UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-22873
ARCA BIOPHARMA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
11080 CirclePoint Road, Suite 140, Westminster, CO
(Address of Principal Executive Offices)
36-3855489
(I.R.S. Employer
Identification No.)
80020
(Zip Code)
(720) 940-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Common Stock $0.001 par value
Name of Each Exchange on Which Registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 and Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
The aggregate market value of the common stock held by non-affiliates of the Registrant on June 30, 2014, the last business day of the most recently
completed second fiscal quarter, was $30,003,945 based on the last sale price of the common stock as reported on that day by the Nasdaq Capital
Market.
As of March 17, 2015, the Registrant had 21,198,411 shares of common stock outstanding.
Portions of the Registrant’s Definitive Proxy Statement, which will be filed with the Commission pursuant to Section 14A in connection with the
2015 annual meeting of stockholders, are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business ..........................................................................................................................................................................
Risk Factors ....................................................................................................................................................................
Unresolved Staff Comments...........................................................................................................................................
Properties ........................................................................................................................................................................
Legal Proceedings...........................................................................................................................................................
Mine Safety Disclosures .................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ....
Selected Financial Data ..................................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................................
Quantitative and Qualitative Disclosures About Market Risk .......................................................................................
Financial Statements and Supplementary Data ..............................................................................................................
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, KPMG LLP .................................
BALANCE SHEETS......................................................................................................................................................
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS .......................................................................
STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) ....................................
STATEMENTS OF CASH FLOWS ..............................................................................................................................
NOTES TO FINANCIAL STATEMENTS ...................................................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................................
Controls and Procedures .................................................................................................................................................
Other Information ...........................................................................................................................................................
Directors, Executive Officers and Corporate Governance .............................................................................................
Executive Compensation ................................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......................
Certain Relationships and Related Transactions, and Director Independence ...............................................................
Principal Accountant Fees and Services.........................................................................................................................
Exhibits and Financial Statement Schedules ..................................................................................................................
SIGNATURES
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PART I
Item 1. Business
Some of the statements under “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and elsewhere in this Annual Report constitute forward-looking statements. In some cases, you can identify
forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or
other comparable terminology, although not all forward-looking statements contain these words. Examples of these statements
include, but are not limited to, statements regarding the following: the timing and results of any clinical trials, including GENETIC-
AF, the ongoing Gencaro trial for the prevention of atrial fibrillation, the potential for genetic variations to predict individual patient
response to Gencaro, Gencaro’s potential to treat atrial fibrillation, future treatment options for patients with atrial fibrillation, and
the potential for Gencaro to be the first genetically-targeted atrial fibrillation prevention treatment, the potential for rNAPc2 to be
developed for, or to effectively treat hemorrhagic fever viruses, including the Ebola virus, our ability to obtain additional funding or
enter into a strategic or other transaction, the extent to which our issued and pending patents may protect our products and
technology, the potential of such product candidates to lead to the development of safe or effective therapies, our ability to enter into
collaborations, our ability to maintain listing of our common stock on a national exchange, our future operating expenses, our future
losses, our future expenditures, and the sufficiency of our cash resources to maintain operations. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be
materially different from the information expressed or implied by these forward-looking statements. While we believe that we have a
reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that these statements are based
on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain.
In addition, you should refer to the “Risk Factors” section of this Annual Report for a discussion of other important factors that may
cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these
factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our
forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified time frame, or at all.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events
or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and our website.
The terms “ARCA,” “the Company,” “we,” “us,” “our” and similar terms refer to ARCA biopharma, Inc.
Overview
We are a biopharmaceutical company principally focused on developing genetically-targeted therapies for cardiovascular diseases.
Our lead product candidate, Gencaro™ (bucindolol hydrochloride), is a pharmacologically unique beta-blocker and mild vasodilator
that we are evaluating in a clinical trial for the treatment of atrial fibrillation, or AF, in patients with heart failure and left ventricular
systolic dysfunction, or HFREF. We have identified common genetic variations in receptors in the cardiovascular system that we
believe interact with Gencaro’s pharmacology and may predict patient response to the drug.
We are testing this hypothesis in a Phase 2B/3 clinical trial of Gencaro, known as GENETIC-AF. We are pursuing this indication for
Gencaro because data from the previously conducted Phase 3 HF trial of Gencaro in 2,708 heart failure, or HF, patients, or the BEST
trial, which suggested that Gencaro may be successful in reducing or preventing AF.
AF is a disorder in which the normally regular and coordinated contraction pattern of the heart’s two small upper chambers, or the
atria, becomes irregular and uncoordinated. The irregular contraction pattern associated with AF causes blood to pool in the atria,
predisposing the formation of clots potentially resulting in stroke.
AF is considered an epidemic cardiovascular disease. The estimated number of individuals with AF globally in 2010 was 33.5 million.
According to the 2015 American Heart Association report on Heart Disease and Stroke Statistics, the estimated number of individuals
with AF in the United States in 2010 ranged from 2.7 million to 6.1 million people. AF increases the risk of stroke and may also
contribute to worsening heart failure. The approved therapies for the treatment or prevention AF have certain disadvantages in
HFREF patients, such as toxic or cardiovascular adverse effects, and most of the approved drugs for AF are contra indicated or have
warnings in their prescribing information for such patients. We believe there is an unmet medical need for new AF treatments that
have fewer side effects than currently available therapies and are more effective, particularly in HFREF patients.
1
GENETIC-AF is a Phase 2B/3 multi-center, randomized, double-blind clinical trial comparing the safety and efficacy of Gencaro to
an active comparator, the beta-blocker Toprol XL (metoprolol succinate), in HFREF patients with a current or recent history of
paroxysmal (AF episodes lasting 7 days or less) or persistent AF who have a beta-1 389 arginine homozygous genotype, the genotype
we believe responds most favorably to Gencaro. The primary endpoint of GENETIC-AF, time to recurrent symptomatic AF/atrial
flutter, or AFL, or all-cause mortality, will be measured over a twenty-four week period after a patient has established a normal heart
rhythm.
We believe data from the BEST trial indicate that Gencaro may have a genetically regulated effect in reducing or preventing AF,
whereas we believe the therapeutic benefit of Toprol XL does not appear to be enhanced in patients with this genotype. A
retrospective analysis of data from the BEST trial shows that the entire cohort of patients in the BEST trial treated with Gencaro had a
41% reduction in the risk of new onset AF (time-to-event) compared to placebo (p = 0.0004). In the BEST DNA substudy, patients
with the beta-1 389 arginine homozygous genotype experienced a 74% (p = 0.0003) reduction in risk of AF when receiving Gencaro,
based on the same analysis. The beta-1 389 arginine homozygous genotype was present in about 47% of the patients in the BEST
pharmacogenetic substudy, and we estimate it is present in about 50% of the U.S. general population.
We have created an adaptive design for GENETIC-AF. We are seeking to enroll approximately 200 HFREF patients in the Phase 2B
portion of the study who have recently experienced at least one episode of paroxysmal or persistent AF and who have the beta-1 389
arginine homozygous genotype that we believe responds most favorably to Gencaro. In addition to measuring the primary endpoint of
recurrent symptomatic AF/AFL or all-cause mortality, an additional efficacy measure in the Phase 2B portion of GENETIC-AF will
be AF burden, defined as a patient’s percentage of time in AF per day, regardless of symptoms. At least 150 patients in the Phase 2B
portion of the trial will have either a newly or previously implanted Medtronic device that measures and records AF burden. The
GENETIC-AF Data Safety Monitoring Board, or DSMB, will analyze certain data from the Phase 2B portion of the trial and
recommend based on a comparison to our pre-trial statistical assumptions, whether the trial should proceed to Phase 3 and seek to
enroll an additional 420 patients. The DSMB will make their recommendation based on analysis of certain trial data after 200 patients
have completed 24 weeks of follow-up, the period for measuring the trial’s primary end-point. The DSMB interim analysis will focus
on available data regarding the primary end point, AF/AFL event rates, AF burden, and safety. Should the DSMB interim analysis
conclude that the interim data is consistent with pre-trial statistical assumptions and indicates potential for achieving statistical
significance for the Phase 3 endpoint, the DSMB may recommend that the study proceed to Phase 3. The DSMB may also
recommend changes to the study design before the trial proceeds to Phase 3, or it may recommend that the study not proceed to Phase
3. Based on the DSMB recommendation, and other factors, including input from the trial’s Steering Committee, the Company will
make the final determination on the trial’s development steps. The full Phase 2B/3 trial is designed for 90 percent power at a p-value
of less than 0.01 significance level to detect a 25 percent reduction in the risk of AF recurrence or death in patients in the Gencaro arm
compared to patients in the Toprol XL arm. In consultation with the GENETIC-AF Steering Committee, we implemented
amendments to the trial protocol in March 2015 which we believe may expand the eligible target population, increase the patient
screening and enrollment rate, and simplify trial procedures. We have undertaken these protocol amendments because patient
enrollment in the trial has not met our original projections. Under the revised protocol, patients in sinus rhythm who have experienced
symptomatic AF in the past 120 days are now eligible for inclusion in the trial, as are patients with AF episodes lasting 7 days or less,
or paroxysmal AF. Previously, these patients were not eligible to be enrolled in the trial. We believe this expanded target population
has the potential to improve trial screening and enrollment rates and could broaden the potential commercial market for Gencaro,
should it achieve regulatory approval in the future. The amendments to the protocol do not fundamentally alter or impact the original
endpoints of the clinical trial. Based on the projected impact of the expanded patient population and the current enrollment rate, we
now project that the enrollment of 200 patients for the Phase 2B portion of the trial may be completed by the end of 2016, with the
DSMB interim analysis finishing in the first half of 2017. We do not yet know how these protocol changes will impact enrollment or if
our new enrollment projections will prove to be accurate. We met with the FDA, prior to implementation, to confirm the
acceptability of the amendments to the protocol and received no objections.
Our GENETIC-AF clinical trial of Gencaro requires a companion diagnostic test to identify the patient’s receptor genotype. We
have an agreement with Laboratory Corporation of America, or LabCorp, to provide the companion diagnostic test and services to
support our GENETIC-AF trial. LabCorp has developed the genetic test and obtained an Investigational Device Exemption, or IDE,
from the United States Food and Drug Administration, or the FDA, for the companion diagnostic test which is being used in our
GENETIC-AF clinical trial.
Medtronic, Inc., or Medtronic, a leader in medical technologies to improve the treatment of chronic diseases, including cardiac rhythm
disorders, is collaborating with us on the GENETIC-AF trial. Under the collaboration with Medtronic, ARCA is conducting a
substudy that includes continuous monitoring of the cardiac rhythms of at least 150 patients enrolled during the Phase 2B portion of
the trial. The collaboration is administered by a joint ARCA-Medtronic committee. Medtronic uses its proprietary CareLink System
to collect and analyze the cardiac rhythm data from the implanted Medtronic devices and the data will be used by the DSMB as part of
the interim analysis. Medtronic will support the reimbursement process for U.S. patients enrolled in the Phase 2B portion, and will
provide financial support of unreimbursed costs for a certain number of U.S. patients in the Phase 2B portion up to a certain maximum
amount per patient. If GENETIC-AF proceeds to Phase 3, we will seek to enroll an additional 100 patients, with Medtronic devices for
2
monitoring and recording AF burden, in the substudy. Medtronic will provide the agreed upon CareLink System cardiac rhythm data
collection and analysis for the Phase 3 portion of the substudy and support the reimbursement process.
We have been granted patents in the United States, Europe, and other jurisdictions for methods of treating AF and HF patients with
Gencaro based on genetic testing, which, if we are granted patent term extension, may provide market exclusivity for these uses of
Gencaro into approximately 2030 in the United States and Europe.
To support the continued development of Gencaro, we completed public equity offerings during 2013 that raised approximately $19.3
million of net proceeds. In February 2014, we completed a public equity offering that raised approximately $7.9 million of net
proceeds as additional funds for the Phase 2B portion of the GENETIC-AF trial and to support our ongoing operations. In light of the
significant uncertainties regarding clinical development timelines and costs for developing drugs such as Gencaro, we will need to
raise a significant amount of additional capital to finance the completion of GENETIC-AF and our ongoing operations. We are
seeking to enroll approximately 200 HFREF patients in the Phase 2B portion of the GENETIC-AF trial, and we anticipate that our
current cash and cash equivalents, will be sufficient to fund our operations, at our projected cost structure, through the end of 2015.
However, changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. We
have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner
than we currently anticipate. We will be required to raise additional funds prior to completion of the Phase 2B portion of GENETIC-
AF.
On March 4, 2013, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, to implement a
six-for-one reverse split of our common stock, as previously authorized and approved at our special meeting of stockholders on
February 25, 2013. On March 5, 2013, our common stock began trading on The NASDAQ Capital Market on a post-split basis.
The reverse split effected a proportionate adjustment to the per share exercise price and the number of shares issuable upon the
exercise or settlement of all outstanding options and warrants to purchase shares of our common stock, and the number of shares
reserved for issuance pursuant to our existing stock option plans were reduced proportionately. No fractional shares were issued as a
result of the reverse split, and stockholders who otherwise would have been entitled to a fractional share received in lieu thereof, a
cash payment based on the closing sale price of our common stock as reported on The NASDAQ Capital Market on March 4, 2013.
The reverse split did not alter the par value of our common stock or modify any voting rights or other terms of the common stock.
Our Strategy
Our mission is to become a leading biopharmaceutical company developing cardiovascular therapies with an emphasis on genetically-
targeted therapies. To achieve this goal, we are pursuing the following strategies:
Advance the development of Gencaro. We plan to focus our efforts on completing the GENETIC-AF clinical trial.
Raise additional funding or complete a strategic transaction. To support the continued clinical development of Gencaro,
including the GENETIC-AF clinical trial, we expect to seek additional funding, through the sale of public or private equity
or debt securities, or the completion of a strategic transaction.
Build a cardiovascular pipeline. Our management and employees, including our chief executive officer, have extensive
experience in cardiovascular research, molecular genetics and clinical development of cardiovascular therapies. We are
seeking to leverage this expertise to identify, acquire and develop other cardiovascular products or candidates, with an
emphasis on pharmacogenetic applications.
Leverage our existing assets. We are pursuing opportunities to leverage certain of our development-stage product
candidates. These opportunities include collaborations with institutions conducting proof of concept studies and
government funded development.
Atrial Fibrillation Market Background and Opportunity
AF is a disorder in which the normally regular and coordinated contraction pattern of the heart’s two small upper chambers becomes
irregular and uncoordinated. The irregular contraction pattern associated with AF causes blood to pool in the heart’s atria,
predisposing to the formation of clots. These clots may travel from the heart and become lodged in the arteries leading to the brain and
other organs, thereby blocking necessary blood flow and potentially resulting in stroke. In addition, we also believe that the
development of AF in a HFREF patient can be associated with increased risk of death and other heart failure related adverse
outcomes. AF is considered an epidemic cardiovascular disease. The estimated number of individuals with AF globally in 2010 was
33.5 million. According to the 2015 American Heart Association report on Heart Disease and Stroke Statistics, the estimated number
of individuals with AF in the United States in 2010 ranged from 2.7 million to 6.1 million. The approved therapies for the treatment
or prevention AF have certain disadvantages in HFREF patients, such as toxic or cardiovascular adverse effects, and most of the
3
approved drugs for AF are contra indicated or have warnings in their prescribing information for such patients. We believe there is an
unmet medical need for new AF treatments that have fewer side effects than currently available therapies and are more effective,
particularly in HFREF patients.
The goals of current medical therapy for AF are to maintain sinus rhythm or to control ventricular rate response in patients who cannot
maintain sinus rhythm, in an effort to minimize patient symptoms and avoid the risk of complications such as stroke. Current
treatments include pharmaceutical intervention and device intervention. There are several antiarrhythmic drugs approved by the FDA
for the treatment and/or prevention of recurrent AF. However, these drugs have safety and/or administration concerns and all but one
have contraindications or label warnings regarding their prescription in patients with HFREF.
Current device interventions for the treatment of AF include:
Electrical cardioversion which is used to restore normal heart rhythm with administration of a direct current shock;
Radiofrequency ablation which is effective in some patients for whom medications are ineffective; and
Atrial pacemakers which are implanted under the skin and then intravenously into the heart to regulate heart rhythm.
Gencaro
Gencaro (bucindolol hydrochloride) is a pharmacologically unique beta-blocker and mild vasodilator being developed for the
treatment of AF. Gencaro is considered part of the beta-blocker class of compounds because of its property of blocking both beta-1
and beta-2, receptors in the heart. The blocking of these receptors prevents the receptor from binding with other molecules, primarily
the neurotransmitter norepinephrine, or NE, which activate these receptors. We believe that Gencaro is well-tolerated in
cardiovascular patients because of its mild vasodilator effects. Originally developed by Bristol-Myers Squibb, or BMS, the active
pharmaceutical ingredient, or API, in Gencaro, bucindolol hydrochloride, has been tested clinically in approximately 4,500 patients.
Gencaro was the subject of a Phase 3 HF mortality trial in 2,708 patients, mostly in the United States, or the BEST trial. The BEST
trial included a DNA bank of over 1,000 patients, which was used to evaluate the effect of genetic variation on patients’ response to
Gencaro.
At the time of the BEST trial, our scientific co-founders, Dr. Michael Bristow and Dr. Stephen Liggett, hypothesized that the unique
pharmacologic properties of Gencaro would interact with common genetic variations of beta-1, beta-2 and alpha-2C, adrenergic
receptors, which are important receptors that regulate cardiac or adrenergic (sympathetic) nerve function. They tested this hypothesis
prospectively in a substudy conducted using data from the BEST DNA bank. On the basis of this study, Drs. Bristow and Liggett have
determined that patients with certain variations in these receptors had substantially improved outcomes on primary and certain
secondary clinical endpoints in the trial, such as mortality, HF progression, hospitalization and prevention of arrhythmias, relative to
the counterpart genotype groups and the general patient population of the BEST trial. We believe that these genetically determined
receptor variations, which are detectable using standard DNA testing technology, can serve as diagnostic markers for predicting
enhanced therapeutic response to Gencaro, and potentially avoiding adverse events, in individual patients. We have patented our
methods for treating AF and HF patients with Gencaro in the United States and Europe based on genetic testing.
Pharmacology and Pharmacogenetics
Gencaro’s pharmacology appears to be different from other compounds in the beta-blocker class in two fundamental respects. First,
the National Heart, Lung and Blood Institute of the National Institutes of Health, or NHLBI, and the Cooperative Studies Program of
the Department of Veterans Affairs sponsored studies conducted by Drs. Bristow and Liggett indicated that in human myocardial
preparations, Gencaro leads to inactivation of constitutively active (i.e. functional in the absence of bound agonist) beta-1 receptors
through a mechanism separate from beta-blockade, in addition to inhibiting the binding activity of the beta-1 receptor like a typical
beta-blocker. Second, other studies, including BEST, indicated that Gencaro lowers the systemic levels of the neurotransmitter NE,
released by cardiac and other adrenergic nerves. These two properties interact with common genetic variations in two cardiac
receptors, the beta-1 and alpha-2C receptors, to produce the unique pharmacogenetic profile of Gencaro. We believe that these two
properties, and their pharmacogenetic implications, are unique to Gencaro.
Gencaro has an important interaction with the beta-1 receptor found on muscle cells, or cardiac myocytes, of the heart. The general
role of the beta-1 receptor and its downstream signaling cascades is to regulate the strength and rate of the heart’s contractions. NE
serves as an activator of the beta-1 receptor, causing the receptor to initiate signaling to the cardiac myocyte. Although this signaling
may be beneficial to the failing heart in the short term, in chronic HFREF patients the beta-1 receptor also initiates harmful, or
cardiomyopathic, signaling which, over time, exacerbates the heart’s structural and functional decline. Beta-blockers counteract this
destructive process by reducing beta-1 receptor signaling. They do this by binding to the receptor and blocking NE molecules from
binding and activating the signaling activity and, in Gencaro’s case, by also inactivating certain beta-1 receptors that are constitutively
active (active in the absence of NE stimulation) as well as by lowering NE levels.
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There are two common genetic variations of the beta-1 receptor, each of which we estimate is present in approximately 50% of the
U.S. population. One of these variations is known as the beta-1 389 arginine receptor variant, exclusively present in the beta-1 389
arginine homozygous or, genotype. Laboratory studies indicate that this variation results in a higher functioning beta-1 receptor, which
has a greater ability to mediate the stimulatory effects of NE than the counterpart “beta-1 389 glycine or “beta-1 389 Gly” version of
the beta-1 receptor. In addition, the beta-1 389 arginine variant is also more likely to be constitutively active and signal the cardiac
myocyte to contract in the absence of NE. The beta-1 389 arginine receptor also has much higher affinity for NE as compared to the
beta-1 389 glycine version, present in patients with either one or two copies of the beta-1 389 glycine gene allele, or Gly carriers.
Patients with the beta-1 389 glycine version, also present in approximately 50% of the U.S. population who are Gly carriers, results in
a beta-1 receptor that is much lower functioning and, according to laboratory studies, has less probability of being in a constitutively
active state and has lower NE affinity compared to the beta-1 389 arginine receptor.
We believe Gencaro has a powerful interaction with the higher-function beta-1 389 arginine variation of the beta-1 receptor.
Laboratory studies show that constitutively active receptors will continue to signal in the presence of standard beta-blockade with
neutral antagonists. Laboratory studies in isolated human heart preparations also show that Gencaro has the novel ability of being able
to reduce the signaling of constitutively active receptors. We believe that this property contributes to the enhanced lowering of heart
failure and arrhythmia event rates in HFREF patients who are beta-1 389 arginine homozygous genotype relative to individuals who
are beta-1 389 Gly carriers or to the general population. In addition, we believe the unique NE lowering properties of Gencaro have a
selectively beneficial effect in patients who have only beta-1 389 arginine receptors, because of the high affinity of these receptors for
NE.
The efficacy of Gencaro also appears to be influenced by the alpha-2C receptor, located on the terminus of cardiac adrenergic nerves,
at the neuromuscular junction with the cardiac myocyte. The role of this receptor is to modulate the release of NE at this junction,
which in turn affects the activation of beta-1 receptors and the heart’s activity. There are two important genetic variations of this
receptor that appear to affect the effects of Gencaro; the “alpha-2C -wild type”, which is the normal functioning version of the
receptor (approximately 87-90% of the U.S. general population), and the “deletion variant”, a version of the receptor that functions
poorly (present in at least one copy in approximately 10-13% of the U.S. general population). The DNA substudy of patients from the
BEST trial, conducted by Drs. Bristow and Liggett, indicated that these two variations of the alpha-2C receptor appear to affect
Gencaro’s heart failure and arrhythmia responses in HFREF patients only if the 389 Gly variant of the beta-1 receptor is also present;
in patients with the beta-1 389 Gly variant, the wild type version of the alpha-2C receptor enhances clinical response, whereas the
alpha-2C deletion variant reduces efficacy. When only the arginine version of the beta-1 receptor is present (beta-1 389 arginine
homozygous genotype), the efficacy of Gencaro does not appear to depend on which version of the alpha-2C receptor is present.
The DNA substudy from the BEST HFREF trial indicated that the combinations of these receptor variations in individual patients
appear to influence the response to Gencaro with respect to significant clinical endpoints. However, the beta-1 389 Arg/Arg variant
appeared to have the most powerful beneficial effect on Gencaro heart failure and arrhythmia responses. While we believe that the
beta-1 389 Gly carrier patients who also are alpha-2C wild type homozygotes may respond favorably to Gencaro, we believe that
patients who possess only the beta-1 389 arginine variant (beta-1 389 arginine homozygous genotype) exhibit enhanced clinical
responses to Gencaro, and should be the primary targeted population. The beta-1 389 arginine homozygous genotype constitutes an
estimated 47-50% of the U.S. population.
The BEST trial
The NHLBI and Veterans Affairs Cooperative Studies funded BEST trial began in 1995. It was a double-blind, placebo-controlled,
multi-center study of bucindolol’s effect on reduction of mortality and morbidity in an advanced chronic HFREF population. The
primary endpoint of the BEST trial was all cause mortality, or ACM, and the pre-specified main secondary endpoint was progression
of HF, defined as death from HF, cardiac transplant, HF hospitalization, or emergency room visit for the treatment of worsening HF
not requiring hospitalization. The trial was planned to run four and one-half years, and enroll 2,800 patients. The trial enrolled a total
of 2,708 chronic HF patients, who were mostly from the United States. Under the umbrella of the BEST trial substudies program, a
DNA bank and substudy was created, and 1,040 of the BEST patients participated by providing blood for DNA analysis. The DNA
bank provided data for the DNA substudy of BEST patients conducted by Drs. Bristow and Liggett.
In 1999, the BEST trial was terminated prior to the completion of follow-up, in response to a recommendation of the BEST trial
DSMB. The primary reason for termination was loss of investigator equipoise; in other words, the fact that the BEST investigators
were no longer uncertain regarding the comparative therapeutic merits of giving a placebo versus giving a beta-blocker to a HFREF
patient. Positive mortality results from two other HF trials involving other beta-blockers had been reported, and a substantial number
of BEST trial investigators concluded that it was unethical to continue to give placebo to BEST trial participants. As a result, some
investigators began to prescribe these other beta-blockers to patients in the trial, which threatened to destroy the trial’s integrity;
therefore the trial was terminated early.
5
Clinical Results and the DNA Substudy
Following termination, the preliminary results of the study were analyzed and published. The preliminary determination and general
perception were that the BEST trial had failed on the basis of not meeting its primary endpoint of ACM. The published values were a
10% risk reduction in mortality with a p-value of 0.10. Subsequently, we reanalyzed the results from BEST, in accordance with the
FDA approved, pre-specified statistical analysis plans, which had not been performed by the sponsors of BEST when the trial was
terminated. Our reanalysis appeared to show a 13% risk reduction on the primary endpoint of all-cause mortality in the BEST trial
with a p-value of 0.053.
In 2003 and 2004, the results of the DNA substudy conducted by Drs. Bristow and Liggett began to be analyzed and released. The
DNA substudy results indicated a significant enhancement of response on the major heart failure clinical endpoints from the BEST
trial in patients with the beta-1 389 arginine homozygous genotype. The risk reduction on HF clinical efficacy endpoints such as
mortality and hospitalization ranged from 34% to 48% in this genotype. In addition, in arrhythmia endpoints of atrial fibrillation or
ventricular fibrillation/ventricular tachycardia, or VT/VF, tracked by adverse events, or AEs, and surveillance electrocardiograms, or
ECGs, the risk reduction by bucindolol in the beta-1 389 arginine homozygous genotype appeared to be even greater, with risk
reductions of 74% for both endpoints.
Shown below are certain of the primary and secondary endpoint data from the BEST HF DNA substudy results, by genotype:
BEST Trial Clinical Responses1 by Genotype Groups
Endpoint
All Cause Mortality (ACM), TTE .................................
Cardiovascular Mortality (CVM), TTE .........................
ACM + transplantation ..................................................
HF (HF) Progression......................................................
HF Hosp days/patient ....................................................
AF prevention (from AE and ECG db)..........................
VT/VF prevention (from AE db) ...................................
{beta-1 389 Arg/
Arg + any alpha-2C}
“Very Favorable”
Patient Type
(47%)
↓ 38%*
↓ 48%*
↓ 43%*
↓ 34%**
↓ 48%**
↓ 74%**
↓ 74%**
{beta-1 389 Gly
carrier+ alpha-2C
Wt/Wt} “Favorable”
Patient Type
(40%)
↓ 25%
↓ 40%*
↓ 24%
↓ 20%
↓ 17%
↓ 6%
↓ 49%*
{beta-1 389 Gly
carrier + alpha-2C
Del carrier}
“Unfavorable”
Patient Type
(13%)
↑ 4%
↑ 11%
↑ 4%
↓ 1%
↑ 19%
↑ 33%
↓ 24%
1
*
Covariate adjusted, transplant censored analysis with 1 – hazard ratio estimates presented
p<0.05; **p 0.007; TTE: Time To Event
Analysis of BEST trial for AF
The BEST study data were further analyzed focusing on AF prevention, rate control in patients with established AF, and on clinical
outcomes of patients with AF. Although there was no pre-determined AF endpoint, including reduction in risk of AF, in the BEST
trial, according to our analysis of adverse events and surveillance ECG’s during the trial, 7.9% of patients developed new onset AF,
with a greater incidence observed in the placebo group (9.7%) compared to the bucindolol group (6.2%). This corresponded to a 36%
reduction in the incidence of new onset AF (based on crude event rates) for patients receiving bucindolol (p = 0.002). In a time to
event analysis, the risk of new onset AF was reduced by 41% (p = 0.0004) with bucindolol treatment. Patients in the BEST study with
the beta-1 389 Arg/Arg genotype who received Gencaro had a 74% reduction in the risk of developing new onset AF (p = 0.0003).
Further published analyses of the data from BEST suggest that Gencaro may also have potential efficacy for other clinical endpoints
and outcomes related to AF. A published analysis of the BEST data revealed that of the 303 patients in the BEST trial with established
AF, 67% of those who received Gencaro achieved ventricular response rate control, defined as a resting heart rate of less than or equal
to 80 beats per minute without symptomatic bradycardia (p < 0.005). In AF patients who achieved ventricular response rate control,
Gencaro produced a 39% reduction (p = 0.025) in cardiovascular mortality/cardiovascular hospitalizations. In addition, Gencaro also
improved cardiovascular clinical endpoints for those AF patients possessing the beta-1 389 arginine genotype that ARCA believes is
most favorable for Gencaro response. In a substudy of 1,040 patients in BEST in which patient genotypes were analyzed, Gencaro was
associated with a 72% decrease (p = 0.039) in cardiovascular mortality/cardiovascular hospitalizations in those 52 AF patients in the
substudy with the beta-1 389 arginine homozygous genotype.
