to how we promote the product; | |
| ● | we may be required to change the way the product is administered or modify the product in some other way; | |
| ● | the FDA or applicable foreign regulatory authority may require additional clinical trials or costly post-marketing testing and surveillance to monitor the safety or efficacy of the product; | |
| ● | sales of the product may decrease significantly; |
| ● | we could be sued and held liable for harm caused to patients; and | |
| ● | our brand and reputation may suffer. |
Any of the above events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates.
| 58 |
We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject to regulation by both the federal government and the states in which we conduct our business. The laws and regulations that may affect our ability to operate include:
| ● | the federal healthcare program anti-kickback statute, which prohibits, among other things, any person or entity from knowingly and willfully offering, soliciting, receiving or providing any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce either the referral of an individual or in return for the purchase, lease, or order of any good, facility item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as the Medicare and Medicaid programs; | |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, including, for example, the United States False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HIPAA, which prohibits knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (i.e., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters; |
| ● | HIPAA and related implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; | |
| ● | the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, or ACA, which require manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members, with such information published on a searchable website on an annual basis; and | |
| ● | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be provided to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the recently enacted ACA, among other things, amended the intent requirement of the federal anti-kickback statute and certain criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
| 59 |
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws or regulations that apply to us, we may be subject to penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment or the curtailment or restructuring of our operations, any of which could materially and adversely affect our ability to operate our business and our financial results.
Our employees, independent contractors, principal investigators, consultants, vendors and CROs may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors and CROs may engage in fraudulent or other illegal activity. Misconduct by these persons could include intentional, reckless or negligent conduct or unauthorized activity that violates laws or regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA or foreign regulatory authorities; manufacturing standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions or other actions or lawsuits stemming from a failure to comply with such laws or regulations, and serious harm to our reputation. In addition, federal procurement laws impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics and conduct. If any such actions are instituted against us, we may have to terminate employees or others involved and the impact of such termination can result in our experiencing delays and additional costs associated with replacing the services being provided. If we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, FDA debarment, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our operating results.
Even if our current product candidates or any future product candidates obtain regulatory approval, they may fail to achieve the broad degree of health care payers, physician and patient adoption and use necessary for commercial success.
The commercial success of any of our current or future product candidates, if approved, will depend significantly on the broad adoption and use of the resulting product by health care payers, physicians and patients for approved indications, and may not be commercially successful. The degree and rate of physician and patient adoption of our current or future product candidates, if approved, will depend on a number of factors, including:
| ● | the clinical indications for which the product is approved and patient demand for approved products that treat those indications; | |
| ● | the effectiveness of our product as compared to other available therapies; | |
| ● | the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for any of our product candidates that may be approved; | |
| ● | the cost of treatment with our product candidates in relation to alternative treatments and willingness to pay for the product, if approved, on the part of patients; |
| 60 |
| ● | acceptance by physicians, major operators of clinics and patients of the product as a safe and effective treatment; | |
| ● | physician and patient willingness to adopt a new therapy over other available therapies to treat approved indications; | |
| ● | overcoming any biases physicians or patients may have toward particular therapies for the treatment of approved indications; | |
| ● | proper training and administration of our product candidates by physicians and medical staff; |
| ● | patient satisfaction with the results and administration of our product candidates and overall treatment experience; | |
| ● | the willingness of patients to pay for certain of our product candidates relative to other discretionary items, especially during economically challenging times; | |
| ● | the revenue and profitability that our product candidate may offer a physician as compared to alternative therapies; | |
| ● | the prevalence and severity of side effects; | |
| ● | limitations or warnings contained in the FDA-approved labeling for our product candidates; | |
| ● | any FDA requirement to undertake a REMS; | |
| ● | the effectiveness of our sales, marketing and distribution efforts; | |
| ● | adverse publicity about our product candidates or favorable publicity about competitive products; and | |
| ● | potential product liability claims. |
If any of our current or future product candidates are approved for use but fail to achieve the broad degree of physician and patient adoption necessary for commercial success, our operating results and financial condition will be adversely affected, which may delay, prevent or limit our ability to generate revenue and continue our operations.
If we are unable to achieve and maintain coverage and adequate levels of reimbursement for any of our product candidates for which we receive regulatory approval, or any future products we may seek to commercialize, their commercial success may be severely hindered.
As to any of our product candidates that become available by prescription only, our success will depend on the availability of coverage and adequate reimbursement for our product from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. If any of our product candidates fail to demonstrate attractive efficacy profiles, they may not qualify for coverage and reimbursement. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high. Patients are unlikely to use our prescription-only products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
| 61 |
In addition, the market for certain of our product candidates will depend significantly on access to third-party payors’ drug formularies or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or another alternative is available.
Moreover, third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.
Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions in both the United States and in international markets. Third-party coverage and reimbursement for any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results and prospects.
Risks Related to Our Common Stock
We cannot assure you that we will continue to be listed on the NYSE American.
Our common stock commenced trading on the NYSE American (formerly the NYSE MKT) on April 10, 2013, and we are subject to certain NYSE American continued listing requirements and standards. On December 19, 2022, we received notice of a non-compliance from the NYSE American due to our share price being too low. We subsequently effected a one for sixty reverse stock split on January 20, 2023 and received notice on February 1, 2023 from the NYSE American that we had regained compliance. However, we currently are not in compliance with the NYSE American’s continued listing requirements and standards due to our current stockholder’s equity, which is below the NYSE American’s minimum requirement. We anticipate receiving a new notice of a non-compliance from the NYSE American. We will need to raise additional capital to regain compliance, of which there can be no assurances. We may also incur costs that we have not previously incurred for expenses for compliance with the rules and requirements of the NYSE American. We cannot provide any assurance that we will be able to continue to satisfy the requirements of the NYSE American’s continued listing standards. A delisting of our common stock from the NYSE American could negatively affect the price and liquidity of our common stock and could impair our ability to raise capital in the future.
The issuance of additional equity securities by us in the future would result in dilution to our existing common shareholders.
Our Board of Directors has authority, without action or vote of our shareholders, to issue all or a part of our authorized but unissued shares, except where shareholder approval is required by law or the rules of any exchange on which our shares are listed. Any issuance of additional equity securities by us in the future could result in dilution to our existing common shareholders. Such issuances could be made at a price that reflects a discount or a premium to the then-current trading price of our common stock. In addition, our business strategy may include expansion through internal growth by acquiring complementary businesses, acquiring or licensing additional products or brands, or establishing strategic relationships with targeted customers and suppliers. In order to do so, or to finance the cost of our other activities, we may issue additional equity securities that could result in further dilution to our existing common shareholders. These issuances would dilute the percentage ownership interest of our existing common shareholders, which would have the effect of reducing their influence on matters on which our shareholders vote and might dilute the book value of our common stock. For example, our outstanding shares of common stock at December 31, 2022 was 2,024,657, due to additional common stock issuances related to capital raises, incentive compensation, and the acquisition of the Odyssey Neurology Assets, at December 31, 2023 our outstanding shares of common stock was 3,080,693. Furthermore, if Odyssey or the holders of Preferred Shares Series A and B convert their preferred shares into common stock an additional 7,511,220 shares of common stock could be issued resulting in dilution to our existing common shareholders.
| 62 |
Our financial results could vary significantly from quarter to quarter and are difficult to predict.
Our operating results could vary significantly from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. In addition, we may not be able to predict our future revenues or results of operations. We base our current and future expense levels on our internal research and development plans and forecasts, and our operating costs vary to the extent of our research and development and the planning for and conduct of clinical trials. As a result, we may incur significant or unanticipated expenses associated with our research and development efforts of our product candidates under development. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly results include:
| ● | Our use of available cash resources; | |
| ● | decisions by us to continue to pursue research and development and incur additional expenses, such as commencing a clinical trial or increases in research and development with our current product candidate; | |
| ● | the timing of release of pre-clinical and clinical trial results and new products and services by our competitors, particularly those that may represent a significant portion of revenues in any given period; | |
| ● | changes by our competitors; |
| ● | the level of expenses associated with our regulatory applications or compliance and clinical trials; and | |
| ● | the timing of compensation expense associated with equity compensation grants. |
As a result of these and other factors, our quarterly and annual operating results could be materially adversely affected. Moreover, our operating results may not meet the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly.
| 63 |
Our Series A and Series B preferred stock, if not converted into common stock, has a distribution and liquidation preference senior to our common stock in liquidation, which could negatively affect the value of our common stock and impair our ability to raise additional capital.
On May 10, 2017, and on July 25, 2017, we issued an aggregate of 12,000,000 shares of convertible preferred stock, designated as the Series A Convertible Preferred Stock pursuant to the certificate of designation and rights filed by us with the Secretary of State of the State of Florida, with an aggregate original purchase price and initial liquidation preference of $3.0 million. Each share of Series A Convertible Preferred Stock was issued for an amount equal to $0.25 per share, which we refer to as the original purchase price. On March 9, 2018, and August 26, 2022, certain holders of Series A Convertible Preferred Stock elected to convert to common stock and, as a result of such conversions, 5,417,000 shares of Series A Preferred remain outstanding.
On November 8, 2017, we issued 6,600,000 shares of convertible preferred stock, designated as the Series B Convertible Preferred Stock pursuant to the certificate of designation and rights filed by us with the Secretary of State of the State of Florida, with an aggregate original purchase price and initial liquidation preference of $3.3 million. Each share of Series B Convertible Preferred Stock was issued for an amount equal to $0.50 per share, which we refer to as the original purchase price. On August 26, 2022, a certain holder of Series B Convertible Preferred Stock elected to convert to common stock and, as a result of such conversion, 4,050,000 shares of Series B Convertible Preferred Stock remain outstanding.
Our Series A and Series B preferred stock, if not converted into common stock, will also be senior to our common stock in distribution and liquidation if such shares are not converted into common stock, which could negatively affect the value of our common stock and impair our ability to raise additional capital.
The conversion of our Series A Preferred Stock, Series B Preferred Stock, Series F Preferred Stock, and the exercise of currently outstanding warrants could result in significant dilution to the holders of our common stock.
The holders of our Series A Preferred Stock, Series B Preferred Stock, and Series F Preferred Stock may convert their shares of preferred stock into shares of common stock. As of December 31, 2023, we had outstanding: (i) 5,417,000 shares of Series A Preferred Stock outstanding, which are convertible into 9,028 shares of common stock and (ii) 4,050,000 shares of Series B Preferred Stock, which are convertible into 13,500 shares of common stock, and (iii) 7,488,692 shares of Series F Preferred Stock, which are convertible into common stock on a one-to-one basis. In addition to our outstanding shares of preferred stock, as of December 31, 2023, there were currently outstanding warrants to purchase 275,990 shares of our common stock. The conversion of our Series A Preferred Stock, Series B Preferred Stock, and Series F Preferred Stock; as well as the exercise of our outstanding warrants will result in significant dilution to existing common shareholders and could adversely affect the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.
Certain provisions of our articles of incorporation, bylaws, executive employment agreements and stock option plan may prevent a change of control of our company that a shareholder may consider favorable.
Provisions of our articles of incorporation, bylaws, executive employment agreements and stock option plan may discourage, delay or prevent a change of control of our company that a shareholder may consider favorable. These provisions include:
| ● | authorization of the issuance of “blank check” preferred stock that could be issued by our Board of Directors without shareholder approval and that may be substantially dilutive or contain preferences or rights objectionable to an acquirer; |
| ● | the ability of our Board of Directors to amend the bylaws without shareholder approval; |
| ● | vacancies on our Board may only be filled by the remaining Directors and not our shareholders; |
| ● | requirements that only our Board, our President or holders of more than 10% of our shares can call a special meeting of shareholders; |
| ● | obligations to make certain payments under executive employment agreements in the event of a change of control and termination of employment; and |
| ● | immediate vesting of all outstanding stock options. |
| 64 |
As a result, these provisions could discourage bids for our common stock at a premium and limit the price that investors are willing to pay in the future for shares of our common stock. However, in our articles of incorporation we expressly elected not to be governed by Sections 607.0901 and 607.0902 of the Florida Business Corporation Act, which are statutory anti-takeover provisions relating to affiliated transactions and control share acquisitions, respectively. As such, we do not have the protection of these statutes in connection with any unwanted takeover attempts which could have the effect of encouraging an attempted change of control without first negotiating with our Board of Directors.
The market price of our common stock has been, and may continue to be volatile and fluctuate significantly, which could result in substantial losses for shareholders.
The trading price of our common stock has historically been, and we expect it to continue to be, volatile. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results, our financial situation, announcements by us or our competitors, our ability or inability to raise the additional capital we may need and the terms on which we raise it, and general market and economic conditions. Some of these factors are beyond our control. Broad market fluctuations may lower the market price of our common stock and affect the volume of trading in our stock, regardless of our financial condition, results of operations, business or prospects. The closing price of our common stock as reported on the NYSE American had a high price of $9.00 and a low price of $2.62 in the 52-week period ended December 31, 2023. Furthermore, our stock traded within a range of a high volume of 313,400 and a low volume of 900 per share for the period of January 1, 2023, through December 31, 2023. As a result of this volatility, our stockholders could incur substantial losses. Factors that impact our trading price include:
| ● | results of preclinical and clinical studies of our product candidates or those of our competition, including information related to our development, manufacturing, and distribution efforts with respect to ONP-002, or information regarding such efforts by competitors with respect to their products, may also impact our stock price; | |
| ● | regulatory or legal developments in the U.S. and other countries, especially changes in laws and regulations applicable to our product candidates; |
| ● | actions taken by regulatory agencies with respect to our product candidates, clinical studies, manufacturing process or sales and marketing terms; | |
| ● | introductions and announcements of new products by us or our competitors, and the timing of these introductions or announcements; | |
| ● | announcements by us or our competitors of significant acquisitions or other strategic transactions or capital commitments; | |
| ● | fluctuations in our quarterly operating results or the operating results of our competitors; | |
| ● | variance in our financial performance from the expectations of investors; | |
| ● | changes in the estimation of the future size and growth rate of our markets; | |
| ● | changes in accounting principles or changes in interpretations of existing principles, which could affect our financial results; | |
| ● | failure of our products to achieve or maintain market acceptance or commercial success; | |
| ● | conditions and trends in the markets we serve; | |
| ● | changes in general economic, industry and market conditions; | |
| ● | changes in legislation or regulatory policies, practices or actions; | |
| ● | the commencement or outcome of litigation involving our company, our general industry or both; | |
| ● | recruitment or departure of key personnel; |
| 65 |
| ● | changes in our capital structure, such as future issuances of securities, redemption or conversion of preferred stock or the incurrence of additional debt; | |
| ● | actual or expected sales of our common stock by our stockholders; | |
| ● | acquisitions and financings; and | |
| ● | the trading volume of our common stock; |
The stock markets, in general, NYSE American and the market for biotech companies in particular, may experience a loss of investor confidence. Such loss of investor confidence may result in extreme price and volume fluctuations in our common stock that are unrelated or disproportionate to the operating performance of our business, financial condition or results of operations.
If our quarterly or annual results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our results may, in turn, cause the price of our stock to fluctuate substantially. We believe that period-to-period comparisons of our results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
We may be subject to securities litigation, which is expensive and could divert management attention.
In the past, other publicly traded companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of securities law-related litigation in the future, and such litigation against us, even if unsuccessful, could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business, financial condition and results of operations and prospects.
Future sales or issuances of our common stock in the public markets, or the perception of such sales, could depress the trading price of our common stock.
Sales of a substantial number of shares of our common stock and/or securities convertible into shares of common stock, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or could make it more difficult for us to raise funds through the sale of equity in the future.
Future issuances of common stock could further depress the market for our common stock. We expect to continue to incur drug development and selling, general and administrative costs, and to satisfy our funding requirements, we will need to sell additional equity securities, which may include sales of significant amounts of common stock to strategic investors, and which common stock may be subject to registration rights and warrants with anti-dilutive protective provisions. The sale or the proposed sale of substantial amounts of our common stock or other equity securities in the public markets or in private transactions may adversely affect the market price of our common stock and our stock price may decline substantially. Our stockholders may experience substantial dilution and a reduction in the price that they are able to obtain upon the sale of their shares. Also, new equity securities issued may have greater rights, preferences, or privileges than our existing common stock. In addition, we have a significant number of shares of restricted stock, stock options and warrants outstanding. To the extent that outstanding stock options or warrants have been or may be exercised or other shares issued, stockholders may experience further dilution.
| 66 |
If we make one or more significant acquisitions in which the consideration includes stock or other securities, our stockholders’ holdings may be significantly diluted. In addition, stockholders’ holdings may also be diluted if we enter into arrangements with third parties permitting us to issue shares of common stock in lieu of certain cash payments upon the achievement of milestones.
The issuance of shares of our common stock under our 2021 Equity Incentive Plan is covered by Form S-8 registration statements we filed with the Securities and Exchange Commission, or SEC, and upon exercise of the options, such shares may be resold into the market. We have also issued shares of common stock and warrants in connection with previous private placements. Such shares are available for resale as well as certain shares of common stock issuable upon exercise of the warrants. We have also issued shares of our common stock in the private placement and financing transaction, which are deemed to be “restricted securities,” as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended, or Securities Act, and such shares may be resold pursuant to the provisions of Rule 144. The resale of shares acquired from us in private transactions could cause our stock price to decline significantly. In addition, the conversion of outstanding shares preferred stock into common stock and the subsequent sale of shares of common stock could also cause our stock price to decline significantly.
In addition, from time to time, certain of our shareholders may be eligible to sell all or some of their restricted shares of common stock by means of ordinary brokerage transactions on the open market pursuant to Rule 144, subject to certain limitations. In general, pursuant to Rule 144, after satisfying a six-month holding period: (i) affiliated shareholders, or shareholders whose shares are aggregated, may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then-outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale and (ii) non-affiliated shareholders may sell without such limitations, in each case provided we are current in our public reporting obligations.
We are unable to estimate the number of shares that may be sold because this will depend on the market price for our common stock, the personal or business circumstances of sellers and other factors.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified members for our Board of Directors.
As a public company, we are already subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Sarbanes-Oxley Act. The requirements of these rules and regulations may increase our legal, accounting and financial compliance costs; may make some activities more difficult, time-consuming and costly; and may also place undue strain on our personnel, systems and resources. Our management and other personnel need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costlier. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors and Board committees or as executive officers.
As a public company we are also required to assess our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act and file periodic reports with the SEC. If we are unable to comply with these requirements in a timely manner, or if material weaknesses or significant deficiencies persist, the market price of our stock could decline and we could be subject to sanctions or regulatory investigations, which could harm our business. We must perform an assessment of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our compliance with Section 404 of the Sarbanes-Oxley Act requires that we incur a substantial accounting expense and expend significant management efforts. If we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act or the SEC reporting requirements in a timely manner, or if we note or identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. As a smaller reporting company, we do not have to have our independent registered public accounting firm report on the effectiveness of our internal control over financial reporting. If in the future we no longer meet the requirements of a smaller reporting company, our independent registered public accounting firm will have to report on our internal controls over financial reporting. There can be no assurance that our independent registered public accounting firm will not identify material weaknesses which could have an adverse effect on our stock price.
| 67 |
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud which could subject us to regulatory sanctions, harm our business and operating results and cause the trading price of our stock to decline.
Effective internal controls required under Section 404 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our business, reputation and operating results could be harmed. We have discovered, and may in the future discover, areas of our internal controls that need improvement. We cannot be certain that the measures we have taken or intend to take will ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls or difficulties encountered in their implementation could subject us to regulatory sanctions, harm our business and operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also harm our reputation and cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.
We will continue to incur significant costs as a result of and devote substantial management time to operating as a public company listed on the NYSE American.
As a public company listed on the NYSE American, we incur and will continue to incur significant legal, accounting and other expenses that we did not incur before when trading on the OTCQB Marketplace. For example, we are subject to the rules and regulations required by the NYSE American, including changes in corporate governance practices and minimum listing requirements. These requirements have increased our legal and financial compliance costs and have and will continue to render some activities more time-consuming and costlier. In addition, our management and other personnel have diverted and will continue to divert attention from operational and other business matters to devote substantial time to these listing requirements and failure to meet these requirements could lead to an adverse effect on the listing of our common stock on the NYSE American.
If securities or industry analysts publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part upon the research and reports that securities or industry analysts publish about us or our business from time to time. If one or more of the analysts who seek to cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage, once commenced, or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.
We may issue debt or debt securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.
In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and securities would receive distributions of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.
| 68 |
We are a “smaller reporting company” and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, our common stock may be less attractive to investors.
We are a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a “smaller reporting company,” have a public float of less than $250 million and have annual revenues of less than $100 million during the most recently completed fiscal year. As a “smaller reporting company,” we are subject to lesser disclosure obligations in our SEC filings compared to other issuers. Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our operating results and financial prospects.
We do not intend to pay cash dividends.
We have not declared or paid any cash dividends on our capital stock, and we do not anticipate declaring or paying cash dividends in the foreseeable future. Any future determination as to the payment of cash dividends on our capital stock will be at our Board of Directors’ discretion and will depend on our financial condition, operating results, capital requirements and other factors that our Board of Directors considers to be relevant.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
Our management recognizes the impact that cybersecurity threats could have on our business operations, our compliance with regulations and our reputation. We have identified cybersecurity as a critical business risk as part of our overall risk management strategy, which our board of directors oversees.
We have implemented an information security management system in accordance with our risk profile and business that is designed to protect the Company, our employees, and our shareholders from cybersecurity threats. We have also developed an incident response policy and procedure designed to facilitate the handling of cybersecurity incidents.
Our cybersecurity risk management program aims to identify risks from cybersecurity threats. Our cybersecurity risk management program includes a number of components, including informal self-assessments. Our managed security services provider helps us implement additional security controls, including malware protection and network security tools. We take a risk-based approach to the evaluation of third-party vendors.
We have not identified any cybersecurity incidents or threats that have materially affected us or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. However, like other companies in our industry, we and our third-party vendors have from time-to-time experienced threats and cybersecurity incidents that could affect our information or systems. For more information, see Item 1A. Risk Factors.
Governance Related to Cybersecurity Risks
The Board of Directors and Audit Committee oversee the management of risks by the Company’s management. The Audit Committee is responsible for reviewing the Company’s cybersecurity program and risks, as identified by Company management, and the steps that Company management has taken to protect against threats to the Company’s assets including information systems and data security. The Audit Committee provides updates to the Board approximately annually.
ITEM 2. PROPERTIES.
We leased approximately 2,207 square feet for our corporate offices located at 4902 Eisenhower Boulevard, Suite 125, Tampa, Florida 33634. Lease payments per month are inclusive of insurance, taxes and utilities. The lease expired on February 28, 2024, as we elected not to renew it.
In addition to our Tampa location, we leased space at 13700 Progress Boulevard, Alachua, Florida 32615, the space was used as our research facility where some of the research and development for our lantibiotics program was completed. The facility was approximately 5,300 square feet of which approximately 60% was used for laboratory space and the remainder was used as office space and common areas. In September of 2023, we terminated the lease for the Alachua facility. Lease costs for the Alachua facility for the year ended December 31, 2023, include insurance, taxes, utilities, and a one-time early termination fee of approximately $162,000.
ITEM 3. LEGAL PROCEEDINGS.
In 2022 and 2023 we were not a party to any material legal proceedings.
On December 7, 2022, the Company entered into an investment banking engagement letter with Ladenburg Thalmann, (“Ladenburg”). The engagement letter was subsequently amended at various times (together with amendments to the “Engagement Letter”). We terminated the Engagement Letter dated August 15, 2023. Ladenburg recently sent the Company an invoice in the amount of $2,500,000, and a demand letter from Ladenburg’s general counsel demanding payment thereof followed shortly thereafter. Ladenburg is of the view that a fee is owed based on our purchase of the Neurology assets. We strongly disagree that any such fee is due to Ladenburg and have initiated a confidential action for arbitration against Ladenburg through FINRA on March 12, 2024, seeking, among other things, a declaratory action ruling that no such fee is owed. Ladenburg has not yet answered the FINRA claim.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
| 69 |
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the NYSE American under the ticker symbol “OGEN”. The last price of our common stock as reported on the NYSE American on March 26, 2024 was $1.41 per share. As of March 26, 2024, there were approximately 40 stockholders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name such as banks and brokerage firms.
