UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38418
Cocrystal Pharma, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
19805 North Creek Parkway Bothell, WA
(Address of Principal Executive Office)
35-2528215
(I.R.S. Employer
Identification No.)
98011
(Zip Code)
Registrant’s telephone number, including area code: (877) 262-7123
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value
$0.001 per share
Trading Symbol(s)
COCP
Name of each exchange on which registered
The Nasdaq Stock Market LLC
(The Nasdaq Capital Market)
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 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
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☒
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Accelerated filer
Smaller reporting company
☐
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price as of the last business day of the
registrant’s most recently completed second fiscal quarter, June 30, 2023, was approximately $18.5 million.
The number of shares outstanding of the registrant’s common stock, as of March 28 2024, was approximately 10,173,790 shares.
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement for its 2024 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III of
this Annual Report on Form 10-K.
INDEX
Business.
Risk Factors.
Unresolved Staff Comments.
Cybersecurity.
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.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
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 Accounting Fees and Services.
Part I.
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Part II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Part III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
Item 15.
Item 16.
Exhibits, Financial Statement Schedules.
Form 10-K Summary
SIGNATURES
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Item 1. Business.
Overview
PART I
Cocrystal Pharma, Inc. (the “Company” or “Cocrystal”) is a clinical-stage biotechnology company discovering and developing novel antiviral therapeutics as treatments for
serious and/or chronic viral diseases. We employ unique structure-based technologies and Nobel Prize winning expertise to create first- and best-in-class antiviral drugs. These
technologies are designed to efficiently deliver small molecule therapeutics that are safe, effective, and convenient to administer. We have identified promising discovery,
preclinical and clinical stage antiviral compounds for unmet medical needs caused by RNA viruses including influenza virus, coronaviruses (including SARS-CoV-2 & MERS-
CoV), norovirus, respiratory virus infections and hepatitis C virus (“HCV”) infections.
The Company operates as one business entity.
Cocrystal Technology
We are developing small molecule antiviral therapeutics that inhibit the essential viral replication function of RNA viruses causing acute and chronic viral diseases. Our goals
include treating and preventing influenza virus, coronavirus, and norovirus infections by discovering and developing drug candidates targeting required steps in the viral
replication process. Additionally, one of our goals is to decrease the duration of HCV therapy. To discover and design these virus replication inhibitors, we use a proprietary
platform comprising computational chemistry, medicinal chemistry, X-ray crystallography and our extensive know-how. We determine the structures of cocrystals containing
the inhibitors bound to the viral enzyme or protein to guide our structure-based drug design. We also use advanced computational methods to screen and design product
candidates using proprietary cocrystal structural information. In designing the candidates, we seek to anticipate and avert potential viral mutations leading to resistance. By
designing and selecting drug candidates that interrupt the viral replication process and also have specific binding characteristics, we seek to develop drugs that are not only
effective against both the virus and possible mutants of the virus, but which also have reduced off-target interactions that may cause undesirable clinical side effects.
The successful application of our approach requires an extensive knowledge of viruses and drug targets. In addition, knowledge and experience in the fields of structural
biology, pharmacology, virology, and enzymology are required. We developed our proprietary structure-based drug design under the guidance of Dr. Roger Kornberg, our Chief
Scientist and Chairman of both our Scientific Advisory Board (“SAB”) and Board of Directors (the “Board”), who received the Nobel Prize in Chemistry in 2006. Our drug
discovery process focuses on the highly conserved regions of the viral drug target enzymes and inhibitor-enzyme interactions at the atomic level. Additionally, we have
developed proprietary chemical libraries consisting of non-nucleoside inhibitors, metal-binding inhibitors, and drug-like fragments. Our drug discovery process is different
from traditional, empirical, medicinal chemistry approaches that often require iterative high-throughput compound screening and lengthy hit-to-lead processes. We will
continue developing preclinical and clinical drug candidates using our proprietary drug discovery technology.
The Company’s proprietary technology integrates several powerful and specialized techniques:
(1)
(2)
(3)
(4)
(5)
Selection of viral drug targets amenable to broad-spectrum antiviral drug development and essential for viral genome replication;
Atomic resolution 3-D structure determination of drug binding pockets;
In-depth computational analysis of conserved drug-binding pockets and critical molecular interactions between antiviral inhibitors and amino acid residues of the
target molecule’s drug-binding pocket;
Cocrystal structure determinations to inform hit identification, hit-to-lead, and lead optimization processes;
Molecular modeling and computer-guided lead discovery to support rational chemical modifications based on structure-activity relationships, or SAR, of candidate
inhibitor compounds;
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(6)
(7)
Knowledge of enzymatic mechanisms to guide the design of drugs with exceptional affinity, specificity, and broad-spectrum activity; and
Platforms for rapid identification of antiviral enzyme inhibitors showing broad-spectrum antiviral activity.
We have applied these techniques to develop antiviral inhibitors of four important viruses: influenza virus, coronavirus, norovirus and HCV.
Market-Driven Product Profiles
In all of our programs our goal is to develop best-in-class broad-spectrum antiviral drugs with high-barrier-to-drug resistance. An ideal product for an antiviral therapy would
have at least the following characteristics:
(1)
(2)
(3)
(4)
(5)
High barrier to viral resistance;
Effective against all viral subtypes that cause disease;
Novel mechanism of action for therapeutic and/or prophylactic treatments;
Favorable safety and tolerability profile; and
Multiple routes of administration including oral, inhalation, and/or injection.
Even at the discovery stage of drug development, we select compounds with these factors in mind. Furthermore, we believe our technology is capable of delivering therapies
that satisfy all of these key factors, as detailed below.
High barrier to drug resistance: Drug resistance is a major obstacle to developing effective antiviral therapies. Viruses can reproduce rapidly and in enormous quantities in
infected human cells. During viral replication, random changes in the viral genome, called mutations, develop. If such a mutation occurs in a region of the viral genome that is
targeted by a given antiviral therapy, that therapy may no longer be effective against the mutated virus. These mutated or “resistant” viruses can freely infect and multiply even
in individuals who have received drug treatment. In some cases, resistant virus strains may even predominate. For example, in the 2009 swine influenza pandemic, the
predominant strain was resistant to the best available therapies. During the COVID-19 pandemic outbreak newly emergent mutated coronaviruses have been identified, pointing
out the ineffectiveness of vaccines and therapeutics. Another example, the Omicron variant which arose as the dominant strain of COVID-19 in late 2021 until it diminished in
the winter of 2022 displayed increased resistance to available vaccines and treatments, resulting in the limitation or suspension of emergency use authorizations by the FDA for
certain therapeutic products. In early 2024, a new strain of COVID-19 named JN.1 rapidly grew to the predominant strain of the virus in circulation, believed to be either more
transmissible or better at evading the immune system than other circulating variants.
The Company’s focus on viral replication proteins can potentially overcome the obstacle of viral resistance. We identify and target critical residues of viral replication proteins
that are essential for function, and therefore, sensitive to change. A mutation in these critical residues is likely to inactivate or slow down the replication processes and, in turn,
render the virus incapable of replicating. Because such mutations cannot propagate, the virus cannot effectively develop resistance to the enzyme inhibitors we employ. We test
the effectiveness of our compounds against existing drug resistant variants and select compounds with the highest barrier to resistance.
Broadly effective against major strains responsible for a viral disease: For any given viral disease, there are different strains of viruses that cause the disease. For example, there
are three types of influenza viruses, A, B, and C. Influenza A and B viruses are significant human respiratory pathogens that cause seasonal flu and hospitalizations, with
influenza A viruses being solely responsible for past influenza pandemics. Influenza C is a subtype of the influenza virus that tends to cause only mild illness and is not
responsible for seasonal or pandemic infections. Our goal is to design and develop drug candidates that will be effective on the broadest possible range of viruses causing the
disease.
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Many antiviral drugs available today are effective only against certain strains of a given virus and less effective or not effective at all against other strains. To address this
problem, we are developing drug candidates that specifically target viral enzymes involved in viral replication. Despite the various strains of virus that may exist, the active site
of these enzymes required for viral replication is essentially highly conserved among all strains of a given virus. By targeting these highly conserved regions of the replication
enzymes, our antiviral compounds are designed and tested to be effective against major virus strains. Replication enzymes are generally conserved not only among subtypes of
a given virus but also among many different viruses, creating an opportunity for the development of broad-spectrum antiviral drugs.
Fast onset of action: As viruses can reproduce rapidly and in enormous quantities in human cells, antiviral drugs are needed with faster onset of viral load reduction resulting in
shorter treatment time.
Safety and tolerability: All drugs potentially have side effects, also referred to as adverse effects. These usually result from a drug’s ability to interact and/or interfere the
physiological functions of human proteins, causing undesirable effects. When this interaction is intentional (i.e., part of the drug’s mechanism of action), the adverse effects are
classified as on-target effects. When this interaction is unintentional (i.e., resulting from the drug’s interaction with an unintended human molecule), the effects are called off-
target effects. Our inhibitors target viral replication enzymes, which are generally unique to viruses. Because the targets are viral, not human, minimal adverse effects may be
the result. During the discovery phase, we evaluate candidate compounds for potential cross-reactivity with human replication enzymes and attempt to eliminate those
compounds that are cross-reactive with human homologous proteins.
Ease of administration: We select compounds for development that can be administered orally, preferably once daily in pill-form, or by inhalation or injection.
Research and Development Update
During the year ended December 31, 2023 the Company focused its research and development efforts primarily in three areas:
Influenza Program
We have several candidates under development for the treatment of influenza infection. CC-42344, a novel PB2 inhibitor, was selected as a preclinical lead for the treatment of
pandemic and seasonal influenza A. Oral CC-42344 was advanced to a Phase 2a influenza human challenge clinical study in 2023 as described in more detail below. This drug
candidate binds to a highly conserved PB2 site of influenza polymerase complex (PB1: PB2: PA) and exhibits a novel mechanism of action. CC-42344 showed excellent
antiviral activity against influenza A strains, including avian pandemic strains, Tamiflu® and baloxavir resistant strains, and has favorable pharmacokinetic and drug resistance
profiles. This drug candidate was specifically designed and developed using Cocrystal’s proprietary structure-based drug discovery platform technology.
In March 2022 enrollment was initiated in a randomized, double-blind, placebo-controlled Phase 1 study of orally delivered CC-42344, which was conducted in Australia. Later
that year we reported favorable safety and tolerability results from the Phase 1 study of CC-42344 for the treatment of both pandemic and seasonal influenza A.
In October 2023 we announced receipt of authorization from the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA) to initiate a Phase 2a
human challenge trial with oral CC-42344 as a potential treatment for pandemic and seasonal influenza A. In December 2023 we announced achievement of first-patient-in for
this Phase 2a human challenge clinical trial. This ongoing randomized, double-blind, placebo-controlled study is evaluating the safety, tolerability, viral and clinical
measurements of influenza A infection in subjects dosed with oral CC-42344 treatment. Topline clinical results from the Phase 2a trial are expected in 2024.
In addition to the oral CC-42344, we developed inhaled CC-42344 for the prophylactic treatment of pandemic and seasonal influenza A infections. Our preclinical data of the
inhaled CC-42344 showed excellent antiviral activity in influenza H1N1-infected human upper airway epithelium with favorable safety profile. We completed inhalation
formulation development and are evaluating plans to initiate a Phase 1 study in 2024.
We also continue developing novel broad-spectrum influenza antivirals targeting replication enzymes of influenza A and B strains.
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Coronavirus and Norovirus Programs
In October 2022 we announced the selection of a novel, broad-spectrum antiviral drug candidate CDI-988 for clinical development as an oral treatment for SARS-CoV-2, the
virus that causes COVID-19. CDI-988 targets a highly conserved region in the active site of SARS-CoV-2 main (3CL) protease required for viral replication and and was
discovered to exhibit pan-coronavirus activity against MERS-CoV, SARS-CoV, and common coronaviruses. This drug candidate was specifically designed and developed as a
pan-viral protease inhibitor using Cocrystal’s proprietary structure-based drug discovery platform technology.
Subsequent preclinical studies demonstrated that pan-coronavirus lead CDI-988 also showed broad-spectrum antiviral activity against the multiple pandemic norovirus
proteases. High resolution crystal structures confirmed that CDI-988 binds to the highly conserved region of the norovirus protease active site. In August 2023 we announced
the selection of pan-viral CDI-988 as a potential oral therapy for coronaviruses and norovirus.
In May 2023 we announced approval from the Australian Human Research Ethics Committee (HREC) to conduct a randomized, double-blind, placebo-controlled Phase 1 study
of CDI-988. The study is designed to access the safety, tolerability and pharmacokinetics of CDI-988.
In September 2023 we announced dosing of the first subjects in our Phase 1 clinical study with our oral, first-in-class pan-norovirus and pan-coronavirus 3CL protease inhibitor
CDI-988. Topline clinical results from the Phase 1 trial are expected in 2024.
Therapeutic Targets
Influenza: A worldwide public health problem, including the potential for pandemic disease.
Influenza is a severe respiratory illness, caused primarily by influenza A or B virus. Influenza A viruses are the only influenza viruses known to cause influenza pandemics.
Each year there are approximately 1 billion cases of seasonal influenza worldwide, with 3-5 million severe illnesses and up to 650,000 deaths, according to the World Health
Organization (“WHO”). On average about 8% of the U.S. population contracts influenza each season, according to the Centers for Disease Control and Prevention (“CDC”). In
addition to the health risk, influenza is responsible for approximately $10.4 billion in direct medical costs in the U.S. annually, according to the National Institutes of Health
(“NIH”).
Currently, approved antiviral treatments for influenza are effective, but burdened with significant viral resistance. Strains of influenza virus that are resistant to the approved
treatments oseltamivir phosphate (Tamiflu®) and zanamavir (Relenza®), baloxavir marboxil (Xofluza®) have appeared, and in some cases are predominated. For example, the
predominant strain of the 2009 swine influenza pandemic was resistant to oseltamivir. Oseltamivir inhibits influenza neuraminidase enzymes, which are not highly conserved
between viral strains. According to the WHO, approximately 15% of the H1N1 isolated circulating worldwide were oseltamivir resistant. Also, treatment-emergent resistance to
recently approved baloxavir has been observed during clinical trials and the potential transmission of resistant influenza variants could significantly diminish baloxavir
effectiveness.
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The Company developed CC-42344, a novel PB2 inhibitor, as a lead candidate for the treatment of influenza A. We completed a Phase 1 study with oral CC-42344 and in
December 2022 reported on favorable safety and tolerability results from the CC-42344 Phase 1 study. Upon approval of United Kingdom MHRA, we initiated a randomized,
double-blind, placebo-controlled influenza Phase 2a human challenge study in the first half of 2023 and announced dosing of the first subjects in this study with oral CC-42344
in December 2023. Topline clinical results from the Phase 2a trial are expected in 2024.
Coronavirus: COVID-19 continues to be a global pandemic fueled by an emergence of new strains.
As a global pandemic with 774,631,044 COVID-19 confirmed cases globally, including 7,031,216 deaths, as of February 27, 2024, according to the data reported by the WHO.
The COVID-19 pandemic and the measures taken by the federal, state and foreign governments to stop the spread of the virus have caused a significant disruption to the U.S.
and global economy.
Coronaviruses (CoV) are a large family of RNA viruses that historically have been associated with illness ranging from mild symptoms similar to the common cold to more
severe respiratory disease. Infection with the novel SARS-CoV-2 has been associated with a wide range of responses, from no symptoms to more severe disease that has
included pneumonia, severe acute respiratory syndrome, kidney failure, and death. The incubation period for SARS-CoV-2 is believed to be within 14 days after exposure, with
most illness occurring within about 5 days after exposure. SARS-CoV-2, like other RNA viruses, is prone to mutate over time, resulting in the emergence of multiple variants.
Adaptive mutations in the viral genome can alter the virus’s pathogenic potential. Even a single amino acid exchange can drastically affect a virus’s ability to evade the immune
system and complicate the vaccine and antibody therapeutics development against the virus. Based on the recent epidemiological update by the WHO, five SARS-CoV-2 VOCs
(variants of concern) have been identified since the beginning of the pandemic. Also, as demonstrated in Delta and Omicron variants as well as the more recent JN.1 strain,
some variations allow the virus to spread more easily and make it resistant to the treatments and vaccines.
On October 22, 2020, FDA approved the antiviral drug Veklury (remdesivir) for the treatment of COVID-19 requiring hospitalization. Remdesivir is a nucleotide prodrug that
inhibits viral replication and was previously evaluated in clinical trials for Ebola treatment in 2014. On May 25, 2023, the FDA approved Paxlovid (nirmatrelvir tablets and
ritonavir tablets, co-packaged for oral use) for use to treat COVID-19 for the treatment of mild-to-moderate COVID-19 in adults who are at high risk for progression to severe
COVID-19, including hospitalization or death. For certain hospitalized adults with COVID-19, the FDA has also approved Olumiant (baricitinib) and Actemra (tocilizumab). In
addition, the FDA issued emergency authorization use on several antibody and antiviral therapeutics, including and Lagevrio (molpiravir).
We continue pursuing the development of novel antiviral compounds for the treatment of coronavirus infections using our established proprietary drug discovery platform. By
targeting the viral replication enzymes and protease, we believe it is possible to develop an effective treatment for all coronavirus diseases including COVID-19, Severe Acute
Respiratory Syndrome (SARS), and Middle East Respiratory Syndrome (MERS) - coronaviruses.
Norovirus: A worldwide public health problem responsible for close to 90% of epidemic, non-bacterial outbreaks of gastroenteritis around the world.
Norovirus is a very common and highly contagious virus that causes symptoms of acute gastroenteritis. among people of all ages. Norovirus infection can be much more severe
and prolonged in specific risk groups including infants, children, the elderly, and people with immunodeficiency. Symptoms include nausea, vomiting, stomach pain and
diarrhea as well as fatigue, fever and dehydration. Outbreaks occur most commonly in semi-closed communities, having become notorious for their occurrence in hospitals,
nursing homes, childcare facilities, cruise ships, schools, disaster relief sites and military settings. In the United States alone, noroviruses are responsible for an estimated 21
million cases annually, including 109,000 hospitalizations, 465,000 emergency department visits and nearly 900 deaths, according to the CDC. The NIH estimates the annual
burden to the United States at $10.6 billion. Noroviruses are responsible for up to 1.1 million hospitalizations and 218,000 deaths annually in children in the developing world.
In immunosuppressed patients, chronic norovirus infection can lead to a debilitating illness with extended periods of nausea, vomiting and diarrhea. There is currently no
effective treatment or effective vaccine for norovirus, and the ability to curtail outbreaks is limited. We have a candidate norovirus therapeutic in clinical testing. A few
companies have been developing vaccines and six candidate vaccines are in stages of clinical testing by Vaxart Pharmaceutical, Moderna, Hillevax, Takeda Pharmaceuticals,
Anhui Zhifei Longcom Biopharmaceutical (China) and National Vaccine and Serum Institute (China).
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By targeting viral replication enzymes and a viral protease, we believe it is possible to develop an effective treatment for all genogroups of norovirus. Also, because of the
significant unmet medical need and the possibility of chronic norovirus infection in immunocompromised individuals, new antiviral therapeutic approaches may warrant an
accelerated path to market. The Company is developing inhibitors of the RNA-dependent RNA polymerase and protease of norovirus. Similar to the HCV polymerases, these
enzymes are essential to viral replication and are highly conserved between all noroviral genogroups. Therefore, an inhibitor of these enzymes might be an effective treatment
or short-term prophylactic agent, when administered during a cruise or nursing home stay, for example. We have developed X-ray quality norovirus polymerase and protease
crystals and have identified promising inhibitors. We are implementing the platform and approaches that have proven successful in our other antiviral programs.
In September 2023 we announced dosing of the first subjects in our Phase 1 clinical study with our oral, first-in-class pan-norovirus and pan-coronavirus 3CL protease inhibitor
CDI-988. Topline clinical results from the Phase 1 trial are expected in 2024.
Hepatitis C: A large competitive market with opportunity for shorter treatment regimens.
HCV is a highly competitive and changing market. Since 2014, several combinations of direct-acting antiviral agents (“DAAs”) have been approved for the treatment of HCV
infection. These include Harvoni (sofosbuvir/ledipasvir) 12 weeks of treatment, Viekira Pak (ombitasvir/paritaprevir/ritonavir, dasabuvir) twelve weeks of treatment, Epclusa
(sofosbuvir/velpatasvir) twelve weeks of treatment, Zepatier (elbasvir/grazoprevir) twelve weeks of treatment and Mavyret (glecaprevir/pibrentasvir) eight weeks of treatment.
We believe the next improvements in HCV treatment will be ultra-short combination oral treatments of four to six weeks, which is the goal of our program.
We anticipate a significant global HCV market opportunity that will persist through at least 2036, given the large prevalence of HCV infection worldwide. The 2017 World
Health Organization Global Hepatitis Report estimates that 71 million people worldwide have chronic HCV infections. In July 2023, WHO published that globally, an
estimated 58 million people have chronic HCV infection, with about 1.5 million new infections occurring per year, and an estimated 3.2 million adolescents and children with
chronic HCV infection.
We are targeting the viral NS5B polymerase with an NNI, which could be developed as part of an all-oral, pan-genotypic combination regimen. Our focus is on developing
what is now called ultrashort treatment regimens from four to six weeks in length. Such a combination treatment CC-31244 with different classes of approved DAAs has the
potential to change the paradigm of treatment for HCV with a shorter duration of treatment. Combination strategies with approved drugs could allow us to expand CC-31244
into the HCV antiviral therapeutic area globally and could lead to a high and fast cure rate, to improved compliance, and to reduced treatment duration. To our knowledge no
competing company has yet developed a short HCV treatment of less than 8 weeks with a high (>95%) sustained virologic response (SVR) at week 12.
CC-31244, an HCV NNI, is a potential best in class pan-genotypic inhibitor of NS5B polymerase for the treatment of HCV. The Company completed a Phase 1a/b study in
Canada in September 2016, with favorable safety results in a randomized, double-blinded, Phase 1a/b study in healthy volunteers and HCV-infected subjects. The Company
completed a Phase 2a study in HCV genotype 1 subjects in the United States. Cocrystal presented the interim results from the Phase1a/b study at the APASL in February 2017.
HCV-infected subjects treated with CC-31244 had a rapid and marked decline in HCV RNA levels, and slow viral rebound after treatment. Results of this study suggest that
CC-31244 could be an important component in a shortened duration all-oral HCV combination therapy. The Company has completed the Phase 2a final study report as filed
with the FDA. See “Item 1 – Business – Research and Development Update – Hepatitis C” for more information.
The Company has been seeking a partner for further clinical development of CC-31244 since completing Phase 2a trials.
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Intellectual Property
Our success depends, in part, upon our ability to protect our core technology. To establish and protect our proprietary rights, we rely on a combination of patents, patent
applications, trademarks, copyrights, trade secrets and know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee
disclosure and invention assignment agreements, and other contractual rights.
Our patent portfolio consists of issued patents and pending applications in the areas primarily related to the treatment of disease associated with Influenza A, Influenza A/B, and
norovirus/coronaviruses and HCV.
In our Influenza A program, our patent portfolio consists of several patent families, including two pending international (PCT) applications and two families of pending
applications in the U.S. and various foreign countries.
In our Influenza A/B program, our patent portfolio consists of a number of patent families pending, variously, as international (PCT) applications and in Taiwan. Aspects of this
program were developed in collaboration with Merck, which is legally protecting the intellectual property of the collaboration compounds.
In our norovirus and coronavirus programs, our patent portfolio consists of three pending families of U.S. provisional applications.
In our HCV program, our patent portfolio consists of several patent families, with granted patents in the U.S. and Europe, as well as China, Canada, Eurasia, Japan, and
Singapore. Applications are pending in numerous other jurisdictions.
Collaborations
Merck Collaboration
On January 2, 2019, we entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme LLC
(“Merck”) to discover and develop certain proprietary influenza A/B antiviral agents.
Under the terms of the Collaboration Agreement, Merck is funding research and development for the program at Cocrystal and Merck, including clinical development at Merck,
protecting intellectual property and Merck is responsible for worldwide commercialization of any products derived from the collaboration.
On December 15, 2023, we received written notice from Merck of Merck’s election to terminate the Collaboration Agreement, dated January 2, 2019, by and between the
Company and Merck, with respect to the collaboration with Merck on the development of influenza A/B antiviral compounds. The termination of the Agreement is effective on
March 14, 2024. The termination resulted from the inability to develop the compounds to meet a specific aspect of Merck’s program.
Kansas State University Research Foundation
Cocrystal entered into a License Agreement with KSURF on February 18, 2020 to further develop certain proprietary broad-spectrum antiviral compounds for the treatment of
norovirus and coronavirus infections.
Pursuant to the terms of the License Agreement, KSURF granted the Company an exclusive royalty bearing license to practice under certain patent rights, under patent
applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how, including to make and sell therapeutic, diagnostic and
prophylactic products.
The Company agreed to pay KSURF a one-time non-refundable license initiation fee of $80,000 under the License Agreement, and annual license maintenance fees. The
Company also agreed to make certain future milestone payments of up to approximately $3.1 million, dependent upon the progress of clinical trials, regulatory approvals, and
initiation of commercial sales in the United States and certain countries outside the United States.
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On April 19, 2020, the Company entered into a second License Agreement with KSURF in addition to the License Agreement entered into in February 2020.