6
Analysis of the BEST Study data also shows that Gencaro has potential efficacy against the serious arrhythmias of VT/VF, which also
appears to be genetically regulated. A published report demonstrated that patients in the BEST Trial who received Gencaro
experienced a 58% reduction in the incidence of VT/VF (p = 0.00006), adjusted for the competing risk of mortality. In addition, the
authors of this report determined that Gencaro reduced the incidence of VT/VF by 74% (p = 0.00005) in patients with the beta-1 389
arginine homozygous genotype.
As with the overall study cohort, most patients (89%) in the 1,040 patient DNA substudy were free of AF (91% sinus rhythm, 9%
other non-AF rhythms) at baseline. The proportion of patients free of AF at baseline was also similar in the two treatment groups for
the overall DNA substudy cohort, as well as in the beta-1 389 genotype subgroups. In the BEST DNA substudy, the proportion of
patients who developed new onset AF was similar compared to the overall study cohort for both the placebo group (11% and 10%,
respectively) and the Gencaro group in the DNA substudy population compared to the overall study cohort (7% and 6%, respectively).
Also, there was a similar reduction in new onset AF observed in the bucindolol group compared to placebo (43% and 41%,
respectively, by time to event analysis). Therefore, the overall results from the genetic substudy population are consistent with the
results from the overall study population.
In patients with all genotypes, the AF risk reduction of 41-43% by Gencaro in BEST is based on an analysis of adverse events and
surveillance ECG’s which was similar to AF risk reductions observed in a meta-analysis of data regarding seven placebo-controlled
beta-blocker trials in HFREF patients. In the meta-analysis, beta-blockers appeared to reduce the incidence of new onset AF in all but
one trial, with an overall relative risk reduction of 27%. Despite what we believe to be potential evidence for the prevention of AF in
HFREF trials, no beta-blocker has FDA approval for use in this indication. However, the evidence of modest efficacy by beta-blockers
approved for other indications will require that any Phase 3 trials with Gencaro will have an active beta-blocker comparator instead of
a comparison against placebo. The Phase 2B/3 trial GENETIC-AF trial will only enroll patients with the beta-1 389 arginine
homozygous genotype. In the BEST trial, the post hoc analysis of patients with the beta-1 389 arginine homozygous genotype who
received Gencaro had a 74% reduction in the risk of developing AF. In another trial, the active comparator we are using in GENETIC-
AF, metoprolol CR/Toprol XL, reduced the risk of developing AF by 48% in all genotypes. Because these are not the same trials, the
results should not be relied on as direct comparisons. However, we believe that these two data points indicate that Gencaro may have
an advantage in preventing AF when compared to metoprolol in GENETIC-AF, in part due to our plan to only enroll beta-1 389
arginine homozygous genotype patients who appear to respond best to Gencaro.
Clinical and Regulatory Strategy
The regulatory strategy for Gencaro is to conduct our adaptive design Phase 2B/3 clinical trial, GENETIC-AF, to obtain an AF
approval in a genotype specific HFREF population. We are enrolling certain patients with the beta-1 389 arginine homozygous
genotype in our AF clinical trial because our analysis of the BEST DNA substudy indicated this group had a 74% reduction in risk for
new AF events.
We have created an adaptive design for GENETIC-AF. We are seeking to enroll approximately 200 HFREF patients in the Phase 2B
portion of the study. The GENETIC-AF DSMB will analyze certain data from the Phase 2B portion of the trial and recommend,
based on a comparison to our pre-trial statistical assumptions, whether the trial should proceed to Phase 3 and enroll an additional 420
patients. In addition to measuring the primary endpoint of recurrent symptomatic AF/AFL or all-cause mortality, an additional
efficacy measure in the Phase 2B portion of GENETIC-AF will be AF burden, defined as a patient’s percentage of time in AF per day,
regardless of symptoms. Under our trial design, at least 150 patients in the Phase 2B portion of the trial will have AF burden measured
by continuous monitoring, either by previously implanted cardiac resynchronization or defibrillation devices, or newly or previously
inserted implantable loop recorders. When the first 200 patients have completed 24 weeks of follow-up, certain data related to the
primary endpoint of recurrent symptomatic AF/AFL or all-cause mortality, AF/AFL event rates and certain data related to AF burden
will be evaluated by the trial’s DSMB to determine if the interim data is consistent with pre-trial assumptions and if it indicates
potential for achieving statistical significance for the Phase 3 endpoint. If the interim evaluation confirms our assumptions and
acceptable safety is observed, the trial would then proceed to the Phase 3 portion and full enrollment, subject to obtaining sufficient
financing.
We have received guidance from the FDA regarding our Phase 2B/3 clinical study comparing Gencaro to Toprol XL for the
prevention of AF in approximately 620 patients. Based on this FDA guidance, we believe that a successful GENETIC-AF Phase 3
clinical trial, with a p-value of less than 0.01, could be sufficient evidence of efficacy upon which to base a New Drug Application, or
NDA, for the approval of Gencaro for an AF indication in HFREF patients. Our Investigational New Drug, or IND, application for
atrial fibrillation, under which our GENETIC-AF trial is performed, has been accepted by FDA and is active. We implemented
amendments to the GENETIC-AF trial protocol in March 2015 which we believe may expand the eligible target population, increase
the patient screening and enrollment rate, and simplify trial procedures.
7
The Gencaro Test
If approved, we believe that Gencaro will be the first cardiovascular drug to be integrated with a companion diagnostic to predict
enhanced efficacy. We believe the drug label we will propose for Gencaro would identify the patient receptor genotype studied in the
trial that can expect enhanced efficacy and, and that the label would recommend receptor genotype testing prior to initiation of
therapy. Therefore, the commercialization of Gencaro may require an FDA approved diagnostic test for this genotype be available, or
the Gencaro Test. We believe the Genaro Test could be developed and commercialized through a preferred diagnostic provider, by
the company marketing Gencaro, or a combination of approaches.
For our GENETIC-AF clinical trial, we have an agreement with LabCorp to provide the companion diagnostic test and services to
support the trial. To provide those services, LabCorp has developed the genetic test and obtained from the FDA an Investigational
Device Exemption, or IDE, for the companion diagnostic test we use in our GENETIC-AF clinical trial.
Licensing and Royalty Obligations
We have licensed worldwide rights to Gencaro, including all preclinical and clinical data from Cardiovascular Pharmacology and
Engineering Consultants, LLC, or CPEC, who has licensed rights in Gencaro from BMS. In addition, we have sublicensed CPEC’s
rights from BMS. CPEC is a licensing entity which holds the rights of the biotechnology companies that were the commercial
sponsors of the BEST trial. If the FDA grants marketing approval for Gencaro, the license agreements state that we are required to
make a milestone payment of $8.0 million within six months after FDA approval. The license agreements also state that we are
required to make milestone payments of up to $5.0 million in the aggregate upon regulatory marketing approval in Europe and Japan.
The licenses state that our royalty obligations range from 12.5% to 25% of revenue from the related product based on achievement of
specified product sales levels including a 5% royalty that CPEC is obligated to pay BMS. The agreements state that we have the right
to buy down the royalties to a range of 12.5% to 17% by making a payment to CPEC within six months of regulatory approval. We
also have licensed worldwide rights to intellectual property covering the pharmacogenetic response of Gencaro based on the cardiac
receptor polymorphisms, which is owned by the University of Colorado. We have no material future financial obligations under this
license. We also have licensed exclusive, worldwide rights to develop and commercialize diagnostics for these receptor
polymorphisms, for the purpose of prescribing Gencaro, from the licensee of these rights, the University of Cincinnati.
Development Pipeline
Our development activities are substantially focused on our lead product candidate, Gencaro, for the treatment of AF. We also believe,
based upon data from the BEST trial, that Gencaro may have additional potential for the treatment of AF rate control, VT/VF and
prevention of heart failure endpoints in HFREF patients. We do not expect to pursue development of Gencaro for disease indications
beyond AF without entering into a strategic partnership or collaboration. We believe Gencaro has potential to address these additional
indications, and that the clinical response of patients with these diseases may be genetically influenced, based on the same genetic
markers we have identified for our proposed treatment of AF with Gencaro.
We also have exclusive pharmacogenetic and other patent rights to drug candidates that have potential indications in cardiovascular
disease, oncology and other therapeutic areas, in both early and later stages of development. We may seek partners to assist us in the
development of these candidates or who may license them. We may also seek funds to advance the development of the compounds on
our own. We are currently exploring options to develop one of these candidates, recombinant Nematode Anticoagulation Protein c2,
or rNAPc2, as a potential therapy for the disease syndrome caused by infection from hemorrhagic fever viruses and other pathogens,
including seeking development partners, out-licensing the compound and applying for grant or government funding. In February
2015, the World Health Organization prioritized rNAPc2 for testing in human efficacy trials in patients infected with the Ebola virus.
The U.S. FDA Office of Orphan Products Development has granted orphan drug designation to rNAPc2 as a potential treatment of
viral hemorrhagic fever post-exposure to the Ebola virus. Orphan drug designation is granted by the FDA Office of Orphan Products
Development to novel drugs or biologics that treat rare diseases or conditions affecting fewer than 200,000 individuals in the United
States. The designation provides the drug developer with a seven-year period of U.S. marketing exclusivity upon marketing approval,
as well as certain financial incentives that can help support development of the drug.
Competition
Current AF treatments include pharmaceutical intervention and device intervention. There are several antiarrhythmic drugs approved
by the FDA for the treatment and/or prevention of recurrent AF. However, these drugs have safety and/or administration concerns and
all but one have contraindications or label warnings regarding their prescription in patients with heart failure.
Considering that most of the approved drugs and device interventions for the treatment or prevention of AF have notable risks or
adverse side effects, we believe there is an unmet medical need for new AF treatments that have fewer side effects than currently
available therapies and are more effective, particularly in patients with HF where the approved drugs are contra-indicated or have
8
warnings regarding their prescribing information. We believe that Gencaro’s prevention of AF in HF patients would provide this
patient population a safer treatment option than other treatments currently approved by the FDA.
The pharmaceutical industry is highly competitive. We face significant competition from pharmaceutical companies and
biotechnology companies that are researching and selling products designed to treat cardiovascular conditions. Most of these
companies have significantly greater financial, product development, manufacturing, and commercial resources than we have.
In addition, our proposed prescribing information for Gencaro includes a recommendation for genetic testing, which will add
additional cost and procedures to the process of prescribing Gencaro, and which could make it more difficult for us to compete against
existing or future therapies.
Manufacturing and Product Supply
Gencaro is a small molecule drug with an established manufacturing history. Multiple manufacturers of both the API and drug product
have successfully produced Gencaro for use in clinical trials over the course of its clinical development. We outsource all
manufacturing and analytical testing of the Gencaro API and drug product. We have selected third party contract manufacturing
organizations on the basis of their technical and regulatory expertise. Our approach with our contract manufacturing partners has been
to replicate the manufacturing processes that were used to support the prior pivotal clinical trial with Gencaro, and to minimize any
changes from these baseline processes, thereby reducing technical and regulatory risk. We contracted with Groupe Novasep to
complete the drug substance registration batches required for the Gencaro NDA. These batches were successful, and the resulting drug
substance was used to supply the drug product registration campaign. Remaining inventory was placed in current Good Manufacturing
Practice, or cGMP, storage to provide a backup supply for the GENETIC-AF trial, and for use as an initial source of drug substance to
support eventual product launch, if approved.
For drug product production, we have contracted with Patheon, Inc. to manufacture the Gencaro tablets. Gencaro is produced in a
tablet form, utilizing standard solid oral dosage processing techniques. Six separate dosage strengths are manufactured, with the
maximum recommended dose of 50mg twice daily for patients weighing 75kg or less and 100mg twice daily for patients weighing
more than 75kg. Registration batches were successfully completed by Patheon, Inc. and tablets from these runs have been placed in
cGMP storage to supply the GENETIC-AF trial. In addition, we have contracted with a separate service provider for packaging and
distribution of our clinical trial materials.
Our manufacturing focus for 2015 is to supply the blinded clinical trial materials for Gencaro and the comparator compound, and to
manage the clinical distribution channels necessary for the successful execution of the GENETIC-AF trial.
Research and Development Expenses
Our research and development expenses totaled $5.6 million for the year ended December 31, 2014 as compared to $2.9 million for
2013, an increase of approximately $2.7 million. R&D expense in 2015 is expected to be higher than 2014 as we continue to enroll
patients in our GENETIC-AF clinical trial.
Government Regulation
Governmental authorities in the United States at the federal, state, and local levels and foreign countries extensively regulate, among
other things, the research, development, testing, manufacture, labeling, promotion, advertising, marketing, distribution, sampling, and
import and export of pharmaceutical and medical device products. In the United States, the FDA regulates these activities at the
federal level pursuant to the Federal Food Drug and Cosmetic Act, or the FDCA, and the regulations promulgated thereunder. We
anticipate that all of our products will require regulatory approval by governmental agencies prior to commercialization. The process
of obtaining approval and the subsequent process of maintaining compliance with appropriate federal, state, local and foreign statutes
and regulations require the expenditure of substantial time and financial resources. In addition, these statutes, rules, regulations and
policies may change and our products may be subject to new legislation or regulations. Both before and after approval or clearance,
failure to comply with the requirements of the FDA and other state and federal statutes can lead to significant penalties or could
disrupt our ability to manufacture and sell these products. In addition, the FDA could refuse to provide certificates needed to export
our products if the agency determines that we are not in compliance.
Premarket Approval of Drugs
FDA approval is required for marketing of any new drug, dosage form, indication, or strength. The steps required before new human
therapeutic drug products are marketed in the United States and foreign countries include rigorous preclinical and clinical testing and
9
other approval requirements by regulatory agencies, such as the FDA and comparable agencies in foreign countries. There is no
guarantee that products will be approved in a specific timeframe or at all.
Preclinical Phase. Preclinical studies are generally conducted in the laboratory to identify potential drug candidates and to evaluate
their potential efficacy and safety. These studies include laboratory evaluation of product chemistry, formulation and stability, as well
as studies to evaluate short and long-term toxicity in animals. Preclinical studies are governed by numerous regulations, including but
not limited to FDA’s Good Laboratory Practices.
Clinical Phase. Before human clinical trials can commence, an Investigational New Drug, or IND, application, submitted to FDA
must become effective. For an IND to become effective, the applicant must submit, among other things, information on design of the
proposed investigation, reports necessary to assess the safety of the drug for use in clinical investigation, and information on the
chemistry and manufacturing of the drug, controls available for the drug, and primary data tabulations from animal or human studies.
The clinical phase of development involves the performance of human studies, including adequate and well-controlled human clinical
trials to establish the safety and efficacy of the product candidate for each proposed indication. Typically, clinical evaluation involves
three sequential phases, which may overlap. During Phase 1, clinical trials are conducted with a relatively small number of subjects or
patients to determine the early safety profile of a product candidate, as well as dose tolerance, absorption, and the pattern of drug
distribution and drug metabolism. Phase 2 trials are conducted with groups of patients afflicted by a specific target disease to
determine preliminary efficacy, optimal dosages and dosage tolerance and to identify possible adverse effects and safety risks. In
Phase 3, larger-scale, multi- center trials are conducted with patients afflicted with a specific target disease over a longer term to
confirm Phase 2 results and provide reliable and conclusive data supporting efficacy and safety of a drug as required by regulatory
agencies for drug approval. The conduct of clinical trials is subject to extensive regulation. FDA may delay or suspend clinical trials
through clinical holds.
NDA Submission. In the United States, the results of preclinical and clinical testing along with chemistry, manufacturing and controls
information, are submitted to the FDA in the form of an NDA. Under the current Prescription Drug User Fee Act, or PDUFA, after
submission of an NDA and payment, or waiver, of the required fee, the FDA’s goal is to review most standard NDAs within 10
months from the time that a sponsor’s application is accepted as filed by FDA, which can occur within a 60-day window following the
initial submission of the application. At the end of the 10 months, the FDA’s goal is to issue a “complete response,” or approve the
NDA. While FDA’s goal is to issue a complete response within 10 months, the process may take longer than 10 months, particularly if
multiple review cycles are required.
In responding to an NDA, the FDA may grant marketing approval or deny the application if the FDA determines that the application
does not satisfy the statutory and regulatory approval criteria. A denial may include a request for additional information, including
additional clinical data and/or an additional Phase 3 clinical trial. Data from clinical trials are not always conclusive and FDA may
interpret data differently than we interpret data. Under the Food and Drug Modernization Act of 1997, the FDA is authorized to
approve a drug based on a single adequate and well-controlled study if such study and other confirmatory data are sufficient to
establish the drug’s effectiveness. However, it has long been the FDA’s general position that the standard of proof of a drug’s
effectiveness generally requires at least two well-controlled and adequate Phase 3 clinical studies demonstrating statistically
significant results as compared to a placebo or active control (with p-values of less than 0.05) with respect to the primary endpoint or
endpoints of the trial.
In addition, in accordance with current FDA law and regulations, the FDA may refer a drug to an advisory committee for review prior
to approval. Most new compounds are referred to an FDA advisory committee, which could add additional time to the review process.
There is no guarantee that the advisory committee will recommend approval of a drug candidate. In some cases, FDA may require
completion, within a specified time period, of additional clinical studies after approval, referred to as Phase 4 clinical studies, to
monitor the effect of a new product and may prevent or limit future marketing of the product based on the results of these post-
marketing programs. Furthermore, prior to granting approval, the FDA generally conducts an inspection of the facilities, including
outsourced facilities that will be involved in the manufacture, production, packaging, testing and control of the drug substance and
finished drug product for compliance with current Good Manufacturing Practice, or cGMP, requirements.
If the FDA approves the NDA, the sponsor is authorized to begin commercialization of the drug in accordance with the approval.
Even if the FDA approves the NDA, the FDA may decide later to suspend or withdraw product approval if compliance with regulatory
standards is not maintained or if safety problems are recognized after the product reaches the market. In addition, the FDA requires
surveillance programs to monitor approved products that have been commercialized, and the agency has the power to require
additional clinical studies, to require changes in labeling or to prevent further marketing of a product based on the results of these
post-marketing programs. The FDA also has authority to request implementation of a risk evaluation and mitigation strategy, or
REMS that could restrict distribution of Gencaro or require us to provide additional risk information to prescribers. Whether or not
FDA approval has been obtained, approval of a product candidate by comparable foreign regulatory authorities is necessary prior to
the commencement of marketing of a product candidate in those countries. The approval procedures vary among countries and can
involve additional testing. The time required to obtain approval may differ from that required for FDA approval.
10
Post-approval Compliance. If regulatory approval for a drug or medical device is obtained, the product and the facilities manufacturing
the product are subject to periodic inspection and continued regulation by regulatory authorities, including compliance with cGMP, as
well as labeling, advertising, promotion, recordkeeping, and reporting requirements, including the reporting of adverse events. In
addition, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for labeling,
promotion to health care professionals, 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. Companies are responsible for compliance with such requirements and would be responsible
to ensure that all contract manufacturing organizations who perform work for them also comply with such requirements. Similarly, if a
drug manufacturer hires contract sales representatives or consultants to promote its products, such organizations or individuals must
comply with all of the same requirements applicable to the drug manufacturer. The FDA regularly inspects companies to determine
compliance with cGMPs and other post-market requirements. Failure to comply with statutory requirements and the FDA’s regulations
can result in a variety of administrative or enforcement actions, including but not limited to an FDA Form 483 (which is issued by FDA at
the conclusions of an inspection when an investigator has observed any conditions that may constitute violations), a public warning letter,
suspension or withdrawal of regulatory approvals, product recalls, product detentions, refusal to provide export certificates, seizure of
products and criminal prosecution.
Drug Price Competition and Patent Term Restoration Act of 1984. Under the Drug Price Competition and Patent Term Restoration
Act of 1984, also known as the Hatch-Waxman Act, Congress created an abbreviated FDA review process for generic versions of
pioneer (brand name) drug products. The Hatch-Waxman Act also provides for patent term restoration and the award, in certain
circumstances, of non-patent marketing exclusivities.
Generic Drug Approval. The Hatch-Waxman Act established an abbreviated FDA review process for drugs that are shown to be
equivalent to approved pioneer drugs. Approval for a generic drug is obtained by filing an abbreviated NDA, or ANDA. Generic drug
applications are “abbreviated” because they generally do not include clinical data to demonstrate safety and effectiveness. Instead, an
ANDA applicant must establish that its product is bioequivalent to an approved drug and that it is the same as the approved drug with
respect to active ingredient(s), route of administration, dosage form, strength and recommended conditions of use (labeling). The FDA
will approve the generic as suitable for an ANDA if it finds that the generic does not raise questions of safety and effectiveness as
compared to the pioneer drug. A drug is not eligible for ANDA approval if the FDA determines that it is not equivalent to the pioneer
drug or if it is intended for a different use. Any applicant who files an ANDA seeking approval of a generic version of an approved
drug listed in FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book must certify to the FDA
that (i) no patent information on the drug has been listed in the Orange Book; (ii) that each patent listed in the Orange Book for that
approved drug has expired; (iii) FDA should approve the product on the date on which a listed patent expires; or (iv) that such patent
is invalid, unenforceable or will not be infringed by the manufacture, use or sale of the generic drug. If the ANDA applicant makes a
certification pursuant to (iv) above, or a Paragraph IV certification, and the NDA holder files an infringement suit against the ANDA
applicant within 45 days of receiving the Paragraph IV notification, the NDA owner is entitled to an automatic 30-month stay of
FDA’s ability to approve the ANDA. This 30-month stay will end early upon any decision by a court that the patent is invalid,
unenforceable or not infringed by the generic drug.
Patent Term Extension. While the term of a U.S. patent is generally 20 years from the earliest priority date of a patent application
(excluding a provisional patent application), a U.S. patent that covers subject matter requiring regulatory approval to market is eligible
for an extension of that patent term. The Hatch-Waxman Act provides for the restoration of a portion of the patent term lost during
product development and FDA review of an application. Patent Term Extension, or PTE, extends the term of an issued patent for
generally 1) the length of the FDA approval process, i.e., the complete period of NDA review, and 2) half of the time spent in clinical
trials, i.e., the investigational new drug (IND) period. However, the maximum period of restoration cannot exceed five years, or
restore the total remaining term of the patent to greater than 14 years from the date of FDA approval of the product.
Under 35 U.S.C. § 156(a), a patent covering a method of using a product is eligible for PTE if the following conditions are met:
1)
2)
3)
4)
5)
the patent has not yet expired;
the patent was not previously extended;
the patent owner submits an application for PTE that includes all necessary supporting information within 60 days of FDA
approval;
the product was subject to regulatory review before its commercial marketing or use; and
the drug application is for the first permitted commercial marketing of the product.
We have obtained four U.S. patents (U.S. Patent Nos. 7,678,824; 8,080,578; 8,093,286; 8,946,284). We believe that, if approved by
the FDA, any one of the U.S. patents may be eligible for PTE, which could provide approximately 5 years of additional patent life
based on our current clinical trial plans.
11
A Supplementary Protection Certificate, or SPC, is a form of patent term extension that is available for pharmaceutical products
approved for marketing in the European Union. We obtained a patent in Europe on methods for using Gencaro that is similar to the
‘824 patent (EP 1802775); this patent is in force in certain countries in Europe, including the United Kingdom, France, Germany, Italy
and Spain. We believe that this patent may be eligible for an SPC, if Gencaro is approved for marketing in any European country in
which the patent is in force, which could provide up to five years of additional patent life.
Non-Patent Marketing Exclusivities. Separate and apart from patent protection, the Hatch-Waxman Act entitles approved drugs to
various periods of non-patent statutory protection, known as marketing exclusivity. The Hatch-Waxman Act provides five years of
“new chemical entity” marketing exclusivity to the first applicant to gain approval of an NDA for a product that contains an active
moiety not found in any other approved product. This exclusivity means that another manufacturer cannot submit an ANDA or
505(b)(2) NDA until the marketing exclusivity period ends. This exclusivity protects the entire new chemical entity franchise,
including all products containing the active ingredient for any use and in any strength or dosage form, but will not prevent the
submission or approval of stand-alone NDAs where the applicants have conducted their own clinical studies to demonstrate safety and
effectiveness. There is an exception, however, for a competitor that seeks to challenge a patent with a Paragraph IV certification. Four
years into the five-year exclusivity period, a manufacturer who alleges that one or more of the patents listed with the NDA is invalid,
unenforceable or not infringed may submit an ANDA or 505(b)(2) NDA for a generic or modified version of the product.
The Hatch-Waxman Act also provides three years of “new use” marketing exclusivity for the approval of NDAs, and supplements,
where those applications contain the results of new clinical investigations (other than bioavailability studies) essential to the FDA’s
approval of the applications. Such applications may be submitted for new indications, dosage forms, strengths, or new conditions of
use of approved products. So long as the studies are essential to the FDA’s approval or were conducted by or for the applicant, this
three-year exclusivity prohibits the final approval of ANDAs or 505(b)(2) NDAs for products with the specific changes associated
with those studies. It does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for other products containing the same
active ingredient, without those changes.
FDA Premarket Review of Medical Devices
Unless an exemption applies, each medical device that a company wishes to market in the United States requires either approval of a
premarket approval application, or PMA, or clearance of a premarket notification, commonly known as a “510(k)” from the FDA. The
FDA classifies medical devices into one of three classes. Devices deemed to pose lower risks are placed in either class I or II, which
may require the manufacturer to submit to the FDA a 510(k) requesting permission to commercially distribute the device. Clearance of
a 510(k) usually requires between three months and one year from the time of submission of the 510(k), although the process may take
longer. The FDA’s 510(k) clearance procedure is less rigorous than the PMA approval procedure, but is available only to companies
who can establish that their device is substantially equivalent to a legally-marketed “predicate” device that was (i) on the market prior
to the enactment of the Medical Device Amendments of 1976, (ii) reclassified from Class III to Class II, or (iii) has been cleared
through the 510(k) procedure. 510(k)s must typically be supported by performance data, including preclinical data, bench testing, and
in some cases, clinical data. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to pose the
greatest risks, or for which there is no predicate, are placed in class III, and require a PMA.
PMA Pathway. Generally, a PMA must be supported by extensive data and valid scientific evidence, including, but not limited to,
technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction a reasonable assurance of the
safety and effectiveness of the device for its intended use. After a PMA is sufficiently complete, the FDA will accept the application
and begin an in-depth review of the submitted information and will generally conduct a pre-approval inspection of the manufacturing
facility or facilities to ensure compliance with FDA’s Quality System Regulations, or QSR. By statute, the FDA has 180 days to
review the “accepted application”, although, generally, review of the application can take between one and three years, and it may take
significantly longer. The PMA application process can be expensive, and there is a substantial “user fee” that must be paid to FDA in
connection with the submission of a PMA application. If the FDA’s evaluation of the PMA application or the manufacturing facility is
not favorable, the FDA may deny approval of the PMA application or issue a “not approvable” letter. The FDA may also require
additional clinical trials, which can delay the PMA approval process by several years. In addition, if FDA discovers that an applicant
has submitted false or misleading information, FDA may refuse to review submissions until certain requirements are met pursuant to
its Application Integrity Policy, or AIP. If the FDA approves the PMA, it may place restrictions on the device. After the PMA is
approved, if significant changes are made to a device, its manufacturing or labeling, a PMA supplement containing additional
information must be filed for prior FDA approval. PMA supplements often must be approved by FDA before the modification to the
device, the labeling, or the manufacturing process may be implemented. Delays in receipt of or failure to receive such clearances or
approvals, the loss of previously received clearances or approvals, or the failure to comply with existing or future regulatory
requirements could have a material adverse effect on our business, financial condition and results of operations.
Clinical Trials. Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance.
These trials generally require an Investigational Device Exemption, or IDE, application approved in advance by the FDA for a
specified number of patients, unless the proposed study is deemed a non-significant risk study, which is eligible for an exemption from
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the IDE requirements. The IDE application must be supported by appropriate data, such as animal and laboratory testing results.
Clinical trials may begin if the IDE application is approved by the FDA and the appropriate institutional review boards or IRBs at the
clinical trial sites. Submission of an IDE application does not give assurance that the FDA will issue the IDE. If the IDE application is
approved, there can be no assurance the FDA will determine that the data derived from the trials support the safety and effectiveness
of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to and approved by the FDA before
a sponsor or investigator may make a change to the investigational plan in such a way that may affect its scientific soundness, study
indication or the rights, safety or welfare of human subjects. The trial must also comply with the FDA’s regulations, including the
requirement that informed consent be obtained from each subject. Even if a trial is completed, the results of clinical testing may not
adequately demonstrate the safety and efficacy of the device or may otherwise not be sufficient to obtain FDA clearance to market the
product in the United States.