Dividends
To date, we have neither declared nor paid any dividends on our common stock nor do we anticipate that such dividends will be paid in the foreseeable future. Rather, we intend to retain any earnings to finance the growth and development of our business. Any payment of cash dividends on our common stock in the future will be dependent, among other things, upon our earnings, financial condition, capital requirements and other factors which the Board of Directors deems relevant. In addition, restrictive covenants contained in any financing agreements entered into in the future may preclude us from paying any dividends.
Unregistered Sale of Equity Securities and Use of Proceeds
None, other than reported in Current Reports on Form 8-K.
Stock Repurchases in the Fourth Quarter
There were no purchases of our common stock during the three months ended December 31, 2023.
ITEM 6. [RESERVED.]
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following information should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included elsewhere in this Form 10-K. This discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this Form 10-K.
Overview
We are a development-stage company dedicated to the research and development of nasal delivery pharmaceutical medications in neurology and fighting infectious diseases. Our lead product ONP-002 is a fully synthetic, nonnaturally occurring neurosteroid, is lipophilic, and can cross the blood-brain barrier to rapidly eliminate swelling, oxidative stress and inflammation while restoring proper blood flow through gene amplification.
Our ONP-002 Neurology Asset for Brain Related Illness and Injury
Following our December 2023 acquisition of the assets of Odyssey Health, Inc (“Odyssey”) related to the segment of its business focused on developing medical products that treat brain related illnesses and diseases (the “Neurology Assets”) our lead product and focus is on the development and commercialization of ONP-002 for the treatment of mild traumatic brain injury (“mTBI” or “Concussion”).
ONP-002 to date has been shown to be stable up to 104 degrees for 18-months. The drug candidate is spray-dry manufactured into a powder and filled into the novel intranasal device. The drug is then administered through the nasal passage from the device. The novel intranasal device is lightweight and easy to use in the field.
The proprietary powder formulation and intranasal administration allows for rapid and direct accessibility to the brain. The device is breath propelled and Oragenics expects it to allow patients to blow into the device which closes the soft palate in the back of the nasopharynx, preventing the flow of drug to the lungs or esophagus, minimizes system exposure and side effects, and easily crosses the blood brain barrier. This mechanism traps ONP-002 in the nasal cavity allowing for more abundant and faster drug availability in the traumatized brain.
| 70 |
Expected ONP-002 Product Development Timeline:
| Pre-clinical Animal Studies | Phase 1 | Phase 2a | Phase 2b | Phase 3 | ||||
| Complete | Complete | Estimated Q2/Q3 2024 start | Estimated Q4 2024 start | Estimated Q4 2026 start |
This product development plan is an estimate and is subject to change based on funding, technical risks and regulatory approvals.
Intellectual Property
Patents on ONP-002 have been filed and/or issued and a patent has been filed on the nasal delivery device as follows:
| ● | New chemical entity patent filing concerning the C-20 Steroid compounds has been filed with the USPTO and is pending in the U.S. and approved in Europe and Canada. |
| ○ | C-20 steroid compounds, composition and uses thereof to treat traumatic brain injury (TBI), including concussion. | |
| ○ | Inventions relate to, inter alia, ONP-002 compositions, methods of use to treat, minimize and/or prevent traumatic brain injury (TBI), including severe TBI, moderate TBI, and mild TBI, including concussions, methods of manufacture and/or synthesis, products by process, and intermediates. | |
| ○ | An issued U.S. patent expiration with 5-year maximum patent term extension - 9/17/2040. | |
| ○ | An issued U.S. patent expiration without patent term extension - 9/17/2035. |
| ● | New nasal delivery device filing concerning the Breadth-Powered Nasal Devices has been filed with the USPTO as a utility patent application and with the USPTO PCT Receiving Office as a PCT application. |
| ○ | Breadth-Powered Nasal Devices for Treatment of Traumatic Brain Injury (TBI), Including Concussion, and Methods. | |
| ○ | Inventions relate to, inter alia, breadth-powered nasal devices, single-directional breath-powered nasal devices for providing dual airflow for propelling a drug substance into a nasal cavity for targeted delivery to the olfactory region in high drug substance concentration for rapid diffusion into the brain for the treatment of local or systemic and/or central nervous system (“CNS”) injury, disease or disorder, and methods of treating local or systemic and/or central nervous system (“CNS”) injury, disease or disorder with such devices. |
An issued U.S. patent expiration - 10/19/2042.
| 71 |
ONP-002 Clinical Trials
ONP-002 has completed a Phase 1 clinical trial in healthy human subjects showing it is safe and well tolerated.
Safety studies have established a dosing regimen of 2X/day for fourteen days. The Phase I clinical trial was performed in Melbourne, Australia with a Contract Research Organization (CRO), Avance Clinical Pty Ltd and Nucleus Network Pty Ltd. The country of Australia provides a currency exchange advantage and a tax rebate at the end of our fiscal year from the Australian government on all Research and Development performed in Australia.
The Phase 1 study was double-blinded, randomized and placebo controlled (3:1, drug: placebo). Phase 1 used a Single Ascending/Multiple Ascending (SAD/MAD) drug administration design. The SAD component was a 1X treatment (low, medium, or high dose) and the MAD component was a 1X/day treatment for five consecutive days (low and medium dose). Blood and urine samples were collected at multiple time points for safety pharmacokinetics. Standard safety monitoring was provided for each body system.
Forty human subjects (31 males, 9 females) were successfully enrolled in Phase I. The Safety Review Board, made up of medical doctors, has reviewed the trial data and has determined the drug is safe and well tolerated at all dosing levels.
We anticipate preparing for Phase 2 clinical trials to further evaluate ONP-002’s safety and efficacy. Based on the Phase I data, we plan to apply for an Investigational New Drug application with the FDA and conduct a Phase II trial in the United States.
We anticipate a Phase 2 clinical trial will be performed administering ONP-002 intranasally in concussed patients 2x a day for up to fourteen days. The Phase 2a feasibility study will be performed in Australia with a target initiation date in the second or third quarter of 2024 to be followed closely by a Phase 2b proof of concept study in the US.
| 72 |
Our SARS-CoV-2 Vaccine Product Candidate – NT-CoV2-1
Prior to the purchase of the Neurology Assets, starting in May 2020 with the acquisition of one hundred percent (100%) of the total issued and outstanding common stock of Noachis Terra, Inc. (“Noachis Terra”) and through December 31, 2023, we were focused on the development and commercialization of a vaccine produce candidate to provide long-lasting immunity from SARS-CoV-2, which causes COVID-19. During that time, we conducted testing in animal models, including SARS-CoV-2 challenge studies in hamsters, using specific formulations for intramuscular administration and intranasal administration, both based on the NIAID pre-fusion stabilized spike protein antigens.
In June of 2021 we initiated an immunogenicity study in mice and on August 30, 2021, we announced the successful completion of the mouse studies that supported further development using either intramuscular or intranasal routes of administration. In September of 2021 we initiated a hamster challenge to assess inhibition of viral replication using adjuvants specific for intramuscular and intranasal administration. In December of 2021, we announced that both formulations generated robust immune responses and reduced the SARS-CoV-2 viral loads to undetectable levels in the nasal passages and lungs five days following a viral challenge. On June 14, 2022, we announced that the results of these studies were published in Nature Scientific Reports.
In March of 2022, following a positive assessment of a rabbit-based pilot study, we initiated a Good Laboratory Practice toxicology study to evaluate the safety profile and immunogenicity of NT-CoV2-1 in rabbits. This preclinical study was designed to provide data required to advance our intranasal vaccine candidate into human clinical studies.
Following the successful results of the animal studies previously referenced and a Type B Pre-IND meeting with the FDA we determined to focus our development efforts and financial resources on the intranasal delivery vaccine produce candidate, NT-CoV2-1. As part of this intranasal development focus, during 2023 we entered into strategic license agreements and announced an award of a grant from CQDM.
However, due to lack of financial resources our research and development activities for our NT-CoV2-1 vaccine product were suspended as of December 31, 2023, and are not currently active. We will continue to evaluate opportunities and funding resources for our SARS-CoV-2 and NT-CoV2-1 candidate products in the future, of which there can be no assurances. These opportunities and funding resources could include; without limitations: sublicensing agreements, joint ventures or partnerships, sales or licensing of technology, government grants, the sale of additional debt or equity securities, and lines of credit or other loans. There are no assurances that we will be able to secure any such opportunity or funding.
Our Lantibiotic Product Candidate
Members of our scientific team discovered that a certain bacterial strain of Streptococcus mutans, produces Mutacin 1140 (MU1140), a molecule belonging to the novel class of antibiotics known as lantibiotics. Lantibiotics, such as MU1140, are highly modified peptide antibiotics made by a small group of Gram-positive bacterial species. Over 60 lantibiotics have been discovered, to date. We believe lantibiotics are generally recognized by the scientific community to be potent antibiotic agents.
In nonclinical testing, MU1140 has shown activity against all Gram-positive bacteria against which it has been tested, including those responsible for a number of healthcare associated infections, or HAIs. A high percentage of hospital-acquired infections are caused by highly antibiotic-resistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA) or multidrug-resistant Gram-negative bacteria. We believe the need for novel antibiotics is increasing because of the growing resistance of target pathogens to existing FDA approved antibiotics on the market.
Lantibiotics have been difficult to investigate for their clinical usefulness as therapeutic agents in the treatment of infectious diseases due to a general inability to produce or synthesize sufficient quantities of pure amounts of these molecules. Traditional fermentation methods can only produce minute amounts of the lantibiotic.
While lantibiotics are promising, in 2023 we concluded we needed to make several changes to reduce the cash used in operations. In September of 2023, we terminated our lease for the building where some of the research and development activities for the lantibiotic program were undertaken. The closing of the laboratory was part of the continued focus on preserving cash resources while seeking additional funding through various mechanisms.
| 73 |
As of December 31, 2023, research and development activities related to the lantibiotic program are inactive. We will evaluate opportunities for the lantibiotic program; however, moving forward our focus is to strengthen our focus and expertise on developing our intranasal drug delivery platform and drug candidates that treat brain related illnesses and diseases.
Our Business Development Strategy
Success in the biopharmaceutical and product development industry relies on the continuous development of novel product candidates. Most product candidates do not make it past the clinical development stage, which forces companies to look externally for innovation. Accordingly, we expect, from time to time, to seek strategic opportunities through various forms of business development, which can include strategic alliances, licensing deals, joint ventures, collaborations, equity or debt-based investments, dispositions, mergers, and acquisitions. We view these business development activities as a necessary component of our strategies, and we seek to enhance shareholder value by evaluating business development opportunities both within and complementary to our current business, as well as opportunities that may be new and separate from the development of our existing product candidates.
Recent Developments
Odyssey Neurology Assets. On December 28, 2023 (“the “Closing Date”) we closed the transactions contemplated by the Asset Purchase Agreement (the “Purchase Agreement”) between us and Odyssey Health, Inc. (“Odyssey”). We originally entered into the Purchase Agreement on October 4, 2023 (the “Signing Date”); the closing was subject to the satisfaction of certain closing conditions which were satisfied or waived prior to the Closing Date. At the Closing Date we purchased and assumed, and Odyssey sold and assigned, all assets (and assumed certain liabilities) related to the segment of Odyssey’s business focused on developing medical products that treat brain related illnesses and diseases (the “Neurology Assets”). The Neurology Assets include drug candidates for treating mild traumatic brain injury (“mTBI”), also known as concussion, and for treating Niemann Pick Disease Type C (NPC), as well as Odyssey’s proprietary powder formulation and its nasal delivery device.
In consideration for the Neurology Assets, we paid Odyssey $1 million in cash and issued 8 million shares of convertible Series F Preferred Stock to Odyssey. The Series F Preferred Stock is convertible into common stock on a one-to-one basis. Additional information related to the Purchase Agreement and the Series F Preferred Stock can be found in the Form 8-K filed with the Securities and Exchange Commission on October 5, 2023, December 8, 2023, and December 29, 2023.
New President. In connection with the closing and as contemplated in the Purchase Agreement, effective as of the Closing Date, we entered into an Executive Employment Agreement with Joseph Michael Redmond, pursuant to which he will serve as the President of the Company. Additional information related to Mr. Redmond and his employment with the Company can be found in our Forms 8-K filed with the Securities and Exchange Commission on December 29, 2023.
New Directors. On October 4, 2023, our Board of Directors (the “Board”) approved an increase in the size of the board of directors from five (5) to seven (7) individuals. Following the increase in the size of the board of directors, the Board appointed Mr. Bruce Cassidy and Mr. John Gandolfo to our Board. Mr. Cassidy and Mr. Gandolfo were chosen to serve as members of our Board due to their extensive leadership and business experience as well as their prior experience serving on other boards of publicly traded companies. Additional information regarding Mr. Cassidy and Mr. Gandolfo can be found in the Form 8-K filed with the Securities and Exchange Commission on October 5, 2023, and the press release filed October 18, 2023.
| 74 |
Material Transfer Agreement. On September 26, 2023, we completed the sale and transfer of certain materials and data to a third-party (the “Purchaser”) pursuant to a Material Transfer Agreement (the “Transfer Agreement”). Under the terms of the Transfer Agreement, we transferred certain biological samples/strains (referred to as “Samples”) and associated data, including but not limited to testing, assays, and stability data (“Data”) (collectively, the “Transferred Assets”) to the Purchaser, following the Purchaser’s successful testing and verification of the Samples viability. In exchange for the transfer, the Purchaser; (i) paid us $50,000 in cash, and (ii) granted us an option to purchase 1,000,000 shares of the Purchaser’s equity for a total consideration of $1.00, additionally the Purchaser agreed to pay us a royalty equal to ten percent (10%) of the net income from any products developed or derived from the Transferred Assets. The duration of the royalty payments spans a ten (10) year term. The Samples were not connected to any of our current or ongoing research and development projects and were initially developed as part of a research and development project that we had previously halted and preserved until a suitable use could be identified. As of the date of this filing we have not exercised our option to purchase shares of the Purchaser’s company. The agreement did not involve the transfer of any licenses or ownership of intellectual property form the Company to the Purchaser. Additional information regarding the transaction can be found in the Form 8-K filed with the Securities and Exchange Commission on September 29, 2023.
Lease Termination. On September 13, 2023, we exercised our option to terminate our lease agreement for the facility located at 13,700 Progress Boulevard, Alachua, Florida 32615 (the “Lease”). To terminate the Lease, we paid nine (9) months of advance rent, plus prorated rent for the month of September, plus applicable sales tax. In addition, we agreed with the landlord that the security deposit would be retained by the landlord as consideration for accepting the property in “AS IS” condition. We have no further obligations under the Lease. The Alachua Lease contained the laboratory where some of the research and development for the lantibiotic program was undertaken. The lantibiotic program is now on hold.
In addition to the termination of the Lease, the Company eliminated two staff positions and Dr. Martin Handfield transitioned from an employee of the Company to a consultant. Dr. Handfield continues to be available to provide support services on an hourly basis through a consulting agreement. Dr. Handfield’s employment agreement was terminated in accordance with its terms.
Change in Certifying Accountant. On August 15, 2023, upon the completion of a comprehensive selection process, the Audit Committee of the Board of Directors (the “Audit Committee”) approved the dismissal of Mayer Hoffman McCann P.C (“MHM”) and engaged Cherry Bekaert LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2023. Additional information can be found in the Form 8-K filed with the Securities and Exchange Commission on August 18, 2023.
Executive Officer and Director Equity Awards. On August 8, 2023, the Compensation Committee and the Board of Directors approved restricted awards to certain executive officers and directors. Under the 2021 Equity Incentive Plan 40,000 shares of restricted stock was awarded to the Chief Executive Officer, Ms. Kimberly Murphy, and the Chief Financial Officer, Ms. Janet Huffman. Approximately 30,000 of the 40,000 shares vested immediately and the remaining shares vested within six (6) months from the date of the award. Additional information regarding the equity awards can be found in the Form 8-K filed with the Securities and Exchange Commission on August 10, 2023.
Securities Purchase Agreement. On August 4, 2023, we entered into a Securities Purchase Agreement (the “Securities Agreement”) with two healthcare-focused investors. Pursuant to the Securities Agreement we agreed to issue in a private placement (the “Offering”), an aggregate of (i) 404,728 shares of our common stock, $0.001 par value (the “Common Stock”), and (ii) 404,728 shares of Series E Mirroring Preferred Stock (the “Series E Preferred Stock”), the rights and preferences of which are set forth in the Certificate of Designation filed with the Secretary of State for the State of Florida. Gross proceeds from the offering were approximately $850,000. Upon the approval of the Company’s Articles of Amendment to increase its authorized shares of common stock on December 14, 2023, each share of Series E Preferred Stock was automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders of Series E Preferred Stock. Such shares resumed the status of authorized but unissued preferred stock and will no longer be designated as Series E Mirroring Preferred Stock. Additional information can be found regarding the transaction in the Form 8-K filed with the Securities and Exchange Commission on August 4, 2023.
Three-Way Collaborative Agreement. On June 5, 2023, we announced the award of a grant from CQDM, a Canadian bioresearch consortium, for the collaborative development of a variant-agnostic COVID-19 protein subunit vaccine candidate. The project is a collaboration with the National Research Council of Canada and Inspirevax.
New Chief Financial Officer, Secretary and Treasurer. On March 8, 2023, we announced the appointment of Ms. Janet Huffman as our Chief Financial Officer, Secretary and Treasurer.
Ladenburg ATM Offering Sales Agreement. On February 24, 2023, we entered into an At the Market Offering Agreement with Ladenburg, Thalmann & Co., Inc., pursuant to which would issue and sell, from time to time, shares of its common stock, depending on market demand, with the Agent acting as the sales agent or principal. We terminated the At The Market Offering Agreement effective January 30, 2024. During the 12 months ended December 31, 2023, no shares were sold from the ATM.
| 75 |
Global Commercial License Agreement—Inspirevax. On February 23, 2023, we entered into a Commercial License Agreement with Inspirevax, Inc. for its novel intranasal mucosal adjuvant, BDX301, for the development of NT-CoV2-1, our lead intranasal COVID-19 vaccine candidate. Under the exclusive licensing agreement, we contemplated pursuing the development of NT-CoV2-1 with Inspirevax’s novel BDX301 intranasal mucosal adjuvant. In connection therewith, we also formed a Joint Development Committee (JDC) comprising representatives of both companies to oversee the development efforts collaboratively. Under the agreement, we are required to make clinical, regulatory, and commercial milestone payments, as well as tiered royalty payments. Additionally, the agreement provides a certain period of time for the companies to expand their collaboration to pursue the development of additional intranasal vaccine candidates using Inspirevax’s adjuvants.
Reverse Stock Split. On January 20, 2023, we effectuated a one for sixty reverse stock split of our authorized and issued and outstanding shares of common stock pursuant to the Florida Business Corporation Act, which our Board of Directors approved in December 2022 to expeditiously meet the continued listing standards of the NYSE American, LLC and to reduce the risk of being automatically delisted from the NYSE American due to the trading price of our common stock falling below the price that the NYSE American views as low.
Financial Overview
We have incurred significant net losses and negative cash flow in each year since our inception, including net losses of approximately $21 million and $14 million for the years ended December 31, 2023, and 2022, respectively. As of December 31, 2023, our accumulated deficit was approximately $206 million. We have devoted a significant amount of our financial resources to research and development, including our nonclinical development activities and clinical trials. We expect that the costs associated with our plans to begin Phase 2 work on ONP-002 will be significant. Additionally, our License Agreements also require the payment of certain recurring and performance-based royalties that may negatively impact our financial capabilities. In addition, Ladenburg Thalmann has sent us an invoice and demand letter claiming it is owed $2,500,000 in connection with our purchase of the Neurology Assets (the “Ladenburg Claim”). While we strongly disagree with such claim and have filed a confidential action for arbitration against Ladenburg through FINRA on March 12, 2024, seeking, among other things, a declaratory action ruling that no such fee is owed, the litigation expenses related thereto will put further strain on our limited resources. As a result, we expect to continue to incur substantial net losses and negative cash flow for the foreseeable future. These losses and negative cash flows have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. Because of the numerous risks and uncertainties associated with product development and commercialization, we may not be able to continue as a going concern and are unable to accurately predict the timing or amount of substantial expenses or when, or if, we will be able to generate the revenue necessary to achieve or maintain profitability.
Grant revenue
The Company was awarded a small business innovation research grant during the third quarter of 2021 in the amount of $250,000 (“Computer-aided Design for Improved Lantibiotics” R41GM136034) for the Company’s continued research and development of lantibiotics, including its collaborative program with the Biomolecular Sciences Institute at FIU. The Company recognizes grant revenue as reimbursable grant costs are incurred up to the pre-approved award limits within the budget period. The costs associated with these reimbursements are reflected as a component of research and development expenses in the accompanying consolidated statement of operations.
Research and Development Expenses
Research and development consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of employee-related expenses, which include salaries and benefits and attending science conferences; expenses incurred under our License Agreements with third parties and under other agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our nonclinical studies; the cost of acquiring and manufacturing clinical trial materials; facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and depreciation of fixed assets; license fees, for and milestone payments related to, in-licensed products and technology; stock-based compensation expense; and costs associated with nonclinical activities and regulatory approvals. We expense research and development costs as incurred.
Our research and development expenses can be divided into (i) clinical research and (ii) nonclinical research and development activities. Clinical research costs consist of clinical trials, manufacturing services and regulatory activities, all of which are largely provided by third parties. Nonclinical research and development costs consist of our research activities, research activities provided by third parties, our own nonclinical studies, nonclinical studies provided by third parties, the acquisition of in process research and development, related personnel costs and laboratory supplies, and other costs such as rent, utilities, depreciation and stock-based compensation and research expenses we incur associated with the development of our product candidates. While we are currently focused on advancing our product development programs, our future research and development expenses will depend on the clinical success of our product candidates, as well as ongoing assessments of each product candidate’s commercial potential. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans, research expenses and capital requirements.
Our research and development expenses were $15,490,604 and $10,072,684 for the years ended December 31, 2023 and 2022, respectively.
Our current product development strategy contemplates (i) an expected increase in our research and development expenses in the future as we continue the advancement of our product development program for our ONP-002 and (ii) a continued attempt to decrease expenses related to our other product candidates, as we have paused our lantibiotics program and COVID-19 vaccine program pending additional financing and other developments. The lengthy process of completing pre-clinical studies, clinical trials; seeking regulatory approval for our product candidates; and expanding the potential claims we are able to make, requires expenditure of substantial resources. Any failure or delay in completing pre-clinical studies, clinical trials, or in obtaining regulatory approvals, could cause a delay in generating product revenues and cause our research and development expenses to increase and, in turn, have a material adverse effect on our operations. Our current product candidates are not expected to be commercially available until we are able to obtain regulatory approval from the FDA or the regulatory authority in other jurisdictions where we may seek approval.
| 76 |
Our plan is to budget and manage expenditures in research and development such that they are undertaken in a cost-effective manner yet still advance the research and development efforts focused on ONP-002. Subject to available capital, we expect overall research and development expenses to increase as a result of our ONP-002 product candidate. Our research and development projects focused on ONP-002 are currently expected to be taken to the point where they can be licensed or partnered with larger pharmaceutical companies. Our research and development projects related to other product candidates currently are on hold.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, marketing, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent filing, and professional fees for legal, consulting, auditing, and tax services.
We anticipate that our general and administrative expenses to increase, but be subject to variability for, among others, the following reasons:
| ● | to support our research and development activities, which, subject to available capital, we expect to expand as we continue the development of our product candidates; with a focus on ONP-002; |
| ● | the efforts we undertake from, time to time, to raise additional capital; |
| ● | the increased payroll, and stock-based compensation, expanded infrastructure and consulting, legal, accounting and investor relations costs associated with being a public company; and | |
| ● | The additional staff hired or retained, as part of the purchase of the Neurology Assets. |
The additional staff retained in connection with the purchase of the Neurology Assets is expected to provide additional support in the areas of finance, operations, and executive leadership.
Other Income (Expense)
Other income (expense) includes local business taxes, as well as interest income and expense. Interest income consists of interest earned on our cash and cash equivalents. The primary objective of our investment policy is capital preservation. Interest expense consists primarily of interest and costs associated with our indebtedness.
Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The preparation of financial statements in accordance with US GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. There are certain critical estimates that we believe require significant judgment in the preparation of our financial statements. We consider an accounting estimate to be critical if:
| ● | It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time, we were making the estimate; and |
| ● | Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations. |
Stock-Based Payment Arrangements
Generally, all forms of stock-based payments, including stock option grants and warrants are measured at their fair value on the awards’ grant date typically using a Black-Scholes Pricing Option Pricing Model. Stock-based compensation awards issued to non-employees for services rendered are recorded at the fair value of the stock-based payment. The expense resulting from stock-based payments are recorded in research and development expense or general and administrative expense in the statement of operations, depending on the nature of the services provided. Stock-based payment expense is recorded over the requisite service period in which the grantee provides services to us. To the extent the stock option grants or warrants do not vest at the grant date they are subject to forfeiture.
| 77 |
Stock-Based Compensation
U.S. Generally Accepted Accounting Principles (“US GAAP”) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values as of the grant date. Stock-based compensation expense is recorded over the requisite service period in which the grantee provides services to us, to the extent the options do not vest at the grant date and are subject to forfeiture. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met. We account for forfeitures of stock-based awards as a component of compensation expense as the forfeitures occur.
Accounting for Mergers and Acquisitions
ASC 805, Business Combinations, provides a model for determining whether an acquisition represents a business combination. In order to be a business, the integrated set of activities of the acquired entity needs to have an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired entity must also pass the “Screen Test” which involves determining whether the acquisition represents an in-substance asset acquisition based on whether the fair value of the gross assets acquired is “substantially all” concentrated in a single asset or group of similar assets. This evaluation excludes certain acquired assets such as cash, deferred taxes, and goodwill associated with deferred taxes, but includes all other gross assets, including any consideration transferred in excess of the identified assets.
The Company accounted for the acquisition of the Neurology Assets of Odyssey as an asset purchase after determining that the transaction did not meet the criteria of a business combination. As such, the net assets were recorded at the date of the acquisition and the resulting IPR&D was recorded as a research and development expense in the statement of operations.
New Accounting Pronouncements
There are no additional accounting pronouncements issued or effective during the twelve months ended December 31, 2023, that have had or are expected to have a material impact on our financial statements.
Recently Issued Accounting Pronouncements
Income Taxes
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2026 for the annual reporting period ending September 30, 2026. The accounting pronouncement is not expected to have a material impact on the Company’s related disclosures.
Effective January 1, 2023, repurchases are subject to a nondeductible excise tax under the Inflation Reduction Act of 2022 equal to 1.0% of the fair market value of the shares repurchased, subject to certain limitations. The Company did not have an impact to our financial condition or results of operations in 2023 as a result of the excise tax.
Fair Value Measurement of an Equity Security
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement” (“ASU 2022-03”). ASU 2022-03 states that a contractual restriction on the sale of an equity security is not considered in measuring fair value. Furthermore, it requires an entity to disclose the fair value of equity securities subject to contractual sale restrictions, the nature and remaining duration of the restrictions and the circumstances that could cause a lapse in the restrictions. ASU 2022-03 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early application is permitted. Upon initial evaluation, the Company does not expect its adoption to have a material impact to the Company’s consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”), which are intended to improve reportable segment disclosure requirements. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements of ASU 2023-07 are required for entities with a single reportable segment. The new segment disclosures are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The accounting pronouncement is not expected to have a material impact on the Company’s related disclosures and financial statements.
| 78 |
Results of Operations:
| Year Ended December 31, | ||||||||||||||||
| 2023 | 2022 | Increase/Decrease | Percentage | |||||||||||||
| Grant revenue | $ | 37,653 | $ | 131,521 | $ | (93,868 | ) | (71.4 | )% | |||||||
| Operating expenses: | ||||||||||||||||
| Research, and development | 15,490,604 | 10,072,684 | 5,417,920 | 53.8 | % | |||||||||||
| General and administrative | 5,451,952 | 4,479,605 | 972,347 | 21.7 | % | |||||||||||
| Total operating expenses | 20,942,556 | 14,552,289 | 6,390,267 | 43.9 | % | |||||||||||
| Loss from continuing operations | (20,904,903 | ) | (14,420,768 | ) | (6,484,135 | ) | 45.0 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 210,394 | 135,900 | 74,494 | 54.8 | % | |||||||||||
| Interest expense | (30,591 | ) | (15,103 | ) | (15,488 | ) | 102.5 | % | ||||||||
| Other income | 69,363 | 11,582 | 57,781 | 498.9 | % | |||||||||||
| Total other income (expense), net | 249,166 | 132,379 | 116,787 | 88.2 | % | |||||||||||
| Loss from continuing operations before income taxes | (20,655,737 | ) | (14,288,389 | ) | (6,367,348 | ) | 44.6 | % | ||||||||
| Income tax benefit | — | — | — | — | % | |||||||||||
| Net loss from continuing operations | $ | (20,655,737 | ) | $ | (14,288,389 | ) | $ | (6,367,348 | ) | 44.6 | % | |||||
For the Years Ended December 31, 2023 and 2022
Grant revenue. We recorded grant revenue of $37,653 for the year ended December 31, 2023, compared to $131,521 for the year ended December 31, 2022; a decrease of $93,868, or 71.4%. This decrease was attributable to a small business innovation research grant awarded in 2021 that expired in July of 2023 generating 7 months of revenue for the year ended December 31, 2023, as compared to 12 months of revenue for year ended December 31, 2022.
Research and Development. Research and development expenses were $15,490,604 for the year ended December 31, 2023, compared to $10,072,684 for the year ended December 31, 2022; an increase of $5,417,920 or 53.8%. Research and development expenses increased by approximately $10.3 million due to the purchase of the Neurology Assets and the amount of IPR&D expense recorded. This was offset by a decrease of approximately $0.6 million in research and development activities in our Lantibiotics program and a decrease of approximately $4 million in our vaccine program.
The decrease in our lantibiotics and vaccine program development activities was primarily due to our efforts to preserve cash resources, which included the closing of our laboratory where some of the research and development activities for lantibiotics were completed and pausing research and development activities on our vaccine program.
General and Administrative. General and administrative expenses were $5,451,952 for the year ended December 31, 2023, compared to $4,479,605 for the year ended December 31, 2022; an increase of $ 972,347. This net change was primarily due to the following increases and decreases:
| ● | Increases in: | ||
| o | Restricted stock-based compensation, | ||
| o | Consultants | ||
| o | Employee Options expense and | ||
| o | Accounting expenses | ||
| ● | Decreases in: | ||
| o | Non-employee options and public company related expenses. | ||
Other Income (Expense). Other income (expense) was $249,166 for the year ended December 31, 2023 compared to $132,379 for the year ended December 31, 2022; an increase of $116,787. The net change was primarily attributable to an increase in interest income and gain on sale of property and equipment of $74,494 and $52,399, offset by a decrease in local business tax of $3,008.
| 79 |
Liquidity and Capital Resources
Since our inception, we have funded our operations primarily through the sale of equity securities in our initial public offering, the sale of equity securities and warrants in private and public offerings, debt financing, warrant exercises and grants. As of December 31, 2023, we had an accumulated deficit of $(206,218,254) and we have yet to achieve profitability. We incurred net losses of $(20,655,737) and $(14,288,389) for the years ended December 31, 2023 and 2022, respectively. We expect to incur significant and increasing operating losses for the foreseeable future as we seek to advance our product candidates through nonclinical testing and clinical trials to ultimately obtain regulatory approval and eventual commercialization. We will need to raise additional capital to fund our operations. We anticipate that our cash resources as of December 31, 2023, will be sufficient to fund our operations as presently structured through the second quarter of 2024. There can be no assurance that additional capital will be available to us on acceptable terms, if at all. Adequate additional funding may not be available to us on acceptable terms, or at all. Assuming we can raise additional capital, we expect that research and development expenses will increase along with general and administrative costs, as we grow and operate our business. The following table sets forth the primary sources and uses of cash for each of the periods indicated:
Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (7,290,880 | ) | $ | (15,228,483 | ) | ||
| Net cash used in investing activities | (936,285 | ) | (115,519 | ) | ||||
| Net cash provided by (used in) financing activities | 283,880 | (494,916 | ) | |||||
| Net decrease in cash and cash equivalents | $ | (7,943,285 | ) | $ | (15,838,918 | ) | ||
During the years ended December 31, 2023 and 2022, our cash flows from operations used cash of $(7,290,880) and $(15,228,483), respectively. The use of cash in all periods primarily resulted from our net losses adjusted for non-cash items and changes in operating assets and liabilities. We had a working capital surplus of $2,067,593 and $12,693,239 as of December 31, 2023, and 2022, respectively.
During the fiscal years ended December 31, 2023 and 2022, cash used in investing was $(936,285) and $(115,519), respectively. The increase in cash used in investing for the fiscal year 2023 was primarily from the $1,000,000 paid to Odyssey Health as part of the acquisition of the Neurology Assets in December of 2023.
Cash provided by financing for the fiscal year 2023 was $283,880 and cash used in financing activities for the fiscal year 2022 was $(494,916). The net cash provided by financing activities in the fiscal year 2023 was from the sale of approximately 404,728 shares of our common stock and approximately 404,728 shares of our Series E Mirroring Preferred stock which resulted in gross proceeds of approximately $850,000, the proceeds from the sale were partially offset by payments made on our short term note payable related to the financing of our 2023 insurance premiums.
Subsequent to December 31, 2023, in March of 2024 we announced that we closed an offering related to an underwriting agreement entered into February of 2024. As a result of the financing, we sold 1.4 million shares of our common stock at a price to the public of $1.50, the transaction net cash proceeds were approximately $1.8 million after underwriter fees and expenses. The proceeds will be used to fund continued research and development activities and corporate overhead expenses. We anticipate these additional cash proceeds to fund planned operations through the third quarter of 2024. Additional information regarding the transaction can be found in the Form 8-K filed with the Securities and Exchange Commission on February 28, 2024 and March 1, 2024.
Additional details of our financing activities for the periods reflected in this report as well as certain information on our outstanding shares of preferred stock are provided below:
Financings
At-the-Market Program (“ATM Program”)
On February 24, 2023, we entered into an At the Market Offering Agreement (“ATM”) with Ladenburg, Thalmann & Co., Inc. (the “Agent”), pursuant to which we may issue and sell, from time to time, shares of its common stock, depending on market demand, with the Agent acting as the sales agent or principal. Sales of the Shares could be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including, without limitation, sales made directly on or through the NYSE American. We sold no Shares under the ATM during the twelve months ended December 31, 2023. We terminated the At The Market Offering Agreement on August 15, 2023.
| 80 |
Other Financings
We entered into short term financing arrangements for the payment of our annual insurance premiums, including our insurance policies for our Directors and Officers, Employment Practices Liability, Products Liability, Property coverage, and other coverages.
On July 24, 2023, we entered into a short-term note payable for $611,109 bearing interest at 9.56% to finance a portion of the Directors’ and officers’ liability insurance and all of the other insurance for the Company. Principal and interest payments on this note began August 24, 2023, and are made evenly based on a straight-line amortization over a 10-month period with the final payment being made in May 24, 2024.
On August 5, 2022, we entered into a short-term note payable for $528,429 bearing interest at 6.24% to finance a portion of the Directors’ and officers’ liability insurance and employment practices liability insurance premiums. Principal and interest payments on this note began August 24, 2022 and were made evenly based on a straight-line amortization over a 10-month period, with the final payment being made in May 2023.
Our Outstanding Preferred Stock
On December 28, 2023, as part of the Purchase Agreement with Odyssey we issued 8,000,000 shares of Series F Convertible Preferred Stock to Odyssey, The Series F Convertible Preferred Stock is convertible into common stock on a one-to-one basis. Odyssey converted 511,803 shares of the Preferred F shares into common stock on December 28, 2023.
As of December 31, 2023 our outstanding Series A, Series B, and Series F Preferred Stock and the amount of common stock that may be issued upon conversion is set forth below:
| Preferred Stock Series | Outstanding Shares | Common Stock Equivalents | ||
| Series A Preferred | 5,417,000 | 9,028 | ||
| Series B Preferred | 4,050,000 | 13,500 | ||
| Series F Preferred | 7,488,197 | 7,488,197 |
In addition, as of December 31, 2023, we have outstanding warrants for the Series A and Series B holders to purchase an aggregate 19,915 shares of our common stock.
Except as otherwise required by law, the Series A, Series B, and Series F Preferred Stock (collectively referred to as the “Preferred Stock”) have no voting rights. However, as long as any shares of the Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the Certificate of Designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders the Preferred Stock, (c) increase the number of authorized shares of Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. Upon any liquidation, dissolution or winding-up by us, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation), the holders of the Series A and Series B Preferred Stock shall be entitled to receive out of the assets, the greater of (i) the product of the number of shares of preferred stock then held by such holder, multiplied by the Original Issue Price of such series of stock; and (ii) the amount that would be payable to such holder in the Liquidation (as defined in the Certificate of Designation) in respect of Common Stock issuable upon conversion of such shares of Preferred Stock if all outstanding shares of the Preferred Stock were converted into Common Stock immediately prior to the Liquidation. The Preferred Stock is classified as permanent equity. Each of the Series A and Series B Preferred Stock have redemption rights to the extent we have funds legally available therefore, at any time after the fifth anniversary of the original issue date of the applicable series of Preferred Stock. We have the right to redeem all or any portion of the outstanding shares of Series A and Series B Preferred Stock at the original issue price by providing at least seventy-five (75) days written notice of such redemption to all holders of the then outstanding shares of Series A and Series B Convertible Preferred Stock. The Series F Preferred Stock ranks junior to the Series A and Series B Preferred Stock.
Future Capital Requirements
Our capital requirements for 2024 will depend on numerous factors, including the success of our commercialization efforts and of our research and development, the resources we devote to develop and support our technologies and our success in pursuing strategic licensing and funded product development relationships with external partners. Subject to our ability to raise additional capital including through possible joint ventures and/or partnerships, we expect to incur substantial expenditures to further commercialize or develop our technologies including continued increases in costs related to research, nonclinical testing and clinical trials, as well as costs associated with our capital raising efforts and being a public company. We will require substantial funds to conduct research and development and nonclinical and Phase 2 and Phase 3 clinical testing of our product candidates, and in particular ONP-002, as well as for the manufacture and marketing of any products that are approved for commercial sale. Our plans include seeking both equity and debt financing, alliances or other partnership agreements with entities interested in our technologies, or other business transactions that would generate sufficient resources to ensure continuation of our operations and research and development programs.
| 81 |
Our current available cash and cash equivalents provide us with limited liquidity. We believe our existing cash and cash equivalents on December 31, 2023, can allow us to fund our operating plan through the second quarter of 2024. We expect to continue to seek additional funding for our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we were unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned clinical testing, research and development and commercialization activities, which could harm our business. The sale of additional equity or debt securities may result in additional dilution to our shareholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We also will require additional capital beyond our currently forecasted amounts. For example, as we continue to work on the development of our product candidates and enter into third party agreements in connection therewith, we will require additional capital.
Because of the numerous risks and uncertainties associated with research, development, and commercialization of our product candidates, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
| ● | conduct Phase II clinical trials for our ONP-002 product candidate, file an IND with the FDA and, if approved, engage in Phase III clinical trials; | |
| ● | identifying and securing clinical sites for the conduct of human trials for our product candidates; | |
| ● | the number and characteristics of the product candidates we pursue; | |
| ● | the scope, progress, results, and costs of researching and developing our product candidates, and conducting nonclinical and clinical trials including the research and development expenditures we expect to make in connection with agreements with third parties we put in place to advance our research and development efforts; | |
| ● | the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; | |
| ● | our ability to maintain current research and development licensing agreements and to establish new strategic partnerships, licensing or other arrangements and the financial terms of such agreements; | |
| ● | our ability to achieve our milestones under our ECC agreement and licensing arrangements and the payment obligations we may have; | |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and | |
| ● | the timing, receipt and amount of sales of, or royalties on, our products and future products, if any. |
We have based our estimates on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our shares 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 interest 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.
| 82 |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Inflation
Inflation affects the cost of raw materials, goods, and services that we use. In recent years, inflation has been modest but has recently increased. High energy costs and fluctuations in commodity prices can affect the cost of all raw materials and components. Although we cannot precisely determine the effects of inflation on our business, it is management’s belief that the effects on operating results will not be significant. We do not believe that inflation has had a material impact on our results of operations for the periods presented, except with respect to payroll-related costs and other costs arising from or related to government-imposed regulations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements are incorporated herein by reference to pages F-1 to F-18 at the end of this report and the supplementary data is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Management’s evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act was performed under the supervision and participation of our senior management, including our Chief Executive Officer and President, and Chief Financial Officer. The purpose of disclosure controls and procedures is to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Interim Principal Executive Officer and President, and Chief Financial Officer, to allow timely decisions regarding required disclosures.
On April 4, 2023, the Principal Executive Officer and President, Chief Financial Officer, Audit Committee, and the Company’s Board of Directors, concluded that the following financial statements should be restated and should no longer be relied upon:
| i. | The Company’s unaudited consolidated financial statements for the three months ended March 31, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 13 2022 (the “Q1 2022 10-Q”); and |
| ii. | The Company’s unaudited consolidated financial statements for the three and six months ended June 30, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2022 (the “Q2 2022 10-Q”); and |
| iii. | The Company’s unaudited consolidated financial statements for the three and nine months ended September 30, 2022 included in the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2022 (the “Q3 2022 10-Q”). |
| 83 |
The following errors impacted such filings: not properly analyzing research and development contracts.
Management reviewed the terms and conditions of the research and development contracts and the payments and concluded that during the three-month period ended March 31, 2022, three- and six-month periods ended June 30, 2022, and the three- and nine- month periods ended September 30, 2022 amounts were paid as part of a prepayment arrangement. Management reviewed Accounting Standards Codification Topic 730 Research and Development guidance related to recording initial upfront payments to vendors and determined that the unaudited consolidated financial statements originally reported for the stated periods classified research and development expense on the unaudited consolidated statement of operations that should be classified as prepaid expense on the Company’s unaudited consolidated balance sheet.
The Company determined that the reporting effects of the above errors had a material impact to the Company’s unaudited consolidated financial statements of the Company for the Q1 2022 10-Q, Q2 2022 10-Q, and Q3 2022 10-Q. As a result, the Company determined that the unaudited consolidated financial statements should be restated, and the Company should file an amendment to the Q1 2022 10-Q, Q2 2022 10-Q, and Q3 2022 10-Q with the SEC. All such amendments were filed with the SEC on April 14, 2023.
As a result, we concluded that there was a material weakness related to the review of research and development contracts and determined that our disclosure controls and procedures and internal control over financial reporting were not effective. Under Public Company Accounting Oversight Board standards, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a misstatement of our consolidated annual or interim financial statements will not be prevented or detected on a timely basis. The existence of a material weakness could adversely affect us, our reputation or investor perceptions of us.
We have undertaken measures to remediate the underlying cause of the material weakness noted above. The remediation was completed during the year ended December 31, 2023. As such, we believe that our disclosure controls and procedures and internal control over financial reporting are effective as of December 31, 2023.
Although we have completed the remediation of this material weakness, if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain misstatements and we could be required to restate our financial results. In addition, if we are unable to produce accurate consolidated financial statements in the future, our stock price, liquidity and access to the capital markets may be adversely affected and we may be unable to maintain compliance with applicable stock exchange listing requirements. Further, because of its inherent limitations, even our remediated and effective internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in our conditions, or that the degree of compliance with our policies or procedures may deteriorate.
Changes in Internal Controls over Financial Reporting
Our management, with the participation of our Interim Principal Executive Officer, President, and Chief Financial Officer, has concluded, except for the remediation efforts discussed above, that there were no other significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management has implemented a quarterly review of prepaid and accrued expenses to correctly report research and development costs. At the end of each quarter, the CFO performs an analysis to determine the percentage completion of the contracts regarding research and development costs and adjusts certain accounts as needed. Other measures were also put in place to ensure that internal controls were adequate, such as dual control over initiating and approving transactions. As such, we believe that our disclosure controls and procedures and internal control over financial reporting are effective as of December 31, 2023.
As a result of the COVID-19 pandemic, certain employees began working remotely in March 2020. Notwithstanding these changes to the working environment, we have not identified any material changes in our internal control over financial reporting. We will continue to monitor and assess the COVID-19 situation to determine any potential impact on the design and operating effectiveness of our internal controls over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Interim Principal Executive Officer and President, and Chief Financial Officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
| 84 |
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Interim Principal Executive Officer and Chief Financial Officer Certification
Appearing after the Signatures section of this report there is a Certification of the Interim Principal Executive Officer and the Chief Financial Officer. The Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the evaluation referred to in the Section 302 Certification and this information should be read in conjunction with the Section 302 Certification for a more complete understanding of the topics presented.
Management’s Report on Internal Control over Financial Reporting
The management of Oragenics, Inc is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. 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, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of the Interim Principal Executive Officer and President, and the Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the framework in Internal Control-Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.
As discussed elsewhere, in early 2013, we identified a material weakness in our internal control over financial reporting. However, we subsequently remediated the weakness during the year ended December 31, 2023. The material weakness related to the review of research and development contracts. For additional information on the material weakness identified and our remedial efforts, see “Item 9A. Controls and Procedures”.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. 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 us to provide only Management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
| (a) | None, | |
| (b) | Rule 105-1 trading arrangement. During the fourth quarter of 2023, no director or Section 16 officer |
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not Applicable
| 85 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following table sets forth the names, ages and titles of the Company’s Directors, executive officers, key employees and the position they each hold with the Company.
Name |
Age | Position | ||
| Charles L. Pope* | 71 | Executive Chairman and Director | ||
| Robert C. Koski | 64 | Director | ||
| Dr. Frederick W. Telling, Ph.D. | 71 | Director | ||
| Dr. Alan W. Dunton, M.D. | 68 | Director | ||
| Bruce Cassidy | 73 | Director | ||
| John Gandolfo | 63 | Director | ||
| Kimberly M. Murphy* | 60 | President, Chief Executive Officer, and Director | ||
| Janet Huffman | 51 | Chief Financial Officer, Secretary and Treasurer | ||
| Joseph Michael Redmond* | 63 | Interim Principal Executive Officer, President |
* Ms. Murphy resigned from her role as President and Chief Executive Officer in February of 2024, and, as a result, effective February 2024, Mr. Redmond began serving as the Company’s Interim Principal Executive Officer and President and Mr. Pope began serving, on an interim basis, as Executive Chairman.
Directors of the Company
Charles L. Pope. Mr. Pope was elected Chairman on December 16, 2022, and has served as a Director since June 2010. Mr. Pope served as the Chief Financial Officer of Palm Bancorp, Inc. from June 2009 to June 2012. From September 2007 through June 2009, Mr. Pope served as the Chief Financial Officer of Aerosonic Inc., a manufacturer of aviation products. Mr. Pope served as the Chief Financial Officer of Reptron Inc., a manufacturer of electronic products, from March 2005 through June 2007. From March 2002 to March 2005, Mr. Pope served as Chief Financial Officer of SRI/Surgical Express, Inc. From February 2001 to March 2002, Mr. Pope served as Chief Financial Officer of Innovaro, Inc. (formerly UTEK Corporation NYSE American: INV) a public company. Mr. Pope served as a Director for Trxade Health, Inc. (NASDAQ: MEDS). Mr. Pope served as a Director of Innovaro, Inc. from March 2010 to August 2012. Mr. Pope also served as a director of Inuvo, Inc. from July 2008 through July 2018. Prior to this time, Mr. Pope served as a Partner in the Audit and Financial Advisory Consulting Divisions of PricewaterhouseCoopers LLP, and he was also a Partner in the Accounting and SEC Directorate in PricewaterhouseCoopers LLP’s New York City office. Mr. Pope holds a B.S. degree in Economics and Accounting from Auburn University and is a Certified Public Accountant in Florida.
Mr. Pope brings to our Board over three decades of experience in the finance and accounting fields. In addition, Mr. Pope also has experience serving as a Director of public companies.
| 86 |
Dr. Frederick W. Telling. Dr. Telling has served as a Director since June 2010. Dr. Telling served as Chairman of the Board of Directors from February 4, 2011 through December 16, 2022 and as Executive Chairman from May 2, 2021 through December 16, 2022. Dr. Telling retired from Pfizer Inc. in June 2007 after 30 years of service. At Pfizer Dr. Telling served as its Corporate Vice President and Vice President of Corporate Strategic Planning and Policy. Dr. Telling also serves on the boards of various civic and non-profit organizations. Dr. Telling holds a B.A. degree in History and Economics from Hamilton College and an MA degree in Industrial and Labor Relations and a PhD in Economics and Public Policy from Cornell University.