Pursuant to the terms of the second License Agreement, KSURF granted the Company an exclusive royalty bearing license to practice under certain patent rights under patent
applications covering antivirals against coronaviruses, caliciviruses, and picornaviruses, and related know-how, including to make and sell therapeutic, diagnostic and
prophylactic products.
The Company agreed to pay KSURF a one-time non-refundable license initiation fee and annual license maintenance fees. The Company also agreed to make certain future
milestone payments of up to approximately $4.2 million, dependent upon the progress of clinical trials, regulatory approvals, and initiation of commercial sales in the United
States and certain countries outside the United States.
On February 28, 2024, the Company provided notice to KSURF of the Company’s election to terminate the License Agreements. The terminations, which were made due to the
Company’s determination that further development efforts under the License Agreements would be futile, are effective on March 29, 2024. The Company continues to clinically
progress its fully owned compound CDI-988 for coronaviruses and norovirus.
Business-Competition
The biotechnology and pharmaceutical industries are subject to intense and rapidly changing competition as companies seek to develop new technologies and proprietary
products. We face worldwide competition from larger biotechnology and pharmaceutical companies, universities and other academic or research institutions and government
agencies that are developing and commercializing pharmaceutical products similar to our product candidates that target the viruses we are seeking to treat. We know of several
companies that have marketed or are developing products for the treatment of influenza, coronavirus, norovirus and HCV, including Roche, Gilead Sciences, Inc. (“Gilead”),
Merck, Janssen Pharmaceuticals, Inc., Bristol-Myers Squibb, Toyama Chemical Co., Shionogi/Roche and Abbvie, Inc. Their products are widely considered effective. Further,
in the wake of the global COVID-19 pandemic a number of third parties, including large biotechnology and pharmaceutical companies such as Pfizer Inc., Moderna, Inc.,
Janssen Pharmaceuticals, Inc., and academic institutions began conducting research aimed at development of an effective treatment for, or a vaccine against, COVID-19. As a
result of these efforts, a number of vaccines and treatments for COVID-19 have been commercialized under FDA approval, or under the FDA’s emergency use authorization,
although certain of these approvals or authorizations are limited to specified circumstances. At least four treatments and five vaccines for COVID-19 have received FDA
approval. Many of the companies developing products for the viral diseases that are the focus of our programs have substantially greater financial resources, including
government funding, expertise and capabilities than we do and have existing products in significantly more advanced stages of development. Additionally, viral mutations can
lead to new strains or variants of a virus that may be more resistant to products we develop when compared to those of competitors. See “Risk Factors” for more information on
the risks we face with respect to our competition.
To date, we have not fully developed, received regulatory approval for or commercialized any of our product candidates. Our ability to compete will depend, to a great extent,
on the speed in which we and our collaborators can develop safe and effective product candidates, complete clinical testing and regulatory approval processes, and coordinate
with third parties to produce and distribute the resulting products in sufficient commercial quantities to create and maintain a market for such products at favorable costs and
prices. If we do complete development of and obtain regulatory approval to market any product candidate, we anticipate that the competition we would face with respect to
such product would be based on a combination of a number of factors including efficacy, safety, reliability, availability, price, patent position, and other factors.
Government Regulation
Government authorities extensively regulate the research, development, testing, manufacturing and commercialization of drug products. Any product candidates we develop
must be approved by the U.S. Food and Drug Administration (“FDA”) before they may be legally marketed in the U.S., and by the appropriate foreign regulatory agencies
before they may be legally marketed in other countries. The clinical testing of product candidates to establish their safety and efficacy in humans is subject to substantial
statutory and regulatory requirements with which we must comply.
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In addition to the U.S. requirements such as those enforced by the FDA with respect to safety and efficacy of research, testing, development and production, we also must
comply with applicable laws and regulations of any foreign jurisdictions in which we operate. For example, as a result of our Phase 1 trial in Australia for CC-42344, our lead
Influenza A product candidate, we are subject to the Australian government’s laws and regulations pertaining to the research and development, including clinical testing on
human subjects, of therapeutic product candidates. Further, our Phase 2a study for in the United Kingdom in 2023 for CC-42344 subjects us to similar laws and regulations in
the United Kingdom. Our presence in foreign countries has also subjected us to more general laws applicable to operations abroad, such as the U.S. Foreign Corrupt Practices
Act (the “FCPA”) and comparable legislation and regulation in foreign jurisdictions. In general, the FCPA prohibits U.S. corporations and their representatives from offering,
promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate to obtain or retain business
abroad. The scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-corruption laws and/or
regulations. Further, because of our reliance on one or more CROs and CMOs with respect to our research and development activities both in the U.S. and in foreign
jurisdictions, we may have limited control over compliance with such requirements in certain instances.
Human Capital
As of March 28, 2024, we employed 12 full-time employees. Of these full-time employees, nine are engaged in research and development activities. In addition, we have
contracts with CROs, CMOs and consultants to provide chemistry, toxicology, preclinical, clinical, and regulatory work on our programs, including in both preclinical and
clinical studies for our product candidates.
Available Information
Our corporate website is www.cocrystalpharma.com. We make available on our website under “Investors – SEC Filings” access to our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), free of charge.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below, as well as other information contained in this report, including the consolidated financial statements and the notes
thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The occurrence of any of the events discussed below could
significantly and adversely affect our business, prospects, results of operations, financial condition, and cash flow.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. The following is a summary of the principal risk
factors we face:
● We have incurred significant losses since our inception, expect to incur losses over the next several years and may never achieve or maintain profitability.
● We have no history of commercializing products.
● We will need additional funding to pursue our business objectives, including to eventually commercialize our product candidates if we complete research and
development efforts and receive the required regulatory approvals for a product candidate in the future.
● We allocated a significant amount of time and resources into developing a treatment for COVID-19, and these efforts may ultimately be unfruitful particularly given
the increasing number of FDA approved competitor treatments with the passage of time.
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● The regulatory approval processes of the FDA and other government authorities are lengthy, time consuming and inherently unpredictable.
● If we are unable to successfully develop, receive regulatory approval for and commercialize our product candidates, our business will be harmed.
● Even if we do commercialize one or more products, most pharmaceutical products that achieve commercialization still do not recoup their cost of capital.
● We face uncertainties with respect to the potential for new United States healthcare legislation which may lead to reduced pricing, among other things.
● The cost of our research and development programs may be higher than expected, and there is no assurance that such efforts will be successful in a timely manner or at
all.
● Because of the recent terminations of our Collaboration Agreement with Merck and License Agreements with KSURF, we no longer have potential revenue prospects
or the other perceived benefits of those relationships, which may adversely affect our development and commercialization efforts.
● Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials or an ability to ultimately receive approval from the FDA.
● We may not be successful in our efforts to research, develop, or in-license or acquire product candidates.
● We face intense competition, which may limit or eliminate our commercial prospects with respect to product candidates.
● We rely on third parties to research, develop and commercialize certain product candidates, and such third parties may not perform satisfactorily or act in our best
interests.
● If we are unable to obtain or protect intellectual property rights related to any of our product candidates, we may not be able to compete effectively in the market.
● We may become subject to expensive intellectual property litigation to enforce our intellectual property rights or defend against claims asserted by others.
● The trading price and volume of our common stock may be volatile and could decline in which case investors could lose all or part of their investment.
Risk Factors
RISKS RELATED TO OUR BUSINESS
We have never generated revenue from product sales and all of our product candidates are currently in the preclinical and early clinical stage, and we may continue
to incur significant losses for the foreseeable future and never generate revenue from product sales.
We are a preclinical and early stage clinical, biopharmaceutical discovery and development company. We completed a Phase 2a clinical trial for our Influenza A lead oral
candidate CC-42344 in 2023. We also completed a COVID-19 clinical trial in 2023 for our lead oral candidate CDI-988. We expect to report findings from these studies in
2024. Because of the need to complete clinical trials, establish safety and efficacy and obtain regulatory approval, which is an expensive and time-consuming process, we do
not anticipate generating revenue from product sales for at least four years and will continue to sustain considerable losses. We may develop a partnership that could generate
income sooner, but there is no guarantee that will be achievable.
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We had an accumulated deficit of $315,914,000 from inception through December 31, 2023 and expect to continue losing money in the future. We may never achieve
income from operations or have positive cash flow from operations.
As an early-stage drug development company, our focus is on developing product candidates, obtaining regulatory approvals and commercializing pharmaceutical products. As
a result, we have accumulated losses of $315,914,000 from inception through December 31, 2023, expect losses to continue, and have never generated revenue from product
sales. It is likely that we will need to raise additional capital in the future. There can be no assurance that we will ever generate income from operations or have positive cash
flow from operations.
Because we have yet to generate any revenue from product sales on which to evaluate our potential for future success and to determine if we will be able to execute
our business plan, it is difficult to evaluate our prospects and the likelihood of success or failure of our business.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with partners, to successfully complete the development of, obtain
the regulatory approvals for and commercialize pharmaceutical product candidates. We have no pharmaceutical product candidates that have generated any commercial
revenue, do not expect to generate revenues from the commercial sale of pharmaceutical products for foreseeable future, and might never generate revenues from the sale of
pharmaceutical products. Our ability to generate revenue and achieve profitability will depend on, among other things, the following:
● identifying and validating new therapeutic strategies;
● entering into and maintaining collaborations and relationships with large pharmaceutical or biotechnology companies;
● completing our research and preclinical development of pharmaceutical product candidates;
● initiating and completing clinical trials for pharmaceutical product candidates;
● seeking and obtaining regulatory marketing approvals for pharmaceutical product candidates that successfully complete clinical trials;
● establishing and maintaining supply and manufacturing relationships with third parties;
● launching and commercializing pharmaceutical product candidates for which we obtain regulatory marketing approval with a partner or, if launched
independently, successfully establishing a sales force, marketing and distribution infrastructure;
● maintaining, protecting, enforcing, defending and expanding our intellectual property portfolio; and
● attracting, hiring and retaining qualified personnel.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we cannot predict the timing or amount of increased expenses and when
we will be able to achieve or maintain profitability, if ever. Our expenses could increase beyond expectations if we are required by regulatory agencies to perform additional
unanticipated studies and trials.
Even if one or more pharmaceutical product candidates we independently develop is approved for commercial sale, we anticipate incurring significant costs associated with
commercializing any approved pharmaceutical product candidate. Moreover, even if we can generate revenues from the sale of any approved pharmaceutical products, we may
not become profitable and may need to obtain additional funding to continue operations.
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Because early-stage drug development requires major capital investment, as we continue to incur operating losses, we will need to raise additional capital or form
strategic partnerships to support our research and development activities in the future.
We are still in the early stages of preclinical and clinical development of our product candidates and have no products approved for commercial sale or presently in clinical
trials. However, our ability to conduct clinical trials in a cost-effective manner and within the desired timeframes remains subject to uncertainties, supply chain shortages, and
potential difficulties in obtaining adequate participant enrollments. Further, developing pharmaceutical products, including conducting preclinical studies and clinical trials, is
capital-intensive. As a rule, research and development expenses increase substantially as we advance our product candidates toward clinical programs. If we are able to advance
our products through clinical trials, we may need to raise additional capital to support our operations and/or form partnerships, in addition to our existing collaborative
alliances, which may give substantial rights to a partner. Such funding or partnerships may not be available to us on acceptable terms, or at all. Moreover, any future financing
may be very dilutive to our existing stockholders.
As we move lead compounds through toxicology and other preclinical studies, also referred to as nonclinical studies, we have and we will be required to file an IND or its
equivalent in foreign countries, and as we conduct clinical development of product candidates, we may have adverse results that may cause us to consume additional capital.
Our partners may not elect to pursue the development and commercialization of our product candidates subject to our respective agreements with them. These events may
increase our development costs more than we expect. We may need to raise additional capital or otherwise obtain funding through strategic alliances if we initiate clinical trials
for new product candidates other than programs currently partnered. We will require additional capital to obtain regulatory approval for, and to commercialize, product
candidates.
In securing additional financing, such additional fundraising efforts may divert our management’s attention from our day-to-day activities, which may adversely affect our
ability to develop and commercialize product candidates. We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all.
If we cannot raise additional capital when required or on acceptable terms, we may be required to:
● accept terms that restrict our ability to issue securities, incur indebtedness, or otherwise raise capital in the future, or restrict our ability to pay dividends or engage in
acquisitions;
● significantly delay, scale back or discontinue the development or commercialization of any product candidates;
● seek strategic alliances for research and development programs at an earlier stage than otherwise would be desirable or on terms less favorable than might otherwise be
available; or
● relinquish or license on unfavorable terms, our rights to technologies or any product candidates we otherwise would seek to develop or commercialize ourselves.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts,
which will have a material adverse effect on our business, operating results and prospects or may render the Company unable to continue operations.
RISKS RELATED TO THE DISCOVERY, DEVELOPMENT AND COMMERCIALIZATION OF PRODUCT CANDIDATES
Our COVID-19 programs are in the early clinical stage and we face significant competition from major companies who have developed vaccines or COVID-19
treatments. If we fail to gain market share because our competitors develop and successfully commercialize effective COVID-19 vaccines or therapies or if we fail to
obtain or maintain FDA authorization or to otherwise account for uncertainties surrounding the virus, our business and future prospects could be materially and
adversely affected.
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While we completed a Phase 1 clinical study of our COVID-19 lead oral candidate CDI-988 in 2023, we may be unable to produce an effective therapy in a timely manner or at
all. Additionally, we are committing substantial financial and other resources to our COVID-19 program, which may negatively impact our other programs. Further, in the wake
of the global COVID-19 pandemic a number of third parties, including large biotechnology and pharmaceutical companies and academic institutions have developed vaccines
and treatments which have FDA approval or emergency use authorization, as more particularly described above under “Business.” While the approval or authorization of
certain of these competitive offerings are limited to specified circumstances or patients, given the uncertainties in our ability to fully develop a viable COVID-19 therapeutic
product, the substantial amount of time and resources that would be necessary to complete development and obtain regulatory approval, and the growing number of competitive
offerings, we may ultimately be unable to produce a product that is commercially viable or is able to generate material revenue.
Even if we do obtain FDA authorization for a therapeutic product, the FDA may subsequently rescind or limit such authorization as more information about the product,
including its efficacy and side effects, becomes available. Further, this virus is highly mutative and a number of variants have already arisen, and any treatment we are able to
develop and commercialize will therefore remain subject to the risk that a mutation will occur that produces a strain or strains of the virus to which such treatment has a
diminished effect or is ineffective. For example, newer variants of the virus can be more resistant to treatments that were effective against prior variants of the virus. If we do
develop a treatment that is effective against a current variant, a later variant may arise that reduces or eliminates the product’s efficacy before we are able to commercialize it.
Further, if this occurs, one or more competitors’ products may be more effective against new variants than ours, resulting in a diminished market for our products. If we are
unable to timely advance our COVID-19 program, or if we fail to gain or maintain a market share as a result of our competitors developing and successfully commercializing
vaccines and effective COVID-19 therapies more quickly than we do, our business and future prospects could be materially and adversely affected.
Because Merck recently terminated our Collaboration Agreement and we recently terminated our License Agreements with KSURF, we no longer have potential
revenue prospects or the other perceived benefits of those relationships, which may adversely affect our development and commercialization efforts particularly with
respect to our influenza A/B, coronavirus and norovirus programs.
In late 2023 Merck notified us that it was terminating our Collaboration Agreement, effective March 14, 2024. Pursuant to the terms of the Collaboration Agreement, Merck
had agreed to, among other things, (i) fund the research and development collaboration, including clinical development and commercialization; (ii) make certain milestone
payments up to a total of $156 million, including payments associated with the successful product development and attainment of certain U.S. and EU regulatory approvals for
the developed products and sales volume; and (iii) pay royalties on net sales of the products. Because of the termination, we will not be receiving any further payments from
Merck, and will no longer have the ability to realize the other potential benefits of this former partnership. We may also be unable to locate a new development and
commercialization partner on favorable terms or at all, or otherwise achieve our objectives with respect to our influenza A/B program. The loss of our alliance with Merck and
its name recognition in the industry and in general could also have adverse consequences outside of this program in terms of our ability to attract strategic alliances to further
our development and commercialization efforts generally.
Further, in early 2024 we terminated our License Agreements with KSURF, under which we previously licensed proprietary broad-spectrum antiviral compounds for the
potential treatment of norovirus and coronavirus infections. As a result of the terminations, which were based on our determination that proceeding with research and
development efforts under the licenses would be futile, our prospects in our coronavirus and norovirus programs are diminished because any perceived or anticipated benefits of
the licenses and collaboration will not be realized. Following the terminations the pool of prospective compounds from which we can potentially identify, develop and
commercialize viable therapeutic product candidates under these programs is reduced. Any of the foregoing could materially adversely affect our research and development
efforts, business and prospects.
If we form strategic alliances which are unsuccessful or are terminated, we may be unable to develop or commercialize certain product candidates and we may be
unable to generate revenues from our development programs.
We will likely need to use third-party alliance partners for financial, scientific, manufacturing, marketing and sales resources for the clinical development and
commercialization of certain of our product candidates. These strategic alliances, if we are able to enter into them, will likely constrain our control over development and
commercialization of our product candidates, especially once a candidate has reached the stage of clinical development. Our ability to recognize revenues from successful
strategic alliances may be impaired by several factors including:
● a partner may shift its priorities and resources away from our programs due to a change in business strategies, or a merger, acquisition, sale or downsizing of its
company or business unit;
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● a partner may cease development in therapeutic areas which are the subject of our strategic alliances;
● a partner may change the success criteria for a program or product candidate delaying or ceasing development of such program or candidate;
● a significant delay in initiation of certain development activities by a partner could also delay payment of milestones tied to such activities, impacting our ability to
fund our own activities;
● a partner could develop a product that competes, either directly or indirectly, with an alliance product;
● a partner with commercialization obligations may not commit sufficient financial or human resources to the marketing, distribution or sale of a product;
● a partner with manufacturing responsibilities may encounter regulatory, resource or quality issues and be unable to meet demand requirements;
● a partner may exercise its rights under the agreement to terminate a strategic alliance, including termination without cause;
● a dispute may arise between us and a partner concerning the research, development or commercialization of a program or product candidate resulting in a delay in
milestones, royalty payments or termination of a program and possibly resulting in costly litigation or arbitration which may divert management attention and
resources; and
● a partner may use our proprietary information or intellectual property to invite litigation from a third-party or fail to maintain or prosecute intellectual property rights
possibly jeopardizing our rights in such property.
Termination of a strategic alliance such as the recent terminations of the Merck Collaboration Agreement and KSURF License Agreements may require us to seek out and
establish alternative strategic alliances with third-party partners. This may not be possible, including due to restrictions under the terms of our existing collaborations, or we
may not be able to do so on terms acceptable to us. See also the risk factor entitled “Because Merck recently terminated our Collaboration Agreement and we recently
terminated our License Agreements with KSURF, we no longer have potential revenue prospects or the other perceived benefits of those relationships, which will adversely
affect our development and commercialization efforts particularly with respect to our influenza A/B, coronavirus and norovirus programs.” If we fail to establish alternative
strategic alliances with third-party partners on terms acceptable to us, or at all, we may be required to limit the size or scope of one or more of our programs or decrease our
expenditures and seek additional funding by other means. Such events would likely have a material adverse effect on our results of operations and financial condition.
We expect to rely on third parties to conduct some or all aspects of our compound formulation, research and preclinical testing, if those third parties do not perform
satisfactorily our business and future prospects would be materially and adversely affected.
We do not expect to independently conduct all aspects of our drug discovery activities, compound formulation research or preclinical testing of product candidates. We rely and
expect to continue to rely on third parties to conduct some aspects of our preclinical testing and on third-party CROs to conduct clinical trials. This reliance can materially delay
our research and developments efforts, and increase the costs of undertaking them. For example, beginning in 2021, certain of our CROs began experiencing staffing shortages
and other issues due to the outbreak of Omicron cases, resulting in delays and increased costs in researching our product candidates. We have also experienced material delays
and cost increases in general throughout the pandemic caused by pandemic-related difficulties faced by our CROs and CMOs. Further, any disputes that may arise from our
arrangements with CROs or CMOs may result in additional unexpected expenses and force our management to allocate their limited time to seeking a resolution to the
problem, which could materially adversely affect our operations.
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If these third parties terminate their engagements, we will need to enter into alternative arrangements which would delay our product development activities. Our reliance on
these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. If in the future, we elect to
develop and commercialize any product candidates on our own, we will remain responsible for ensuring that each of our IND-enabling preclinical studies and clinical trials are
conducted under the respective study plans and trial protocols. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct
our studies under regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may experience delays in completing, the necessary
clinical trials and preclinical studies to enable us or our partners to select viable product candidates for IND submissions and will not be able to, or may be delayed in our
efforts to, successfully develop and commercialize such product candidates.
Because we intend to rely on third-party manufacturers to produce our preclinical and clinical supplies, and commercial supplies of any approved product
candidates, we will be subject to a variety of risks.
Our reliance on third-party manufacturers to develop products and our anticipated reliance on third-party manufacturers to produce products we may develop in the future entail
risks to which we would not be subject if we supplied the materials needed to develop and manufacture our product candidates ourselves, including:
● supply chain shortages which were prevalent during the COVID-19 pandemic;
● the inability to meet any product specifications and quality requirements consistently;
● a delay or inability to procure or expand sufficient manufacturing capacity;
● discontinuation or recall of reagents, test kits, instruments, and other items used by us in the development, testing, and potential commercialization of products;
● manufacturing and product quality issues related to scale-up of manufacturing;
● costs and validation of new equipment and facilities required for scale-up;
● a failure to comply with cGMP and similar foreign standards;
● the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
● the possibility of breach or termination or nonrenewal of manufacturing agreements with third parties in a manner that is costly or damaging to us;
● the reliance on a few sources, and sometimes, single sources for raw materials, such that if we cannot secure a sufficient supply of these product components, we
cannot manufacture and sell product candidates in a timely fashion, in sufficient quantities or under acceptable terms;
● the lack of qualified backup suppliers for any raw materials currently purchased from a single source supplier;
● operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the
manufacturer or supplier;
● carrier disruptions or increased costs beyond our control;
● misappropriation of our proprietary technology for the purpose of manufacturing a “generic” version of our product or sale of our product to organizations that
distribute and sell counterfeit goods, including drugs; and
● failing to deliver products under specified storage conditions and in a timely manner.
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These events could lead to clinical study delays or failure to obtain regulatory approval or impact our ability to successfully commercialize future products. Some of these
events could be the basis for regulatory actions, including injunction, recall, seizure or total or partial suspension of production.
Because we expect to rely on limited sources of supply for the drug substance and drug product of product candidates, any disruption in the chain of supply may
cause a delay in developing and commercializing these product candidates.
Part of our business plan envisions establishing manufacturing relationships with a limited number of suppliers to manufacture raw materials, drug substances, and the drug
product of any product candidate for which we are responsible for preclinical or clinical development. Each supplier may require licenses to manufacture such components if
such processes are not owned by the supplier or in the public domain. As part of any marketing approval, a manufacturer and its processes must be qualified by the FDA or
foreign regulatory authorities prior to commercialization. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An
alternative vendor would need to be qualified through a New Drug Application (“NDA”) or marketing authorization supplement, which could cause further delay. The FDA or
other regulatory agencies outside of the United States may also require additional studies if a new supplier is relied upon for commercial production.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs
and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of drug substance or drug
product on a timely basis and at commercially reasonable prices, and we are unable to secure one or more replacement suppliers capable of production at a substantially
equivalent cost, our clinical trials may be delayed, or we could lose potential revenue.
If third party manufacturing issues arise, it could increase product and regulatory approval costs or delay commercialization.
As third parties scale up manufacturing of product candidates and conduct required stability testing, product, packaging, equipment and process-related issues may require
refinement or resolution to proceed with any clinical trials and obtain regulatory approval for commercial marketing. We or the manufacturers may identify significant
impurities or stability problems, which could cause discontinuation or recall by us or our manufacturers, increased scrutiny by regulatory agencies, delays in clinical programs
and regulatory approval, significant increases in our operating expenses, or failure to obtain or maintain approval for product candidates or any approved products.
Since we expect to continue to rely on third parties to conduct, supervise and monitor our clinical trials, if those third parties fail to perform in a satisfactory manner
and one that meets applicable regulatory, scientific and safety requirements, it may materially harm our business.
We will rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we establish agreements governing the activities of such CROs
and clinical trial sites, we or our partners will have limited influence over their actual performance. Nevertheless, we or our partners will be responsible for ensuring that each
of our clinical trials is conducted in accordance with its protocol, and that all legal, regulatory and scientific standards are met. Our reliance on the CROs does not relieve us of
our regulatory responsibilities.
We, our partners and our CROs must comply with current Good Clinical Practices (“cGCPs”), as defined by the FDA and the International Conference on Harmonization, for
conducting, recording and reporting the results of IND-enabling preclinical studies and clinical trials, to ensure that data and reported results are credible and accurate and that
the rights, integrity and confidentiality of clinical trial participants are protected. The FDA enforces these cGCPs through periodic inspections of trial sponsors, principal
investigators, and clinical trial sites. If we or our CROs fail to comply with cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or
other regulators may require us to perform additional clinical trials before approving any marketing applications. Our clinical trials will require a sufficiently large number of
test subjects to evaluate the safety and effectiveness of a product candidate. If our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients,
fail to recruit properly qualified patients or fail to properly record or maintain patient data, we may be required to repeat such clinical trials, which would delay the regulatory
approval process.
