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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 001-36577
ContraFect Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
28 Wells Avenue, 3 rd Floor
Yonkers, NY
(Address of principal executive offices)
39-2072586
(IRS Employer
Identification No.)
10701
(Zip Code)
Registrant’s telephone number, including area code:
(914) 207-2300
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, Par Value $0.0001 per share
Name of Exchange on Which Registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Accelerated filer
☒
Smaller reporting company ☐
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the
registrant’s common stock held by non-affiliates of the registrant was approximately $73.4 million, based on the closing price of the registrant’s
common stock on the Nasdaq Capital Market on June 30, 2017 of $1.45 per share.
As of March 7, 2018, there were 73,656,006 shares of Common Stock, $0.0001 par value per share, outstanding.
Portions of the registrant’s definitive Proxy Statement relating to its 2018 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
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PART I
PART II
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
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
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
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
PART IV
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References to ContraFect
Throughout this Annual Report on Form 10-K, the “Company,” “ContraFect,” “we,” “us,” and “our,” except where the context
requires otherwise, refer to ContraFect Corporation, and “our board of directors” refers to the board of directors of ContraFect
Corporation.
All brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective holders.
Forward Looking Information
The information in this Annual Report on Form 10-K contains forward-looking statements and information within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements
include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected
costs, prospects and plans and objectives of management. The words “anticipates”, “believes”, “estimates”, “expects”, “intends”,
“targets”, “may”, “plans”, “projects”, “potential”, “will”, “would”, “could” and similar expressions are intended to identify forward-
looking statements, although not all forward-looking statements contain these identifying words. All such forward-looking statements
involve significant risks and uncertainties, including, but not limited to, statements regarding:
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the success, cost, timing and potential indications of our product development activities and clinical trials;
our ability to advance into and through clinical development and ultimately obtain FDA approval for our product candidates;
our future marketing and sales programs;
the rate and degree of market acceptance of our product candidates and our expectations regarding the size of the commercial
markets for our product candidates;
our research and development plans and ability to bring forward additional product candidates into preclinical and clinical
development;
the effect of competition and proprietary rights of third parties;
the availability of and our ability to obtain additional financing;
the effects of existing and future federal, state and foreign regulations;
the seeking of joint development, licensing or distribution and collaboration and marketing arrangements with third parties; and
the period of time for which our existing cash and cash equivalents will enable us to fund our operations.
As more fully described under the heading “Risk Factors” contained elsewhere in this Annual Report on Form 10-K, many
important factors affect our ability to achieve our stated objectives and to develop and commercialize any product candidates. We may
not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue
reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our
actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks and uncertainties
set forth in our filings with the SEC. You should read this Annual Report on Form 10-K and the documents that we have filed as
exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual results or events could differ
materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking
statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-
looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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Item 1. Business
We are a clinical-stage biotechnology company focused on discovering and developing therapeutic protein and antibody products
for the treatment of life-threatening infectious diseases, including those caused by drug-resistant pathogens, particularly those treated in
hospital settings. Drug-resistant infections account for two million illnesses in the United States and 700,000 deaths worldwide each
year. We intend to address drug-resistant infections using product candidates from our lysin and monoclonal antibody platforms that
target conserved regions of either bacteria or viruses. Lysins are enzymes derived from naturally occurring bacteriophage which are
viruses that infect bacteria. When recombinantly produced and then applied to bacteria, lysins cleave a key component of the target
bacteria’s peptidoglycan cell wall, resulting in rapid bacterial cell death. Lysins kill bacteria faster than conventional antibiotics, which
typically require bacterial cell division and metabolism in order to kill or stop the growth of bacteria. We believe that the properties of
our lysins will make them suitable for targeting antibiotic-resistant organisms, such as Staphylococcus aureus (“Staph aureus”) which
causes serious infections such as bacteremia, pneumonia and osteomyelitis. Hallmark features of lysins include the demonstrated ability
to eradicate biofilms and synergistically boost the efficacy of conventional antibiotics in animal models. We believe lysins may be
effective in the treatment of biofilm-dependent infections of heart valves, prosthetic joints, indwelling devices and catheters. We believe
that the therapeutic profile of lysins is complimentary to that of conventional antibiotics. As such, our approach includes the use of
lysins in addition to conventional antibiotics for the treatment of serious, drug-resistant bacterial infections to achieve greater efficacy
and provide broader coverage across pathogenic strains as well as potentially protecting against antibiotic resistance. Beyond our lysin
programs, we are exploring therapies using other phage-derived lytic agents, anti-microbial peptides and monoclonal antibodies
(“mAbs”).
We are conducting a multi-center, multi-national Phase 2 clinical study of our lead lysin product candidate, CF-301, used in
addition to standard of care (“SOC”) antibiotics for the treatment of Staph aureus bacteremia, including endocarditis, caused by
methicillin-resistant (“MRSA”) or methicillin-susceptible (“MSSA”) Staph aureus. This randomized, double-blind, placebo-controlled
trial is designed to evaluate the efficacy, safety, tolerability and pharmacokinetics of a parenteral formulation of CF-301, administered
as a single, two-hour IV infusion. The study will compare the clinical efficacy of treatment with a single dose of CF-301 in addition to
conventional, SOC anti-staphylococcal antibiotic to the SOC treatment plus placebo (e.g. SOC treatment alone). Based on review of
safety data after completion of approximately one-third of study enrollment, there have been no serious adverse events (“SAEs”) related
to study drug, no adverse event (“AE”) reports of hypersensitivity related to study drug and no discontinuations of study drug due to
AEs.
Prior to initiating our Phase 2 clinical study, we completed a Phase 1 program which included a single ascending dose study in
healthy volunteers in which CF-301 was well-tolerated and there were no clinical adverse safety signals. In addition, extensive in vivo
pharmacology, pharmacokinetic (“PK”)/pharmacodynamic (“PD”) exposure target attainment analysis and PK/PD modeling and clinical
microbiology studies were conducted and submitted to the regulatory authorities. In August 2015, CF-301 was granted Fast Track
designation by the Food and Drug Administration (“FDA”) for development of the parenteral formulation for the treatment of Staph
aureus bacteremia, including endocarditis.
We also continue to explore variants of CF-301 to expand our portfolio of lysins targeting biofilm-associated Staph aureus
infections. We have engineered a novel mutant variant, CF-296, which has properties we believe may make it a promising potential
treatment for invasive Staph aureus infections, including prosthetic joint infections. We are evaluating CF-296 in animal models to
further characterize this compound. In addition, we are continuing to progress CF-404, which is an aerosolized formulation of three
human mAbs for the potential treatment of life-threatening human influenza which targets all seasonal and most pandemic strains of
influenza.
Our research efforts are focused on a broad-based gram-negative lysin discovery program which aims to identify, optimize and
develop lysins that target gram-negative pathogens which are considered to be urgent or
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serious threats to global health by the U.S. Center for Disease Control (“CDC”) or a critical priorities by the World Health Organization
(“WHO”). A primary goal of this program is the development of lysins with potent activity against deadly, drug-resistant Pseudomonas
aeruginosa (“P. aeruginosa”) bacteria, for which there are few effective treatments. We were awarded funding from CARB-X
(Combating Antibiotic-Resistant Bacteria Biopharmaceutical Accelerator) in 2017 to support these efforts.
Our Strategy
Our strategy is to use our therapeutic products to achieve a leading market position in the treatment of life-threatening infectious
diseases, including those caused by drug-resistant pathogens. We plan to pursue commercialization of therapeutic products through
discovery, acquisition and development as follows:
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Advance our lead product candidate, CF-301, through clinical trials and demonstrate superiority of our therapeutic candidate
used in addition to SOC antibiotics over SOC alone for the treatment of Staph aureus bacteremia, including endocarditis. If our
clinical trials of CF-301 used in addition to SOC antibiotics demonstrate superior clinical outcomes compared to antibiotics
alone, we believe that these results will lead to rapid uptake by providers, favorable reimbursements from payors and potential
reductions in health care utilization and the overall cost of treatment per patient;
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Advance additional product candidates from our portfolio, including lysins targeting gram-negative bacteria, second-generation
gram-positive lysins, other phage derived lytic agents, anti-microbial peptides and CF-404 for influenza;
Acquire additional foundation technologies that enable the efficient discovery of anti-infective agents;
Acquire clinical stage therapies that treat infectious diseases through unique mechanisms of action; and
Establish collaborations to commercialize our product candidates outside North America.
Our Portfolio
We intend to develop and commercialize novel therapeutic agents to treat life-threatening infections, including those caused by
drug-resistant pathogens. The increasing prevalence of antibiotic resistance among bacterial pathogens has been widely recognized as an
urgent public health threat by the CDC, the WHO and the Infectious Disease Society of America (“IDSA”). Antibiotic resistance has
limited the effectiveness of many conventional antibiotics and the discovery and development of new therapeutics to address resistance
has not kept pace with the increasing incidence of these difficult-to-treat microbial infections. According to the IDSA, as of 2010 the
estimated cost to the U.S. healthcare system of antibiotic-resistant infections was approximately $21 billion to $34 billion annually, a
substantial portion of which is due to increased length of hospital stays necessary to treat these patients.
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We have focused our research and discovery efforts on those pathogens that are considered to be urgent or serious threats to global
health by the CDC or considered critical priority by the WHO. Our current portfolio of programs is reflected below:
Our Lead Program: CF-301
CF-301: Medical Opportunity
Staph aureus bacteremia is a serious bacterial infection associated with high morbidity and mortality. In the U.S. alone, there are
approximately 200,000 hospitalizations for Staph aureus bacteremia annually. Mortality rates from this bloodstream infection have been
reported as ranging from 20-40% despite conventional antibiotics. Staph aureus bacteremia can lead to infectious endocarditis, a serious
infection affecting the heart valves. The incidence of infective endocarditis in the U.S. has increased over the past decade, with over
47,000 cases in 2011, and is likely due to the growth of the at-risk populations, such as older, diabetic and hemodialysis patients. Staph
aureus endocarditis remains difficult to treat with current standard of care antibiotics. One reason for this is biofilm formation which
prevents antibiotics from eradicating the bacteria, leading to the need for long courses of antibiotic therapy, which are often unsuccessful
and necessitate surgery to eradicate bacteria from infected heart valves. MRSA is considered a serious threat to global health by the CDC
and a high priority threat by the WHO. Emerging resistance to conventional antibiotics such as vancomycin and daptomycin, which are
used to treat MSSA and MRSA, represents an additional serious threat which may have serious consequences in terms of increasing
morbidity, mortality and health care utilization.
Our lead product candidate, CF-301, is currently in Phase 2 of clinical development. An ongoing clinical study is evaluating
CF-301 used in addition to SOC antibiotics compared to SOC antibiotics alone for the treatment of adult patients with Staph aureus
bacteremia, including endocarditis, caused by MRSA or MSSA.
CF-301 is the first lysin to enter U.S. clinical trials and represents a first-in-class anti-bacterial therapeutic candidate. CF-301 has
been granted Fast Track designation by the FDA for the development of a parenteral formulation for the treatment of Staph aureus
bacteremia, including endocarditis, caused by MRSA or MSSA. If
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we are able to obtain regulatory approval of CF-301 for this initial indication, we believe CF-301, and/or engineered variants, may be
further developed for the treatment of other serious diseases caused by Staph aureus including biofilm-related infections in prosthetic
joints and indwelling devices, as well as pneumonia and osteomyelitis.
CF-301: Product Development
Clinical Studies
Phase 2 Clinical Study
We are conducting a multi-center, multi-national Phase 2 clinical study of our lead lysin product candidate, CF-301, for the
treatment of Staph aureus bacteremia, including endocarditis, caused by MRSA or MSSA. This randomized, double-blind, placebo-
controlled study compares the efficacy, safety and tolerability of CF-301 used in addition to SOC antibiotics to SOC antibiotics alone.
The study is expected to enroll 115 patients randomized 3:2 to receive either a single dose of CF-301 administered via 2 hour IV
infusion in addition to SOC antibiotics or placebo plus SOC antibiotics. The primary endpoint of the study is early clinical response at
Day 14. Clinical response is defined by objective clinical response criteria including survival, reduction/resolution of symptoms, lack of
progression of infection and lack of need for additional antistaphylococcal antibiotics, and is adjudicated by an independent clinical
adjudication committee of disease area experts. Additional exploratory clinical, microbiologic and health resource utilization endpoints
are also being assessed in the trial. An independent Data Safety Monitoring Board (“DSMB”) reviews unblinded safety and PK data
from the Phase 2 study on an ongoing basis. The DSMB recommended that we adjust the dose of CF-301 from 0.25mg/kg to 0.12 mg/kg
in patients with moderate to severe renal insufficiency to enable these patients to attain the target pharmacokinetic exposure as outlined
in the protocol. The DSMB noted that the recommendation was not made on the basis of any observed safety concerns. The protocol has
been amended to incorporate this recommendation. Based on our review of blinded data, collected after approximately one-third of the
target population was enrolled and dosed, there were no SAEs reported as being related to study drug, no AE reports of hypersensitivity
related to study drug and no discontinuations of study drug due to AEs.
If the Phase 2 results are consistent with our expectations regarding the efficacy and safety profile of CF-301, we expect to enter
into Phase 3 of clinical development. We believe that a single confirmatory Phase 3 clinical trial will be necessary to support the
biologics license application (“BLA”) submission and eventual approval, if any. As such, the Phase 3 study, if commenced, is expected
to be a multi-center, multi-national, randomized, double-blind, placebo-controlled study. Specific parameters for Phase 3 will be
informed by data from the Phase 2 study once it is completed, and relevant guidance from regulatory authorities.
Phase 1 Clinical Study
In 2015, we concluded a Phase 1 single ascending dose study in healthy volunteers. This trial was a randomized, double-blind,
placebo-controlled trial designed to evaluate the safety, tolerability and PK of four different intravenous doses of CF-301. Healthy
normal subjects were randomized to receive a single IV dose of CF-301 or placebo, each administered as a two hour intravenous
infusion.
In this Phase 1 study, CF-301 was generally well tolerated and there were no clinical adverse safety signals. No SAEs or
hypersensitivity AEs related to CF-301 were reported, and no study stopping rules were met. A total of five non-serious AEs were
reporting during the study as follows: two subjects who received CF-301 reported a total of three non-serious AEs (headache, contact
dermatitis, and allergic rhinitis); two subjects who received placebo reported a total of two non-serious AEs (viral upper respiratory tract
infection and viral infection). All of these events were mild in intensity and resolved. No patients withdrew from the study due to an AE.
There were no clinically relevant changes in inflammatory markers (e.g. erythrocyte sedimentation rate, high sensitivity c-reactive
protein, or complement factors including total hemolytic complement (CH50) associated with CF-301 dosing.
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Nine out of 13 subjects dosed with CF-301 developed anti-drug antibodies (“ADAs”) in the study. These ADAs were waning or
absent by day 180, and were not correlated with mediators of allergic immune response. Exposure was generally linear, dose dependent
and intra-subject variability was low. A pharmacometric analysis of the relationship between CF-301 exposure and heart rate (“HR”),
blood pressure and QT interval parameters showed no significant changes in systolic or diastolic blood pressure, HR or HR-corrected
QT intervals with increases in CF-301 plasma concentration at the doses tested in the Phase 1 study.