In Vitro Diagnostic Companion Diagnostic Devices. FDA has described IVD companion diagnostic devices as in vitro diagnostic
devices that provide information that is essential for the safe and effective use of a corresponding therapeutic product. The use of an
IVD companion diagnostic device with a particular therapeutic product is stipulated in the instructions for use in the labeling of both
the diagnostic device and the corresponding therapeutic product, as well as in the labeling of any generic equivalents of the therapeutic
product. An IVD companion diagnostic device could be used to (i) identify patients who are most likely to benefit from a particular
therapeutic product; (ii) identify patients likely to be at increased risk for serious adverse reactions as a result of treatment with a
particular therapeutic product; or (iii) monitor response to treatment for the purpose of adjusting treatment (e.g., schedule, dose,
discontinuation) to achieve improved safety or effectiveness. Although FDA’s regulation of IVD companion diagnostic devices is
evolving and implemented on a case-by-case basis, FDA’s stated policy for a novel therapeutic product is that an IVD companion
diagnostic device should be developed and approved or cleared contemporaneously to support the therapeutic product’s safe and
effective use. The clinical performance and clinical significance of the IVD companion diagnostic device is to be established using
data from the clinical development program of the corresponding therapeutic product. FDA recognizes, however, that there may be
cases where contemporaneous development may not be possible. With respect to the Gencaro Test, there is no assurance that we will
be able to develop and obtain approval or clearance contemporaneously with Gencaro. Failure to develop the Gencaro Test or obtain
clearance or approval could delay approval of Gencaro, if FDA regards the Gencaro Test as an IVD companion diagnostic test that is
essential to the safe and effective use of Gencaro.
Continuing Regulation. After a device is placed on the market, numerous regulatory requirements apply to the manufacturer, or holder
of a PMA approval. Unless subject to an exemption, medical devices distributed in the United States must be manufactured in
compliance with the FDA’s Quality System Regulations, or QSRs, and current good manufacturing practices. These regulations
govern the manufacturing process, including design, manufacture, testing, release, packaging, distribution, documentation and
purchasing, as well as complaint handling, corrective and preventative actions and internal auditing. In complying with the QSRs,
manufacturers must expend significant time, money and effort. Companies are also subject to other post-market and general
requirements, including but not limited to product listing and establishment registration, post-market surveillance requirements,
limitations on promotion, and requirements for recordkeeping and reporting of certain adverse events, malfunctions, corrections and
removals. As discussed above, FDA regularly inspects companies to assess compliance with the QSRs and other post-market
requirements. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, and
potential civil and criminal penalties. With respect to the Gencaro Test, we intend to seek a new or amended collaborative
arrangement with a diagnostic company in which we could license them certain rights to perform the diagnostic test for patients with
AF. As part of such arrangement, we will seek to have the diagnostic company take responsibility for compliance with the FDA’s
device approval and on-going regulatory requirements.
International Marketing Approvals. International sales of medical devices are subject to foreign government regulations, which vary
substantially from country to country and are subject to change. The time required to obtain approval by a foreign country may be
longer or shorter than that required for FDA clearance or approval, and the requirements may differ.
Other Regulatory Requirements. We are also subject to various federal, state and local laws, regulations and recommendations relating
to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection
with our work. The extent and character of governmental regulation that might result from future legislation or administrative action
cannot be accurately predicted.
Medical Device Tax
In March 2010, the U.S. Congress adopted and President Obama signed into law comprehensive health care reform legislation.
Among other initiatives, these laws impose significant new taxes on medical device makers in the form of a 2.3% excise tax on U.S.
medical device sales, with certain exemptions, beginning on January 1, 2013. The Gencaro Test is likely to be subject to this tax.
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Intellectual Property
The future success of our business will partly depend on our ability to maintain market exclusivity for Gencaro in the United States
and important international markets, and for other products or product candidates that we may acquire or develop. We will rely on
statutory protection, patent protection, trade secrets, know-how, and in-licensing of technology rights to maintain protection for our
products.
We believe that both patent protection and data exclusivity statutes will give Gencaro market exclusivity in the United States and in
major international markets. If approved by the FDA or international regulatory agencies, Gencaro will qualify as a New Chemical
Entity, or NCE, as it has never received regulatory approval in any jurisdiction. As an NCE, Gencaro will enjoy market exclusivity in
the United States and most international markets under data exclusivity statutes. These laws provide for an exclusivity period
beginning from regulatory approval, during which any generic competitor is barred from submitting an application that relies on the
data that has been submitted in connection with the approval of the NCE. In the United States, the Hatch-Waxman Act provides for an
initial period of up to five years from approval of the NCE, during which a generic application attempting to rely on the data submitted
for the NCE cannot be filed with the FDA. This period can be effectively extended to seven and one-half years from FDA approval
because a provision of the Hatch-Waxman Act provides for an automatic 30-month extension of the exclusivity period if we promptly
pursue litigation against a company attempting to enter the market with a generic for a drug that is covered by a composition of matter
or method of use patent.
Many international markets have data exclusivity statutes that are analogous to Hatch-Waxman and often more protective. The
analogous statute in the European Medicines Evaluation Agency will, in general, provide Gencaro with a minimum of ten years of
protection before such a generic application may be approved. Protection under Hatch-Waxman and other data exclusivity statutes is
sometimes considered superior to patent protection, as the generic cannot be marketed during the period of exclusivity, thus
eliminating the need to initiate patent infringement litigation with its accompanying risks and costs.
In addition to protection under data exclusivity statutes, we believe that Gencaro’s patent portfolio will also provide market
exclusivity. We have been granted patents in the United States and Europe that claim the use of Gencaro in patients predicted to have
a favorable response to the drug based on genetic polymorphisms in the genes encoding the beta-1 and/or alpha-2C receptors. We
believe that this patent strategy may deter generic competition because of the threat of patent litigation or may exclude generic
competition from the market until the patents expire if we are successful in litigation. Consequently, if our patent strategy is
successful, we believe we may avoid generic competition with Gencaro in the United States or certain countries in Europe until at
least the expiration of these patents, which would be no earlier than 2026 in the United States and into 2025 in Europe. In addition, we
believe that if Gencaro is approved, any one of our U.S. patents may be entitled to an extension of its term and the European patent
may be entitled to an extension through a supplemental protection certificate in one or more countries in Europe. The length of any
such extension may vary by country. We cannot predict whether any such extensions will be granted, but if they are, they may provide
market exclusivity for Gencaro into approximately 2030 in the United States and Europe. In addition, we were granted a patent on the
S-isomer formulation of Gencaro, which we believe could be important in Gencaro’s future development.
We also have patent rights relating to rNAPc2, as well as other patent rights in additional pharmacogenetic drug candidates having
possible indications in cardiovascular disease, oncology, and other therapeutic areas; these are in both early and later stages of
development. We may seek collaborators to assist us in the development of these candidates or we may seek to raise funds to advance
the development of the compounds on our own.
Employees
As of December 31, 2014, we had 16 full-time employees. None of our employees are represented by any collective bargaining unit.
We believe that we maintain good relations with our employees.
Corporate Information
On January 27, 2009, we completed a business combination, or the Merger, with ARCA Colorado in accordance with the terms of that
Agreement and Plan of Merger and Reorganization, dated September 24, 2008, and amended on October 28, 2008 in which a wholly-
owned subsidiary of Nuvelo, Inc. merged with and into ARCA Colorado, with ARCA Colorado continuing after the Merger as the
surviving corporation and a wholly-owned subsidiary of Nuvelo, Inc. Immediately following the Merger, we changed our name from
Nuvelo, Inc. to ARCA biopharma, Inc. Nuvelo was originally incorporated as Hyseq, Inc. in Illinois in 1992 and reincorporated in
Nevada in 1993. On January 31, 2003, Nuvelo merged with Variagenics, Inc., a publicly traded Delaware corporation based in
Massachusetts, and, in connection with the merger, changed its name to Nuvelo, Inc. On March 25, 2004, Nuvelo was reincorporated
from Nevada to Delaware. On December 28, 2009, we merged ARCA Colorado with and into us via a short form merger pursuant to
which we were the surviving corporation. On January 27, 2009, in connection with the Merger with ARCA Colorado described
above, Nuvelo changed its name to ARCA biopharma, Inc. Our principal offices are located in Westminster, Colorado.
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On March 4, 2013, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, to implement a
six-for-one reverse split of our common stock, as previously authorized and approved at our special meeting of stockholders on
February 25, 2013. On March 5, 2013, our common stock began trading on The NASDAQ Capital Market on a post-split basis.
The reverse split effected a proportionate adjustment to the per share exercise price and the number of shares issuable upon the
exercise or settlement of all outstanding options and warrants to purchase shares of our common stock, and the number of shares
reserved for issuance pursuant to our existing stock option plans were reduced proportionately. No fractional shares were issued as a
result of the reverse split, and stockholders who otherwise would have been entitled to a fractional share received in lieu thereof, a
cash payment based on the closing sale price of our common stock as reported on The NASDAQ Capital Market on March 4, 2013.
The reverse split did not alter the par value of our common stock or modify any voting rights or other terms of the common stock.
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 electronically with the SEC. The public may read or copy any materials that have
been filed with the SEC at the SEC’s Public Reference Rooms at 100 F Street, N.E., Washington, D.C. 20549 on official business
days during the hours of 10:00 a.m. and 3:00 p.m. The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports on our website at http://www.arcabiopharma.com on the earliest practicable date following the filing
with the SEC or by contacting the Investor Relations Department at our corporate office by calling (720) 940-2200. Information found
on our website is not incorporated by reference into this report.
Item 1A. Risk Factors
An investment in ARCA’s securities involves certain risks, including those set forth below and elsewhere in this report. In addition to
the risks set forth below and elsewhere in this report, other risks and uncertainties not known to ARCA, that are beyond its control or
that ARCA deems to be immaterial may also materially adversely affect ARCA’s business operations. You should carefully consider
the risks described below as well as other information and data included in this report.
Risks Related to Our Business and Financial Condition
Our management and our independent registered public accountant, in their report on our financial statements as of and for the
year ended December 31, 2014, have concluded that due to our need for additional capital, and the uncertainties surrounding our
ability to raise such funding, substantial doubt exists as to our ability to continue as a going concern.
Our audited financial statements for the fiscal year ended December 31, 2014 were prepared assuming that we will continue as a going
concern. The going concern basis of presentation assumes that we will continue in operation for the foreseeable future and will be able
to realize our assets and discharge our liabilities and commitments in the normal course of business and do not include any
adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from our inability to continue as a going concern. Our management and our independent registered public
accountants concluded as of December 31, 2014 that due to our need for additional capital and the uncertainties surrounding our
ability to raise such funding, substantial doubt exists as to our ability to continue as a going concern. We believe our cash and cash
equivalents balance as of December 31, 2014 will be sufficient to fund our operations, at our projected cost structure, through the end
of 2015. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. We will
be required to raise additional funds prior to completion of the Phase 2B portion of GENETIC-AF.
We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources
sooner than we currently anticipate. We may be forced to reduce our operating expenses and raise additional funds to meet our
working capital needs, principally through the additional sales of our securities or debt financings. However, we cannot guarantee that
will be able to obtain sufficient additional funds when needed or that such funds, if available, will be obtainable on terms satisfactory
to us. If we are unable to raise sufficient additional capital or complete a strategic transaction, we may be unable to continue to fund
our operations, develop Gencaro or our other product candidates, or realize value from our assets and discharge our liabilities in the
normal course of business. If we cannot raise sufficient funds, we may have to liquidate our assets, and might realize significantly less
than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our
common stock.
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If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.
The GENETIC-AF clinical trial requires that we identify and enroll a large number of patients with the condition under investigation
and the trial will enroll only those patients having a specific genotype, and certain patients who have or are willing to have a
Medtronic device implanted for monitoring and recording AF burden data. Because of the rigorous enrollment criteria, we may not be
able to enroll a sufficient number of patients to complete our clinical trial in a timely manner. To date, we have enrolled fewer patients
in the trial than we had originally projected to enroll at this point.
Patient enrollment is affected by factors including:
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design of the protocol or amendments made to the protocol;
the size of the patient population;
eligibility criteria for the study in question;
perceived risks and benefits of the drug under study;
availability of competing therapies, including the off-label use of therapies approved for related indications;
efforts to facilitate timely enrollment in clinical trials;
the success of our personnel in making the arrangements with potential clinical trial sites necessary for those sites to begin
enrolling patients;
patient referral practices of physicians;
availability of clinical trial sites;
use of clinical trial sites outside the United States and regulatory compliance within other countries;
other clinical trials seeking to enroll subjects with similar profiles;
the number of patients having the specific genotype needed for our trial; and
the number of patients having, or willing to have, a Medtronic device implanted for monitoring and recording AF burden
data.
If we continue to have difficulty enrolling a sufficient number of patients in our GENETIC-AF trial, we may need to delay or
terminate our GENETIC-AF trial, which would have a negative impact on our business. Our projected clinical trial timeline assumes
that we significantly increase the rate of patient enrollment from the current rate. If our projections are inaccurate, the trial will take
significantly longer than we project. For instance, in the second quarter of 2014, and in the first quarter of 2015, we have made
material modifications to certain entry criteria and policies for the GENETIC-AF trial that we believe may increase the rate of patient
screening and enrollment. We do not yet know how these protocol changes will impact the enrollment rate or if our new enrollment
projections will prove to be accurate. Delays in enrolling patients in our clinical trials would also adversely affect our ability to
generate any product, milestone and royalty revenues under collaboration agreements, if any, and could impose significant additional
costs on us or on any future collaborators.
We will need to raise substantial additional funds through public or private equity transactions and/or complete one or more
strategic transactions, to continue development of Gencaro. If we are unable to raise such financing or complete such a
transaction, we may not be able to continue operations.
In light of the expected development timeline to potentially obtain FDA approval for Gencaro, if at all, the substantial additional costs
associated with the development of Gencaro, including the costs associated with the GENETIC-AF clinical trial, and the substantial
cost of commercializing Gencaro, if it is approved, we will need to raise substantial additional funding through public or private equity
transactions or a strategic combination or partnership. If we are delayed in obtaining funding or are unable to complete a strategic
transaction, we may discontinue our development activities on Gencaro or discontinue our operations. Even if we are able to fund
continued development and Gencaro is approved, we expect that we will need to complete a strategic transaction or raise substantial
additional funding through public or private debt or equity securities to successfully commercialize Gencaro.
We believe our cash and cash equivalents balance as of December 31, 2014 will be sufficient to fund our operations, at our projected
cost structure, through the end of 2015. Changing circumstances may cause us to consume capital significantly faster or slower than
we currently anticipate. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our
available financial resources sooner than we currently anticipate.
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Our liquidity, and our ability to raise additional capital or complete any strategic transaction, depends on a number of factors,
including, but not limited to, the following:
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progress of GENETIC-AF, including enrollment and any data that may become available;
the costs and timing for potential additional clinical trials in order to gain possible regulatory approval for Gencaro;
the market price of our stock and the availability and cost of additional equity capital from existing and potential new
investors;
our ability to retain the listing of our common stock on the Nasdaq Capital Market;
general economic and industry conditions affecting the availability and cost of capital;
our ability to control costs associated with our operations;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the terms and conditions of our existing collaborative and licensing agreements.
The sale of additional equity or convertible debt securities would likely result in substantial dilution to our stockholders. If we raise
additional funds through the incurrence of indebtedness, the obligations related to such indebtedness would be senior to rights of
holders of our capital stock and could contain covenants that would restrict our operations. We also cannot predict what consideration
might be available, if any, to us or our stockholders, in connection with any strategic transaction. Should strategic alternatives or
additional capital not be available to us, or not be available on acceptable terms, we may be unable to realize value from our assets and
discharge our liabilities in the normal course of business which may, among other alternatives, cause us to further delay, substantially
reduce or discontinue operational activities to conserve our cash resources.
If we are not able to successfully develop, obtain FDA approval for and provide for the commercialization of Gencaro in a timely
manner, we may not be able to continue our business operations.
We currently have no products that have received regulatory approval for commercial sale. The process to develop, obtain regulatory
approval for and commercialize potential product candidates is long, complex and costly. We are screening and enrolling patients in
our Phase 2B clinical study of Gencaro in 200 HFREF patients with AF, and the trial could expand to a Phase 3 clinical study of
approximately 420 HFREF additional patients with AF. We began screening patients for the Phase 2B portion of GENETIC-AF in
April 2014 and enrolled our first patient in June 2014. We implemented amendments to the trial protocol in March 2015 which we
believe may expand the eligible target population, increase the patient screening and enrollment rate, and simplify trial procedures.
We do not yet know how these protocol changes will impact enrollment or if our new enrollment projections will prove to be
accurate. The complex nature of the disease indication and the genotype required for the trial result in stringent enrollment criteria,
which may cause GENETIC-AF to enroll more slowly and take longer than we currently project.
Failure to demonstrate that a product candidate, including Gencaro, is safe and effective, or significant delays in demonstrating such
safety and efficacy, would adversely affect our business. Failure to obtain marketing approval of Gencaro from appropriate regulatory
authorities, or significant delays in obtaining such approval, would also adversely affect our business and could, among other things,
preclude us from completing a strategic transaction or obtaining additional financing necessary to continue as a going concern.
Even if approved for sale, a product candidate must be successfully commercialized to generate value. We do not currently have the
capital resources or management expertise to commercialize Gencaro and, as a result, will need to complete a strategic transaction, or,
alternatively, raise substantial additional funds to enable commercialization of Gencaro, if it is approved. Failure to successfully
provide for the commercialization of Gencaro, if it is approved, would damage our business.
Our clinical trials for our product candidates may not yield results that will enable us to further develop our products and obtain
the regulatory approvals necessary to sell them.
We will receive regulatory approval for our product candidates only if we can demonstrate in carefully designed and conducted
clinical trials that the product candidate is safe and effective. We do not know whether any current or future clinical trials, including
the GENETIC-AF clinical trial for Gencaro, will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals
or will result in marketable products.
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For example, GENETIC-AF is designed as an adaptive trial. The DSMB will analyze certain trial data from the Phase 2B portion and
recommend whether the trial should proceed to Phase 3 and seek to enroll an additional 420 patients. The DSMB interim analysis will
focus on data regarding the trial’s primary end point, AF/AFL event rates, AF burden, and safety. Should the DSMB interim analysis
conclude the data is consistent with the pre-trial statistical assumptions and that the data indicates potential for achieving statistical
significance for the Phase 3 endpoint, then the DSMB may recommend that the study proceed to Phase 3. The DSMB may also
recommend changes to the study design before potentially proceeding to Phase 3, or it may recommend that the study not proceed to
Phase 3. The Company, in consultation with the trial’s Steering Committee and the DSMB, will make the final determination on the
trial’s next development steps. If we do not see sufficient efficacy and safety in the Phase 2B portion of the trial, we will not initiate
the Phase 3 portion of the trial.
Clinical trials are lengthy, complex and expensive processes with uncertain results. We have spent, and expect to continue to spend,
significant amounts of time and money in the clinical development of our product candidates. We have never conducted a Phase 2 or
Phase 3 clinical trial and have limited staff with the requisite experience to do so. We therefore rely on contract research
organizations, or CROs, to conduct certain aspects of our clinical trial. During the third quarter of 2014 we reduced the scope of our
primary CRO’s work and we have assumed those responsibilities for our GENETIC-AF clinical trial. While certain of our employees
have experience in designing and administering clinical trials, these employees have no such experience as employees of ARCA.
The results we obtain in preclinical testing and early clinical trials may not be predictive of results that are obtained in later studies.
We may suffer significant setbacks in advanced clinical trials, even after seeing promising results in earlier studies. Based on results at
any stage of clinical trials, we may decide to repeat or redesign a trial or discontinue development of one or more of our product
candidates. If we fail to adequately demonstrate the safety and efficacy of our products under development, we will not be able to
obtain the required regulatory approvals to commercialize our product candidates, and our business, results of operations and financial
condition would be materially adversely affected.
Administering our product candidates to humans may produce undesirable side effects. These side effects could interrupt, delay or halt
clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying approval of our product
candidates for any or all targeted indications.
If clinical trials for a product candidate are unsuccessful, we will be unable to commercialize the product candidate. If one or more of
our clinical trials are delayed, we will be unable to meet our anticipated development timelines. Either circumstance could cause the
market price of our common stock to decline.
We are relying on contract research organizations to conduct substantial portions of our GENETIC–AF clinical trial, and as a
result, we will be unable to directly control the timing, conduct and expense of all aspects of the clinical trial.
We do not currently have sufficient staff with the requisite experience to conduct our clinical trial and are therefore relying on third
parties to conduct certain aspects of our clinical trial. We have contracted with Duke University, as our CRO to conduct components
of our GENETIC-AF trial. As a result of this contract, we have less control over many details and steps of the trial, the timing and
completion of the trial, the required reporting of adverse events and the management of data developed through the trial than would be
the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially
leading to mistakes as well as difficulties in coordinating activities. Outside parties, such as CROs, may have staffing difficulties, may
undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trial.
We may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a
CRO may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be
costly and may delay ongoing trials, and contractual restrictions may make such a change difficult or impossible. Additionally, it may
be impossible to find a replacement organization that can conduct clinical trials in an acceptable manner and at an acceptable cost.
Even though we are using a CRO to conduct components of our clinical trial, we have to devote substantial resources and rely on the
expertise of our employees to manage the work being done by the CRO. We have never conducted a clinical trial and the inability of
our current staff to adequately manage any CRO that we engage may exacerbate the risks associated with relying on a CRO.
We may not achieve our projected development goals in the time frames we announce and expect.
We set goals for, and make public statements regarding, the timing of certain accomplishments, such as, the commencement and
completion of clinical trials, particularly with respect to steps for commencing and continuing GENETIC-AF, the disclosure of trial
results, the obtainment of regulatory approval and the sale of drug product, which we sometimes refer to as milestones. These
milestones may not be achieved, and the actual timing of these events can vary dramatically due to a number of factors such as delays
or failures in our clinical trials, disagreements with any collaborative partners, the uncertainties inherent in the regulatory approval
process and manufacturing scale-up and delays in achieving manufacturing or marketing arrangements sufficient to commercialize our
products. FDA approval of Gencaro, if it occurs, is expected to require years of additional clinical development, including the
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completion of genetic trials. There can be no assurance that our GENETIC-AF trial will fully enroll or be completed, or that we will
make regulatory submissions or receive regulatory approvals as planned. If we fail to achieve one or more of these milestones as
planned, our business will be materially adversely affected.
If we are not able to maintain the requirements for listing on the Nasdaq Capital Market, we could be delisted, which could have a
materially adverse effect on our ability to raise additional funds as well as the price and liquidity of our common stock.
Our common stock is currently listed on the Nasdaq Capital Market. To maintain the listing of our common stock on the Nasdaq
Capital Market we are required to meet certain listing requirements, including, among others, (i) a minimum closing bid price of $1.00
per share, (ii) a market value of publicly held shares (excluding shares held by our executive officers, directors and 10% or more
stockholders) of at least $1 million and (iii) either: (x) stockholders’ equity of at least $2.5 million; or (y) a total market value of
listed securities of at least $35 million.
During 2012 our stock price fell below the Nasdaq Capital Market’s minimum bid price requirements and we became subject to
delisting from the exchange. On March 4, 2013 we executed a 1 for 6 reverse split of our common stock and have subsequently
regained compliance with the minimum bid price requirements. On February 18, 2015, we received notification from NASDAQ of
potential delisting of our shares from the NASDAQ Capital Market because the closing bid price of our common stock had not met the
minimum closing bid price of $1.00 per share during the preceding 30 days. NASDAQ rules provided us a 180 calendar day grace
period from the date of the Notice to regain compliance by meeting the continued listing standard. The continued listing standard
would be met if our common stock has a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive
business days during the 180 calendar day grace period. If our stock does not trade above these levels, we may seek to execute a
reverse split of our common stock in 2015 in order to regain compliance. The delisting of our common stock from a national
exchange could impair the liquidity and market price of the common stock. It could also materially, adversely affect our access to the
capital markets, and any limitation on market liquidity or reduction in the price of the common stock as a result of that delisting could
adversely affect our ability to raise capital on terms acceptable to us, or at all.
In future periods, if we do not meet the minimum stockholders’ equity, minimum closing bid price requirements, or any other listing
requirements, we would be subject to delisting from the Nasdaq Capital Market.
As of March 17, 2015, the closing price of our common stock was $0.77 per share, and the total market value of our listed securities
was approximately $16.3 million. As of December 31, 2014, we had stockholders’ equity of $14.7 million.
We expect to depend on existing and future collaborations with third parties for the development of some of our product
candidates. If those collaborations are not successful, we may not be able to complete the development of these product candidates.
We currently have a collaboration agreement with Medtronic, Inc., or Medtronic, for the support of our GENETIC-AF trial. Medtronic
can terminate its collaboration with us for various reasons including uncured material breach of the collaboration by us, an ARCA
bankruptcy, if, after FDA communication, it is reasonably concluded that the FDA will not allow GENETIC-AF to enroll or proceed,
or if Medtronic’s obligations under the collaboration agreement are unilaterally expanded. We may seek additional third party
collaborators for the development of Gencaro or other product candidates.
Under our current arrangement with Medtronic, as amended, we have limited control over the amount and timing of resources that
they dedicate to the development of Gencaro. This is also likely to be true in any future collaboration with third parties. Our ability to
benefit from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in
these arrangements.
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Collaborations involving our product candidates pose the following risks to us:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these
collaborations;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or
renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic
focus or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or
abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for
clinical testing;
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collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with
our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or
can be commercialized under terms that are more economically attractive than ours;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in
such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential
litigation;
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disputes may arise between the collaborators and us that result in the delay or termination of the research, development or
commercialization of our product candidates or that result in costly litigation or arbitration that diverts management
attention and resources;
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further
development or commercialization of the applicable product candidates;
collaborators may elect to take over manufacturing rather than retain us as manufacturers and may encounter problems in
starting up or gaining approval for their manufacturing facility and so be unable to continue development of product
candidates;
we may be required to undertake the expenditure of substantial operational, financial and management resources in
connection with any collaboration;
we may be required to issue equity securities to collaborators that would dilute our existing stockholders’ percentage
ownership;
we may be required to assume substantial actual or contingent liabilities;
collaborators may not commit adequate resources to the marketing and distribution of our product candidates, limiting our
potential revenues from these products; and
collaborators may experience financial difficulties.
We face a number of challenges in seeking additional collaborations. Collaborations are complex and any potential discussions may
not result in a definitive agreement for many reasons. For example, whether we reach a definitive agreement for a collaboration will
depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the
proposed collaboration, and the proposed collaborator’s evaluation of a number of factors, such as the design or results of our clinical
trials, the potential market for our product candidates, the costs and complexities of manufacturing and delivering our product
candidates to patients, the potential of competing products, the existence of uncertainty with respect to ownership or the coverage of
our intellectual property, and industry and market conditions generally. If we were to determine that additional collaborations for our
Gencaro development is necessary and were unable to enter into such collaborations on acceptable terms, we might elect to delay or
scale back the development or commercialization of Gencaro in order to preserve our financial resources or to allow us adequate time
to develop the required physical resources and systems and expertise ourselves.
Collaboration agreements may not lead to development or commercialization of our product candidates in the most efficient manner,
or at all. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies
that have resulted in a reduced number of potential future collaborators. If a present or future collaborator of ours were to be involved
in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be
delayed, diminished or terminated.
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Our GENETIC-AF clinical trial requires the use of a third-party diagnostic services provider to administer the genetic test needed
to identify the patient receptor genotypes of clinical trial participants, and as a result, we will be unable to directly control the
timing, conduct and expense of the genetic test.
Our GENETIC-AF clinical trial of Gencaro requires a companion diagnostic test that identifies the patient’s receptor genotype. The
trial will only enroll those patients with the receptor that has the potential for enhanced efficacy, the beta-1 389 Arg receptor as
detected by a beta-1 389 Arg/Arg genotype. Accordingly, the GENETIC-AF trial requires the use of a third-party diagnostic service to
perform the genetic testing. There has been limited experience in our industry in prospective development of companion diagnostics
required to perform the required molecular profiling. We entered into an agreement with LabCorp to provide the diagnostic services of
the genetic test needed to support our GENETIC-AF trial. To provide those services, LabCorp obtained from the FDA an
Investigational Device Exemption, or IDE, for the companion diagnostic test being used in our GENETIC-AF clinical trial.
The FDA and similar regulatory authorities outside the United States regulate companion diagnostics. Companion diagnostics require
separate or coordinated regulatory approval prior to commercialization. Changes to regulatory advice could delay our development
programs or delay or prevent eventual marketing approval for our product candidates that may otherwise be approvable. In July 2011,
the FDA issued draft guidance that stated that if safe and effective use of a therapeutic depends on an in vitro diagnostic, the FDA
generally will not approve the therapeutic unless the FDA approves or clears this “in vitro companion diagnostic device” at the same
time that the FDA approves the therapeutic. The approval or clearance of the companion diagnostic would occur through the FDA’s
Center for Devices and Radiological Health. In 2014, the FDA issued guidance on in vitro companion diagnostic devices. It is
difficult to predict how FDA will implement the guidance. For example, the guidance allows for flexibility by the FDA in the case of
therapeutic products to treat serious conditions for which no alternative treatment exists and the benefits of using the companion
diagnostic outweigh the risk, but it is unclear how this discretion will be applied by the agency. The FDA’s evolving position on the
topic of companion diagnostics could affect our clinical development programs that utilize companion diagnostics. In particular, the
FDA may limit our ability to use retrospective data, otherwise disagree with our approaches to trial design, biomarker qualification,
clinical and analytical validity, and clinical utility, or make us repeat aspects of a trial or initiate new trials.
Given our limited experience in developing diagnostics, we expect to rely primarily on third parties for the design and manufacture of
the companion diagnostics for our product candidates. If we, or any third parties that we engage to assist us, are unable to successfully
develop companion diagnostics for our product candidates that require such diagnostics, or experience delays in doing so, the
development of our product candidates may be adversely affected, our product candidates may not receive marketing approval and we
may not realize the full commercial potential of any products that receive marketing approval. As a result, our business could be
materially harmed.