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Our contracted CROs will not be our employees, and we cannot control whether they devote sufficient time and resources to our clinical and nonclinical programs. These CROs
may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development
activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the
quality or accuracy of the clinical data they obtain is compromised due to failing to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our
clinical trials may be extended, delayed or terminated, and we may not obtain regulatory approval for, or successfully commercialize our product candidates. Our financial
results and the commercial prospects for such products and any product candidates we develop would be harmed, our costs could increase, and our ability to generate revenues
could be delayed.
We also expect to rely on other third parties to store and distribute drug products for any clinical trials we may conduct. Any performance failure by our distributors could delay
clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of
potential product revenue.
Because the approach we are taking to discover and develop drugs is novel, it may never lead to marketable products.
We are concentrating our antiviral therapeutic product research and development efforts on using our proprietary technology, and our future success depends on the continued
successful development of this technology and the products derived from it. We have never commercialized any products. The scientific discoveries that form the basis for our
efforts to discover and develop drug product candidates are relatively new and unproven. The scientific evidence to support the feasibility of developing product candidates
based on our approach is limited. If we do not successfully develop and commercialize drug product candidates based upon our technological approach, we may not become
profitable and the value of our stock may decline.
Further, our focus on the Company’s technology for developing drugs, as opposed to relying entirely on more standard technologies for drug development, increases the risks
associated with the ownership of our stock. If we are unsuccessful in developing any product candidates using the Company’s technology, we may be required to change the
scope and direction of our product development activities. We may not successfully identify and implement an alternative product development strategy and may as a result
cease operations.
If we do not succeed in our efforts to identify or discover additional potential product candidates, your investment may be lost.
The success of our business depends primarily upon our ability to identify, develop and commercialize antiviral drug products, an extremely risky business. Our research
programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for several reasons, including:
● our research methodology or that of our partners may be unsuccessful in identifying potential product candidates;
● potential product candidates may have harmful side effects or may have other characteristics that make the products unmarketable or unlikely to receive marketing
approval; and
● we or our partners may change their development profiles for potential product candidates or abandon a therapeutic area.
Such events may force us to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could cause us to
cease operations. Research programs to identify new product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources
on potential programs or product candidates that ultimately prove to be unsuccessful.
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Because our future commercial success depends on gaining regulatory approval for our products, we cannot generate revenue without obtaining approvals.
Our long-term success and generation of revenue will depend upon the successful development of new products from our research and development activities, including those
licensed or acquired from third parties. Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs
result in the commercialization of a product. For example, the FDA indicates that approximately 70% of drugs proceed past Phase 1 studies, 33% proceed past Phase 2, and just
25%-30% proceed past Phase 3 to Phase 4 which is the final phase in the FDA review and approval process for marketing therapeutic product candidates. The process for
obtaining regulatory approval to market product candidates is expensive, usually takes many years, and can vary substantially based on the type, complexity, and novelty of the
product candidates involved. Our ability to generate revenue would be adversely affected if we are delayed or unable to successfully develop our products.
We cannot guarantee that any marketing application for our product candidates will be approved. If we do not obtain regulatory approval of our products or we are significantly
delayed or limited in doing so, we cannot generate revenue, and we may need to significantly curtail operations.
If we are unable to successfully complete preclinical testing and clinical trials of our product candidates or experience significant delays in doing so, our business will
be materially harmed.
We have invested and intend to continue to invest a significant portion of our efforts and financial resources in the identification and preclinical development of product
candidates that target viral replication enzymes. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the
successful development and eventual commercialization of our product candidates.
The commercial success of our product candidates will depend on several factors, including:
● successful completion of preclinical studies and clinical trials;
● receipt of marketing and pricing approvals from regulatory authorities;
● obtaining and maintaining patent and trade secret protection for product candidates;
● establishing and maintaining manufacturing relationships with third parties or establishing our own manufacturing capability; and
● commercializing our products, if and when approved, whether alone or in collaboration with others.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully complete development of, or
to successfully commercialize, our product candidates, which would materially harm our business. Most pharmaceutical products that do overcome the long odds of drug
development and achieve commercialization still do not recoup their cost of capital. If we are unable to design and develop each drug to meet a commercial need far in the
future, the approved drug may become a commercial failure and our investment in those development and commercialization efforts will have been commercially unsuccessful.
We may be unable to demonstrate safety and efficacy of our product candidates to the satisfaction of regulatory authorities or we may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities for the sale of product candidates, we or our partners must conduct extensive preclinical studies and clinical
trials to demonstrate the safety and efficacy of the product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to
complete and are uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical studies and early clinical trials
may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not predict final results. Moreover, preclinical, and clinical data are often
susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical
trials have nonetheless failed to obtain marketing approval for their products.
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Events that may cause a delay or unsuccessful completion of clinical development include, among other things:
● delays in agreeing with the FDA or other regulatory authorities on final clinical trial design;
● imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;
● delays in agreeing on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;
● delays in obtaining required institutional review board approval at each clinical trial site;
● delays in recruiting suitable patients to participate in a trial;
● delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;
● delays in having patients complete participation in a trial or return for post-treatment follow-up;
● delays caused by patients dropping out of a trial due to product side effects or disease progression;
● clinical sites dropping out of a trial to the detriment of enrollment;
● negative or inconclusive results of clinical trials of our product candidates;
● time and expenses required to add new clinical sites; or
● delays by our contract manufacturers in producing and delivering sufficient supply of clinical trial materials.
If we or our partners must conduct additional clinical trials or other testing of any product candidates beyond those that are contemplated, or are unable to successfully complete
clinical trials or other testing of any of our product candidates, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety
concerns, we or our partners may:
● be delayed in obtaining marketing approval for our product candidates;
● not obtain marketing approval at all;
● obtain approval for indications or patient populations not as broad as intended or desired;
● obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
● be subject to additional post-marketing testing requirements; or
● The FDA or foreign regulator will remove the product from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or in obtaining marketing approvals. We do not know whether any clinical trials will begin
as planned, will need to be restructured or will be completed on schedule, if at all. Significant clinical trial delays also could shorten any periods during which we may have the
exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations. Any inability to successfully complete preclinical and clinical development,
whether independently or with our partners, could cause additional costs to us or impair our ability to generate revenues from our product candidates, including product sales,
milestone payments, profit sharing or royalties.
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Our product candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved
label or market acceptance.
Adverse events (“AEs”) or serious adverse events (“SAEs”), that may be observed during clinical trials of our product candidates could cause us, other reviewing entities,
clinical trial sites or regulatory authorities to interrupt, delay or halt such trials and could cause denial of regulatory approval. If AEs or SAEs are observed in any clinical trials
of our product candidates, including those our partners may develop under alliance agreements, our or our partners’ ability to obtain regulatory approval for product candidates
may be negatively impacted.
Serious or unexpected side effects caused by an approved product could result in significant negative consequences, including the following:
● regulatory authorities may withdraw prior approval of the product or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation
strategy (“REMS”) which may restrict the manner in which the product can be distributed or administered;
● we may be required to add labeling statements, such as warnings or contraindications;
● we may be required to change the way the product is administered or conduct additional clinical trials;
● we may decide or be forced to temporarily or permanently remove the affected product from the marketplace;
● we could be sued and held liable for harm caused to patients; and
● our reputation may suffer.
These events could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of
commercializing our products and impair our ability to generate revenues from the commercialization of these products either by us or by our partners.
Following regulatory approval for a product candidate, we will still face extensive regulatory requirements and the approved product may face future development
and regulatory difficulties.
Even if we obtain regulatory approval in the United States or elsewhere, the applicable regulators may still impose significant restrictions on the indicated uses or marketing of
our product candidates or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. The following discussion is based on United
States law. Similar types of regulatory provision apply outside of the United States.
The holder of an approved new drug application, or NDA must monitor and report AEs and SAEs and any failure of a product to meet the specifications in the NDA. The holder
of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or
manufacturing process. Advertising and promotional materials must comply with FDA rules and other applicable federal and state laws and are subject to FDA review.
Drug product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities
for compliance with current Good Manufacturing Practices (“cGMP”), and adherence to commitments made in the NDA. If we or a regulatory agency discover previously
unknown problems with a product such as AEs or SAEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory
agency may impose restrictions on that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of
manufacturing.
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If we or our partners fail to comply with regulatory requirements following approval of our product candidates, a regulatory agency may:
● issue a warning letter asserting we are in violation of the law;
● impose a REMS or other restrictions on the manufacturing, marketing or use of the product;
● seek an injunction or impose civil or criminal penalties or monetary fines;
● suspend or withdraw regulatory approval;
● suspend any ongoing clinical trials;
● refuse to approve a pending NDA or supplements to an NDA submitted by us;
● seize product; or
● refuse to allow us to enter into supply contracts, including government contracts.
Our defense of any government investigation of alleged violations of law, or any lawsuit alleging such violations, could require us to expend significant time and resources and
could generate negative publicity. Further, the FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates or increase the cost of compliance. The occurrence of any event or penalty described above may prevent or
inhibit our ability to commercialize our products and generate revenues.
We may not succeed in obtaining or maintaining necessary rights to drug compounds and processes for our development pipeline through acquisitions and in-
licenses.
We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties we identify. The
licensing and acquisition of third-party intellectual property rights is a competitive area, and more established companies are also pursuing strategies to license or acquire third-
party intellectual property rights we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and
greater clinical development and commercialization capabilities.
Companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property
rights on terms that would allow us to make an appropriate return on our investment. If we are unable to successfully obtain rights to required third-party intellectual property
rights, our business, financial condition, and prospects for growth could suffer.
Because third parties may be developing competitive products without our knowledge, we may later learn that competitive products are superior to our product
candidates which may force us to terminate our research efforts of one or more product candidates.
We face potential competition from companies, particularly privately-held companies and foreign companies that may be developing competitive products that are superior to
one or more of our product candidates. If in the future, we learn of the existence of one or more competitive products, we may be required to:
● cease our development efforts for a product candidate;
● cause a partner to terminate its support of a product candidate; or
● cause a potential partner to terminate discussions about a potential license.
Any of these events may occur after we have spent substantial sums in connection with the clinical research of one or more product candidates.
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We have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain approvals for marketing our
product candidates, including approval by the FDA.
Our efforts to develop our product candidates are limited to a small number of product candidates aimed at treating a small number of viral diseases. To date, we have only
entered a limited number of compounds into human clinical trials, including in 2023 when we advanced our Influenza A product candidate to a Phase 2a trial and our COVID-
19 product candidate where we initiated a Phase 1 trial. We may be unable to progress our product candidates undergoing preclinical testing into clinical trials. Success in
preclinical testing and early clinical trials does not ensure that later clinical trials will succeed, and favorable initial results from a clinical trial do not determine outcomes in
subsequent clinical trials. The indications of use for which we are pursuing development may have clinical effectiveness endpoints not previously reviewed or validated by the
FDA or foreign regulatory authorities, which may complicate or delay our effort to obtain marketing approval. We cannot guarantee that our clinical trials will succeed. In fact,
most compounds fail in clinical trials, even at companies far larger and more experienced than us. If any preclinical or clinical trials yield adverse results, it could delay the
development of the product candidate, force us to cease pursuing the product candidate, or render it impossible or impracticable to proceed towards commercialization.
We have not obtained marketing approval or commercialized any of our product candidates. We may not successfully design or implement clinical trials required for marketing
approval to market our product candidates. If we are unsuccessful in conducting and managing our preclinical development activities or clinical trials or obtaining marketing
approvals, we might not be able to commercialize our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
RISKS RELATED TO OUR BUSINESS OPERATIONS AND INDUSTRY
If we cannot obtain or protect intellectual property rights related to our future products and product candidates, we may not be able to compete effectively in our
markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our future products and product
candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications
we own or in-license may fail to result in patents with claims that cover the products in the United States or in other countries. There is no assurance that all potentially relevant
prior art relating to our patents and patent applications has been found; such prior art can invalidate a patent or prevent issuance of a patent based on a pending patent
application. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may cause such patents to be narrowed or
invalidated. Even if unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims.
If the patent applications we hold or have in-licensed regarding our programs or product candidates fail to issue or if their breadth or strength of protection is threatened, it
could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to commercialize products. Patents may not issue and issued
patents may be found invalid and unenforceable or challenged by third parties. Since patent applications in the United States and most other countries are confidential for a
period after filing, and some remain so until issued, we cannot be certain that we were the first to invent a patent application related to a product candidate. In certain situations,
if we and one or more third parties have filed patent applications in the United States and claiming the same subject matter, an administrative proceeding can be initiated to
determine which applicant is entitled to the patent on that subject matter. Patents have a limited lifespan. In the United States, the natural expiration of a patent is 20 years after
it is filed, although various extensions may be available. The life of a patent, and the protection it affords, is limited. When the patent life has expired for a product, we will
become vulnerable to competition from generic medications attempting to replicate that product. Further, if we encounter delays in regulatory approvals, the time during which
we will be able to market and commercialize a product candidate under patent protection could be reduced.
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In addition to patent protection, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which
patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology not
covered by patents. Each of our employees agrees to assign their inventions to us through an employee inventions agreement. In addition, as a general practice, our employees,
consultants, advisors and any third parties who have access to our proprietary know-how, information or technology enter into confidentiality agreements. Nonetheless, our
trade secrets and other confidential proprietary information may be disclosed and competitors may otherwise gain access to our trade secrets or independently develop
substantially equivalent information and techniques. In addition, in January 2018 the FDA as part of its Transparency Initiative, launched a voluntary pilot program calling on
biopharmaceutical research companies to release clinical study reports summarizing clinical trial data. Based on these trends, the FDA may consider making release of clinical
study reports mandatory and may consider making additional information publicly available on a routine basis in response to concerns expressed by the academic community
emphasized by the COVID-19 pandemic, including information we may consider to be trade secrets or other proprietary information. If the FDA takes these measures, we may
be forced to disclose propriety information about our product candidates and research, which could materially harm our business.
The laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. We may encounter significant
problems in protecting and defending our intellectual property both in the United States and abroad. Further, governments may in the future alter intellectual property rights in a
manner adverse to us or to our third-party collaborators, including actions taken at the international level. For example, in June 2022 member countries of the World Trade
Organization (“WTO”) agreed to implement a multi-jurisdictional five-year waiver of patent protection with respect to vaccines that target COVID-19 in an effort to fight the
pandemic and allow for a more equal distribution of resources, particularly for developing countries, towards that goal. This resulted from ongoing discussions among WTO
member countries which began in 2020 with a proposal for a more extensive waiver that would have covered patents for COVID-19 related diagnostics and therapeutics as well
as vaccines. The WTO waiver, together with similar actions that may be taken with respect to COVID-19-related products or other products in which we are or may become
involved could materially diminish or eliminate our ability to protect the underlying intellectual property rights we rely on for such products, including those licensed from third
parties, and as a result any potential competitive advantage would be lost. If we are unable to prevent material disclosure of the non-patented intellectual property related to our
technologies to third parties, and there is no guarantee we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive
advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
If third-party intellectual property infringement claims are asserted against us, it may prevent or delay our development and commercialization efforts and have a
material adverse effect on our business and future prospects.
Our commercial success depends in part on our avoiding infringement on the patents and proprietary rights of third parties. There is substantial litigation, both within and
outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits,
interferences, oppositions, and reexaminations and other post-grant proceedings before the U.S. Patent and Trademark Office, and corresponding foreign patent offices.
Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our partners are pursuing
product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to
claims of infringement of the patent rights of third parties.
Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to
materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take
many years to issue, there may be patent applications currently pending that may later result in patents that our product candidates may infringe upon. Third parties may obtain
patents in the future and claim that use of our technologies infringes on these patents. If any third-party patents were to be held by a court of competent jurisdiction to cover the
manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may
be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire. Similarly, if any
third-party patents were to be held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including
combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a
license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all.
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Parties making intellectual property claims against us may obtain injunctive or other equitable relief, which could block our ability to further develop and commercialize one or
more of our product candidates. Defense of these claims, regardless of their merit, involves substantial litigation expense and diversion of our management’s attention from our
business. If a claim of infringement against us succeeds, we may have to pay substantial damages, possibly including treble damages and attorneys’ fees for willful
infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and
monetary expenditure.
Because of the costs involved in defending patent litigation, we may in the future lack the capital to defend our intellectual property rights.
We may in the future be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and
unsuccessful.
Competitors may infringe on our patents or the patents of our licensors. To counter such infringement or unauthorized use, we may be required to file infringement claims, or
we may be required to defend the validity or enforceability of such patents, which can be expensive and time-consuming. In an infringement proceeding, a court may decide
that either one or more of our patents or our licensors’ patents is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue because
our patents do not cover that technology. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at risk of not being issued.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions regarding our patents or patent applications or
those of our partners or licensors. An unfavorable outcome could require us to cease using the related technology or to license rights to it from the prevailing party. Our
business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail
and, even if successful, may cause us to incur substantial costs and distract the attention of our management and other employees. We may not be able to prevent, alone or with
our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.
Because of the substantial amount of discovery required in intellectual property litigation, there is a risk that some of our confidential information could be compromised by
disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If
securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
We may need to obtain additional licenses to intellectual property rights from third parties.
We may need to obtain additional licenses from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain these licenses
at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which
could harm our business significantly. We cannot provide any assurances that third-party patents do not exist that might be enforced against our products, resulting in either an
injunction prohibiting our sales, or, with respect to our sales and other activities, an obligation on our part to pay royalties and/or other forms of compensation to third parties
The licensing and acquisition of third-party intellectual property rights is a competitive practice, and companies that may be more established, or have greater resources than we
do, may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider necessary or attractive in order to develop and
commercialize our product candidates. More established companies may have a competitive advantage over us due to their larger size and cash resources or greater clinical
development and commercialization capabilities. We may not be able to successfully complete such negotiations and ultimately acquire the rights to the intellectual property
surrounding product candidates that we may seek to acquire, in which case our business could be harmed.
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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We employ individuals previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims asserting that we or our employees, consultants
or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We may also
be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is
no guarantee of success in defending these claims, and if we succeed, litigation could cause substantial cost and be a distraction to our management and other employees.
Because we face significant competition from other biotechnology and pharmaceutical companies, our operating results will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive. See “Business-Competition” at page 10 for a description of the competitive environment we face.
We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and
other research institutions. Our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced
marketing and manufacturing organizations. This enables them, among other things, to make greater research and development investments and efficiently utilize their research
and development costs. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may cause even more resources being concentrated in our
competitors. Additionally, smaller or early-stage companies of which we may not be aware could also prove to be material competitors, particularly through collaborative
arrangements with larger, more well-established companies or by competing with us for limited resources and strategic alliances with our current or prospective partners.
Competition may increase further because of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our
competitors may develop, acquire or license drug products that are more effective or less costly than any product candidate we may develop.
The programs we are focusing on are in a preclinical d or early clinical development stage and are targeted toward indications for which there are approved products on the
market or product candidates in clinical development. We will face competition from other drugs that are or will be approved for the same therapeutic indications. Our ability to
compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:
● discover and develop therapeutics superior to other products in the market;
● attract and retain qualified scientific, product development and commercial personnel;
● obtain patent and/or other proprietary protection for our technology platform and product candidates;
● obtain required regulatory approvals; and
● successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new therapeutics.
The availability of our competitors’ products could limit the demand, and the price we can charge, for any products we may develop and commercialize. For example, the
widespread distribution of COVID-19 treatments and vaccines will reduce the demand for any therapeutic product we develop to treat symptoms caused by the virus,
particularly as new competing products are developed and approved by the FDA and other regulators. We will not achieve our business plan if the acceptance of our products is
inhibited by price competition or the reluctance of physicians to switch from existing drug products to our products, or if physicians switch to other new drug products or
reserve our products for use in limited circumstances. Additionally, the biopharmaceutical industry is characterized by rapid technological and scientific change, and we may
not be able to adapt to these rapid changes to the extent necessary to keep up with competitors or at all. The inability to compete with existing or subsequently introduced drug
products would have a material adverse impact on our business, financial condition and prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our
product candidates less competitive. Any new product that competes with an approved product must typically demonstrate advantages, such as in efficacy, convenience,
tolerability or safety, to overcome price competition and to succeed. Our competitors may obtain patent protection, receive approval by FDA and/or foreign regulatory
authorities or discover, develop and commercialize product candidates before we do, which would have a material adverse impact on our business.
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Our business could be negatively impacted by cybersecurity threats and other security threats and disruptions.
Because our business relies on proprietary technology and computer systems, we face certain security threats, including threats to our information technology infrastructure,
attempts to gain access to our proprietary or confidential information, threats to physical security, and domestic terrorism events. Our information technology networks and
related systems are critical to the operation of our business and our research and development efforts. We are also involved with information technology systems for certain
third parties, which generally face similar security threats. Cybersecurity threats in particular, are persistent, evolve quickly and include, but are not limited to, computer
viruses, attempts to access information, denial of service and other electronic security breaches believe that we have implemented appropriate measures and controls and
invested in skilled information technology resources to appropriately identify threats and mitigate potential risks, but there can be no assurance that such actions will be
sufficient to prevent disruptions to critical systems, the unauthorized release of confidential information or corruption of data. A security breach or other significant disruption
involving these types of information and information technology networks and related systems could:
● disrupt the proper functioning of these networks and systems and therefore its operations and/or those of third parties on which we rely;
● result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of, our proprietary, confidential, sensitive or otherwise valuable
information, or that of third parties with which we collaborate or otherwise depend, which others could use to compete against us or for disruptive, destructive or
otherwise harmful purposes and outcomes;
● delay or compromise preclinical or clinical studies or the analysis and use of data collected in our efforts to develop product candidates;
● require significant attention and resources of management and key personnel to remedy any damages or other adverse consequences that result;
● subject us to claims for breach of contract, damages, credits, penalties or termination with respect to our relationships with third parties, or regulatory actions by
governmental agencies; and
● damage our reputation with industry participants, existing or prospective strategic alliances, and the public generally.
Any or all of the foregoing could have a material negative impact on its business, financial condition and prospects.
Failure of our information technology infrastructure to operate effectively could adversely affect our business.
We depend on information technology infrastructure to pursue our business objectives and development efforts with respect to our product candidates. If a problem occurs that
impairs this infrastructure, including as a result of an outage or malfunctioning of the hardware and software comprising or contributing to the information technology, the
resulting disruption could impede our ability to proceed with research objectives in a timely manner, or otherwise carry on business in the normal course. Any such events could
cause us to lose opportunities or progress with respect to product candidates or strategic alliances, and could require us to incur significant expense to remediate.
Artificial intelligence presents risks and challenges that can negatively impact our business.
Artificial intelligence-based platforms and tools are increasingly being used in the biopharmaceutical, pharmaceutical, and consumer health industries. As with many
technological innovations, artificial intelligence presents risks and challenges that could impact our business. While our current use of artificial intelligence-based platforms or
tools in our business is relatively minimal, many of our competitors have begun utilizing artificial intelligence tools to aid in the development of pharmaceutical products. Our
decision to not implement artificial intelligence platforms or tools may put us at a competitive disadvantage in comparison to competitors who currently use artificial
intelligence platforms and tools in the development of pharmaceutical products.
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As artificial intelligence expands, our competitors, which may have significantly greater financial and human capital resources, may use artificial intelligence to further their
research efforts and advance competitive product candidates through clinical trials.
In the future, we may adopt and integrate artificial intelligence platforms and/or tools into our business. Further, any third-party collaborators may incorporate artificial
intelligence platforms and tools into their business without disclosing this to us, and the providers of these artificial intelligence platforms and tools may not meet existing or
rapidly evolving regulatory or industry standards with respect to privacy and data protection. If our third-party collaborators who use artificial intelligence platforms or tools
experience an actual or perceived breach related incident because of the use of artificial intelligence, we may lose valuable intellectual property, confidential information, and
suffer reputational damage. Further, bad actors around the world use increasingly sophisticated methods, including the use of artificial intelligence, to engage in illegal activities
involving the theft and misuse of personal information, confidential information, and intellectual property. Any of these outcomes could damage our reputation, result in the
loss of valuable property and information, and adversely impact our business.
The commercial success of our product candidates will depend upon the acceptance of these product candidates by the medical community, including physicians,
patients and healthcare payors.
Assuming one or more product candidates achieve regulatory approval and we commence marketing such products, the market acceptance of any product candidates will
depend on several factors, including:
● demonstration of clinical safety and efficacy compared to other products;
● the relative convenience, ease of administration and acceptance by physicians, patients and healthcare payors;
● the prevalence and severity of any adverse effects or serious adverse effects;
● limitations or warnings in the label approved by FDA and/or foreign regulatory authorities for such products;
● the timing of market introduction of our products relative to competitive products and the availability of alternative treatments;
● pricing and cost-effectiveness;
● the execution and effectiveness of our or any partners’ sales and marketing strategies;
● our ability to obtain hospital formulary approval; and
● our ability to obtain and maintain sufficient third-party payor coverage or reimbursement.
If we obtain regulatory approval for one product candidate, we expect sales to generate substantially all of our product revenues, and as such, the failure of such product to find
market acceptance would adversely affect our results of operations.
If insurance and/or government coverage and adequate reimbursement are not available for our product candidates, it could impair our ability to achieve and
maintain profitability.
Market acceptance and sales of any product candidates we develop will depend on coverage and reimbursement policies of third-party payors. Government authorities and
third-party payors, such as private health insurers, hospitals and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels.