Estimated effective exposure of CF-301, based on in vivo pharmacology, PK/PD exposure target attainment analysis and PK/PD
modeling was attained at the 0.25mg/kg dose in healthy subjects. The Phase 1 Clinical Study Report, as well as reports of the animal
studies, PK/PD modeling and in vitro clinical microbiology studies were submitted to the regulatory authorities and an End of Phase 1
Meeting with FDA was conducted prior to advancing into Phase 2.
CF-301: In vitro Microbiologic Studies and Animal Models Demonstrate the Therapeutic Potential of CF-301
We believe CF-301 is well differentiated from conventional antibiotics by it spectrum of activity, including:
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Eradication of biofilms. CF-301 has been shown to clear biofilms in vitro studies and in animal models. Biofilm matrices
associated with serious Staph aureus infections form on human tissues (e.g. valve in endocarditis or bone in osteomyelitis)
and/or on the abiotic surfaces (e.g. prosthetic joints, catheters and other devices) and protect bacteria from immune defenses.
Biofilms pose significant therapeutic challenges by increasing antibiotic tolerance up to 1,000-fold because conventional
antibiotics are generally unable to clear or penetrate biofilms and kill dormant Staph aureus bacteria harbored within the
biofilms. Hence, surgical removal of infected tissue, catheters, prosthetic joints and other indwelling devices containing Staph
aureus biofilms is generally required to eradicate the infections.
Rapid, potent and selective bactericidal activity. In vitro, CF-301 kills Staph aureus bacteria within seconds, thereby exerting a
bactericidal effect, defined as a 3-log (99.9%) drop in colony forming units (“CFU”) per mL, within about 30 minutes. CF-301
has exhibited potent antibacterial activity against Staph aureus strains that are sensitive to methicillin as well as strains resistant
to methicillin, vancomycin, daptomycin, or linezolid. CF-301 is highly targeted against staphylococcal and some streptococcal
species, with no demonstrable activity against gram negative organisms . We believe that this targeted effect will substantially
reduce negative effects on normal, healthy human bacterial flora, known as the microbiome, in the gastrointestinal (“GI”) tract,
in contrast to broad spectrum antibiotics which are widely known to have deleterious effects on the human GI microbiome.
Potentiation of the efficacy of conventional anti-staphylococcal antibiotics. We have demonstrated strong synergy between
CF-301 and a wide range of antibiotics, which we believe may enable CF-301 to potentiate the efficacy of current standards of
care for the treatment of Staph aureus bacteremia, including daptomycin, vancomycin and oxacillin. Because of this and the
aforementioned features of CF-301 which are also complimentary to antibiotics, we believe the use of CF-301, in addition to
conventional antistaphylococcal antibiotics and, if approved, will provide significantly improved clinical cure rates, compared
to antibiotics alone. This therapeutic paradigm is currently being studied in the ongoing Phase 2 clinical trial in patients with
Staph aureus bacteremia, including endocarditis.
Low propensity for the development of resistance. In vitro models designed to induce the emergence of antibiotic resistance,
such as 26 day serial passage studies, have shown a low propensity for bacteria to develop resistance to CF-301. In comparison,
resistance to standard of care antibiotics such as daptomycin can readily be induced in the same model. Importantly, the
addition of CF-301 to daptomycin or other antibiotics in the same model was observed to suppress the emergence of resistance
to conventional antibiotics.
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We believe CF-301 has other competitive advantages as well, including:
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Minimal competition. Vancomycin and daptomycin are the only two antibiotics with label indications in the U.S. for the
treatment of Staph aureus bacteremia, including endocarditis due to MSSA and MRSA. Daptomycin, the most recently FDA
approved drug for this indication, was approved in 2005. Clinical cure rates at the test of cure visit in the Phase 3
non-inferiority study which led to daptomycin’s approval were less than 50% for both daptomycin and the standard of care
comparator. CF-301 has been shown to act synergistically with both daptomycin and vancomycin to improve eradication of
Staph aureus in animal studies of Staph aureus endocarditis conducted in different species. As such CF-301 is intended to be
used in addition to, not as a replacement for, SOC antibiotics.
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Patent protection. Our issued composition of matter patent on CF-301 provides protection through 2032, our biofilm patent
until 2033 and additional patents, if issued as we expect, could provide further protection beyond 2033.
Eradication of Antibiotic-Resistant Biofilms
Biofilm formation is a common characteristic of certain pathogenic bacteria such as Staph aureus and P. aeruginosa and represents
a major therapeutic challenge. Biofilms are characterized by densely packed bacterial cells that grow in communities and are enclosed
within a complex matrix of dead bacteria and excess cell wall components. Bacteria harbored within biofilms exhibit significant
tolerance to conventional antibiotics, and can be up to 1,000-fold less susceptible than planktonic (or, free-floating) bacteria. Infected
human tissues, such as the heart valve in endocarditis or bone in osteomyelitis, and the abiotic surfaces of indwelling medical devices,
such as central venous catheters, prosthetic joints and cardiac devices are common sites for biofilm formation in the setting of systemic
Staph aureus infections. Because conventional antibiotics are relatively ineffective at penetrating biofilms, long courses of antibiotics
are generally required and are often unsuccessful, necessitating surgery (e.g. heart valve or prosthetic joint removal and replacement to
eradicate the infection). There is a significant unmet medical need for novel treatment strategies to eradicate biofilms, as there are no
medical products currently indicated for, or effective in, the eradication of biofilms.
Because CF-301 disrupts the cell wall of Staph aureus bacteria by enzymatic lysis, we expected CF-301 to be highly active against
biofilms and we have performed an extensive battery of studies to profile CF-301’s activity against Staph aureus biofilms. These studies
tested CF-301 against biofilms formed on a range of surfaces, including polystyrene (i.e. microtiter plates), glass (i.e. chamber slides),
and PVC (i.e. catheter tubing), as well as in human serum, plasma, blood and synovial fluid. The results of these studies as detailed and
recently published in Antimicrobial Agents and Chemotherapy (Schuch, et al, AAC, July 2017), provide evidence that CF-301 is a
potent antistaphylococcal biofilm agent.
The catheter biofilm studies are particularly notable for demonstrating the sensitivity of MRSA biofilms to CF-301, with surface
removal of all biofilm bacteria and matrix elements within 15 to 60 min and the complete sterilization of the intraluminal environment
by six hours. The study shown below also provides a useful way to visualize CF-301’s ability to clear biofilm. We inoculated a catheter
with MRSA, which attached to the plastic catheter wall and formed a dense three-dimensional structure. We then treated the interior of
the catheter with CF-301 at 1xMIC. At various time intervals after treatment the interior of the catheter was sectioned and examined by
scanning electron microscopy (“SEM”), select images shown below in Figure 1. In the untreated catheter (left panel) the majority of
MRSA cells (little circles in the pictures below) were found within a biofilm. However, within 30 seconds of exposure to CF-301, the
dense biofilm was largely removed and only single cells were observed (middle panel). Fifteen minutes following exposure to CF-301
(right panel), the biofilm was completely cleared and residual MRSA cells which had been beneath the biofilm were killed, in effect,
sterilizing the catheter. These images illustrate the rapid and highly potent activity of CF-301 against bacterial biofilms.
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Figure 1: Sensitivity of Staph Aureus (MRSA) Biofilms Grown on Catheters to CF-301
We recently conducted a pilot study evaluating CF-301’s ability to eradicate biofilm from staphylococcal species formed on the
inside of a hemodialysis catheter which was used by a patient with a Staph bloodstream infection. The catheter was removed from the
patient as part of clinical care. The catheter was then cut into segments and examined to confirm the presence of biofilm. Catheter
segments were assigned to one of three different treatment groups: CF-301, daptomycin (“DAP”) or CF-301 + DAP at the clinically
relevant concentration of 1 µg/mL. The endpoint of the study was a reduction in the amount of bacteria (measured in CFUs) on the
inside of the catheter. CF-301 eradicated the biofilm and associated bacteria (as shown in Figure 2) at the clinically relevant
concentration of 1 µg/mL whereas daptomycin alone did not clear biofilm at 1 µg/mL. The addition of CF-301 to daptomycin resulted in
the same clearance as CF-301 alone. The catheter biofilm contained MRSA as well as other staphylococcal species. We believe these
data provide important translation of the previously reported potent efficacy of CF-301 against biofilms formed in vitro and in animal
models, to biofilms formed in the setting of human disease.
Figure 2: Reduction of Staph species on Explanted Human Catheter to CF-301
••• The circles indicate the limit of detection.
In view of the lack of efficacy of conventional antibiotics against biofilms, we believe CF-301, if approved, may provide an
important new therapeutic option to address the biofilm components of invasive Staph aureus infections and potentially forestall or
eliminate the need for surgical intervention.
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Rapid, potent and selective bactericidal activity
Lysins have demonstrated rapid bactericidal activity. Figure 3 below (from a timekill assay) compares the time it has taken CF-301
to kill bacteria in vitro and exert a bactericidal effect to the time required for daptomycin or vancomycin to do the same. All drugs were
administered at a concentration of 1xMIC. CF-301 reduced the number of Staph aureus bacteria in tests on 62 strains (20 MSSA and 42
MRSA strains) by 3-logs within 30 minutes. In contrast, daptomycin required six hours to achieve the same level of cell killing, while
vancomycin failed to achieve a 2-log, or 99%, cell kill during the same six-hour test period. The rapid bactericidal activity of CF-301 is
one of the important reasons that we believe it could be a highly desirable therapeutic option, if approved, for the treatment of Staph
aureus infections.
Figure 3: CF 301’s Rapid Bactericidal Activity In Vitro
•••The circles indicate the limit of detection in the plating assay.
Table 1 below sets forth our findings of CF-301’s effect on Staph aureus isolates, showing that CF-301 killed all Staph aureus
isolates tested, regardless of their antibiotic-resistance profile. We tested 250 different drug sensitive and resistant isolates of Staph
aureus. The isolates tested (classified by the particular drugs to which they are sensitive or resistant) included MSSA, MRSA, VRSA,
linezolid-resistant (“LRSA”) and daptomycin-resistant (“DRSA”) Staph aureus. The isolates were all analyzed to determine their
sensitivity to CF-301 and SOC antibiotics. CF-301 was shown to be active against all the strains tested (‘+’), while subsets of the Staph
aureus strains were resistant to daptomycin, vancomycin or linezolid (‘–’).
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Table 1: In Vitro Sensitivity of Antibiotic-Sensitive and Antibiotic-Resistant Strains to CF-301
Strain
(n=250)
MRSA (120)
MSSA (103)
DRSA (8)
VRSA (14)
LRSA (5)
CF-301
+
+
+
+
+
Daptomycin
+
+
-
+
+
Vancomycin
+
+
+
-
+
Linezolid
+
+
+
+
-
Our Standard Bacteremia Model utilizes animals infected with 10 million (10 7) CFU of MRSA and treated 3 hours later with
various doses of therapy or buffer. Figure 4 below presents the dose/response of animals treated with various doses of CF-301 in this
model, demonstrating CF-301’s potent anti-Staph activity. All mice receiving at least 0.5 mg/kg of CF-301 demonstrated at least 90%
survival, whereas doses below 0.5 mg/kg resulted in lower survival rates.
Figure 4: CF-301 Dose Response in Mice in the Standard Bacteremia Model
Synergy with Standard-of-Care Antibiotics
Synergy is defined as the interaction of two or more agents so that their combined effect is greater than the sum of their individual
effects. We identified a strong synergy between lysins and a wide range of antistaphylococcal antibiotics, including daptomycin,
vancomycin and oxacillin through in vitro synergy assays. In these tests, synergy was assessed by checkerboard assay using the
fractional inhibitory concentration index (“FICI”) for each combination. An FICI mean was derived from each checkerboard based on
two consecutive FIC values along the growth/no growth interface. Synergy was defined as an FICI of £0.5; strongly additive was
>0.5-<1; indifference was 1 to <2; and antagonism was ³2.
To test and demonstrate this synergy in vivo, we developed the Drug Failure Bacteremia Model where CF-301 could be tested in
combination with a SOC antibiotic. The Drug Failure Bacteremia Model utilizes an extremely high infection burden of one billion
(109) CFU. This produces such an overwhelming infection in the animals such that SOC antibiotics used as monotherapies at their
human equivalent doses failed to produce significant cure rates. We tested daptomycin, vancomycin and oxacillin in this model (data not
shown for vancomycin and oxacillin). We then adjusted the dose of CF-301 so that CF-301 monotherapy would also fail to
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have significant cure rates under these intense infection conditions. To test and demonstrate whether the synergy that we had observed
in vitro between CF-301 and SOC antibiotics would lead to improved efficacy in vivo, we then treated groups of animals in the Drug
Failure Bacteremia Model with the drugs as monotherapies and also in combination to evaluate if there was an improvement in efficacy.
Figure 5 below presents the results of the combination of CF-301 and daptomycin when used in the Drug Failure Bacteremia
Model. All control mice treated with buffer (diamonds) succumbed to bacterial infection within 12 hours. Administration of a clinical
dose of daptomycin as a single agent (squares) resulted in clinical failure, as only 31% of mice survived. Similarly, when CF-301
(triangles) was dosed as a single agent at this chosen dose, only 18% of mice survived. In contrast, when mice received the combination
of CF-301 and daptomycin (circles), 82% survived the bacterial challenge, demonstrating superiority of the combination therapy over
either of the single-drug regimens, with a significantly higher survival rate than the sum of the results from the two monotherapies.
Figure 5: Combination Therapy of CF-301 with Daptomycin in Drug Failure Bacteremia Model
We have tested the combination of CF-301 with daptomycin, vancomycin and oxacillin in multiple experiments with the Drug
Failure Bacteremia Model. In each experiment, the combination therapy was shown to be superior to monotherapy with a single drug
alone. We have also studied the combination of CF-301 with other antistaphylococcal agents, including linezolid, televancin, nafcillin,
cefazolin, clindamycin and azithromycin, in vitro and found CF-301 to be synergistic or strongly additive with each agent against both
MSSA and MRSA strains.
To further explore the activity of CF-301 in combination with SOC antibiotics for the treatment of life-threatening, drug-resistant
infections, we engaged the LA Biomed Research Institute at Harbor-UCLA Medical Center (“UCLA”) to perform studies in their
standard, well characterized rat and rabbit infective endocarditis models. The endpoint of the model is a reduction in the amount of
bacteria (measured as CFUs) on the heart valve, in the kidney and in the spleen. The studies examined the activity of CF-301 in
combination with daptomycin, in UCLA’s prototypical high-burden biofilm-based model. We worked directly with UCLA to design the
study, and the description of the methods and results follows below.
The results of dosing CF-301 in combination with daptomycin as compared to buffer and daptomycin alone in the rat infective
endocarditis model are shown in Figure 6 below. In this study, conducted at the laboratory of Dr. Arnold Bayer at UCLA, a single dose
of CF-301 used in addition to daptomycin resulted in an additional
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substantial reduction in CFUs, on top of the reduction in CFUs by daptomycin alone. This study is highly relevant to our understanding
of the therapeutic potential of CF-301 and the intended clinical application in a difficult to treat biofilm-based infection. This study
demonstrated that a single dose of CF-301, when combined with four days of daptomycin treatment, resulted in a 3-log drop in bacterial
burden in the cardiac vegetations and >2-log drop in the kidney and spleen of infected animals relative to daptomycin treatment alone.