We will need to establish a collaborative arrangement with a third-party diagnostics services provider to obtain marketing
clearance or approval of the companion genetic test. There is no guarantee that the FDA will grant timely clearance or approval of
the genetic test, if at all, and failure to obtain such timely clearance or approval would adversely affect our ability to market
Gencaro.
The drug label we intend to seek for Gencaro would identify the patient receptor genotype for which the drug is approved.
Accordingly, we believe developing a genetic test that is simple to administer and widely available will be critical to the successful
commercialization of Gencaro and also to the ability to conduct our GENETIC-AF clinical trial. The genetic test will be subject to
regulation by the FDA and by comparable agencies in various foreign countries. The process of complying with the requirements of
the FDA and comparable agencies is costly, time consuming and burdensome.
Despite the time and expense expended, regulatory clearance or approval is never guaranteed. If regulatory clearance or approval is
delayed, or if one or more third-party diagnostic services providers are unable to obtain FDA approval of the genetic test at all or in
parallel with the approval of Gencaro, or are unable to commercialize the test successfully and in a manner that effectively supports
the commercial efforts for Gencaro, or if the information concerning the differential response to Gencaro resulting from certain
genetic variation is not included in the approval label for Gencaro, the commercial launch of Gencaro may be significantly and
adversely affected.
Regulatory approval is required for the genetic test to be used in the GENETIC-AF trial and to support the commercialization of
the test, if approved. Delays or failures in obtaining such regulatory approval, including any required validation analyses may
prevent a third-party diagnostics provider from commercializing such genetic test and will adversely affect our business, operating
results and prospects.
Before a genetic test can be used commercially, including in conjunction with Gencaro, if it is approved for marketing, the third-party
diagnostics provider must obtain FDA Premarket Approval, or PMA, for such test. The FDA may require additional validation of the
genetic test we are using in GENETIC-AF prior to any approval of Gencaro or the genetic test. We anticipate the genetic test will be
required as a condition to prescribing Gencaro. There is no guarantee the FDA will approve the anticipated PMA submission for the
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genetic test. Even if the genetic test is eventually approved, performing additional validation work necessary to support the PMA, if
required, for current or future genetic test products, including one associated with Gencaro, would require additional time and expense
and the outcome would be uncertain. Moreover, such delays or increased costs or failures could adversely affect our business,
operating results and prospects for commercializing the genetic test.
If a third-party diagnostics provider responsible for the genetic test or certain of its third-party suppliers fails to comply with
ongoing FDA or other foreign regulatory authority requirements, or if there are unanticipated problems with the genetic test, these
products could be subject to restrictions or withdrawal from use in a trial or from the market.
Any diagnostic for which a third-party diagnostics provider obtains clearance or approval, and the manufacturing processes, reporting
requirements, post-approval clinical data and promotional activities for such product, will be subject to continued regulatory review,
oversight and periodic inspections by the FDA and other domestic and foreign regulatory bodies. With respect to the genetic test, to
the extent applicable, any third-party diagnostics provider and certain of its suppliers will be required to comply with the FDA’s
Quality System Regulation, or QSR, and International Standards Organization, or ISO, requirements which cover the methods and
documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product
for which clearance or approval is obtained. Regulatory bodies, such as the FDA, enforce the QSR and other regulations through
periodic inspections. The failure by a third-party diagnostics provider, or certain of its third-party manufacturers or suppliers, as the
case may be, to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to
timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things,
enforcement actions. If any of these actions were to occur, it could harm our reputation and cause product sales and profitability of
Gencaro to suffer and may prevent us from generating revenue or utilizing the genetic test further in any clinical trial. Even if
regulatory clearance or approval is granted, such clearance or approval may be subject to limitations on the intended uses for which
the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the
product.
Future sales of Gencaro may suffer if its marketplace acceptance is negatively affected by the genetic test.
The genetic test is an important component of the commercial strategy for Gencaro in addition to being required for our GENETIC-
AF trial. We believe that the genetic test helps predict patient response to Gencaro, and that this aspect of the drug is important to its
ability to compete effectively with current therapies. The genetic test adds an additional step in the prescribing process, an additional
cost for the patient and payors, the risk that the test results may not be rapidly available and the possibility that it may not be available
at all to hospitals and medical centers. Although we anticipate that Gencaro, if approved in a timely manner, would be the first
genetically-targeted cardiovascular drug, Gencaro will be one of a number of successful drugs in the beta-blocker class currently on
the market. Prescribers may be more familiar with these other beta-blockers, and may be resistant to prescribing Gencaro as an AF
therapy in patients with HF. Any one of these factors could affect prescriber behavior, which in turn may substantially impede market
acceptance of the genetic test, which could cause significant harm to Gencaro’s ability to compete, and in turn harm our business.
Our failure to raise substantial additional funding or enter into a strategic transaction may materially and adversely affect our
business.
Unless we are able to raise substantial additional funding for the development of Gencaro through other means, we will need to
complete a strategic transaction to continue the development of Gencaro through the clinical development and commercialization
phases, and to continue our other operations. The strategic transactions that we may consider include a potential combination or
partnership. Our board of directors and management team have and will continue to devote substantial time and resources to obtaining
additional capital or the consideration and implementation of any such strategic transaction. In addition, conditions in the financial
markets may lead to an increased number of biotechnology companies that are also seeking to enter into strategic transactions, which
may limit our ability to negotiate favorable terms for any such transaction. Further, our current employees do not have experience in
the strategic transaction process, and our previous efforts to enter into a strategic transaction have not been successful. As a result of
these and other factors, there is substantial risk that we may not be able to complete a strategic transaction on favorable terms, or at all.
The failure to complete such a strategic transaction may materially and adversely affect our business.
We may be limited in our ability to access sufficient funding through a private equity or convertible debt offering.
Nasdaq rules impose restrictions on our ability to raise funds through a private offering of our common stock, convertible debt or
similar instruments without obtaining stockholder approval. Under Nasdaq rules, an offering of more than 20% of our total shares
outstanding for less than the greater of book or market value requires stockholder approval unless the offering qualifies as a
“public offering” for purposes of the Nasdaq rules. As of February 27, 2015 we had approximately 21.2 million shares of common
stock outstanding, 20% of which is approximately 4.2 million shares. To the extent we seek to raise funds through a private offering of
stock, convertible debt or similar instruments, we are limited in how much funding we could raise privately without requiring a
stockholder vote. SEC rules impose restrictions on our ability to raise funds through the registered offering of our securities pursuant
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to our “shelf” registration statement on Form S-3. Under SEC rules, we are prohibited from selling securities under such registration
statement if the aggregate market value of the securities sold thereunder in any twelve-month period exceeds one-third of the market
value of our outstanding common stock held by non-affiliates. In addition, we are currently subject to certain contractual rights of
investors arising from our public and private equity financing transactions that limit the nature and price of future public and private
financing transactions that we may effect. For example, in January 2013, we entered into separate subscription agreements with
certain institutional investors in connection with a private investment in public equity, pursuant to which we sold shares of our
common stock and warrants to purchase shares of our common stock to the investors. In connection with this transaction, we agreed
that, subject to certain exceptions, we would not, while the warrants issued in such financing are outstanding, effect or enter into an
agreement to effect any issuance of common stock or securities convertible into, exercisable for or exchangeable for common stock in
a “variable rate transaction,” which means a transaction in which we issue or sell any convertible securities either (A) at a conversion
price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the
shares of common stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or
exchange price that is subject to being reset at some future date after the initial issuance of the convertible securities or upon the
occurrence of the specified or contingent events directly or indirectly related to our business or the market for our common stock. The
restrictions imposed by the terms of our previous offerings, and that could be imposed in future offerings, may limit our access to
capital on agreeable terms and delay or make impossible certain otherwise available equity financing opportunities and could severely
restrict our access to the capital necessary to conduct our business.
Unless we are able to generate sufficient product revenue, we will continue to incur losses from operations and will not achieve or
maintain profitability. We are years away from commercializing a product and generating product revenue.
Our historical losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital, among
other things. We are years away from commercializing a product and generating any product revenue. As a result, we expect to
continue to incur significant operating losses for the foreseeable future. Even if we ultimately receive regulatory approval for Gencaro
or our other product candidates, sales of such products may not generate sufficient revenue for it to achieve or maintain profitability.
Because of the numerous risks and uncertainties associated with developing therapeutic drugs, we may experience larger than
expected future losses and may never reach profitability.
Our product candidates are subject to extensive regulation, which can be costly and time-consuming, and unsuccessful or delayed
regulatory approvals could increase our future development costs or impair our future revenue.
The preclinical and clinical development, testing, manufacture, safety, efficacy, labeling, storage, recordkeeping, and subsequent
advertising, promotion, sale, marketing, and distribution, if approved, of our product candidates are subject to extensive regulation by
the FDA and other regulatory authorities in the United States and elsewhere. These regulations also vary in important, meaningful
ways from country to country. We are not permitted to market a potential drug in the United States until we receive approval of an
NDA from the FDA for such drug. We have not received an NDA approval from the FDA for Gencaro or any of our other product
candidates. There can be no guarantees with respect to our product candidates that clinical studies will adequately support a NDA, that
the products will receive necessary regulatory approvals, or that they will prove to be commercially successful.
To receive regulatory approval for the commercial sale of any product candidates, we must demonstrate safety and efficacy in humans
to the satisfaction of regulatory authorities through preclinical studies and adequate and well-controlled clinical trials of the product
candidates. This process is expensive and can take many years, and failure can occur at any stage of the testing. Our failure to
adequately demonstrate the safety and efficacy of our product candidates will prevent regulatory approval and commercialization of
such products. In 2008, we submitted and the FDA accepted our NDA filing for Gencaro for the treatment of chronic HF. In 2009, the
FDA issued a Complete Response Letter, or CRL, in which the FDA stated that it could not approve the Gencaro NDA in its current
form and specified actions required for approval of the NDA, including conducting an additional Phase 3 clinical trial of Gencaro in
patients with HF. We have initiated a clinical study of Gencaro in HFREF patients to assess its efficacy in reducing or preventing AF.
This trial has been initiated as a Phase 2B study in approximately 200 patients and, depending on the outcome of the Phase 2B portion,
may be expanded to a Phase 3 study with up to an estimated additional 420 patients. We believe the Phase 2B enrollment of 200
patients could be completed by the end of 2016, with the DSMB interim analysis finishing in the first half of 2017. This product
candidate will require years of clinical development. Even if we conduct additional studies in accordance with further FDA guidance
and submit or file a new or amended NDA, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.
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In the event that we or our collaborators conduct preclinical studies that do not comply with Good Laboratory Practices or GLP or
incorrectly design or carry out human clinical trials in accordance with Good Clinical Practices, or GCP, or those clinical trials fail to
demonstrate clinical significance, it is unlikely that we will be able to obtain FDA approval for product development candidates. Our
inability to successfully initiate and effectively complete clinical trials for any product candidate on schedule, or at all, will severely
harm our business. Significant delays in clinical development could materially increase product development costs or allow our
competitors to bring products to market before we do, impairing our ability to effectively commercialize any future product candidate.
We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at
all. Clinical trials can be delayed for a variety of reasons, including:
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delays or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating
to our product candidates or similar product candidates of our competitors or failure to follow regulatory guidelines;
delays or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidates for use in
trials;
delays or failures in reaching agreement on acceptable terms with prospective study sites;
delays or failures in obtaining approval of our clinical trial protocol from an IRB to conduct a clinical trial at a prospective
study site;
delays in recruiting patients to participate in a clinical trial, which may be due to the size of the patient population,
eligibility criteria, protocol design, perceived risks and benefits of the drug, availability of other approved and standard of
care therapies or, availability of clinical trial sites;
other clinical trials seeking to enroll subjects with similar profile;
failure of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices;
unforeseen safety issues, including negative results from ongoing preclinical studies;
inability to monitor patients adequately during or after treatment;
difficulty recruiting and monitoring multiple study sites;
failure of our third-party contract research organizations, clinical site organizations and other clinical trial managers, to
satisfy their contractual duties, comply with regulations or meet expected deadlines; and
an insufficient number of patients who have, or are willing to have, a Medtronic device implanted for monitoring and
recording AF burden data.
In addition, any approvals we may obtain may not cover all of the clinical indications for which we seek approval or permit us to
make claims of superiority over currently marketed competitive products. Also, an approval might contain significant limitations in
the form of narrow indications, warnings, precautions or contraindications with respect to conditions of use. If the FDA determines
that a risk evaluation and mitigation strategy, or REMS, is necessary to ensure that the benefits of the drug outweigh the risks, we may
be required to include as part of the NDA a proposed REMS that may include a package insert directed to patients, a plan for
communication with healthcare providers, restrictions on a drug’s distribution, or a Medication Guide, to provide better information to
consumers about the drug’s risks and benefits. Finally, an approval could be conditioned on our commitment to conduct further
clinical trials, which we may not have the resources to conduct or which may negatively impact our financial situation.
The manufacture and tableting of Gencaro is done by third party suppliers, who must also meet current Good Manufacturing Practices,
or cGMP, requirements and pass a pre-approval inspection of their facilities before we can obtain marketing approval.
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All of our product candidates are prone to the risks of failure inherent in drug development. The results from preclinical animal testing
and early human clinical trials may not be predictive of results obtained in later human clinical trials. Further, although a new product
may show promising results in preclinical or early human clinical trials, it may subsequently prove unfeasible or impossible to
generate sufficient safety and efficacy data to obtain necessary regulatory approvals. The data obtained from preclinical and clinical
studies are susceptible to varying interpretations that may delay, limit or prevent regulatory approval, and the FDA and other
regulatory authorities in the United States and elsewhere exercise substantial discretion in the drug approval process. The numbers,
size and design of preclinical studies and clinical trials that will be required for FDA or other regulatory approval will vary depending
on the product candidate, the disease or condition for which the product candidate is intended to be used and the regulations and
guidance documents applicable to any particular product candidate. The FDA or other regulators can delay, limit or deny approval of
any product candidate for many reasons, including, but not limited to:
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side effects;
safety and efficacy;
defects in the design of clinical trials;
the fact that the FDA or other regulatory officials may not approve our or our third party manufacturer’s processes or
facilities; or
the fact that new regulations may be enacted by the FDA or other regulators may change their approval policies or adopt
new regulations requiring new or different evidence of safety and efficacy for the intended use of a product candidate.
In light of widely publicized events concerning the safety of certain drug products, regulatory authorities, members of Congress, the
Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety
issues. These events have resulted in the withdrawal of certain drug products, revisions to certain drug labeling that further limit use of
the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products. The
increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials and approval. Data from
clinical trials may receive greater scrutiny with respect to safety and the product’s risk/benefit profile, which may make the FDA or
other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that
may result in substantial additional expense, and a delay or failure in obtaining approval or approval for a more limited indication than
originally sought. Aside from issues concerning the quality and sufficiency of submitted preclinical and clinical data, the FDA may be
constrained by limited resources from reviewing and determining the approvability of the Gencaro NDA in a timely manner.
In pursuing clinical development of Gencaro for an AF indication, we will be required to amend the Gencaro HF NDA or prepare a
new NDA. The FDA could approve Gencaro, but without including some or all of the prescribing information that we have requested.
For instance, the FDA could approve Gencaro for AF in a more limited patient population or include additional warnings in the drug’s
label. This, in turn, could substantially and detrimentally impact our ability to successfully commercialize Gencaro and effectively
protect our intellectual property rights in Gencaro.
If our product candidates receive regulatory approval, we would be subject to ongoing regulatory obligations and restrictions,
which may result in significant expenses and limit our ability to develop and commercialize other potential products.
If a product candidate of ours is approved by the FDA or by another regulatory authority, we would be held to extensive regulatory
requirements over product manufacturing, testing, distribution, labeling, packaging, adverse event reporting and other reporting to
regulatory authorities, storage, advertising, marketing, promotion, distribution, and record keeping. Regulatory approvals may also be
subject to significant limitations on the indicated uses or marketing of the product candidates. Potentially costly follow-up or post-
marketing clinical studies may be required as a condition of approval to further substantiate safety or efficacy, or to investigate
specific issues of interest to the regulatory authority. Previously unknown problems with the product candidate, including adverse
events of unanticipated severity or frequency, may result in additional regulatory controls or restrictions on the marketing or use of the
product or the need for post marketing studies, and could include suspension or withdrawal of the products from the market.
Furthermore, our third-party manufacturers and the manufacturing facilities that they use to make our product candidates are regulated
by the FDA. Quality control and manufacturing procedures must continue to conform to cGMP after approval. Drug manufacturers
and their subcontractors are required to register their facilities and products manufactured annually with the FDA and certain state
agencies and are subject to periodic unannounced inspections by the FDA, state and/or other foreign authorities. Any subsequent
discovery of problems with a product, or a manufacturing or laboratory facility used by us or our collaborators, may result in
restrictions on the product, or on the manufacturing or laboratory facility, including a withdrawal of the drug from the market or
suspension of manufacturing. Any changes to an approved product, including the way it is manufactured or promoted, often require
FDA approval before the product, as modified, can be marketed. We and our third-party manufacturers will also be subject to ongoing
FDA requirements for submission of safety and other post-market information.
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The marketing and advertising of our drug products by our collaborators or us will be regulated by the FDA, certain state agencies or
foreign regulatory authorities. Violations of these laws and regulations, including promotion of our products for unapproved uses or
failing to disclose risk information, are punishable by criminal and civil sanctions and may result in the issuance of enforcement letters
or other enforcement action by the FDA, U.S. Department of Justice, state agencies, or foreign regulatory authorities that could
jeopardize our ability to market the product.
In addition to the FDA, state or foreign regulations, the marketing of our drug products by us or our collaborators will be regulated by
federal, state or foreign laws pertaining to health care “fraud and abuse,” such as the federal anti-kickback law prohibiting bribes,
kickbacks or other remuneration for the order or recommendation of items or services reimbursed by federal health care programs.
Many states have similar laws applicable to items or services reimbursed by commercial insurers. Violations of these laws are
punishable by criminal and civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and
state health care programs, including the Medicare, Medicaid and Veterans Affairs healthcare programs. Because of the far-reaching
nature of these laws, we may be required to discontinue one or more of our practices to be in compliance with these laws. Health care
fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition
has been violated. Any violations of these laws, or any action against us for violations of these laws, even if we successfully defend
against it, could have a material adverse effect on our business, financial condition and results of operations.
We could also become subject to false claims litigation under federal statutes, which can lead to civil money penalties, restitution,
criminal fines and imprisonment, and exclusion from participation in Medicare, Medicaid and other federal and state health care
programs. These false claims statutes include the False Claims Act, which allows any person to bring a suit on behalf of the federal
government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, under federal
programs or contracts claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines
or settlement. These suits against pharmaceutical companies have increased significantly in volume and breadth in recent years. Some
of these suits have been brought on the basis of certain sales practices promoting drug products for unapproved uses. This new growth
in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay fines or restitution, or
be excluded from the Medicare, Medicaid, Veterans Affairs and other federal and state healthcare programs as a result of an
investigation arising out of such action. We may become subject to such litigation and, if we are not successful in defending against
such actions, those actions may have a material adverse effect on our business, financial condition and results of operations. We could
also become subject to false claims litigation and consumer protection claims under state statutes, which also could lead to civil
monetary penalties, restitution, criminal fines and imprisonment, and exclusion from participation in state health care programs. Of
note, over the past few years there has been an increased focus on the sales and marketing practices of the pharmaceutical industry at
both the federal and state level. Additionally, the law or regulatory policies governing pharmaceuticals may change. New statutory
requirements may be enacted or additional regulations may be adopted that could prevent or delay regulatory approval of our product
candidates or limit our ability to commercialize our products. 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 elsewhere.
If we, our collaborators or our third-party manufacturers fail to comply with applicable continuing regulatory requirements, our
business could be seriously harmed because a regulatory agency may:
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issue untitled or warning letters;
suspend or withdraw our regulatory approval for approved products;
seize or detain products or recommend a product recall of a drug or medical device, or issue a mandatory recall of a medical
device;
refuse to approve pending applications or supplements to approved applications filed by us;
suspend our ongoing clinical trials;
restrict our operations, including costly new manufacturing requirements, or restrict the sale, marketing and/or distribution
of our products;
seek an injunction;
pursue criminal prosecutions;
close the facilities of our contract manufacturers; or
impose civil or criminal penalties.
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Reliance on third parties to commercialize Gencaro could negatively impact our business. If we are required to establish a direct
sales force in the United States and are unable to do so, our business may be harmed.
Commercialization of Gencaro, particularly the establishment of a sales organization, will require substantial additional capital
resources. We currently intend to pursue a strategic partnership alternative for the commercialization of Gencaro, if it is approved, and
we have suspended our efforts to build internal sales, marketing and distribution capabilities. If we elect to rely on third parties to sell
Gencaro and any other products, then we may receive less revenue than if we sold such products directly. In addition, we may have
little or no control over the sales efforts of those third parties. If we are unable to complete a strategic transaction, we would be unable
to commercialize Gencaro or any other product candidate without substantial additional capital. Even if such capital were secured, we
would be required to build internal sales, marketing and distribution capabilities to market Gencaro in the United States. None of our
current employees have experience in establishing and managing a sales force.
In the event we are unable to sell Gencaro and other selected product candidates, either directly or through third parties via a strategic
transaction, the commercialization of Gencaro, if it is approved, may be delayed indefinitely.
We are dependent on our key personnel.
The success of our business is highly dependent on the principal members of our board of directors and executive management,
including our President and Chief Executive Officer, Michael R. Bristow. The loss of the services of any such individual might
seriously harm our product development, partnering and financing efforts. Recruiting and training personnel with the requisite skills is
challenging and we compete for talent with companies that are larger and have more financial resources.
We have no manufacturing capacity which puts us at risk of lengthy and costly delays of bringing our products to market.
We do not currently operate manufacturing facilities for clinical or commercial production of our product candidates, including their
active pharmaceutical ingredients, or API. We have no experience in drug formulation or manufacturing, and we lack the resources
and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We do not intend to develop
facilities for the manufacture of product candidates for clinical trials or commercial purposes in the foreseeable future. We have
contracted with Groupe Novasep to manufacture commercial quantities of the API for Gencaro. For drug production, we have
contracted with Patheon, Inc. to manufacture the Gencaro tablets. In addition, we have contracted with a separate service provider for
packaging and distribution of our clinical trial materials. These contract manufacturers may not perform as agreed or may not remain
in the contract manufacturing business for the time required to successfully produce, store and distribute our products. In addition,
these manufacturers may have staffing difficulties, may not be able to manufacture our products on a timely basis or may become
financially distressed. In the event of errors in forecasting production quantities required to meet demand, natural disaster, equipment
malfunctions or failures, technology malfunctions, strikes, lock-outs or work stoppages, regional power outages, product tampering,
war or terrorist activities, actions of regulatory authorities, business failure, strike or other difficulty, we may be unable to find an
alternative third-party manufacturer in a timely manner and the production of our product candidates would be interrupted, resulting in
delays and additional costs, which could impact our ability to commercialize and sell our product candidates. We or our contract
manufacturers may also fail to achieve and maintain required manufacturing standards, which could result in patient injury or death,
product recalls or withdrawals, an order by governmental authorities to halt production, delays or failures in product testing or
delivery, stability testing failures, cost overruns or other problems that could seriously hurt our business. Contract manufacturers also
often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified
personnel. In addition, our contract manufacturers are subject to ongoing inspections and regulation by the FDA, the U.S. Drug
Enforcement Agency and corresponding foreign and state agencies and they may fail to meet these agencies’ acceptable standards of
compliance. If our contract manufacturers fail to comply with applicable governmental regulations, such as quality control, quality
assurance and the maintenance of records and documentation, we may not be able to continue production of the API or finished
product. If the safety of any API or product supplied is compromised due to failure to adhere to applicable laws or for other reasons,
this may jeopardize our regulatory approval for Gencaro and other product candidates, and we may be held liable for any injuries
sustained as a result. Upon the occurrence of one of the aforementioned events, the ability to switch manufacturers may be difficult for
a number of reasons, including:
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the number of potential manufacturers is limited and we may not be able to negotiate agreements with alternative
manufacturers on commercially reasonable terms, if at all;
long lead times are often needed to manufacture drugs;
the manufacturing process is complex and may require a significant learning curve; and
the FDA must approve any replacement prior to manufacturing, which requires new testing and compliance inspections.
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Transitioning from a clinical development stage company will require successful completion of a number of steps, many of which
are outside of our control and, consequently, we can provide no assurance of our successful and timely transition from a clinical
development stage company.
We are a clinical development stage biopharmaceutical company with a limited operating history. To date we have not generated any
product revenue and have historically funded our operations through investment capital. Our future growth depends on our ability to
emerge from the clinical development stage and successfully commercialize or provide for the commercialization of Gencaro and our
other product candidates which in turn, will depend, among other things, on our ability to:
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conduct an additional clinical trial and develop and obtain regulatory approval for Gencaro or other product candidates;
successfully partner a companion genetic test with the commercial launch of Gencaro;
enter into a strategic transaction enabling the continued development and commercialization of Gencaro, or alternatively,
raise significant additional capital to enable these activities;
pursue additional indications for Gencaro and develop other product candidates, including other cardiovascular therapies;
and
obtain commercial quantities of Gencaro or other product candidates at acceptable cost levels.
Any one of these factors or other factors discussed in this report could affect our ability to successfully commercialize Gencaro and
other product candidates, which could impact our ability to earn sufficient revenues to transition from a clinical development stage
company and continue our business.
If approved by the FDA, Gencaro will be entering a competitive marketplace and may not succeed.
Gencaro is a new type of beta-blocker and vasodilator being developed for AF. While we anticipate that this drug, if approved, would
be the first genetically-targeted cardiovascular drug, and potentially the only beta-blocker approved for AF, Gencaro will be one of a
number of accepted treatments for AF. In addition, our proposed prescribing information for Gencaro is expected to include a
requirement for genetic testing of the patient to ascertain if they have the genotype that we believe responds most favorably to
Gencaro. This additional step will add incremental cost and procedures to prescribing Gencaro, which could make it more difficult to
compete against existing therapies.
Our commercial opportunity may be reduced or eliminated if competitors develop and commercialize products that are safer, more
effective, have fewer side effects, are more convenient or are less expensive than Gencaro. If products with any of these properties are
developed, or any of the existing products are better marketed, then prescriptions of Gencaro by physicians and patient use of Gencaro
could be significantly reduced or rendered obsolete and noncompetitive. Further, public announcements regarding the development of
any such competing drugs could adversely affect the market price of our common stock and the value of our assets.
Future sales of our products may suffer if they are not accepted in the marketplace by physicians, patients and the medical
community.
Gencaro or our other product candidates may not gain market acceptance among physicians, patients and the medical community. The
degree of market acceptance of Gencaro or our other product candidates will depend on a number of factors, such as its effectiveness
and tolerability, as compared with competitive drugs. Also, prevalence and severity of side-effects could negatively affect market
acceptance of Gencaro or our other product candidates. Failure to achieve market acceptance of Gencaro would significantly harm our
business.
If we are unable to obtain acceptable prices or adequate reimbursement from third-party payors for Gencaro, or any other product
candidates that we may seek to commercialize, then our revenues and prospects for profitability will suffer.
Our or any strategic partner’s ability to commercialize Gencaro, or any other product candidates that we may seek to commercialize, is
highly dependent on the extent to which coverage and reimbursement for these product candidates will be available from:
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governmental payors, such as Medicare and Medicaid;
private health insurers, including managed-care organizations; and
other third-party payors.
Many patients will not be capable of paying for our potential products themselves and will rely on third-party payors to pay for their
medical needs. A primary current trend in the U.S. health care industry is toward cost containment. Large private payors, managed-
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care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding
the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, are challenging the prices
charged for medical products and services, and many third-party payors limit reimbursement for newly approved health care products.
Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues lower than
anticipated. If the prices for our product candidates decrease, or if governmental and other third-party payors do not provide adequate
coverage and reimbursement levels, then our revenue and prospects for profitability will suffer.
Health care reform measures could materially and adversely affect our business.
The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and
third-party payors to contain or reduce the costs of health care. The U.S. Congress has enacted legislation to reform the health care
system. While we anticipate that this legislation may, over time, increase the number of patients who have insurance coverage for
pharmaceutical products, it also imposes cost containment measures that may adversely affect the amount of reimbursement for
pharmaceutical products. These measures include increasing the minimum rebates for products covered by Medicaid programs and
extending such rebates to drugs dispensed to Medicaid beneficiaries enrolled in Medicaid managed care organizations as well as
expansion of the 340(B) Public Health Services drug discount program. In addition, such legislation contains a number of provisions
designed to generate the revenues necessary to fund the coverage expansion, including new fees or taxes on certain health-related
industries, including medical device manufacturers. Each medical device manufacturer has to pay an excise tax (or sales tax) in an
amount equal to 2.3% of the price for which such manufacturer sells its medical devices. Such excise taxes may impact any potential
sales of the genetic test if it is approved for marketing. In foreign jurisdictions there have been, and we expect that there will continue
to be, a number of legislative and regulatory proposals aimed at changing the health care system. For example, in some countries other
than the United States, pricing of prescription drugs is subject to government control and we expect to see continued efforts to reduce
healthcare costs in international markets.