Coverage and adequate reimbursement may not be available for some or all of our product candidates. As patients generally rely on third-party payors to reimburse all or part of
the costs associated with their treatment, inadequate reimbursement amounts may reduce the demand for, or the price of, our future products. Thus, the availability of adequate
coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance.
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Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process, and no uniform policy of
coverage and reimbursement for products exists among third-party payors in the United States. A primary trend in the U.S. healthcare industry is cost containment. Third-party
payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products. Further, third-party payors are increasingly challenging
prices charged for pharmaceutical products, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic
drug or a less expensive therapy is available. There can be no assurance that coverage and reimbursement will be available for any product we commercialize. Even if we
obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that
patients find unacceptable. If reimbursement is not available, or is available at limited levels, we may not be able to successfully commercialize product candidates we develop.
Due to the change in the United States presidency and upcoming election, we and our industry face uncertainty including the potential for increased regulation, which
may adversely affect our business.
President Biden has expressed a desire to make healthcare more affordable, including adopting new laws and working with federal agencies in a manner which may adversely
affect our business through an increase in regulatory efforts. At the senior administrative level, new regulators with a regulatory zeal may tighten existing regulations and that
approach may also be taken in the routine interactions between staff and our scientists and others. For example, in December 2023, the Biden Administration announced its
intention to lower prescription drug costs and address certain features of the current healthcare sector, such as the focus on insurance and consolidation. These rules or other
regulatory developments which may occur in the future could have an adverse impact, directly or indirectly, on our operations or on the operations of our collaborators. These
trends and potential future government action, particularly at the federal level, are highly uncertain and we expect will be dependent to some extent on the outcome of the next
presidential election later this year. If President Biden is elected for another four-year term, he could take further action on the issues his administration has previously
addressed. Contrarily, if former President Trump (or another Republican candidate) were elected, there will be a de-emphasis on regulation. Increased regulation and
enforcement may lead to increased costs and further delays in getting approvals, which may adversely affect our business.
Pricing pressures on our drug candidates, including as the result of proposed legislative changes, may negatively impact our future results of operations.
There have been numerous legislative and regulatory proposals to change the healthcare system in the United States and in some foreign jurisdictions that could affect our
ability to sell products profitably. President Biden has expressed support for implementing a new health plan that would rely on a “Medicare-like” public option for individuals
who are not on Medicare and transition to a Medicare-for-All single payor system in the future. Among other things, such a system may seek to:
● lower prescription prices by permitting Medicare to negotiate prices;
● limit price increases and pricing control by private sector industry participants;
● set prices for drugs which do not have competition; and
● permit consumers to buy prescriptions from other countries.
Additionally, beginning in 2022 the Biden administration proposed legislation and policy changes to implement a number of regulatory changes to make affordable healthcare
available for a larger number of Americans, including by lowering the costs of prescription drugs. A 2022 legislative proposal included measures that would allow the
government to negotiate prices of certain prescription drugs under Medicare and would redesign the Medicare Part D benefit to limit patient out-of-pocket drug costs and shift
liabilities among stakeholders, including manufacturers. Following the proposal, the Inflation Reduction Act was enacted later in 2022 which provides for lower cost
prescription drugs and vaccines in Medicare and other federal programs, including by establishing a $2,000 annual cap on out-of-pocket drug costs for Medicare participants
beginning in 2025. In a similar vein, in October 2022, President Biden issued an executive order to address concerns about the high costs of prescription drugs in the U.S.,
wherein the Secretary of the Department of Health and Human Services (“HHS”) was tasked with evaluating potential new health care payment and delivery models designed
to lower drug costs and promote access to innovative drug therapies for beneficiaries enrolled in the Medicare and Medicaid programs, including models that may lead to lower
cost-sharing for commonly used drugs and support value-based payment that promotes high-quality care. In its responsive report, the HHS indicated that it was “full steam
ahead in delivering cost savings” and identified three potential price-reducing models for further consideration, as well as other areas for further research. A similar initiative
covering a broader scope of activities and intended actions (including addressing drug prices and industry consolidation and control) was again released by the White House in
December 2023. Like the Inflation Reduction Act, certain of the recent or newly proposed regulatory changes will be subject to Congressional approval, and we cannot predict
what, if any, of these broad proposals or other legislation or regulation will pass or otherwise be implemented, particularly with a divided Congress.
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At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control drug pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures. In addition, regional healthcare
authorities and individual hospitals are increasingly using bidding procedures to determine which pharmaceutical products and suppliers will be included in their prescription
drug and other healthcare programs. These measures could reduce the ultimate demand for our products, or put pressure on our product pricing. The availability of generic
treatments may also substantially increase pricing pressures on, and reduce reimbursement for, our future products. The potential application of user fees to generic drug
products may expedite approval of additional generic drug treatments. We expect to experience additional pricing pressures in connection with the sale of any of our products,
due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes.
In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely
from country to country. The European Union, or EU, provides options for its member states to restrict the range of medicinal products for which their national health insurance
systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may
instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country
that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for our products, if any are
approved. Historically, products launched in the EU do not follow price structures of the U.S. and tend to be priced significantly lower.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable
to generate any revenues from product sales.
We do not have a team with experience in the sales, marketing and distribution of pharmaceutical products and the cost of establishing and maintaining such an organization
may exceed the cost-effectiveness of doing so. To market any products that may be approved, we must build our sales, marketing, managerial and other non-technical
capabilities or arrange with third parties to provide these services.
Our current and future partners may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization efforts
due to factors beyond our control. If we are unable to establish effective alliances to enable the sale of our product candidates to healthcare professionals and in geographical
regions, including the United States, that will not be covered by our own marketing and sales force, or if our potential future strategic partners do not successfully
commercialize the product candidates, our ability to generate revenues from product sales will be adversely affected.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient
product revenue and may not become profitable. We will be competing with many companies that have extensive and well-funded marketing and sales operations. Without an
internal team or the support of a third-party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
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If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could
materially adversely affect our business.
If any of our product candidates are approved for commercialization, we may enter into agreements with third parties to market them on a worldwide basis or in more limited
geographical regions. We expect we will be subject to additional risks related to entering into international business relationships, including:
● different regulatory requirements for drug approvals in foreign countries;
● reduced protection for intellectual property rights;
● unexpected changes in tariffs, trade barriers and regulatory requirements;
● economic weakness, including inflation, or political instability in foreign economies and markets;
● compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
● foreign taxes, including withholding of payroll taxes;
● foreign currency fluctuations, which could cause increased operating expenses and reduced revenues, and other obligations incident to doing business in another
country;
● workforce uncertainty in countries where labor unrest is endemic;
● the impact of any war or hostilities such as the Russian invasion of Ukraine;
● production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
● business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
If we lose key management or scientific personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience increases in our
compensation costs, our business may materially suffer.
We depend on principal members of our executive and research teams; the loss of whose services may adversely impact the achievement of our objectives. We are highly
dependent on our President and Co-Chief Executive Officer, Dr. Sam Lee and our Chief Financial Officer and Co-Chief Executive Officer, James Martin. We may be unable to
locate a new Chief Executive Officer capable of running our company effectively, and any such individual will require high compensation in a competitive market for
experienced and qualified personnel within our industry. We do not carry “key-man” life insurance on any of our employees or advisors. Furthermore, our future success will
also depend in part on the continued service of our key scientific and management personnel and our ability to identify, hire, and retain additional personnel. We may not be
able to attract and retain personnel on acceptable terms, as there is significant competition among numerous pharmaceutical companies for individuals with similar skill sets.
Because of this competition, our compensation costs may increase significantly. If we lose key employees, our business may suffer.
If we expand our organization, we may experience difficulties in managing growth, which could disrupt our operations.
As of March 28, 2024, we have 12 full-time employees. As our Company matures, we expect to expand our employee base to increase our managerial, scientific and
operational, commercial, financial and other resources and to hire more consultants and contractors. Future growth would impose significant additional responsibilities on our
management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to
divert a disproportionate amount of its attention away from our day-to-day activities and to manage these growth activities. We may not be able to effectively manage the
expansion of our operations, which may cause weaknesses in our infrastructure, and give rise to operational mistakes, loss of business opportunities, loss of employees and
reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects,
such as developing additional product candidates. If our management cannot effectively manage our growth, our expenses may increase more than expected, our ability to
generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize
product candidates and compete effectively will depend, in part, on our ability to manage our future growth.
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Any relationships with customers and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws
and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face criminal sanctions, civil
penalties, contractual damages, reputational harm and diminished profits and future earnings.
If we obtain FDA approval for any of our product candidates and commercialize those products in the United States, our operations may be directly, or indirectly through our
customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. These
laws may impact, among other things, our proposed sales, marketing and education programs. We may be subject to patient privacy regulation by the federal government and
by the U.S. states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
● the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration,
directly or indirectly, to induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be
made under a federal healthcare program, such as the Medicare and Medicaid programs;
● federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
● the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to
defraud any healthcare benefit program and making false statements relating to healthcare matters;
● HIPAA, as amended by the Health Information Technology and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which imposes certain
requirements relating to the privacy, security and transmission of individually identifiable health information; and
● state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by
any third-party payer, including commercial insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
If our operations are found to violate any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including, without
limitation, civil and criminal penalties, damages, fines, possible exclusion from Medicare, Medicaid and other government healthcare programs, and curtailment or
restructuring of our operations, which could adversely affect our ability to operate our business and our results of operations.
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Because we face potential product liability if claims are brought against us, we may incur substantial liability and costs.
Using our product candidates in clinical trials and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product
liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products.
If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. Regardless of merit or eventual outcome, product liability claims
may cause:
● impairment of our business reputation;
● withdrawal of clinical trial participants;
● costs due to related litigation;
● distraction of management’s attention from our primary business;
● substantial monetary awards to patients or other claimants;
● regulatory scrutiny and product recalls, withdrawals or labeling, marketing or promotional restrictions;
● the inability to commercialize our product candidates; and
● decreased demand for our product candidates, if approved for commercial sale.
Insurance coverage is becoming increasingly expensive and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us
against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance coverage to include the sale of commercial
products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. Occasionally, large judgments have been
awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause
our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Business interruptions resulting from pandemics, natural disasters and adverse weather events could cause delays in research and development of our product
candidates.
Our principal offices are in Bothell, Washington where we conduct our scientific research. We also maintain a small finance and accounting office in Miami, Florida and an
administrative office in Australia. In addition, our Influenza A Phase 1 program has been dependent on one or more CROs and their facilities located in Australia for Phase 1
and will depend on one or more CROs in the United Kingdom for Phase 2a for the furtherance of our research and development efforts as to that product. We also rely on
Australian CROs for our coronaviruses and norovirus programs. We and third parties on which we rely are vulnerable to natural disasters such as earthquakes, tornados, severe
storms, hurricanes, tsunamis, and fires, as well as other events that could disrupt our operations and cause delays in research and development of our product candidates. We do
not carry insurance for natural disasters or similar events, and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any
losses or damages we incur could have a material adverse effect on our operations.
If our information technology systems are compromised, the information we store and process, including our intellectual property, could be accessed, publicly
disclosed, lost or stolen, which could harm our business, relationships with strategic partners and future results of operations.
Companies are increasingly suffering damage from attacks by hackers and there is a general risk that adversaries in geopolitical conflicts such as those taking place in Ukraine
and in the Middle East adopt widespread Internet hacking as a weapon, which hacking may ultimately affect us. In the ordinary course of business, we store sensitive
information, such as our intellectual property, including trade secrets and results of our clinical and preclinical research, and that of our suppliers and business partners, on a
central server, and such information is transmitted via email correspondence. The secure maintenance and processing of this information is critical to our research and
development activities and future operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breaches
due to employee error, malfeasance or other disruptions. Any such breach could compromise our information technology systems and the information stored there could be
accessed by third parties, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure, misappropriation or other loss of information could result in disruption of
our operations, including our existing and future research collaborations, and damage our reputation, which in its turn could harm our business and future results of operations.
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If we fail to comply with applicable laws and regulations, including environmental, health and safety laws and regulations, we could become subject to fines or
penalties or incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment
and disposal of hazardous materials and wastes, and the treatment of animals used in research. Our operations involve using hazardous and flammable materials, including
chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and
wastes. We cannot eliminate the risk of contamination or injury from these materials. If contamination occurs or injury results from our use of hazardous materials, we could be
held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
The federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers, including clinical
laboratories, whose workers may be exposed to blood-borne pathogens such as the hepatitis C virus. These requirements, among other things, require work practice controls,
protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne
pathogens. In addition, the Needlestick Safety and Prevention Act requires, among other things, that we include in our safety programs the evaluation and use of engineering
controls such as safety needles if found to be effective at reducing the risk of needlestick injuries in the workplace.
Although our workers’ compensation insurance may cover us for costs and expenses, we may incur additional costs due to injuries to our employees resulting from the use of
hazardous materials or other work-related injuries, and this insurance may not provide adequate coverage against other potential liabilities. We may incur substantial costs to
comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or
production efforts. Failure to comply with these laws and regulations also may cause substantial fines, penalties or other sanctions.
If we fail to comply with Nasdaq’s minimum bid price requirement in the future, it could result in delisting of our common stock, negatively affect the price of our
common stock and limit investors’ ability to trade in our common stock.
Our common stock is listed on The Nasdaq Capital Market (“Nasdaq”). Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price,
corporate governance standards and number of public stockholders. In November 2021 we were notified by Nasdaq that we are not compliant with its closing bid price
requirement because the closing bid price of our common stock was below $1.00 per share for 30 consecutive trading days. Because our common stock failed to trade at higher
levels so that we could regain compliance with the Nasdaq minimum closing bid price, our Board recommended and our stockholders approved a reverse stock split subject to
further Board approval. In order to regain compliance with the Nasdaq minimum bid provision, we effected a 1-for-12 reverse stock split by amending our Certificate of
Incorporation on October 11, 2022.
Previously in December 2019 and again in November 2020, we failed to comply with the Nasdaq minimum bid price but were able to regain compliance without effecting a
reverse stock split at those times.
Additionally, a reverse stock split typically has the effect of reducing the number of holders of shares in “round lots,” meaning those holding 100 or more shares. Another
requirement for being listed on Nasdaq is that the Company have a minimum of 300 round lot holders. While the bid price of our common stock was $[XX] on March [XX],
2024. If we again fail to comply with Nasdaq’s minimum bid price, it is possible in the future that we will again have to seek stockholder approval, which we may not obtain
particularly since retail investors often oppose reverse splits or do not vote and a reverse split requires the approval of the holders of the majority of the outstanding shares of
our common stock.
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RISKS RELATED TO OUR COMMON STOCK
Our stock price and trading volume has historically been volatile, and any increases in these metrics may be temporary for a number of reasons, which may cause
investors to lose money.
Our stock price and trading volume is volatile, and the limited periods in which there were increases to our stock price and trading volume have historically been temporary in
nature. Therefore, there can be no assurance that our stock price or trading volume will increase in the future, permanently or at all. For example, in order to increase our stock
price above the $1.00 Nasdaq bid price minimum requirement, we effected a 1-for-12 reverse stock split on October 22, 2022. In the months leading up to the reverse split, the
closing prices for our common stock (as retroactively adjusted for the reverse split) declined from $5.03 in late August 2022 down to $2.75 on October 10, 2022, and declined
further following the reverse split taking effect to below $2.00 on certain dates in December 2022 and February 2023. More recently, our common stock fell from as high as
$3.14 in August 2023 to $1.46 in November 2023, and it has hovered around that range since. Our common stock may continue to be volatile and could materially fall for a
number of reasons including:
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Announcements by the FDA of final approval of vaccines and treatments for COVID-19 and other diseases we target;
Announcements relating to the spread of new variants of COVID-19 and other diseases we target;
Announcements by competitors that they are initiating human trials of drugs to treat the diseases we target;
Events which demonstrate that the spread or intensity of COVID-19 or other diseases has receded;
Our disclosure that the use of our technology and the patents we licensed do not appear promising for the treatment of this virus;
The results of our clinical trials;
Our announcement concerning the initiation of or delay in our planned clinical trials;
Announcements of entering into or terminating strategic alliances such as the termination of the Merck Collaboration Agreement which we disclosed in December 2023
and the terminations of the KSURF License Agreements which we disclosed in March 2024; or
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The occurrence of any other events or factors which may have created the unusual volatility and spike in volume.
If the current price is reduced, investors may sustain large losses.
Due to factors beyond our control, our common stock price may be volatile, or may decline regardless of our operating performance, and you may not be able to
resell your shares.
The market price of our common stock will depend on a number of factors, many of which are beyond our control and may not be related to our operating performance. These
fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid. Factors that
could cause fluctuations in the market price of our common stock include the following:
● price and volume fluctuations in the overall stock market from time-to-time;
● due to external factors such as geopolitical turmoil, inflation or other events, including the conflicts in Ukraine and Israel or other unknown hostilities, investors may
sell our common stock to meet margin calls on other stocks or as the result of economic disruptions;
● volatility in the market prices and trading volumes of biotechnology stocks generally, or those in our peer group in particular;
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● changes in operating performance and stock market valuations of other biotechnology companies generally, or those in our industry in particular;
● sales of shares of our stock by us or our stockholders;
● the failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these
estimates or the expectations of investors;
● Announcement of a future reverse split or our failure to obtain stockholder approval for a reverse split;
● announcements by us or our competitors of new novel medicines;
● the public’s reaction to our earnings releases, other public announcements and filings with the SEC;
● rumors and market speculation involving us or other companies in our industry;
● actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
● actual or anticipated changes in our operating results or fluctuations in our operating results;
● developments or disputes concerning our intellectual property or other proprietary rights;
● new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
● changes in accounting standards, policies, guidelines, interpretations or principles;
● any significant change in our management; and
● general economic conditions and slow or negative growth in any of our significant markets.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often
been instituted against these companies. Any litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
Because of geopolitical conflicts, central bank actions to combat inflation and other major events, the effect on the capital markets and the economy is uncertain, and
we may have to deal with a recessionary economy and economic uncertainty including possible material adverse effects upon our business.
Beginning with the Russian invasion of Ukraine, certain events began to affect the global and United States economy including increased inflation, increases in the prices of
commodities such as oil and gas, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in leading market indexes. In 2023
another conflict arose in Israel which has also added to the uncertainty. The duration of these events and their impact are at best uncertain and continuation may result in
negative consequence on the U.S. or global economies. Further, in March 2023 two major U.S. banks collapsed, while certain other banks faced extreme financial difficulty and
had to seek immediate sources of liquidity to remain open. These developments were widely considered a product of the increase in interest rates that began in 2022 as the
Federal Reserve in U.S. and central banks in other jurisdictions have sought to combat inflation. While in the U.S. inflation has since declined, uncertainty remains as to the
timing of the Federal Reserve reducing interest rates, and if inflation does not fall low enough and/or the Federal Reserve declines to reduce interest rates in the near term, the
result could be tipping the U.S. economy into a recession. In the wake of these events, the U.S. and global capital markets have demonstrated volatility, as many investors
consider economic outlooks to be uncertain . While the capital markets have since recovered, ultimately the economy may turn into a recession with uncertain and potentially
severe impacts upon public the capital markets and us. We cannot predict how this will affect our business, but the impact may be material and adverse.
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Future issuances of our common stock or rights to purchase our common stock could cause additional dilution of the percentage ownership of our stockholders and
could cause our stock price to fall.
During the year ended December 31, 2023 we conducted a private sale of a total of 2,030,458 shares of our common stock for gross proceeds of $4,000,000, and did not
conduct any public offerings. We expect that our current cash position will be sufficient to fund our operations over the next 12 months subject to the many uncertainties and
risks that may rise such as those described herein, significant additional capital may be needed in the future to continue our planned operations. To the extent we have raised
and continue to raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or
other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity
securities in more than one transaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to our existing stockholders,
and new investors could gain rights superior to our existing stockholders.
Future sales of large amounts of our common stock in the public market or a perception that such sales might occur could cause a decrease in our stock price.
As of March 28, 2024, out of approximately 10.2 million shares of common stock outstanding, approximately 6.8 million are either free trading or may be sold without volume
or manner of sale limitations under Rule 144. The remainder of our shares, because they are held by our officers, directors and one 5% stockholder subject to a voting
agreement, who we deem affiliates, are subject to additional restrictions as described below.
In general, Rule 144 provides that any person who is not an affiliate of the Company and has not been an affiliate for 90 days, and who has held restricted common stock for at
least six months, is entitled to sell their restricted stock freely, provided that we remain subject to the Exchange Act reporting requirements and stay current in our SEC filings.
The shares of common stock outstanding which are held by affiliates of the Company are subject to additional restrictions. An affiliate may sell the greater of (i) one percent of
our outstanding stock or (ii) as long as our common stock is listed on Nasdaq, the average weekly trading volume over a prior four-week period after a six-month holding
period with the following restrictions:
(i) we are current in our filings;
(ii) certain manner of sale provisions; and
(iii) filing of Form 144.
Additionally, as of December 31, 2023, we had approximately 558,000 options and 11,000 warrants outstanding that, if fully exercised, would result in the issuance of 569,000
shares of common stock and approximately 275,000 shares of common stock remain available for future grants under the Cocrystal Pharma, Inc. 2015 Equity Incentive Plan.
Future sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales may occur, could cause the market price of our
common stock to decline significantly, even if our business is performing well.
External pressures and requirements which may arise related to, environmental, social and governance (“ESG”) matters, and any undertakings or disclosure by us
which may result, would expose us to numerous risks, including risks to our reputation and stock price.
In recent years, institutional and individual investors focused on ESG screening criteria to determine whether certain equity securities such as our common stock should be
included in their investment portfolios, although certain states are resisting using ESG criteria. A growing number of investors, regulators, self-regulatory organizations and
other stakeholders have expressed an interest in setting often-ambitious ESG goals and to require the provision of new and more robust disclosure and implementation of such
goals, including progress toward the goals and other matters of interest to ESG stakeholders. However, in January 2024, two large financial firms, JP Morgan Asset
Management and State Street Global Advisors, retreated from the Climate Action 100+ investor compact, which launched in 2017 as a collaborative investor group working to
influence large corporate emitters of greenhouse gasses to commit to net zero targets and introduce climate-related governance and disclosure processes. Further, it is reported
investors pulled a total of $13 billion out of ESG-focused investment funds during the 2023 fiscal year. In December 2023, House Republicans subpoenaed BlackRock and
State Street Global Advisors, requesting documents and communications relating to their respective advancement of ESG policies in connection with an ongoing investigation
into current antitrust laws.
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While the large financial firms’ exit from ESG initiatives may spark a larger trend of stepping away from ESG-related investment decisions, it is uncertain how the market at
large will respond. If we decide to report any of the Company’s ESG-related efforts, goals, or objectives, we could be presented with numerous material operational,
reputational, financial, legal and other risks, any or all of which could have a material negative impact, including on our reputation and stock price. For example, any ESG
objectives or policies we implement, be it in response to new laws, regulations or rules (including any that may in the future be implemented by the SEC or Nasdaq), actions
taken by self-regulatory organizations, investors or other stakeholders, or otherwise, could cause us to expend significant capital and human resources and/or divert
management’s attention from central operational matters. Further, any failure by us to accurately disclose and effectively carry out ESG undertakings, which may include
forward-looking proposals based on assumptions and subject to factors beyond our control, could expose us to reputational harm, government enforcement or private litigation,
and stock price and volume volatility.
Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986 if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its
equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carry forwards (“NOLs”), and other pre-change tax attributes (such
as research tax credits) to offset its post-change income may be limited. We believe that, with the RFS Pharma, LLC and Cocrystal Discovery, Inc. mergers and other
transactions that have occurred more than seven years ago, we may have triggered an “ownership change” limitation. We may also experience ownership changes in the future
because of subsequent shifts in our stock ownership. If we generate taxable income, our ability to use our pre-change NOLs carry forwards to offset U.S. federal taxable income
may be subject to limitations, which could result in increased future tax liability to us. At the state level, there may be periods during which the use of NOLs is suspended or
otherwise limited, which could accelerate or permanently increase state taxes owed.
Because we may not attract the attention of major brokerage firms, it could have a material impact upon the price of our common stock.
It is possible that securities analysts of major brokerage firms will not provide research coverage for our common stock. The absence of such coverage limits the likelihood that
an active market will develop for our common stock. It may also make it more difficult for us to attract new investors when we acquire additional capital.
We may issue preferred stock which could make it more difficult for a third-party to acquire us and could depress our stock price.
In accordance with the provisions of our Certificate of Incorporation and the Stockholder Rights Agreement described above, our Board may issue one or more additional series
of preferred stock that have more than one vote per share, so long as the Board obtains the majority approval of the stockholders who formerly held our Series A Convertible
Preferred Stock, which is no longer authorized. This could permit our Board to issue preferred stock to investors who support our management and give effective control of our
business to our management. Issuance of preferred stock could block an acquisition resulting in both a drop in our stock price and a decline in interest of our common stock.
This could make it more difficult for stockholders to sell their common stock. This could also cause the market price of our common stock shares to drop significantly, even if
our business is performing well.
39
Our amended and restated Bylaws provide for an exclusive forum in the Court of Chancery of the State of Delaware for certain disputes between us and our
stockholders, and the exclusive forum in the Delaware federal courts for the resolution of any complaint asserting a cause of action under the Securities Act and the
Exchange Act.