Importantly, four out of nine animals treated with CF-301 and daptomycin were found to have sterilized kidney, spleen and heart valve
vegetations, whereas no animals treated with daptomycin alone had sterilized these tissues.
Figure 6: Single Dose of CF-301 with Daptomycin in Rat Infective Endocarditis Model
We have subsequently conducted additional experiments at UCLA in the rabbit infective endocarditis model in order to both
replicate the results of the rat study, but also to examine a range of CF-301 doses in combination with daptomycin as compared to both
buffer and daptomycin alone. The results of a dose-ranging study, where a range of single doses of CF-301 was assessed when
administered in addition to four days of daptomycin treatment are shown in Figure 7 below. As seen in the rat studies, administration of
daptomycin alone resulted in a 3-log reduction in CFUs in the heart valve vegetations in these animals infected with MRSA. The
addition of a single dose of CF-301, resulted in an additional ~3-log reduction in CFUs in the cardiac vegetations compared to
daptomycin alone at all doses of CF-301 tested (p < 0.002). Using conventional allometric scaling, the 0.7mg/kg dose of CF-301
approximates the human clinical dose of 0.25mg/kg, which is the dose being studied in our Phase 2 clinical trial. This dose together with
daptomycin resulted in a 6-log reduction in CFUs compared to buffer (p < 0.001). Of note, efficacy was maintained even at the lowest
dose of CF-301 tested (0.09mg/kg) in this study (p < 0.001).
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Figure 7: Dose Ranging Study of CF-301 with Daptomycin in Rabbit Infective Endocarditis Model
Collectively, we believe these preclinical data provide additional support to the design of our ongoing Phase 2 study to evaluate the
use of CF-301 in addition to SOC antibiotics for the treatment of Staph aureus bacteremia, including endocarditis.
Non-Clinical Activities
Chemistry, Manufacturing and Controls
CF-301 is manufactured using a proprietary engineered E. coli strain that expresses the product in a recombinant manner during the
fermentation process. This technology allows production of up to nine grams of CF-301 per liter of fermentation broth. After
fermentation, the broth containing CF-301 is separated and purified through a process containing two chromatographic columns. The
resulting product has greater than 99% purity.
We intend to further optimize the manufacturing process for increased purity and yield. Once completed, we plan to begin a
program to manufacture Phase 3 material. The process will then be scaled up from the current 100 liter fermentation and validated in a
series of manufacturing batches to demonstrate consistency. In parallel to the validation, we intend to conduct a comparability program
that demonstrates comparability between the final product used in Phase 3 and commercial manufacturing. We intend to include the
results in the BLA that we expect to submit to the FDA. Following submission, we expect that the FDA will conduct pre-approval
inspections of all manufacturing facilities and determine whether it agrees that our commercial material is sufficiently comparable to our
Phase 3 material.
Safety Pharmacology and Toxicology
We conducted non clinical safety pharmacology and toxicology studies in connection with our IND application for CF-301. In
these studies CF-301 was well-tolerated in rats for a single two-hour IV administration of doses up to 25mg/kg (determined by us to be
the no observable adverse effect level, or “NOAEL”) and that a single dose of 2.5mg/kg was not associated with any effects, adverse or
not, and was therefore determined to be
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the no observable effect level (“NOEL”). CF-301 was well tolerated in these studies in both rats and dogs for seven consecutive days of
once daily two-hour IV infusions of up to 2.5mg/kg. In a non-GLP pilot study in rats, 1.0 mg/kg/day was well tolerated for up to seven
consecutive days of once daily two-hour IV infusions or IV boluses.
Dose-dependent adverse effects were seen in both species at doses above 25 mg/kg/day for 1 day in the rat and above 2.5
mg/kg/day for seven-consecutive days in both the rat and the dog. The dose limiting toxicity observed was a localized microscopic
histopathological change surrounding certain blood vessels. In accordance with industry practice, we intend to study CF-301 in clinical
trials at doses much lower than those that caused adverse effects in animals, and we believe these doses to be within the efficacious
range of the drug.
Upon first exposure to CF-301, no hypersensitivity reaction was observed in any of our animal studies. Upon administration of a
second course of CF-301, given two weeks after completion of the first course, hypersensitivity or hypersensitivity-like findings were
observed in mice, rats and dogs. In a dedicated hypersensitivity study in rats, using a model intended to elicit hypersensitivity, findings
consistent with hypersensitivity were observed after a two week delayed re-challenge with a second course of CF-301 and were not dose-
dependent. In general, in humans, Type I hypersensitivity is an allergic anaphylaxis-like response (e.g., an immediate and potentially
life-threatening allergic reaction) and Type III hypersensitivity is a serum sickness-like response (e.g., fever, joint pain, protein in urine,
vascular changes). While the nature of hypersensitivity reactions in rats may not necessarily be predictive of hypersensitivity reactions
that may occur in humans, we have also considered the risk of hypersensitivity occurring upon first administration of CF-301 due to
potential prior exposure to the active protein component of CF-301 from the environment, as it is a naturally occurring protein. Testing
for anti-CF-301 antibodies was performed in Phase 1 subjects. No clinical hypersensitivity related to CF-301 was observed in subjects
dosed in our Phase 1 study. In our ongoing Phase 2 study, a safety review conducted after approximately one-third of the total target
population was enrolled showed that no AE reports of hypersensitivity related to study drug administration have been reported after
dosing . We are collecting additional information about the development of ADAs after dosing with CF-301 in the Phase 2 study.
Our Lysin Discovery Platform
The main objective of our lysin discovery platform has been to bring forth a portfolio of lysins that selectively target the largest
threats of resistant bacteria, commonly referred to as the ESKAPE pathogens (Enterococcus faecium, Staphylococcus aureus, Klebsiella
pneumoniae, Acinetobacter baumannii, Pseudomonas aeruginosa, and Enterobacter species) which are the leading causes of hospital
acquired (nosocomial) infections throughout the world.
Lysins are enzymes derived from naturally occurring bacteriophage, which are viruses that infect bacteria. When recombinantly
produced and then applied to bacteria, lysins cleave a key component of the target bacteria’s peptidoglycan cell wall, resulting in rapid
bacterial cell death. We believe lysins are differentiated from conventional antibiotics, especially regarding their mechanism and speed
of action and potent ability to eradicate biofilms. Conventional antibiotics require bacterial cell division and metabolism to occur in order
to exert their effect (i.e., cell death or cessation of growth). Based on in vitro tests, lysins, however, are fundamentally different in that
they kill bacteria rapidly be enzymatic cleavage of the bacterial cell wall without need for bacterial growth and cell division.
Importantly, lysins have a “narrow spectrum” meaning they kill only specific species of bacteria or closely related bacteria. As such, we
believe that lysins will not have negative effects on the beneficial, normal human GI microbiome in contrast to conventional “broad
spectrum” antibiotics which can kill the body’s normal, beneficial bacteria.
We employ bioinformatics and a series of metagenomic-based techniques to identify and clone bacteriophage lysins from bacterial,
viral, and environmental sources. The field of metagenomics is based on the bulk extraction of DNA/RNA from environmental samples
(e.g., soil, water, etc.) without prior isolation of individual microbial sources. This is useful when one considers that less than 1% of
microbes are culturable
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under standard laboratory conditions. Once extracted, the metagenomic DNA can then be examined using sequence-based methods or
by proprietary functional screens. These functional screens for bacteriophage lysin activity form the major component of our lysin
discovery work. Once cloned, our scientists also employ a variety of techniques to further optimize and ‘engineer’ changes to the lysins
to introduce specific characteristics which we believe may be favorable for potential therapeutic use.
For the functional metagenomic work that we perform, environmental genes are expressed in a recombinant format in a standard
host organism (i.e., Escherichia coli) and cells are monitored for the acquisition of a desired phenotype. We can vary both the source of
environmental DNA and the way we monitor for desired phenotypes to focus only on environmental populations enriched for
bacteriophage lysins that can actively kill a pathogen of interest. We sample various DNA sources including viral, prophage, and
pathogen-amplified viral metagenomics. Multiple methods for both DNA library construction and for functional screening are used in
parallel in order to maximize lysin identification.
The application of these methods enables the large scale identification of lysins, enabling the production of lysin banks specific for
any particular pathogen. We believe the ability to rapidly identify lysins specific for any pathogen of interest, either by in vitro or in
silico methods, will provide a steady pipeline of novel lysins for consideration as potential antimicrobial therapeutic candidates. In
addition to our proprietary lysin discovery program, we have an active collaborative research agreement through which we provide
funding for the discovery of new lysins to Dr. Vincent Fischetti’s Laboratory of Bacterial Pathogenesis and Immunology at The
Rockefeller University (“Rockefeller”). We have the first right to negotiate a license to all discoveries concerning lysins through October
2019. We hold worldwide exclusive license rights to patents for composition of matter for nine lysins from Rockefeller. Each lysin
targets a specific species of gram-positive bacteria, including drug-sensitive and drug-resistant forms of Staphylococcus aureus,
Streptococcus pneumoniae, Enterococcus faecalis, Group B streptococcus and Bacillus anthracis.
The focus of our research and discovery efforts is on identifying lysins which selectively kill specific species of gram-negative
bacteria that are considered to be urgent or serious threats to global health by the CDC or critical priorities by the WHO. Emerging
strains of multi-drug resistant gram-negative pathogens that are resistant to all or nearly all available antibiotics are considered to be a
major global health threat. We believe that lysins which target gram-negative pathogens have the potential to be important therapeutics
to combat antimicrobial resistance due to their novel mechanism of action and therapeutic profile, which is complimentary to
conventional antibiotics.
Pseudomonas aeruginosa (“P. aeruginosa”) is the primary target of our current gram negative lysin discovery efforts.
P. aeruginosa is a gram-negative pathogen which is common in the environment and is an important and much-feared potential
pathogen in hospitals. P. aeruginosa readily develops resistance to conventional antibiotics resulting in the emergence of multidrug
resistant (“MDR”) strains, which have become common in some hospitals and regions. P. aeruginosa is a major cause of hospital-
acquired infections and is a particularly important cause of infections in immunocompromised hosts, and is also a major pathogen in burn
and surgical wound infections. P. aeruginosa is also the most common pathogen isolated from adults with cystic fibrosis, the most
common cause of respiratory failure in cystic fibrosis and responsible for the deaths of the majority of these patients.
Invasive P. aeruginosa infections, including ventilator associated pneumonia, blood stream infections, complicated urinary tract
infections, and infections following surgery carry some of the highest risks of mortality among hospital acquired infections. An
estimated 51,000 healthcare-associated P. aeruginosa infections occur in the United States each year. More than 6,000 (13%) of these
are multidrug-resistant, with roughly 400 deaths per year attributed to these infections. Infections caused by multidrug resistant P.
aeruginosa are associated with high all-cause mortality, hospital mortality and higher health-care related costs compared to infections
caused by susceptible strains.
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The discovery and development of lysins which target P. aeruginosa is a focus of our research efforts. In 2017, we were one of the
first companies to be awarded a grant from CARB-X to support this effort.
Enterobacteriaceae
The Enterobacteriaceae family of gram-negative bacteria includes Klebsiella pneumoniae (“K. pneumoniae”), Enterobacter
species (“Enterobacter” e.g. Enterobacter cloacae) and Escherichia coli (“E. coli”), all of which can cause serious, life-threatening
infections, and have demonstrated concerning resistance patterns.
•
K. pneumoniae are common causes of serious, potentially life-threatening invasive infections (e.g. pneumonia, complicated
urinary tract, intra-abdominal infections) in hospital settings, particularly in intensive care units and among vulnerable patients
with impaired immune systems, diabetes or alcohol-use disorders. The mortality rates for hospital-acquired pneumonia due to
K. pneumoniae can exceed 50% in vulnerable patients.
•
•
Enterobacter cloacae can cause a wide range of invasive infections, and potentially contaminate intravenous fluids and medical
devices as the source of deadly outbreaks in the hospital.
E. coli is the most frequent cause of community and hospital acquired urinary tract infections and a frequent cause of
bloodstream infection. Patients in hospitals, nursing homes, and other healthcare settings whose care requires devices like
ventilators (breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and patients who are taking long
courses of certain antibiotics are most at risk for infection.
The emergence and spread of antimicrobial resistance among Enterobacteriaceae are recognized public health threats which
complicate the treatment of serious nosocomial infections.
Enterobacteriaceae can produce enzymes (e.g. “extended-spectrum beta-lactamases (“ESBL”)) that confer resistance to most beta-
lactam antibiotics, including penicillins, cephalosporins, and the monobactam aztreonam. Infections with ESBL-producing organisms
have been associated with poor outcomes. Approximately 20% of K. pneumoniae infections and 31% of Enterobacter infections in
intensive care units in the United States now involve strains which are not susceptible to third-generation cephalosporins. Community
and hospital-acquired ESBL-producing Enterobacteriaceae are prevalent worldwide, and their prevalence may be underestimated
because reliable identification of ESBL-producing organisms in clinical laboratories can be challenging.
Carbapenem antibiotics are considered to be the best currently available antimicrobial agent to treat infections caused by ESBL-
producing Enterobacteriaceae. However, resistance to carbapenems is becoming increasingly prevalent, and the resulting Carbapenem-
resistant Enterobacteriaceae (“CRE”), have high levels of resistance to antibiotics. K. pneumoniae and E. coli are a normal part of the
human gut bacteria that can become carbapenem-resistant due to enzymes that breakdown carbapenem antibiotics and make them
ineffective. Klebsiella pneumoniae carbapenemase (“KPC”) and New Delhi Metallo-beta-lactamase (“NDM”) are two such enzymes
that break down carbapenems and make them ineffective. Both of these enzymes have also been reported in P. aeruginosa. CRE
infections typically occur in hospitals, nursing homes, and other healthcare settings. Patients who require devices like ventilators
(breathing machines), urinary (bladder) catheters, or intravenous (vein) catheters, and/or patients who are taking long courses of certain
antibiotics are most at risk for CRE infections. Some CRE bacteria have become resistant to most available antibiotics, are very difficult
to treat, and can lead to death in up to 50% of patients who become infected.
We believe that lysins which target K. pneumoniae, Enterobacter and E. coli may be important therapeutic options for the
treatment of serious, potentially life-threatening invasive infections caused by multidrug resistant pathogens. Because of the novel
mechanism by which lysins kill bacterial, no cross resistance to conventional antibiotics, and as such, KPC, NDM and similar enzymes
are not expected to have any effect on the activity of lysins. We believe that lysins may help to improve clinical outcomes of infections
caused by these pathogens and thus we are also focusing research efforts to identify and develop lysins which target them.
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Monoclonal Antibodies
We are exploring combination therapy with mAbs that bind to target viruses and block certain biological activities or recruit other
parts of the immune system to destroy the pathogenic target. The strategies of our mAb program include: (1) targeting conserved regions
of the virus or bacteria which are not prone to mutation and (b) targeting multiple proteins expressed from different genes within a
bacteria or virus to prevent therapeutic escape and (c) combining mAbs to cover multiple strains for superior outcomes.