Some states are also considering legislation that would control the prices of drugs, and state Medicaid programs are increasingly
requesting manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use of any drug for
which supplemental rebates are not being paid. Managed care organizations continue to seek price discounts and, in some cases, to
impose restrictions on the coverage of particular drugs. Government efforts to reduce Medicaid expenses may lead to increased use of
managed care organizations by Medicaid programs. This may result in managed care organizations influencing prescription decisions
for a larger segment of the population and a corresponding constraint on prices and reimbursement for drugs. It is likely that federal
and state legislatures and health agencies will continue to focus on additional health care reform in the future although we are unable
to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business. We or any
strategic partner’s ability to commercialize Gencaro, or any other product candidates that we may seek to commercialize, is highly
dependent on the extent to which coverage and reimbursement for these product candidates will be available from government payors,
such as Medicare and Medicaid, private health insurers, including managed care organizations, and other third-party payors, and any
change in reimbursement levels could materially and adversely affect our business. Further, the pendency or approval of future
proposals or reforms could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships
or licenses.
Our competitors may be better positioned in the marketplace and thereby may be more successful than us at developing,
manufacturing and marketing approved products.
Many of our competitors currently have significantly greater financial resources and expertise in conducting clinical trials, obtaining
regulatory approvals, managing manufacturing and marketing approved products than us. Other early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large and established companies. In addition, these
third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites
and patient registration for clinical trials, as well as in acquiring therapies and therapy licenses complementary to our programs or
advantageous to our business. We expect that our ability to compete effectively will depend upon our ability to:
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successfully and rapidly complete clinical trials for any product candidates and obtain all requisite regulatory approvals in a
cost-effective manner;
build an adequate sales and marketing infrastructure, raise additional funding, or enter into strategic transactions enabling
the commercialization of our products;
develop competitive formulations of our product candidates;
attract and retain key personnel; and
identify and obtain other product candidates on commercially reasonable terms.
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If we fail to identify and license or acquire other products or product candidates, then we may be unable to expand our business,
and the acquisition or licensing of other products or product candidates may put a strain on our operations and will likely require
us to seek additional financing.
One of our strategies is to license or acquire clinical-stage products or product candidates and further develop them for
commercialization. The market for licensing and acquiring products and product candidates is intensely competitive and many of our
competitors may have greater resources than we do. If we undertake any additional acquisitions, whether of product candidates or
other biopharmaceutical companies, the process of integrating an acquired product candidate or complementary company into our
business may put a strain on our operations, divert personnel, financial resources and management’s attention. In 2015, we expect our
research and development activities will be dedicated to Gencaro. If we are not able to substantially expand our research and
development efforts, or identify, or license or acquire other products or product candidates or complete future acquisitions, then we
will likely be unable expand our pipeline of product candidates. In addition, any future acquisition would give rise to additional
operating costs and will likely require us to seek additional financing. Future acquisitions could result in additional issuances of equity
securities that would dilute the ownership of existing stockholders. Future acquisitions could also result in the incurrence of debt,
contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our
operating results.
We would be subject to applicable regulatory approval requirements of the foreign countries in which we market our products,
which are costly and may prevent or delay us from marketing our products in those countries.
In addition to regulatory requirements in the United States, we would be subject to the regulatory approval requirements in each
foreign country where we market our products. In addition, we might be required to identify one or more collaborators in these foreign
countries to develop, seek approval for and manufacture our products and any companion genetic test for Gencaro. If we decide to
pursue regulatory approvals and commercialization of our product candidates internationally, we may not be able to obtain the
required foreign regulatory approvals on a timely basis, if at all, and any failure to do so may cause us to incur additional costs or
prevent us from marketing our products in foreign countries, which may have a material adverse effect on our business, financial
condition and results of operations.
If our internal control over financial reporting is not considered effective, our business and stock price could be adversely affected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting
as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial
reporting in our annual report on Form 10-K for that fiscal year. Our management, including our chief executive officer and principal
financial officer, does not expect that our internal control over financial reporting will prevent all error and all fraud. We continue to
operate with a small staff for financial reporting. Though the process and design of our internal controls over financial reporting have
not been altered, the small number of staff involved in financial reporting may limit our ability to properly segregate internal control
procedures which could result in deficiencies or material weaknesses in our internal controls in the future. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be 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 involving a company have been, or will be, detected. The design of
any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any
design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become ineffective
because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We cannot assure
you that we or our independent registered public accounting firm will not identify a material weakness in our internal control over
financial reporting in the future. A material weakness in our internal control over financial reporting would require management to
consider our internal control over financial reporting as ineffective. If our internal control over financial reporting is not considered
effective, we may experience a loss of public confidence, which could have an adverse effect on our business and on the market price
of our common stock.
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Risks Related to Intellectual Property and Other Legal Matters
If product liability lawsuits are successfully brought against us, then we will incur substantial liabilities and may be required to
limit commercialization of Gencaro or other product candidates.
We face product liability exposure related to the testing of our product candidates in human clinical trials, and may face exposure to
claims by an even greater number of persons once we begin marketing and distributing our products commercially. If we cannot
successfully defend against product liability claims, then we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our products and product candidates;
injury to our reputation;
withdrawal of clinical trial participants;
costs of related litigation;
substantial monetary awards to patients and others;
loss of revenues; and
the inability to commercialize our products and product candidates.
We have obtained limited product liability insurance coverage. Such coverage, however, may not be adequate or may not continue to
be available to us in sufficient amounts or at an acceptable cost, or at all. We may not be able to obtain commercially reasonable
product liability insurance for any product candidate.
Defending against claims relating to improper handling, storage or disposal of hazardous chemicals, radioactive or biological
materials could be time consuming and expensive.
Our research and development of product candidates may involve the controlled use of hazardous materials, including chemicals,
radioactive and biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury
from the materials. Various laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials.
We may be sued or be required to pay fines for any injury or contamination that results from our use or the use by third parties of
these materials. Compliance with environmental laws and regulations may be expensive, and current or future environmental
regulations may impair our research, development and production efforts.
The loss of any rights to market key products would significantly impair our operating results.
We have licensed from CPEC, who has licensed rights in Gencaro from Bristol Meyers Squibb (BMS), the exclusive rights to Gencaro
for all therapeutic and diagnostic uses in any country until the later of (i) 10 years from the first commercial sale of Gencaro in such
country, or (ii) the termination of our commercial exclusivity in such country. This license includes a sublicense to us from BMS. We
are obligated to use commercially reasonable efforts to develop and commercialize Gencaro, including obtaining regulatory approvals.
Our ability to develop and commercialize Gencaro is dependent on numerous factors, including some factors that are outside of our
control. CPEC has the right to terminate our license if we materially breach our obligations under the license agreement and we fail to
cure any such breach within the terms of the license. If our license agreement with CPEC is terminated for reasons related to non-
payment of fees, or for any other breach, then we would have no further rights to develop and commercialize Gencaro for any
indication. The termination of this license, or of any other agreement which enables us to market a key product or product candidate,
could significantly and adversely affect our business.
Certain intellectual property licensed by us is the subject of additional licensing arrangements to which the party that has licensed
rights to us is subject. If such parties were to breach the terms of such licenses or such licenses were otherwise to terminate, our and
our partners’ rights to use such technology and develop and commercialize their products such as the genetic test may terminate and
our business would be materially harmed.
Third parties may own or control patents or patent applications that we may be required to license to commercialize our product
candidates or that could result in litigation that would be costly and time consuming.
Our or any strategic partner’s ability to commercialize Gencaro and other product candidates depends upon our ability to develop,
manufacture, market and sell these drugs without infringing the proprietary rights of third parties. A number of pharmaceutical and
biotechnology companies, universities and research institutions have or may be granted patents that cover technologies similar to the
technologies owned by or licensed to us. We may choose to seek, or be required to seek, licenses under third party patents, which
would likely require the payment of license fees or royalties or both. We may also be unaware of existing patents that may be
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infringed by Gencaro, the genetic testing we intend to use in connection with Gencaro or our other product candidates. Because patent
applications can take many years to issue, there may be other currently pending applications that may later result in issued patents that
are infringed by Gencaro or our other product candidates. Moreover, a license may not be available to us on commercially reasonable
terms, or at all.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and
biopharmaceutical industries generally. If a third party claims that we are infringing on its technology, then our business and results of
operations could be harmed by a number of factors, including:
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infringement and other intellectual property claims, even if without merit, are expensive and time-consuming to litigate and
can divert management’s attention from our core business;
monetary damage awards for past infringement can be substantial;
a court may prohibit us from selling or licensing product candidates unless the patent holder chooses to license the patent to
us; and
if a license is available from a patent holder, we may have to pay substantial royalties.
We may also be forced to bring an infringement action if we believe that a competitor is infringing our protected intellectual property.
Any such litigation will be costly, time-consuming and divert management’s attention, and the outcome of any such litigation may not
be favorable to us.
Our intellectual property rights may not preclude competitors from developing competing products and our business may suffer.
Our competitive success will depend, in part, on our ability to obtain and maintain patent protection for our inventions, technologies
and discoveries, including intellectual property that we license. The patent positions of biotechnology companies involve complex
legal and factual questions, and we cannot be certain that our patents and licenses will successfully preclude others from using our
technology. Consequently, we cannot be certain that any of our patents will provide significant market protection or will not be
circumvented or challenged and found to be unenforceable or invalid. In some cases, patent applications in the United States and
certain other jurisdictions are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent
applications. Moreover, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention or in opposition proceedings in a foreign patent office, any of which could result in substantial cost to
us, even if the eventual outcome is favorable. There can be no assurance that a court of competent jurisdiction would hold any claims
in any issued patent to be valid. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require us to cease using such technology. Regardless of merit, the listing of patents in the FDA
Orange Book for Gencaro may be challenged as being improperly listed. We may have to defend against such claims and possible
associated antitrust issues. We could also incur substantial costs in seeking to enforce our proprietary rights against infringement.
While the composition of matter patents on the compound that comprises Gencaro have expired, we hold the intellectual property
concerning the interaction of Gencaro with the polymorphisms of the beta-1 and alpha-2C receptors. We have obtained patents that
claim methods involving Gencaro after a patient’s receptor genotype has been determined. Our NDA requested a label that will
include a claim that efficacy varies based on receptor genotype and a recommendation in the prescribing information that prospective
patients be tested for their receptor genotype. We believe that under applicable law, a generic bucindolol label would likely be
required to include this recommendation as it pertains directly to the safe or efficacious use of the drug. Such a label may be
considered as inducing infringement, carrying the same liability as direct infringement. If the label with the genotype information for
Gencaro is not approved, or if generic labels are not required to copy the approved label, competitors could have an easier path to
introduce competing products and our business may suffer. The approved label may not contain language covered by the patents, or
we may be unsuccessful in enforcing them.
We may not be able to effectively protect our intellectual property rights in some foreign countries, as our patents are limited by
jurisdiction and many countries do not offer the same level of legal protection for intellectual property as the United States.
We require our employees, consultants, business partners and members of our scientific advisory board to execute confidentiality
agreements upon the commencement of employment, consulting or business relationships with us. These agreements provide that all
confidential information developed or made known during the course of the relationship with us be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions resulting from
work performed for us, utilizing the property or relating to our business and conceived or completed by the individual during
employment shall be our exclusive property to the extent permitted by applicable law.
Third parties may breach these and other agreements with us regarding our intellectual property and we may not have adequate
remedies for the breach. Third parties could also fail to take necessary steps to protect our licensed intellectual property, which could
seriously harm our intellectual property position.
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If we are not able to protect our proprietary technology, trade secrets and know-how, then our competitors may develop competing
products. Any issued patent may not be sufficient to prevent others from competing with us. Further, we have trade secrets relating to
Gencaro, and such trade secrets may become known or independently discovered. Our issued patents and those that may issue in the
future, or those licensed to us, may be challenged, opposed, invalidated or circumvented, which could allow competitors to market
similar products or limit the patent protection term of our product candidates. All of these factors may affect our competitive position.
If the manufacture, use or sale of our products infringe on the intellectual property rights of others, we could face costly litigation,
which could cause us to pay substantial damages or licensing fees and limit our ability to sell some or all of our products.
Extensive litigation regarding patents and other intellectual property rights has been common in the biopharmaceutical industry.
Litigation may be necessary to assert infringement claims, enforce patent rights, protect trade secrets or know-how and determine the
enforceability, scope and validity of certain proprietary rights. Litigation may even be necessary to defend disputes of inventorship or
ownership of proprietary rights. The defense and prosecution of intellectual property lawsuits, U.S. Patent and Trademark Office
interference proceedings, and related legal and administrative proceedings (e.g., a reexamination) in the United States and
internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue,
and their outcome is uncertain.
Regardless of merit or outcome, our involvement in any litigation, interference or other administrative proceedings could cause us to
incur substantial expense and could significantly divert the efforts of our technical and management personnel. Any public
announcements related to litigation or interference proceedings initiated or threatened against us could cause our stock price to
decline. Adverse outcomes in patent litigation may potentially subject us to antitrust litigation which, regardless of the outcome,
would adversely affect our business. An adverse determination may subject us to the loss of our proprietary position or to significant
liabilities, or require us to seek licenses that may include substantial cost and ongoing royalties. Licenses may not be available from
third parties, or may not be obtainable on satisfactory terms. An adverse determination or a failure to obtain necessary licenses may
restrict or prevent us from manufacturing and selling our products, if any. These outcomes could materially harm our business,
financial condition and results of operations.
Risks Related to Stock Price Volatility
Our stock price is expected to be volatile.
Our common stock could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical,
biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the
market price of our common stock to fluctuate include:
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the regulatory status of Gencaro and the genetic test, and whether and when they are approved for sale, if at all, and the
labeling or other conditions of use imposed by the FDA;
our ability to secure additional funding or complete a strategic transaction or to complete development of and
commercialize Gencaro;
progress of GENETIC-AF and enrollment and any data that may become available;
the results of our future clinical trials and any future NDAs of our current and future product candidates;
the entry into, or termination of, key agreements, including key strategic alliance agreements;
the results and timing of regulatory reviews relating to our product candidates;
failure of any of our product candidates, if approved, to achieve commercial success;
general and industry-specific economic conditions that may affect our research and development expenditures;
the results of clinical trials conducted by others on drugs that would compete with our product candidates;
issues in manufacturing our product candidates or any approved products;
the initiation of or material developments in or the conclusion of litigation to enforce or defend any of our intellectual
property rights;
the loss of key employees;
the introduction of technological innovations or new commercial products by our competitors;
changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
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future sales of our common stock;
changes in the structure of health care payment systems;
period-to-period fluctuations in our financial results; and
our ability to retain the listing of our common stock on the Nasdaq Capital Market.
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating
performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common
stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class
action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of
management attention and resources, which could significantly harm our profitability and reputation.
Future sales or the possibility of future sales of our common stock may depress the market price of our common stock.
Sales in the public market of substantial amounts of our common stock could depress prevailing market prices of our common stock.
As of December 31, 2014, approximately 21.2 million shares of common stock were outstanding. All of these shares are freely
transferable without restriction or further registration under the Securities Act, except for shares held by our directors, officers and
other affiliates and unregistered shares held by non-affiliates. The sale of these additional shares, or the perception that such sales may
occur, could depress the market price of our common stock.
As of December 31, 2014 approximately 9.4 million shares of our common stock were issuable upon the exercise of outstanding
warrants. Once a warrant is exercised, if the shares of our common stock issued upon the exercise of any such warrant are not
available for sale in the open market without further registration under the Securities Act, then the holder can arrange for the resale of
shares either by invoking any applicable registration rights, causing the shares to be registered under the Securities Act and thus freely
transferable, or by relying on an exemption to the Securities Act. If these registration rights, or similar registration rights that may
apply to securities we may issue in the future, are exercised, it could result in additional sales of our common stock in the market,
which may have an adverse effect on our stock price.
As of December 31, 2014, there were approximately 1.5 million shares of our common stock which may be issued upon the exercise
of outstanding stock options and the vesting of restricted stock units, and we anticipate that we will continue to issue stock option and
restricted stock unit awards to our employees and consultants in the fiscal year ended December 31, 2015 and thereafter. If and when
these options are exercised and these restricted stock units are vested, such shares will be available for sale in the open market without
further registration under the Securities Act. The existence of these outstanding options and restricted stock units may negatively
affect our ability to complete future equity financings at acceptable prices and on acceptable terms. The exercise of those options and
vesting of the restricted stock units, and the prompt resale of shares of our common stock received, may also result in downward
pressure on the price of our common stock.
In the absence of a significant strategic transaction, we will need to raise significant additional capital to finance the research,
development and commercialization of Gencaro. If future securities offerings occur, they would dilute our current stockholders’ equity
interests and could reduce the market price of our common stock.
We do not expect to pay cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their
investment.
We anticipate that we will retain our earnings, if any, for future growth and therefore do not anticipate paying cash dividends in the
future. As a result, only appreciation of the price of our common stock will provide a return to stockholders. Investors seeking cash
dividends should not invest in our common stock.
We have implemented anti-takeover provisions that could discourage, prevent or delay a takeover, even if the acquisition would be
beneficial to our stockholders.
Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a
third party to acquire us, even if doing so would benefit our stockholders. These provisions:
•
•
•
establish a classified board of directors so that not all members of our board may be elected at one time;
authorize the issuance of up to approximately 5 million additional shares of preferred stock that could be issued by our
board of directors to increase the number of outstanding shares and hinder a takeover attempt;
limit who may call a special meeting of stockholders;
34
•
•
prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our
stockholders; and
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that
can be acted upon at a stockholder meeting.
Specifically, our certificate of incorporation provides that all stockholder action must be effected at a duly called meeting and not by a
written consent. The bylaws provide, however, that our stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of our outstanding common stock. These provisions of our certificate of incorporation and bylaws
could discourage potential acquisition proposals and could delay or prevent a change in control. We designed these provisions to
reduce our vulnerability to unsolicited acquisition proposals and to discourage certain tactics that may be used in proxy fights. These
provisions, however, could also have the effect of discouraging others from making tender offers for our shares. As a consequence,
they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
We are permitted to issue shares of our preferred stock without stockholder approval upon such terms as our board of directors
determines. Therefore, the rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the
holders of our preferred stock that may be issued in the future. In addition, the issuance of preferred stock could have a dilutive effect
on the holdings of our current stockholders.
We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent a Delaware
corporation from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and
associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date
that the stockholder acquired 15% or more of the corporation’s stock unless:
•
•
the board of directors approved the transaction where the stockholder acquired 15% or more of the corporation’s stock;
after the transaction in which the stockholder acquired 15% or more of the corporation’s stock, the stockholder owned at
least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock
plans in which employee participants do not have the right to determine confidentially whether shares held under the plan
will be tendered in a tender or exchange offer; or
•
on or after this date, the merger or sale is approved by the board of directors and the holders of at least two-thirds of the
outstanding voting stock that is not owned by the stockholder.
The provisions of our governing documents and current Delaware law may, collectively:
•
•
•
lengthen the time required for a person or entity to acquire control of us through a proxy contest for the election of a
majority of our board of directors;
discourage bids for our common stock at a premium over market price; and
generally deter efforts to obtain control of us.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our headquarters facility consists of approximately 5,300 square feet of office space in Westminster, Colorado, which is leased until
September 2016. We believe that this facility is adequate to meet our current needs.
Item 3. Legal Proceedings
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
35
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
As of March 7, 2011, our common stock began trading on the Nasdaq Capital Market under the symbol “ABIO”, and was previously
traded under the same symbol on the Nasdaq Global Market. Prior to completion of the merger with Nuvelo, Nuvelo’s common stock
traded under the symbol “NUVO” on the Nasdaq Global Market from January 31, 2003 to January 27, 2009 (except for the period
between June 19, 2003 and March 19, 2004, where it temporarily traded under the symbol “NUVOD”).
The following table sets forth, for the periods indicated, the high and low sales prices for our common stock, as reported by the
Nasdaq Capital Market in 2014 and 2013 (adjusted for the one-for-six reverse stock split effective March 4, 2013):
Year ended December 31, 2014
First quarter ..........................................................................................................$
Second quarter......................................................................................................$
Third quarter.........................................................................................................$
Fourth quarter.......................................................................................................$
High
2.54 $
2.00 $
1.65 $
1.44 $
Year ended December 31, 2013
First quarter .......................................................................................................... $
Second quarter...................................................................................................... $
Third quarter......................................................................................................... $
Fourth quarter....................................................................................................... $
High
5.94 $
3.58 $
1.62 $
2.15 $
Low
1.19
1.34
1.17
0.70
Low
2.15
1.13
1.29
1.22
Stockholders
As of March 17, 2015, we had approximately 91 stockholders of record of our common stock, and the last sale price reported on the
Nasdaq Capital Market for our common stock was $0.77 per share.
Dividend Policy
The holders of our common stock are entitled to dividends in such amounts and at such times, if any, as may be declared by our Board
of Directors out of legally available funds. We have not paid any dividends on our common stock and do not anticipate paying any
cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Information relating to our equity compensation plans as of December 31, 2014, under which our equity securities were authorized for
issuance, is included in Item 12 of Part III of this Annual Report.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.
Item 6. Selected Financial Data
Not applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We have included or incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this Annual Report on Form 10-K, and from time to time our management may make, statements that
constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements may be identified by words including “anticipate,” “plan,” “believe,” “intend,” “estimate,” “expect,”
“should,” “may,” “potential” and similar expressions. These statements involve known and unknown risks, uncertainties and other
36
factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the
information expressed or implied by these forward-looking statements. While we believe that we have a reasonable basis for each
forward-looking statement contained in this Annual Report, we caution you that these statements are based on a combination of facts
and factors currently known by us and our projections of the future, about which we cannot be certain. We undertake no obligation to
publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised,
however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and our website.
Overview
We are a biopharmaceutical company principally focused on developing genetically-targeted therapies for cardiovascular diseases.
Our lead product candidate, Gencaro™ (bucindolol hydrochloride), is a pharmacologically unique beta-blocker and mild vasodilator
that we are evaluating in a clinical trial for the treatment of atrial fibrillation, or AF, in patients with heart failure and left ventricular
systolic dysfunction, or HFREF. We have identified common genetic variations in receptors in the cardiovascular system that we
believe interact with Gencaro’s pharmacology and may predict patient response to the drug.
We are testing this hypothesis in a Phase 2B/3 clinical trial of Gencaro, known as GENETIC-AF. We are pursuing this indication for
Gencaro because data from the previously conducted Phase 3 HF trial of Gencaro in 2,708 heart failure, or HF, patients, or the BEST
trial, which suggested that Gencaro may be successful in reducing or preventing AF.
AF is a disorder in which the normally regular and coordinated contraction pattern of the heart’s two small upper chambers, or the
atria, becomes irregular and uncoordinated. The irregular contraction pattern associated with AF causes blood to pool in the atria,
predisposing the formation of clots potentially resulting in stroke.
GENETIC-AF is a Phase 2B/3 multi-center, randomized, double-blind clinical trial comparing the safety and efficacy of Gencaro to
an active comparator, the beta-blocker Toprol XL (metoprolol succinate), in HFREF patients with a current or recent history of
paroxysmal (AF episodes lasting 7 days or less) or persistent AF who have a beta-1 389 arginine homozygous genotype, the genotype
we believe responds most favorably to Gencaro. The primary endpoint of GENETIC-AF, time to recurrent symptomatic AF/atrial
flutter, or AFL, or all-cause mortality, will be measured over a twenty-four week period after a patient has established a normal heart
rhythm.
We believe data from the BEST trial indicate that Gencaro may have a genetically regulated effect in reducing or preventing AF,
whereas we believe the therapeutic benefit of Toprol XL does not appear to be enhanced in patients with this genotype. A
retrospective analysis of data from the BEST trial shows that the entire cohort of patients in the BEST trial treated with Gencaro had a
41% reduction in the risk of new onset AF (time-to-event) compared to placebo (p = 0.0004). In the BEST DNA substudy, patients
with the beta-1 389 arginine homozygous genotype experienced a 74% (p = 0.0003) reduction in risk of AF when receiving Gencaro,
based on the same analysis. The beta-1 389 arginine homozygous genotype was present in about 47% of the patients in the BEST
pharmacogenetic substudy, and we estimate it is present in about 50% of the U.S. general population.
We have created an adaptive design for GENETIC-AF. We are seeking to enroll approximately 200 HFREF patients in the Phase 2B
portion of the study who have recently experienced at least one episode of paroxysmal or persistent AF and who have the beta-1 389
arginine homozygous genotype that we believe responds most favorably to Gencaro. In addition to measuring the primary endpoint of
recurrent symptomatic AF/AFL or all-cause mortality, an additional efficacy measure in the Phase 2B portion of GENETIC-AF will
be AF burden, defined as a patient’s percentage of time in AF per day, regardless of symptoms. At least 150 patients in the Phase 2B
portion of the trial will have either a newly or previously implanted Medtronic device that measures and records AF burden. The
GENETIC-AF Data Safety Monitoring Board, or DSMB, will analyze certain data from the Phase 2B portion of the trial and
recommend based on a comparison to our pre-trial statistical assumptions, whether the trial should proceed to Phase 3 and seek to
enroll an additional 420 patients. The DSMB will make their recommendation based on analysis of certain trial data after 200 patients
have completed 24 weeks of follow-up, the period for measuring the trial’s primary end-point. The DSMB interim analysis will focus
on available data regarding the primary end point, AF/AFL event rates, AF burden, and safety. Should the DSMB interim analysis
conclude that the interim data is consistent with pre-trial statistical assumptions and indicates potential for achieving statistical
significance for the Phase 3 endpoint, the DSMB may recommend that the study proceed to Phase 3. The DSMB may also
recommend changes to the study design before the trial proceeds to Phase 3, or it may recommend that the study not proceed to Phase
3. Based on the DSMB recommendation, and other factors, including input from the trial’s Steering Committee, the Company will
make the final determination on the trial’s development steps. The full Phase 2B/3 trial is designed for 90 percent power at a p-value
of less than 0.01 significance level to detect a 25 percent reduction in the risk of AF recurrence or death in patients in the Gencaro arm
compared to patients in the Toprol XL arm. In consultation with the GENETIC-AF Steering Committee, we implemented
amendments to the trial protocol in March 2015 which we believe may expand the eligible target population, increase the patient
screening and enrollment rate, and simplify trial procedures. We have undertaken these protocol amendments because patient
enrollment in the trial has not met our original projections. Under the revised protocol, patients in sinus rhythm who have experienced
37
symptomatic AF in the past 120 days are now eligible for inclusion in the trial, as are patients with AF episodes lasting 7 days or less,
or paroxysmal AF. Previously, these patients were not eligible to be enrolled in the trial. We believe this expanded target population
has the potential to improve trial screening and enrollment rates and could broaden the potential commercial market for Gencaro,
should it achieve regulatory approval in the future. The amendments to the protocol do not fundamentally alter or impact the original
endpoints of the clinical trial. Based on the projected impact of the expanded patient population and the current enrollment rate, we
now project that the enrollment of 200 patients for the Phase 2B portion of the trial may be completed by the end of 2016, with the
DSMB interim analysis finishing in the first half of 2017. We do not yet know how these protocol changes will impact enrollment or if
our new enrollment projections will prove to be accurate. We met with the FDA, prior to implementation, to confirm the acceptability
of the amendments to the protocol and received no objections.
We have been granted patents in the United States, Europe, and other jurisdictions for methods of treating AF and HF patients with
Gencaro based on genetic testing, which, if we are granted patent term extension, may provide market exclusivity for these uses of
Gencaro into approximately 2030 in the United States and Europe.
To support the continued development of Gencaro, we completed public equity offerings during 2013 that raised approximately $19.3
million in net proceeds. In February 2014, we completed a public equity offering of approximately $7.9 million in net proceeds as
additional funds for the Phase 2B portion of the trial and to support our ongoing operations. In light of the significant uncertainties
regarding clinical development timelines and costs for developing drugs such as Gencaro, we will need to raise a significant amount of
additional capital to finance the completion of GENETIC-AF and our ongoing operations. We are seeking to enroll approximately
200 HFREF patients in the Phase 2B portion of the GENETIC-AF trial, and we anticipate that our current cash and cash equivalents
will be sufficient to fund our operations, at our projected cost structure, through the end of 2015. However, changing circumstances
may cause us to consume capital significantly faster or slower than we currently anticipate. We have based these estimates on
assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate.
We will be required to raise additional funds prior to completion of the Phase 2B portion of GENETIC-AF.
Results of Operations
Research and Development Expenses
Research and development, or R&D, expense is comprised of clinical, regulatory, and manufacturing process development activities
and costs. Our research and development expenses totaled $5.6 million for the year ended December 31, 2014 as compared to $2.9
million for 2013. The $2.7 million increase in research and development expenses in 2014 as compared to 2013 was primarily due to
a $2.1 million increase in costs related to our GENETIC-AF clinical trial, including CRO costs, clinical site initiation and monitoring
activities, which began patient screening and enrollment during 2014; and a $0.6 million increase in personnel costs. During 2013, we
had minimal clinical development activities and costs as our GENETIC-AF clinical trial was being initiated. During the third quarter
of 2014, we reduced the scope of work of our primary contract research organization, or CRO, hired additional clinical personnel, and
assumed greater managerial responsibility for certain aspects of the GENETIC-AF clinical trial. These changes will reduce the
anticipated amounts paid to our primary CRO, but will increase our personnel and other costs as we perform those project
responsibilities. We do not expect this reorganization of responsibilities to materially change the overall projected cost of the clinical
trial.