Dr. Telling brings to our Board an extensive array of business and industry experience as well as experience as a director of public companies.
Dr. Alan W. Dunton. Dr. Dunton has served as a Director of Oragenics, Inc. since April 2011. He is the principal owner of Danerius, LLC, a biotechnology consulting company which he founded in 2006. In addition to Oragenics, he is currently a Director of the public biotechnology company, Palatin, Inc. (AMEX: PTN), CorMedix (NASDAQ: CRMD) and Recce Pharmaceuticals (ASX: RCE). Dr. Dunton has held significant senior positions in major pharmaceutical companies. Most recent was from November 2015 through March 2018 as the Senior Vice President of Research, Development and Regulatory Affairs of Purdue Pharma L.P., a private pharmaceutical company. From January 2007 until March 2009, Dr. Dunton served as President and Chief Executive Officer of Panacos Pharmaceuticals, Inc. In 2005, Dr. Dunton served as the Non-Executive Chairman of the Board of Directors of ActivBiotics, Inc., a private biopharmaceutical company. Previously, he was the President and Chief Executive Officer of Metaphore Pharmaceuticals, Inc. from 2003 until 2006, when it merged with ActivBiotics. From 2004 until 2005, Dr. Dunton served as a member of the Board of Directors of Vicuron Pharmaceuticals until it was acquired by Pfizer, Inc. In 2002, Dr. Dunton served as President, Chief Operating Officer and a Director of Emisphere Technologies, Inc., a biopharmaceutical company. From 1994 to 2001, Dr. Dunton was a senior executive in various capacities in the Pharmaceuticals Group of Johnson & Johnson. From 1999 to 2001, Dr. Dunton was President and Managing Director of The Janssen Research Foundation, a Johnson & Johnson company. From 1998 to 1999, he served as Group Vice President of Global Clinical Research and Development of Janssen. Prior to joining Janssen, Dr. Dunton was Vice President of Global Clinical Research and Development at the R.W. Johnson Pharmaceutical Research Institute, also a Johnson & Johnson company. Prior to joining Johnson & Johnson, Dr. Dunton held positions in clinical research and development at Syntex Corporation, CIBA-GEIGY Corporation and Hoffmann La Roche Inc. Dr. Dunton holds a MD degree from New York University School of Medicine, where he completed his residency in internal medicine. He also was a Fellow in Clinical Pharmacology at the New York Hospital/Cornell University Medical Center.
Dr. Dunton brings to our Board a significant depth of experience in the pharmaceutical industry that will be invaluable to the Company as we continue to develop biotechnology assets.
Robert C. Koski. Mr. Koski has served as a Director since June 2009. Mr. Koski has practiced as an attorney with the Koski Firm, a sole proprietorship located in Atlanta, Georgia since 1992, where his practice includes litigation and tax law. Mr. Koski has also served as a partner in the Koski Family Limited Partnership, which beneficially owns an interest in the Company, and as a Director of the Koski Family Foundation since December 1996. Mr. Koski holds a B.A. degree in Philosophy and English from Colgate University, a JD from Emory School of Law and an LLM degree in Taxation and Litigation from Emory University.
Mr. Koski brings to our Board over two decades of experience in the legal field as a practicing attorney. In addition to his legal experience, Mr. Koski’s educational background provides a foundation for leadership and consensus-building.
| 87 |
Bruce Cassidy. Mr. Cassidy currently serves on the boards for various companies, including as Chairman of the Board of each of Loop Media, Inc., KeyStar Corp, Arboreta Healthcare, Inc., Selinsky Force, LLC, and The Sarasota Green Group. He was also the founding investor and served on the board of directors of Ohio Legacy Corp. Previously, Mr. Cassidy was the founder and Chief Executive Officer (CEO) of Excel Mining Systems from 1991 until its sale in 2007 to Orica Mining Services, and from 2008 to 2009, served as the President and CEO of one of its subsidiaries, Minova North & South Americas. He is currently the President of The Concession Golf Club in Sarasota, Florida.
John Gandolfo. Mr. Gandolfo has more than 30 years of experience as a Chief Financial Officer (CFO) of multiple rapidly growing private and publicly held companies with a primary focus in the life sciences, healthcare, and medical device areas. Mr. Gandolfo has had direct responsibility over all financial and treasury functions including capital raising and mergers and acquisitions. Mr. Gandolfo currently serves as CFO of Eyenovia, Inc., (EYEN) a late-stage ophthalmic biopharmaceutical company since January 2018. Prior to this, Mr. Gandolfo was CFO of Xtant Medical Holdings, Inc., a biologics company, from July 2010 through September 2017. Prior to this, he served as the CFO for Progenitor Cell Therapy LLC from January 2009 to June 2010 and, before that, as CFO of Power Medical Interventions, Inc. from January 2007 to January 2009. Mr. Gandolfo currently serves on the Board of Directors of Electrocore, Inc. (ECOR) and previously served on the Board of Directors and was chair of the Audit Committee of Odyssey Health, Inc. f/k/a Odyssey Group International, Inc., (ODDY) from 2019 until 2023. Oragenics announced the signing of an asset purchase agreement with Odyssey Health on October 6, 2023.
Mr. Gandolfo is currently a member of the Board of Directors of Electrocore, Inc. (ECOR) and is chair of the Compensation Committee and sits on their audit committee. Mr. Gandolfo received his B.A. degree in Business Administration from Rutgers University.
Executive Management
Kimberly M. Murphy. Ms. Murphy served as our Chief Executive Officer and President June 23, 2022 through February 12, 2024, and as our Chief Financial Officer from December 15, 2022 through March 8, 2023. She has served as a director since May 2020. Before joining the Company, Ms. Murphy served as Vice President of the Influenza Franchise and Global Vaccine Commercialization Leader at GlaxoSmithKline plc (NYSE: GSK) (“GSK”), where she led the global influenza vaccines business, global pandemic preparedness across vaccines and antivirals, lifecycle management, business development, and global P&L management. Ms. Murphy also served as Vice President and Global Marketing Head for the shingles vaccine, SHINGRIX. From June 2014 to May 2015, Ms. Murphy was Vice President and Lead for the North America Vaccines Integration Planning Team, responsible for the integration planning of GSK’s acquisition of Novartis AG’s vaccine division. From October 2012 to June 2014, Ms. Murphy served as Vice President of U.S. Vaccines Customer Strategy and from March 2011 to October 2012, she served as the Senior Director of U.S. Influenza Portfolio Strategy. Prior to joining GSK in March 2011, Ms. Murphy worked for Novartis Vaccines and Diagnostics Inc., a division of Novartis AG (NYSE: NVS), as the head of the U.S. Meningococcal Franchise. Before working for Novartis, Ms. Murphy enjoyed a distinguished career at Merck & Co., Inc. (NYSE: MRK). Ms. Murphy has previously served in board and advisory roles for a privately-held vaccine development company, the Biotechnology Industry Organization’s Biodefense Advisory Council, and the Saint Joseph’s University Pharmaceutical & Healthcare Marketing MBA Program. Ms. Murphy holds a B.A. degree in English from Old Dominion University and a M.B.A. degree in Marketing from Saint Joseph’s University. Ms. Murphy has also completed the Marketing Excellence Program at the Wharton School of the University of Pennsylvania.
Ms. Murphy brings a wealth of experience in the commercialization and marketing of development-stage vaccine candidates, particularly those created by public companies.
Joseph Michael Redmond. Mr. Redmond serves as our President, has over 35 years’ experience in various commercial leadership positions with likes of, Abbott Laboratories KMC Medical Systems, and Bioject Medical Technologies Inc. Mr. Redmond is currently the CEO of Odyssey Health, Inc. and has served in such capacity since 2017. Following the acquisition of the Neurology Assets in December 2023 Mr. Redmond joined the executive team at Oragenics as the President, and following the resignation of Ms. Murphy, Mr. Redmond also serves as the Company’s Interim Principal Executive Officer.
Janet Huffman. Ms. Huffman has served as our Chief Financial Officer since March 8, 2023. Most recently, Ms. Huffman served as Chief Financial Officer for TRxADE HEALTH, Inc., a Nasdaq-listed company focused on health services IT for retail pharmacies. In 2019, Ms. Huffman was a founding member of Banyan Pediatric Care Centers and served as its Chief Financial Officer. After leading Banyan’s merger with Assisted 4 Living, Inc., an OTC-listed company later renamed Arboreta Healthcare Inc. and a provider of skilled nursing, rehabilitation and assisted living services, she continued as Chief Financial Officer until February 2022. Prior to Arboreta Healthcare, Ms. Huffman was the Chief Financial Officer for Signature HomeNow, a home healthcare services company. Earlier in her career, she served as Director of Finance and Regional Director of Operations for Infinity Homecare and was Vice President of Finance for Family Home Health Services. Ms. Huffman obtained a bachelor’s degree in accounting from the University of South Florida.
| 88 |
Board of Directors and Committees
Our property, affairs and business are under the general management of our Board of Directors as provided by the laws of the State of Florida and our Bylaws.
The Board of Directors conducts its business through meetings of the full Board and through committees of the Board. The Board of Directors has appointed standing Audit, Compensation and Nominating and Governance Committees of the Board of Directors.
The Board periodically reviews the size of the Board and recommends any changes it determines to be appropriate given our needs. Under our Bylaws, the number of members on the Board may be increased or decreased by resolution of the Board.
Independence of Directors
Our common stock is listed on a national securities exchange, the NYSE American. Accordingly, in determining whether our Directors are independent, we are required to comply with the rules of the NYSE American. We also expect to continue to comply with securities and other laws and regulations regarding the independence of Directors, including those adopted under Section 301 of the Sarbanes-Oxley Act and Rule 10A-3 under the Securities and Exchange Act of 1934 with respect to the independence of Audit Committee members. The NYSE American listing standards define an “independent director” generally as a person, other than an officer of a company, who does not, in the view of the company’s Board of Directors, have a relationship with the company that would interfere with the Director’s exercise of independent judgment. The Board has affirmatively determined that each of the following Directors, constituting a majority of the Board, is independent within the meaning of the NYSE American listing standards:
Charles L. Pope
Dr. Frederick W. Telling
Dr. Alan Dunton
Robert Koski
Bruce Cassidy
John Gandolfo
Such independence definition includes a series of objective tests, including that the Director is not an executive officer employee of the company and has not engaged in various types of business dealings with the company. In addition, as further required by the NYSE American listing standards, the Board has made a subjective determination as to each independent director that no relationships exist which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a Director.
Audit Committee Financial Expert
The Audit Committee members currently consist of Mr. Charles Pope, Dr. Frederick Telling and Dr. Alan Dunton with Mr. Pope serving as Chairman. The Board has affirmatively determined that each such person met the independence requirements for audit committee purposes based on the more stringent independence standards imposed by applicable NYSE American and SEC rules. In addition, the Board of Directors has determined that Mr. Pope is an “audit committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities and Exchange Act of 1934. In March 2004, the Audit Committee adopted a written charter which was modified on April 24, 2007 and on December 29, 2009. The Company believes that its Audit Committee Charter complies with the requirements related to Sarbanes-Oxley and a current copy of the Audit Committee Charter is available on our website http://ir.oragenics.com/governance-docs.
| 89 |
Code of Ethics
We have adopted a code of ethics known as the Company Operating Principles, which is applicable to all of our Directors and employees, including our principal executive officer and our principal financial officer. A copy of the Company Operating Principles can be found on our website at www.oragenics.com. Any future amendments to, or waivers from, the Company Operating Principles will be posted on our website.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and Directors and any persons who beneficially own more than ten percent of the Company’s Common Stock to file reports of ownership and changes in ownership of such securities with the Securities and Exchange Commission Officers, Directors and beneficial owners of more than ten percent of the Common Stock are required by applicable regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of forms furnished to the Company and written representations from the executive officers and Directors, the Company believes, all persons subject to the reporting requirements with regard to the Common Stock complied with the applicable filing requirements during 2023.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation Discussion and Analysis
This section explains the objectives of our named executive officer compensation program, the compensation decisions we made with respect to compensation for our fiscal year ended December 31, 2023, and the factors we considered in making those decisions, and focuses on the compensation of officers who are listed below as our “named executive officers” and Key Employees:
| ● | Kimberly Murphy, our former President and Chief Executive Officer, | |
| ● | Janet Huffman, Chief Financial Officer, and | |
| ● | Michael Redmond, President |
The Compensation Committee of our Board of Directors is responsible for establishing and evaluating our policies governing the compensation of our executive officers, including our named executive officers. The Compensation Committee reviews and proposes recommendations to the Board of Directors regarding the compensation to be paid to the Chief Executive Officer. In addition, the Compensation Committee reviews and approves the compensation to be paid to all other executive officers. The Compensation Committee ensures that the total compensation paid to our executive officers is fair, reasonable, and competitive. The Compensation Committee has, in the past, at times included the other members of our Board of Directors in its deliberations regarding the salaries of our named executive officers.
At our 2022 Annual Meeting of Shareholders, on an advisory basis, a majority of the shareholders who voted on this matter, approved the compensation of our named executive officers as disclosed in our Proxy Statement. The Compensation Committee believes the views of our shareholders are an important consideration when making decisions regarding our compensation program and will continue to take the views of our shareholders into consideration when assessing our compensation program and making decisions related to the structure and amount of pay.
Business Highlights
During 2023, we further developed our immunization product candidate to combat the novel coronavirus pandemic and at the end of the year, we acquired the Neurology Assets and retained Michael Redmond as our President. Our compensation program continues to reflect the challenges associated with designing a compensation program at the beginning of the year that addresses our pre-clinical work and our strategy of acquiring additional product-development assets. Despite such challenges, the Compensation Committee remains committed to a philosophy which strongly aligns pay with demonstrated performance and is confident that the decisions made are reflective of this overarching philosophy.
| 90 |
Compensation Objective
Our named executive compensation programs are designed to achieve the following objectives:
| ● | Attract, motivate and reward named executive officers whose knowledge, skills, performance and business relationships are critical to our success; | |
| ● | Align the interests of our named executive officers and stockholders by motivating named executive officers to ultimately increase stockholder value as well as facilitate retention; | |
| ● | Motivate our named executive officers to manage our business to meet our short term and long-range goals and reward accomplishment of these goals; | |
| ● | Provide a competitive compensation package which includes some pay for performance factors. |
Compensation Determination Process
We conduct an annual review of named executive officer compensation, generally in December or January. At the Compensation Committee’s direction, our Chief Executive Officer prepares an executive compensation review for each named executive officer, other than their self, which may include recommendations for:
| ● | a proposed year-end bonus, if any, based on the achievement of individual and/or corporate objectives; | |
| ● | a proposed increase, if any, in base salary and target annual incentive opportunity for the upcoming year; and | |
| ● | an award, if any, of stock options or stock awards for the year under review. |
As part of the compensation review, our Compensation Committee also considers changes to a named executive officer’s employment agreement, compensation arrangements and benefits, responsibilities, or severance arrangements.
In accordance with NYSE American requirements, the Compensation Committee also meets in an executive session without the Chief Executive Officer to consider and make recommendations to our Board of Directors regarding the Chief Executive Officer’s compensation, including base salary, cash bonus and year-end annual stock options. The Compensation Committee also grants year-end stock options to other named executive officers based on, among other factors, recommendations by our Chief Executive Officer.
In conjunction with the year-end annual compensation review, or as soon as practicable after the fiscal year-end, our Chief Executive Officer recommends to the Compensation Committee the corporate objectives and other criteria to be utilized for purposes of determining cash bonuses (i) for each named executive officer for the upcoming year (in accordance with that named executive officer’s employment agreement), and (ii) for all other employees as a group. The Compensation Committee in its discretion may revise our Chief Executive Officer’s recommendations or make its own recommendations to our Board of Directors, which may in turn suggest further revisions. At the end of the year, the Compensation Committee, in consultation with our Chief Executive Officer, reviews performance and determines the extent to which any established goals were achieved.
Setting Compensation for Named Executive Officers - Compensation Committee, Board of Directors and Chief Executive Officer or Principal Executive Officer
The Compensation Committee of our Board of Directors has the primary responsibility for determining the compensation of our named executive officers. Our Compensation Committee recommends the compensation of our Chief Executive Officer or Principal Executive Officer and determines all compensation matters for our named executive officers, including base salary, bonuses, and equity compensation. Our Board of Directors, after considering the recommendations of the Compensation Committee, makes the final determination with respect to the compensation of our Chief Executive Officer or Principal Executive Officer. Utilizing input from our Chief Executive Officer or Principal Executive Officer, the Compensation Committee makes an independent decision on compensation for each other named executive officers, although our Compensation Committee has, on occasion, submitted its compensation determinations for named executive officers to our full Board of Directors for its approval.
| 91 |
Role of Compensation Consultant
Our Compensation Committee is authorized to engage a compensation consultants or other advisors to review our executive officers’ compensation, including a benchmarking analysis against the compensation of executive officers at comparable companies, to ensure that our compensation is market competitive, with the goal of retaining and adequately motivating our senior management. In March 2019 and January of 2020, our Compensation Committee retained Korn Ferry as a compensation consultant (“Korn Ferry”) to assess our current compensation programs and provide recommendations for continued improved alignment of the programs with our compensation philosophy and goals and to review and make recommendations regarding our executive and Director compensation for 2019 and 2020.
Our Compensation Committee evaluates the performance of its compensation consultant, considers alternative compensation consultants, and has the final authority to engage and terminate such services. The Compensation Committee assessed the independence of Korn Ferry pursuant to SEC rules and the applicable listing standards of the NYSE American and concluded that no conflict of interest exists that would prevent Korn Ferry from serving as an independent consultant to our Compensation Committee. This Korn Ferry assessment has not been formally updated, nor has the engagement continued as the Compensation Committee believes, based on a variety of factors, including the small number of employees, that an updated assessment was not warranted.
Benchmarking in the Context of Our Other Executive Compensation Principles
Our Compensation Committee reviews the compensation of similarly situated executive officers at companies that we consider to be our peers, taking into consideration the experience, position and functional role, level of responsibility and uniqueness of applicable skills of both our executive officers and those of our peers, and the demand and competitiveness for attracting and retaining an individual with each executive officer’s specific expertise and experience. While this analysis is helpful in determining market-competitive compensation for senior management, it is only one factor in determining our executive officers’ compensation, and our Compensation Committee exercises its judgment in determining the nature and extent of its use.
For purposes of comparing our executive compensation against the competitive market, our Compensation Committee reviews and considers the compensation levels and practices of a group of comparable biotechnology companies known to the members of the Compensation Committee. This information was then used as a reference point for our Compensation Committee to assess our current compensation levels in the course of its deliberations on forms and amounts of compensation. Given our objective of attracting, retaining, motivating, and rewarding a highly-skilled team of executive officers and other employees, we aim to deliver a total compensation package that is within a competitive range around the median as compared to peers, with an emphasis on equity incentive compensation so as to more effectively tie our named executive officers and employees’ interests to those of our shareholders. In light of this, when undertaking such analysis, our Compensation Committee has reviewed data pertaining to the 25th, 50th and 75th percentiles for base salary, total cash compensation (base salary plus annual bonus) and equity compensation. This competitive analysis is one factor, among others, taken into account by our Compensation Committee in assessing current compensation levels and recommending changes to compensation or additional awards of equity. Our Compensation Committee expects to review such compensation data as it believes necessary to make adjustments to its composition, taking into account changes in both our business and the businesses of the companies in the peer group. Due to the small number of employees and executive officers we have, among other factors, our Compensation Committee did not undertake an update to the peer group in 2023.
Our Compensation Committee believes that, given the competitiveness of our industry and our culture, our base compensation, annual cash bonuses and equity programs are flexible enough to reward the achievement of clearly defined corporate goals and are sufficient to retain our existing executive officers and to hire new executive officers with the appropriate qualifications and experience.
| 92 |
Elements of Named Executive Compensation
For 2023, the principal components of compensation for our named executive officers consisted of:
| ● | Annual base salary; | |
| ● | Annual bonus incentives; and | |
| ● | Equity Incentive Awards / Option Awards. |
Annual Base Salary
We provide our named executive officers with a base salary to compensate them for services rendered during the year. Generally, the base salaries reflect the experience, skills, knowledge, and responsibilities required of each executive officer, and reflect our executive officers’ overall performance and contributions to our business.
During its review of base salaries for executives, the Compensation Committee primarily considers:
| ● | the negotiated terms of each named executive officer’s employment agreement, if any; | |
| ● | an internal review of the named executive officer’s compensation, both individually and relative to other named executive officers; and | |
| ● | base salaries paid by comparable companies in the biopharmaceutical industry that have a similar business and financial profile. |
Salary levels are considered annually as part of the company’s performance review process. Merit-based increases to salaries are based on management’s assessment of the individual’s performance, the recommendations made by the Chief Executive Officer to the Compensation Committee, and the comparative compensation at peer companies. The factors used in determining increases in base salary include individual performance, changes in role and/or responsibility and changes in the competitive market environment. The Compensation Committee periodically reviews the base salary for each executive officer.
Annual Incentive Bonuses
We provide an opportunity for each of our named executive officers to receive an annual incentive bonus based on the satisfaction of individual and company objectives established by the Compensation Committee and/or our Board of Directors, or if no objectives are established at the discretion of the Committee. These incentives are paid in cash. For any given year, these objectives may include individualized goals or company-wide goals that relate to operational, strategic or financial factors such as progress in developing our product candidates, achieving certain manufacturing, intellectual property, clinical and regulatory objectives, and raising certain levels of capital.
2023 Bonus Plan
The Company established performance-based bonus targets for its named executive officers in 2023 (the “2023 Bonus Plan”). The percentages were weighted for purposes of determining bonuses, if any, for the Company’s executive officers with respect to 2023 performance. Under such a cash bonus program, Ms. Murphy, Ms. Huffman, and Dr. Handfield were eligible for cash bonuses of up to 50%, 35%, and 25% of their respective base salaries, or $215,000, $72,917 (prorated for 10 months), and $55,800 respectively, (each a “Bonus Target”).
The bonuses payable to Ms. Murphy were to be based upon the achievement of the following objectives:
(i) Up to 40% of the Bonus Target for the submission of CTA for the vaccine program;
(ii) Up to 20% of the Bonus Target for the Company’s raising of additional capital;
| 93 |
(iii) Up to 15% of the Bonus Target for lantibiotic research and development planning;
(iv) Up to 20% of the Bonus Target for the Company’s strategic planning initiatives; and
(v) Up to 5% of the Bonus Target for strategic talent acquisition.
The bonuses payable to Ms. Huffman were to be based upon the achievement of the following objectives:
(i) Up to 10% of the Bonus Target for the Company’s annual meeting planning initiatives;
(ii) Up to 5% of the Bonus Target for strategic talent acquisition in the Company’s finance department;
(iii) Up to 35% of the Bonus Target for the Company’s raising of additional capital;
(iv) Up to 20% of the Bonus Target for the Company’s strategic planning initiatives; and
(v) Up to 30% of the Bonus Target for the Company’s strategy and initiatives related to risk management and internal controls.
The executive officers’ actual bonuses for fiscal year 2023 were eligible to exceed 100% of their 2023 Bonus Target percentage in the event performance exceeds the predetermined goals and/or upon the achievement of other specified goals, including stretch goals. Payment of bonuses to the Company’s executive officers under the 2023 Bonus Program and the actual amount of such bonus, if any, are at the discretion of the Compensation Committee.
The bonuses payable to Dr. Martin Handfield, our former Senior Vice President of Discovery Research, were based upon the achievement of the following objectives: (i) Up to 60% of the Bonus Target for lantibiotic research and development and regulatory filings; (ii) Up to 20% of the Bonus Target for strategic initiatives regarding the Company’s antivirals program research and development;; (iii) Up to 20% of the Bonus Target for business development, administrative management, and regulatory compliance matters. Dr. Handfield resigned effective May of 2023. A portion of the bonuses earned were paid to Dr. Handfield in connection with his separation from us as a key employee.
Equity Incentive Compensation
We believe that successful long-term corporate performance is more likely to be achieved with a corporate culture that encourages a long-term focus by our named executive officers and other employees through the use of equity awards, the value of which depends on our stock performance. We established our 2021 Equity Incentive Plan to provide all of our employees, including our named executive officers, with incentives to help align our employees’ interests with the interests of our stockholders and to enable them to participate in the long-term appreciation of our stockholder value. Additionally, equity awards provide an important retention tool for all employees, as the awards generally are subject to vesting over an extended period of time based on continued service with us.