Our mAb Program: CF-404
We intend to develop CF-404, a combination of three human mAbs against influenza, as a treatment for potentially life-threatening
seasonal and pandemic influenza infections, a disease that kills as many as 49,000 people annually in the U.S. alone. Our preclinical
studies to date have shown that CF-404 may have the following attributes:
•
Broad activity against influenza in one formulation. CF-404 exhibits broad activity against influenza strains, including the
three principal strains (H1, H3 and B). By targeting conserved regions on the virus, which are not subject to seasonal mutation,
we believe that the efficacy of CF-404 will be robust from season to season. The unique triple mAb formulation, allows (1) our
mAbs to neutralize many different influenza strains; (2) for a single therapeutic covering all human seasonal and most
pandemic influenza strains; and (3) for an immediate therapeutic effect.
•
•
Minimal resistance potential. Our mAbs target the principal hemagglutinin stalk on the surface of influenza which is a
genetically conserved region of the virus, and hence, does not vary from one season to another.
Novel inhaled delivery. We intend to develop CF-404 as an inhaled therapy. Inhaled therapy has demonstrated enhanced
efficacy at lower doses than systemic administration in animal models. We believe that this delivery route will enable CF-404
to more directly target influenza potentially allowing for increased efficacy, even at low doses.
Influenza Research
In preclinical studies, CF-404 is active against all seasonal strains of influenza, including the three principal strains (H1, H3 and
B). These mAbs react with the principal protein, hemagglutinin, on the surface of influenza at a region referred to as the hemagglutinin
stalk which is genetically stable and does not vary from one season to another.
We have tested our mAbs in mouse models to evaluate protection against lethal infection with influenza. Figure 8 below shows the
effectiveness of CF-404 in mice infected with three different strains of influenza, (H1N1, H3N2 or B), regardless of the strain. Control
mice treated with buffer (triangles) all succumbed to viral infection within 7-9 days. By contrast, when we administered a single
treatment of CF-404 (squares) 24 hours post-infection, the infected mice appeared perfectly healthy, with weight changes comparable to
healthy mice (not pictured).
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Figure 8: Effectiveness of CF-404 in Mouse Model
We are developing CF-404 as an inhaled therapy. We believe that this novel delivery route allows CF-404 to target the influenza
virus more directly where it resides, in the respiratory system. We have demonstrated efficacy in animal models even when using low
doses of our antibodies administered in an aerosolized form. Figure 9 below shows how inhaled CF-404 cured mice infected with the
H1N1 strain of influenza. Control mice treated with buffer (diamonds) all succumbed to viral infection within 10 days. By contrast,
when we administered a single inhaled treatment of CF-404 (circles) over a range of low doses 24 hours post-infection, the infected
mice were protected and fared better with increasing dose (up to 0.82mg/kg) as compared to the 5mg/kg with a systemic dose.
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Figure 9: Effectiveness of Inhaled CF-404 in Mouse Model
Currently the standard of care treatment for influenza are neuraminidase inhibitors, such as Tamiflu. The major limitation of
Tamiflu is its narrow time window of effectiveness which requires treatment to be administered with 48 hours of the onset of symptoms.
The clinical benefit of Tamiflu is greatest when administered early in a patient’s infection, especially within 48 hours of illness onset. To
compare the time-to-treat windows of our mAbs to Tamiflu, H1N1 influenza-infected mice were treated with either a single
administration of CF-401or a 5 day course of Tamiflu beginning 24-96 hours post infection (“HPI”). Figure 10 below shows the findings
of that study, including the finding that Tamiflu treatment had to have been initiated by 24 HPI to cure mice, while treatments beginning
at 48, 72 or 96 HPI resulted in 100% death by day 14. In contrast, a single treatment with CF-401 resulted in 100% survival when given
any time up to 72 HPI and in 80% survival when given 96 HPI. This result suggests that our mAb treatment may provide effective
treatment to influenza patients at later times post-infection when Tamiflu is no longer effective.
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Figure 10: CF-401 Provides Greater Therapeutic Window than Tamiflu® in Mouse Model
We are continuing to develop a formulation of CF-404 that would be suitable for human use. Our in vivo data demonstrates that our
anti-H1 (CF-401), anti-H3 (CF-402) and anti-B mAbs (CF-403) have been able to protect animals from lethal challenge. Importantly,
our studies also show that treatment with our mAbs appears to provide greatly enhanced potency compared to treatment with other
mAbs. We believe our combination for the treatment of influenza is a novel approach addressing a high unmet medical need and would
offer competitive advantages to the only product widely used on the market today if successfully developed and approved.
Intellectual Property
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other
proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the
United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property
protection possible for our product candidates, proprietary information and proprietary technology through a combination of contractual
arrangements and patents, both in the United States and abroad. However, patent protection may not afford us with complete protection
against competitors who seek to circumvent our patents.
We also depend upon the skills, knowledge, experience and know-how of our management and research and development
personnel, as well as that of our advisors, consultants and other contractors. To help protect our proprietary know-how, which is not
patentable, and for inventions for which patents may be difficult to enforce, we currently rely and will in the future rely on trade secret
protection and confidentiality agreements to protect our interests. To this end, we will require all of our employees, consultants, and
other contractors (including any consultants or contractors we may retain for purposes of any of our ad hoc Clinical Advisory Boards) to
enter into confidentiality agreements that prohibit the disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions important to our business.
Our lysin portfolio consists of fifteen (15) U.S. patents, thirteen (13) foreign patents and eighty-nine (89) U.S. and international
patent applications that we have licensed from Rockefeller and/or developed in-house. These patents will expire between 2024 and 2033.
The patents and patent applications are directed to
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compositions and methods for the treatment of infections caused by gram-positive bacteria (Group B Streptococci, Staph aureus,
Streptococcus pneumonia, Bacillus anthracis (anthrax), Enterococcus faecalis and Enterococcus faecium) and infections caused by
gram-negative bacteria (P. aeruginosa, K. pneumoniae, Enterobacter cloacae and E. coli). If patents are granted on our patent
applications, which include the patent applications related to CF-301, CF-296 and the gram-negative lysins, they would expire between
2029 and 2039.
Our influenza patent portfolio consists of one (1) U.S. patent, four (4) foreign patents, and fifty-four (54) U.S. and foreign patent
applications, which we have licensed from Trellis and/or developed in-house. The patent applications are directed to compositions
relating to influenza antibodies as well as to pharmaceutical compositions for administration to patients and to methods for their use in
conferring passive immunity against various influenza strains and clades. If patents are granted on these patent applications they would
expire between 2031 and 2036.
The U.S. patent system permits the filing of provisional and non-provisional patent applications. A non-provisional patent
application is examined by the United States Patent and Trademark Office (“USPTO”), and can issue as a patent once the USPTO
determines that the claimed invention meets the various standards for patentability. A provisional patent application is not examined or
prosecuted, and automatically expires 12 months after its filing date if a non-provisional application is not filed based on the provisional
application within that 12-month period. Provisional applications are often used, among other things, to establish a priority filing date
for the subsequently filed non-provisional patent application. The term of individual patents depends upon the legal term for patents in
the countries in which they are filed. In most countries in which we file, the patent term is 20 years from the earliest filing date of a
non-provisional patent application. In the United States, a patent’s term may be lengthened by patent term adjustment, which
compensates a patentee for administrative delays by the USPTO in granting a patent. Alternatively, a patent’s term may be shortened if a
patent is terminally disclaimed over another patent.
The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension (“PTE”), which permits
patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition
and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, permits a PTE of up to five years beyond the expiration
of the patent. The length of the PTE is related to the length of time the drug is under regulatory review. Patent extension cannot extend
the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved
drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent
that covers an approved drug. In the future, if and when our pharmaceutical product candidates receive FDA or other regulatory
approval, we may be able to apply for or receive the benefit of PTEs on patents covering those products.
License Agreements—The Rockefeller University
We have entered into the following license agreements with Rockefeller:
•
•
On July 12, 2011, we entered into a license agreement for the worldwide, exclusive right to a provisional patent application,
upon which a non-provisional patent application has since been filed, covering the composition of matter for the lysin PlySS2
for the treatment and prevention of diseases caused by gram-positive bacteria (the “CF-301 License”). We rebranded PlySS2 as
CF-301. This license gives us the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale
products that would otherwise infringe a claim of this patent application or patent.
On June 1, 2011, we entered into a license agreement for the exclusive rights to Rockefeller’s interest in a joint patent
application, which is presently pending, covering the method of delivering antibodies through the cell wall of a gram-positive
bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement
between us and Rockefeller, and was jointly discovered and filed by the two parties.
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•
On September 23, 2010, we entered into a license agreement for the worldwide, exclusive right to develop, make, have made,
use, import, lease and sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and patent
applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of
diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B Streptococci, Staph aureus,
Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium.
In consideration for the licenses, we paid Rockefeller license initiation fees in cash and stock and may be required to pay an annual
maintenance fee, milestone payments and royalties on net sales from products to Rockefeller. We are allowed to grant sublicenses to
third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive
from sublicensees.
Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license
agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. Rockefeller may
terminate any license agreement in the event of a breach of such agreement by us or if we challenge the validity or enforceability of the
underlying patent rights. We may terminate any license agreement at any time on 60 days’ notice.
License Agreement—Trellis Bioscience LLC
On January 29, 2014, we entered into a license agreement with Trellis that gives us exclusive rights to all Trellis mAbs in the field
of influenza discovered from their CellSpot platform. Particularly, the license provides us with three fully human mAbs that bind,
neutralize and protect animals from all strains of H1, H3 and B influenza, and that will also cross bind, neutralize and protect animals
from other seasonal or pandemic influenza strains that may arise (including H5N1 and H7N9). We have selected our three lead mAbs
for the H1, H3, and B influenzas and are currently producing these antibodies at scale using manufacturing-grade expression systems
and performing IND-enabling studies.
In consideration for the license, we paid Trellis licensing fees in cash and stock and may be required to make specified development
and regulatory milestone payments and make additional payments upon the achievement of future sales and a royalty on net sales from
products to Trellis. We are allowed to grant sublicenses to third parties. The license agreement terminates upon the earlier of (i) our
decision to terminate the agreement at will or for safety reasons, (ii) material breach by either party that is not cured within ninety
(90) days, or (iii) either party’s insolvency.
On August 14, 2014, we amended the license agreement to include research conducted pursuant to a government grant.
Collaborative Research Agreements—The Rockefeller University
Beginning in October 2009, we entered into a research agreement with Rockefeller where we provided funding for research
focused on producing and testing monoclonal antibodies against proteins of Staph aureus, which is now expired On October 24, 2011,
we entered into a second research agreement with Rockefeller, where we provided funding for the research primarily to identify lysins,
enzymes or small molecules that will kill gram-negative bacteria, and to identify and characterize lysins from Clostridia difficile to be
engineered into gut commensal bacteria. This agreement expired on October 25, 2016. On October 25, 2016, we entered into a third
research agreement with Rockefeller, where we provide funding for the identification of novel lysin therapeutic candidates that target
gram-negative pathogens. The research collaboration will focus on gram-negative pathogens such as P. aeruginosa, E. coli, and K.
pneumoniae, including antibiotic-resistant strains.
Our current agreement runs through October 24, 2019. Either party may terminate the agreement upon breach of the agreement,
following 30 days written notice and failure to cure such breach. Following the
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expiration or termination of the agreement, each party will have a non-exclusive license to use for internal research purposes all research
results, including joint intellectual property. If Rockefeller or joint intellectual property develops from these programs, we will have the
right-of-first refusal to negotiate to acquire a royalty-bearing license to utilize such intellectual property for commercial purposes.
Competition
The pharmaceutical and biotechnology industries are intensely competitive. While we believe that our technology and scientific
knowledge provide us with competitive advantages, we face potential competition from many different sources, including major
pharmaceutical, specialty pharmaceutical and biotechnology companies and academic and research organizations in developing therapies
to treat diseases.
CF-301 is a first-in-class drug candidate and we believe it is the first lysin to enter human clinical trials in the U.S. We believe
there is currently no clinical competitor to CF-301 as it was designed with at least six attributes that no single antibiotic possesses,
including: (1) a novel mechanism of action, (2) specificity for a target bacteria (only Staph aureus), (3) rapid speed of action, (4) activity
across all drug-sensitive and drug-resistant strains of the target bacteria (including MRSA, VRSA and DRSA), (5) the ability to eradicate
biofilms, and (6) synergy with antibiotics.
Staph aureus bacteremia is typically treated with oxacillin, or for MRSA strains, daptomycin or vancomycin. We do not see market
competition with these drugs, as our strategy is to combine CF-301 with these drugs to aim for superiority over any one of those drugs
alone. We are aware of several other clinical trials currently being conducted or recently concluded in patients with Staph aureus
bacteremia. Depending on the outcomes of those and future trials, CF-301 may compete with products in development from Genentech,
Inc., iNtRon Biotechnology, Inc., and XBiotech, Inc. We believe that CF-301 will be synergistic with other known agents, such as
televancin from Theravance, Inc. or ceftobiprole from Basilea Pharmaceutica Ltd., and therefore not competitive with these agents.
We are not aware of any other lysins in clinical development under an IND in the United States. iNtRon Biotechnology Inc., a
biotechnology company located in South Korea, is currently conducting a human clinical trial for SAL-200, an endolysin-based drug
candidate to evaluate it as a treatment for Staph aureus bacteremia. We will continue to monitor the advancements of SAL-200 as data
become available.
CF-404 is intended for the treatment of potentially life-threatening seasonal and pandemic influenza infections. We believe CF-404
has competitive advantages in that it potentially addresses the short-comings of currently marketed products (Tamiflu, Relenza and
Rapivab) and other products in development for the following reasons: (1) it may not be prone to drug-resistance due to targeting
conserved regions of the influenza virus, (2) it may provide for an increased “time-to-treat” window compared to Tamiflu, Relenza and
Rapivab, which are indicated to be used within 48 hours of symptom onset, and (3) it may provide complete coverage against all
seasonal and most potential pandemic strains of human influenza without the need for annual reformulation, including influenza B.
CF-404 may directly or indirectly compete with other products already in development from F. Hoffmann-La Roche Ltd.,
Genentech, Inc., Johnson & Johnson, Inc., Theraclone Sciences, Inc., Toyama Chemical Co., Ltd., Romark Laboratories, L.C., Aviragen,
Inc., Vectura Group plc, Far East Bio-Tec Co. Ltd, Visterra Inc., MedImmune LLC, Ansun Biopharma, Inc. and others with early stage
product candidates.
Many of our competitors may have significantly greater financial resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved medicines than we
do. We compete with companies that have products on the market or in development for the same indications as our product candidates.
Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being
concentrated among a smaller
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number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and patient registration for clinical trials. Smaller or early stage companies may also prove
to be significant competitors, particularly through collaborative arrangements with large and established companies.
The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy,
safety, convenience, price and the availability of reimbursement from government and other third-party payors. Our commercial
opportunity could be reduced or eliminated if our competitors develop and commercialize medicines that are safer, more effective, have
fewer or less severe side effects, are more convenient or are less expensive than any medicines that we may develop. Our competitors
also may obtain FDA or other regulatory approval for their medicines more rapidly than we may obtain approval for ours, which could
result in our competitors establishing a strong market position before we are able to enter the market.