We expect R&D expense in 2015 to be higher than 2014 as we activate new clinical sites and enroll additional patients in our
GENETIC-AF clinical trial and incur incremental costs associated with transitioning to the protocol amended in the first quarter of
2015.
General and Administrative Expenses
General and administrative expenses, or G&A, primarily consist of personnel costs, consulting and professional fees, insurance,
facilities and depreciation expenses, and various other administrative costs.
G&A expenses were $4.1 million for the year ended December 31, 2014, compared to $4.0 million for 2013, an increase of
approximately $56,000. The increase in expenses during 2014 is comprised of increased non-cash, stock-based compensation expense
of $283,000, related to restricted stock units granted during the third quarter of 2013 and the first quarter of 2014 and increased
personnel, travel costs, board advisory fees, occupancy and insurance costs, which are primarily attributable to personnel returned
from furlough, salary changes for executives and other administrative employees, and incremental corporate activities undertaken to
support our clinical trial. During the first half of 2013, employees were working at reduced levels, reduced salaries or were
furloughed. In the latter part of 2013 we returned personnel to work to support initiating our GENETIC-AF clinical trial.
38
The cost increases noted above were partially offset by decreases in consulting and legal fees. During the first half of 2013, we
incurred additional costs for our special proxy solicitation and shareholder meeting as part of our financing completed in June
2013. These activities and related costs were not recurring in 2014.
G&A expenses in 2015 are expected to be higher than in 2014 as we increase administrative activities to support our GENETIC-AF
clinical trial.
Interest and Other Income
Interest and other income was $7,000 for the year ended December 31, 2014 as compared to $5,000 for 2013, resulting in an increase
of $2,000. This is due to the increase in cash balances resulting from our February 2014 sale of equity securities. Interest income was
nominal in both years due to low investment yields. We expect interest income to continue to be nominal in 2015.
Interest and Other Expense
Interest and other expense was $3,000 for the year ended December 31, 2014, as compared to $4,000 for 2013. The amounts and
related change between years are nominal to our overall operations. Based on our current capital structure, interest expense for 2015 is
expected to be comparable to 2014.
Liquidity and Capital Resources
Cash and Cash Equivalents
Cash and cash equivalents
$
15,354 $
16,756
December 31,
2014
2013
Cash Flows from Operating, Investing and Financing Activities
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash and cash equivalents
Years Ended December 31,
2014
2013
$
$
(9,406) $
(19)
8,023
(1,402) $
(5,288)
(32)
19,156
13,836
Net cash used in operating activities for the year ended December 31, 2014 increased nearly $4.1 million compared with the 2013
period due to increased R&D and SG&A expenses discussed above.
Net cash provided by financing activities of approximately $8.0 million for the year ended December 31, 2014 is comprised of
approximately $7.9 million of net proceeds from the sales of our preferred and common stock and $0.3 million of proceeds from the
exercise of warrants for cash, less $179,000 in payments made on a vendor financing arrangement. Net cash provided by financing
activities of approximately $19.2 million for the year ended December 31, 2013 is comprised of approximately $19.3 million of net
proceeds from the sales of our preferred and common stock, less $174,000 in payments made on a vendor financing arrangement.
Sources and Uses of Capital
Our primary sources of liquidity to date have been capital raised from issuances of shares of our preferred and common stock and
funds provided by the merger with Nuvelo. The primary uses of our capital resources to date have been to fund operating activities,
including research, clinical development and drug manufacturing expenses, license payments, and spending on capital items.
On February 3, 2014, we agreed to sell to certain investors an aggregate of 5,116,228 shares of our common stock and warrants to
purchase an aggregate of 1,279,057 shares of our common stock at a purchase price of $1.70 per share of common stock, for aggregate
39
gross proceeds of approximately $8.7 million, before deducting placement agent fees and other offering related expenses. The offering
closed on February 7, 2014, and the net proceeds to us were approximately $7.9 million.
The common stock and warrants were sold in combination consisting of one share of common stock and a warrant to purchase 0.25
shares of common stock. The warrants were exercisable upon issuance, expire five years from the date of issuance, and have an
exercise price of $2.125 per share, equal to 125% of the closing bid price of our common stock on the Nasdaq Capital Market on
February 3, 2014. The offering was effected as a takedown off our Registration Statement on Form S-3, as amended, which became
effective on April 4, 2011, pursuant to a prospectus supplement filed with the Securities and Exchange Commission on February 4,
2014. The warrants provide for cashless exercise and settlement in unregistered shares if there is no effective registration statement
registering, or the prospectus contained therein is not available for, the issuance of the shares of common stock underlying the
warrants at the time of exercise.
The common stock and warrants were sold pursuant to a placement agency agreement dated January 21, 2014, as amended.
In addition to the cash compensation paid to the placement agent in conjunction with the transaction, and pursuant to the placement
agency agreement, we issued warrants to the placement agent to purchase 153,486 shares of our common stock, which have not been
registered under the Securities Act of 1933, as amended. The warrants issued to the placement agent have substantially the same
terms as the warrants issued to the purchasers in the offering, except that such warrants expire on April 4, 2016, and were restricted
from transfer for a period of 180 days from the date of commencement of sales in connection with the offering.
We completed three equity-financing transactions in 2013 and raised approximately $19.3 million, net of offering costs. On
January 22, 2013, we sold approximately $1 million of our common stock and warrants for common stock in a private placement
transaction with accredited investors including our Chief Executive Officer. We issued 356,430 shares of common stock together with
warrants to purchase 249,501 shares of common stock. The net proceeds, after deducting placement agent fees and other offering
expenses, were approximately $805,000. Each unit, consisting of a share of common stock and a warrant to purchase 0.70 shares of
common stock, was sold at a purchase price of $2.81 per unit. The warrants were exercisable upon issuance, expire seven years from
the date of issuance, and have an exercise price of $2.28 per share. Pursuant to the terms of the Registration Rights Agreements (the
Rights Agreements) entered into as part of this and prior Private Placement transactions, we filed a registration statement for the resale
of the shares underlying the units sold in these private placements. That registration statement was declared effective by the Securities
and Exchange Commission on February 14, 2013.
On January 31, 2013, we sold approximately $730,000 of common stock and warrants for common stock in a Registered Direct
Offering in which we issued 164,636 shares of common stock and warrants to purchase 65,855 shares of common stock. The net
proceeds, after deducting placement agent fees and other offering expenses payable by us, was approximately $616,000. Each unit,
consisting of a share of common stock and a warrant to purchase 0.40 shares of common stock, was sold at a purchase price of $4.43
per unit. The warrants were exercisable upon issuance, expire five years from the date of issuance, and have an exercise price of $4.13
per share. The Registered Direct Offering was effected pursuant to a prospectus supplement filed with the Securities and Exchange
Commission on February 1, 2013. The warrants provide for cashless exercise and settlement in unregistered shares if there is no
effective registration statement registering, or the prospectus contained therein is not available for, the issuance of the shares of
common stock underlying the warrants at the time of exercise.
On June 4, 2013, we sold shares of our Series A Convertible Preferred Stock, or Preferred Stock, and warrants to purchase common
stock in a public offering for aggregate gross proceeds of $20 million. We issued 125,000 shares of Preferred Stock and warrants to
up to purchase 6,250,000 shares of common stock at a at a purchase price of $160 per share of Preferred Stock. The net proceeds,
after deducting placement agent fees and other offering expenses payable by us, were approximately $17.9 million. Each share of
Preferred Stock is convertible into 100 shares of common stock at any time at the option of the holder. As of December 31, 2013, no
shares of the Preferred Stock remained outstanding as all shares of the Preferred Stock had been converted into 12,500,000 shares of
common stock. The warrants have an exercise price of $1.60 per share, will expire on the five year anniversary of the date of
issuance, and were exercisable immediately upon issuance. Our Chief Executive Officer participated in the offering, purchasing 781
shares of Preferred Stock and warrants to purchase 39,050 shares of common stock.
The securities were sold pursuant to a placement agreement and have been registered under the Securities Act of 1933 pursuant to the
our Registration Statement on Form S-1, as amended (No.333-187508), which was declared effective by the Securities and Exchange
Commission on May 29, 2013, and the Preferred Stock and warrants were offered and sold pursuant to a prospectus dated May 30,
2013.
In connection with the Preferred Stock financing, the Company recorded a non-cash dividend of approximately $2.0 million to
recognize the intrinsic value of the embedded beneficial conversion feature. Typically, such a deemed dividend would be represented
as a reduction in a company’s retained earnings and an increase in additional paid in capital in recognition of the reapportionment of
common shareholder value to the preferred stock purchasers. However, since we have an accumulated deficit, the deemed dividend is
40
recognized by a reapportionment of additional paid in capital from common shareholders to additional paid in capital of preferred
stock purchasers, which are combined in the Company’s statement of stockholders’ equity.
These financings positioned us to initiate our GENETIC-AF Phase 2B/3 clinical trial during 2014. Our ability to execute our
GENETIC-AF Phase 2B trial in accordance with our projected time line depends on a number of factors, including, but not limited to,
the following:
•
•
•
•
•
•
•
•
recruitment of sufficient clinical trial sites, enrollment of patients and enrollment at a rate consistent with our projected
timeline;
effects of protocol amendments and their projected impact on enrollment;
our ability to control costs associated with the clinical trial and our operations;
our ability to retain the listing of our common stock on the Nasdaq Capital Market;
the market price of our stock and the availability and cost of additional equity capital from existing and potential new
investors;
general economic and industry conditions affecting the availability and cost of capital;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the terms and conditions of our existing collaborative and licensing agreements.
In order to increase the pool of patients eligible for enrollment in GENETIC-AF, consistent with the adaptive design nature of the
trial, we consulted with the GENETIC-AF Steering Committee and implemented amendments to the trial protocol in March 2015. We
have undertaken these protocol amendments because patient enrollment in the trial has not met our original projections. Under the
revised protocol, patients in sinus rhythm who have experienced symptomatic AF in the past 120 days are now eligible for inclusion in
the trial, as are patients with paroxysmal AF. Previously, these patients were not eligible to be enrolled in the trial. Based on the
projected impact of this expanded patient population and the current enrollment rate, we now anticipate that the enrollment of 200
patients for the Phase 2B portion of the trial may be completed by the end of 2016, with the DSMB interim analysis finishing in the
first half of 2017. We do not yet know how these protocol changes will impact enrollment or if our new enrollment projections will
prove to be accurate.
The sale of additional equity or convertible debt securities will be necessary for us to complete both Phase 2B and Phase 3 of the
GENETIC-AF clinical trial and submit for FDA approval of Gencaro. Such financing would likely result in additional dilution to our
existing stockholders. If we raise additional funds through the incurrence of indebtedness, the obligations related to such indebtedness
would be senior to rights of holders of our capital stock and could contain covenants that would restrict our operations. We anticipate
that our current cash and cash equivalents will be sufficient to fund our operations, at our projected cost structure, through the end of
2015. However, our forecast of the period of time through which our financial resources will be adequate to support our current and
forecasted operations could vary materially.
Critical Accounting Policies and Estimates
A critical accounting policy is one that is both important to the portrayal of our financial condition and results of operation and
requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. While our significant accounting policies are described in Note 1 of “Notes to Financial
Statements” included within Item 8 in this report, we believe the following critical accounting policy affected our most significant
judgments, assumptions, and estimates used in the preparation of our financial statements and, therefore, is important in understanding
our financial condition and results of operations.
Accrued Expenses
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves
identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated
cost incurred for these services as of the balance sheet date. Examples of estimated accrued expenses include contract service fees,
such as fees payable to contract manufacturers in connection with the production of materials related to our drug product, and
professional service fees, such as attorneys, consultants, and clinical research organizations. We develop estimates of liabilities using
our judgment based upon the facts and circumstances known at the time.
Off-Balance Sheet Arrangements
We have not participated in any transactions with unconsolidated entities, such as special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements.
41
Indemnifications
In the ordinary course of business, we enter into contractual arrangements under which we may agree to indemnify certain parties
from any losses incurred relating to the services they perform on our behalf or for losses arising from certain events as defined within
the particular contract. Such indemnification obligations may not be subject to maximum loss clauses. We have entered into indemnity
agreements with each of our directors, officers and certain employees. Such indemnity agreements contain provisions, which are in
some respects broader than the specific indemnification provisions contained in Delaware law. We also maintain an insurance policy
for our directors and executive officers insuring against certain liabilities arising in their capacities as such.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
42
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm, KPMG LLP .................................................................................................
Balance Sheets as of December 31, 2014 and 2013....................................................................................................................................
Statements of Operations and Comprehensive Loss for the years ended December 31, 2014 and 2013 ...................................................
Statements of Preferred Stock and Stockholders’ Equity (Deficit) for the years ended December 31, 2014 and 2013 ............................
Statements of Cash Flows for the years ended December 31, 2014 and 2013 ...........................................................................................
Notes to Financial Statements .....................................................................................................................................................................
Page
44
45
46
47
48
49
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
ARCA biopharma, Inc.:
We have audited the accompanying balance sheets of ARCA biopharma, Inc. (the Company) as of December 31, 2014 and 2013, and
the related statements of operations and comprehensive loss, preferred stock and stockholders’ equity (deficit), and cash flows for each
of the years in the two-year period ended December 31, 2014. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ARCA
biopharma, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-
year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in note 1 to the financial statements, the Company has suffered recurring losses from operations and is dependent upon
raising additional funds from strategic transactions, sales of equity, and/or issuance of debt. The Company’s ability to consummate
such transactions is uncertain. As a result, there is 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
that might result from the outcome of this uncertainty.
Denver, Colorado
March 19, 2015
/s/ KPMG LLP
44
ARCA BIOPHARMA, INC.
BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued compensation and employee benefits
Accrued expenses and other liabilities
Total current liabilities
Deferred rent, net of current portion
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 5 million shares authorized;
no shares issued or outstanding. Series A convertible preferred
stock, $0.001 par value; 135,000 shares designated from
authorized preferred stock; no shares issued or outstanding at
December 31, 2014 and 2013
Common stock, $0.001 par value; 100 million shares authorized
at December 31, 2014 and 2013; 21,150,486 and 15,685,562
shares issued and outstanding at December 31, 2014 and
2013, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31,
2014
2013
(in thousands, except share
and per share amounts)
15,354 $
134
15,488
36
608
16,132 $
795 $
329
264
1,388
3
1,391
16,756
169
16,925
29
130
17,084
597
459
446
1,502
1
1,503
—
—
21
99,342
(84,622)
14,741
16,132 $
16
90,498
(74,933)
15,581
17,084
$
$
$
$
See accompanying Notes to Financial Statements
45
ARCA BIOPHARMA, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Costs and expenses:
Research and development
General and administrative
Total costs and expenses
Loss from operations
Interest and other income
Interest expense
Net loss and comprehensive loss
Less: Deemed preferred stock dividend
Net loss available to common stockholders
Net loss available to common stockholders per share:
Basic and diluted
Weighted average shares outstanding:
Basic and diluted
Years Ended December 31,
2013
2014
(in thousands, except share
and per share amounts)
5,625 $
4,068
9,693
(9,693)
7
(3)
(9,689) $
—
(9,689) $
2,928
4,012
6,940
(6,940)
5
(4)
(6,939)
(2,026)
(8,965)
(0.47) $
(1.04)
20,501,224
8,629,479
$
$
$
$
See accompanying Notes to Financial Statements
46
STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
ARCA BIOPHARMA, INC.
Series A Convertible
Preferred Stock
Stockholders’ Equity (Deficit)
Additional
Common stock
Shares
Amount
Shares
Amount
Paid-In
Capital
Accumulated
Deficit
Total
(in thousands, except share and per share amounts)
2,660,315
$
3
$
70,898
$
(67,994)
$
2,907
Balance, December 31, 2012
Issuance of common stock for cash,
net of offering costs
Adjustment for fractional shares
Issuance of common stock upon
exercise of warrants for cash
Issuance of Series A convertible
preferred stock, net of offering costs
Deemed preferred stock dividend for
beneficial conversion feature
Impact of deemed preferred stock
dividend for beneficial conversion
feature on common stockholders
Conversion of preferred stock to
common stock
Share-based compensation
Net loss
Balance, December 31, 2013
Issuance of common stock for cash,
net of offering costs
Issuance of common stock upon
exercise of warrants for cash
Issuance of common stock upon vesting
of Restricted Stock Awards
Share-based compensation
Net loss
Balance, December 31, 2014
—
$
—
—
—
125,000
—
—
(125,000)
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
—
—
—
—
—
521,066
(64)
4,245
—
—
—
12,500,000
—
—
15,685,562
5,116,228
209,025
—
—
—
—
139,671
—
—
21,150,486
$
See accompanying Notes to Financial Statements
47
—
—
—
—
—
—
13
—
—
16
5
—
—
—
—
21
$
1,421
—
12
17,917
2,026
(2,026)
(33)
283
—
90,498
7,861
338
(2)
647
—
99,342
—
—
—
—
—
—
—
—
(6,939)
(74,933)
—
—
—
—
(9,689)
(84,622)
$
$
1,421
—
12
17,917
2,026
(2,026)
(20)
283
(6,939)
15,581
7,866
338
(2)
647
(9,689)
14,741
ARCA BIOPHARMA, INC.
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation
Amortization of deferred charges
Share-based compensation
Change in operating assets and liabilities:
Other current assets
Other assets
Accounts payable
Accrued compensation and employee benefits
Accrued expenses and other liabilities
Other
Net cash used in operating activities
Cash flows from investing activities:
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from the issuance of preferred stock
Preferred stock offering costs
Proceeds from the issuance of common stock
Common stock offering costs
Repayment of principal on vendor finance agreement
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow information:
Interest paid
Years Ended December 31,
2013
2014
(in thousands)
$
(9,689) $
(6,939)
12
67
647
214
(545)
198
(130)
(182)
2
(9,406)
(19)
(19)
—
—
9,038
(836)
(179)
8,023
(1,402)
16,756
15,354 $
3 $
26
—
283
130
14
532
356
325
(15)
(5,288)
(32)
(32)
20,000
(2,083)
1,741
(328)
(174)
19,156
13,836
2,920
16,756
3
$
$
See accompanying Notes to Financial Statements
48
ARCA BIOPHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
(1) The Company and Summary of Significant Accounting Policies
Description of Business
ARCA biopharma, Inc., or the Company or ARCA, a Delaware corporation, is headquartered in Westminster, Colorado. On
January 27, 2009, the Company completed a business combination, or the Merger, with ARCA Colorado in accordance with the terms
of that Agreement and Plan of Merger and Reorganization, dated September 24, 2008, and amended on October 28, 2008, in which a
wholly-owned subsidiary of Nuvelo, Inc. (Nuvelo) merged with and into ARCA Colorado, with ARCA Colorado continuing after the
Merger as the surviving corporation and a wholly-owned subsidiary of Nuvelo. Immediately following the Merger, the Company
changed its name from Nuvelo, Inc. to ARCA biopharma, Inc. The business combination was treated as a reverse merger for
accounting purposes, and ARCA Colorado was the accounting acquirer, and the entity formerly known as Nuvelo, Inc. was the
acquired company.
The Company is a biopharmaceutical company principally focused on developing genetically-targeted therapies for cardiovascular
diseases. The Company’s lead product candidate, Gencaro™ (bucindolol hydrochloride), is a pharmacologically unique beta-blocker
and mild vasodilator that ARCA is evaluating in a clinical trial for the treatment of atrial fibrillation, or AF, in patients with heart
failure and left ventricular dysfunction, or HFREF. The Company has identified common genetic variations in receptors in the
cardiovascular system that it believes interact with Gencaro’s pharmacology and may predict patient response to the drug.
The Company is testing this hypothesis in a Phase 2B/3 clinical trial of Gencaro, known as GENETIC-AF. The AF indication for
Gencaro was chosen based on prior clinical data from the previously conducted Phase 3 heart failure (HF) trial of Gencaro in 2,708
HF patients, or the BEST trial, which suggested that Gencaro may be successful in reducing or preventing AF. GENETIC-AF is a
multi-center, randomized, double-blind clinical trial designed to compare the safety and efficacy of Gencaro to an active comparator in
HFREF patients with a current or recent history of paroxysmal (AF episodes lasting 7 days or less) or persistent AF and having a beta-
1 389 arginine homozygous genotype, the genotype the Company believes responds most favorably to Gencaro. The primary endpoint
of GENETIC-AF is time to recurrent symptomatic AF/atrial flutter (AFL) or all-cause mortality.
ARCA has created an adaptive design for GENETIC-AF. The Company is seeking to enroll approximately 200 HFREF patients in
the Phase 2B portion of the study. The GENETIC-AF Data Safety Monitoring Board (DSMB) will analyze certain data from the Phase
2B portion of the trial and recommend based on a comparison to the pre-trial statistical assumptions, whether the trial should proceed
to Phase 3 and enroll an additional 420 patients. The DSMB will make their recommendation based on analysis of certain trial data
after 200 patients have completed 24 weeks of follow-up, the period for measuring the trial’s primary end-point. The DSMB interim
analysis will focus on available data regarding the primary endpoint, AF/AFL event rates, AF burden, and safety. Should the DSMB
interim analysis conclude the data is consistent with the pre-trial statistical assumptions and indicates potential for achieving statistical
significance for the Phase 3 endpoint, the DSMB may recommend that the study proceed to Phase 3. The DSMB may also recommend
changes to the study design before potentially proceeding to Phase 3, or it may recommend that the study not proceed to Phase 3. The
Company, in consultation with the trial’s Steering Committee and the DSMB, will make the final determination on the trial’s
development steps. The Company believes the Phase 2B enrollment of 200 patients could be completed by the end of 2016, with the
DSMB interim analysis finishing in the first half of 2017.
To complete both phases of the GENETIC-AF clinical trial and submit for FDA approval, the Company will need to raise additional
capital. If the Company is unable to obtain additional funding or is unable to complete a strategic transaction, it may have to
discontinue development activities on Gencaro or discontinue its operations.
Liquidity and Going Concern
The Company devotes substantially all of its efforts towards obtaining regulatory approval and raising capital necessary to fund its
operations and it is subject to a number of risks associated with clinical research and development, including dependence on key
individuals, the development of and regulatory approval of commercially viable products, the need to raise adequate additional
financing necessary to fund the development and commercialization of its products, and competition from larger companies. The
Company has not generated revenue to date and has incurred substantial losses and negative cash flows from operations since its
inception. The Company has historically funded its operations through issuances of common and preferred stock.
During 2013, the Company raised approximately $19.3 million, net of offering costs, through sales of its convertible preferred stock
and common stock and warrants. In February 2014, the Company completed a public equity offering raising approximately $7.9
million in net proceeds to provide additional funds for the Phase 2B/3 GENETIC-AF trial and the Company’s ongoing operations.
49
The Company is enrolling patients in the Phase 2B portion of the GENETIC-AF trial, and the Company anticipates that its current
cash and cash equivalents will be sufficient to fund its operations, at its projected cost structure, through the end of 2015. However,
in light of the significant uncertainties regarding clinical development timelines and costs for developing drugs such as Gencaro, the
Company expects to need to raise additional capital to finance the completion of GENETIC-AF and the Company’s ongoing
operations. If the Company is delayed in completing or is unable to complete additional funding and/or a strategic transaction, the
Company may discontinue its development activities or operations.
The Company’s liquidity, and its ability to raise additional capital or complete any strategic transaction, depends on a number of
factors, including, but not limited to, the following:
•
•
•
•
•
•
•
•
progress of GENETIC-AF, including enrollment and any data that may become available;
the costs and timing for the planned GENETIC-AF clinical trial in order to gain possible FDA approval for Gencaro;
the market price of the Company’s stock and the availability and cost of additional equity capital;
the Company’s ability to retain the listing of its common stock on the Nasdaq Capital Market;
general economic and industry conditions affecting the availability and cost of capital;
the Company’s ability to control costs associated with its operations;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
the terms and conditions of the Company’s existing collaborative and licensing agreements.
The sale of additional equity or convertible debt securities would likely result in substantial additional dilution to the Company’s
stockholders. If the Company raises additional funds through the incurrence of indebtedness, the obligations related to such
indebtedness would be senior to rights of holders of the Company’s capital stock and could contain covenants that would restrict the
Company’s operations. The Company also cannot predict what consideration might be available, if any, to the Company or its
stockholders, in connection with any strategic transaction. Should strategic alternatives or additional capital not be available to the
Company, or not be available on acceptable terms, the Company may be unable to realize value from its assets and discharge its
liabilities in the normal course of business which may, among other alternatives, cause the Company to further delay, substantially
reduce or discontinue operational activities to conserve its cash resources.
The significant uncertainties surrounding the clinical development timelines and costs and the need to raise a significant amount of
capital raises substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. These
financial statements have been prepared with the assumption that the Company will continue as a going concern and will be able to
realize its assets and discharge its liabilities in the normal course of business and do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the
inability of the Company to continue as a going concern. The Company may not be able to raise sufficient capital on acceptable terms,
or at all, to continue development of Gencaro or to otherwise continue operations and may not be able to execute any strategic
transaction.
On February 18, 2015, we received notification from NASDAQ of potential delisting of our shares from the NASDAQ Capital Market
because the closing bid price of our common stock had not met the minimum closing bid price of $1.00 per share during the preceding
30 days. NASDAQ rules provided us a 180 calendar day grace period from the date of the Notice to regain compliance by meeting
the continued listing standard. The continued listing standard would be met if our common stock has a minimum closing bid price of
at least $1.00 per share for a minimum of 10 consecutive business days during the 180 calendar day grace period.
Reverse Stock Split
On March 4, 2013, the Company completed a 1-for-6 reverse split of its common stock. All common shares and per common share
amounts in the financial statements and footnotes have been adjusted retroactively to reflect the effects of this action.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S.
GAAP) and include all adjustments necessary for the fair presentation of our financial position, results of operations and cash flows
for the periods presented. Our management performed an evaluation of our activities through the date of filing of this Annual Report
on Form 10-K, and concluded that there are no subsequent events, except for the notice from NASDAQ disclosed in Note 1 to these
financial statements.
50
Recent Accounting Pronouncements
In June 2014, the FASB issued FASB Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915):
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation which removes Topic 915 from the FASB Accounting Standards Codification and removes from GAAP the concept of a
development stage entity along with the associated incremental financial reporting requirements for development stage entities. The ASU
is effective for fiscal years beginning after December 15, 2014, with early adoption being permitted for annual or interim periods for
which financial statements have not been issued. The Company adopted this guidance as of June 30, 2014 and as a result, removed
references to being a development stage entity and inception-to-date results from these financial statements.
In August 2014, the FASB issued FASB Accounting Standards Update (“ASU No. 2014-15”), Presentation of Financial Statements –
Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU No.
2014-15 will be effective for fiscal years and interim periods ending after December 15, 2016, with early adoption being permitted for
annual and interim periods for which financial statements have not been issued. ASU 2014-15 requires that management evaluate at
each annual and interim reporting period whether there is a substantial doubt about an entity’s ability to continue as a going concern
within one year of the date that the financial statements are issued. The significant uncertainties surrounding the clinical development
timelines and costs and the need to raise a significant amount of capital raises substantial doubt about the Company’s ability to
continue as a going concern for a reasonable period of time. The Company does not expect a significant impact on the financial
position, results of operations or disclosures upon adoption of this guidance.
Accounting Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
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 financial statements and the reported amounts of expenses during the reporting
period. The Company bases estimates on various assumptions that are believed to be reasonable under the circumstances. The
Company believes significant judgment was involved in estimating the clinical trial accruals, and in estimating other accrued
liabilities, stock-based compensation, and income taxes. Management is continually evaluating and updating these estimates, and it is
possible that these estimates will change in the future or that actual results may differ from these estimates.
Cash Equivalents
Cash equivalents generally consist of money market funds and debt securities with maturities of 90 days or less at the time of
purchase. The Company invests its excess cash in securities with strong ratings and has established guidelines relative to
diversification and maturity with the objective of maintaining safety of principal and liquidity.
The Company classifies all cash equivalents as available-for-sale securities, and records investments at fair value.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and
cash equivalents. The Company has no off-balance-sheet concentrations of credit risk, such as foreign exchange contracts, option
contracts, or foreign currency hedging arrangements. The Company maintains cash and cash equivalent balances in the form of bank
demand deposits and money market fund accounts with financial institutions that management believes are creditworthy. Such
balances may at times exceed the insured amount.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Cost includes expenditures for equipment,
leasehold improvements, replacements, and renewals. Maintenance and repairs are charged to expense as incurred. When assets are
sold, retired, or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in operations. The cost of property and equipment is depreciated using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over the shorter of the life of the lease or the estimated useful
life of the assets. Property and equipment acquired in the Merger were recorded at the estimated fair value as of the date of the
Merger, and are subsequently depreciated using the straight-line method over the estimated remaining useful lives of the related assets.
Accrued Expenses
As part of the process of preparing its financial statements, the Company is required to estimate accrued expenses. This process
involves identifying services that third parties have performed on the Company’s behalf and estimating the level of service performed
and the associated cost incurred for these services as of the balance sheet date. Examples of estimated accrued expenses include
contract service fees, such as fees payable to contract manufacturers in connection with the production of materials related to the
Company’s drug product, and professional service fees, such as attorneys, consultants, and clinical research organizations. The
Company develops estimates of liabilities using its judgment based upon the facts and circumstances known at the time.
51
Segments
The Company operates in one segment. Management uses one measure of profitability and does not segment its business for internal
reporting.
Research and Development
Research and development costs are expensed as incurred. These consist primarily of salaries, contract services, and supplies.