We typically grant equity awards in connection with hiring a new employee. In addition, equity awards may also be granted for performance annually at, or soon after, the end of each year, depending on position, performance and tenure at the Company.
| 94 |
The determination of whether to grant stock options, as well as the size of such grants, to our named executive officers involves assessments by the Compensation Committee and our Board of Directors and, with respect to named executive officers other than herself, our Chief Executive Officer. Generally, annual equity awards are driven by our desire to retain and motivate our named executive officers, and we consider individual performance and contributions during the preceding year to the extent the Compensation Committee and our Board of Directors believe such factors are relevant. As with base salary and cash bonuses, in evaluating and determining stock option grants to our named executive officers, the Compensation Committee and our Board of Directors also considers publicly available data from other similar clinical stage companies identified by the Compensation Committee.
We currently grant stock options or stock awards to new employees when they join our Company based upon their position with us and their relevant prior experience. The awards granted by the Compensation Committee generally vest over time during the ten-year option term (although some previously granted awards vest immediately), or upon the achievement of certain milestones. Unless otherwise agreed to by us with respect to a termination without “cause” or for “good reason,” vesting and exercise rights generally cease upon termination of employment, except in the case of death (subject to a one-year limitation), disability or retirement. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights or the right to receive dividends or dividend equivalents. In addition to the initial option grants, our Compensation Committee may grant additional options to retain our employees and reward, or provide incentive for, the achievement of corporate goals and strong individual performance. Our Board of Directors has not granted our Chief Executive Officer the discretion to grant options to non-executive employees upon joining our Company, or to make grants during each annual non-executive employee review cycle.
It is our policy to award stock options at an exercise price equal to the closing price on the NYSE American Market of our common stock on the date of the grant. For purposes of determining the exercise price of stock options, the grant date generally based upon the later of the first day of employment for newly hired employees, or the date and time on which the Compensation Committee or Board approves the stock option grant.
We have no program, practice, or plan to grant stock options, in coordination with the release of material nonpublic information. We also have not timed the release of material nonpublic information for the purpose of affecting the value of stock options or other compensation, and we have no plan to do so. We do, however, have a policy regarding the adjustment or recovery of stock option awards in connection with the restatement of our financial statements, as our stock option awards have not been tied to the achievement of specific financial statement goals.
Other Compensation
Other aspects of compensation applicable to our named executive officers consist of the following:
Retirement Benefits. We maintain a Simple Individual Retirement Arrangement plan in which all full-time employees, including our named executive officers, are eligible to participate. We provide this plan to help its employees save some amount of their cash compensation for retirement in a tax efficient manner. We do not provide an option for its employees to invest in our stock under the 401k plan. We match 100% of the employee’s contribution up to a maximum of 3% of the employee’s compensation.
Health and Welfare Benefits. All full-time employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage as may be provided and applicable to all employees.
Perquisites. We do not provide perquisites or other personal benefits to our named executive officers other than those that we provide to our employees.
Employment Agreements. During 2023, we had employment agreements in effect with Ms. Kimberly Murphy, Dr Handfield, Ms. Huffman and Mr. Redmond. We entered into employment agreements with these officers and key employees to ensure that they would perform their respective roles with us for an extended period of time. In addition, we also considered the critical nature of each of their positions and our need to retain them when we committed to these agreements. We had an employment agreement with Dr. Handfield who resigned as our key employee, effective May 2023, but he continued to be available to us through a consulting arrangement for a limited time and on an hourly rate basis.
| 95 |
2023 Named Executive Officer Compensation Decisions
We believe that the total compensation paid to our named executive officers for the fiscal year ended December 31, 2023, achieved the overall objectives of our executive compensation program. In accordance with our overall objectives, we believe executive compensation for 2023 was competitive with other similarly sized companies. The Compensation Committee took the following key compensation actions in 2023:
Base Salaries
During 2023, we made the following changes in annual base salary for named Executive Officers and key employees.
| Name | Annual Salary For 2023 | Increase | Annual Salary For 2024 | |||||||||
| Kimberly Murphy | $ | 430,000 | $ | - | $ | 430,000 | * | |||||
| Janet Huffman | $ | 250,000 | $ | - | $ | 250,000 | ||||||
| Joseph Michael Redmond | $ | 396,000 | $ | - | $ | 396,000 | ||||||
* Ms. Murphy resigned from her role as President and Chief Executive Officer in February of 2024 and, as a result, effective February 2024, Mr. Redmond, the Company’s President, began also serving as the Company’s Interim Principal Executive Officer and Mr. Pope began serving, on an interim basis, as Executive Chairman.
Determination of Cash Bonus-2023
We made performance-based cash bonus awards pursuant to the terms of the 2023 Bonus Plan to Ms. Murphy, Ms. Huffman, and Dr. Handfield of $65,000, $55,000, and $41,850 respectively, based upon their performance during 2023. These performance-based cash bonus awards were made in January of 2024.
Determination of Equity Awards:
We made stock option grants to Ms. Huffman under the Company’s 2021 Equity Incentive Plan. Ms. Huffman received a grant to purchase 7,000 shares of Company common stock at an exercise price of $4.00 per share, the closing price of the Company’s common stock on the grant date, March 7, 2023. With respect to Ms. Huffman’s award, 1,400 options vested on the grant date, 1,400 options vested on September 3, 2023, 1,400 options will vest on March 7, 2024, on September 7, 2024, and on March 7, 2025.
On August 8, 2023 Ms. Murphy and Ms. Huffman were also granted restricted shares of the Company’s common stock under the 2021 Equity Incentive Plan in the amount of 25,000 and 15,000 shares respectively. The shares vested 20,000 and 10,000 respectively upon issuance, and the remaining 5,000 each to vest within six (6) months from the award date.
Additionally, in connection with his employment, Mr. Redmond was awarded stock options to acquire 75,000 shares of common stock under the Company’s 2021 Equity Incentive Plan, as amended, at an exercise price of $5.40, which was the Company’s closing price on the Effective Date. 37,500 of the options vested on the date of grant, 18,750 options shall vest on June 24, 2024, and 18,750 options shall vest on the December 28, 2024, in each case provided Mr. Redmond has remained in continuous employment with the Company through such dates.
The stock option awards, and restricted stock awards are subject to the standard terms and conditions of the Company’s form of stock option and restricted stock award agreements which includes, as applicable, earlier vesting upon a change in control of the Company.
Other Policies and Considerations - Employment Contracts and Change in Control Arrangements
We entered into employment agreements with our Chief Executive Officer, Ms. Murphy, our Chief Financial Officer, Ms. Huffman, our President Mr. J Redmond, and our Senior Vice President of Research and Development, Dr. Martin Handfield (the “Employment Agreements”).
Employment Agreements—Ms. Murphy, our former Chief Executive Officer
On June 23, 2022, Ms. Murphy entered into an Executive Employment Agreement with us under terms substantially similar to the employment agreements of existing executives. Under the terms of her Executive Employment Agreement, Ms. Murphy’s employment with us became effective June 23, 2022, and she receives an annual base salary of $430,000 and will be eligible for a Performance Bonus with a target of 50% of her annual salary based on appropriate Company based and individual based targets in the discretion of the Compensation Committee as approved by the full Board of Directors. Ms. Murphy will be eligible to participate in the medical insurance and other benefits available to all employees except her annual vacation will be set at four (4) weeks.
| 96 |
In connection with Ms. Murphy’s employment, she also was awarded stock options to acquire 13,330 shares of common stock under our 2021 Equity Incentive Plan (the “Plan”), at an exercise price of $17.70 which was our closing price on the grant date. The options have vested or shall vest as follows: 2,666 options vested on the grant date, 2,666 options vested on December 23, 2022, 2,666 options shall vest on June 23, 2023, 2,666 options shall vest on December 23, 2023, and 2,666 options shall vest on June 23, 2024, in each case provided Ms. Murphy has remained in continuous employment with us through such dates.
The Executive Employment Agreement was terminable at any time by us and upon 30 days’ notice by Ms. Murphy. Upon separation for any reason, the agreement provided that Ms. Murphy is to receive her base salary accrued through the date of termination, and any vested rights and benefits provided under our employee benefit plans and programs. In addition, if Ms. Murphy’s separation from employment is terminated by us without Cause, for Good Reason by Ms. Murphy or for non-renewal by us after the end of the Initial Term and Ms. Murphy signs a full general release then we are obligated to pay Ms. Murphy six months of her annual base salary as severance plus any earned but unpaid Performance Bonus.
If Ms. Murphy’s employment is terminated by us without Cause or by Ms. Murphy for Good Reason during the period of 90 days either prior to or following a Change in Control and Ms. Murphy signs a full general release then we would be obligated to pay Ms. Murphy six months of her annual base salary as severance, any earned, accrued but unpaid bonus Performance Bonus and Ms. Murphy’s Performance Bonus for the year of the Change in Control at target level of performance. Additionally, with any such termination Ms. Murphy’s stock options or other stock awards under our 2021 Equity Incentive Plan which are not vested shall vest as of her termination date. Under the Executive Employment Agreement, “Change in Control” is defined as a transaction or series of transactions which constitutes a sale of control of the Company, a change in effective control of the Company, or a sale of all or substantially all of our assets, or a transaction which qualifies as a “change in ownership” or “change in effective control” of the Company or a “change in ownership of substantially all of the assets” of the Company under the standards set forth in Treasury Regulation section 1.409A-3(i)(5).
On February 12, 2024, we entered into a mutually agreeable Separation Agreement (the “Separation Agreement”), with Ms. Murphy pursuant to which her employment with the Company terminated effective February 12, 2024. Ms. Murphy continues to serve as a member of the Company’s board of directors (the “Board”). The Separation Agreement provides Ms. Murphy with the benefits under her employment agreement with the Company for a separation without cause. Ms. Murphy’s resignation was not due to any disagreement with the Company on any matter related to its operations, policies, or practices.
In the Executive Employment Agreement Ms. Murphy has agreed to duties of non-disclosure of Confidential Information, non-competition and non-solicitation and our ownership of development provisions.
Employment Agreements—Mr. Michael Redmond, President
In connection with the purchase of the Neurology Assets we entered into an Executive Employment Agreement with Mr. Redmond with terms substantially similar to existing employment agreements with executives.
Under the terms of the Executive Employment Agreement, Mr. Redmond’s employment with the Company became effective December 28, 2023, and will continue through the first anniversary of the Effective Date and shall automatically be extended for an additional twelve (12) month term. The Executive Employment Agreement provides that he will receive an annual base salary of $396,000 and will be eligible for a Performance Bonus with a target of 50% of his annual salary based on appropriate Company based and individual based targets in the discretion of the Compensation Committee as approved by the full Board of Directors. Mr. Redmond also will be eligible to participate in the medical insurance and other benefits available to all employees except his annual vacation will be set at four (4) weeks.
In connection with Mr. Redmond’s employment, he also was awarded stock options to acquire 75,000 shares of common stock under the Company’s 2021 Equity Incentive Plan at an exercise price of $5.40, which was the Company’s closing price on the date of his employment agreement. 37,500 of the options vested immediately, 18,750 options vest on June 24, 2024, and 18,750 options vest on the first anniversary of the effective date, in each case provided Mr. Redmond has remained in continuous employment with the Company through such dates.
The Executive Employment Agreement is terminable at any time by the Company and upon 30 days’ notice by Mr. Redmond. Upon separation for any reason Mr. Redmond shall receive his base salary accrued through the date of termination, and any vested rights and benefits provided under employee benefit plans and programs of the Company. In addition, if Mr. Redmond’s separation from employment is terminated by the Company without cause, for good reason by Mr. Redmond or for non-renewal by the Company after the end of the initial term and Mr. Redmond signs a full general release, then the Company would be obligated to pay Mr. Redmond six months of his annual base salary as severance plus any earned but unpaid performance bonus.
| 97 |
If Mr. Redmond’s employment is terminated by the Company without Cause or by Mr. Redmond for Good Reason during the period of 90 days either prior to or following a Change in Control and Mr. Redmond signs a full general release then the Company would be obligated to pay Mr. Redmond twelve months of his annual base salary as severance, any earned, accrued but unpaid bonus Performance Bonus and Mr. Redmond’s Performance Bonus for the year of the Change in Control at target level of performance. Additionally, with any such termination Mr. Redmond’s stock options or other stock awards under the Company’s 2021 Equity Incentive Plan which are not vested shall vest as of his termination date. Under the Executive Employment Agreement, “Change in Control” is defined as a transaction or series of transactions which constitutes a sale of control of the Company, a change in effective control of the Company, or a sale of all or substantially all of the assets of the Company, or a transaction which qualifies as a “change in ownership” or “change in effective control” of the Company or a “change in ownership of substantially all of the assets” of the Company under the standards set forth in Treasury Regulation section 1.409A-3(i)(5).
In the Executive Employment Agreement Mr. Redmond has agreed to duties of non-disclosure of Confidential Information, non-competition and non-solicitation and Company ownership of development provisions.
Employment Agreements—Ms. Huffman, Chief Financial Officer
On March 6, 2023, Ms. Huffman entered into an Executive Employment Agreement with us under terms substantially similar to the employment agreements of existing executives. Under the terms of her Executive Employment Agreement, Ms. Huffman’s employment with us became effective March 6, 2023, and she receives an annual base salary of $250,000 and will be eligible for a Performance Bonus with a target of 35% of her annual salary based on appropriate Company based and individual based targets in the discretion of the Compensation Committee as approved by the full Board of Directors. Ms. Huffman will be eligible to participate in the medical insurance and other benefits available to all employees except her annual vacation will be set at four (4) weeks.
In connection with Ms. Huffman’s employment, she also was awarded stock options to acquire 7,000 shares of common stock under our 2021 Equity Incentive Plan (the “Plan”), at an exercise price of $4.00 which was our closing price on the grant date. The options shall vest as follows: 1,400 options shall vest on the grant date, 1,400 options shall vest on September 6, 2023, 1,400 options shall vest on March 6, 2024, 1,400 options shall vest on September 6, 2024, and 1,400 options shall vest on March 6, 2025, in each case provided Ms. Huffman has remained in continuous employment with us through such dates.
The Executive Employment Agreement is terminable at any time by us and upon 60 days’ notice by Ms. Huffman. Upon separation for any reason Ms. Huffman shall receive her base salary accrued through the date of termination, and any vested rights and benefits provided under our employee benefit plans and programs. In addition, if Ms. Huffman’s separation from employment is terminated by us without Cause or for non-renewal by us after the end of the Initial Term and Ms. Huffman signs a full general release then we would be obligated to pay Ms. Huffman six months of her annual base salary as severance plus any earned but unpaid Performance Bonus.
If Ms. Huffman’s employment is terminated by us without Cause during the period of 30 days following a Change in Control and Ms. Huffman signs a full general release then we would be obligated to pay Ms. Huffman six months of her annual base salary as severance, any earned, accrued but unpaid bonus Performance Bonus and Ms. Huffman’s Performance Bonus for the year of the Change in Control at target level of performance. Additionally, with any such termination Ms. Huffman’s stock options or other stock awards under our 2021 Equity Incentive Plan which are not vested shall vest as of her termination date. Under the Executive Employment Agreement, “Change in Control” is defined as a transaction or series of transactions which constitutes a sale of control of the Company, a change in effective control of the Company, or a sale of all or substantially all of our assets, or a transaction which qualifies as a “change in ownership” or “change in effective control” of the Company or a “change in ownership of substantially all of the assets” of the Company under the standards set forth in Treasury Regulation section 1.409A-3(i)(5).
In the Executive Employment Agreement Ms. Huffman has agreed to duties of non-disclosure of Confidential Information, non-competition and non-solicitation and Company ownership of developments provisions.
| 98 |
Employment Agreements—Dr. Handfield, Former Senior Vice President of Discovery Research
On May 11, 2010, Dr. Handfield entered into an Executive Employment Agreement with us. Under the terms of his Executive Employment Agreement, Dr. Handfield’s employment became effective May 11, 2010, and ended on May 24, 2023. Dr. Handfield received an annual base salary of $223,200 that was subject to adjustment from time to time as determined by the Board of Directors. Dr. Handfield was eligible for a Performance Bonus with a target of 25% of his annual salary based on appropriate Company based and individual based targets in the discretion of the Compensation Committee as approved by the full Board of Directors. Dr. Handfield was eligible to participate in the medical insurance and other benefits available to all employees except his annual vacation was set at four (4) weeks.
The Executive Employment Agreement was terminable at any time by either party and provided certain severance options to Dr. Handfield such as; if involuntarily terminated by us, he shall receive his base salary and vacation pay each accrued through the date of termination, and any nonforfeitable benefits earned and payable to him under the terms of the employee handbook (which applies to all employees) and benefits available under any applicable incentive plan in which the executive participates. In addition, if Dr. Handfield’s separation from employment is not voluntary and without cause, we would be obligated to pay him six months of his annual base salary as severance and Dr. Handfield shall be entitled to out placement services. If Dr. Handfield is terminated for Cause, he shall be entitled to receive his base salary and accrued vacation due through the date of termination and any nonforfeitable benefits already earned and payable to Dr. Handfield under the terms of the employee handbook or other applicable incentive plans maintained by us. “Cause” is defined in the Executive Employment Agreement as any action that is illegal, immoral, or improper that reflects on us, Dr. Handfield, or the ability of either to function optimally. If Dr. Handfield voluntarily resigns, he shall be entitled to this base salary and accrued vacation due through the date of termination (including any mutually agreed upon notice period) and any nonforfeitable benefits already earned and payable to Dr. Handfield under the terms of the employee handbook or other incentive plans maintained by us.
As part of Dr. Handfield’s termination from the Company effective May 24, 2023, he was paid severance and benefits pursuant to his Executive Employment Agreement.
Tax and Accounting Implications
Deductibility of Executive Compensation
The Compensation Committee takes into consideration the tax consequences of compensation to the named executive officers, but tax considerations are not a significant part of our Company’s compensation policy.
Accounting for Share-Based Compensation
We account for share-based compensation in accordance with the requirements of FASB ASC Topic 718. This accounting treatment has not significantly affected our executive compensation decisions.
Clawbacks
In order to further align management’s interests with those of shareholders and to support the Company’s governance practices, the Board of Directors adopted a recoupment policy applicable to annual bonuses and other short-term and long-term incentive compensation based on financial targets (“Incentive Compensation”) received by current and former executive officers of the Company and such other senior executives/employees of the Company who may from time to time be deemed subject to the policy by the Board of Directors (“Covered Executive”). The policy provides that if, as a result of a restatement of the Company’s financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, a Covered Executive received more Incentive Compensation than the Covered Executive would have received absent the incorrect financial statements, the Company shall recover said excess Incentive Compensation (defined as the excess of (i) the actual amount of Incentive Compensation paid to the Covered Executive over (ii) the Incentive Compensation that would have been paid based on the restated financial results during the three-year period preceding the date on which the Company is required to prepare such restatement). The policy also provides that if the Board of Directors makes a determination in its sole discretion that a Covered Executive engaged in Misconduct (as defined below), the Board of Directors may require reimbursement or forfeiture of all or part of the Incentive Compensation received by the Covered Executive. The Board of Directors may use its judgment in determining the amount to be recovered. Misconduct is defined as (i) conviction of a felony, (ii) material breach of any agreement with the Company, (iii) material breach of any Company policy or code, (iv) act of theft, embezzlement or fraud, (v) misrepresentation or misstatement of financial or performance results, and (vi) any other act or event that the Board of Directors has determined that recoupment is appropriate.
| 99 |
Consideration of Stockholder Advisory Vote on Executive Compensation
The Compensation Committee also expects to consider the results of our stockholder advisory vote on executive compensation. Our shareholders have historically voted in favor of the compensation of our named executive officers: approximately 78.7% of the shares represented in person or by proxy having voted in favor of the program. In light of these results, the Compensation Committee has determined to substantially continue the executive compensation program. The Board of Directors determined that stockholder advisory votes on executive compensation will be submitted to our shareholders annually until the next required advisory vote on the frequency of conducting advisory votes on executive compensation.
Summary Compensation Table
The following table sets forth the aggregate compensation in 2023 and 2022 for services in all capacities paid or accrued by the Company to Ms. Kimberly Murphy, and our next most highly compensated officer who earned more than $100,000 in total salary and bonus during the fiscal year ended December 31, 2023, as well as a former executive officer (the “Named Executive Officers”).
| Name and principal position | Year | Salary | Bonus(1) | Stock Awards (2) | Option Awards (3) | All
Other Compensation (4) | Total | |||||||||||||||||||||
| Kimberly Murphy | 2023 | $ | 430,000 | $ | 65,000 | $ | 84,250 | $ | — | $ | 12,900 | $ | 592,150 | |||||||||||||||
| Chief Executive Officer and President | 2022 | $ | 224,923 | $ | 22,000 | $ | — | $ | 232,000 | $ | 5,913 | $ | 484,836 | |||||||||||||||
| Dr. Martin Handfield | 2023 | $ | 214,138 | $ | 41,850 | $ | — | $ | — | $ | — | $ | 255,988 | |||||||||||||||
| Senior
Vice President Discovery Research | 2022 | $ | 223,200 | $ | 34,875 | $ | — | $ | 35,000 | $ | 6,696 | $ | 299,771 | |||||||||||||||
| Janet Huffman | ||||||||||||||||||||||||||||
| Chief Financial Officer | 2023 | $ | 208,333 | $ | 55,000 | $ | 50,500 | $ | — | $ | 4,063 | $ | 267,396 | |||||||||||||||
| Joseph Redmond | 2023 | $ | — | $ | — | $ | — | $ | 343,800 | $ | — | $ | 343,800 | |||||||||||||||
| President and Interim Principal Executive Officer | ||||||||||||||||||||||||||||
| (1) | For Ms. Murphy and Ms. Huffman, the amounts in this column for 2023 represent a performance-based bonus award pursuant to the terms of the 2023 Bonus Plan which was earned in 2023 and paid out in January 2024. For Mr. Handfield, the amounts in this column for 2023 represent a performance-based bonus award pursuant to the terms of the 2023 Bonus Plan which was earned in 2023 and paid out pro-rata in May 2023 at his resignation. For Ms. Murphy, and Dr. Handfield, the amounts in this column for 2022 represent a performance-based cash bonus award made pursuant to the terms of the 2022 Bonus Plan which was earned in 2022 and paid in December 2022. |
| (2) | The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 718, Compensation—Stock Compensation (ASC 718). On August 8, 2024, Ms. Murphy and Ms. Huffman received restricted stock awards, under the Company’s 2021 Equity Incentive Plan, of 25,000 and 15,000 shares, respectively, with a grant price of $3.37. The restricted stock awards vested at 20,000 shares immediately for Ms. Murphy with the remaining 5,000 shares to vest over six months. The restricted stock awards vested at 10,000 shares immediately for Ms. Huffman with the remaining 5,000 shares to vest over six months. |
| (3) | The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 718, Compensation—Stock Compensation (ASC 718). Ms. Murphy and Mr. Sullivan received grants, under the Company’s 2021 Equity Incentive Plan, to purchase 13,330 and 4,167 shares of Company common stock, respectively, at an exercise price of $17.70 per share, the closing price of the Company’s common stock on the grant date, June 23, 2022. In addition, Mr. Sullivan, and Dr Handfield received grants, to purchase 3,334 and 1,667 shares of Company common stock, respectively, at an exercise price of $21.37 per share, the closing price of the Company’s common stock on the grant date, July 29, 2022. The stock option awards are subject to the standard terms and conditions of the Company’s form of stock option agreement which includes, as applicable, earlier vesting upon a change in control of the Company. Under Securities and Exchange Commission rules relating to executive compensation disclosure, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Fair values relating to share grants have been determined under ASC 718 and were calculated using the common stock closing price on the date of grant and multiplying that price by the number of shares subject to the share grant. The equity-based compensation expense relating to the stock grants is recognized over the requisite service period of the grant. For option awards, we utilize the Black-Scholes Pricing Option Pricing Model to determine the fair value on the date of the grant multiplied by the number of options subject to the option grants in accordance with ASC 718. The stock-based compensation expense relating to the stock option grants is recognized over the requisite service period of the grant and the amounts included in the Option Awards column do not reflect compensation actually received by the named executive officers. For information on the assumptions used to calculate the fair value of stock option grants, refer to Note 8 - “Stock Compensation Plan” in our financial statements for the year ended December 31, 2022. |
| 100 |
| (4) | Amounts in this column for Ms. Murphy, Mr. Sullivan, and Dr Handfield represent the Company’s matching contributions to our Simple IRA retirement plan. The retirement plan requires us to match employee contributions up to the first 3% of compensation earned. |
The Compensation Committee believes that our future success depends, in large part, upon our ability to maintain a competitive position in attracting, retaining and motivating key personnel. The Compensation Committee utilizes the 2021 Equity Incentive Plan to provide incentives to employees. We do not have any separate long-term incentive plans that provide compensation intended to serve as incentives for performance other than awards contemplated under, or pursuant to, our 2021 Equity Incentive Plan.