Manufacturing
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to
continue to rely, on third parties for the manufacture of our product candidates for preclinical or clinical manufacturing, testing, as well
as for commercial manufacture of any products that we may commercialize. We employ the services of Fujifilm UK to supply the drug
substance for CF-301. We do not yet have contracts to produce a commercial supply of the drug substance for CF-301; however, we
intend to pursue agreements with Fujifilm UK to do so. We employ the services of various vendors to produce CF-301 in its final vialed
drug product form. We do not have contracts for the commercial supply of CF-301. We intend to pursue agreements with third party
manufacturers regarding commercial supply of vialed drug product at an appropriate future time. We may choose to locate second fill
finish third party manufacturers to supply other world regions such as the European Union or Asia.
Sales, Marketing and Distribution
We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on
licensing and co-promotion agreements with strategic partners for the commercialization of our products in the United States and other
territories. If we choose to build a commercial infrastructure to support marketing in the United States, such commercial infrastructure
could be expected to include a targeted sales force supported by sales management, internal sales support, an internal marketing group
and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and
management resources, some of which would have to be deployed prior to any confirmation that any of our other products will be
approved.
Research and Development Expenses
We have invested $17.3 million, $22.1 million, and $15.0 million in research and development expenses for the years ended
December 31, 2017, 2016 and 2015, respectively.
Government Regulation
The production, distribution, and marketing of products employing our research and intellectual property or that we may license
from third parties are subject to extensive governmental regulation in the United States and in other countries. In the United States, our
products will be regulated as biologics and subject to the Federal Food, Drug, and Cosmetic Act, as amended (the “FDC Act”), the
Public Health Service Act, as amended (the “PHSA”) and the regulations of the FDA, as well as to other federal, state, and local statutes
and regulations. These laws, and similar laws outside the United States, govern the research, development, clinical and preclinical
testing, manufacture, safety, effectiveness, approval, labeling, distribution, sale, import, export, storage, record-keeping, reporting,
advertising, and promotion and marketing of our products. Product development and approval
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within this regulatory framework, if successful, will require the expenditure of substantial resources and take years to achieve. Violations
of regulatory requirements at any stage may result in various adverse consequences, including the FDA’s and other health authorities’
delay in approving or refusal to approve a product and may result in enforcement actions and administrative or judicial sanctions.
The following provides further information on certain legal and regulatory requirements that have the potential to affect our
operations and the future marketing of our products.
FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The FDC Act and other federal and
state statutes and regulations govern, among other things, the research, development, testing, manufacture, storage, recordkeeping,
approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of
pharmaceutical products. Biological products used for the prevention, treatment, or cure of a disease or condition of a human being are
subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of new drug applications
(“NDAs”). Biological products are approved for marketing under provisions of PHSA, via a BLA. However, the application process and
requirements for approval of BLAs are very similar to those for NDAs, and biologics are associated with similar approval risks and costs
as drugs. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions,
such as FDA refusal to approve pending NDAs or BLAs, warning or untitled letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically
involves preclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical
testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each
indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the
actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the
characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations
and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND
along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial
protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is
submitted.
A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If
the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the investigational new drug or biologic to healthy volunteers or patients under the
supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance
with good clinical practice (“GCP”), an international standard meant to protect the rights and health of healthy volunteers or patients and
to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the
trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on
healthy volunteers or patients in the U.S. and subsequent protocol amendments must be submitted to the FDA as part of the IND.
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The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it
believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the
clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an IRB
for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply
with the IRB’s requirements, or may impose other conditions.
Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases
may overlap. In Phase 1, the initial introduction of the drug or biologic into healthy human subjects or patients, the product is tested to
assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early
evidence of effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug or
biologic for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a
compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken
to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically
dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug or biologic and to provide
adequate information for the labeling of the product. In most cases, the FDA typically requires two adequate and well-controlled Phase
3 clinical trials to demonstrate the efficacy of the drug or biologic. A single Phase 3 trial with other confirmatory evidence may be
sufficient in some instances where the study is a large multicenter trial demonstrating internal consistency and a statistically very
persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially
serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
After completion of the required clinical testing, an NDA or BLA is prepared and submitted to the FDA. FDA approval of the
NDA or BLA is required before marketing of the product may begin in the United States. The NDA or BLA must include the results of
all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and
controls. The cost of preparing and submitting an NDA or BLA is substantial. The submission of most NDAs and BLAs is additionally
subject to a substantial application user fee. For fiscal year 2017, the application user fee is $2,421,495. The manufacturer and/or
sponsor under an approved NDA or BLA are also subject to annual program user fees, currently set at $304,162 per program. These fees
are typically adjusted annually.
The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for filing based on
the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for
filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs and BLAs. The
FDA aims to review applications for standard review drugs containing new molecular entities or biologic products within ten months of
the date the application was submitted for filing, and the goal is to review applications for priority review drugs or biologics in six
months of the date the application was accepted for filing. Priority review can be applied to applications for drugs containing new
molecular entities or biologics that are intended to treat a serious disease or condition and that, if approved, would provide a significant
improvement in safety or effectiveness. The review process for both standard and priority review may be extended by the FDA to
consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug or biologic products, or drug or biologic products that present difficult
questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review,
evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of
an advisory committee, but it generally follows such recommendations. Before approving an NDA or BLA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which
the
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drug is manufactured. The FDA will not approve the product unless compliance with current good manufacturing practices (“cGMPs”)
is satisfactory and the NDA or BLA contains data that provide substantial evidence that the drug or biologic is safe and effective in the
indication studied.
After the FDA evaluates the NDA or BLA and the manufacturing facilities, it issues either an approval letter or a complete
response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the
FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. The FDA has committed to reviewing
such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug or biologic with specific prescribing information for specific
indications. As a condition of NDA or BLA approval, the FDA may require a risk evaluation and mitigation strategy (“REMS”), to help
ensure that the benefits of the drug or biologic outweigh the potential risks. REMS can include medication guides, communication plans
for healthcare professionals, and elements to assure safe use (“ETASU”). ETASU can include, but are not limited to, special training or
certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient
registries. The requirement for a REMS can materially affect the potential market and profitability of the product. Moreover, product
approval may require substantial post-approval testing and surveillance to monitor the product’s safety or efficacy. Once granted,
product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following
initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or
manufacturing processes or facilities, require submission and FDA approval of a new NDA or BLA or NDA or BLA supplement before
the change can be implemented. An NDA or BLA supplement for a new indication typically requires clinical data similar to that in the
original application, and the FDA uses the same procedures and actions in reviewing NDA or BLA supplements as it does in reviewing
NDAs or BLAs.
Post-Approval Requirements
Once an NDA or BLA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely
regulates the post-approval marketing and promotion of drugs and biologics, including standards and regulations for direct-to-consumer
advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the
internet. Drugs and biologics may be marketed only for the approved indications and in accordance with the provisions of the approved
labeling.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA or BLA. The FDA also
may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or
the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality control, drug
manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval. Drug and biologic manufacturers
and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with
the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to
assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production
and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product
recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously
unrecognized problems are subsequently discovered.
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Fast Track Designation and Accelerated Approval
The FDA administers a number of programs to facilitate the development, and expedite the review, of drugs or biologics that are
intended for the treatment of serious or life-threatening diseases or conditions. For instance, a sponsor may seek the FDA’s designation
of its product candidate as a “fast track” product. Fast track products are those products intended for the treatment of a serious or life-
threatening disease or condition and which demonstrate the potential to address unmet medical needs for such disease or condition.
Drugs that qualify as a qualified infectious disease product, or QIDP, under the Generating Antibiotic Incentives Now, or GAIN Act, are
also eligible for fast track designation.
Under the fast track program, the sponsor of a new drug or biologic candidate may request that the FDA designate the candidate
for a specific indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for the candidate. The FDA must
determine if the drug or biologic candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request. If fast
track designation is obtained, the FDA may initiate review of sections of the marketing application before the application is complete.
This “rolling review” is available if the applicant provides and the FDA approves a schedule for the remaining information. However,
the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA or BLA is submitted.
Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by
data emerging in the clinical trial process. In addition, a product candidate that receives fast track designation is eligible for more
frequent meetings with the FDA to discuss the product’s development plan and ensure collection of appropriate data needed to support
approval and more frequent communications from FDA regarding such things as the design of the proposed clinical trials and use of
biomarkers, as applicable. In August 2015, the FDA granted fast track designation to CF-301 for the treatment of Staph aureus
bacteremia, including endocarditis.
In some cases, a fast track product may be approved under the accelerated approval program, which means that the approval may
be made on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can
be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or
mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of
alternative treatments. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition
that substitutes for a direct measurement of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more
easily or more rapidly than clinical endpoints.
A drug or biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the
completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-
approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug or biologic from
the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to
prior review by the FDA.
New Guidance for Industry: “Antibacterial Therapies for Patients With an Unmet Medical Need for the Treatment of Serious
Bacterial Diseases” – Potential for Streamlined Development
The FDA issued guidance for the industry in August 2017, which among other things, discusses the potential for antibacterial drug
candidates intended to treat serious bacterial infections in patients who have few or no available therapies to be candidates for a
streamlined development pathway. According to the guidance, candidates for a streamlined process would be likely to have (1) a new
mechanism of action that preserves antibacterial activity against bacteria that have mechanisms of resistance to other available
antibacterial drugs; (2) an added inhibitor that neutralizes a mechanism of resistance; (3) an alteration in the structure of the molecule
that makes the drug candidate no longer susceptible to the mechanisms of resistance to existing drugs; or (4) some other characteristic
that has a potential to lead to enhanced effectiveness.
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Breakthrough Therapy Designation
The FDA is required to expedite the development and review of the application for approval of drugs that are intended to treat a
serious or life-threatening disease or condition where preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the
sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a breakthrough
therapy concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies
for breakthrough therapy designation within 60 days of receipt of the sponsor’s request.
Pediatric Information
Under the Pediatric Research Equity Act (“PREA”), NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess
the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and
administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or
deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which
orphan designation has been granted.
Additional Controls for Biologics
To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of
manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to
immediately suspend licenses in situations where there exists a danger to public health, to prepare or procure products in the event of
shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or
spread of communicable diseases in the United States and between states.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the
manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for
distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA
together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s
tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before
releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the regulatory
standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of biologics,
manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic
inspection after approval.
Biosimilars
The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), created an abbreviated approval pathway for biological
products shown to be highly similar to or interchangeable with an FDA-licensed reference biological product. Biosimilarity sufficient to
reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form,
and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety,
purity, and potency. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical study, absent a
waiver by the Secretary. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher
hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products
administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without
increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. To date, few biosimilars have
been licensed under the
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BPCIA, and no interchangeable products have been approved under the BPCIA to date. Complexities associated with the larger, and
often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant
hurdles to implementation which are still being evaluated by the FDA.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that
the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the
FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another
company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product
containing that company’s own preclinical and clinical data from adequate and well-controlled trials to demonstrate the safety, and
efficacy of their product. The first biologic product submitted under the abbreviated approval pathway that is determined to be
interchangeable with the reference product may also enjoy a period of exclusivity. At this juncture, it is unclear whether products
deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial
information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other
aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their
clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being
studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of
development programs.
Other Domestic Regulatory Requirements
In the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially
subject to regulation by various federal, state, and local authorities in addition to the FDA, including the Centers for Medicare and
Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of the Inspector
General), the United States Department of Justice and individual United States Attorneys’ offices within the Department of Justice, and
state and local governments. For example, sales, marketing, and scientific/educational grant programs must comply with the anti-fraud
and abuse provisions of the Social Security Act, the False Claims Act, the privacy and security provisions of the Health Insurance
Portability and Accountability Act, or “HIPAA”, as amended by the Health Information Technology and Clinical Health Act, or
“HITECH”, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of
the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made
available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements
apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws, and
violations of these laws may result in imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal
healthcare programs.
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been
applied to restrict certain marketing practices in the pharmaceutical industry in recent years. These laws include anti-kickback statutes
and false claims statutes. The federal healthcare program Anti-Kickback Statute prohibits, among other things, knowingly and willfully
offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare
programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and
prescribers, purchasers and formulary managers on the other. In addition, a person or entity
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does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations of
the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in
federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain
common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices
that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not
qualify for an exemption or safe harbor.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to
the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several
pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to
pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly
providing free product to customers with the expectation that the customers would bill federal programs for the product. In addition,
certain marketing practices, including off-label promotion, may also violate false claims laws. The majority of states also have statutes
or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under
Medicaid and other state programs, or, in several states, apply regardless of the payor.
HIPAA also created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully
embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and
knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed
a violation.
There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare
providers. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively, the Affordable Care Act, among other things, imposes new reporting requirements on drug manufacturers for payments
made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their
immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of
$165,786 per year (or up to an aggregate of $1,105,241 per year for “knowing failures”), for all payments, transfers of value or
ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Drug manufacturers
are required to submit reports to the government by the 90th day of each calendar year. Certain states also mandate implementation of
compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts,
compensation and other remuneration to physicians.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct
our business. HIPAA, HITECH, and their respective implementing regulations, including the final omnibus rule published on
January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,”
defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in
connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may
be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to
file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs
associated with pursuing
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federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of
which differ from each other in significant ways, thus complicating compliance efforts.
Moreover, ContraFect is now, and in the future may become, subject to additional federal, state, and local laws, regulations, and
policies relating to safe working conditions, laboratory practices, the experimental use of animals, and/or the use, storage, handling,
transportation, and disposal of human tissue, waste, and hazardous substances, including radioactive and toxic materials and infectious
disease agents used in conjunction with our research work.
Physician Drug Samples
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs to physicians.
The Prescription Drug Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to
physicians, as well as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain
federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil and
criminal penalties for violations.
New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions
governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA
regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our
products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies
or interpretations changed or what the effect of such changes, if any, may be.
For example, in December 2016, the 21st Century Cures act, or Cures Act, was signed into law. The Cures Act, among other
things, is intended to modernize the regulation of drugs and biologics and spur innovation, but its ultimate implementation remains
unclear. Among other things, the Cures Act provides a new “limited population” approval pathway for antibacterial and antifungal drugs
intended to treat serious or life-threatening infections.
Foreign Regulation
In addition to regulations in the United States, we may become subject to widely varying foreign regulations, which may be quite
different from those of the FDA, governing clinical trials, manufacture, product registration and approval, and pharmaceutical sales.
Whether or not FDA approval has been obtained, we must obtain a separate approval for a product by the comparable regulatory
authorities of foreign countries prior to the commencement of product marketing in these countries. The approval process varies from
country to country, and the time may be longer or shorter than that required for FDA approval. In certain countries, regulatory
authorities also establish pricing and reimbursement criteria. In addition, under current United States law, there are restrictions on the
export of products not approved by the FDA, depending on the country involved and the status of the product in that country.
European Medicines Agency (EMA) – Small and Medium Enterprise (SME) Designation
The SME designation was established by EMA to promote innovation and the development of new medicinal products by smaller
companies. Companies with SME status are eligible to receive financial incentives as well as administrative and regulatory support
through national and regional level programs. These benefits include access to dedicated EMA personnel during the clinical
development process as well as reductions in fees associated with regulatory procedures such as Scientific Advice, Marketing
Authorizations, and inspections.
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Companies with SME status are also eligible for early application (prior to proof of concept) to the priority medicines (PRIME) scheme.
PRIME provides enhanced support for the development of medicines that target an unmet medical need. In August 2016, the EMA
granted SME designation to the Company.