Our amended and restated Bylaws provide that unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware
(or, if such court does not have subject matter jurisdiction thereof, the U.S. District Court of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive
forum for: (i) any derivative action or proceeding brought on behalf of the Company (except to the extent that the Exchange Act provides otherwise), (ii) any action asserting a
claim of breach of a fiduciary duty owed by any director or officer (or affiliate of any of the foregoing) of the Company to the Company or the Company’s stockholders, (iii)
any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the Company’s Certificate of Incorporation or Bylaws, or (iv) any
other action asserting a claim arising under, in connection with, and governed by the internal affairs doctrine. The amended and restated Bylaws further provide that unless the
Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America located in Delaware will be the exclusive forum
for the resolution of any complaint asserting a cause of action arising under the Securities Act or the Exchange Act and any person or entity purchasing or otherwise acquiring
or holding any interest in shares of capital stock of the Company will be deemed to have notice of and consented to these provisions.
We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as
applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection
against the burdens of multi-forum litigation. If a court were to find the choice of forum provision that is contained in our amended and restated Bylaws to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business,
results of operations, and financial condition. For example, Section 22 of the Securities Act provides that state and federal courts have concurrent jurisdiction over claims to
enforce any duty or liability created by the Securities Act or the rules and regulations promulgated thereunder. Accordingly, there is uncertainty as to whether a court would
enforce such a forum selection provision as written in connection with claims arising under the Securities Act. To date, the Delaware Supreme Court has upheld the exclusive
jurisdiction provisions in certificates of incorporation for claims under the Securities Act. However, two different federal Court of Appeals reached conflicting decisions with
one Court ruling that a forum selection clause was unenforceable as to a derivative claim that was brought under the Exchange Act. Further, to date no court has ruled on the
exclusive venue provision for claims under the Securities Act and the other Court ruling it was enforceable. Accordingly, if a stockholder files a Securities Act claim or an
Exchange Act claim in a federal court and we seek to rely upon the Delaware venues, we may not be successful.
Because the choice of forum provisions in our Bylaws may have the effect of severing certain causes of action between federal and state courts, stockholders seeking to assert
claims against us or any of our current or former directors, officers, other employees, agents, or stockholders, may be discouraged from bringing such claims due to a possibility
of increased litigation expenses arising from litigating multiple related claims in two separate courts. Additionally, a stockholder could face uncertainty as to which jurisdiction
and venue a case will ultimately be heard in, particularly given that variations in facts, circumstances and the particular provisions at issue often alter the legal analysis and
judicial interpretation, which may delay, prevent or impose additional obstacles on the stockholder in such litigation. The choice of forum provisions may therefore limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for, or otherwise present obstacles and challenges in connection with, disputes with us or any of
our current or former director, officer, other employee, agent, or stockholder.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Like all companies that utilize technology, we are subject to threats of breaches of our technology systems. To mitigate the threat to our business, we take a comprehensive
approach to cybersecurity risk management. Our Board and our management actively oversee our risk management program, including the management of cybersecurity risks.
We have established policies, standards, processes and practices for assessing, identifying, and managing material risks from cybersecurity threats, including those discussed in
our Risk Factors. We have devoted financial and personnel resources to implement and maintain security measures to meet regulatory requirements and shareholder
expectations, and we intend to continue to make investments to maintain the security of our data and cybersecurity infrastructure. While there can be no guarantee that our
policies and procedures will be properly followed in every instance or that those policies and procedures will be effective, we believe that the Company’s sustained investment
in people and technologies have contributed to a culture of continuous improvement that has put the Company in a position to protect against potential compromises, and we do
not believe that risks from prior cybersecurity threats have materially affected our business to date. We can provide no assurance that there will not be incidents in the future or
that past or future attacks will not materially affect us, including our business strategy, results of operations, or financial condition.
40
Item 2. Properties
We have operating facilities in Bothell, Washington and Miami, Florida, as well as an administrative facility in Melbourne, Australia.
We lease approximately 15,400 square feet of office and laboratory space in Bothell, Washington under a lease agreement expiring in January 2031.
We also lease office space in Miami, Florida under a lease that expires in August 2024.
The Company believes that its properties are suitable for their intended purposes and have capacities adequate for current and projected needs related to the Company’s
programs.
Item 3. Legal Proceedings
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this Report, except as
described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business,
results of operations, cash flows or financial position.
Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any
settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in connection with the
SEC investigation were not covered by insurance, and for recoupment of the monies already paid. We had retained counsel to defend us which had filed an answer to the
complaint denying its material allegations, as well as a counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington
State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the Company’s claims for coverage of the class and derivative litigations, and
seeking money damages. Liberty Insurance Underwriters Inc. filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance
coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in
connection with the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. On June 7, 2022, the court filed a Stipulation and Order
for Entry of Judgment in the amount of $1,359,064 in favor of Liberty (the “Judgment”) following summary judgment granted by the court to Liberty on all but one of the
matters at issue in the case. The Company filed an appeal in July 2022. On March 29, 2023, the Third Circuit ruled in favor of the Company on the appeal, thereby vacating the
trial court’s prior grant of summary judgment in favor of Liberty. As a result of this ruling, the case has been remanded to the District Court for trial on the merits of the
Company’s coverage claims for defense and settlement costs. The Court had ordered the return of the $1.6 million. On August 8, 2023, the Company received $1.6 million as
refunded by the registry of the court. On November 16, 2023, prior to commencement of a new trial which had been scheduled for December 4, 2023, the parties entered into a
settlement agreement pursuant to which Liberty paid the Company $1 million and each party released the other from its respective claims and rights arising from the matter.
There is no further litigation with Liberty following this settlement.
Item 4. Mine Safety Disclosures
Not applicable.
41
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
PART II
Our common stock is traded on The Nasdaq Capital Market under the symbol “COCP”. As of March 28, 2024, there were approximately 434 holders of record of our common
stock.
Dividend Policy
We have not declared nor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and
we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors,
in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers significant. Our
ability to pay cash dividends is governed by applicable provisions of Delaware law.
Unregistered sales of equity securities
All unregistered sales of our equity securities during the period covered by this Annual Report on Form 10-K have been previously reported.
Item 6. Selected Financial Data
As a smaller reporting company as defined in Rule 12b-2 of the Exchange Act, we are not required to include information otherwise required by this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements included elsewhere in this report.
Company Overview
We develop novel medicines for use in the treatment of human viral diseases. Cocrystal has been developing novel technologies and approaches to create first-in-class and best-
in-class antiviral drug candidates since 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug candidates that will transform the
treatment and prophylaxis of viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors, we plan to leverage our
infrastructure and expertise in these areas.
During our year ended December 31, 2023, the following key aspects of our business advanced:
Pandemic and Seasonal Influenza A
● Our novel oral PB2 inhibitor, CC-42344, has shown excellent antiviral activity against influenza A strains including pandemic and seasonal strains, as well as strains
resistant to Tamiflu® and Xofluza®.
● In March 2022 enrollment was initiated in a randomized, double-blind, placebo-controlled Phase 1 study of CC-42344, which was conducted in Australia. In
December 2023, we reported favorable safety and tolerability results from a Phase 1 study of CC-42344 for the treatment of both pandemic and seasonal influenza A.
● In October 2023 we announced receipt of authorization from the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA) to initiate a Phase
2a human challenge trial with its broad-spectrum, oral PB2 inhibitor CC-42344 as a potential treatment for pandemic and seasonal influenza A. In December 2023 we
announced achievement of first-patient-in for the Phase 2a human challenge clinical trial. Clinical results are expected in 2024.
42
● Preclinical development is progressing with an inhaled formulation of CC-42344 as a treatment and prophylaxis for influenza A.
Pandemic and Seasonal Influenza A/B Program
● Novel inhibitors effective against both influenza strains A and B have been identified and are in the preclinical stage.
Oral Protease Inhibitor CDI-988
● A novel, broad-spectrum pan-viral 3CL protease inhibitor antiviral drug candidate CDI-988 for clinical development as an oral treatment for SARS-CoV-2 and
norovirus.
● Conducting randomized, double-blind, placebo-controlled Phase 1 study of CDI-988 is approved by Australia Human Research Ethics Committees (HREC). The study
is designed to access the safety, tolerability and pharmacokinetics of CDI-988.
● In September 2023 we announced dosing of the first subjects in the Phase 1 clinical trial with oral, first-in-class pan-norovirus and pan-coronavirus 3CL protease
inhibitor CDI-988.
Replication Inhibitors
○ We are using our proprietary structure-based drug discovery platform technology to discover replication inhibitors for orally administered therapeutic and prophylactic
treatments for SARS-CoV-2. Replication inhibitors hold potential to work with protease inhibitors in a combination therapy regimen.
Results of Operations
Research and Development Expense
Research and development expenses consist primarily of compensation-related costs for our ten employees dedicated to research and development activities and for our
Scientific Advisory Board members, as well as lab supplies, lab services, and facilities and equipment costs.
Total research and development expenses were $15,169,000 for the year ended December 31, 2023, compared with $12,392,000 for the year ended December 31, 2022. The
increase of $2,777,000 was primarily due to advancing our influenza lead candidate CC-42344 through a Phase 1 trial and preparation for a Phase 2a clinical trial planned for
2023, as well as advancing our lead COVID-19 clinical oral candidate CDI-988 in preparation for a Phase 1 clinical trial planned for 2023.
General and Administrative Expense
General and administrative expenses include compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees,
consultants and professional services, and general corporate expenses.
General and administrative expenses were $5,990,000 for the year ended December 31, 2023, compared with $5,745,000 for the year ended December 31, 2022. This increase
of $245,000 was primarily due professional fees and litigation.
In the ordinary course of business, the Company entered into non-cancellable related party leases for its facilities (see Note 14 – Transactions with Related Parties in the
Consolidated Financial Statements).
43
Goodwill Impairment
During the six months ended June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and
our recorded net book value exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market capitalization
of the Company at June 30, 2022 and concluded that goodwill was impaired in its entirety and recorded during the second quarter ended June 30, 2022 a $19,092,000 non-cash
impairment. As of December 31, 2023 and 2022, the Company had no remaining goodwill.
Legal Settlement
In July 2022, the Company filed a legal appeal and deposited $1.6 million with the United State District Court for the District of Delaware as security during pending our
appeal. During the second quarter ended June 30, 2022, the Company recorded a legal judgement for this amount inclusive of estimated costs. During the third quarter of 2023,
the Company received a $1.6 million refund from the registry of the court reflecting the recovery of funds following a successful appeal in the Company’s litigation with an
insurer. During November 2023, a settlement agreement was executed and the insurer paid the Company an additional $1.0 million. There is no further litigation with the
insurer following the settlement. See “Item 3. Legal Proceedings” for more information
Total other Income/Expense
Total other income was $575,000 for the year ended December 31, 2023, compared to total other expense of $8,000 for the year ended December 31, 2022. This increase of
$583,000 was primarily due to interest income discussed below.
Interest income was $640,000 for the year ended December 31, 2023, compared to interest expense of $2,000 for the year ended December 31, 2022. The interest income in
2023 was related to interest earned from cash held in banks and deposits with court registry and the expense in 2022 was related to finance lease agreements.
We also had foreign exchange loss of $65,000 and $18,000 for the years ended December 31, 2023 and 2022, respectively, related to currency exchange rate measurements with
regards to our Australian operations.
Net Loss
We had a net loss of $17,984,000 for the year ended December 31, 2023, compared to a net loss of $38,837,000 for the year ended December 31, 2022. This decrease of
$20,853,000 was primarily due to a $19,092,000 non-cash impairment-loss of goodwill in 2022 and offset by increases in research and development expenses in 2023 due
transition from clinical trial phase I to phase II of our CC-42344 product, and compensated by the increase efforts in the initiation of clinical trial phase I for CDI-988 and other
product candidates.
44
Liquidity and Capital Resources
For the year ended December 31, 2023, net cash used in operating activities was $14,666,000, compared to net cash used in operating activities of $21,435,000 for the year
ended December 31, 2022. The decrease in cash used in operating activities in 2023 as compared to 2022 was attributable to the decrease of operating costs related to our
COVID-19 and influenza-A clinical trials.
For the year ended December 31, 2023, net cash used in investing activities netted to $118,000, which consisted of capital expenditures for lab equipment, software, and
networking for our Lab located in Bothell, Washington. For the year ended December 31, 2022, our net cash used in investing activities consisted of $74,000.
For the year ended December 31, 2023, net cash provided by financing activities was $3,993,000, compared to net cash used by financing activities of $27,000 for the year
ended December 31, 2022. Net cash provided by financing activities in 2023 was result of a raise of $4,000,000 in a private placement sale of common stock.,
We expect that our reported cash balance will be sufficient to support the Company’s working capital needs for the 12 months following the filing of this Report.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is capital-intensive. As a rule, research and development expenses increase
substantially as a company advances a product candidate toward clinical programs. Historically, we have financed our operations with the proceeds from public and private
equity and debt offerings, including additional investments by certain existing stockholders, and entered into strategic partnerships and collaborations for the research,
development and commercialization of product candidates. Because we have an influenza A product candidate that is currently in a Phase 2a clinical trial and a pan-viral
coronavirus & norovirus product candidate that is currently in a Phase 1 clinical trial we may need to raise additional capital to support our operations or form partnerships and
collaborative alliances. Such funding may not be available to us on acceptable terms, or at all.
The Company is party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to
which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. In January
2021, the Company sold 1,030,000 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2.1 million. There have been no sales under
the ATM Agreement since then.
Cautionary Note Regarding Forward Looking Statements
This Annual Report includes forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995, including statements regarding our plans
for the future development of preclinical and clinical drug candidates, our expectations regarding future characteristics of the product candidates we develop, the expected time
of achieving certain value driving milestones in our programs, including, preparation, commencement and advancement of clinical studies for certain product candidates in
2024, our expectations with respect to market opportunities for certain product candidates and our plans regarding further clinical development of such product candidates, our
search for collaboration partners following the termination of agreements with Merck and KSURF, our expectations regarding future operating results, statement regarding the
suitability and adequacy of our properties and capital resources, and our future liquidity.
The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar
expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and
projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ
materially from these forward-looking statements include inflation, the possibility of recession, interest rate increases and the conflicts in Ukraine and Israel on our Company,
our collaboration partners, and on the U.S., U.K., Australia and global economy, including manufacturing and research delays arising from raw materials and labor shortages,
supply chain disruptions and other business interruptions including any adverse impacts on our ability to obtain raw materials and test animals as well as similar problems with
our vendors and our current and any future CROs and CMOs, the results of the studies for CC-42344 and CDI-988, the ability of our CROs to recruit volunteers for, and to
proceed with, clinical studies, our and our collaboration partners’ technology and software performing as expected, financial difficulties experienced by certain partners, the
results of future preclinical and clinical trials, general risks arising from clinical trials, receipt of regulatory approvals, regulatory changes, development of effective treatments
and/or vaccines by competitors, including as part of the programs financed by the U.S. government, and potential mutations in a virus we are targeting which may result in
variants that are resistant to a product candidate we develop. Further information on such uncertainties and risks is contained in the “Risk Factors” in Item 1A of this this
Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
For more information regarding some of the ongoing risks and uncertainties of our business, see “Item 1A – Risk Factors” and our other filings with the SEC.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in
accordance with U.S. Generally Accepted Accounting Principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below.
We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions
form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may
differ materially from these estimates. While our significant accounting policies are more fully described in the accompanying notes to the consolidated financial statements
included in this Annual Report on Form 10-K for the year ended December 31, 2023, we believe that the following accounting policies are the most critical to aid you in fully
understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our consolidated financial
statements.
45
Stock-Based Compensation
We account for stock options related to our equity incentive plans under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 718 which requires the recognition of the fair value of stock-based compensation. The fair value of stock options is estimated using a Black-Scholes option valuation
model. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. The fair value of
equity-based awards is amortized over the requisite service period of the award. Due to the limited amount of historical data available to us, particularly with respect to stock-
price volatility, employee exercise patterns and forfeitures, actual results could differ from our assumptions.
Recently Issued Accounting Standards
See discussion in Note 2 to the consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements
The consolidated financial statements of Cocrystal Pharma, Inc. required by this Item are described in Item 15 of this Annual Report on Form 10-K and are presented beginning
on page F-1.
46
COCRYSTAL PHARMA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Certified Public Accounting Firm (PCAOB ID No. 572)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Cocrystal Pharma, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cocrystal Pharma, Inc. (the “Company”) and subsidiaries as of December 31, 2023 and 2022, the related
consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022,
and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board of the United States (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit
committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. We determined that there are no critical audit matters.
We have served as the Company’s auditor since 2019.
Weinberg & Company, P.A.
Weinberg & Company, P.A
Los Angeles, California
March 28, 2024
F-2
COCRYSTAL PHARMA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, 2023
December 31, 2022
Assets
Current assets:
Cash
Restricted cash
Tax credit receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deposits
Operating lease right-of-use assets, net (including $42 and $99 to related party)
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued expenses
Current maturities of finance lease liabilities
Current maturities of operating lease liabilities (including $42 and $59 to related party)
Total current liabilities
Long-term liabilities:
Operating lease liabilities (including $0 and $42 to related party)
Total long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock $0.001 par value; 150,000 shares authorized as of December 31, 2023 and December 31,
2022, respectively; 10,174 and 8,143 shares issued and outstanding as of December 31, 2023 and
December 31, 2022, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
See accompanying notes to consolidated financial statements.
F-3
$
$
$
26,353
75
890
1,773
29,091
271
46
1,851
31,259
3,022
-
240
3,262
1,613
1,613
4,875
37,144
75
716
2,243
40,178
342
46
274
40,840
976
7
233
1,216
57
57
1,273
10
342,288
(315,914)
26,384
31,259
$
8
337,489
(297,930)
39,567
40,840
COCRYSTAL PHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Operating expenses:
Research and development
General and administrative
Legal settlement
Impairments
Total operating expenses
Loss from operations
Other (expense) income:
Interest income (expense), net
Change in fair value of derivative liabilities
Foreign exchange loss
Total other income (expense), net
Net loss
Net loss per common share:
Loss per share, basic and diluted
Weighted average number of common shares outstanding, basic and diluted
See accompanying notes to consolidated financial statements.
F-4
December 31,
2023
2022
$
15,169
5,990
(2,600)
-
18,559
12,392
5,745
1,600
19,092
38,829
(18,559)
(38,829)
640
-
(65)
575
(2)
12
(18)
(8)
(17,984)
$
(38,837)
(1.87)
9,651
$
(4.77)
8,143
$
$
$
COCRYSTAL PHARMA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balance as of December 31, 2021
Stock-based compensation
Net loss
Balance as of December 31, 2022
Stock-based compensation
Sale of common stock to related entities, net of transaction costs
Net loss
Balance as of December 31, 2023
Common Stock
Shares
Amount
8,143
-
-
8,143
-
2,031
-
10,174
$
$
$
Additional
Paid-in
Capital
Accumulated
Total
Stockholders’
Deficit
Equity
8
-
-
8
-
2
-
10
$
$
$
336,634
855
-
337,489
801
3,998
-
342,288
$
$
$
(259,093)
-
(38,837)
(297,930)
-
-
(17,984)
(315,914)
$
$
$
77,549
855
(38,837)
39,567
801
4,000
(17,984)
26,384
See accompanying notes to consolidated financial statements.
F-5
COCRYSTAL PHARMA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation-and-amortization expense
Right of use assets
Loss on impairment of goodwill
Stock-based compensation
Change in operating lease liabilities
Change in fair value of derivative liabilities
Changes in operating assets and liabilities:
Tax credit receivable
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Net cash used in operating activities
Investing activities:
Purchases of property and equipment
Net cash used in investing activities
Financing activities:
Payments of finance lease obligations
Proceeds from sale of common stock, net of transaction costs
Net cash provided by (used in) financing activities
Net decrease in cash and restricted cash
Cash and restricted cash at beginning of period
Cash and restricted cash at end of period
See accompanying notes to consolidated financial statements.
F-6
December 31,
2023
2022
$
(17,984)
$
(38,837)
189
(1,577)
-
801
1,563
-
(174)
470
2,046
(14,666)
(118)
(118)
(7)
4,000
3,993
(10,791)
37,219
26,428
$
$
185
203
19,092
855
(209)
(12)
(716)
(1,675)
(321)
(21,435)
(74)
(74)
(27)
-
(27)
(21,536)
58,755
37,219
COCRYSTAL PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2023 and 2022
1. Organization and Business
Cocrystal Pharma, Inc. (“we”, the “Company” or “Cocrystal”), a biopharmaceutical company, has been developing novel technologies and approaches to create first-in-class
and best-in-class antiviral drug candidates since its initial funding in 2008. Our focus is to pursue the development and commercialization of broad-spectrum antiviral drug
candidates that will transform the treatment and prophylaxis of viral diseases in humans. By concentrating our research and development efforts on viral replication inhibitors,
we plan to leverage our infrastructure and expertise in these areas.
In September 2021, the Company opened a wholly owned foreign subsidiary in Australia named Cocrystal Pharma Australia, Ltd (“Cocrystal Australia”) with the objective of
operating clinical trials in Australia.
On September 27, 2022, the Company filed a Certificate of Amendment to the Certificate of Incorporation (the “Amendment”) with the Delaware Secretary of State to effect a
reverse stock split of all outstanding shares of the Company’s common stock at a ratio of one-for-12. At the Company’s 2022 Annual Meeting of Stockholders, holders of a
majority of the outstanding voting power approved an amendment to the Certificate of Incorporation of the Company to effect a reverse stock split of all outstanding shares of
our common stock at a ratio to be determined by the Board of Directors within a range of one-for-four through one-for-12. Following such approval, The Board of Directors
determined to effect the reverse stock split at the ratio of one-for-12. The Amendment became effective October 11, 2022 and the effect of the reverse stock split was reflected
on the Nasdaq Stock Market.
All share and per share amounts have been retroactively restated to reflect the one-for-12 stock split as if it occurred at the beginning of the earliest period presented.
Liquidity
The Company’s consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern,
which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net losses and negative operating cash
flows since inception. For the year ended December 31, 2023, the Company recorded a net loss of approximately $17,984,000 and used approximately $14,666,000 of cash in
operating activities.
On December 31, 2023, the Company had cash and cash equivalents of approximately $26,353,000. We believe that our current resources will be sufficient to fund our
operations beyond the next 12 months. This estimate is based, in part, upon our currently projected expenditures.
The Company’s activities since inception have principally consisted of acquiring product and technology rights, raising capital, and performing research and development.
Successful completion of the Company’s development programs, obtaining regulatory approvals of its products and, ultimately, the attainment of profitable operations is
dependent on future events, including, among other things, its ability to access potential markets, secure financing, develop a customer base, attract, retain and motivate
qualified personnel, and develop strategic alliances. Through December 31, 2023, the Company has primarily funded its operations through equity offerings.
The Company will need to continue obtaining adequate capital to fund operating losses until it becomes profitable. The Company can give no assurances that the additional
capital it is able to raise, if any, will be sufficient to meet its needs, or that any such financing will be obtainable on acceptable terms. Our future cash requirements, and the
timing of those requirements, will depend on a number of factors, including economic conditions, the approval and success of our products in development, the continued
progress of research and development of our product candidates, the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining, defending, and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing, our
success in developing markets for our product candidates and legal proceedings that may arise. We have historically not generated sustained positive cash flow and if we are not
able to secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more of our clinical trials or research and development programs.
If the Company is unable to obtain adequate capital, it could be forced to cease operations or substantially curtail its drug development activities. The Company expects to
continue incurring substantial operating losses and negative cash flows from operations over the next several years during its pre-clinical and clinical development phases.
Additionally, the rapid development and fluidity of the COVID-19 pandemic and new variants of the virus makes it very difficult to predict its ultimate impact on our business,
results of operations and liquidity. We will continue to monitor and assess the impact COVID-19 and new variants of the virus may have on our business and financial results.
F-7
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting of annual financial information.
Principles of Consolidation
The consolidated financial statements include the accounts of Cocrystal Pharma, Inc. and its wholly owned subsidiaries: Cocrystal Pharma Australia Pty, Ltd., Cocrystal
Discovery, Inc., Cocrystal Merger Sub, Inc., Baker Cummins Corp. and Biozone Laboratories, Inc. Intercompany transactions and balances have been eliminated.
Segments
The Company operates in one segment. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision makers have been identified as
the Co-Chief Executive Officers, who review operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing
guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually
entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating
units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and
procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found
in the accompanying consolidated financial statements.
Use of Estimates
Preparation of the Company’s consolidated financial statements in conformance with U.S. GAAP requires the Company’s management to make estimates and assumptions that
impact the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in the Company’s consolidated financial
statements and accompanying notes. The significant estimates in the Company’s consolidated financial statements relate to the valuation of equity awards and derivative
liabilities, recoverability of deferred tax assets, estimated useful lives of fixed assets, and forecast assumptions used in the impairment testing of goodwill. The Company bases
estimates and assumptions on historical experience, when available, and on various factors that it believes to be reasonable under the circumstances. The Company evaluates its
estimates and assumptions on an ongoing basis, and its actual results may differ from estimates made under different assumptions or conditions.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash deposited in accounts held at two U.S. financial
institutions, which may, at times, exceed federally insured limits of $250,000 for each institution accounts are held. At December 31, 2023 and 2022, our primary operating
account held approximately $16,327,000 and $37,144,000, respectively, and our collateral account balance of $75,000 as of December 31, 2023 and other cash accounts are
maintained at different institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risks thereof.
F-8
Risks and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results
to vary materially from expectations include, but are not limited to, rapid technological change, ability to obtain regulatory approvals, competition from currently available
treatments and therapies, competition from larger companies, effective protection of proprietary technology, maintenance of strategic relationships, and dependence on key
individuals.