Costs related to clinical trial and drug manufacturing activities are based upon estimates of the services received and related expenses
incurred by contract research organizations, or CROs, clinical study sites, drug manufacturers, collaboration partners, laboratories,
consultants, or otherwise. Related contracts vary significantly in length, and could be for a fixed amount, a variable amount based on
actual costs incurred, capped at a certain limit, or for a combination of these elements. Activity levels are monitored through
communications with the vendors, including detailed invoices and task completion review, analysis of expenses against budgeted
amounts, and pre-approval of any changes in scope of the services to be performed. Certain significant vendors may also provide an
estimate of costs incurred but not invoiced on a periodic basis. Expenses related to the CROs and clinical studies, as well as contract
drug manufacturers, are primarily based on progress made against specified milestones or targets in each period.
In accordance with certain research and development agreements, we are obligated to make certain upfront payments upon execution
of the agreement. We record these upfront payments as prepaid research and development expenses, which are included in Other
current assets or Other assets in the accompanying Balance Sheets. Such payments are recorded to research and development expense
as services are performed. We evaluate on a quarterly basis whether events and circumstances have occurred that may indicate
impairment of remaining prepaid research and development expenses.
Stock-Based Compensation
The Company’s stock-based compensation cost recognized is based on the estimated grant date fair value. The Company recognizes
compensation costs for its share-based awards on a straight-line basis over the requisite service period for the entire award, as adjusted
for expected forfeitures.
Income Taxes
The current benefit for income taxes represents actual or estimated amounts payable or refundable on tax returns filed or to be filed
each year. Deferred tax assets and liabilities are recognized for the estimated 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date. The overall change in deferred tax assets and liabilities for the period measures the deferred tax expense
or benefit for the period. The measurement of deferred tax assets may be reduced by a valuation allowance based on judgmental
assessment of available evidence if deemed more likely than not that some or all of the deferred tax assets will not be realized. The
Company has recorded a valuation allowance against all of its deferred tax assets, as management has concluded that it is more likely
than not that the net deferred tax asset will not be realized through future taxable income, based primarily on the Company’s history of
operating losses. The Company has not performed an Internal Revenue Code Section 382 limitation study. Depending on the outcome
of such a study, the gross amount of net operating losses recognizable in future tax periods could be limited.
(2) Net Loss Per Share
The Company calculates basic earnings per share by dividing loss attributable to common stockholders by the weighted average
common shares outstanding during the period, excluding common stock subject to vesting provisions. Diluted earnings per share is
computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding
during the period increased to include, if dilutive, the number of additional common shares that would have been outstanding if the
potential common shares had been issued. The Company’s potentially dilutive shares include stock options, restricted stock units and
warrants for common stock.
52
A reconciliation of the numerator and denominator used in the calculation of basic and diluted loss per share follows:
(In thousands, except shares and per share data)
Net loss
Less: Series A Preferred Stock deemed dividend
Net loss available to common shareholders
Weighted average shares of common stock outstanding
Less: Weighted-average shares of unvested common stock
Total weighted-average shares used in computing net
loss per share attributed to common stockholders
Basic and diluted loss per share
Years Ended December 31,
2013
2014
$
$
$
(9,689) $
—
(9,689) $
20,501,224
—
20,501,224
(0.47) $
(6,939)
(2,026)
(8,965)
8,631,668
(2,188)
8,629,480
(1.04)
Because we reported a net loss for the years ended December 31, 2014 and 2013, all potentially dilutive shares of common stock have
been excluded from the computation of the dilutive net loss per share for all periods presented. As of December 31, 2014, none of the
outstanding warrants were in-the-money and no material outstanding stock options were in-the-money; therefore, they would have
been excluded from our weighted-average diluted earnings per share calculation. Such potentially dilutive shares of common stock
consist of the following:
Potentially dilutive securities, excluded:
Outstanding stock options
Unvested restricted stock units
Warrants to purchase common stock
Years Ended December 31,
2014
2013
1,068,515
471,029
9,371,002
10,910,546
843,442
419,000
8,147,484
9,409,926
(3) Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). Inputs used to measure fair value are classified into the following hierarchy:
•
•
•
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2—Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical
or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the
asset or liability
Level 3—Unobservable inputs for the asset or liability
53
The Company’s financial assets include $15.3 million at December 31, 2014 and $16.5 million at December 31, 2013, in money
market funds, classified as cash equivalents, which are measured at fair value based on Level 1 inputs on a recurring basis. The
Company has the ability to liquidate these investments without restriction. The Company determines fair value for these money
market funds and equity securities with Level 1 inputs through quoted market prices. We have no assets or liabilities that were
measured using quoted prices for similar assets and liabilities or significant unobservable inputs (Level 2 and Level 3 assets and
liabilities, respectively) as of December 31, 2014. There were no transfers between any fair value hierarchy levels in 2014 or 2013.
Fair Value of Other Financial Instruments
The carrying amount of other financial instruments, including cash, and accounts payable, approximated fair value due to their short
maturities. As of December 31, 2014 and 2013, the Company did not have any debt outstanding.
(4) Property and Equipment
Property and equipment consist of the following (in thousands):
Computer equipment
Lab equipment
Furniture and fixtures
Computer software
Leasehold improvements
$
Estimated Life
3 years
5 years
5 years
3 years
Lesser of useful life
or life of the lease
December 31,
2014
December 31,
2013
97 $
142
89
82
8
418
(382)
36 $
99
142
89
176
8
514
(485)
29
Accumulated depreciation and amortization
Property and equipment, net
$
For the years ended December 31, 2014 and 2013, depreciation and amortization expense was $12,000 and $26,000 , respectively.
(5) Related Party Arrangements
Transactions with the Company’s President and Chief Executive Officer
The Company has entered into unrestricted research grants with its President and Chief Executive Officer’s academic research
laboratory at the University of Colorado, or the Lab. Funding of any unrestricted research grants is contingent upon the Company’s
financial condition, and can be deferred or terminated at the Company’s discretion. Total expense under these arrangements for the
years ended December 31, 2014 and 2013 was $350,000 and $297,000 respectively.
(6) Commitments and Contingencies
The Company has or is subject to the following commitments and contingencies:
Employment Agreements
The Company maintains employment agreements with several key executive employees. The agreements may be terminated at any
time by the Company with or without cause upon written notice to the employee, and entitle the employee to wages in lieu of notice
for periods not exceeding one calendar year from date of termination without cause or by the employee for good reason. Certain of
these agreements also provide for payments to be made under certain conditions related to a change in control of the Company.
54
Operating Lease
August 1, 2013 the Company entered into a lease agreement for approximately 5,300 square feet of office facilities in Westminster,
Colorado which has served as the Company’s primary business office since October 1, 2013. The lease has a three year term and
expires on September 30, 2016. Below is a summary of the future minimum lease payments committed for the Company’s facility in
Westminster, Colorado as of December 31, 2014 (in thousands):
2015
2016
Total future minimum lease payments
$
$
80
62
142
Rent expense under these leases for the years ended December 31, 2014 and 2013 was $78,000 and $63,000, respectively .
Duke University
In November 2013, the Company entered into a clinical research agreement with Duke University (Duke) to serve as the clinical
research organization for the Company’s GENETIC-AF clinical study. Under the agreement the Company is responsible to pay Duke
for their work managing certain aspects of the clinical study. Upon completion of the clinical study, the agreement will terminate.
The agreement can be terminated earlier by the Company for any reason with 90 days written notice to Duke. In the event of an early
termination, the Company and Duke would coordinate efforts for an orderly wind-down of the study, and the Company would be
responsible to pay Duke for time and effort incurred through the date of termination and through the wind-down period.
University of Cincinnati
In April 2011, the Company entered into a license agreement with the University of Cincinnati to license exclusive worldwide rights
to a portfolio of U.S. and international patents, which includes certain U.S. and international diagnostic patents covering genetic
markers for ARCA’s lead drug candidate, Gencaro. These patents provide the basis for exclusive worldwide development, use and
commercialization of the genetic test which may indicate a patient’s likely response to Gencaro as a treatment for chronic HF, AF, and
other indications. Under the terms of the agreement, ARCA agreed to pay the University of Cincinnati annual license fees and is
obligated to future milestone payments for each United States patent issued subsequent to the date of the agreement. The agreement
also requires royalty payments on net sales from genetic testing performed expressly for the purpose of prescribing bucindolol.
Cardiovascular Pharmacology and Engineering Consultants, LLC, or CPEC
ARCA has licensed worldwide rights to Gencaro, including all preclinical and clinical data from Cardiovascular Pharmacology and
Engineering Consultants, LLC, or CPEC, who has licensed rights in Gencaro from BMS. CPEC is a licensing subsidiary of Indevus
Pharmaceuticals Inc. (a wholly owned subsidiary of Endo Pharmaceuticals), holding ownership rights to certain clinical trial data of
Gencaro. Under the terms of its license agreement with CPEC, the Company will incur milestone and royalty obligations upon the
occurrence of certain events. If the FDA grants marketing approval for Gencaro, the license agreement states that the Company will
owe CPEC a milestone payment of $8.0 million within six months after FDA approval. The license agreement states that a milestone
payment of up to $5.0 million in the aggregate shall be paid upon regulatory marketing approval in Europe and Japan. The license
agreement also states that the Company’s royalty obligation ranges from 12.5% to 25% of revenue from the related product based on
achievement of specified product sales levels, including a 5% royalty that CPEC is obligated to pay under its original license
agreement for Gencaro. The agreement states that the Company has the right to buy down the royalties to a range of 12.5% to 17% by
making a payment to CPEC within six months of regulatory approval.
(7) Equity Financings and Warrants
2013 Equity Financings
Private Investment in Public Equity (PIPE) Transactions
On January 22, 2013, the Company entered into a Subscription Agreement (the “January 2013 Purchase Agreement”) with various
accredited investors and its Chief Executive Officer in connection with a private placement of its common stock and warrants.
Pursuant to the January 2013 Purchase Agreement, the Company sold an aggregate of 356,430 shares of its common stock and
warrants to purchase up to 249,501 additional shares of its common stock for aggregate gross proceeds of approximately $1 million,
before deducting estimated offering expenses payable by the Company. The net proceeds to the Company were approximately
$805,000, and the private placement closed on January 25, 2013.
55
The common stock and warrants were sold in units consisting of one share of common stock and a warrant to purchase 0.70 shares of
common stock. The purchase price for each unit was $2.81. The warrants were exercisable upon issuance, expire seven years from the
date of issuance, and have an exercise price of $2.28 per share, equal to 100% of the closing bid price of ARCA’s common stock on
the Nasdaq Capital Market on January 22, 2013.
The Company filed a registration statement for the resale of the shares underlying the units sold in the private placement. That
registration statement was declared effective by the Securities and Exchange Commission on February 14, 2013.
In connection with this transaction, the Company agreed that, subject to certain exceptions, it would not, while the warrants are
outstanding, effect or enter into an agreement to effect any issuance of common stock or securities convertible into, exercisable for or
exchangeable for common stock in a “variable rate transaction,” which means a transaction in which the Company issues or sells any
convertible securities either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies
with the trading prices of, or quotations for, the shares of common stock at any time after the initial issuance of such convertible
securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial
issuance of the convertible securities or upon the occurrence of the specified or contingent events directly or indirectly related to our
business or the market for our common stock.
Registered Direct Offering
On January 31, 2013, the Company entered into a subscription agreement with certain institutional investors (the “Investors”) in
connection with its Registered Direct public offering, pursuant to which the Company sold an aggregate of 164,636 shares of its
common stock and warrants to purchase up to 65,855 additional shares of its common stock to the Investors for aggregate gross
proceeds of approximately $730,000, before deducting placement agent fees and other estimated offering expenses payable by the
Company. The net proceeds to the Company were approximately $616,000, and the offering closed on February 4, 2013.
The common stock and warrants were sold in units consisting of one share of common stock and a warrant to purchase 0.40 shares of
common stock. The purchase price for each unit was $4.43. The warrants were exercisable upon issuance, expire five years from the
date of issuance, and have an exercise price of $4.13 per share, equal to the closing bid price of ARCA’s common stock on the Nasdaq
Capital Market on January 31, 2013. The Offering was effected as a takedown of the Company’s Registration Statement on Form S-3,
as amended, which became effective on April 4, 2011, pursuant to a prospectus supplement filed with the Securities and Exchange
Commission on February 1, 2013. The warrants provide for cashless exercise and settlement in unregistered shares if there is no
effective registration statement registering, or the prospectus contained therein is not available for, the issuance of the shares of
common stock underlying the warrants at the time of exercise.
Public Offering
On June 4, 2013, the Company sold shares of its Series A Convertible Preferred Stock (Preferred Stock) and warrants to purchase
common stock in a public offering for aggregate gross proceeds of $20.0 million. The Company issued 125,000 shares of Preferred
Stock and warrants to purchase up to 6,250,000 shares of common stock at a purchase price of $160 per share of Preferred Stock. The
net proceeds, after deducting placement agent fees and other offering expenses payable by the Company, were approximately $17.9
million. ARCA’s Director and Chief Executive Officer participated in the offering, purchasing 781 shares of Preferred Stock and
warrants to purchase 39,050 shares of common stock.
Each share of Preferred Stock was convertible into 100 shares of the Company’s common stock at any time at the option of the holder.
Each share of Preferred Stock had a liquidation preference of $.001 per share. The shares of Preferred Stock had no preferential
dividends or redemption rights, and no voting rights except as required by law. During 2013, all 125,000 of the shares of the Preferred
Stock were converted into 12,500,000 shares of ARCA common stock.
Each purchaser in the offering was issued a warrant to purchase 50 shares of the Company’s common stock for each share of Preferred
Stock purchased. The warrants have an exercise price of $1.60 per share, will expire on the five year anniversary of the date of
issuance, and were exercisable immediately upon issuance, provided that the holder will be prohibited from exercising the warrants if,
as a result of such exercise, the holder, together with its affiliates, would beneficially own more than 9.99% of the total number of
shares of common stock then issued and outstanding.
The securities were sold pursuant to a placement agreement and have been registered under the Securities Act of 1933 pursuant to the
Company’s Registration Statement on Form S-1, as amended (No.333-187508), which was declared effective by the Securities and
Exchange Commission on May 29, 2013, and the Preferred Stock and Warrants were offered and sold pursuant to a prospectus dated
May 30, 2013.
56
In connection with the Preferred Stock financing, the Company recorded a non-cash dividend of approximately $2.0 million to
recognize the intrinsic value of the embedded beneficial conversion feature. Typically, such a deemed dividend would be represented
as a reduction in a company’s retained earnings and an increase in additional paid in capital in recognition of the reapportionment of
common shareholder value to the preferred stock purchasers. However, since ARCA has an accumulated deficit, the deemed dividend
is recognized by a reapportionment of additional paid in capital from common shareholders to additional paid in capital of preferred
stock purchasers, which are combined in the Company’s statement of stockholders’ equity.
2014 Equity Financing
Registered Direct Offering
On February 3, 2014, the Company agreed to sell to certain investors an aggregate of 5,116,228 shares of the Company’s common
stock and warrants to purchase an aggregate of 1,279,057 shares of the Company’s common stock at a purchase price of $1.70 per
share of Common Stock, for aggregate gross proceeds of approximately $8.7 million, before deducting placement agent fees and other
offering related expenses. The offering closed on February 7, 2014, and the net proceeds to the Company were approximately $7.9
million.
The common stock and warrants were sold in combination consisting of one share of common stock and a warrant to purchase 0.25
shares of common stock. The warrants were exercisable upon issuance, expire five years from the date of issuance, and have an
exercise price of $2.125 per share, equal to 125% of the closing bid price of ARCA’s common stock on the Nasdaq Capital Market on
February 3, 2014. The offering was effected as a takedown off the Company’s Registration Statement on Form S-3, as amended,
which became effective on April 4, 2011, pursuant to a prospectus supplement filed with the Securities and Exchange Commission on
February 4, 2014. The warrants provide for cashless exercise and settlement in unregistered shares if there is no effective registration
statement registering, or the prospectus contained therein is not available for, the issuance of the shares of common stock underlying
the warrants at the time of exercise.
Warrants
As of December 31, 2014, warrants to purchase 9,371,002 shares of common stock were outstanding at exercise prices ranging from
$1.60 to $116.89, with a weighted average exercise price per share of $2.31. These warrants, which were granted as part of various
financing and business agreements, expire at various times between April 2016 and January 2020. Warrants were recorded in
additional paid-in capital at their estimated fair market value at the date of grant using a Black-Scholes option-pricing model.
(8) Share-based Compensation
Stock Plans
The Company’s equity incentive plan, the 2013 Equity Incentive Plan (the Equity Plan), was approved by stockholders on September
17, 2013. The maximum number of shares issuable under this plan is 2,250,000 shares.
The Equity Plan provides for the granting of stock options (including indexed options), restricted stock units, stock appreciation rights,
restricted stock purchase rights, restricted stock bonuses, performance shares, performance units and deferred stock units. Under the
Equity Plan, awards may be granted to employees, directors and consultants of ARCA, except for incentive stock options, which may
be granted only to employees. As of December 31, 2014, options and awards for 1,437,477 shares were outstanding under the Equity
Plan, and 672,852 shares were reserved for future awards.
In general, the Equity Plan authorizes the grant of stock options that vest at rates set by the Board of Directors or the Compensation
Committee thereof. Generally, stock options granted by ARCA under the equity incentive plans become exercisable ratably for a
period of three to four years from the date of grant and have a maximum term of ten years. The exercise prices of stock options under
the equity incentive plan generally meet the following criteria: the exercise price of incentive stock options must be at least 100% of
the fair market value on the grant date and exercise price of options granted to 10% (or greater) stockholders must be at least 110% of
the fair market value on the grant date.
57
In conjunction with the adoption of the Equity Plan, the Company discontinued grants under its previous plan, the Amended and
Restated ARCA biopharma, Inc. 2004 Equity Incentive Plan (the 2004 Plan), effective September 17, 2013. The 2004 Plan expired in
2014; however, options outstanding under the 2004 plan will continue to vest according to the original terms of each grant. As of
December 31, 2014, options to purchase 59,776 shares with a weighted average exercise price of $15.10 per share were outstanding
under this plan. Other stock plans that were assumed by ARCA in the Merger still have options outstanding that will continue to vest
according to the original terms of each grant, but no new options can be granted under these plans, as the plans have expired. As of
December 31, 2014, options to purchase 42,291 shares with a weighted average exercise price of $17.78 were outstanding under these
plans.
The Company granted options and awards for 420,279 and 1,160,535 shares of common stock in the years ended December 31, 2014
and 2013, respectively. The fair values of the majority of employee stock options granted in the years ended December 31, 2014 and
2013 were estimated at the date of grant using the Black-Scholes model with the following assumptions and had the following
estimated weighted average grant date fair value per share:
Expected term
Expected volatility
Risk-free interest rate
Expected dividend yield
Weighted-average grant date fair value per share
Years Ended December 31,
2014
5.9 years
2013
5.8 years
94%
1.53%
0%
$
1.37
96%
1.62%
0%
1.05
$
A summary of ARCA’s stock option and stock award activities for the years ended December 31, 2014 and 2013, and related
information as of December 31, 2014, is as follows:
Years Ended December 31,
2014
2013
Number
of
Options
Weighted
Average
Exercise
Price
Number
of
Options
Weighted
Average
Exercise
Price
843,442 $
228,579
—
(3,506)
1,068,515 $
494,291 $
1,066,712 $
—
140.67
3.76 144,019 $
1.81 741,535
—
(42,112)
2.89 843,442 $
4.38 194,550 $
2.89
18.28
1.38
—
11.62
3.76
11.14
Options outstanding, beginning of
period
Granted
Exercised
Forfeited and cancelled
Options outstanding, end of period
Options exercisable, end of period
Options vested and expected to vest
The total intrinsic value of options exercised for the years ended December 31, 2014 and 2013 was $0 and $0, respectively. As of
December 31, 2014, the unrecognized compensation expense related to unvested options, excluding estimated forfeitures, was
$633,000 which is expected to be recognized over a weighted average period of 2.2 years. The Company recognizes compensation
costs for its share-based awards on a straight-line basis over the requisite service period for the entire award, as adjusted for expected
forfeitures.
58
The following table summarizes information about stock options outstanding and exercisable as of December 31, 2014:
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
(in years)
Weighted
Average
Exercise
Price
Range of Exercise
Prices
Number
Outstanding
Options Exercisable
Weighted
Average
Exercise
Price
Number
Exercisable
$
1.33
0.36 — $
1.38
1.38 —
1.40 —
1.95
1.96 — 22.98
22.99 — 33.42
29,933
727,869
212,495
82,300
15,918
1,068,515
9.75 $
8.47
9.11
4.44
3.74
8.25 $
1.05
1.38
1.89
13.68
32.87
2.89
704 $
329,189
70,410
78,070
15,918
494,291 $
1.08
1.38
1.84
13.55
32.87
4.38
Restricted Stock Units
The Company began granting restricted stock units (RSUs) to employees during 2013 in conjunction with the adoption of its 2013
Equity Incentive Plan. The fair value of RSU awards is the closing price of the Company’s common stock on the date of grant and is
recognized as compensation expense on a straight-line basis over the respective vesting period. The stock awards granted have a
requisite service period of three or four years with annual vesting on the grant anniversary date.
A summary of RSU activity for the years ended December 31, 2014 and 2013 is presented below:
Years Ended December 31,
2014
2013
Weighted
Average
Grant Date
Fair Value
Number
of Shares
Weighted
Average
Grant Date
Fair Value
Number
of Shares
419,000 $
191,700
(139,671)
—
1.39
1.95
1.39
—
— $
419,000
—
—
471,029 $
1.62
419,000 $
—
1.39
—
—
1.39
Restricted stock units outstanding,
beginning of period
Granted
Vested and released
Forfeited and cancelled
Restricted stock units outstanding,
end of period
As of December 31, 2014, the total unrecognized compensation cost related to unvested stock awards was approximately $629,000.
This cost will be recognized on a straight-line basis over the next 2.4 years and will be adjusted for estimated forfeitures.
Non-cash Stock-based Compensation
For the years ended December 31, 2014 and 2013, the Company recognized the following non-cash, share-based compensation
expense (in thousands):
Research and development
General and administrative
Total
December 31,
2014
2013
$
$
$
158 $
489 $
647 $
77
206
283
Stock-based compensation expense related to non-employees was negligible in 2014 and 2013. ARCA did not recognize any tax
benefit related to employee stock-based compensation cost as a result of the full valuation allowance on its net deferred tax assets.
59
(9) Employee Benefit Plans
The Company has a 401(k) plan and makes a matching contribution equal to 100% of the employee’s first 3% of the employee’s
contributions and 50% of the employee’s next 2% of contributions. The Company adopted the plan in 2006 and contributed $108,000
and $70,000 for the years ended December 31, 2014 and 2013, respectively .
(10) Income Taxes
Effective June 1, 2005, the Company changed from an S-Corporation to a C-Corporation. As an S-Corporation, the net operating loss
carryforwards were distributed to the Company’s stockholders; such amounts were not significant. Since June 2005 through
December 31, 2014, for federal income tax purposes, the Company has net operating loss carryforwards of approximately $113.7
million, and approximately $991,000 of research and development credits that may be used to offset future taxable income. The net
operating loss carryforwards will expire beginning 2025 through 2034. Utilization of net operating losses and tax credits, including
those acquired as a result of the Merger, will be subject to an annual limitation due to ownership change limitations provided by IRC
Section 382. The annual limitation may result in the expiration of the net operating losses and credits before utilization. As such, a
portion of the Company’s net operating loss carryforwards may be limited.
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 period 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. Due
primarily to the Company’s history of operating losses, management is unable to conclude that it is more likely than not that the
Company will realize the benefits of these deductible differences, and accordingly has provided a valuation allowance against the
entire net deferred tax asset of approximately $44.5 million at December 31, 2014, reflecting a decrease of approximately $0.4
million from December 31, 2013. The deferred tax assets are primarily comprised of net operating loss carryforwards and research and
experimentation credit carryforwards. As of December 31, 2014 the Company has not performed an Internal Revenue Code
Section 382 limitation study. Depending on the outcome of such a study, the gross amount of net operating losses recognizable in
future tax periods could be limited. A limitation in the carryforwards would decrease the carrying amount of the gross amount of the
net operating loss carryforwards, with a corresponding decrease in the valuation allowance recorded against these gross deferred tax
assets.
Income tax benefit attributable to our loss from operations before income taxes differs from the amounts computed by applying the
U.S. federal statutory income tax rate of 34% for 2014 and 35% for 2013, as a result of the following (in thousands):
U.S. federal income tax benefit at statutory rates
State income tax benefit, net of federal benefit
Research and experimentation credits
Change in tax rate
Deferred tax asset adjustment
Other
Change in valuation allowance
Year ended December 31,
2013
2014
$
$
(3,294) $
(296)
(171)
1,041
2,907
178
(365)
— $
(2,429)
(209)
(133)
—
—
184
2,587
—
Without regard to the deferred tax liability on the impaired IPR&D, the Company has had no provision for income taxes since
inception due to its S-corporation status and its subsequent net operating losses.
60
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes, as well as operating loss and tax credit carryforwards. The income
tax effects of temporary differences and carryforwards that give rise to significant portions of the Company’s net deferred tax assets
consisted of the following (in thousands):
Deferred tax assets:
Current deferred tax assets:
Vacation accrual
Total current deferred tax assets
Valuation allowance
Net current deferred tax assets
Noncurrent deferred tax assets:
Net operating loss carryforwards
Charitable contribution carryforwards
Research and experimentation credits
Capitalized intangibles
Stock based compensation
Depreciation and amortization
Other
Total noncurrent deferred tax assets
Valuation allowance
Net noncurrent deferred tax assets
Deferred tax liabilities:
Current deferred tax liabilities
Noncurrent deferred tax liabilities
Net deferred tax liabilities
Net noncurrent deferred tax assets
Year ended December 31,
2013
2014
$
$
$
$
$
$
$
25 $
25
(25)
—
$
$
42,135
410
991
741
158
2
—
44,437
(44,437)
— $
— $
—
—
—
$
$
27
27
(27)
—
39,799
371
820
3,351
454
5
—
44,800
(44,800)
—
—
—
—
—
Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and state income tax
examinations by tax authorities for all years for which a loss carryforward is available. Thus, the Company’s open tax years extend
back to 2009. The Company believes that its tax filing positions and deductions related to tax periods subject to examination will be
sustained upon audit and does not anticipate any adjustment will result in a material adverse effect on the Company’s financial
condition, result of operations, or cash flow. For the years ended December 31, 2014 and 2013, the Company has no reserve for
uncertain tax positions. The Company does not expect that the total amounts of unrecognized tax benefits will significantly increase or
decrease within the subsequent twelve months. In the event the Company concludes it is subject to interest or penalties arising from
uncertain tax positions, the Company will record interest and penalties as a component of other income and expense. No material
amounts of interest or penalties were recognized in the financial statements for the years ended December 31, 2014 and 2013.
.
61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer and our Principal Financial
Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls
and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules
13a-15(f) and 15(d)-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance to
management and our board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
Under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial
Officer, we have assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making our
assessment of internal control over financial reporting, we used the criteria issued in the report Internal Control-Integrated Framework
(2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have concluded that our internal
control over financial reporting was effective as of December 31, 2014 based on these criteria.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting
firm pursuant to the exemption from Section 404(b) of the Sarbanes-Oxley Act for non-accelerated filers provided by the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
Changes in Internal Control over Financial Reporting
During the fourth quarter of 2014, there were no changes in our internal control over financial reporting that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting. On May 14, 2013, the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) published an updated Internal Control - Integrated Framework
(2013) and related illustrative documents. The Company adopted the new framework in 2014.
Limitations on the Effectiveness of Controls
Our management, including the Chief Executive Officer and Principal Financial Officer, does not expect that our disclosure controls
and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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 our company have been detected.
Item 9B. Other Information
None
62
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference to “Election of Board of Directors,” “Section 16(a) Beneficial
Ownership Reporting Compliance” and “Executive Officers” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, relating to our 2015 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The response to this item is incorporated by reference to “Executive Compensation” in our Definitive Proxy Statement to be filed
pursuant to Regulation 14A under the Exchange Act, relating to our 2015 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The response to this item is incorporated by reference to “Equity Compensation Plan Information” and “Security Ownership of
Certain Beneficial Owners and Management” in our Definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Exchange Act, relating to our 2015 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The response to this item is incorporated by reference to “Certain Relationships and Related Transactions” in our Definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2015 Annual Meeting of
Stockholders.
Item 14. Principal Accountant Fees and Services
The response to this item is incorporated by reference to “Ratification of Selection of Independent Auditors” in our Definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, relating to our 2015 Annual Meeting of
Stockholders.
63
Item 15. Exhibits and Financial Statement Schedules
(a)
The following documents are filed as part of this Report:
PART IV
1. Financial statements filed as part of this Report are listed under Part II, Item 8, page 43 of this Form 10-K.
2. No schedules are required because either the required information is not present or is not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the consolidated financial statements
or the notes thereto.
(b)
Exhibits
The following documents are filed as part of this annual report on Form 10-K. We will furnish a copy of any exhibit listed to
requesting stockholders upon payment of our reasonable expenses in furnishing those materials.
Description
Agreement and Plan of Merger and Reorganization, dated
September 24, 2008, among Nuvelo, Inc., Dawn Acquisition Sub,
Inc. and ARCA biopharma, Inc.