Outstanding Equity Awards
The following table provides information concerning unexercised options outstanding as of December 31, 2023:
| Name | Number
of securities underlying unexercised options (#) exercisable | Number
of securities underlying unexercised options (#) unexercisable | Option exercise price ($) | Option expiration date | ||||||||||
| Kim Murphy | 10,666 | 2,667 | (1) | 17.70 | 6/23/2032 | |||||||||
| President and Chief Executive Officer | 2,311 | 25.80 | 5/1/2030 | |||||||||||
| 2,667 | 72.00 | 2/18/2031 | ||||||||||||
| 1,250 | 29.40 | 12/16/2031 | ||||||||||||
| Janet Huffman | 2,800 | 4,200 | (2) | 4.00 | 3/7/2033 | |||||||||
| Chief Financial Officer | ||||||||||||||
| Joseph Redmond | 37,500 | 37,500 | (3) | 5.37 | 12/28/2033 | |||||||||
| President and Interim Principal Executive Officer | ||||||||||||||
| (1) | Represents awards that are time vested with each award vesting evenly on an annual basis over three years, subject to earlier vesting upon a change in control as defined in the award agreements. |
| (2) | Represents awards that are time vested with each award vesting evenly on a semi-annual basis over two years, subject to earlier vesting upon a change in control as defined in the award agreements. |
| (3) | Represents awards that are time vested with each award vesting half on the day of grant and the remainder over one year, subject to earlier vesting upon a change in control as defined in the award agreements. |
| 101 |
Director Compensation
The Director Compensation program for 2023 consisted of the following:
Non-employee Directors
Cash Compensation. The Director compensation program for 2023 provided that all non-employee Directors would receive an annual base fee for service on the Board of $45,000. In addition, the Chairperson of the Board and of our Audit Committee, Compensation Committee and Nominating Committee would also receive annual fees of $40,000, $20,000, $15,000, and $10,000 respectively. All non-employee Directors serving on our Audit Committee, Compensation Committee and Nominating Committee (other than as the Chairperson) would receive an annual fee of $10,000, $7,500, and $5,000, respectively, in connection with such committee service. In addition, from time to time, the Board may establish special committees and in connection therewith determine the cash compensation that would be paid to the Directors serving on a special committee at the time of the establishment of such committee. All fees for Board service are generally paid on or before the last business day of each quarter.
The Board expects to meet in-person for a minimum of four meetings each year. To the extent the Board meets in excess of six in-person meetings an additional per meeting fee would also be considered to be paid to each Director by the Board for such additional in-person meeting. To the extent the Board determines to establish a special committee, or a special committee was previously established and continues to function, the Board would determine the cash compensation payable to each Director serving on any such special committee.
Our Compensation Committee and our Board of Directors use market data as one means of evaluating and establishing Board remuneration. From time to time the Compensation Committee seeks the advice for compensation consultants on matters related to executive compensation, board remuneration and related governance matters.
Equity Compensation-New Director. Equity compensation is issued to Directors upon joining our Board. Non-employee Directors receive a stock option for the purchase of shares of Company’s Common Stock equating to $60,000 with an exercise price set as the Closing price of the Company’s Common Stock on the day immediately prior to the appointment to the Board, which will immediately vest and be exercisable for ten years, subject to early termination under the terms of the 2021 Equity Incentive Plan. If new Directors join the Board before July 1 of the calendar year, they would receive 100% of the value; 50% of such total value if they join between July 1 and October 1; 25% of such total value if they join after October in a calendar year.
Annual Equity Compensation Awards. As part of the Director Compensation Program each non-employee director receives equity awards under the 2021 Equity Incentive Plan. In August 2023, the Board considered and made restricted stock awards to non-employee Directors of 25,000 restricted stock awards each which were awarded under the Company’s 2021 Equity Incentive Plan at a grant price of $3.37 per share, the closing price on August 8, 2023. The restricted stock awards vested 20,000 shares immediately and the remaining 5,000 shares over the following six months.
The restricted stock awards are subject to the standard terms and conditions of the Company’s form of restricted stock agreement which includes earlier vesting upon a change in control of the Company.
Discretionary Awards. As part of the Director Compensation Program, the Board may also make discretionary equity-based awards from time to time under our 2021 Equity Incentive Plan. A discretionary equity-based award was made in 2022 to Dr. Telling in connection with his service as executive chairman.
Minimum dollar value stock ownership requirements. Each non-employee Director receiving the above equity-based awards will be subject to a minimum dollar value stock ownership holding requirement with respect to the awards received as well as all prior equity awards under the 2021 Equity Incentive Plan which requirement is intended to align the ability to sell shares with the performance of the Company’s stock price. The non-employee Directors will each be subject to a minimum dollar value stock ownership requirement equal to six times the annual Board retainer ($270,000) which dollar threshold they would be precluded from selling shares of Company stock acquired from the Company under its 2021 Equity Incentive Plan.
| 102 |
Reimbursement of Expenses. Non-employee Directors are also reimbursed for expenses incurred in connection with their attendance at Board or committee meetings and reasonable out-of-pocket business expenses associated with their Board service.
Long-term Incentive Compensation. The Company did not have a Long-Term Incentive Compensation plan in place performance in 2023 for its Non-Employee Directors.
The following table sets forth the compensation of our non-employee Directors in 2023.
Non-Employee Director Compensation Table
| Name | Fees
earned or paid in cash (1) | Stock Awards (2) | Option awards (3) | All
other compensation (4) | Total | |||||||||||||||
| Dr. Frederick W. Telling | $ | 72,500.00 | 84,250 | $ | — | — | $ | 156,750 | ||||||||||||
| Robert C. Koski | $ | 50,000.00 | 84,250 | $ | — | — | $ | 134,250 | ||||||||||||
| Charles L. Pope | $ | 112,500.00 | 84,250 | $ | — | — | $ | 196,750 | ||||||||||||
| Dr. Alan W. Dunton | $ | 56,250.00 | 84,250 | $ | — | — | $ | 140,500 | ||||||||||||
| Bruce Cassidy | $ | 11,250.00 | — | $ | 13,877 | — | $ | 25,127 | ||||||||||||
| John Gandolfo | $ | 11,250.00 | — | $ | 13,877 | — | $ | 25,127 | ||||||||||||
| (1) | Amounts represent cash compensation earned by our Non-employee Directors during 2023 in connection with their Board service including any service on committees or service in connection with special committees established by the Board. |
| (2) | The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 718, Compensation—Stock Compensation (ASC 718). On August 8, 2023, the four non-employee directors received 25,000 shares of restricted stock at a grant price of $3.37. According to the terms of the grant, 20,000 shares vest immediately, and the remaining 5,000 shares vest evenly over six months. |
| (3) | The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification, Topic 718, Compensation—Stock Compensation (ASC 718). |
| (4) | No other compensation was paid to the non-employee Directors except for reimbursement for travel expenses to Board meetings and other Board-related meetings. |
| 103 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information about beneficial ownership of our Common Stock as of March 15, 2024 (unless otherwise noted) by (i) each shareholder that has indicated in public filings that the shareholder beneficially owns more than five percent of the Common Stock, (ii) each of the Company’s directors and named officers and (iii) all directors and officers as a group. Except as otherwise noted, each person listed below, either alone or together with members of the person’s family sharing the same household, had, to our knowledge, sole voting and investment power with respect to the shares listed next to the person’s name.
| Name and address (1) | Number
of shares beneficially owned | Percentage of ownership (2) | ||||||
| Directors and officers | ||||||||
| Robert C. Koski (3) | 73,567 | 1.6 | % | |||||
| Charles L. Pope (4) | 43,702 | 1.0 | % | |||||
| Dr. Alan Dunton (5) | 44,254 | 1.0 | % | |||||
| Dr. Frederick W. Telling (6) | 59,801 | 1.3 | % | |||||
| Bruce Cassidy (7) | 359,728 | 8.0 | % | |||||
| Janet Huffman (8) | 19,200 | * | ||||||
| Kimberly Murphy (9) | 41,894 | * | ||||||
| John Gandolfo (10) | 5,102 | * | ||||||
| (All Directors and officers as a group 8 persons) | 647,248 | 14.4 | % | |||||
| 5 % shareholder | ||||||||
| Lind Global Fund II LP (11) | 265,000 | 5.9 | % | |||||
| * | Beneficial ownership percentage is less than 1%. |
| (1) | Except as indicated, the address of the person named in the table is c/o Oragenics, Inc., 4902 Eisenhower Blvd., Suite 125, Tampa, Florida 33634. |
| (2) | In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of the Common Stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 15, 2024, are deemed outstanding, while the shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of the Common Stock held by them. Applicable percentage ownership is based on 4,480,693 shares of the Common Stock outstanding as of March 15, 2024, an admission of beneficial ownership of those shares. |
| (3) | The share amounts include: (i) 18,367 shares held by the Koski Family Limited Partnership (“KFLP”) of which Mr. Koski is a general partner; (ii) 5,000 shares able to be acquired by the KFLP upon conversion of Series B Convertible Preferred Stock; (iii) 4,033 shares able to be acquired by the KFLP upon exercise of warrants; (iv) 27,940 shares owned directly by Mr. Koski; and (v) 18,227 shares able to be acquired pursuant to stock options. |
| (4) | Includes: 18,227 shares able to be acquired pursuant to stock options. |
| (5) | Includes: (i) 18,227 shares able to be acquired pursuant to stock options, and (ii) 334 shares able to be acquired upon the exercise of warrants. |
| (6) | Includes: (i) 19,785 shares able to be acquired pursuant to stock options, and (ii) 2,501 shares able to be acquired upon the exercise of warrants. |
| (7) | Includes 5,102 shares able to be acquired upon the exercise of stock options. Excel Family Partners, LLLP (“Excel”) acquired 354,728 shares in a private placement on August 4, 2023. Fortress Holdings, LLC (“Fortress”) serves as manager for Excel and Mr. Cassidy serves as a manager for Fortress. |
| (8) | Includes: 4,200 shares able to be acquired upon the exercise of stock options. |
| (9) | Includes: 16,894 shares able to be acquired upon the exercise of stock options. |
| (10) | Represents shares able to be acquired upon the exercise of stock options. |
| (11) | Based upon information provided by Lind Global Fund II in their Schedule 13D filing with the SEC on March 6, 2024, Lind Global Fund II is the beneficial owner of 265,000 shares of Common stock. |
| 104 |
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth certain information as of December 31, 2023 with respect to the 2021 Equity Incentive Plan as amended (the “2021 Plan”):
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options (A) | Weighted- Average Exercise Price of Outstanding Options (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) | |||||||||
| Equity compensation plans approved by stockholders: | ||||||||||||
| 2021 Equity Incentive Plan | 244,733 | $ | 20.17 | 1,042,812 | ||||||||
| Equity compensation plans not approved by stockholders: (1) | ||||||||||||
| None | — | $ | — | — | ||||||||
| Total: | 244,733 | $ | 20.17 | 1,042,812 | ||||||||
| (1) | The Company’s Board of Directors approved a new 2021 Equity Incentive Plan (the “2021 Plan”) and it was submitted to shareholders for approval in connection with the Company’s 2020 annual meeting of shareholders. On February 25, 2022 the shareholders approved the 2021 Plan which is the successor to our 2012 Plan. On December 14, 2023 at the Company’s 2022 Annual Meeting the shareholders approved an amendment to the plan which provided for an additional 1 million shares to be added to the available shares. As amended the 2021 Plan provides the aggregate number of shares of Common Stock that may be issued under the 2021 Plan will not exceed the sum of (i) 1,166,667 new shares, (ii) the number of shares remaining available for the grant of new awards under the 2012 Plan as of immediately prior to the effective date of the 2021 Plan, and (iii) certain shares subject to outstanding awards granted under the 2012 Plan that may become available for issuance under the 2021 Plan, as such shares become available from time to time. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
SEC rules require us to disclose any transaction or currently proposed transaction in which we are a participant and in which any related person has or will have a direct or indirect material interest involving an amount that exceeds the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of last two completed fiscal years. A related person is any executive officer, Director, nominee for Director, or holder of 5% or more of the Company’s common stock, or an immediate family member of any of those persons.
The Audit Committee of the Board of Directors (or, to the extent applicable, our disinterested Directors) is responsible for reviewing all transactions between the Company and any officer or Director of the Company or any entity in which an officer of Director has a material interest. Any such transactions must be on terms no less favorable than those that could be obtained on an arms-length basis from independent third parties.
Asset Purchase Agreement-Acquisition of Neurology Assets.
On December 28, 2023, we consummated the transactions contemplated by the Odyssey Asset Purchase, in connection with which we paid Odyssey $1,000,000 in cash and 8,000,000 shares of Series F Convertible Preferred Stock. Additionally, at such closing, we entered into the Redmond Employment Agreement and awarded stock options to Mr. Redmond to acquire 75,000 shares of common stock under the Company’s 2021 Equity Incentive Plan at an exercise price of $5.40, which was the Company’s closing price on the date of his employment agreement. 37,500 of the options vested immediately, 18,750 options vests on June 24, 2024, and 18,750 options vest on December 28, 2024. At the time of such closing, Mr. Redmond was, and continues to be, the Chief Executive Officer, President, and Chairman of the Board of Odyssey.
| 105 |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table provides the aggregate fees billed for professional services rendered by the Company’s prior accountants, Mayer Hoffman McCann P.C. (“MHM”), and Cherry Bekaert, the Company’s current principal accountants, in the categories indicated during each of the past two fiscal years ended December 31:
MHM Fees
| Services Rendered | 2023 | 2022 | ||||||
| Audit Fees (1) | $ | 275,255 | $ | 154,475 | ||||
| Audit-Related Fees (2) | — | — | ||||||
| Tax Fees (3) | 8,750 | — | ||||||
| All Other Fees (4) | — | — | ||||||
| $ | 284,005 | $ | 154,475 | |||||
Cherry Bekaert Fees
| Services Rendered | 2023 | 2022 | ||||||
| Audit Fees (1) | $ | 125,725 | $ | — | ||||
| Audit-Related Fees (2) | — | — | ||||||
| Tax Fees (3) | — | — | ||||||
| All Other Fees (4) | — | — | ||||||
| $ | 125,725 | $ | — | |||||
| (1) | Audit Fees. This category includes fees for professional services provided in conjunction with the audit of the Company’s financial statements and with the audit of management’s assessment of internal control over financial reporting and the effectiveness of internal control over financial reporting, review of the Company’s quarterly financial statements, assistance and review of documents filed with the Securities and Exchange Commission, consents, and comfort letters and attestation services provided in connection with statutory and other regulatory filings and engagements. |
| (2) | Audit-Related Fees. This category includes fees for assurance and related professional services associated with due diligence related to mergers and acquisitions, consultation on accounting standards or transactions, internal control reviews and assistance with internal control reporting requirements, services related to the audit of employee benefit plans, and other attestation services not required by statute or regulation. |
| (3) | Tax Fees. This category includes fees for professional services provided related to tax compliance, tax planning and tax advice. |
| (4) | All Other Fees. There were no other fees paid to Mayer Hoffman McCann P.C. or Cherry Bekaert. |
Substantially all MHM’s personnel, who work under the control of MHM shareholders, are employees of wholly owned subsidiaries of CBIZ, Inc., which provides personnel and various services to MHM in an alternative practice structure. Substantially all of Cherry Bekaert LLP’s personnel, who work under the control of Cherry Bekaert LLP partners, are employees of Cherry Bekaert Advisory, LLC, which provides personnel and other services to Cherry Bekaert LLP in an alternative practice structure.
Pre-Approval Policy
The Audit Committee approves in advance all audit and non-audit services to be performed by the Company’s independent registered public accounting firm. The Audit Committee considers whether the provision of any proposed non-audit services is consistent with the Securities and Exchange Commission rules on auditor independence and has pre-approved certain specified audit and non-audit services to be provided by Cherry Bekaert, LLP for up to twelve (12) months from the date of the pre-approval. If there are any additional services to be provided, a request for pre-approval must be submitted by management to the Audit Committee for its consideration.
| 106 |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
| (a) | The documents filed as part of this report are as follows: |
| 1. | The financial statements and accompanying report of independent registered public accounting firm are set forth immediately following the signature page of this report on pages F-1 through F-18. |
| 2. | All financial statement schedules are omitted because they are inapplicable, not required or the information is included elsewhere in the financial statements or the notes thereto. |
| 3. | The exhibits required to be filed by this report or able to be incorporated by reference are listed in the “Exhibit Index” following the financial statements. |
| (b) | Other Exhibits |
Exhibits required by Item 601 of Regulation S-K are submitted (or incorporated by reference) and listed in a separate section herein immediately following the F pages under the heading “Exhibit Index” and are incorporated herein by reference. No exhibits in addition to those previously filed or listed in item 15(a) (3) and filed herein.
| (c) | Not Applicable. |
ITEM 16. FORM 10-K SUMMARY
None.
| 107 |
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 2024
| ORAGENICS, INC. | ||
| By: | /s/ J. Michael Redmond | |
| J. Michael Redmond | ||
| President and Interim Principal Executive Officer | ||
POWER OF ATTORNEY
Each of the undersigned officers and directors of Oragenics, Inc., hereby constitutes and appoints J. Michael Redmond and Janet Huffman, their true and lawful attorney-in-fact and agent, for them and in their name, place and stead, in any and all capacities, to sign their name to any and all amendments to this Report on Form 10-K, and other related documents, and to cause the same to be filed with the Securities and Exchange Commission, granting unto said attorneys, full power and authority to do and perform any act and thing necessary and proper to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present, and the undersigned for herself hereby ratifies and confirms all that said attorney shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| /s/ J. Michael Redmond | President, Interim Principal Executive Officer | March 29, 2024 | ||
| J. Michael Redmond | ||||
| /s/ Janet Huffman | Chief Financial Officer, Secretary and Treasurer | March 29, 2024 | ||
| Janet Huffman | (Principal Accounting and Financial Officer) | |||
| /s/ Robert. C. Koski | Director | March 29, 2024 | ||
| Robert C. Koski | ||||
| /s/ Charles L. Pope | Chairman and Director | March 29, 2024 | ||
| Charles L. Pope | ||||
| /s/ Frederick W. Telling | Director | March 29, 2024 | ||
| Frederick W. Telling | ||||
| /s/ Alan W. Dunton | Director | March 29, 2024 | ||
| Alan W. Dunton | ||||
| /s/ Bruce Cassidy | Director | March 29, 2024 | ||
| Bruce Cassidy | ||||
| /s/ John Gandolfo | Director | March 29, 2024 | ||
| John Gandolfo | ||||
/s/ Kimberly Murphy |
Director |
March 29, 2024 | ||
Kimberly Murphy |
| 108 |
Oragenics, Inc.
Consolidated Financial Statements
Years Ended December 31, 2023 and 2022
Index
| Index to Consolidated Financial Statements | ||
| Report of Cherry Bekaert LLP, Independent Registered Public Accounting Firm (ID ) | F-2 | |
| Report of Mayer Hoffman McCann P.C., Independent Registered Public Accounting Firm (PCAOB ID: |
F-3 | |
| Audited Financial Statements | ||
| Consolidated Balance Sheets | F-4 | |
| Consolidated Statements of Operations | F-5 | |
| Consolidated Statements of Changes in Shareholders’ Equity | F-6 | |
| Consolidated Statements of Cash Flows | F-7 | |
| Consolidated Notes to Financial Statements | F-8 – F-19 |
| F-1 |
Report of Cherry Bekaert LLP, Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Oragenics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Oragenics, Inc. (the “Company”) as of December 31, 2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, 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.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has recurring losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s evaluations of the events and conditions and management’s plans regarding those matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, 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. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audit provides a reasonable basis for our opinion.
Critical Audit Matter – Asset Purchase
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Company’s Audit Committee and that: (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter, in any way, our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Critical Audit Matter Description
As described in Note 3 to the financial statements, on December 28, 2023, the Company acquired certain intellectual property assets in a transaction accounted for as an asset purchase (the “Transaction”). The assets acquired were recorded at fair value and were comprised of acquired in-process research and development, which was recorded as a research and development expense in the Company’s 2023 statement of operations.
Auditing the Company’s accounting for the Transaction was complex because of the judgment and estimates involved in recording the Transaction, including the fair value of the Series F Preferred Stock.
How the Critical Audit Matter Was Addressed in the Audit
To test the Company’s accounting for the Transaction, we performed the following audit procedures:
We evaluated the Company’s application of the relevant accounting guidance as defined in ASC Topic 805 – Business Combinations.
We recalculated the fair value of the non-cash consideration paid in the Transaction, including the Series F Preferred Stock.
We also assessed the appropriateness of the related disclosures in the financial statements.
/s/
We have served as the Company’s auditor since 2023.
| F-2 |
Report
of
Report of Independent Registered Public Accounting Firm
To the Board of Directors
and Shareholders of Oragenics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Oragenics, Inc. (the “Company”) as of December 31, 2022, and the related consolidated statement of operations, changes in shareholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming Oragenics, Inc. will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring operating losses, negative operating cash flows and has an accumulated deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of the assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
We served as the Company’s auditor from 2005 to 2023.
/s/
April 17, 2023
| F-3 |
Oragenics, Inc.
Consolidated Balance Sheets
December 31, 2023 and 2022
| December 31, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Prepaid research and development expense | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Short-term notes payable | ||||||||
| Operating lease liabilities - Current | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease liabilities - Long Term | ||||||||
| Total long-term liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock, | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| F-4 |
Oragenics, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2023 and 2022
For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Grant revenue | $ | $ | ||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Miscellaneous income | ||||||||
| Total other income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share | $ | ) | $ | ) | ||||
| Shares used to compute basic and diluted net loss per share | ||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| F-5 |
Oragenics, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Years Ended December 31, 2023 and 2022
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid In | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Compensation expense relating to option issuances | — | — | ||||||||||||||||||||||||||
| Compensation expense relating to restricted stock issuances | ||||||||||||||||||||||||||||
| Issuance of Series F preferred stock | ||||||||||||||||||||||||||||
| Conversion of Series F preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Common stock issued in private placement | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid In | Accumulated | Total Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Compensation expense relating to option issuances | — | — | ||||||||||||||||||||||||||
| Conversion of Series A preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Conversion of Series B preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Proceeds from issuance of common stock | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| F-6 |
Oragenics, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023 and 2022
| 2023 | 2022 | |||||||
Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Write off of in process research and development (IPR&D) | ||||||||
| Depreciation and amortization | ||||||||
| Loss (Gain) on sale of fixed assets, net | ( | ) | ||||||
| Stock-based compensation expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Operating Lease Right of Use Assets | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Prepaid R&D assets - other assets | ||||||||
| Lease Liabilities | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of property and equipment | ||||||||
| Cash paid for IPR&D | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments on short-term notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of common stock for private placement | ||||||||
| Borrowings under short term notes payable | — | — | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Borrowings under short term notes payable for prepaid insurance | $ | $ | ||||||
| Issuance of Series F Preferred stock for IPR&D | $ | $ | ||||||
| Value of Series A preferred stock converted into common stock | $ | $ | ||||||
| Value of Series B preferred stock converted into common stock | $ | $ | ||||||
| Par Value of common stock issued in connection with Series A Preferred Stock Conversion | $ | $ | ||||||
| Par Value of common stock issued in connection with Series B Preferred Stock Conversion | $ | $ | ||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
| F-7 |
Oragenics, Inc.
Notes to Consolidated Financial Statements
December 31, 2023 and 2022
1. Basis of Presentation
The Company
Oragenics, Inc. (formerly known as Oragen, Inc.) (the “Company” or “we”) was incorporated in November 1996. Commencing in December of 2023, we are focused on the development of medical products that treat brain related illnesses and diseases and our lead product candidate and focus is on the development and commercialization of ONP-002 for the treatment of mild traumatic brain injury (“mTBI” or “Concussion”).