Pharmaceutical Coverage, Pricing and Reimbursement
Our ability to commercialize our product candidates successfully will depend in part on the extent to which the United States and
foreign governmental authorities, private health insurers and other third-party payors establish appropriate coverage and reimbursement
levels for our product candidates and related treatments. In many of the markets where we would commercialize a product following
regulatory approval, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement
programs with varying price control mechanisms. Public and private health care payors control costs and influence drug pricing through
a variety of mechanisms, including through negotiating discounts with the manufacturers and through the use of tiered formularies and
other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payors also set other criteria to
govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. In particular, many
public and private health care payors limit reimbursement and coverage to the uses of a drug that are either approved by the FDA or that
are supported by other appropriate evidence (for example, published medical literature) and appear in a recognized drug compendium.
Drug compendia are publications that summarize the available medical evidence for particular drug products and identify which uses of
a drug are supported or not supported by the available evidence, whether or not such uses have been approved by the FDA.
Healthcare Reform
In the United States, there have been a number of legislative and regulatory changes to the healthcare system in ways that could
affect our future revenues and profitability and the future revenues and profitability of our potential customers. For example, the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”) revised the payment methodologies for many
drugs, which resulted in reduced reimbursement to providers. Additionally, the MMA created an outpatient prescription drug benefit
which became effective on January 1, 2006. This benefit is administered by private pharmacy benefit managers and other managed care
organizations and is putting increased pressure on the pharmaceutical industry to reduce prices.
In March 2010, the Affordable Care Act was passed, which substantially changes the way health care is financed by both
governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other
things, subjects biologic products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates
owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted
or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the
rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of
certain branded prescription drugs, and a new Medicare Part D coverage gap discount program, in which manufacturers must agree to
offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap
period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
The current presidential administration and U.S. Congress have recently attempted to repeal or “repeal and replace” the Affordable
Care Act. Although those efforts did not succeed, we expect that the presidential administration and U.S. Congress will continue to seek
to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. In January 2017, the House and Senate
passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care
Act and permits such legislation to pass with a majority vote in the Senate. The President has also issued an executive order in which he
stated that it is his administration’s policy to seek the prompt repeal of the Affordable Care Act
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and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the
burdensome provisions of the Affordable Care Act to the maximum extent permitted by law. There is still uncertainty with respect to the
impact the President’s administration and the U.S. Congress may have, if any, on the Affordable Care Act, and any changes will likely
take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans that
were authorized by the Affordable Care Act.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was
enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by
Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion
for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several
government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into
effect in April 2013, due to subsequent legislative amendments to the statute, and will remain in effect through 2025 unless additional
Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other
things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Recently there has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government
program reimbursement methodologies. For example, the Cures Act changes the reimbursement methodology for infusion drugs and
biologics furnished through durable medical equipment in an attempt to remedy over- and underpayment of certain drugs.
If additional state and federal healthcare reform measures are adopted in the future, any of which could limit the amounts that
federal and state governments will pay for healthcare products and services, we could expect such measures to result in reduced demand
for our product candidates or additional pricing pressures.
Segment Reporting
We are engaged solely in the discovery and development of therapeutic protein and antibody products for life-threatening, drug-
resistant infectious diseases. Accordingly, we have determined that we operate in one operating segment.
Employees
As of March 7, 2018, we had 23 full-time employees, including 11 employees with advanced degrees. Of these full-time
employees, 13 employees are engaged in research and development activities. None of our employees is represented by a labor union or
covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Our Corporate Information
We were incorporated under the laws of the State of Delaware in March 2008. Our executive offices are located at 28 Wells
Avenue, 3rd Floor, Yonkers, NY 10701, and our telephone number is (914) 207-2300. Our website address is www.contrafect.com.
References to our website are inactive textual references only and the content of our website should not be deemed incorporated by
reference into this Form 10-K.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
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of 1934, as amended, are available free of charge on our website located at www.contrafect.com as soon as reasonably practicable after
they are filed with or furnished to the Securities and Exchange Commission (the “SEC”). These reports are also available at the SEC’s
Internet website at www.sec.gov. The public may also read and copy any materials filed with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington D.C. 20549. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330.
A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Whistleblower Policy and the charters of
the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee are posted on our website,
www.contrafect.com, under “Corporate Governance” and are available in print to any person who requests copies by contacting us by
calling (914) 207-2300 or by writing to ContraFect Corporation, Attn: General Counsel, 28 Wells Avenue, 3rd Floor, Yonkers, NY
10701.
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Item 1A. Risk Factors
You should carefully consider the following risk factors, as well as the other information in this report, and in our other public
filings. Our business, financial condition and operating results can be affected by a number of important factors, whether currently
known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause the
Company’s actual results of operations and financial condition to vary materially from past, or from anticipated future, results of
operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect the Company’s
business, financial condition, results of operations and common stock price. Other factors may exist that we do not consider significant
based on information that is currently available. In addition, new risks may emerge at any time, and we cannot predict those risks or
estimate the extent to which they may affect us. Past financial performance should not be considered to be a reliable indicator of future
performance, and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception and do not expect to generate revenue for at least the next several years. We
expect to incur losses for at least the next several years and may never achieve or maintain profitability.
We are a clinical-stage biopharmaceutical company with no approved products, and we have not generated any revenue from
product sales to date. To date, we have focused exclusively on developing our product candidates and have funded our operations
primarily through the sale of common stock and warrants, convertible preferred stock and issuances of convertible debt to our investors.
We have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in the
pharmaceutical industry, and you should analyze our company in light of such risks and uncertainties.
Since inception, we have incurred significant losses. Our net losses were $15.5 million, $28.5 million and $25.1 million for the
years ended December 31, 2017, 2016 and 2015, respectively. We have devoted substantially all of our efforts to research and
development. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The
net losses we incur may fluctuate significantly from quarter to quarter and year to year.
We anticipate that our expenses will increase substantially as clinical trials for any of our product candidates commence or
progress. Our expenses will increase if and as we:
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seek to discover or develop additional product candidates;
seek marketing approvals for any of our product candidates that successfully complete clinical trials;
in-license or acquire other products and technologies;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, quality control and scientific personnel; and
add operational, financial and management information systems and personnel, including personnel to support our product
development and planned future commercialization efforts.
Our recurring losses from operations could raise substantial doubt regarding our ability to continue as a going concern.
We currently operate with limited resources. We believe that our cash, cash equivalents and marketable securities balance of
$46.9 million as of December 31, 2017 will be sufficient to fund our projected operations into the second quarter of 2019. Depending on
the level of cash used in or generated from operations, additional
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capital may be required to sustain operations. We have incurred significant losses since our inception and have never generated revenue
or profit, and it is possible we will never generate revenue or profit. Meaningful revenues will likely not be available until and unless
any future product candidates are approved by the FDA or comparable regulatory agencies in other countries and successfully marketed,
either by us or a partner, an outcome which may not occur. There is no assurance that other financing will be available when needed to
allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to
choose not to deal with us due to concerns about our ability to meet our contractual obligations. If we are unable to continue as a going
concern, you could lose all or part of your investment in our Company.
We currently have no source of product revenue and have not yet generated any revenues from product sales.
To date, we have not completed the development of any products and have not generated any revenues from product sales. Our
ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully commercialize
products, including any of our current product candidates, or other product candidates that we may in-license or acquire in the future.
Even if we are able to successfully achieve regulatory approval for these product candidates, we may never generate revenues that are
significant enough to achieve profitability. Our ability to generate revenue from product sales from our current or future product
candidates also depends on a number of additional factors, including our ability to:
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successfully complete development activities, including the necessary clinical trials;
complete and submit biologics license applications (“BLAs”) to the FDA, and obtain regulatory approval for indications for
which there is a commercial market;
complete and submit applications to, and obtain approval from, foreign regulatory authorities;
set a commercially viable price for our products;
develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in
the markets which we choose to commercialize on our own;
find suitable distribution partners to help us market, sell and distribute our products in other markets; and
obtain coverage and adequate reimbursement from third parties, including government and private payors.
In addition, because of the numerous risks and uncertainties associated with product development, including that any of our product
candidates may not advance through development or achieve the desired endpoints of applicable clinical trials, we are unable to predict
the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to
complete the development and regulatory process for any product candidates, we anticipate incurring significant costs associated with
commercializing these products.
Even if we are able to generate revenues from the sale of our products, we may not become profitable. If we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain
profitable would decrease the value of our company and could impair our ability to raise capital to expand our business or continue our
operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We have a need for substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce
or eliminate our product development programs or commercialization efforts.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the clinical development
of CF-301 and preclinical development of CF-404, and, possibly, acquire and develop
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new product candidates or technologies. Accordingly, we will need to obtain substantial additional funding in connection with our
continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or
eliminate our research and development programs or any future commercialization efforts.
Our future capital requirements will depend on many factors, including:
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the complexity, timing and results of our clinical trials of our product candidates;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of developing our product candidates for additional indications;
our ability to establish scientific or business collaborations on favorable terms, if at all;
the costs of preparing, filing and prosecuting patent or other intellectual property applications, maintaining and protecting our
intellectual property rights and defending against intellectual property-related claims;
the extent to which we in-license or acquire other product candidates or technologies; and
the scope, progress, results and costs of product development for our product candidates.
Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never
generate the necessary data or results to obtain marketing approval and achieve product sales. In addition, if approved, CF-301, CF-404
or any other product candidate that we develop may not achieve commercial success. Accordingly, we may need to continue to rely on
additional financing to achieve our business objectives. In addition, we may seek additional capital due to favorable market conditions or
strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. Adequate additional
financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our
technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we may finance our cash needs through a combination of
equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We do not
have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt
securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant
licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant
rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
We were incorporated in 2008 and commenced active research operations in 2010. Our operations to date have been limited to
organizing and staffing our company, business planning, raising capital and acquiring and
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developing CF-301, CF-404 and other potential product candidates. We have not yet demonstrated our ability to successfully complete
Phase 2 or Phase 3 clinical trials, obtain marketing approval, manufacture a commercial scale product, or arrange for a third-party to do
so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any
predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We
will need to transition from a company with a product development focus to a company capable of supporting commercial activities. We
may not be successful in such a transition.
The timing of the milestone and royalty payments we are required to make under certain agreements, including to Rockefeller and
Trellis, is uncertain and could adversely affect our cash flows and results of operations.
We are party to certain agreements, including with Rockefeller and Trellis, pursuant to which we have acquired licenses to certain
patents and patent applications and other intellectual property related to a series of compounds, including CF-301 and CF-404, to
develop and commercialize therapeutics. Under our agreements with Rockefeller and Trellis, we have obligations to achieve diligence
minimums and to make payments upon achievement of specified development and regulatory milestones. We will also make additional
payments upon the achievement of future sales milestones and for royalties on future net sales.
The timing of milestone payments under our licenses and sponsored research agreements is subject to factors relating to the clinical
and regulatory development and commercialization of products, many of which are beyond our control. We may become obligated to
make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical
trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms
unfavorable to us.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 and related provisions of the Internal Revenue Code of 1986, as amended (the “Code”), 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 carryforwards and other pre-change tax attributes to offset its
post-change income may be limited. As a result of our past transactions, we may have experienced an “ownership change.” At this time,
we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there
have been multiple ownership changes since our formation, due to the costs and complexities associated with such a study. We may also
experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Thus, our ability to utilize
carryforwards of our net operating losses and other tax attributes to reduce future tax liabilities may be substantially restricted. Further,
U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, we may not be able to take
full advantage of these carryforwards for federal or state tax purposes. As of December 31, 2017, we had federal and state net operating
loss carryforwards of approximately $145.7 million and $156.0 million, respectively, and federal research and development credits of
approximately $1.8 million, the use of which could be limited or eliminated by virtue of one or more “ownership changes.”
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Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We are heavily dependent on the success of our leading product candidates, CF-301 and CF-404. The approval process of the FDA
and comparable foreign regulatory authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately
unable to obtain regulatory approval for CF-301, CF-404 or any other product candidate our business will be substantially harmed.
Our near-term business prospects are substantially dependent on our ability to develop and commercialize CF-301 and CF-404.
We cannot market or sell CF-301, CF-404 or any other product candidate in the United States without FDA approval, but this approval,
if ever issued, is at least several years away. To commercialize CF-301, CF-404 or any other product candidate outside of the United
States, we will need applicable foreign regulatory approvals. The clinical development of CF-301, CF-404 or any other product
candidate is susceptible to the inherent risks of any drug development program, including a failure to achieve efficacy across a broad
population of patients, the potential occurrence of severe adverse events and the risks that the FDA or any applicable foreign regulatory
authority will determine that a drug product is not approvable.
The process required to obtain approval for commercialization from the FDA and similar foreign authorities is unpredictable, and
typically takes many years even after the commencement of clinical trials, depending on numerous factors. In addition, approval
policies, regulations, or the type and amount of clinical data necessary to obtain regulatory approval may change during the course of a
product’s clinical development. We may fail to obtain regulatory approval for CF-301, CF-404 or any other product candidate for many
reasons, including the following:
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we may not be able to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that CF-301,
CF-404 or any other product candidate is safe and effective for any indication;
the results of clinical trials may not meet the level of clinical or statistical significance required for approval by the FDA or
comparable foreign regulatory authorities;
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
we may not be able to demonstrate that CF-301, CF-404 or any other product candidate’s clinical and other benefits outweigh
its safety risks;
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a
manner rendering our clinical data insufficient for approval;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or
clinical trials;
the FDA or comparable foreign regulatory authorities may identify deficiencies in data generated at our clinical trial sites;
the FDA or comparable foreign regulatory authorities may identify deficiencies in the clinical practices of the third-party
contract research organizations (“CROs”) we use for clinical trials; and
the FDA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of
third-party manufacturers with which we or our collaborators enter into agreements for clinical and commercial supplies.
This lengthy approval process as well as the unpredictability of future clinical trial results may prevent us from obtaining
regulatory approval to market CF-301, CF-404 or any other product candidate, which would significantly harm our business.
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If clinical trials of CF-301, CF-404 or any other product candidate that we develop fail to demonstrate safety and efficacy to the
satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we
may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and
commercialization of CF-301, CF-404 or any other product candidate.
Before obtaining marketing approval from regulatory authorities for the sale of CF-301, CF-404 or any other product candidate,
we must complete preclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of our product
candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain
as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early
clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily 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 of their products.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to
receive marketing approval or commercialize our product candidates, including:
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clinical trials of our product candidates may produce negative or inconclusive results, or significant adverse side effects, and
we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in
these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than
we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a
timely manner, or at all;
regulators or institutional review boards (“IRBs”) may not authorize us or our investigators to commence a clinical trial or
conduct a clinical trial at a prospective trial site;
we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with
prospective trial sites;
we may voluntarily suspend or terminate clinical trials of our product candidates for various reasons, including a finding that
the participants are being exposed to unacceptable health risks;
regulators or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates
may be insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators,
regulators or IRBs to suspend or terminate the trials.
If we are required to conduct additional clinical trials or other testing of CF-301, CF-404 or any other product candidate that we
develop beyond those that we contemplate, if we are unable to successfully complete clinical trials of our product candidates or other
testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
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be delayed in obtaining marketing approval or sales revenues for our product candidates;
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not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed
warnings;
be subject to additional post-marketing testing requirements; or
have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or 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, or 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 may allow our competitors to bring products to market before we do and may impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations.