Amendment No. 1 to Agreement and Plan of Merger and
Reorganization, dated October 28, 2008, by and among Nuvelo,
Inc., Dawn Acquisition Sub, Inc. and ARCA biopharma, Inc.
Incorporated by Reference
Form
8-K*
Filing
Date
9/25/2008
Number
2.1
Filed
Herewith
8-K*
10/29/2008
2.5
Amended and Restated Certificate of Incorporation of the
Registrant, as amended.
10-K
3/27/2009
3.1(a)
Certificate of Amendment to Restated Certificate of Incorporation.
8-K
3/5/2013
Second Amended and Restated Bylaws of the Registrant, as
amended.
10-Q
11/16/2009
Form of Common Stock Certificate.
8-K
1/28/2009
Warrant to Purchase Stock Agreement, dated July 17, 2007, by
and between ARCA Discovery, Inc. and Silicon Valley Bank.
10-K
3/27/2009
Amendment No. 1 to Warrant to Purchase Stock Agreement, dated
February 19, 2009, by and between ARCA biopharma, Inc. and
SVB Financial Group.
10-K
Warrant to Purchase Stock Agreement, dated August 19, 2008, by
and between ARCA biopharma, Inc. and Silicon Valley Bank.
10-K
Amendment No. 1 to Warrant to Purchase Stock Agreement, dated
February 19, 2009, by and between ARCA biopharma, Inc. and
SVB Financial Group.
10-K
3/27/2009
3/27/2009
3/27/2009
Warrant to Purchase Stock Agreement, dated October 18, 2009, by
and between ARCA biopharma, Inc. and BioMed Realty, L.P.
10-K
3/4/2010
4.19
Form of Common Stock Purchase Warrant.
Form of Warrant to Purchase Common Stock.
Form of Common Stock Purchase Warrant.
8-K
4/18/2011
8-K
12/22/2011
8-K
8/3/2012
4.10
Form of Warrants to Purchase Shares of Common Stock, dated
October 22, 2012.
8-K
10/23/2012
64
3.1
5.1
3.2
4.1
4.3
4.4
4.5
4.6
4.1
4.1
4.1
4.1
Exhibit
No.
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Exhibit
No.
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Description
Incorporated by Reference
Form
Filing
Date
Number
Filed
Herewith
Form of Warrants to Purchase Shares of Common Stock, dated
December 20, 2012.
8-K
12/19/2012
Form of Warrants to Purchase Shares of Common Stock.
Form of Common Stock Purchase Warrant.
Form of Warrant Agency Agreement by and between ARCA
biopharma, Inc. and Computershare Trust Company, N.A. dated
May 31, 2013.
Form of Common Stock Purchase Warrant.
Form of Common Stock Purchase Warrant.
Warrant Agency Agreement by and among ARCA biopharma,
Inc., Computershare Inc. and Computershare Trust Company,
N.A. dated February 3, 2014.
8-K
8-K
1/23/2013
2/1/2013
S-1/A
5/15/2013
S-1/A
5/15/2013
8-K
8-K
2/4/2014
2/4/2014
4.1
4.1
4.1
4.1
4.3
4.1
4.3
4.18
Reference is made to Exhibits 3.1, 3.1(a), 3.1(b) and 3.2
10.1§
10.2
10.3§
License and Sublicense Agreement, dated October 28, 2003, by
and between ARCA Discovery, Inc. and CPEC, L.L.C.
10-Q
5/15/2009
10.1
Amendment
to License and Sublicense Agreement, dated
February 22, 2006, by and between ARCA Discovery, Inc. and
CPEC L.L.C.
10-Q
5/15/2009
10.2
Manufacturing Agreement, dated September 11, 2006, by and
between ARCA Discovery, Inc. and Patheon, Inc.
10-Q
5/15/2009
10.10
10.4†
ARCA Discovery, Inc. 2004 Stock Incentive Plan.
Amendment No. 1 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
8-K
1/28/2009
1/28/2009
10.1
10.2
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
Amendment No. 2 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
1/28/2009
10.3
Amendment No. 3 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
1/28/2009
10.4
Amendment No. 4 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
1/28/2009
10.5
Amendment No. 5 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
1/28/2009
10.6
Amendment No. 6 to the ARCA Discovery, Inc. 2004 Stock
Incentive Plan.
8-K
1/28/2009
10.7
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form of
Executive Incentive Stock Option Agreement.
8-K
1/28/2009
10.8
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form of Non-
Executive Incentive Stock Option Agreement.
8-K
1/28/2009
10.9
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form of
Nonqualified Stock Option Agreement.
8-K
1/28/2009
10.10
65
Exhibit
No.
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20
10.21†
10.22
10.23†
10.24†
10.25†
10.26†
10.27
Description
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a Nuvelo,
Inc. 2004 Equity Incentive Plan), Form of Partial Acceleration
Stock Option Agreement.
Form
10-K
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a Nuvelo,
Inc. 2004 Equity Incentive Plan), Form of No Acceleration Stock
Option Agreement.
10-K
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a Nuvelo,
Inc. 2004 Equity Incentive Plan), Form of Director Stock Option
Agreement.
10-K
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a Nuvelo,
Inc. 2004 Equity Incentive Plan), Form of Notice of Grant of
Stock Option.
10-K
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a Nuvelo,
Inc. 2004 Equity Incentive Plan), Form of Notice of Director
Grant of Stock Option.
10-K
Incorporated by Reference
Filing
Date
3/27/2009
Filed
Herewith
Number
10.34
3/27/2009
10.35
3/27/2009
10.36
3/27/2009
10.37
3/27/2009
10.38
Amended and Restated Employment and Retention Agreement,
dated June 4, 2008, by and between ARCA biopharma, Inc. and
Michael R. Bristow.
Assignment and Assumption Agreement, dated January 26, 2009,
by and between ARCA biopharma, Inc. and ARCA biopharma
Colorado, Inc.
10-K
3/27/2009
10.43
10-K
3/27/2009
10.46
Amended and Restated Employment Agreement, dated June 12,
2008, by and between ARCA biopharma, Inc. and Christopher D.
Ozeroff.
10-K
Assignment and Assumption Agreement, dated January 26, 2009,
by and between ARCA biopharma, Inc. and ARCA biopharma
Colorado, Inc.
10-K
3/27/2009
10.45
3/27/2009
10.48
Amended and Restated ARCA biopharma, Inc. 2004 Equity
Incentive Plan.
10-Q/A
8/21/2009
10.1
Form of Option Amendment pursuant to ARCA biopharma, Inc.
2004 Equity Incentive Plan and ARCA biopharma, Inc. 2004
Stock Option Plan (change of control).
10-Q
8/10/2009
10.5
Form of Option Agreement and Grant Notice pursuant to ARCA
biopharma, Inc. 2004 Equity Incentive Plan (NDA/change of
control acceleration).
10-Q
8/10/2009
10.6
Employment Agreement, dated February 11, 2009, by and
between ARCA biopharma, Inc. and Patrick Wheeler.
10-K
3/4/2010
10.53
Form of Indemnification Agreement between ARCA biopharma,
Inc. and its directors and officers.
10-K
3/27/2009
10.52
10.29§
10.30§
10.28
Form of Subscription Agreement.
8-K
4/18/2011
License Agreement, dated April 15, 2011, by and between ARCA
biopharma and the University of Cincinnati.
10-Q
5/16/2011
10.1
10.3
Amended and Restated Exclusive License Agreement, dated
August 12, 2011, by and between the Regents of the University of
Colorado and ARCA biopharma, Inc.
10-Q
8/15/2011
10.5
66
10.1
10.1
10.1
10.1
10.1
10.2
10.1
10.2
10.3
10.2
10.1
10.1
1.1
1.2
Exhibit
No.
Description
10.31
Form of Subscription Agreement.
10.32
Form of Registration Rights Agreement.
Form
8-K
8-K
12/22/2011
12/22/2011
Waiver and Amendment Agreement, dated March 30, 2012, by
and between ARCA biopharma, Inc. and Michael Bristow.
10-Q
5/14/2012
Incorporated by Reference
Filing
Date
Number
Filed
Herewith
Waiver and Amendment Agreement, dated March 30, 2012, by
and between ARCA biopharma, Inc. and Patrick Wheeler.
10-Q
5/14/2012
10.2
Waiver and Amendment Agreement, dated March 30, 2012, by
and between ARCA biopharma, Inc. and Christopher Ozeroff.
10-Q
5/14/2012
10.3
10.33
10.34
10.35
10.41
10.42
10.45
10.46
10.46(a)
10.47
10.48
10.49†
10.50†
10.51†
10.52†
10.36
Form of Subscription Agreement.
8-K
8/3/2012
10.37
Form of Subscription Agreement by and among the Company and
the purchasers identified therein, dated October 22, 2012.
8-K
10/23/2012
10.38
Form of Registration Rights Agreement.
8-K
10/23/2012
10.39
Form of Subscription Agreement by and among the Company and
the purchasers identified therein, dated December 18, 2012.
8-K
12/19/2012
10.40
Form of Registration Rights Agreement.
8-K
12/19/2012
Form of Amendment to the Registration Rights Agreement, dated
December 18, 2012.
8-K
12/19/2012
Form of Subscription Agreement by and among the Company and
the purchasers identified therein, dated January 22, 2013.
8-K
1/23/2013
10.1
10.43
Form of Registration Rights Agreement.
10.44
Subscription Agreement.
8-K
8-K
8-K
1/23/2013
2/1/2013
4/22/2013
Clinical Trial Collaboration Agreement between ARCA
biopharma, Inc. and Medtronic, Inc. dated as of April 18, 2013.
Placement Agency Agreement by and between ARCA biopharma,
Inc. and Dawson James Securities, Inc., dated January 21, 2014.
8-K
2/4/2014
Amendment No. 1 Placement Agency Agreement by and between
ARCA biopharma, Inc. and Dawson James Securities, Inc., dated
January 31, 2014.
8-K
2/4/2014
Letter Agreement between ARCA biopharma, Inc. and Medtronic,
Inc. dated as of July 26, 2013.
10-Q
8/13/2013
10.2
Office Lease Agreement by and between ARCA biopharma, Inc.
and Circle Point Properties, LLC, effective August 1, 2013.
8-K
8/6/2013
10.1
Amendment Agreement by and between ARCA biopharma, Inc.
and Michael R. Bristow, effective as of June 13, 2013.
10-Q
8/13/2013
10.6
Amendment Agreement by and between ARCA biopharma, Inc.
and Patrick M. Wheeler, effective as of June 13, 2013.
10-Q
8/13/2013
10.7
Amendment Agreement by and between ARCA biopharma, Inc.
and Christopher Ozeroff, effective as of June 13, 2013.
10-Q
8/13/2013
10.8
ARCA biopharma, Inc. 2013 Equity Incentive Plan.
67
Exhibit
No.
10.53†
10.54†
10.55†
10.56†
10.57†
10.58§
10.59§
10.60§
10.61§
10.62†
10.63†
10.64§
14.1
23.1
Description
Incorporated by Reference
Form
8-K
Filing
Date
9/23/2013
Number
10.1
Filed
Herewith
Form of Stock Option Agreement and Option Grant Notice under
2013 Equity Incentive Plan (Standard).
8-K
9/23/2013
10.2
Form of Stock Option Agreement and Option Grant Notice under
2013 Equity Incentive Plan (Officer).
8-K
9/23/2013
10.3
Form of Stock Option Agreement and Option Grant Notice under
2013 Equity Incentive Plan (Director).
8-K
9/23/2013
10.4
Form of Restricted Stock Unit Award Agreement and Notice of
Grant Award under 2013 Equity Incentive Plan (Standard).
8-K
9/23/2013
10.5
Form of Restricted Stock Unit Award Agreement and Notice of
Grant Award under 2013 Equity Incentive Plan (Officer).
8-K
9/23/2013
10.6
Clinical Research Agreement by and between ARCA biopharma,
Inc. and Duke University, dated November 5, 2013.
10-K
3/20/2014
10.65
Change Order No. 1 to Clinical Research Agreement between
ARCA biopharma, Inc. and Duke University, dated November 12,
2014.
10-Q
11/12/2014
10.1
First Amendment to Clinical Trial Collaboration Agreement
between ARCA biopharma, Inc. and Medtronic, Inc. dated July
28, 2014.
Second Amendment to Clinical Trial Collaboration Agreement
between ARCA biopharma, Inc. and Medtronic, Inc. dated
September 9, 2014.
10-Q
8/13/2014
10.1
10-Q
11/12/2014
10.2
Employment Agreement, dated December 29, 2014, by and
between ARCA biopharma, Inc. and Brian Selby.
8-K/A
12/30/2014
10.1
Amended and Restated Employment Agreement, dated December
29, 2014, by and between ARCA biopharma, Inc. and Thomas A.
Keuer.
Canadian Addendum to Clinical Trial Collaboration Agreement
between ARCA biopharma, Inc. and Medtronic, Inc. dated
February 4, 2015.
Code of Business Conduct and Ethics
8-K/A
12/30/2014
10.1
10-Q
11/16/2009
14.1
Consent of KPMG LLP,
Accounting Firm.
Independent Registered Public
24.1
Power of Attorney (included in the signature page hereto).
31.1
31.2
32.1
Certification of Principal Executive Officer pursuant to Rule 13a-
14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Financial Officer pursuant to Rule 13a-
14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. sec. 1350, as adopted
68
X
X
X
X
X
X
Exhibit
No.
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Description
101.INS
XBRL Instance Document (filed electronically herewith)
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Taxonomy Extension Schema Document
electronically herewith)
(filed
XBRL Taxonomy Extension Calculation Linkbase Document
(filed electronically herewith)
XBRL Taxonomy Extension Label Linkbase Document (filed
electronically herewith)
XBRL Taxonomy Extension Presentation Linkbase Document
(filed electronically herewith)
XBRL Taxonomy Extension Definition Linkbase Document (filed
electronically herewith)
Incorporated by Reference
Form
Filing
Date
Number
Filed
Herewith
X
X
X
X
X
X
*
†
§
Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, File No.
000-22873.
Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b)
of Form 10-K.
Confidential treatment has been requested for portions of this document, which are omitted and filed separately with the SEC.
Omitted portions have been filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
69
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ARCA biopharma, Inc.
By:
/S/ BRIAN L. SELBY
Brian L. Selby
Vice President, Finance
(Principal Financial Officer and Principal Accounting Officer)
Date: March 19, 2015
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael
R. Bristow and Brian L. Selby, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for
him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of
ARCA biopharma, Inc., in the capacities and on the dates indicated.
Signature
/S/ Michael R. Bristow
Michael R. Bristow
/S/ Brian L. Selby
Brian L. Selby
/S/ Linda Grais
Linda Grais
/s/ Raymond Woosley
Raymond Woosley
/s/ Robert Conway
Robert Conway
/s/ Daniel Mitchell
Daniel Mitchell
Date
March 19, 2015
March 19, 2015
March 19, 2015
March 19, 2015
March 19, 2015
March 19, 2015
Title
President and Chief Executive
Officer and Director
(Principal Executive Officer)
Vice President, Finance
(Principal Financial Officer and Principal Accounting Officer)
Director
Director
Director
Director
70
EXHIBIT INDEX
Incorporated by Reference
Form
8-K*
Filing
Date
9/25/2008
Filed
Herewith
Number
2.1
Exhibit
No.
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
Description
Agreement and Plan of Merger and Reorganization,
dated September 24, 2008, among Nuvelo, Inc., Dawn
Acquisition Sub, Inc. and ARCA biopharma, Inc.
Amendment No. 1 to Agreement and Plan of Merger and
Reorganization, dated October 28, 2008, by and among
Nuvelo, Inc., Dawn Acquisition Sub, Inc. and ARCA
biopharma, Inc.
8-K*
10/29/2008
Amended and Restated Certificate of Incorporation of
the Registrant, as amended.
10-K
3/27/2009
3.1(a)
Certificate of Amendment to Restated Certificate of
Incorporation.
8-K
3/5/2013
Second Amended and Restated Bylaws of the Registrant,
as amended.
10-Q
11/16/2009
Form of Common Stock Certificate.
Warrant to Purchase Stock Agreement, dated July 17,
2007, by and between ARCA Discovery, Inc. and Silicon
Valley Bank.
Amendment No. 1 to Warrant to Purchase Stock
Agreement, dated February 19, 2009, by and between
ARCA biopharma, Inc. and SVB Financial Group.
Warrant to Purchase Stock Agreement, dated August 19,
2008, by and between ARCA biopharma, Inc. and
Silicon Valley Bank.
Amendment No. 1 to Warrant to Purchase Stock
Agreement, dated February 19, 2009, by and between
ARCA biopharma, Inc. and SVB Financial Group.
Warrant to Purchase Stock Agreement, dated October 18,
2009, by and between ARCA biopharma, Inc. and
BioMed Realty, L.P.
Form of Common Stock Purchase Warrant.
Form of Warrant to Purchase Common Stock.
Form of Common Stock Purchase Warrant.
Form of Warrants to Purchase Shares of Common Stock,
dated October 22, 2012.
8-K
10-K
1/28/2009
3/27/2009
10-K
3/27/2009
10-K
3/27/2009
10-K
3/27/2009
8-K
8-K
8-K
8-K
4/18/2011
12/22/2011
8/3/2012
10/23/2012
Form of Warrants to Purchase Shares of Common Stock,
dated December 20, 2012.
8-K
12/19/2012
Form of Warrants to Purchase Shares of Common Stock.
Form of Common Stock Purchase Warrant.
8-K
8-K
1/23/2013
2/1/2013
Form of Warrant Agency Agreement by and between
2.5
3.1
5.1
3.2
4.1
4.3
4.4
4.5
4.6
4.1
4.1
4.1
4.1
4.1
4.1
4.1
10-K
3/4/2010
4.19
Exhibit
No.
4.15
4.16
4.17
4.18
10.1§
10.2
10.3§
10.5†
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
Description
ARCA biopharma, Inc. and Computershare Trust
Company, N.A. dated May 31, 2013.
Form
S-1/A
Incorporated by Reference
Filing
Date
5/15/2013
Filed
Herewith
Number
4.1
Form of Common Stock Purchase Warrant.
S-1/A
5/15/2013
Form of Common Stock Purchase Warrant.
Warrant Agency Agreement by and among ARCA
biopharma, Inc., Computershare Inc. and Computershare
Trust Company, N.A. dated February 3, 2014.
Reference is made to Exhibits 3.1, 3.1(a), 3.1(b) and 3.2
License and Sublicense Agreement, dated October 28,
2003, by and between ARCA Discovery, Inc. and CPEC,
L.L.C.
Amendment to License and Sublicense Agreement, dated
February 22, 2006, by and between ARCA Discovery,
Inc. and CPEC L.L.C.
8-K
8-K
2/4/2014
2/4/2014
4.3
4.1
4.3
10-Q
5/15/2009
10.1
10-Q
5/15/2009
10.2
Manufacturing Agreement, dated September 11, 2006,
by and between ARCA Discovery, Inc. and Patheon, Inc.
10-Q
5/15/2009
10.10
10.4†
ARCA Discovery, Inc. 2004 Stock Incentive Plan.
Amendment No. 1 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
Amendment No. 2 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
Amendment No. 3 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
Amendment No. 4 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
8-K
8-K
8-K
8-K
8-K
1/28/2009
1/28/2009
1/28/2009
1/28/2009
1/28/2009
Amendment No. 5 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
8-K
1/28/2009
Amendment No. 6 to the ARCA Discovery, Inc. 2004
Stock Incentive Plan.
8-K
1/28/2009
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form
of Executive Incentive Stock Option Agreement.
8-K
1/28/2009
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form
of Non-Executive Incentive Stock Option Agreement.
8-K
1/28/2009
ARCA biopharma, Inc. 2004 Stock Incentive Plan, Form
of Nonqualified Stock Option Agreement.
8-K
1/28/2009
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.34
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a
Nuvelo, Inc. 2004 Equity Incentive Plan), Form of
Partial Acceleration Stock Option Agreement.
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a
Nuvelo, Inc. 2004 Equity Incentive Plan), Form of No
Acceleration Stock Option Agreement.
10.16†
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a
10-K
3/27/2009
10-K
3/27/2009
10.35
Exhibit
No.
10.17†
10.18†
10.19†
10.20
10.21†
10.22
10.23†
10.24†
10.25†
10.26†
Description
Nuvelo, Inc. 2004 Equity Incentive Plan), Form of
Director Stock Option Agreement.
Form
10-K
Incorporated by Reference
Filing
Date
3/27/2009
Filed
Herewith
Number
10.36
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a
Nuvelo, Inc. 2004 Equity Incentive Plan), Form of
Notice of Grant of Stock Option.
ARCA biopharma, Inc. 2004 Equity Incentive Plan (f/k/a
Nuvelo, Inc. 2004 Equity Incentive Plan), Form of
Notice of Director Grant of Stock Option.
Amended and Restated Employment and Retention
Agreement, dated June 4, 2008, by and between ARCA
biopharma, Inc. and Michael R. Bristow.
and Assumption Agreement,
Assignment
dated
January 26, 2009, by and between ARCA biopharma,
Inc. and ARCA biopharma Colorado, Inc.
Amended and Restated Employment Agreement, dated
June 12, 2008, by and between ARCA biopharma, Inc.
and Christopher D. Ozeroff.
and Assumption Agreement,
dated
Assignment
January 26, 2009, by and between ARCA biopharma,
Inc. and ARCA biopharma Colorado, Inc.
10-K
3/27/2009
10.37
10-K
3/27/2009
10.38
10-K
3/27/2009
10.43
10-K
3/27/2009
10.46
10-K
3/27/2009
10.45
10-K
3/27/2009
10.48
Amended and Restated ARCA biopharma, Inc. 2004
Equity Incentive Plan.
10-Q/A
8/21/2009
10-Q
8/10/2009
10.1
10.5
Form of Option Amendment pursuant
to ARCA
biopharma, Inc. 2004 Equity Incentive Plan and ARCA
biopharma, Inc. 2004 Stock Option Plan (change of
control).
Form of Option Agreement and Grant Notice pursuant to
ARCA biopharma, Inc. 2004 Equity Incentive Plan
(NDA/change of control acceleration).
Employment Agreement, dated February 11, 2009, by
and between ARCA biopharma, Inc. and Patrick
Wheeler.
10-Q
8/10/2009
10.6
10-K
3/4/2010
10.53
10.27
Form of Indemnification Agreement between ARCA
biopharma, Inc. and its directors and officers.
10-K
3/27/2009
10.52
10.28
Form of Subscription Agreement.
10.29§
10.30§
License Agreement, dated April 15, 2011, by and
between ARCA biopharma and
the University of
Cincinnati.
Amended and Restated Exclusive License Agreement,
dated August 12, 2011, by and between the Regents of
the University of Colorado and ARCA biopharma, Inc.
10.31
Form of Subscription Agreement.
10.32
Form of Registration Rights Agreement.
10.33
Waiver and Amendment Agreement, dated March 30,
8-K
10-Q
4/18/2011
5/16/2011
10.1
10.3
10-Q
8/15/2011
10.5
8-K
8-K
12/22/2011
10.1
12/22/2011
10.1
Description
2012, by and between ARCA biopharma, Inc. and
Michael Bristow.
Form
10-Q
Incorporated by Reference
Filing
Date
5/14/2012
Filed
Herewith
Number
10.1
Waiver and Amendment Agreement, dated March 30,
2012, by and between ARCA biopharma, Inc. and
Patrick Wheeler.
Waiver and Amendment Agreement, dated March 30,
2012, by and between ARCA biopharma, Inc. and
Christopher Ozeroff.
10-Q
5/14/2012
10-Q
5/14/2012
10.36
Form of Subscription Agreement.
10.37
Form of Subscription Agreement by and among the
Company and the purchasers identified therein, dated
October 22, 2012.
10.38
Form of Registration Rights Agreement.
10.39
Form of Subscription Agreement by and among the
Company and the purchasers identified therein, dated
December 18, 2012.
10.40
Form of Registration Rights Agreement.
Form of Amendment
Agreement, dated December 18, 2012.
to
the Registration Rights
8-K
8-K
8-K
8-K
8-K
8-K
8/3/2012
10/23/2012
10/23/2012
12/19/2012
12/19/2012
12/19/2012
Form of Subscription Agreement by and among the
Company and the purchasers identified therein, dated
January 22, 2013.
8-K
1/23/2013
10.43
Form of Registration Rights Agreement.
10.44
Subscription Agreement.
10.45
10.46
Clinical Trial Collaboration Agreement between ARCA
biopharma, Inc. and Medtronic, Inc. dated as of April 18,
2013.
Placement Agency Agreement by and between ARCA
biopharma, Inc. and Dawson James Securities, Inc.,
dated January 21, 2014.
8-K
8-K
8-K
1/23/2013
2/1/2013
4/22/2013
8-K
2/4/2014
10.46(a)
Amendment No. 1 Placement Agency Agreement by and
between ARCA biopharma, Inc. and Dawson James
Securities, Inc., dated January 31, 2014.
8-K
2/4/2014
Letter Agreement between ARCA biopharma, Inc. and
Medtronic, Inc. dated as of July 26, 2013.
10-Q
8/13/2013
Exhibit
No.
10.34
10.35
10.41
10.42
10.47
10.48
10.49†
Office Lease Agreement by and between ARCA
biopharma, Inc. and Circle Point Properties, LLC,
effective August 1, 2013.
Amendment Agreement by and between ARCA
biopharma, Inc. and Michael R. Bristow, effective as of
June 13, 2013.
8-K
8/6/2013
10-Q
8/13/2013
10.6
10.50†
Amendment Agreement by and between ARCA
10-Q
8/13/2013
10.7
10.2
10.3
10.1
10.1
10.2
10.1
10.2
10.3
10.1
10.2
10.1
10.1
1.1
1.2
10.2
10.1
Exhibit
No.
10.51†
Description
biopharma, Inc. and Patrick M. Wheeler, effective as of
June 13, 2013.
Form
Incorporated by Reference
Filing
Date
Number
Filed
Herewith
Amendment Agreement by and between ARCA
biopharma, Inc. and Christopher Ozeroff, effective as of
June 13, 2013.
10-Q
8/13/2013
10.8
10.52†
ARCA biopharma, Inc. 2013 Equity Incentive Plan.
10.53†
10.54†
10.55†
10.56†
10.57†
10.58§
10.59§
10.60§
10.61§
10.62†
10.63†
10.64§
14.1
23.1
24.1
31.1
Form of Stock Option Agreement and Option Grant
Notice under 2013 Equity Incentive Plan (Standard).
Form of Stock Option Agreement and Option Grant
Notice under 2013 Equity Incentive Plan (Officer).
Form of Stock Option Agreement and Option Grant
Notice under 2013 Equity Incentive Plan (Director).
Form of Restricted Stock Unit Award Agreement and
Notice of Grant Award under 2013 Equity Incentive Plan
(Standard).
Form of Restricted Stock Unit Award Agreement and
Notice of Grant Award under 2013 Equity Incentive Plan
(Officer).
Clinical Research Agreement by and between ARCA
biopharma, Inc. and Duke University, dated November
5, 2013.
Change Order No. 1 to Clinical Research Agreement
between ARCA biopharma, Inc. and Duke University,
dated November 12, 2014.
First Amendment to Clinical Trial Collaboration
Agreement between ARCA biopharma, Inc. and
Medtronic, Inc. dated July 28, 2014.
Second Amendment to Clinical Trial Collaboration
Agreement between ARCA biopharma, Inc. and
Medtronic, Inc. dated September 9, 2014.
8-K
8-K
8-K
8-K
8-K
9/23/2013
9/23/2013
9/23/2013
9/23/2013
9/23/2013
10.1
10.2
10.3
10.4
10.5
8-K
9/23/2013
10.6
10-K
3/20/2014
10.65
10-Q
11/12/2014
10.1
10-Q
8/13/2014
10.1
10-Q
11/12/2014
10.2
Employment Agreement, dated December 29, 2014, by
and between ARCA biopharma, Inc. and Brian Selby.
8-K/A
12/30/2014
Amended and Restated Employment Agreement, dated
December 29, 2014, by and between ARCA biopharma,
Inc. and Thomas A. Keuer.
8-K/A
12/30/2014
10.1
10.1
Canadian Addendum to Clinical Trial Collaboration
Agreement between ARCA biopharma, Inc. and
Medtronic, Inc. dated February 4, 2015.
Code of Business Conduct and Ethics
Consent of KPMG LLP, Independent Registered Public
Accounting Firm.
Power of Attorney (included in the signature page
hereto).
Certification of Principal Executive Officer pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities
10-Q
11/16/2009
14.1
X
X
X
X
Description
Form
Incorporated by Reference
Filing
Date
Number
Filed
Herewith
Exhibit
No.
31.2
32.1
Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to
Rule 13a-14(a) or 15d-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. sec. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
101.INS
XBRL Instance Document (filed electronically herewith)
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Taxonomy Extension Schema Document (filed
electronically herewith)
XBRL Taxonomy Extension Calculation Linkbase
Document (filed electronically herewith)
XBRL Taxonomy Extension Label Linkbase Document
(filed electronically herewith)
XBRL Taxonomy Extension Presentation Linkbase
Document (filed electronically herewith)
XBRL Taxonomy Extension Definition Linkbase
Document (filed electronically herewith)
X
X
X
X
X
X
X
X
*
†
§
Previously filed with the SEC as an Exhibit to and incorporated herein by reference from Nuvelo, Inc.’s Form 8-K, File No.
000-22873.
Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b)
of Form 10-K.
Confidential treatment has been requested for portions of this document, which are omitted and filed separately with the SEC.
Omitted portions have been filed with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.