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) including the assumption of a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
Reverse Stock Split
In December of 2022 the Board of Directors approved an amendment to the Company’s articles of incorporation to affect a reverse stock split of the Company’s common stock by a ratio of one for sixty. The Company’s common stock began trading on a split adjusted basis on January 23, 2023. All references to common stock for the comparable fiscal year ended December 31, 2022, have been adjusted to reflect the effect of the reverse split.
Going Concern Consideration
In light of our recurring losses, accumulated deficit and negative cash flow the report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2023 contained an explanatory paragraph raising substantial doubt about our ability to continue as a going concern.
The
Company has incurred recurring losses and negative cash flows from operations since inception. To date the Company has not generated
significant revenues from operations. The Company incurred a net loss of $(
Historically,
the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its common
stock and preferred stock, warrant exercises, income earned on grants and interest income. For the fiscal year ended December 2023 the
Company raised approximately $
These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that our consolidated financial statements are issued.
The Company’s ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing or achieve profitable operations, as to which no assurances can be given. Cash requirements may vary materially from those now planned because of changes in the Company’s focus and direction of its research and development programs, competitive and technical advances, or other developments. Additional financing will be required to continue operations after the Company exhausts its current cash resources and to continue its long-term plans for clinical trials and new product development. There can be no assurance that any such financing can be realized by the Company, or if realized, what the terms thereof may be, or that any amount that the Company is able to raise will be adequate to support the Company’s working capital requirements until it achieves profitable operations.
| F-8 |
The Company intends to seek additional funding through sublicensing arrangements, joint venturing or partnering, sales of rights to technology, government grants and public or private financings and may receive funding through the exercise of outstanding warrants. The Company’s future success depends on its ability to raise capital and ultimately generate revenue and attain profitability. The Company cannot be certain that additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to it or, if available, will be on terms acceptable to the Company. If the Company issues additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of its common stock, and the Company’s current shareholders may experience dilution. If the Company is unable to obtain funds when needed or on acceptable terms, the Company may be required to curtail its current development programs, cut operating costs and forego future development and other opportunities.
2. Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Oragenics, Inc. and our wholly-owned subsidiary Noachis Terra, Inc. All intercompany balances and transactions have been eliminated.
New Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that we adopt as of the specified effective date. Unless otherwise discussed, the Company does not believe that the impact of recently issued standards that are not yet effective will have a material impact on its financial position or results of operations upon adoption.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to 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 consolidated financial statements, as well as the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. The principal areas of estimation reflected in the consolidated financial statements are stock-based compensation.
Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassification did not result in a change in the net loss.
Accounting for Mergers and Acquisition
ASC 805, Business Combinations, provides a model for determining whether an acquisition represents a business combination. In order to be a business, the integrated set of activities of the acquired entity needs to have an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired entity must also pass the “Screen Test” which involves determining whether the acquisition represents an in-substance asset acquisition based on whether the fair value of the gross assets acquired is “substantially all” concentrated in a single asset or group of similar assets. This evaluation excludes certain acquired assets such as cash, deferred taxes, and goodwill associated with deferred taxes, but includes all other gross assets, including any consideration transferred in excess of the identified assets.
The Company accounted for the acquisition of the Odyssey neurology assets as an asset acquisition after determining that the transaction did not meet the criteria of a business combination. The Company determined that substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, the most significant of which is the in-process research and development asset associated with the concussion product candidates. The net assets were recorded at fair value at the date of acquisition and the in-process research and development was recorded as research and development expense in the Company’s consolidated statement of operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. The Company’s cash and cash equivalents are deposited in a financial institution and consist of demand deposits and overnight repurchase agreements and at times deposits are in excess of federally insured limits.
| F-9 |
Other Receivables
Other receivables are recorded at their net realizable value and consist of amounts due for reimbursable expenses relating to work performed under the terms of the Company’s federal grant.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is provided on the straight-line method over the estimated useful lives of the assets (three to seven years). Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset (three years).
Business Segments
In accordance with US GAAP, the Company is required to report segment information. As the Company only operates principally in one business segment, no additional reporting is required.
Generally, all forms of stock-based payments, including stock option grants, and warrants are measured at their fair value on the awards’ grant date using a Black-Scholes Pricing Option Pricing Model. Stock-based compensation awards issued to non-employees for services rendered are recorded at the fair value of the stock-based payment. The expense resulting from stock-based payments are recorded in research and development expense or general and administrative expense in the consolidated statement of operations, depending on the nature of the services provided. Stock-based payment expense is recorded over the requisite service period in which the grantee provides services to us. To the extent the stock option grants or warrants do not vest at the grant date they are subject to forfeiture.
Stock-Based Compensation
US GAAP requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their fair values as of the grant date. Stock-based compensation expense is recorded over the requisite service period in which the grantee provides services to us, to the extent the options do not vest at the grant date and are subject to forfeiture. For performance-based awards that do not include market-based conditions, we record share-based compensation expense only when the performance-based milestone is deemed probable of achievement. We utilize both quantitative and qualitative criteria to judge whether milestones are probable of achievement. For awards with market-based performance conditions, we recognize the grant-date fair value of the award over the derived service period regardless of whether the underlying performance condition is met. The Company made an accounting policy election to account for forfeitures in compensation expense as they occur.
Impairment of Long-Lived Assets
The Company periodically reviews their long-lived assets for impairment and reduces the carrying value to fair value whenever events or changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses recorded during the years ended December 31, 2023, and 2022.
Research and Development Expenses
Research and development consist of expenses incurred in connection with the discovery and development of our product candidates. These expenses consist primarily of employee-related expenses, which include salaries and benefits and attending science conferences; expenses incurred under our license agreements with third parties and under other agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our nonclinical studies; the cost of acquiring and manufacturing clinical trial materials; facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and depreciation of fixed assets; license fees, for and milestone payments related to, in-licensed products and technology; stock-based compensation expense; and costs associated with nonclinical activities and regulatory approvals. Prepayments and upfront payments to third party vendors for work to be completed in the future are recorded as a prepaid expense on the Company’s balance sheet. The Company expenses research and development costs on the consolidated statement of operations as expense is incurred or completed.
| F-10 |
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced to estimated amounts expected to be realized by the use of a valuation allowance. Based on our historical operating losses, a valuation allowance has been recognized for all deferred tax assets.
Under US GAAP, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, US GAAP provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.
Concentrations
Financial
instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents.
The Company maintains cash accounts in commercial banks, which may, at times, exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. As of
December 31, 2023, the uninsured portion of this balance was $
Grant revenue
Grant
revenue is derived from a small business innovation research grant in the amount of $
3. Acquisition of Concussion Assets
On December 28, 2023, the Company entered into an Asset Purchase Agreement with Odyssey Health, Inc. to purchase their intellectual property assets for their neurology products ONP-001 and ONP-002.
At
the closing of the transaction the aggregate fair value of the transaction was $
Schedule of Acquisition of Assets
| Fair Value | ||||
| Cash - Initial Payment | $ | |||
| Assumed Liabilities | ||||
| Equity - Preferred Stock | ||||
| Total Fair Value of Considerations | $ | |||
The Company evaluated the acquisition transaction and determined that it should be accounted for as an asset purchase. Furthermore, it was determined that the assets acquired were in-process research and development and therefore the aggregate fair value of the purchase price was recorded in research and development expenses in 2023.
| F-11 |
4. Property and Equipment, net
Property and equipment, net consists of the following as of December 31, 2023 and 2022:
Summary of Property and Equipment, Net
| 2023 | 2022 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Laboratory equipment | ||||||||
| Leasehold improvements | ||||||||
| Office and computer equipment | ||||||||
| Property and equipment, gross | ||||||||
| Accumulated depreciation and amortization | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
and amortization expense for the years ending December 31, 2023 and 2022 was $
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following as of December 31, 2023 and 2022:
Summary of Accounts Payable and Accrued Expenses
| December 31, 2023 | December 31, 2022 | |||||||
| Accounts payable trade | $ | $ | ||||||
| Accrued expenses | ||||||||
| Professional fees | ||||||||
| Vacation | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
6. Short-Term Notes Payable
The Company had the following short-term notes payable as of December 31, 2023 and 2022:
Summary of Short-Term Notes payable
| 2023 | 2022 | |||||||
| Directors’ and officers’ liability insurance financing of $ | $ | $ | ||||||
| Directors’ and officers’ liability |
In 2023, the Company did not maintain product liability insurance. In the year ended 2022, the Company also maintained a product liability insurance policy which had been renewed in subsequent periods without premium financing.
| F-12 |
7. Prepaid Expense Assets – Current and Long-Term
Schedule of Expense and Other Current Assets
| December 31, 2023 | December 31, 2022 | |||||||
| Prepaid research and expense, current | $ | $ | ||||||
| Prepaid insurance | ||||||||
| Other prepaid expense, current | ||||||||
| Deposits | ||||||||
| Prepaid research and development expense, long-term | ||||||||
| Total Current and Long-Term Prepaid Assets | $ | $ | ||||||
As of December 31, 2023, the Company determined that vaccine program prepaid research and development expense paid to a vendor in 2022 should be reclassified from prepaid current assets to a long-term asset. As a result of vaccine program delays it is not expected that the prepaid amount will be recognized as realized expense in 2024.
8. Shareholders’ Equity
Common Stock
Reverse Split
On December 23, 2022, the Company announced a reverse split of its common stock, $ par value, at a ratio of one for sixty, which became effective January 20, 2023 (the “Effective Date”). The Company’s common stock began trading on a split-adjusted basis on January 23, 2023 under the existing trading symbol “OGEN”.
As a result of the reverse split, each 60 pre-split shares of common stock outstanding were automatically combined into one new share of common stock without any action on the part of the holders, and the number of outstanding common shares was reduced from approximately million shares to approximately million shares. The reverse split also applied to common stock issuable upon the exercise of the Company’s outstanding stock options. In addition, the Company also announced that the authorized common stock of the Company was decreased from million to approximately million shares. The authorized preferred stock remains at shares. The common stock issued pursuant to the reverse stock split will remain fully paid and non-assessable. The reverse stock split did not affect the par value of the common stock.
Private Placement
On
August 4, 2023, we entered into a Securities Purchase Agreement with two healthcare-focused investors, to purchase an aggregate of (i)
shares of our common stock, $ par value, and (ii) shares of Series E Mirroring Preferred Stock. The gross proceeds
from the offering were approximately $
Odyssey Asset Acquisition
As part of the Asset Purchase Agreement with Odyssey, on December 28, 2023, Odyssey converted shares of their Series F Preferred Shares into shares of our common stock, $ par value.
Other Share Issuances.
On August 8, 2023, the Compensation Committee and Board of Directors approved restricted stock awards to certain executive officers and directors in the amount of shares of common stock, shares vested immediately, and the remaining shares vested six (6) months from the date of the award. The restricted stock awards were subject to the terms and conditions of the Company’s form of restricted stock award agreement which include earlier vesting upon a change in control of the Company.
| F-13 |
Preferred Stock
Odyssey Preferred Stock
On December 28, 2023, as part of consideration paid to Odyssey and pursuant to the Asset Purchase Agreement executed with Odyssey, we issued shares of convertible Series F Preferred Stock, the Series F Preferred Stock is convertible on a one-for one basis. The Series F Preferred Stock has no voting rights, is ranked junior to our Series A and Series B Preferred Stock and is at parity with our common stock, in addition there shall be no dividends paid on the Series F Preferred Stock.
Series E Mirroring Preferred Stock
On August 4, 2023, we entered into a Securities Purchase Agreement with two healthcare-focused investors, to purchase an aggregate of (i) shares of our common stock, $ par value, and (ii) shares of Series E Mirroring Preferred Stock.
The
Company proposed an amendment to its Amended and Restated Articles of Incorporation, in connection with the Company’s 2022
annual meeting of shareholders, to effect an increase in the shares of Common Stock the Company is authorized to issue from
shares of Common Stock to
shares of Common Stock (the “Amendment”).
The Series E Mirroring Preferred shares had no voting rights except, solely and exclusively with respect to the Amendment and any proposal to adjourn any meeting of shareholders called for the purpose of voting on the Amendment, voting together with the Common Stock and any other issued and outstanding shares of preferred stock of the Company as a single class.
On December 14, 2023, upon effectiveness of the Amendment, each share of Series E Preferred Stock automatically transferred to the Company and was cancelled for no consideration with no action on behalf of the holders of Series E Preferred Stock. The shares resumed the status of authorized but unissued preferred stock and as of December 31, 2023, were no longer designated as Series E Mirroring Preferred Stock.
Warrants
The Company’s outstanding and exercisable warrants as of December 31, 2023 are presented below:
Schedule of Warrants Outstanding and Exercisable
| Exercise Price | Total Warrants Outstanding | Exercisable Warrants Outstanding | Expiration Date | |||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
| $ | ||||||||||||
All outstanding warrants are classified as equity on the Company’s Consolidated Balance Sheets.
9. Stock Compensation Plan
The purpose of the 2021 Incentive Plan is to advance the interests of the Company by affording certain employees and Directors of the Company and key consultants and advisors an opportunity to acquire or increase their proprietary interests in the Company. The 2021 Incentive Plan authorizes the grant of stock options (incentive and non-statutory), stock appreciation rights and restricted stock. Options are granted at the fair market value of the Company’s stock on the date of grant. Options can generally vest either immediately or over a period of up to from their respective grant dates and expire years from the date of grant.
Recipients of stock awards under our 2021 Incentive Plan become the owner of record of the stock immediately upon grant, which may be subject to certain restrictions. The balance of unvested restricted stock will be forfeited and automatically transferred back to us at no cost upon the termination of the recipient’s employment. Upon vesting of restricted stock that is made to recipients who are employees, the recipient has the option to settle minimum withholding taxes by electing to have us withhold otherwise deliverable shares having a fair market value equal to the required tax obligations (“net-settlement”). The net-settlement shares are then immediately cancelled and retired and reduce the shares available for issuance under the Company’s 2021 Incentive Plan.
The Company uses the Black-Scholes Pricing Option Pricing Model to estimate the fair value of stock-based awards on the date of grant. The assumptions employed in the calculation of the fair value of share-based compensation expense were calculated as follows for all years presented:
| ● | Expected dividend yield — zero based on the Company does not plan to issue dividends. | |
| ● | Expected volatility — based on the Company’s historical market price at consistent points in a period equal to the expected life of the options. | |
| ● | Risk-free interest rate — based on the US Treasury yield curve in effect at the time of grant. | |
| ● | Expected life of options — based on the simplified method of estimating the expected life for current year grants. In prior year, 2022, it was based on the Company’s historical life of options exercised, considering the contractual terms of the grants, vesting schedules and expectations of future employee behavior. | |
| ● | The company accounts for forfeitures as they occur. |
| F-14 |
Summary of Assumptions Used to Estimate the Fair Value of Stock Options Granted
| 2023 | 2022 | |||||||
| Expected dividend yield | % | % | ||||||
| Weighted-average expected volatility | - | % | - | % | ||||
| Weighted-average risk-free interest rate | - | % | - | % | ||||
| Expected life of options | - years | years | ||||||
Total compensation cost related to stock options was $ and $ for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was $ of unrecognized compensation costs related to stock options, which is expected to be recognized over a weighted average period of less than one year.
Summary of Stock Option Activity
| Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (In Years) | Aggregate Intrinsic Value(1) | |||||||||||||
| Outstanding at December 31, 2022 | $ | $ | - | |||||||||||||
| Granted | — | $ | — | |||||||||||||
| Exercised | — | $ | — | |||||||||||||
| Forfeited | ( | ) | — | $ | — | |||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at December 31, 2023 | $ | $ | ||||||||||||||
| (1) |
Summary of Weighted Average Grant Fair Value of Stock Options
| 2023 | 2022 | |||||||
| Weighted average grant date fair value of stock options granted per share | $ | $ | ||||||
| Intrinsic value of stock options exercised | $ | $ | ||||||
| Grant date fair value of stock options that vested | $ | $ | ||||||
| F-15 |
Schedule of Restricted Stock Activity
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Non-vested restricted stock at beginning of year | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ||||||||
| Non-vested restricted stock at end of year | ||||||||
The
total fair value of restricted stock vested in 2023 was $.
For the year ended December 31, 2023, share-based compensation expense under the plan for restricted stock was about $
10. Retirement Plan
The
Company has a defined contribution Simple Individual Retirement Arrangement plan, which covers all employees and provides for a Company
match of up to
11. Income Taxes
The components of the provision for income taxes for the years ended December 31, 2023 and 2022 are as follows:
Schedule of Components of Provision for Income Taxes
| 2023 | 2022 | |||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ( | ) | ||||
| Valuation Allowance | ||||||||
| Total provision (Deferred benefit) for income taxes | $ | $ | ||||||
At December 31, 2023 and 2022, the Company had temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective income tax bases, as measured by enacted state and federal tax rates, as follows:
Summary of Components of Deferred Tax
| 2023 | 2022 | |||||||
| Deferred tax assets (liabilities): | ||||||||
| Net operating loss carryforward | $ | $ | ||||||
| Accrued vacation | ||||||||
| Non-qualified stock compensation | ||||||||
| Capitalized Research & Development costs | ||||||||
| Intangibles | ||||||||
| Total deferred tax assets | ||||||||
| Less valuation allowance | ( | ) | ( | ) | ||||
| Total net deferred tax asset, net of valuation allowance | $ | $ | ||||||
The following is a reconciliation of tax computed at the statutory federal rate to the income tax expense (benefit) in the statements of operations for the years ended December 31, 2023 and 2022:
Schedule of Reconciliation of Tax Computed at Statutory Federal Rate
| 2023 | 2022 | |||||||
| Income tax benefit computed at statutory federal rate of | $ | ( | ) | $ | ( | ) | ||
| State income tax benefits, net of federal expense/benefit | ( | ) | ( | ) | ||||
| Prior year adjustment | ||||||||
| Change in valuation allowance | ||||||||
| Non-deductible expenses | ||||||||
| Other | ||||||||
| Total provision (benefit) for income taxes | $ | $ | ||||||
| F-16 |
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income and projections of future taxable income over which the deferred tax assets are deductible, the Company believes that it is more likely than not that it will not be able to realize the benefits of these deductible differences.
Accordingly,
a valuation allowance of $
At
December 31, 2023, the Company has federal and state tax net operating loss carryforwards of $
Utilization of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or, could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“IRC Section 382”) and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has completed several financings since its inception which may result in a change in ownership as defined by IRC Section 382 or could result in a change in control in the future.
For
the years ended December 31, 2023 and 2022, the Company incurred $
The Company files its income tax returns in the U.S. federal jurisdiction and in Florida and Pennsylvania. With few exceptions, the Company is no longer subject to federal or state income tax examinations by tax authorities for years before 201.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Schedule of Reconciliation of Unrecognized Tax Benefits
| Balance as of December 31, 2021 | $ | |||
| Additions based on tax positions related to the current year | ||||
| Reductions for the tax positions of prior years | ( | ) | ||
| Expired Tax Credits due to 20-year life | ( | ) | ||
| Balance as of December 31, 2022 | $ | |||
Additions based on tax positions related to the current year | ||||
| Reductions for the tax positions of prior years | ( | ) | ||
Expired Tax Credits due to 20-year life | ( | ) | ||
| Balance as of December 31, 2023 | $ |
| F-17 |
Included
in the balance at December 31, 2023 and 2022, are $
During the years 2023 and 2022 the Company did not recognize any interest and penalties. Due to the potential offset of the Company’s operating loss carryforward for any future activity, the amount attributed to interest and penalties would be immaterial.
12. Commitments and Contingencies
Leases
Lab
Facility-Alachua. The Company’s Alachua facility was leased from a real estate developer for a term of five years beginning
in December 2014. Under the lease agreement, the rental payments ranged from $
Corporate
Office-Tampa. In November of 2016, the Company entered into an amendment for the leased office space for corporate personnel
located in Tampa, FL. The amended lease is for approximately
Schedule of Supplemental Balance Sheet Information Related to Leases
| For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | |||||||
| Weighted Average Remaining Lease Term In Years | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
Maturities of operating lease liabilities are as follows:
Schedule of Operating lease liabilities
| Year ended December 31: | ||||
| 2024 | ||||
| Total | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| F-18 |
The cost component of operating leases is as follows:
Schedule of Cost Component of Operating Leases
| For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
Supplemental cash flow information related to operating leases is as follows:
Schedule of Supplemental Cash Flow Information Related to Operating Leases
| For the Year Ended December 31, 2023 | For the Year Ended December 31, 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
13. Subsequent Events
Termination of our At the Market
On January 23, 2024, we announced the termination of our At the Market Agreement with Ladenburg Thalmann & Co. Inc. dated February 24, 2023.
Shelf Financing
On January 16, 2024, we filed a Preliminary Prospectus with the SEC announcing our intent to raise capital through the sale of common stock from our available and reserved shares under our shelf registration statement on Form S-3 filed with the SEC on May 29, 2020. Subsequently on March 1, 2024, we announced that we had executed the sale of shares of our common stock at a price of $ per share to the public and $ per share to the underwriter. In addition, we granted the underwriters of the transaction an option exercisable 45 days from the date of the agreement to purchase up to an additional shares of common stock solely for the purpose of covering over-allotments.
Resignation of Chief Operating Officer
On February 12, 2024, we announced that we had entered into a mutually agreeable Separation Agreement with Kimberly Murphy, our former Chief Operating Officer. Ms. Murphy continues to serve as a member of our Board of Directors. Following Ms. Murphy’s separation, Charlie Pope our Chairman of the Board was named as Executive Chairman and will provide direction during the transition in management. In addition, the Board of Directors appointed our President, Mr. Redmond, as Interim Principal Officer.
| F-19 |
EXHIBIT INDEX
| 109 |
| 110 |
| * | Confidential treatment has been granted as to certain portions of this exhibit pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule 24b-2 of the Securities Exchange Act of 1934, as amended. | |
| + | Executive management contract or compensatory plan or arrangement. | |
| ** | Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. |
| 111 |
Exhibit 4.8
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Oragenics, Inc. (“Oragenics,” “we,” “our,” or “us”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our common stock.
DESCRIPTION OF CAPITAL STOCK
The following descriptions are summaries of the material terms that are included in our amended and restated articles of incorporation (as amended) and our bylaws (as amended) as well as the specific agreements such descriptions relate to. This summary is qualified in its entirety by the specific terms and provisions contained in our restated articles of incorporation, bylaws and the specific agreements described herein, copies of which we have filed as exhibits to our Annual Report on Form 10-K and are incorporated herein by reference.
Overview
Authorized Capital Stock
Our authorized capital stock consists of 350,000,000 shares of common stock, par value $0.001, and 50,000,000 shares of preferred stock, without par value.
Listing of Common Stock
Our common stock is currently listed on the NYSE American under the trading symbol “OGEN.”
Common Stock
Voting
The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Approval of an amendment of our articles of incorporation, a merger, a share exchange, a sale of all our property or dissolution must be approved by a majority of all votes entitled to be cast. Such votes may be cast in person or by proxy as provided in Article I Section 8 of our bylaws. One third of our shares entitled to vote constitute a quorum for purposes of a meeting of our shareholders.
Dividends
Subject to preferences that may be applicable to any outstanding preferred stock, the holders of our common stock are entitled to receive ratably all dividends, if any, as may be declared from time to time by our Board of Directors out of the funds legally available.
In the event of the liquidation, dissolution or winding up of the Company, the holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable.
Rights upon Liquidation
Upon our liquidation, dissolution or winding-up, after payment in full of our liabilities and the amounts required to be paid to holders of any outstanding shares of preferred stock, if any, all holders of our common stock, along with the holders of our Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series F Convertible Preferred Stock on an “as if” converted basis, will be entitled to receive a pro rata distribution of all of our assets and funds legally available for distribution.
Redemption and Pre-Emptive Rights
No shares of our common stock are subject to redemption or have preemptive rights to purchase additional shares of our common stock or any of our other securities.
Fully Paid and Non-assessable
All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering, will be fully paid and non-assessable.
Preferred Stock
Our Board of Directors has the authority, without action by our shareholders, to designate and issue up to 50,000,000 shares of preferred stock in one or more series or classes and to designate the rights, preferences and privileges of each series or class, which may be greater than the rights of our common stock. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, the number of shares constituting any class or series and the designation of the class or series. Terms selected by our Board of Directors in the future could decrease the amount of earnings and assets available for distribution to holders of shares of common stock or adversely affect the rights and powers, including voting rights, of the holders of shares of common stock without any further vote or action by the stockholders. As a result, the rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series F Convertible Preferred Stock or any other preferred stock that may be issued by us in the future, which could have the effect of decreasing the market price of our common stock.