We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude
approval of CF-301, CF-404 or any other product candidates.
Our clinical trials may be suspended at any time for a number of reasons. For example, it is possible that exposure to CF-301 could
result in adverse clinical events such as localized inflammation in the region surrounding blood vessels, or having a hypersensitivity
reaction, such as serum sickness or anaphylaxis. A clinical trial may be prevented from commencing or may be suspended or terminated
by us, our collaborators, IRBs, the FDA or other regulatory authorities due to the risks of or occurrence of such adverse events, an
unacceptable safety risk to participants, a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational
drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or
equivocal findings of the data safety monitoring board or IRBs for a clinical trial. We may voluntarily suspend or terminate our clinical
trials if at any time we believe that they present an unacceptable risk to participants. If we elect or are forced to suspend or terminate any
clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our
ability to generate product revenues, if at all, from any of these product candidates will be delayed or eliminated. Any of these
occurrences may significantly harm our business.
Delays in clinical trials are common and have many causes, and any such delays could result in increased costs to us and jeopardize,
delay or prevent our ability to obtain regulatory approval and commence product sales as currently contemplated.
We may experience delays in clinical trials of our product candidates. Our planned clinical trials might not begin on time, might
need to be redesigned, might not enroll a sufficient number of patients or might not be completed on schedule, if at all. Clinical trials can
be delayed for a variety of reasons, including the following:
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imposition of a clinical hold by the FDA or other regulatory authorities;
delays in reaching agreement on acceptable terms with prospective CROs and clinical trial sites;
delays in recruiting suitable patients to participate in a trial;
delays in having patients complete participation in a trial or return for post-treatment follow-up;
clinical sites dropping out of a trial to the detriment of enrollment;
adverse side effects in patient populations;
time required to add new sites;
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delays resulting from negative or equivocal findings of the data safety monitoring board for a trial;
delays in completing, or as a result of findings from, preclinical studies; or
delays in developing adequate processes for manufacture of, or formulations for, sufficient supplies of clinical trial materials.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of
the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial,
competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to
other available therapies, including any new drugs that may be approved for the indications we are investigating. Any of these delays in
completing our clinical trials could increase our costs, slow down our product development and approval process and jeopardize our
ability to commence product sales and generate revenues.
We are significantly dependent on our license agreements with Rockefeller that relate to CF-301.
Under our various license agreements with Rockefeller, we are obligated to use our diligent efforts to develop and commercialize
licensed products, including CF-301. Rockefeller may terminate the agreement in the event of our breach of the terms of the license
agreements. In the event of such termination, Rockefeller has the right to retain its license and other rights under the agreement, subject
to continuing royalties and other obligations. Our breach of the agreement, including non-payment of any milestone payment, and
Rockefeller’s subsequent termination of the agreement, could result in the loss of our rights to develop and commercialize CF-301,
which would seriously harm our ability to generate revenues or achieve profitability.
We rely on CROs to conduct our preclinical studies and will rely on CROs to conduct our clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we may be delayed in obtaining, or may ultimately not be
able to obtain, regulatory approval for commercialization of CF-301, CF-404 or any other product candidates.
We have relied and will continue to rely on CROs for the execution of our preclinical studies and to recruit patients and monitor
and manage data for our clinical programs for CF-301, CF-404 or any other product candidate. We control only certain aspects of our
CROs’ activities, but we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and
legal, regulatory and scientific standards. Our reliance on the CROs does not relieve us of these regulatory responsibilities. We and our
CROs are required to comply with the FDA’s regulations and current good clinical practices (“GCPs”), which is an international
guideline meant to protect the rights and health of clinical trial subjects. The FDA enforces its regulations and GCPs through periodic
inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the
clinical data generated in our clinical trials may be deemed unreliable, and the FDA may require us to perform additional clinical trials
before approving our product candidates. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical
trials comply with GCPs. In addition, to evaluate the safety and effectiveness of CF-301, CF-404 or any other product candidate to a
statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO
conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail to comply with these regulations or recruit a
sufficient number of patients, we may have to repeat clinical trials, which would delay the regulatory approval process.
In addition, our CROs are not our employees and we cannot control whether or not they devote sufficient time and resources to our
non-clinical, preclinical or clinical programs. Our CROs may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical studies or other drug development activities, which could impede their
ability to devote appropriate time to our clinical programs. If our CROs do not successfully carry out their contractual duties or
obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is
compromised
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due to the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended,
delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize CF-301, CF-404 or any
other product candidate that we seek to develop. As a result, our financial results and the commercial prospects for CF-301, CF-404 or
any other product candidate that we seek to develop would be harmed, our costs could increase and our ability to generate revenues
could be delayed or ended.
We have no experience as a company in bringing a drug to regulatory approval.
As a company, we have never obtained regulatory approval for, or commercialized, a drug or biologic. It is possible that the FDA
may refuse to accept any or all of our planned BLAs for substantive review or may conclude after review of our data that our application
is insufficient to obtain regulatory approval of CF-301, CF-404 or any other product candidate. If the FDA does not accept or approve
any or all of our planned BLAs, it may require that we conduct additional preclinical, clinical or manufacturing validation studies, which
may be costly, and submit that data before it will reconsider our applications. Depending on the extent of these or any other FDA
required studies, approval of any BLA or application that we submit may be significantly delayed, possibly for several years, or may
require us to expend more resources than we have available. Any delay in obtaining, or an inability to obtain, regulatory approvals
would prevent us from meeting our timelines for commercializing CF-301, CF-404 or any other product candidate, generating revenues
and achieving and sustaining profitability.
Even if the FDA approves CF-301, CF-404 or any other product candidate, adverse effects discovered after approval could adversely
affect our markets.
If we obtain regulatory approval for CF-301, CF-404 or any other product candidate that we develop, and we or others later
discover that our products cause adverse effects, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw their approval of the product;
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or imposition of a
risk management strategy;
we may be required to change the way the product is administered, conduct additional clinical studies or restrict the distribution
of the product;
we could be sued and held liable for harm caused to patients and our liability insurance may not adequately cover those claims;
and
our reputation may suffer.
Any of these events could prevent us from maintaining market acceptance of the affected product candidate and could
substantially increase the costs of, or prevent altogether, the commercialization of our product candidates.
There are underlying risks associated with the manufacture of our product candidates, which could include cost overruns, new
impurities, difficulties in process or formulation development, scaling up or reproducing manufacturing processes and lack of timely
availability of raw materials.
We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture CF-301, CF-404 or any
other product candidates.
We employ the services of Fujifilm Diosynth Biotechnologies UK LTD (“Fujifilm UK”) to supply the active pharmaceutical
ingredient for CF-301 and Fujifilm Diosynth Biotechnologies U.S.A., Inc, to supply the active pharmaceutical ingredient for CF-404.
We have not yet manufactured supplies for late phase human clinical trials, scaled up the process for manufacture of such supplies,
validated the processes, or contractually secured our commercial supplies.
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We employ the services of other vendors to produce CF-301 in its final vialed drug product form. We do not have contracts for the
commercial supply of CF-301 drug product.
We intend to pursue agreements with third-party manufacturers regarding commercial supply at an appropriate future time. We
intend to locate second fill finish third-party manufacturers to supply other world regions such as the European Union or Asia.
Late stage process development activities, including manufacturing process scale up and validation of the bulk drug substance,
pose inherent risks that may be greater for biological products than for small molecules. The process will undergo scale up from the
current clinical process and then be repeated under protocol successfully three times for validation.
In addition, regulatory requirements could pose barriers to the manufacture of our active pharmaceutical ingredient and finished
drug product for our product candidates. Our third-party manufacturers are required to comply with current good manufacturing
practices (“cGMPs”). As a result, the manufacturing facilities and processes used by Fujifilm UK and any of our future manufacturers
must pass inspection by the FDA as part of our BLA review and before approval of the applicable product candidate. Similar regulations
apply to manufacturers of our products for use or sale in foreign countries. If our manufacturers cannot successfully manufacture
material that conforms to our specifications and the strict regulatory requirements of the FDA and any applicable foreign regulatory
authority, we will not be able to secure the applicable approval for our product candidates. If these facilities are not deemed compliant
with cGMPs for the commercial manufacture of our product candidates, we may need to find alternative manufacturing facilities, which
would result in significant delays of up to several years in obtaining approval. In addition, our manufacturers will be subject to ongoing
periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar
regulatory requirements.
If Fujifilm UK, or any alternate supplier of active pharmaceutical ingredient, or any supplier of finished drug product for our
product candidates, experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of
its agreement with us or does not devote sufficient time, energy and care to providing our manufacturing needs, we could experience
significant interruptions in the supply of our product candidates, which could impair our ability to supply our product candidates at the
levels required for our clinical trials and commercialization and prevent or delay its successful development and commercialization. For
example, a lot of the CF-301 investigational drug product did not meet manufacturing release specifications, resulting in the delay of our
Phase 2 study.
Developments by competitors, many of which have greater financial and other resources than we do, may render our products or
technologies obsolete or non-competitive.
The pharmaceutical and biotechnology industries are intensely competitive. We compete directly and indirectly with other
pharmaceutical companies, biotechnology companies and academic and research organizations in developing therapies to treat diseases.
Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
large, established companies. Many of our competitors have substantially greater financial, technical and other resources, such as larger
research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. We
compete with companies that have products on the market or in development for the same indications as our product candidates. We
may also compete with organizations that are developing similar technology platforms. Competitors may develop more effective, more
affordable or more convenient products or may achieve earlier patent protection or commercialization of their products. These
competing products may render our product candidates obsolete or limit our ability to generate revenue from our product candidates.
Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in
our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater
availability of capital for investment in these industries. Our competitors
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may succeed in developing, acquiring or licensing, on an exclusive basis, drug products that are more effective or less costly than
CF-301, CF-404 and our other product candidates.
The level of commercial success of CF-301, CF-404 and any other product candidates that we develop will depend upon attaining
significant market acceptance of these products among physicians and payors.
Even if CF-301, CF-404 or any other product candidates that we develop is approved by the appropriate regulatory authorities for
marketing and sale, physicians may not prescribe the approved product. Market acceptance of CF-301, CF-404 and any other product
candidate that we develop by physicians, patients and payors will depend on a number of factors, many of which are beyond our control,
including:
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the indications for which the product is approved;
acceptance by physicians and payors of each product as a safe and effective treatment;
the availability, efficacy and cost of competitive drugs;
the effectiveness of our or any third-party partner’s sales force and marketing efforts;
the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;
whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line
therapy for particular infections;
the availability of adequate reimbursement by third parties, such as insurance companies and other health care payors, and/or
by government health care programs, including Medicare and Medicaid;
limitations or warnings contained in a product’s FDA-approved labeling; and
prevalence and severity of adverse side effects.
Even if the medical community accepts that our product candidates are safe and efficacious for their approved indications,
physicians may not immediately be receptive to the use or may be slow to adopt our product candidates as accepted treatments for their
approved indications. While we believe our product candidates may demonstrate significant advantages in clinical studies, we cannot
assure you that labeling approved by the FDA will permit us to promote these advantages. In addition, our efforts to educate the medical
community and third-party payors on the benefits of any product candidates that we develop may require significant resources and may
never be successful.
Coverage and reimbursement may not be available for CF-301, CF-404 or any other product candidates that we develop, which
could make it difficult for us to sell our products profitably.
Market acceptance and sales of CF-301, CF-404 or any other product candidate that we develop will depend on coverage and
reimbursement policies and may be affected by health care reform measures. Government authorities and third-party payors, such as
private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels.
We cannot be sure that reimbursement will be available for CF-301, CF-404 or any other product candidate that we develop. Also, we
cannot be sure that the amount of reimbursement available, if any, will not reduce the demand for, or the price of, our products. If
reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize CF-301, CF-404
or any other product candidate that we develop.
In both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to
change the health care system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act (“MMA”), changed the
way Medicare covers and pays for
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pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by those covered by Medicare under a new
Part D and introduced a new reimbursement methodology based on average sales prices for Medicare Part B physician-administered
drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to use formularies whereby they can limit the
number of drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug
products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives and other
provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm
our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage
policies and payment limitations in setting their own reimbursement rates, and therefore any reduction in Medicare reimbursement may
result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
(collectively, the “Affordable Care Act”), became law in the United States. The goal of the Affordable Care Act is to reduce the cost of
health care and substantially change the way health care is financed by both governmental and private insurers. The Affordable Care
Act, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program
and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees on
manufacturers of certain branded prescription drugs, required manufacturers to participate in a discount program for certain outpatient
drugs under Medicare Part D and promoted programs that increase the federal government’s comparative effectiveness research, which
will impact existing government healthcare programs and will result in the development of new programs. An expansion in the
government’s role in the United States healthcare industry may further lower rates of reimbursement for pharmaceutical products.
The current presidential administration and U.S. Congress have recently attempted to repeal or “repeal and replace” the Affordable
Care Act. Although those efforts did not succeed, we expect that the presidential administration and U.S. Congress will continue to seek
to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. In January 2017, the House and Senate
passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care
Act and permits such legislation to pass with a majority vote in the Senate. President Trump has also issued an executive order in which
he stated that it is his administration’s policy to seek the prompt repeal of the Affordable Care Act and directed executive departments
and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the burdensome provisions of the
Affordable Care Act to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trump’s
administration and the U.S. Congress may have on the Affordable Care Act, if any, and any changes will likely take time to unfold, and
could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the
Affordable Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the
impact of potential legislation on us.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On
August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint
Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013
through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government
programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect in April
2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional Congressional
action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, or the ATRA, which, among other
things, further reduced Medicare payments to several providers. Recently there has also been heightened governmental scrutiny over the
manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and
proposed bills designed to, among other things, reform government program reimbursement methodologies. For
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example, the Cures Act changes the reimbursement methodology for infusion drugs and biologics furnished through durable medical
equipment in an attempt to remedy over- and underpayment of certain drugs.
While we cannot predict the impact these new laws will have in general or on our business specifically, they may result in
downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of CF-301 or any future
products.
We expect to experience pricing pressures in connection with the sale of CF-301, CF-404 and any other product candidate that we
develop, due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional
legislative proposals. If we fail to successfully secure and maintain coverage and reimbursement for our products or are significantly
delayed in doing so, we will have difficulty achieving market acceptance of our products and our business will be harmed.
Even if we obtain FDA approval of CF-301, CF-404 or any other product candidate, we may never obtain approval or commercialize
our products outside of the United States, which would limit our ability to realize their full market potential.
In order to market CF-301, CF-404 or any other products outside of the United States, we must comply with numerous and varying
regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by
regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained
in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional
administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and
require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary
widely from country to country and satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject
to unanticipated delays. In addition, our failure to obtain regulatory approval in the United States or any foreign country may delay or
have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale
in the United States or any foreign country and we do not have experience as a company in obtaining regulatory approval in international
markets.
We currently have no marketing and sales organization and have no experience in marketing drug products. If we are unable to
establish our own marketing and sales capabilities, or enter into agreements with third parties, to market and sell our products after
they are approved, we may not be able to generate revenues.