Products developed by the Company will require clearances from the U.S. Food and Drug Administration (the “FDA”) and other international regulatory agencies prior to
commercial sales in their respective markets. The Company’s products may not receive the necessary clearances and if they are denied clearance, clearance is delayed, or the
Company is unable to maintain clearance, the Company’s business could be materially, adversely impacted.
Cash and Restricted Cash
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents, and the Company held
no cash equivalents as of December 31, 2023 and 2022.
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown
in the consolidated statements of cash flows (in thousands):
Cash
Restricted cash
Total cash and restricted cash shown in the statements of cash flows
December 31, 2023
26,353
75
26,428
$
$
December 31, 2022
37,144
75
37,219
$
$
Restricted cash represents amounts pledged as collateral for financing arrangements that are currently limited to the issuance of business credit cards. The restriction will end
upon the conclusion of these financing arrangements.
Property and Equipment
Property and equipment, which consists of lab equipment (including lab equipment under capital lease), computer equipment, and office equipment, is recorded at cost and
depreciated over the estimated useful lives of the underlying assets (three to five years) using the straight-line method.
Fair Value Measurements
FASB Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and
enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation
techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair
value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the
following:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.
Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the
measurement date.
F-9
The Company categorizes its cash and restricted cash as Level 1 fair value measurements. The Company categorizes its warrants potentially settleable in cash as Level 3 fair
value measurements. The warrants potentially settleable in cash are measured at fair value on a recurring basis and are being marked to fair value at each reporting date until
they are completely settled or meet the requirements to be accounted for as component of stockholders’ equity. The warrants are valued using the Black-Scholes option pricing
model as discussed in Note 9 – Warrants.
At December 31, 2023 and 2022, the carrying amounts of financial assets and liabilities, such as cash, other assets, and accounts payable and accrued expenses approximate
their fair values due to their short-term nature.
The Company has not transferred any financial instruments into or out of Level 3 classification during the years ended December 31, 2023 and 2022. A reconciliation of the
beginning and ending Level 3 liabilities for is as follows (in thousands):
Balance, January 1,
Change in fair value of warrants potentially settleable in cash (Note 9)
Balance at December 31,
Goodwill
In November 2014, goodwill was recorded in connection with the acquisition of RFS Pharma.
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
2023
2022
$
$
-
$
-
-
$
12
(12)
-
We evaluate indefinite-lived intangible assets and goodwill for impairment annually, as of November 30, or more frequently when events or circumstances indicate that
impairment may have occurred. As part of the impairment evaluation, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that
it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, we then would proceed with
the quantitative impairment test to compare the fair value to the carrying value and record an impairment charge if the carrying value exceeds the fair value.
Fair value is typically estimated using an income approach based on the present value of future discounted cash flows. The significant estimates in the discounted cash flow
model primarily include the discount rate, and rates of future revenue and expense growth and/or profitability of the acquired assets. In performing an impairment test, the
Company considers, among other factors, the Company’s intention for future use of acquired assets, analyses of historical financial performance and estimates of future
performance of Cocrystal’s product candidates.
Long-Lived Assets
The Company regularly reviews the carrying value and estimated lives of its long-lived assets, including property and equipment, to determine whether indicators of
impairment may exist which warrant adjustments to carrying values or estimated useful lives. The determinants used for this evaluation include management’s estimate of the
asset’s ability to generate positive income from operations and positive cash flow in future periods as well as the strategic significance of the assets to the Company’s business
objective. Should an impairment exist, the impairment loss would be measured based on the excess of the carrying amount over the asset’s fair value.
F-10
Patent and Licensing Related Legal and Filing Costs
Due to the significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts and related
patent applications, all patent-related legal and filing fees and licensing-related legal fees are charged to operations as incurred. Patent and licensing-related legal and filing
costs were $396,000 and $506,000 for the years ended December 31, 2023 and 2022, respectively. Patent and licensing related legal and filing costs are included in general and
administrative costs in the Company’s consolidated statements of operations.
Research and Development Expenses
Research and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the acquisition, design, development
and testing of the Company’s clinical products. All research and development costs are expensed as incurred. Research and development costs are presented net of tax credits.
The Company’s Australian subsidiary is entitled to receive government assistance in the form of refundable and non-refundable research and development tax credits from the
federal and provincial taxation authorities, based on qualifying expenditures incurred during the fiscal year. The refundable credits are from the provincial taxation authorities
and are not dependent on its ongoing tax status or tax position and accordingly are not considered part of income taxes. The Company records refundable tax credits as a
reduction of research and development expenses when the Company can reasonably estimate the amounts and it is more likely than not, they will be received. During the year
ended December 31, 2023, the Company recorded tax credits receivable of $890,000, of which approximately $823,000 was recorded as a reduction of research and
development expense.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to
be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some
portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain
tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only
after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit
that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or
measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax
expense.
Stock-Based Compensation
The Company periodically issues stock-based compensation to officers, directors, and consultants for services rendered. Such issuances vest and expire according to terms
established at the issuance date.
Stock-based payments to employees, directors, and for acquiring goods and services from nonemployees, which include grants of employee stock options, are recognized in the
financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation. Stock option grants to employees, which are
generally time vested, are measured at the grant date fair value and depending on the conditions associated with the vesting of the award, compensation cost is recognized on a
straight-line or graded basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid
cash for the services. The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially affect compensation
expense recorded in future periods.
F-11
Common Stock Purchase Warrants and Other Derivative Financial Instruments
We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares
(physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40, Contracts in Entity’s Own Equity. We classify
as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our
control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess the classification of our
common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is
required.
Net Income (Loss) per Share
The Company accounts for and discloses net income (loss) per common share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic income (loss) per common
share is computed by dividing income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per
common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares that would have been
outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable
upon the exercise of stock options and warrants.
The following table sets forth the number of potential common shares excluded from the calculations of net loss per diluted share because their inclusion would be anti-dilutive
(in thousands):
Outstanding options to purchase common stock
Warrants to purchase common stock
Total
Recent Accounting Pronouncements
December 31,
2023
2022
558
11
569
350
13
363
The Company’s management has evaluated all the recently issued, but not yet effective, accounting standards and guidance that have been issued or proposed by the FASB or
other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material
effect on the Company’s financial position and results of operations.
3. Foreign Currency Remeasurement
The U.S. dollar has been determined to be the functional currency for the net assets of Cocrystal Australia operations. The transactions are recorded in the local currencies and
are remeasured at each reporting date using the historical rates for nonmonetary assets and liabilities and current exchange rates for monetary assets and liabilities at the balance
sheet date. Exchange gains and losses from the remeasurement of monetary assets and liabilities are recognized in other income (loss). The Company recognized an loss of
approximately $65,000 and $18,000 for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2023 and 2022, the Company’s cash balances consisted of the following (in thousands):
U.S. Dollars
Australian Dollars – in US $
Cash Balance
2023
2022
$
$
26,402 $
26
26,428 $
37,177
42
37,219
F-12
4. Property and Equipment
Property and equipment as of December 31, consists of the following (table in thousands):
Lab equipment (excluding equipment under finance leases)
Finance lease right-of-use lab equipment obtained in exchange for finance lease liabilities, net
Computer and office equipment
Total property and equipment
Less accumulated depreciation
Property and equipment, net
2023
2022
$
$
1,757
162
155
2,074
(1,803)
271
$
$
1,631
194
131
1,956
(1,614)
342
Depreciation expense was $189,000 and $185,000 for the years ended December 31, 2023 and 2022, respectively.
5. Goodwill
The Company completed its annual impairment test in November 2021, and at that time determined the fair value of its reporting unit, as determined utilizing both the
Company’s Nasdaq market capitalization and an income approach analysis; exceeded the carrying value of the reporting unit as of December 31, 2021; therefore, management
did not consider the $19,092,000 of goodwill to be impaired.
The Company uses judgement in assessing whether assets may have become impaired between annual impairment tests. The occurrence of a change in circumstances, such as a
continued decline in the market capitalization of the Company, would determine the need for impairment testing between annual impairment tests. During the six months ended
June 30, 2022, the Company saw a significant decrease in its price of common stock resulting in an overall reduction in market capitalization and our recorded net book value
exceeded our market capitalization as of June 30, 2022. Pre-impairment, the carrying value of the reporting unit exceeded the market capitalization of the Company at June 30,
2022 and management concluded that goodwill was impaired in its entirety and recorded a $19,092,000 non-cash impairment.
As of December 31, 2023, the Company had no remaining goodwill.
F-13
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following as of December 31, (table in thousands):
Accounts payable
Accrued compensation
Accrued other expenses
Total accounts payable and accrued expenses
2023
2022
$
$
1,222
109
1,691
3,022
$
$
614
130
232
976
Accounts payable and accrued other expenses contain unpaid general and administrative expenses and costs related to research and development that have been billed and
estimated unbilled, respectively, as of year-end.
7. Common Stock
As of December 31, 2023, the Company has authorized 150,000,000 shares of common stock, $0.001 par value per share. The Company had approximately 10,174,000 and
8,143,000 shares issued and outstanding as of December 31, 2023 and 2022, respectively.
The holders of common stock are entitled to one vote for each share of common stock held.
On April 4, 2023, the Company entered into a Securities Purchase Agreement with two accredited investors (the “Purchasers”) whereby the Purchasers agreed to purchase a
total of 2,030,458 shares of unregistered common stock at a price of $1.97 per share for a total purchase price of $4,000,000 in two equal $2,000,000 investments. The
Purchasers were an entity controlled by a director and another investor who subsequently joined the Company’s Board of Directors.
The Company was a party to the At-The-Market Offering Agreement, dated July 1, 2020 (“ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to
which the Company may issue and sell over time and from time to time, to or through Wainwright, up to $10,000,000 of shares of the Company’s common stock. During
January 2021, the Company sold 85,834 shares of its common stock pursuant to the ATM Agreement for net proceeds of approximately $2.1 million. There have been no sales
under the ATM Agreement since then.
8. Stock Based Awards
Equity Incentive Plans
The Company adopted an equity incentive plan in 2007 (the “2007 Plan”). The 2007 Plan has expired, and the Company no longer issues any awards under the 2007 Plan. As
of December 31, 2022, there are 424 outstanding incentive stock options granted under the 2007 Plan that are eligible to purchase shares of the Company’s common stock. The
maximum term of options granted under the 2007 Plan was ten years.
The Company adopted a second equity incentive plan in 2015 (the “2015 Plan”) under which 833,333 shares of common stock have been reserved for issuance to employees,
and non-employee directors and consultants of the Company. Recipients of incentive stock options granted under the 2015 Plan shall be eligible to purchase shares of the
Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted
under the 2015 Plan is ten years. The options generally vest 25% after one year, with the remaining balance vesting monthly over the following three years. As of December 31,
2023, approximately 276 million options remain available for future grant under the 2015 Plan.
F-14
The following table summarizes stock option transactions for the 2007 Plan and 2015 Plan, collectively, for the years ended December 31, 2023 and 2022 (table in thousands,
except per share amounts):
Balance at December 31, 2021
Granted
Expired
Cancelled
Balance at December 31, 2022
Granted
Expired
Balance at December 31, 2023
Number of
Shares
Available
for Grant
Total
Options
Outstanding
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
629
(158)
12
1
484
(209)
-
275
$
$
205
158
(12)
(1)
350
209
(1)
558
$
$
23.76
5.04
33.24
15.36
15.36
2.67
22.89
10.57
-
-
-
9
9
-
-
-
During the year ended December 31, 2023 the Company granted stock options to officers, directors, employees and consultants to purchase a total of 209,216 shares of
common stock. The options have an exercise price of $2.67 per share, expire in ten years, and vest as follows: one half vests on the one-year anniversary of the grant date and
the remainder will vest in eight equal quarterly increments with the first such quarterly increment vesting on September 30, 2023. The total fair value of these options at the
grant date was approximately $470,000 using the Black-Scholes Option pricing model. The Black-Scholes option pricing model includes the following weighted average
assumptions for grants made during the year ended December 31, 2023:
Assumptions:
Weighted average per share grant date fair value
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected terms (in years)
$
2.67
3.96%
0.00%
112.02%
5.77
During the year ended December 31, 2022 the Company granted stock options to officers, directors, employees and consultants to purchase a total of 158,012 shares of
common stock. The options have an exercise price of $5.04 per share, expire in ten years, and vest as follows: one half vests on the one-year anniversary of the grant date and
the remainder will vest in eight equal quarterly increments with the first such quarterly increment vesting on September 30, 2022. The total fair value of these options at the
grant date was approximately $633,000 using the Black-Scholes Option pricing model. The Black-Scholes option pricing model includes the following weighted average
assumptions for grants made during the year ended December 31, 2022:
Assumptions:
Weighted average per share grant date fair value
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected terms (in years)
F-15
$
12.01
2.89%
0.00%
111.96%
5.83
For the years ended December 31, 2023 and 2022, equity-based compensation expense for options vesting during the period was $801,000 and $855,000, respectively.
As of December 31, 2023, there was $717,000 of total unrecognized compensation expense related to non-vested stock options that is expected to be recognized over a
weighted average period of 1 years. For options granted and outstanding, there were 558,000 options outstanding which were fully vested or expected to vest, with an aggregate
intrinsic value of $0.0, a weighted average exercise price of $10.38, and weighted average remaining contractual term of 8.2 years at December 31, 2023. For vested and
exercisable options, outstanding shares totaled 279,000, with an aggregate intrinsic value of $0.0. These options had a weighted-average exercise price of $17.17 per share and
a weighted-average remaining contractual term of 7.2 years at December 31, 2023.
The aggregate intrinsic value of outstanding and exercisable options at December 31, 2023 was calculated based on the closing price of the Company’s common stock as
reported on the Nasdaq Capital Market on December 31, 2023 of approximately $1.72 per share (less the exercise price of the options). The aggregate intrinsic value is
calculated based on the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying options.
Common Stock Reserved for Future Issuance
The following table presents information concerning common stock available for future issuance as of December 31, (in thousands):
Stock options issued and outstanding
Shares authorized for future option grants
Warrants outstanding
Total
9. Warrants
2023
2022
558
275
11
844
350
484
20
854
The following is a summary of activity in the number of warrants outstanding to purchase the Company’s common stock for the years ended December 31, 2023 and 2022
(table in thousands):
Outstanding, December 31, 2021
Exercised
Granted
Expired
Outstanding, December 31, 2022
Exercised
Granted
Expired
Outstanding, December 31, 2023
Expiration date
Warrants
Accounted for as:
Equity
May 2018
Warrants
7
-
-
(7)
-
-
-
-
-
Oct 27, 2022
F-16
Warrants
Accounted for as:
Liabilities
October 2013
Warrants
January 2014
Warrants
Total
2
-
-
-
2
-
-
(2)
-
Oct 24, 2023
11
-
-
-
11
-
-
-
11
Jan 16, 2024
20
-
-
(7)
13
-
-
(2)
11
Warrants outstanding as of December 31, 2023 and 2022 included warrants with the potential to be settled in cash, which are liability-classified warrants. During the year ended
December 31, 2022, the 6,732 warrants accounted as equity expired and the 13,268 warrants accounted for as liabilities remained outstanding as of December 31, 2022.During
the year ended December 31, 2023, the 2,000 warrants accounted as liabilities expired and the 11,000 warrants accounted for as liabilities remained outstanding as of December
31, 2023.
As of December 31, 2023, outstanding warrants had no intrinsic value.
Warrants Classified as Liabilities
Liability-classified warrants consist of warrants issued by the Company in connection with its merger with Biozone in January 2014. Warrants accounted for as liabilities have
the potential to be settled in cash or are not indexed to the Company’s own stock.
The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date. Any decrease or increase in the estimated fair value of the
warrant liability since the most recent balance sheet date is recorded in the consolidated statement of operations as changes in fair value of derivative liabilities. The fair value
of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2023:
Strike price
Expected dividend yield
Expected term (years)
Cumulative volatility
Risk-free rate
Fair value (in thousands)
October 2013
Warrants (expired
October 24, 2023)
January 2014
Warrants
$
$
-
-
-
-
-
-
$
$
180.00
0.00%
0.0
132.17%
4.37%
-
The fair value of the warrants classified as liabilities is estimated using the Black-Scholes option-pricing model with the following inputs as of December 31, 2022:
Strike price
Expected dividend yield
Expected term (years)
Cumulative volatility
Risk-free rate
Fair value (in thousands)
October 2013
Warrants
January 2014
Warrants
$
$
180.00
0.00%
0.8
143.06%
4.42%
-
$
$
180.00
0.00%
1.0
145.00%
4.40%
-
The Company estimates volatility using its own historical stock price volatility based upon the range of periods consistent with the expected life of the warrants. The expected
life assumption is based on the remaining contractual terms of the warrants. The risk-free rate is based on the zero-coupon rates in effect at the balance sheet date. The dividend
yield used in the pricing model is zero, because the Company has no present intention to pay cash dividends.
F-17
10. Licenses and Collaborations
Merck Sharp & Dohme Corp.
On January 2, 2019, the Company entered into an Exclusive License and Research Collaboration Agreement (the “Collaboration Agreement”) with Merck Sharp & Dohme
Corp. (“Merck”) to discover and develop certain proprietary influenza A/B antiviral agents. Under the terms of the Collaboration Agreement, Merck agreed to fund research
and development for the program, including clinical development, and will be responsible for worldwide commercialization of any products derived from the collaboration.
Cocrystal received an upfront payment of $4 million and was eligible to receive payments related to designated development, regulatory and sales milestones with the potential
to earn up to $156,000,000, as well as royalties on product sales. Merck can terminate the Collaboration Agreement at any time prior to the first commercial sale of the first
product developed under the Collaboration Agreement, in its sole discretion, without cause.
On December 15, 2023, the Company received written notice from Merck of Merck’s election to terminate the Exclusive License and Collaboration Agreement. The
termination of the Agreement is effective on March 14, 2024. According to Merck’s termination notice, Merck determined there were no existing conditions to continue the
collaboration. The termination resulted from the inability to develop the compounds to meet a specific aspect of Merck’s program. The pending patent applications on
compounds covered by the Agreement and previously filed by Merck on behalf of both companies remain in place.
Kansas State University Research Foundation
On February 18, 2020, the Company entered into a License Agreement (the “Agreement”) with Kansas State University Research Foundation (the “Foundation”) effective
February 12, 2020.
Pursuant to the terms of the Agreement, the Foundation granted the Company an exclusive for human use a royalty bearing license to practice under certain patent rights,
including a patent and a patent application covering antiviral compounds against coronaviruses and norovirus, and related know-how, to make and sell therapeutic, diagnostic
and prophylactic products.
The Company agreed to pay the Foundation a one-time non-refundable license initiation fee in the amount of $80,000 and an annual license maintenance fee in the amount of
$20,000 per year and agreed to reimburse the Foundation for third party expenses associated with the filing, prosecution, and maintenance of the patent rights in question. The
Company also agreed to make certain future milestone payments up to $3.1 million, dependent upon the progress of clinical trials, regulatory approvals, and initiation of
commercial sales in the United States and certain countries outside the United States.
On April 17, 2020, the Company entered into an Agreement with Foundation effective April 1, 2020. Pursuant to the terms of the Agreement, the Foundation granted the
Company an exclusive for human use a royalty bearing license to practice under certain patent rights, including a patent and a patent application covering antiviral compounds
against coronaviruses and norovirus, and related know-how, to make and sell therapeutic, diagnostic and prophylactic products.
The Company agreed to pay the Foundation a one-time non-refundable license initiation fee in the amount of $110,000 and an annual license maintenance fee in the amount of
$20,000 per year for the first seven (7) years and $50,000 per year thereafter and agreed to reimburse the Foundation for third party expenses associated with the filing,
prosecution and maintenance of the patent rights in question. The Company also agreed to make certain future milestone payments up to $4,150,000, dependent upon the
progress of clinical trials, regulatory approvals, and initiation of commercial sales in the United States and certain countries outside the United States. As of December 31,
2023, no milestone payments to the Foundation were due under the agreement.
On February 28, 2024, the Company provided notice to the Foundation of the Company’s election to terminate both License Agreements. The terminations, which were made
due to the Company’s determination that further development efforts under the License Agreements would be futile, are effective on March 29, 2024. The Company continues
to clinically progress its fully owned compound CDI-988 for coronaviruses and norovirus.
Phase 2a Clinical Trial
In August, 2022, the Company engaged hVIVO, a subsidiary of London-based Open Orphan plc (AIM: ORPH), a rapidly growing specialist contract research organization
(CRO), to conduct a Phase 2a clinical trial (the “Study”) with the Company’s novel, broad-spectrum, orally administered antiviral influenza candidate. The Company paid a
reservation fee of $1.7 million upon execution of the Start-Up Agreement (the “Agreement”) for the Study. The Company recognized the reservation fee as prepaid asset on its
balance sheet at December 31, 2022. In September 2023, the Clinical Trial Agreement (“CTA”) was executed by the Company and hVIVO, which supersedes the Agreement,
including the terms attributable to the reservation fee. Under the terms of the CTA, total budget of the Study was approximately $6.8 million, which consisted of the reservation
fee of $1.7 million and additional milestone payments totaling approximately $5.1 million. The reduction of the reservation fee and the milestone payments will become due
during the length of the CTA as milestones are realized.
During the year ended December 31, 2023, upon achievement of certain milestones, the reservation fee was reduced by approximately $440,000, which was recognized as
expense during the year then ended. As a result, the balance of the reservation fee was approximately $1.28 million which is included in prepaid expenses as of December 31,
2023. Pursuant to the CTA, additional milestones payments totaling approximately $2.61 million became due during the year ended December 31, 2023, resulting in the
recognition during the year of aggregate expenses of $3.05 million incurred on the CTA. As of December 31, 2023, $1.9 million was due on the CTA which is included in
accounts payable and accrued expenses in the accompanying consolidated balance sheet.
F-18
11. Income Taxes
In accordance with the authoritative guidance for income taxes under ASC 740, a deferred tax asset or liability is determined based on the difference between the financial
statement and the tax basis of assets and liabilities as measured by the enacted tax rates, which will be in effect when these differences reverse. The Company provides a
valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized.
The Company recognizes the impact of a tax position in the consolidated financial statements only if that position is more likely than not of being sustained upon examination
by taxing authorities, based on the technical merits of the position. The Company’s practice is to recognize interest and/or penalties related to income tax matters as income tax
expense.
The Company is subject to taxation and files income tax returns in the United States, Australia and various state jurisdictions. All tax years from inception to date are subject to
examination by the U.S. and state tax authorities due to the carry-forward of unutilized net operating losses and research and development credits. Currently, no years are under
examination.
Significant components of the Company’s deferred income taxes at December 31, 2023 and 2022 are shown below (table in thousands):
Deferred tax assets:
Net operating loss carryforwards
Compensation
Research and development tax credits
Capitalized and Research Expenditures
Other
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Other
Total deferred tax liabilities
Total deferred taxes, net
Valuation allowance
Deferred tax liability, net
2023
2022
$
22,005
583
3,196
5,288
848
31,920
(29)
(410)
(439)
31,481
(31,481)
-
$
21,368
474
2,710
2,595
487
27,633
(27)
(60)
(87)
27,546
(27,546)
-
$
$
The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates
the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred tax assets will be realizable, the valuation allowance will
be reduced.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus
package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19. While the CARES Act
provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are the extension of the carryback period of certain losses to
five years, and increasing the ability to deduct interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also provides for a credit against
employee wages, the opportunity to defer payment of a portion of federal payroll taxes to December 2022 and December 2023 and enhanced small business loans to assist
business impacted by the pandemic. The Company’s tax provision and financial position was not materially impacted by the CARES Act.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended and modified many of the tax related provisions of the CARES Act. The
Company does not anticipate a material impact of the Consolidated Appropriations Act on its tax provision or financial position.
F-19
At December 31, 2023, the Company has federal and state net operating losses (“NOL”) carryforwards of approximately $103.0 million and $6.8 million, respectively. The
federal and Florida NOL generated after 2017 of $41.4 million and $6.8 million, respectively, will carryforward indefinitely. Under the CARES Act, the Internal Revenue Code
was amended to allow for federal NOL carrybacks for five years to offset previous income, or can be carried forward indefinitely to offset 100% of the taxable income for the
tax year 2020 and 80% of the taxable income for the tax years 2021 and thereafter. The federal NOL carryforwards begin to expire in 2026.
At December 31, 2023, the Company had federal research credit carryforwards of approximately $3.2 million that expire in 2028.
At December 31, 2023, the Company did not have any federal and state capital loss carryforwards.
The above NOL carryforward and the research tax credit carryforward are subject to an annual limitation under the Section 382 and 383 of the Internal Revenue Code of 1986,
and similar state provisions if the Company experienced one or more ownership changes, which would limit the amount of NOL and tax credit carryforwards that can be
utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing
ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has not completed
an IRC Section 382/382 analysis. If a change in ownership were to have occurred, NOL and tax credits carryforwards could be eliminated or restricted. If eliminated, the related
asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Statutory federal income tax rate
Goodwill impairment
Research credits
Change in valuation allowance
Equity
Other tax, credit and adjustments
Effective income tax rate
12. Lease Commitments
Operating Leases
2023
2022
21.0%
0.0%
2.8%
(21.9)%
(0.4)%
(1.5)%
0.0%
21.0%
(10.3)%
0.7%
(10.2)%
(1.4)%
0.2%
0.0%
The Company leases office space in Miami, Florida and laboratory space in Bothell, Washington under operating leases that expire on August 31, 2024 and January 31, 2031,
respectively. The lease for our Miami office is with a related party (see below).
Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets
represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the
implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments.
The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any
lease payments made and excludes lease incentives.
F-20
The components of rent expense and supplemental cash flow information related to leases for the period are as follows (tables in thousands):
Lease Cost
Operating lease cost (included in operating expenses in the Company’s consolidated statement of operations)
Other Information
Cash paid for amounts included in the measurement of lease liabilities
Weighted average remaining lease term – operating leases (in years)
Average discount rate – operating leases
The supplemental balance sheet information related to leases for the period is as follows (tables in thousands):
Year Ended
December 31,
2023
$
$
233
233
0.8
6.2%
Operating leases
Long-term right-of-use assets of which $42 and $99 relates to related party, net of accumulated amortization of $950
and $592
Short-term operating lease liabilities, of which $42 and $59 relates to related party
Long-term operating lease liabilities, of which $0 and $42 relates to related party
Total operating lease liabilities
At December 31,
2023
At December 31,
2022
$
$
1,851
$
240
1,613
1,853
$
274
233
57
290
Year ending December 31,
2024
2025
2026
2027
2028
2029 and thereafter
Total minimum operating lease payments
Less: present value discount
Total operating lease liabilities
(in thousands)
264
344
355
365
376
513
2,217
(364)
1,853
$
$
The minimum lease payments above do not include common area maintenance (CAM) charges, which are contractual obligations under the Company’s Bothell, Washington
lease, but are not fixed and can fluctuate from year to year. CAM charges for the Bothell, Washington facility is calculated and billed based on total common expenses for the
building incurred by the lessor and apportioned to tenants based on square footage. In 2023 and 2022, approximately $98,000 and $98,000 of CAM charges for the Bothell,
Washington lease was included in operating expenses in the consolidated statements of operations, respectively.
On September 1, 2018, the Company entered into a lease agreement with a limited liability company controlled by Dr. Phillip Frost, a director, and a principal stockholder of
the Company for the lease of its Miami office (see Note 13 – Transactions with Related Parties). On September 1, 2021, the Company extended this lease agreement into an
additional three-year with monthly lease payments under this lease total $186,000 through September 2024. The minimum lease payments above include taxes and fees, which
are expected to be approximately $9,000 annually. As of December 31, 2023, the remaining right of use asset relating to this lease was $42,000 and the remaining lease
obligation was $42,000.
On September 21, 2018, the Company amended the lease agreement with a North Creek Tec LLC, to expand its laboratory facility in Bothell – WA, with additional 6,000 sq ft
for a period of 5 years that expires on January 31, 2029, with monthly lease payments under this lease total $660,000. In addition, the Company amended the lease agreement to
extend the original laboratory facility for an additional 7 years with monthly lease payments under this lease total $1,498,000 Through January 2031. The minimum lease
payment combined totals approximately $380,000 annually.
Rent expense, excluding capital leases and CAM charges, for 2023 and 2022 totaled $233,000 and $233,000, respectively.
F-21
Finance Leases
In April 2020, the Company entered into a lease agreements to acquire equipment with 36 monthly payments of $2,420 payable through March 31, 2023. The lease agreement
have an effective interest rate of 8.01%.
The leased lab equipment is included under property and equipment and depreciable over five years. Total assets and accumulated depreciation recognized, net, under finance
leases was $162,000 and $162,000 as of December 31, 2023, respectively. Total assets and accumulated depreciation recognized, net, under finance leases was $194,000 and
$158,000 as of December 31, 2022.
13. Commitments and Contingencies
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this report, except as
described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business,
results of operations, cash flows or financial position.
Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any
settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in connection with the
SEC investigation were not covered by insurance, and for recoupment of the monies already paid. We had retained counsel to defend us which had filed an answer to the
complaint denying its material allegations, as well as a counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington
State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the Company’s claims for coverage of the class and derivative litigations, and
seeking money damages. Liberty Insurance Underwriters Inc. filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance
coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in
connection with the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. On June 7, 2022, the court filed a Stipulation and Order
for Entry of Judgment in the amount of $1,359,064 in favor of Liberty (the “Judgment”) following summary judgment granted by the court to Liberty on all but one of the
matters at issue in the case. The Company filed an appeal in July 2022. On March 29, 2023, the Third Circuit ruled in favor of the Company on the appeal, thereby vacating the
trial court’s prior grant of summary judgment in favor of Liberty. As a result of this ruling, the case has been remanded to the District Court for trial on the merits of the
Company’s coverage claims for defense and settlement costs. The Court had ordered the return of the $1.6 million. On August 8, 2023, the Company received $1.6 million as
refunded by the registry of the court. On November 16, 2023, prior to commencement of a new trial which had been scheduled for December 4, 2023, the parties entered into a
settlement agreement pursuant to which Liberty paid the Company an additional $1 million and each party released the other from its respective claims and rights arising from
the matter. There is no further litigation with Liberty following this settlement.
14. Transactions with Related Parties
In September 2018, the Company leased administrative offices from a limited liability company owned by one of the Company’s directors and principal stockholder, Dr. Phillip
Frost. The lease term is three years with an optional three-year extension. On an annualized basis, rent expense, including taxes and fees, for this location would be
approximately $62,000. The Company paid a lease deposit of $4,000 and total rent and other expenses paid in connection with this lease were $63,000 and $61,000 for the
years ended December 31, 2023 and 2022 respectively.
15. Subsequent Events
On February 28, 2024, the Company provided notice to KSURF of the Company’s election to terminate the License Agreements. The terminations, which were made due to the
Company’s determination that further development efforts under the License Agreements would be futile, are effective on March 29, 2024.
F-22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Not applicable.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023. Our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated
and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2023.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal
control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective could provide only reasonable assurance with
respect to financial statement preparation and presentation.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework in the Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 Internal Control-Integrated
Framework”). Based on our evaluation under the 2013 Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was
effective as of December 31, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered
by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On March 23, 2024, the Company’s Board approved and adopted an amended Code of Ethics, Insider Trading Policy and Clawback Policy. The amendments to the Code of
Ethics were primarily administrative and technical in nature, with the principal exception being the separation of the Insider Trading Policy into a separate, new policy for such
purpose. The foregoing description does not purport to be complete and is qualified in its entirety by the full text of each such of policy, copies of which are filed as Exhibits
14.1, 19.1 and 97 to this Report.
During the three-month period ended December 31, 2023, no officer or director has adopted any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement
within the meaning of Item 408 of Regulation S-K promulgated under the Securities Act of 1933.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
The information required by Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related Transactions, and Director Independence), and Item 14
(Principal Accounting Fees and Services) is incorporated by reference to the Company’s definitive proxy statement for the 2024 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission within 120 days of December 31, 2023.
47
Item 15. Exhibits, Financial Statement Schedules
(1) Financial Statements: See Part II, Item 8 of this report.
(2) Exhibits: See Index to Exhibits below.
PART IV
EXHIBIT INDEX
Exhibit
No.
3.1
3.1(a)
3.2
4.1
10.1
10.1(a)
10.1(b)
10.2
10.2(a)
10.3
10.4
10.5
10.6
10.12
10.13
10.14
10.15
10.16
10.17
14.1
19.1
Exhibit Description
Certificate of Incorporation, as amended
Certificate of Amendment to the Certificate of Incorporation
Amended and Restated Bylaws
Description of Capital Stock
2015 Equity Incentive Plan*
Amendment to 2015 Equity Incentive Plan*
Amendment to 2015 Equity Incentive Plan*
Sam Lee Employment Agreement*
Amendment to Sam Lee Employment Agreement*
James Martin Consulting Agreement*
Chief Financial Officer Offer Letter dated May 26, 2017 - James Martin*
Form of Underwriter’s Warrant
Exclusive License and Research Collaboration Agreement between the Company and Merck Sharp &
Dohme Corp., dated January 2, 2019***
License Agreement, dated February 18, 2020, between the Company and Kansas State University
Research Foundation****
License Agreement, dated April 19, 2020, between the Company and Kansas State University Research
Foundation****
At-The-Market Offering Agreement, dated July 1, 2020, by and between the Company and H.C.
Wainwright & Co., LLC
Underwriting Agreement, dated as of May 4, 2021 by and between Cocrystal Pharma, Inc. and H.C.
Wainwright & Co., LLC**
Consulting and Scientific Advisory Board Agreement, dated April 13, 2021 with Roger Kornberg
Securities Purchase Agreement dated April 1, 2023
Code of Ethics
Insider Trading Policy
48
Incorporated by Reference
Date
Number
Form
Filed or
Furnished
Herewith
8/16/21
10-Q
10/3/22
8-K
2/19/21
8-K
10-K
3/27/20
DEF 14A 6/1/15
DEF 14A 4/30/19
DEF14A 4/26/2021
8-K
10-K
8-K
8-K
8-K
1/8/14
3/31/15
2/24/17
6/1/17
5/2/18
3.1
3.1
3.1
4.1
Annex A
Annex A
Annex B
10.2
10.6
10.1
10.1
4.1
4/1/19
10.12
10-K
10-Q
10-Q
8-K
5/13/20
8/6/20
7/2/20
8-K
10-Q
8-K
5/5/21
8/16/21
4/10/23
10.7
10.1
1.1
1.1
10.1
10.1
Filed
Filed
Subsidiaries
Consent of Weinberg & Company
Certification of Principal Executive Officer (302)
Certification of Principal Executive Officer (302)
Certification of Principal Financial Officer (302)
(906)+
Clawback policy
21.1
23.1
31.1
31.2
31.3
32.1
97
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
10-K
3/27/20
21.1
Filed
Filed
Filed
Filed
Furnished
Filed
Filed
Filed
Filed
Filed
Filed
Filed
* Represents management contracts or compensatory plan or arrangement.
** Exhibits have been omitted. The Company undertakes to furnish the omitted exhibits to the Commission upon request.
*** Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been submitted separately to the SEC.
**** Portions of this exhibit have been omitted as permitted by the rules of the SEC. The information excluded is both (i) not material and (ii) would be competitively harmful
if publicly disclosed. The Company undertakes to submit a marked copy of this exhibit for review by the SEC staff, to the extent it has not been previously provided, and
provide supplemental materials to the SEC staff promptly upon request.
+ This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our stockholders who make a written request to
our Corporate Secretary at Cocrystal Pharma, Inc., 19805 N. Creek Parkway Bothell, WA 98011.
Item 16. Form 10-K Summary
Not applicable.
49
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
March 28, 2024
COCRYSTAL PHARMA, INC.
By:
/s/ James Martin
James Martin
Co-Interim Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE
/s/ Roger Kornberg
Roger Kornberg
/s/ Phillip Frost
Phillip Frost
/s/ Fred Hassan
Fred Hassan
/s/ Steven Rubin
Steven Rubin
/s/ Richard Pfenniger
Richard Pfenniger
/s/ Anthony Japour
Anthony Japour
/s/ James Martin
James Martin
/s/ Sam Lee
Sam Lee
TITLE
Chairman
Director
Director
Director
Director
Director
DATE
March 28, 2024
March 28, 2024
March 28, 2024
March 28, 2024
March 28, 2024
March 28, 2024
Chief Financial Officer and Co-Chief Executive Officer
(Principal Financial, Accounting and Executive Officer)
March 28, 2024
President and Co-Chief Executive Officer (Principal
Executive Officer)
March 28, 2024
50
Code of Ethics
As Approved March 23, 2024
1
Exhibit 14.1
Introduction
The reputation of Cocrystal Pharma, Inc. (the “Company”) is built upon basic principles of ethical behavior, individual integrity and personal commitment. This reputation can
be retained only if all the Company’s employees establish and adhere to the highest moral and ethical standards in the conduct of the Company’s business.
This Code of Ethics (the “Code”) governs the work behavior and business relationships of the Company’s directors, officers and employees with customers, competitors,
governmental officials, the media, vendors, communities, the general public and each other. The purpose of this Code is to advise you of the Company’s policies regarding
ethics and standards of business conduct and to otherwise assist directors, officers and employees in making decisions on behalf of the Company and in avoiding conflicts of
interest.
Unless otherwise indicated, any questions regarding this Code should be directed to your direct manager, an officer of the Company. Employees are encouraged to discuss with
one of our Co-Chief Executive Officers of the Company any concerns they may have related to the interpretation and application of this Code.
All the Company’s directors, officers and employees are covered by the Code.
2
Employee Conduct Policies
3
Standards of Conduct
To ensure orderly operations and provide the best possible work environment, Cocrystal expects employees to follow rules of conduct that will protect the interests and safety
of employees and the organization. Whether you are on or off duty, your conduct reflects on Cocrystal. You are, consequently, encouraged to observe the highest standards of
professionalism at all times.
It is not possible to list all the forms of behavior that are considered unacceptable in the workplace. The following are examples of infractions of rules of conduct that may
result in disciplinary action, up to and including termination of employment, without prior warning or progressive discipline, at the sole discretion of the Company:
● Theft or inappropriate removal or possession of property
● Falsification of Company records including but not limited to employment and attendance records
● Possession, distribution, sale, transfer, or use of illegal drugs in the workplace, while on duty, or while operating Company-owned or provided vehicles or equipment
● Fighting or threatening violence in the workplace
● Negligence or improper conduct leading to damage of Company-owned or customer- owned property
● Insubordination or other disrespectful conduct
● Violation of safety or health rules
● Violation of solicitation/distribution policy
● Sexual or other forms of unlawful or unwelcome harassment
● Possession of dangerous or unauthorized materials, such as explosives or firearms, in the workplace
● Excessive absenteeism
● Unauthorized disclosure of “business secrets” or confidential information
● Violation of personnel policies
● Unsatisfactory performance or conduct
Employment with Cocrystal is “at-will”, at the mutual consent of Cocrystal and the employee, and either party may terminate that relationship at any time, with or without
cause, and with or without advance notice.
Drug and Alcohol Use
It is Cocrystal’s desire to provide a drug-free, healthful, and safe workplace. To promote this goal, you are required to report to work in appropriate mental and physical
condition to perform your job in a satisfactory manner. While conducting business-related activities, you may not use, possess, distribute, sell, or be under the influence of
illegal drugs or alcohol.
Sexual and Other Unlawful Harassment
Cocrystal has adopted a policy of “zero tolerance” with respect to unlawful employee harassment. Cocrystal is committed to providing a work environment that is pleasant,
professional and free from all forms of discrimination and conduct that can be considered harassing, coercive, or disruptive, including sexual harassment. Actions, words, jokes,
or comments based on an individual’s sex, gender, sexual orientation, race, color, national origin, age, religion, disability, or any other legally protected characteristic will not
be tolerated.
4
Sexual harassment is defined as unwanted sexual advances, or visual, verbal, or physical conduct of a sexual nature. This definition includes many forms of offensive behavior
and includes gender-based harassment of a person of the same sex as the harasser. While it is not easy to define harassment, the following conduct are some examples that may
constitute sexual harassment:
● Unwanted sexual advances.
● Offering employment benefits in exchange for sexual favors.
● Making or threatening reprisals after a negative response to sexual advances.
● Visual conduct that includes leering, making sexual gestures, or displaying of sexually suggestive objects or pictures, cartoons or posters.
● Verbal conduct that includes making or using derogatory comments, epithets, slurs, or jokes.
● Verbal sexual advances or propositions.
● Verbal abuse of a sexual nature, graphic verbal commentaries about an individual’s body, sexually degrading words used to describe an individual, or suggestive or
obscene letters, notes, or invitations.
● Physical conduct that includes touching, assaulting, or impeding or blocking movements.
Unwelcome sexual advances (either verbal or physical), requests for sexual favors, and other verbal or physical conduct of a sexual nature may constitute sexual harassment
when:
(1) submission to such conduct is made either explicitly or implicitly a term or condition of employment;
(2) submission or rejection of the conduct is used as a basis for making employment decisions; or,
(3) the conduct has the purpose or effect of interfering with work performance or creating an intimidating, hostile, or offensive work environment.
If you experience or witness sexual or other unlawful harassment in the workplace, report it immediately to your manager. If you receive an unsatisfactory response from your
manager or the manager is unavailable or you believe it would be inappropriate to contact that person, you should immediately contact either of our Co-Chief Executive
Officers.
Allegations of harassment will be thoroughly and discreetly investigated. When the investigation is completed, you will be informed of the outcome of the investigation.
Any manager who becomes aware of possible sexual or other unlawful harassment must immediately advise either of our Co-Chief Executive Officers so it can be investigated
in a timely and confidential manner. Anyone engaging in sexual or other unlawful harassment will be subject to disciplinary action, up to and including, termination of
employment.
The Company absolutely prohibits any form of retaliation against any employee for filing a bona fide complaint or assisting in a complaint investigation.
5
Attendance and Punctuality
To maintain a productive and fair work environment, Cocrystal expects you to be reliable and to be punctual in reporting for scheduled work. Absenteeism and tardiness place a
burden on other employees and on Cocrystal, and regular attendance is an essential function of all jobs at Cocrystal. In the rare instances when you cannot avoid being late to
work or are unable to work as scheduled, you should notify your manager directly within two hours, or as soon as possible, of your anticipated tardiness or absence. If you are
unable to call in because of illness or emergency, have someone call for you.
Absence from work for two consecutive days without notifying your manager will be considered a voluntary resignation. If you are absent for three or more successive days
due to illness, you may be requested to provide written documentation from your physician stating the reasons for the absence and that you are able to return to work. At any
time, your manager can request that you provide a physician’s note on your inability to work and/or ability to return to work.
Cocrystal would like you to be ready for work at the beginning of your assigned daily work hours and to reasonably complete your assignments by the end of the workday. Poor
attendance and excessive tardiness are disruptive. Either may lead to disciplinary action, up to and including, termination of employment.
Resignation
Resignation is a voluntary act initiated by the employee to terminate employment with Cocrystal. Although advance notice is not required, Cocrystal requests the courtesy of at
least two weeks written resignation notice from employees.
Prior to an employee’s departure, an exit interview may be scheduled to discuss the reasons for resignation and the effect of the resignation on benefits.
Progressive Discipline
The best disciplinary measure is the one that does not have to be enforced and comes from good leadership and fair supervision at all employment levels. Cocrystal’s own best
interest lies in ensuring fair treatment of employees and in making certain that disciplinary actions are prompt, uniform, and impartial. The major purpose of any disciplinary
action is to correct the problem, prevent recurrence, and prepare the employee for satisfactory service in the future.
Although employment with Cocrystal is based on mutual consent and both the employee and Cocrystal have the right to terminate employment at will, with or without cause or
advance notice, Cocrystal may use progressive discipline at its discretion.
Disciplinary action may call for any of four steps -- verbal warning, written warning, suspension with or without pay, or termination of employment -- depending on the
severity of the problem and the number of occurrences. Cocrystal recognizes that there are certain types of employee problems that are serious enough to justify either a
suspension, or, in extreme situations, termination of employment, without going through the usual progressive discipline steps.
By using progressive discipline, we hope that most employee problems can be corrected at an early stage, benefiting both the employee and Cocrystal.
6
Problem Resolution Policy
Cocrystal is committed to providing the best possible environment for its employees. Part of this commitment is encouraging an open and frank atmosphere in which any
problem, complaint, suggestion, or question receives a timely response from Cocrystal management.
If a situation occurs when you believe that a condition of employment or a decision affecting you is unjust, or otherwise improper you should follow these steps:
1. Present the situation to your manager immediately after the incident occurs. If your manager is unavailable or you believe it would be inappropriate to contact that
person, you may present the problem to either of our Co-Chief Executive Officers
2. Allow your manager to respond to the situation during discussion or after consulting with appropriate management, when necessary. Your manager will document the
discussion.
3. You present the situation to either of our Co-Chief Executive Officers, if you have not received a satisfactory response.
4. Co-Chief Executive Officers counsels and advises you and interviews your manager(s), and any other relevant witnesses.
5. The CEO reviews the problem, investigates and informs you of the decision.
Not every problem can be resolved to everyone’s total satisfaction, but only through understanding and discussion of mutual problems can employees and management develop
confidence in each other. This confidence is important to the operation of an efficient and harmonious work environment.
Facilities & Safety
Safety Concerns
Cocrystal is committed to the safety and health of employees, customers and visitors and recognizes the need to comply with applicable regulations governing injury and
accident prevention. Maintaining a safe work environment requires the continuous cooperation of employees.
Cocrystal will maintain safety and health practices consistent with the needs of our industry. Information regarding workplace safety and health issues is disseminated through
regular internal communication channels such as department meetings, bulletin board postings, memos, or other written communications.
Each employee is expected to obey safety rules and to exercise caution in work activities. Employees must immediately report any unsafe condition to the appropriate manager.
Employees who violate safety standards, who cause hazardous or dangerous situations, or who fail to report or, where appropriate, remedy such situations, may be subject to
disciplinary action, up to and including termination of employment.
In the case of accidents that result in injury, regardless of how insignificant the injury may appear, employees should immediately notify the appropriate manager. If you see an
employee who is sick or injured, contact your manager or Human Resources immediately so that appropriate emergency or medical personnel can be contacted. Injury reports
are necessary to comply with laws and initiate insurance and workers’ compensation benefits procedures.
7
Firearms
Cocrystal does not permit the possession of firearms in any of its facilities or property except when carried by authorized members of law enforcement, licensed security or a
holder of a valid state or federal issued firearms carry license that has received written clearance from one of our Co-Chief Executive Officers.
Parking Lot
You are encouraged to use the parking areas designated for our employees. Remember to lock your car every day. Courtesy and common sense in parking will help eliminate
accidents, personal injuries and damage to vehicles. If you should damage a car while parking or leaving, immediately report the incident, along with the license number of
both vehicles and any other pertinent information to your manager or Human Resources.
Cocrystal is not responsible for any loss, theft, or damage to your vehicle or its contents.
Fire Prevention
Know the location of the fire extinguisher(s) or fire suppression systems and nearest exits in your area. Notify your manager if an extinguisher or system is used or if the seal is
broken. Make sure flammable liquids or reactive chemicals are stored in appropriate and approved labeled safety areas and are not exposed to any ignition source or condition.
In case of fire, dial 911 immediately and activate any fire alarm if safety permits. In all cases exit the building immediately and alert others to do the same.
Housekeeping
You are expected to keep your work area neat and orderly. Clear or neatly organize your desktop or lab space and work surface at the end of each workday. If you spill a liquid,
clean it up immediately. Do not leave tools, materials or other objects on the floor that may cause others to trip or fall. Keep aisles, stairways, exits, electrical panels, fire
extinguishers, and doorways clear. Always be aware of good health and safety standards, including fire and loss prevention. Please report anything that needs repair or
replacement to your manager immediately.
Also, you are expected to clean up after yourself in the Breakroom. Wash your mug and put it away, wipe up the counters, etc. Be courteous in respect to the common areas.
Property & Equipment Care
It is your responsibility to understand the machines needed to perform your duties. If you find that a machine is not operating properly or in any way appears unsafe, please
notify your manager or either Co-Chief Executive Officers immediately so that repairs or adjustments can be made. Under no circumstances should you operate a machine you
deem unsafe, nor should you modify, adjust or defeat the safeguards provided.
8
Company Policies & Practices
9
Insider Trading
Employees who have access to confidential information are not permitted to use or share that information for trading purposes or for any other purpose except the conduct of
our business. All non-public information about the Company should be considered confidential information. To use non-public information for personal benefit (financial or
otherwise) or to “tip” others who might make an investment decision on the basis of this information is not only unethical but also illegal under the federal securities laws. In
order to comply with the securities laws against insider trading, the Company has adopted a specific policy governing employees’ trading in securities of the Company. The
Company is required to provide you with a copy of our Insider Trading Policy. If you have not received this Policy, please notify your supervisor.
Emails, Texts and Social Media
Before you send an email or text, think. Will you be embarrassed or will the Company be subject to liability if the email or text becomes public or is obtained by a party that is
antagonistic to the Company? Nobody is authorized to use social media, email or text messaging for the business of the Company, except as expressly authorized by the Chief
Executive Officer.
Cocrystal maintains a hotline for employees to use in reporting any violations or concerns regarding the action of any employee, officer or director.
ETHICS HOTLINE POLICY
HOTLINE NUMBER:
1-877-511-9020
SCOPE:
This policy applies to all Cocrystal employees worldwide, including part time, temporary and contract employees.
PURPOSE:
Cocrystal is committed to the highest possible standards of ethical, moral and legal business conduct. In conjunction with this commitment and Cocrystal’s commitment to open
communication, this policy aims to provide an avenue for employees to raise concerns and reassurance that they will be protected from reprisals or victimization for
whistleblowing in good faith. However, if an employee feels that their anonymity is not required then they should follow our existing grievance procedure.
10
POLICY:
The whistleblowing policy is intended to cover serious concerns that could have a large impact on Cocrystal, such as actions that:
● May lead to incorrect financial reporting;
● Are unlawful;
● Are not in line with company policy, including the Code of Business Conduct; or
● Otherwise amount to serious improper conduct.
Regular business matters that that do not require anonymity should be directed to the employee’s supervisor and are not addressed by this policy.
SAFEGUARDS:
Harassment or Victimization.
Harassment or victimization of individuals submitting hotline reports will not be tolerated.
Confidentiality.
Every effort will be made to protect the reporter’s identity by our hotline vendor. Please note that the information provided in a hotline report may be the basis of an internal
and/or external investigation by our company into the issue being reported. It is possible that as a result of the information provided in a report the reporter’s identity may
become known to us during the course of our investigation.