Series A Convertible Preferred Stock
On May 10, 2017 and on July 25, 2017, we issued an aggregate of 12,000,000 shares of convertible preferred stock, designated as the Series A Convertible Preferred Stock pursuant to the certificate of designation and rights filed by us with the Secretary of State of the State of Florida, with an aggregate original purchase price and initial liquidation preference of $3.0 million. Each share of Series A Convertible Preferred Stock was issued for an amount equal to $0.25 per share, which we refer to as the original purchase price. On March 9, 2018 and August 26, 2022, certain holders of Series A Convertible Preferred Stock elected to convert to common stock and, as a result of such conversions, 5,417,000 shares of Series A Preferred remain outstanding.
The following description is a summary of the material provisions of the Series A Convertible Preferred Stock and the certificate of designation and rights and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the Series A Convertible Preferred Stock and certificate of designation and rights of Series A Convertible Preferred Stock, including the definitions of certain terms used in the certificate of designation and rights. We urge you to read this document because it, and not this description, defines the rights of a holder of the Series A Convertible Preferred Stock. A copy of the form of certificate of designation and rights that we filed with the Secretary of State of the State of Florida effective May 10, 2017 as amended and restated effective November 8, 2017 has been incorporated by reference as part of our Articles of Incorporation included as an exhibit to our Form 10-K.
No Mandatory Redemption Date or Sinking Fund
The shares of Series A Convertible Preferred Stock do not have a mandatory redemption date and are not subject to any sinking fund. The shares of Series A Convertible Preferred Stock will remain outstanding indefinitely unless we elect to redeem them under the circumstances described below in “Redemption” or we otherwise repurchase them or they are converted into shares of our common stock as described below under “Conversion Rights.”
Dividends
The shares of Series A Convertible Preferred Stock are entitled to participate in all dividends declared and paid on shares of company common stock on an “as if” converted basis.
Liquidation Preference
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the certificate of designation), the holders of Series A Convertible Preferred Stock shall be entitled to receive out of the assets, the greater of (i) the product of the number of shares of Series A Preferred Stock then held by such holder, multiplied by the original issue price; and (ii) the amount that would be payable to such holder in the liquidation in respect of Common Stock issuable upon conversion of such shares of Series A Preferred Stock if all outstanding shares of Series A Preferred Stock were converted into Common Stock immediately prior to the Liquidation.
Ranking
The Series A Convertible Preferred Stock ranks (i) on par with the Common Stock and Series B Convertible Preferred Stock and junior to Series C Non-Convertible Preferred Stock as to dividend rights and (ii) on par with Series B Convertible Preferred Stock, junior to Series C Non-Convertible Preferred Stock and senior to Common Stock as to rights upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.
See “Voting Rights—Matters Requiring Approval of Holders of Series A Convertible Preferred Stock” for a description of the types of issuances of equity securities and other securities of our company requiring approval of holders of a majority of shares of Series A Convertible Preferred Stock then outstanding, voting together as a class.
Redemption
To the extent we have funds legally available therefor, at any time after the fifth anniversary of the original issue date of the Series A Convertible Preferred Stock, we have the right to redeem all or any portion of the outstanding shares of Series A Convertible Preferred Stock at the original issue price of $0.25 by providing at least seventy five (75) days written notice of such redemption to all holders of the then outstanding shares of Series A Convertible Preferred Stock.
Conversion Rights
The holders of shares of Series A Convertible Preferred Stock will, at any time, be entitled to convert some or all of their Series A Convertible Preferred Stock into the number of shares of our common stock obtained by dividing the original purchase price of the shares to be converted by the aggregate Series A conversion price (which originally equaled the original purchase price, but is subject to adjustment), which amount we refer to as the conversion price.
The conversion price will be adjustable upon the occurrence of certain events and transactions to prevent dilution as described under “Adjustments to Conversion Price to Prevent Dilution.” Any shares of our common stock issued upon conversion of the shares of Series A Convertible Preferred Stock shall be validly issued, fully paid and non-assessable. The Company shall in lieu of fractional shares rounded up to the next whole share. The initial conversion price was $0.25 but was adjusted to $2.50 as a result of the Company’s reverse split of 1 for 10 on January 19, 2018 and further adjusted following our 1 for 60 reverse stock split effective on January 20, 2023.
Adjustments to Conversion Price to Prevent Dilution
The Series A Convertible Preferred Stock is subject to provisions that protect the holders against dilution by adjustment of the conversion price and/or number of shares of common stock issuable upon conversion in certain events such as a subdivision, combination or reclassification of our outstanding common stock.
Voting Rights—Matters Requiring Approval of Holders of Series A Convertible Preferred Stock
Except as otherwise required by law, the Series A Convertible Preferred Stock shall have no voting rights. However, as long as any shares of Series A Convertible Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Convertible Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Convertible Preferred Stock or alter or amend the certificate of designation, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Convertible Preferred Stock, (c) increase the number of authorized shares of Series A Convertible Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
Registration Rights
The holders of the Series A Convertible Preferred Stock were granted certain demand registration rights and piggyback registration rights with respect to the shares of our Common Stock issuable upon conversion of the Series A Preferred Stock and exercise of their associated warrants, subject to customary cutbacks, blackout periods and other exceptions.
Series B Convertible Preferred Stock
On November 8, 2017, we issued 6,600,000 shares of convertible preferred stock, designated as the Series B Convertible Preferred Stock pursuant to the certificate of designation and rights filed by us with the Secretary of State of the State of Florida, with an aggregate original purchase price and initial liquidation preference of $3.3 million. Each share of Series B Convertible Preferred Stock was issued for an amount equal to $0.50 per share, which we refer to as the original purchase price. On August 26, 2022 a certain holder of Series B Convertible Preferred Stock elected to convert to common stock and, as a result of such conversion, 4,050,000 shares of Series B Convertible Preferred Stock remain outstanding.
The following description is a summary of the material provisions of the Series B Convertible Preferred Stock and the certificate of designation and rights and does not purport to be complete. This summary is subject to and is qualified by reference to all the provisions of the Series B Convertible Preferred Stock and certificate of designation and rights of Series B Convertible Preferred Stock, including the definitions of certain terms used in the certificate of designation and rights. We urge you to read this document because it, and not this description, defines the rights of a holder of the Series B Convertible Preferred Stock. A copy of the form of certificate of designation and rights that we filed with the Secretary of State of the State of Florida effective November 8, 2017 has been incorporated by reference as part of our Articles of Incorporation included as an exhibit to our Form 10-K.
No Mandatory Redemption Date or Sinking Fund
The shares of Series B Convertible Preferred Stock do not have a mandatory redemption date and are not subject to any sinking fund. The shares of Series B Convertible Preferred Stock will remain outstanding indefinitely unless we elect to redeem them under the circumstances described below in “Redemption” or we otherwise repurchase them or they are converted into shares of our common stock as described below under “Conversion Rights.”
Dividends
The shares of Series B Convertible Preferred Stock are entitled to participate in all dividends declared and paid on shares of company common stock on an “as if” converted basis.
Liquidation Preference
Upon any liquidation, dissolution or winding-up of the Company (any such event, a “Liquidation”), whether voluntary or involuntary, each holder of shares of Series B Convertible Preferred Stock shall be entitled to receive, after payment to the Series C Non-Convertible Preferred Stock as provided in the Certificate of Designation of Series C Non-Convertible Preferred Stock, but on par with Series A Convertible Preferred Stock and in preference to the holders of Common Stock, an amount of cash equal to the greater of (i) the product of the number of shares of Series B Convertible Preferred Stock then held by such holder, multiplied by the original issue price; and (ii) the amount that would be payable to such holder in the Liquidation in respect of Common Stock issuable upon conversion of such shares of Series B Convertible Preferred Stock if all outstanding shares of Series B Convertible Preferred Stock were converted into Common Stock immediately prior to the Liquidation (disregarding for this purpose any and all limitations of any kind on such conversion).
Ranking
The Series B Convertible Preferred Stock ranks (i) on par with the Common Stock and Series A Convertible Preferred Stock and junior to Series C Non-Convertible Preferred Stock as to dividend rights and (ii) junior to Series C Non-Convertible Preferred Stock, on par with Series A Convertible Preferred Stock and senior to the Common Stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily.
See “Voting Rights—Matters Requiring Approval of Holders of Series B Convertible Preferred Stock” for a description of the types of issuances of equity securities and other securities of our company requiring approval of holders of a majority of shares of Series B Convertible Preferred Stock then outstanding, voting together as a class.
Redemption
To the extent we have funds legally available therefor, at any time after the fifth anniversary of the original issue date of the Series B Convertible Preferred Stock, we have the right to redeem all or any portion of the outstanding shares of Series B Convertible Preferred Stock at the original issue price of $0.50 by providing at least seventy five (75) days written notice of such redemption to all holders of the then outstanding shares of Series B Convertible Preferred Stock.
Conversion Rights
The holders of shares of Series B Convertible Preferred Stock will, at any time, be entitled to convert some or all of their Series B Convertible Preferred Stock into the number of shares of our common stock obtained by dividing the original purchase price of the shares to be converted by the aggregate Series B conversion price (which originally equaled the original purchase price, but is subject to adjustment), which amount we refer to as the conversion price and then multiplying such product by two (2).
The conversion price will be adjustable upon the occurrence of certain events and transactions to prevent dilution as described under “Adjustments to Conversion Price to Prevent Dilution.” Any shares of our common stock issued upon conversion of the shares of Series B Convertible Preferred Stock shall be validly issued, fully paid and non-assessable. The Company shall either pay cash in lieu of fractional shares or round up to the next whole share. The initial conversion price was $0.50 but was adjusted to $5.00 as a result of the Company’s reverse split of 1 for 10 on January 19, 2018 and further adjusted following our 1 for 60 reverse stock split effective on January 20, 2023.
Adjustments to Conversion Price to Prevent Dilution
The Series B Convertible Preferred Stock is subject to provisions that protect the holders against dilution by adjustment of the conversion price and/or number of shares of common stock issuable upon conversion in certain events such as a subdivision, combination or reclassification of our outstanding common stock.
Voting Rights—Matters Requiring Approval of Holders of Series B Convertible Preferred Stock
Except as otherwise required by law, the Series B Convertible Preferred Stock shall have no voting rights. However, as long as any shares of Series B Convertible Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock, (a) amend, alter, repeal, restate or supplement (in each case, whether by reclassification, merger, consolidation, reorganization or otherwise) the certificate of designation in any manner that would adversely affect the holders of the Series B Convertible Preferred Stock, (b) authorize or agree to authorize any increase in the number of shares of Series B Convertible Preferred Stock or issue any additional shares of Series B Convertible Preferred Stock, (c) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company which would adversely affect any right, preference, privilege or voting power of the Series B Convertible Preferred Stock or the holders thereof or (d) agree to take any of the foregoing actions.
Registration Rights
The holders of the Series B Convertible Preferred Stock were granted certain demand registration rights and piggyback registration rights with respect to the shares of our Common Stock issuable upon conversion of the Series B Preferred Stock and exercise of their associated warrants, subject to customary cutbacks, blackout periods and other exceptions.
Series C Non-Voting, Non-Convertible Preferred Stock
On November 8, 2017, we issued to a single holder 100 shares of non-convertible preferred stock, designated as the Series C Non-Voting, Non-Convertible Preferred Stock pursuant to the certificate of designation and rights filed by us with the Secretary of State of the State of Florida, with a stated value and liquidation preference equal to $33,847.9874 per share, which we refer to as the Stated Value. The shares of Series C Non-Voting, Non-Convertible Preferred Stock were entitled to payment-in-kind (“PIK”) dividends thereon at the annual rate of twelve percent (12%) (the “Initial Rate”) of its Stated Value, payable by issuing additional shares of Series C Non-Voting, Non-Convertible Preferred Stock within thirty days after the end of each calendar year, pro-rata for partial years. During the three months ended March 31, 2021, the Company provided a notice of redemption, to the holder of the Company’s Series C Preferred Stock to redeem all outstanding Series C Preferred Stock (which included the dividend of 26.697 shares paid on January 28, 2021 and any accrued dividends due through the redemption date of March 13, 2021). The Series C Preferred Stock redemption amount of approximately $5.6 million was paid on March 15, 2021 and all outstanding shares of Series C Preferred Stock were cancelled.
Series D Preferred Stock-Converted to Common Stock
On July 13, 2018, our board of directors designated 9,364,000 shares of our preferred stock as Series D Convertible Preferred Stock (“Series D Preferred Stock”), which were subsequently issued on July 17, 2018, none of which are currently issued and outstanding. The preferences and rights of the Series D Preferred Stock was set forth in a Certificate of Designation (the “Series D Certificate of Designation”). Pursuant to a transfer agency agreement between us and Continental Stock Transfer & Trust Company, as transfer agent, the Series D Preferred Stock was issued in book-entry form and represented only by one or more global certificates deposited with The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC. Prior to the end of 2018, all of 9,364,000 shares of Series D Preferred Stock converted to common stock and as such, the Company no longer has any Series D Preferred Stock outstanding.
Series E Mirroring Preferred Stock-Cancelled
On July 10, 2023, our board of directors designated 404,728 shares of our preferred stock as Series E Mirroring Preferred Stock (“Series E Preferred Stock”), which were issued on August 4, 2023 and subsequently cancelled. There currently are no issued and outstanding shares of Series E Preferred Stock. The preferences and rights of the Series E Preferred Stock was set forth in a Certificate of Designation (the “Series E Certificate of Designation”). Pursuant to the terms of the Series E Certificate of Designation, upon effectiveness of the Amendment to the Amended and Restated Articles of Incorporation, in connection with the Company’s annual meeting of shareholders, to effect an increase in the shares of Common Stock the Company was authorized to issue from 4,166,666 shares of Common Stock to 350,000,000 shares of Common Stock (the “Amendment”), each share of Series E Preferred Stock would be automatically transferred to the Company and cancelled for no consideration with no action on behalf of the holders of Series E Preferred Stock. The Company’s shareholders approved the Amendment on December 14, 2023. Such shares resumed the status of authorized but unissued preferred stock and are no longer designated as Series E Preferred Stock.
Series F Convertible Preferred Stock
On December 28, 2023, we issued 8,000,000 shares of convertible preferred stock, designated as the Series F Convertible Preferred Stock (“Series F Preferred Stock”) pursuant to the certificate of designation and rights filed by the Company with the Secretary of State of the State of Florida (“Series F Certificate of Designation”), as partial consideration for the purchase of certain assets of Odyssey Health, Inc. On December 28, 2023 and pursuant to the Series F Certificate of Designation, 511,308 shares of Series F Preferred were converted to common stock and, as a result of such conversion, 7,488,692 shares of Series F Convertible Preferred Stock remain outstanding.
The following description is a summary of the material provisions of the Series F Convertible Preferred Stock.
Liquidation Preference. The Series F Preferred Stock is economically equivalent to the Company’s common stock. Upon liquidation, it is at parity with the common stock and junior to Company’s outstanding Class A and B Preferred Stock and any other class or series of capital stock of the Corporation created specifically ranking by its terms senior to the Series F Preferred Stock.
Dividends. No dividends shall be paid on shares of the Series F Preferred Stock.
Voting. The Series F Preferred Stock has no voting rights, except as required by applicable law and except for limited protective voting rights specifically set forth in Certificate of Designation.
Conversion. The Series F Preferred Stock is convertible commencing with the date of its issuance into Common Stock on a 1 for 1 basis (subject to customary adjustments). However, pursuant to the Series F Certificate of Designation, the holder of the Series F Preferred Stock cannot convert shares of Series F Preferred Stock into more than 19.9% of the Company’s Common Stock outstanding as of October 4, 2023 until (i) the Company shall have applied for and been approved for initial listing on the NYSE American or another national securities exchange or shall have been delisted from the NYSE American, and (ii) if required by the rules of the NYSE American, the Company’s shareholders shall have approved any change of control that could be deemed to occur upon the conversion of the Series F Preferred Stock into Common Stock, based on the facts and circumstances existing at such time.
Preemptive Rights. No holders of Series F Preferred Stock will, as holders of Series F Preferred Stock, have any preemptive rights to purchase or subscribe for our Common Stock or any of our other securities.
Redemption. The Series F Preferred Stock is not redeemable by the Company.
Trading Market. There is no established trading market for any of the Series F Preferred Stock, and the Company does not expect a market to develop. The Company does not intend to apply for a listing for any of the Series F Preferred Stock on any securities exchange or other nationally recognized trading system.
The following descriptions are summaries of the material terms that are included in our amended and restated articles of incorporation (as amended) and our bylaws (as amended) as well as the specific agreements such descriptions relate to. This summary is qualified in its entirety by the specific terms and provisions contained in our restated articles of incorporation, bylaws and the specific agreements described herein, copies of which we have filed as exhibits to our Form 10-K.
Certain Anti-Takeover Provisions
Florida Law
We are not subject to the statutory anti-takeover provisions under Florida law because in our articles of incorporation we have specifically elected to opt out of both the “control-share acquisitions” (F.S. 607.0902) and the “affiliated transactions” (F.S. 607.0901) statutes. Since these anti-takeover statutes do not apply to a corporation that has specifically elected to opt out of such provisions, we would not be able to invoke the protection of such statutes in the event of a hostile takeover attempt.
Articles of Incorporation and Bylaw Provisions
Our articles of incorporation and bylaws contain provisions that could have an anti-takeover effect. These provisions include
| ● | authorization of the issuance of “blank check” preferred stock that could be issued by our Board of Directors without shareholder approval and that may be substantially dilutive or contain preferences or rights objectionable to an acquiror; | |
| ● | the ability of the Board of Directors to amend the bylaws without shareholder approval; | |
| ● | vacancies on our board may only be filled by the remaining Directors and not our shareholders; and | |
| ● | requirements that only our Board, our President or holders of more than 10% of our shares can call a special meeting of shareholders. |
These provisions in our articles of incorporation and bylaws could delay or discourage transactions involving an actual or potential change in control of us, including transactions in which shareholders might otherwise receive a premium for their shares over their current prices. Such provisions could also limit the ability of shareholders to approve transactions that shareholders may deem to be in their best interests and could adversely affect the price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar of our common stock is Continental Stock Transfer & Trust Company, 1 State Street 30th Floor, New York, New York 10004, telephone: (212) 509-4000.
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (333-224498, 333-224950 and 333-226150), Form S-3 (333-213321, 333-230422, 333-238789 and 333-269225)), and Form S-8 (333-184588, 333-223088, 333-225894, 333-23230, 333-263821 and 333-276460) of the report dated March 29, 2024 included in this Annual Report on Form 10-K of Oragenics, Inc. (the “Company”), relating to the consolidated financial statements of the Company and its subsidiaries as of and for the year ended December 31, 2023 (collectively referred to as, “Audit Report on the 2023 Form 10-K”) and inclusion therein of the Audit Report on the 2023 Form 10-K filed March 29, 2024 with the Securities Exchange Commission.
| /s/ Cherry Bekaert, LLP. | |
| Tampa, Florida | |
| March 29, 2024 |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-184588, 333-223088, 333-225894, 333-232301, 333-263821 and 333-276460); Form S-1 (File Nos. 333-224498, 333-224950 and 333-226150); and Form S-3 (File Nos. 333-213321, 333-230422, 333-238789 and 333-269225) of our report dated April 17, 2023, relating to the consolidated financial statements of Oragenics, Inc. (the “Company”) as of December 31, 2022, and for the year then ended (which report includes an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue as a going concern), included in this Annual Report on Form 10-K for the year ended December 31, 2023.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
March 29, 2024
Exhibit 31.1
CERTIFICATION
I, Joseph Michael Redmond, certify that:
1. I have reviewed this Annual Report on Form 10-K of Oragenics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this day of March 29, 2024
| By: | /s/ J. Michael Redmond | |
| J. Michael Redmond | ||
| Interim Principal Executive Officer and President |
Exhibit 31.2
CERTIFICATION
I, Janet Huffman, certify that:
1. I have reviewed this Annual Report on Form 10-K of Oragenics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Dated this day of March 29, 2024
| By: | /s/ Janet Huffman | |
| Janet Huffman | ||
| Chief Financial Officer |
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
In connection with the Annual Report on Form 10-K for the period ended December 31, 2023 (the “Report”) of Oragenics, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, J. Michael Redmond, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| /s/ J. Michael Redmond | |
| Name: J. Michael Redmond | |
| Interim Principal Executive Officer | |
| Date: March 29, 2024 |
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
In connection with the Annual Report on Form 10-K for the period ended December 31, 2023 (the “Report”) of Oragenics, Inc. (the “Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Janet Huffman, hereby certify, to the best of my knowledge, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| /s/ Janet Huffman | |
| Name: Janet Huffman | |
| Principal Financial Officer | |
| Date: March 29, 2024 |
Exhibit 97.1
ORAGENICS, INC.
AMENDED AND RESTATED CLAWBACK POLICY
Introduction
The Board of Directors (the “Board”) of Oragenics, Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. The Board has, therefore, adopted this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as well as Section 811 of the NYSE American Company Guide.
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with Section 10D of the Exchange Act and Section 811 of the NYSE American Company Guide on which the Company’s securities are listed, and such other senior executives who may from time to time be deemed subject to the Policy by the Board (“Covered Executives”).
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material non-compliance with any financial reporting requirements under the securities laws, the Board will require reimbursement or forfeiture of any Excess Incentive Compensation, as defined below, received by any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any of the following; provided that such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure:
| ● | Annual bonuses and other short- and long-term cash incentives, | |
| ● | Stock options, | |
| ● | Stock appreciation rights, | |
| ● | Restricted stock, | |
| ● | Restricted stock units, | |
| ● | Performance shares, and/or | |
| ● | Performance units. |
Financial reporting measures include:
| ● | Company stock price, | |
| ● | Total stockholder return, | |
| ● | Revenues, | |
| ● | Net income, | |
| ● | Earnings before interest, taxes, depreciation, and amortization (EBITDA). | |
| ● | Funds from operations, | |
| ● | Liquidity measures such as working capital or operating cash flow, | |
| ● | Return measures such as return on invested capital or return on assets, and/or | |
| ● | Earnings measures such as earnings per share. |
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board (such amount, the “Excess Incentive Compensation”).
If the Board cannot determine the amount of Excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
If the Board makes its determination based on a reasonable estimate, the Company will maintain documentation of the determination of that reasonable estimate and provide such documentation to the exchange on which the Company’s securities are listed.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping the Excess Incentive Compensation hereunder, which may include, without limitation:
(a) requiring reimbursement of cash Excess Incentive Compensation previously paid;
(b) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;
(c) offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;
(d) cancelling outstanding vested or unvested equity awards; and/or
(e) taking any other remedial and recovery action permitted by law, as determined by the Board.
If the Board determines to require that the Covered Executive reimburse the Company for any Excess Incentive Compensation, the Covered Executive shall so reimburse the Company within thirty (30) days of receiving notice of the Board’s decision or within such longer period of time as reasonably determined by the Board. If the Covered Executive does not timely comply, the Board, on behalf of the Company, may pursue any other legal method for recouping the Excess Incentive Compensation.
| 2 |
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation.
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicable rules or standards adopted by the Securities and Exchange Commission or the NYSE American on which the Company’s securities are listed.
Effective Date
This Policy shall be effective as of the date it is adopted by the Board (the “Effective Date”) and shall apply to Incentive Compensation that is approved, awarded or granted to Covered Executives on or after that date.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect any regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or standards adopted by the NYSE American. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement, and any other legal remedies available to the Company.
Impracticability
The Board shall recover any Excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Board in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the NYSE American on which the Company’s securities are listed.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
Approved by the Board of Directors and Effective on October 18, 2023.
| 3 |
ORAGENICS, INC. CLAWBACK POLICY
ACKNOWLEDGEMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and reviewed a copy of Oragenics, Inc. (the “Company”) Clawback Policy (the “Policy”).
By signing this Acknowledgement Form, the undersigned acknowledges and agrees that the undersigned is and will continue to be subject to the Policy and that the Policy will apply both during and after the undersigned’s employment or service with the Company. Further, by signing below, the undersigned agrees to abide by the terms of the Policy, including, without limitation, by returning any Erroneously Awarded Compensation (as defined in the Policy) to the Company to the extent required by, and in a manner consistent with, the Policy.
| EXECUTIVE OFFICER | ||
| Print Name: | ||
| Date: |