Anonymous Allegations.
The policy allows employees to remain anonymous at their option. Concerns expressed anonymously will be investigated, but consideration will be given to:
● The seriousness of the issue raised;
● The credibility of the concern; and
● The likelihood of confirming the allegation from attributable sources.
Malicious Allegations.
Malicious allegations may result in disciplinary action.
11
MEMORANDUM
Exhibit 19.1
TO:
All Officer, directors, Employees and Certain Third Parties
FROM:
Nason, Yeager, Gerson, Harris & Fumero, P.A.
DATE:
March 23, 2024
RE:
Insider Trading Policy
We believe that the best way to protect Cocrystal Pharma, Inc. (the “Company”) and its executive officers, directors and employees from potential liability from the
insider trading under the federal securities laws is to adopt and implement and enforce a clear policy that defines insider trading and prohibits all employees, officers, directors
and other individuals who are aware of Material Non-Public Information (as defined below) from trading in the Company’s securities or providing Material Non-Public
Information to other persons who may trade on the basis of that information.
Engaging in securities transactions on the basis of Material Non-Public Information or the communication of such information to others who use it in securities trading
violates the federal securities laws. Such violations are likely to result in harsh consequences for the individuals involved including exposure to investigations by the Securities
and Exchange Commission (“SEC”), criminal and civil prosecution, and disgorgement of any profits realized or losses avoided and penalties three times any profits gained or
losses avoided. Insider trading violations expose the Company, its management, and other personnel acting in supervisory capacities to potential civil liabilities and penalties
for the actions of employees under their control who engage in insider trading violations.
This Memorandum constitutes the Company’s implementation and the requirements of the Policy and sets forth procedures to assure that Material Non-Public
Information will not be used by Insiders (as defined below) in securities transactions and that the confidentiality of such information will be maintained. Strict compliance with
these policies and procedures is expected of all Insiders, including members of their households, and any infringement thereof may result in sanctions, including termination of
office or employment.
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Page 2
I.
The Statement of Policy
A.
What is Material Non-Public Information?
Material Information
What is “material” is often difficult to evaluate and is always judged in hindsight. Generally, information is material if there is a substantial likelihood that a
reasonable investor would consider it important in deciding whether to buy, hold or sell a security. Both positive and negative information can be considered material. While it
is not possible to define all categories of material information, there are various categories of information that are particularly sensitive and, as a general rule, should always be
considered material. Examples of such information include:
● Gain or loss of a substantial customer or supplier;
● News relating to new agreements or revenue events;
● New technology or improvements to existing technology;
● Financial results;
● Projections of future earnings or losses or other earnings guidance;
● News of a pending or proposed merger or an acquisition or disposition of significant assets;
● Stock splits or similar events;
● New equity or debt offerings;
● Significant litigation exposure due to actual or threatened litigation;
● Major changes in management;
● Certain transactions with related parties including our principal shareholder;
● Important changes in the Company’s business;
● Certain cybersecurity events;
● Initiation of a governmental investigation concerning the Company which may include informal inquiries in addition to formal investigations; and
● Impending bankruptcy or financial liquidity problems
Non-Public Information
Non-public information is information that has not been disclosed to the general public and is not available to the general public. For most companies including the
Company, disclosure on its website is still not considered public by the SEC. One common misconception is that material information loses its “non-public” status as soon as a
press release is issued. Non-public information will generally be deemed to be public when (i) it is filed with the SEC or (ii) a press release is issued, and in either case the
public has had a period of time (as much as 24 hours) to fully absorb the information.
B.
Who Does This Policy Apply To?
“Insiders” are directors, officers and all employees of the Company and its subsidiaries. Additionally, the following persons may also be subject to the restrictions
contained in this Policy (i) the Company’s independent contractors and consultants (any, a “Contractor”); and (ii) other persons associated with the Company and its
subsidiaries who receive or have access to Material Non-Public Information. As an Insider this Policy applies to you. The same restrictions that apply to you, also apply to your
family members who reside with you, anyone else who lives in your household and any family members who do not live in your household but whose transactions in Company
securities are directed by you or are subject to your influence or control. You are responsible for making sure that the purchase or sale of any security covered by this Policy by
any such person complies with this Policy.
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Please note that certain restrictions and requirements under this Policy are applicable to only certain individuals. The Blackout Periods apply to executive officers,
directors, in the finance/accounting department and any other employee or Contractors of the Company and each subsidiary who are notified by the Compliance Officer. The
Event-Specific Trading Restriction Periods apply to all directors, officers and the persons designated by the Compliance Officer. Additionally, the pre-clearance requirements
apply to our executive officers, directors, and employees in the finance/accounting department, any other employee at the vice president level or above and others who are
uniquely situated to know of material financial or other information and are given notice in writing from an officer. If you have any doubt regarding whether you fall within
these categories, please contact the Compliance Officer. For purposes of this Policy, our Compliance Officer is the Chief Financial Officer or in his absence the Chief Executive
Officer.
All Insiders are expected to maintain the confidentiality of Material Non-Public Information. Disclosure of such information to any individual outside of the Company,
whether or not in the form of a recommendation to purchase or sell the securities of the Company, is prohibited and may be criminal. If anyone becomes aware of a leak of
Material Non-Public Information, whether inadvertent or otherwise, they should immediately be reported to our Compliance Officer. This duty of confidentiality does not
preclude an Insider from using Non-Public Material Information in connection with such person’s duties to the Company.
As a general policy, the Company and all Insiders shall follow all laws, rules and regulations relating to Insider trading. This includes Regulation FD which provides
that selective disclosure of Material Non-Public Information is generally illegal.
C.
What are the Prohibited Activities?
● No Transactions Based on Material Non-Public Information. The Policy prohibits transactions in the Company’s securities based on Material Non-
Public Information. The SEC will presume that if you are in possession of Material Non-Public Information, your trading is based on it.
● No Transactions in Other Corporations. You may not engage in transactions in the securities of any other company if you are aware of Material Non-
Public Information about that company which you obtained in the course of your employment or other association with the Company.
● No Tipping. You may not pass Material Non-Public Information on to others or recommend to anyone the purchase or sale of any securities when you
are aware of such information. This practice known as “tipping,” also violates the securities laws and can result in the same civil and criminal penalties
that apply to insider trading, even though you did not trade and did not gain any benefit from another’s trading. While the law is developing in this area,
the Policy prohibits the disclosure of Material Non-Public Information in the same manner as other Company policies protect its confidential
information.
● Social Media. Social Media including Facebook, X and Instagram are public communications. The prohibition against using Material Non-Public
Information in this Memorandum applies to using any form of social media. Further, without approval from our Compliance Officer, no one shall use
social media on behalf of the Company.
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● Expert Networks. A phenomenon called Expert Networks developed a number of years ago. Essentially Expert Networks are consulting companies
formed for the purpose of gathering information from employees of public companies and then selling the information to hedge funds. The law is
evolving and the line between immaterial and material information is often blurred. However, it is the Company’s policy that Insiders may not speak or
otherwise communicate with third parties about the Company’s business unless it is part of their duties as an Insider. For example, our officers may
discuss information about the Company that is not Material Non-Public Information in order to generate business or develop partnerships.
● No Dissemination of Material Non-Public Information. You should not discuss any confidential information within the hearing range of outsiders,
including friends and relatives. It is particularly important to exercise care and refrain from discussing Material Non-Public Information in public places
such as elevators, trains, taxis, airplanes, lavatories, restaurants, or other places where the discussions might be overheard.
● No Short-Term Trading. No Insider who purchases Company securities in the open market may sell any Company securities of the same class during
the 30 days following the purchase. Executive officers and directors must wait more than six months to buy or sell after an offsetting or opposite way
transaction.
● Short Sale Transactions. No Insider may engage in short sales of the Company’s securities. Short sales are the sale of securities which the seller does
not own. The seller is speculating that the price will fall, in the hope of later purchasing the same number of securities at a lower price, thereby making a
profit. An Insider who bets against the Company sends an alarming signal to his or her broker. In addition, Section 16(c) of the Securities Exchange Act
of 1934 prohibits officers and directors from engaging in short sales.
● Hedging Transactions. No Insider may enter into a hedging transaction. When an Insider engages in this type of transaction, this Insider may no longer
have the same objectives as the Company’s other stockholders.
● Margin Accounts and Pledges. No Insider may hold Company securities in a margin account or pledge Company securities as collateral for a loan.
D.
What Transactions Does this Policy Apply To?
● Personal Transactions. This Policy applies to your personal transactions and those indirectly through a family member (or equivalent), friend,
corporation or other entity.
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● Types of Securities. Purchases and sales of stock, derivative securities such as options, warrants and convertible notes or preferred stock.
● Stock Options/Warrants. This Policy applies to: (i) any sale of stock as part of a broker-assisted cashless exercise of options or warrants, or any other
market sale for the purpose of generating the cash needed to pay the exercise price of an option or warrants and (ii) any sale of common stock received
upon exercise of options or warrants.
● Former Insiders. This Policy continues to apply to former Insiders in possession of Material Non-Public Information at the time their status as an Insider
terminates. No former Insider may trade Company securities until that information has become public or is no longer material.
E.
Rule 10b5-1 Plans as an Exception1
Rule 10b5-1 under the Securities Exchange Act of 1934 provides a defense from insider trading liability under Rule 10b-5. In order to be eligible to rely on this
defense, a person subject to this Policy must enter into a Rule 10b5-1 plan for transactions in Company securities that meets certain conditions specified in the Rule (a “Plan”)
and trading must be in accordance with this Policy. If the Plan meets the requirements of Rule 10b5-1, transactions in Company securities may occur even when the person who
has entered into the plan is aware of Material Non-Public information.
The restrictions outlined above shall not prohibit purchases or sales of Company securities made pursuant to a written contract, letter of instruction or plan that (a)
complies with the requirements of Rule 10b5-1 (a “Plan”) and (b) complies with all of the following:
● Review and Approve the Proposed Arrangement in Advance. The Company will require all Plans to be in writing and submitted to the Compliance
Officer for approval prior to any transactions under the Plan. This will allow the Company to ensure that each Plan is in compliance with the
requirements of Rule 10b5-1 and Company policies with regard to lock-up agreements, among other items, allowing the individual to conduct
transactions under the Plan without preclearance by the Company. Because of recent concerns arising from possible abuses of Plans, the Company may
require evidence that the party exercising trading authority has no personal or substantial business relationship with the Insider. The Blackout Periods and
Event-Specific Trading Restrictions do not apply to transactions conducted pursuant to a Plan. If you are subject to and within either a Blackout Period or
Event Specific Trading Restriction period, you may not enter into, modify or terminate a Plan.
1Our counsel uses a service called the corporatecounsel.net which publishes an 111 page handbook on 10b5-1 plans.
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● Add Additional Safeguards. Once the Plan is adopted, the person must not exercise any influence over the amount of securities to be traded, the price at
which they are to be traded or the date of the trade. It is essential that the Company ensure that there is no Material Non-Public Information that the
Insider has knowledge of that has not been publicly disclosed at the time the Plan is adopted. In addition, if the Plan is going to be modified or
terminated, notice must immediately be given to the Company and all transactions effected pursuant to the Plan must cease. Any change to an approved
Plan will necessitate submission of the revised Plan to the Company for review and approval before transactions may resume.
● Recent SEC Rules. The SEC has recently been active publishing new Rules in 2022 and 2023 affecting Plans. Most importantly, there is now a cooling
off period required under the Rules.2 Further Forms 10-Q and 10-K have been modified to require disclosure of Plans adopted or amended in the prior
quarter or last quarter of the prior fiscal year. Finally, issuers must disclose if they have adopted an Insider Trading Policy or if not, why not, and file a
copy as an exhibit to Form 10-K. The Rules also impose a good faith requirement and require executive officers and directors to provide certifications of
compliance in their Plans.
● Consider a Public Announcement. On a case-by-case basis, the Company will consider whether a public announcement in connection with each Plan
under Rule 10b5-1 is appropriate.
● Establish Procedures with Third Parties. In order to ensure that a Plan complies with Rule 10b5-1 in all respects, the Company will set up procedures
with the parties handling the transactions under the Plan, including reminding them of the need to file Form 144s and Form 4s (where applicable).
Any involvement by the Company and its counsel in reviewing a 10b5-1 Plan does not constitute approval or legal advice.
F.
Blackout Periods/Event-Specific Trading Restriction Periods
Blackout Periods for All Insiders
All executive officers, directors, employees and certain other persons notified by the Company’s Compliance Officer are prohibited from trading in the Company’s
securities during certain “Blackout Periods.”
The regular quarterly Blackout Periods begin on the 16th day of the last month of each fiscal quarter and end on the close of business on the second trading day
following the date of public disclosure of Company’s quarterly (or annual) earnings release or the filing of the Company’s financial statements with the SEC if no earnings
release is issued (an “Earnings Announcement”).
2 The cooling-off period relates to executive officers and directors but not the Company.
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Example: If the quarter ends on June 30th, the Blackout Period begins after the market closes on June 10th (or prior trading day if the 10th is not a trading day) and all
trading of the Company’s securities by Insiders must cease until an Earnings Announcement is released. If the Earnings Announcement is made after the market close on
August 14th, the Blackout Period would end at the market opening on August 17th. Therefore, your Trading Window (when you can trade) for a quarter ending June 30th, in
this example, would begin August 17th (or the next trading day) and would end after the market close on September 10th (or the prior trading day as explained above).
The Company reserves the right to shorten or close the Trading Window without prior notice.
Event Specific Blackout Periods
From time to time, an event may occur that is material to the Company and is known by only a few directors, officers and/or employees. So long as the event remains
material and nonpublic, all directors, executive officers and the persons designated by the Compliance Officer may not trade Company common stock. The Compliance Officer
shall provide such notice in writing to designated persons including directors who may not know of the event. In addition, the Company’s financial results may be sufficiently
material in a particular fiscal quarter that, in the judgment of the Compliance Officer, designated persons should refrain from trading in Company common stock even sooner
than the typical Blackout Period described above. In that situation, the Compliance Officer may notify these persons that they should not trade in the Company’s common
stock, without disclosing the reason for the restriction.
The existence of an event-specific trading restriction period or extension of a Blackout Period will not be announced to the Company as a whole, and should not be
communicated to any other person. Even if the Compliance Officer has not designated you as a person who should not trade due to an event-specific restriction, you should not
trade while aware of Material Non-Public Information. Exceptions will not be granted during an event-specific trading restriction period.
G.
Preclearance
Due to the Company’s size, preclearance is required for all Insiders. Of course, family members of any of these people require preclearance. A request for pre-
clearance must be submitted to the Compliance Officer on the form attached to this Policy as Exhibit A at least two days in advance of the proposed transaction. Preclearance
requires the approval of the Compliance Officer and our SEC counsel. If your trade is pre-cleared by the Compliance Officer, the transaction must be effected within five
trading days. If the transaction is not effected within that time period will be subject to pre-clearance again.
The responsibility for determining whether the Insider has Material Non-Public Information rests with the Insider, and preclearance of the transaction does not
constitute legal advice and does not in any way insulate the Insider from liability under the securities laws. For executive officers and directors, pre-clearance permits our legal
counsel to review the proposed trade to ascertain if there is any possible violation of the short-swing trading rules.
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March 20, 2024
Page 8
H.
Compliance and Company Assistance
The Company is indebted to all Insiders who have helped to make the Company successful and is appreciative of all efforts on its behalf. To protect the Company and
its shareholders, it is necessary to implement the foregoing Policy. The Company appreciates your continued cooperation and support in this effort.
You should remember that the ultimate responsibility for adhering to this Policy and avoiding improper trading rests with you. If you violate this Policy, the Company
may take disciplinary action, including dismissal for cause. Each of you should sign one copy of this Policy and return it to the Company acknowledging that you have read and
understand it. If anyone has any questions or wants to have an office conference concerning the issues raised by this Policy, please contact the Compliance Officer.
I.
Transactions with the Company
While there can be no anti-fraud issues with transactions with an issuer since there is no deception or breach of duty, because of optics, transactions of an Insider with
the Company may be permitted if precleared. An example is the cashless exercise of an option granted by the Company.
J.
Transactions by the Company.
It is also the policy of the Company that the Company will not engage in transactions in the Company’s securities while in possession of Material Non-Public
Information relating to the Company or its securities.
K.
Annual Update
On an annual basis (as well as initially with all new employees or material consultants who may acquire access to Material Non-Public Information), this Policy will
be distributed to all recipients who will be asked to acknowledge receipt in writing.
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I acknowledge that I have read and understand this Memorandum and to abide by the Company’s Policy on stock trading.
Dated: ______________ ___, 2024
Signature
Print Name
Signature Page to Insider Trading Policy
Name: ____________________________________________________________
Exhibit A
REQUEST FOR PRECLEARANCE OF
PURCHASE OR SALE OF SECURITIES
Date: _________________
Proposed Transaction:
☐
☐
☐
☐
☐
Purchase of Stock
Sale of Stock
Exercise of Options
☐
☐
Incentive Stock Options
Non-Qualified Options
Exercise of Warrants
Date of Grant of Options, Warrants or Other Securities:
_____________________________________________________________
Other [Please explain] ____________________________________________
Number of Shares/Options: _____________________________________
Date of Proposed Transaction: __________________________________
1. Have you made purchase(s) of Cocrystal Pharma, Inc. (the “Company”) stock within the last six months?
☐
Yes
☐
No
If so, please complete:
Date(s) of Purchase(s):
_______________________________
_______________________________
_______________________________
No. of Shares:
_____________
_____________
_____________
2. Have you made sales of the Company’s stock within the last six months?
☐
Yes
☐
No
If so, please complete:
Date(s) of Sale(s):
_______________________________
_______________________________
_______________________________
No. of Shares:
_____________
_____________
_____________
3. Have you made exercises or conversions of the Company’s options/warrants or other securities of the Company within the last six months?
☐
Yes
☐
No
If so, please complete:
Date(s) of Exercise(s):
_______________________________
_______________________________
_______________________________
No. of Options: _____________
_____________
_____________
Exhibit A-1
4. Have you received grants of the Company’s options/warrants or other securities of the Company within the last six months?
☐
Yes
☐
No
If so, please complete:
Date(s) of Grant(s):
_______________________________
_______________________________
_______________________________
No. of Options: _____________
_____________
_____________
In consideration of this approval, I affirm that I am not in possession of Material Non-Public Information.
________________________________
Request Approved:
☐
Yes
☐
No
If Denied, Reason:
____________________________________________________________________
Date:_________________
____________________________________________________________________
Jim Martin, Chief Financial Officer
Michael D. Harris, Esq.
Exhibit A-2
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Cocrystal Pharma, Inc.
Bothell, Washington
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-231022 and No. 333-237738) and on Form S-8 (No. 333-193161 and
No. 333-224869) of Cocrystal Pharma, Inc. of our report dated March 28, 2024, relating to the consolidated financial statements, which appears in this Annual Report on Form
10-K.
/s/ Weinberg & Company
Los Angeles, California
March 28, 2024
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Exhibit 31.1
I, James Martin, certify that:
1. I have reviewed this annual report on Form 10-K of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 28, 2024
/s/ James Martin
James Martin
Co-Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Exhibit 31.2
I, Sam Lee, certify that:
1. I have reviewed this annual report on Form 10-K of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 28, 2024
/s/ Sam Lee
Sam Lee
Co-Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Exhibit 31.3
I, James Martin, certify that:
1. I have reviewed this annual report on Form 10-K of Cocrystal Pharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 28, 2024
/s/ James Martin
James Martin
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the report of Cocrystal Pharma, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and
Exchange Commission on the date hereof, I, James Martin, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1.
2.
The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James Martin
James Martin
Chief Financial Officer and Co-Chief Executive Officer
(Principal Financial Officer and Principal Executive Officer)
Dated: March 28, 2024
In connection with the report of Cocrystal Pharma, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and
Exchange Commission on the date hereof, I, James Martin, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1.
2.
The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Sam Lee
Sam Lee
Co-Chief Executive Officer
(Principal Executive Officer)
Dated: March 28, 2024
Exhibit 97
Introduction
COCRYSTAL PHARMA, INC.
CLAWBACK POLICY
Cocrystal Pharma, Inc. (the “Company”) adopts this Clawback Policy in accordance with the recently adopted SEC Rule and the Nasdaq Stock Market’s implementation of the
Rule. Senior management has acted prior to the next regularly scheduled meeting of the Board of Directors (the “Board”) in reliance upon the advice of counsel that technical
Board approval is not required together with the advice that the Board should ratify the policy as a matter of good corporate governance. The Company believes that it is in the
best interests of the Company and its shareholders to create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-
performance compensation philosophy. The Company has therefore adopted this policy which provides for the recoupment of certain executive compensation in the event of an
accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to
comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10D-1 thereunder and Nasdaq Listing Rule 5608 (the “Clawback Listing
Standards”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the Board shall be deemed
references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Board in accordance with the definition in Section 10D of the Exchange Act
and the Clawback Listing Standards, and such other senior executives/employees who may from time-to-time be deemed subject to the Policy by the Board (the “Covered
Executives”). Initially the Covered Executives are the Co-Chief Executive Officers.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting
requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the
previously issued financial statements or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period,
the Board will require reimbursement or forfeiture of any excess Incentive Compensation received by any Covered Executive during the three completed fiscal years
immediately preceding the date on which the Company is required to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, Incentive Compensation includes any of the following; provided that, such compensation is granted, earned, or vested based wholly or in part on the
attainment of a financial reporting measure:
● Annual bonuses and other short- and long-term cash incentives.
● Stock options.
1
● Stock appreciation rights.
● Restricted stock.
● Restricted stock units.
Financial reporting measures include:
● Company stock price.
● Total shareholder return.
● Revenues.
● Earnings before interest, taxes, depreciation, and amortization.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that
would have been paid to the Covered Executive had it been based on the restated results, as determined by the Board, without regard to any taxes paid by the Covered
Executive in respect of the Incentive Compensation paid based on the erroneous data.
If the Board cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement,
then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
Method of Recoupment
The Board will determine, in its sole discretion, the method for recouping Incentive Compensation hereunder which may include, without limitation:
a.
b.
c.
d.
e.
requiring reimbursement of cash Incentive Compensation previously paid;
seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards;
offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive;
cancelling outstanding vested or unvested equity awards; and/or
taking any other remedial and recovery action permitted by law, as determined by the Board.
No Indemnification
The Company shall not indemnify any Covered Executives against the loss of any incorrectly awarded Incentive Compensation, notwithstanding anything in any
Indemnification Agreement to the contrary.
Interpretation
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is
intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, any applicable rules or standards adopted by
the Securities and Exchange Commission, and the Clawback Listing Standards.
Effective Date
This Policy shall be effective as of December 1, 2023 (the “Effective Date”) and shall apply to Incentive Compensation that is received by Covered Executives on or after the
Effective Date, even if such Incentive Compensation was approved, awarded, or granted to Covered Executives prior to the Effective Date.
2
Amendment; Termination
The Board may amend this Policy from time-to-time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted by the Securities and
Exchange Commission under Section 10D of the Exchange Act and to comply with the Clawback Listing Standards and any other rules or standards adopted by a national
securities exchange on which the Company’s securities are listed. The Board may terminate this Policy at any time.
Other Recoupment Rights
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the
terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Relationship to Other Plans and Agreements
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement, equity award agreement, or similar
agreement (which shall include any Indemnification Agreement) entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a
Covered Executive to agree to abide by the terms of this Policy. In the event of any inconsistency between the terms of the Policy and the terms of any employment agreement,
equity award agreement, or similar agreement under which Incentive Compensation has been granted, awarded, earned or paid to a Covered Executive, whether or not deferred,
the terms of the Policy shall govern.
Acknowledgment
The Covered Executive shall sign an acknowledgment form in the form attached hereto as Exhibit A in which they acknowledge that they have read and understand the terms of
the Policy and are bound by the Policy.
Impracticability
The Board shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Board in
accordance with Rule 10D-1 of the Exchange Act and the Clawback Listing Standards.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
3
Exhibit A
Acknowledgement Form
4
CLAWBACK POLICY ACKNOWLEDGMENT
Cocrystal Pharma, Inc. (the “Company”) has adopted a Clawback Policy (the “Policy”) which is applicable to the Company’s Covered Executives.
I, the undersigned, acknowledge that I have received a copy of the Policy, as it may be amended, restated, supplemented or modified from time to time, and that I have read it,
understand it, and acknowledge that I am fully bound by, and subject to, all of the terms and conditions thereof.
In the event of any inconsistency between the terms of the Policy and the terms of any employment agreement to which I am a party, or the terms of any compensation plan,
program, or arrangement under which Incentive Compensation has been granted, awarded, earned, or paid to me, whether or not deferred, the terms of the Policy shall govern.
If the Board of Directors determines that any Incentive Compensation I have received must be forfeited, repaid, or otherwise recovered by the Company, I shall promptly take
whatever action is necessary to effectuate such forfeiture, repayment, or recovery.
I acknowledge that I am not entitled to indemnification in connection with the Company’s enforcement of the Policy, notwithstanding anything in any Indemnification
Agreement to the contrary.
I understand that any delay or failure by the Company to enforce any requirement contained in the Policy will not constitute a waiver of the Company’s right to do so in the
future.
Any capitalized terms used in this Acknowledgment that are not otherwise defined shall have the meaning ascribed to them in the Policy.
(Executive’s Signature)
(Executive’s Printed Name)
(Date)
5