We do not have the capabilities to market, sell and distribute any of our drug products. In order to commercialize any products, we
must develop these capabilities on our own or make arrangements with third parties for the marketing, sales and distribution of our
products. The establishment and development of our own sales force would be expensive and time consuming and could delay any
product launch, and we cannot be certain that we would be able to successfully develop this capability. As a result, we may seek one or
more third parties to handle some or all of the sales, marketing or distribution for CF-301, CF-404 or any other product candidate in the
United States or elsewhere. However, we may not be able to enter into arrangements with third parties to sell CF-301, CF-404 or any
other product candidate on favorable terms or at all. In the event we are unable to develop our own marketing and sales force or
collaborate with a third-party marketing and sales organization, we would not be able to commercialize CF-301, CF-404 or any other
product candidate that we develop, which would negatively impact our ability to generate product revenues. Further, whether we
commercialize products on our own or rely on a third party to do so, our ability to generate revenue will be dependent on the
effectiveness of the sales force. In addition, to the extent we rely on third parties to commercialize our approved products, we may likely
receive less revenues or profits than if we commercialized these products ourselves.
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We may form or seek strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form or seek strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third
parties that we believe will complement or augment our development and commercialization efforts with respect to CF-301, CF-404 and
any future product candidate that we may develop. Any of these relationships may require us to incur non-recurring and other charges,
increase our near-and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and
business. In addition, we face significant competition in seeking appropriate strategic alliances and the negotiation process is time-
consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic collaboration or other alternative
arrangements for CF-301, CF-404 and any future product candidate because it may be deemed to be at too early of a stage of
development for collaborative effort and third parties may not view CF-301, CF-404 and any future product candidate as having the
requisite potential to demonstrate safety and efficacy. Any delays in entering into new strategic collaboration agreements could delay
the development and commercialization of CF-301, CF-404 and any other product candidate that we develop, which would harm our
business prospects, financial condition and results of operations.
Risks Related to Regulatory Approval of Our Product Candidates and Other Legal Compliance Matters
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or
will be delayed in commercializing, CF-301, CF-404 and any future product candidate, and our ability to generate revenue will be
materially impaired.
CF-301, CF-404 and any other product candidate that we develop and the activities associated with their development and
commercialization, including their design, testing, manufacture, recordkeeping, labeling, storage, approval, advertising, promotion, sale,
distribution, importation and exportation are subject to comprehensive regulation by the FDA and other regulatory agencies in the
United States and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent
us from commercializing the product candidate. We have not received approval to market any product from regulatory authorities in any
jurisdiction. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information
to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing
regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of
manufacturing facilities by, the relevant regulatory authority. CF-301, CF-404 and any other product candidate that we develop may not
be effective, may be only moderately effective or may prove to have undesirable or unintended side effects or other characteristics that
may preclude our obtaining marketing approval or prevent or limit commercial use.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years, if
approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the
product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of
additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the
approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the
approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional
preclinical, clinical or other studies. If we experience delays in obtaining approvals or if we fail to obtain approval of our product
candidates that we develop, our ability to generate revenues will be materially impaired.
We face extensive regulatory requirements and our products may face future development and regulatory difficulties.
Even if we obtain regulatory approval in the United States, the FDA may still impose significant restrictions on the indicated uses
or marketing of the approved product, or impose ongoing requirements for potentially
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costly post-approval studies or post-market surveillance. The holder of an approved BLA is obligated to monitor and report adverse
events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA 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 are subject to FDA review, in addition to other
potentially applicable federal and state laws.
In addition, 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 cGMPs and adherence to commitments made in the BLA. If
we or a regulatory agency discovers previously unknown problems with a product such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that
product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of
manufacturing.
If the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes,
labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be
subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing
information and reports, registration requirements and continued compliance with cGMPs and GCPs for any clinical trials that we
conduct post-approval.
If we or our partners fail to comply with applicable regulatory requirements following approval of any of our future product
candidates, a regulatory agency may:
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issue a warning or untitled letter asserting that we are in violation of the law;
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 BLA or supplements to a BLA submitted by us;
seize product; or
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response
and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize
our future products and generate revenues.
In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative or executive action, either in the United States or abroad. For example, certain policies of the current presidential
administration may impact our business and industry. Namely, the administration has taken several executive actions, including the
issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to
engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and
review and approval of marketing applications. It is difficult to predict how these executive actions, including the current Executive
Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these
executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our
business may be negatively impacted.
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If foreign approval for CF-301, CF-404 or any other product candidate is obtained, there are inherent risks in conducting business
in international markets.
Commercialization of our product candidates in international markets is an element of our long-term strategy. If approved for
commercialization in a foreign country, we intend to enter into agreements with third parties to market CF-301, CF-404 or any other
product candidate whenever it may be approved and wherever we have the right to market it. Consequently, we expect that we will be
subject to additional risks related to entering into international business relationships, including:
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potentially reduced protection for intellectual property rights;
the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices,
opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with laws for employees working and traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting active pharmaceutical ingredient and/or finished drug product supply
or manufacturing capabilities abroad;
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including
earthquakes, typhoons, floods and fires; and
failure to comply with the rules and regulations of the Office of Foreign Asset Control, the Foreign Corrupt Practices Act and
other applicable anti-bribery rules and regulations in other jurisdictions.
These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets and
therefore materially adversely affect our business.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of
any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of CF-301, CF-404 and any other product candidate that
we develop in human clinical trials and we will face higher degrees of this risk if we commercially sell any products that we develop. If
we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial
liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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distraction of our management or other internal resources from pursuing our business strategies;
decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
We maintain product liability insurance coverage in relation to our clinical trials. Such coverage may not be adequate to cover all
liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a
reasonable cost or in an amount adequate to satisfy any liability that may arise.
If we fail to comply with 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. From time to time and in the future,
our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also
produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot
eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting 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 for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our
employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.
We do not maintain insurance for environmental liability or toxic tort claims.
In addition, we may incur substantial costs in order 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 result in substantial fines, penalties or other sanctions.
Our product candidates may face competition sooner than anticipated.
The Affordable Care Act includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which
created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed
reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years
following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be
made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of
exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the
competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to
demonstrate the safety, purity and potency of their product. The law is complex and is still being interpreted and implemented by the
FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes
intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future
commercial prospects for our biological products.
We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period
of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA
will not consider our product candidates to be reference
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products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of
the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the
extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to
traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory
factors that are still developing.
Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other
healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product
candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to
broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under
applicable federal and state healthcare laws and regulations include the following:
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the federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of
an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under
federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the False Claims Act;
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the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the
federal government;
the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for
Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit
program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy,
security and transmission of individually identifiable health information;
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific
intent to violate it to have committed a violation;
the federal transparency requirements under the Affordable Care Act requires certain manufacturers of drugs, devices,
biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program (with certain exceptions) to report to the Department of Health and Human Services information related to physician
payments and other transfers of value and ownership and investment interests held by physicians and their immediate family
members and payments or other transfers of value made to such physician owners; and
analogous state laws and regulations, such as state anti-kickback and false claims laws, and transparency laws, may apply to
sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-
party payors, including private insurers, and
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some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug
manufacturers to report information related to payments to physicians and other health care providers or marketing
expenditures and pricing information.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will
involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our
operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be
subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare
programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other
providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to
criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
The adverse outcome of litigation or arbitration proceedings commenced by or against us could materially harm our business.
The adverse outcome of any litigation or arbitration proceedings commenced by or against us could have a material adverse effect
on our business and impede the achievement of our development and commercialization objectives.
In the ordinary course of our operations, claims involving our actions, actions of third parties or agreements to which we are a
party may be brought by and against us. The claims and charges can involve actual damages, as well as contractually agreed upon
liquidated sums. These claims, if not resolved through negotiation, are often subject to lengthy and expensive litigation or arbitration
proceedings.
Risks Related to Employee Matters and Managing Growth
Our future success depends on our ability to attract and retain qualified personnel, and changes in management may negatively
affect our business.
We are dependent on the principal members of our management and scientific teams. Our success and the execution of our growth
strategy depend largely on the continued service of these employees. Although we have formal employment agreements with our
executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the
services of any of these persons could be disruptive to our operations, impede our ability to raise additional funding or delay the
achievement of our development and commercialization objectives. Additionally, we cannot be certain that changes in management will
not lead to additional management departures or changes, affect our ability to hire or retain key personnel, or otherwise negatively affect
our business. We do not maintain “key person” insurance for any of our executives or other employees.
Recruiting and retaining qualified scientific and clinical personnel is critical to our success. We may not be able to attract and retain
these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar
personnel. We also compete for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we
rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and
commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments
under consulting or advisory contracts with other entities that may limit their availability to us.
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We expect to expand our development, regulatory and sales, marketing and distribution capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt our operations.
We expect to experience growth in the number of our employees and the scope of our operations, particularly in the areas of drug
discovery, drug development, regulatory affairs and commercialization. To manage our anticipated future growth, we must continue to
implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train
additional qualified personnel. Due to our limited financial resources and the various levels of experience of our management team in
managing a company with significant anticipated growth, we may not be able to effectively manage the expansion of our operations or
recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert
our management and business development resources. Any inability to manage growth could delay the execution of our business plans
or disrupt our operations.
Risks Related to Our Intellectual Property
If we or our licensors are unable to obtain and maintain patent protection for our owned or licensed technology and products, or if
the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products
similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection in the United States and
other countries with respect to our proprietary technology and products or technology or products that may have been licensed to us.
Similar to our licensors, we seek to protect our proprietary position by filing patent applications in the United States and abroad related
to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and
we or our licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely
manner. It is also possible that we or our licensors will fail to identify patentable aspects of either our or their research and development
output before it is too late to obtain patent protection. Moreover, if we license technology or product candidates from third parties in the
future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to
maintain the patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the licensed
patents without our involvement, or to decide not to enforce the patents without our consent. Therefore, in these circumstances, we could
not be certain that these patents and applications would be prosecuted and enforced in a manner consistent with the best interests of our
business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and has in recent years been the
subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights and any
patent rights we may license from a third party are highly uncertain. Our or our licensors’ pending and future patent applications may
not result in issued patents that protect our technology or products, in whole or in part, or which effectively prevent others from
commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the
United States and other countries may diminish the value of our or our licensors’ patents or narrow the scope of such patent protection.
The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example,
European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Assuming
the other requirements for patentability are met, historically, in the United States, the first to make the claimed invention was entitled to
the patent, while outside the United States, the first to file a patent application is entitled to the patent. The United States currently uses a
first-inventor-to-file system in which, assuming the other requirements for patentability are met, the first inventor to file a patent
application will be entitled to the patent. Publications of discoveries in the scientific literature often
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lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until
18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed
in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Moreover, we may
be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in
opposition, derivation, reexamination, litigation, inter partes review or interference proceedings, in the United States or elsewhere,
challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete
directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-
party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it
could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
Even if our or our licensors’ patent applications issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our
competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a
non-infringing manner.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed
patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of
exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could
limit our ability to prevent others from using or commercializing similar or identical technology and products, or limit the duration of the
patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review
of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized
and such patents may not be able to claim the benefits of any patent term extension laws or regulations. As a result, our patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time
consuming and unsuccessful, and which could result in our patents or other intellectual property rights becoming invalidated.
Competitors may infringe our or our licensors’ patents, trademarks, copyrights or other intellectual property. To stop infringement
or unauthorized use, we or our licensors may be required to file infringement claims, which can be expensive and time consuming. Any
claims we or our licensors assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that
some or all of our patents or other intellectual property rights are not valid or that we or our licensors infringe their patents or other
intellectual property rights. In addition, in a patent infringement proceeding, a court may decide that a patent of ours or our licensors is
invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly, or may refuse to stop the other party from using the
technology at issue on the grounds that such patents do not cover the technology in question and therefore cannot be infringed.
Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid, unenforceable,
or not infringed, or that the party against whom we have asserted trademark infringement claims has superior rights to the marks in
question. In this case, we could ultimately be forced to cease use of such marks. In any infringement litigation, any award of monetary
damages may be unlikely or very difficult to obtain, and any such award we may receive may not be commercially valuable.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk
that we could incur substantial litigation costs or that some of our confidential information could be compromised by disclosure during
this type of litigation.
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Third parties may initiate legal proceedings alleging that we or our licensors are infringing their intellectual property rights, the
outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market, or sell our or our licensors’ product candidates
and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is
considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or
threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and
technology, including reexamination or interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert
infringement claims against us based on existing or future intellectual property rights.
If we or our licensors are found to infringe a third party’s intellectual property rights, we or our licensors could be enjoined from
further using certain products and technology or may be required to obtain a license from such third party to continue developing and
marketing such products and technology. However, we may not be able to obtain any required license on commercially reasonable terms
or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same
technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or
product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to
have willfully infringed a patent or other intellectual property rights of a third party. A finding of infringement could prevent us from
commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.
Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact
on our business.
We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or
claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including
our competitors or potential competitors. Although we use customary non-disclosure agreements and try to ensure that our employees do
not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees
have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former
employer. Litigation may be necessary to defend against these claims.
In addition, while we typically require our employees and contractors who may be involved in the development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with
each party who in fact develops intellectual property that we regard as our own, or such agreements may be inadequately drafted at
times thereby not ensuring assignment to us of all potential intellectual property rights. If we fail in prosecuting or defending any such
claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are
successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal
responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur
significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there
could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities
analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Such litigation or
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proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or
distribution activities. We may not have sufficient financial or other resources to adequately conduct or defend such litigation or
proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can
because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other
proceedings could have a material adverse effect on our ability to compete in the marketplace.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented
know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in
part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees,
corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However,
we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets, nor
can we guarantee that such agreements will always be adequately drafted so as to be enforceable. If we are unable to protect the
confidentiality of our trade secrets, our business and competitive position would be harmed.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and
the outcome is unpredictable. In addition, because of potential differences in laws in different jurisdictions, some courts inside and
outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or
independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using
that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a
competitor, our competitive position would be harmed.
We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely
affect our business.
Our future trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or
enforced. During trademark registration proceedings, we may receive rejections from the U.S. Patent and Trademark Office or other
applicable foreign intellectual property offices. Although we are given an opportunity to respond to those rejections, we may be unable
to overcome such rejections, or have to expend additional resources to secure registrations, such as commencing cancellation
proceedings against third-party trademark registrations to remove them as obstacles to our trademark applications. In addition, in the
U.S. Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to
oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we
may encounter more difficulty in enforcing them against third parties than we otherwise would.
In addition, we have not yet proposed a proprietary name for our product candidates in any jurisdiction. Any proprietary name we
propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered
it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of
potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be
required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under
applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.
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The price of our common stock may be volatile and you could lose all or part of your investment.
Risks Related to Our Securities
There has been significant volatility in the market price and trading volume of equity and derivative securities, which is unrelated
to the financial performance of the companies issuing the securities. In addition, equity markets have experienced significant price and
volume fluctuations that have affected the market prices for the securities of biotechnology and also newly public companies for a
number of reasons, including reasons that may be unrelated to the business or operating performance of the companies. These broad
market fluctuations may negatively affect the market price of our common stock.
Prior to our initial public offering, there was no public market for our common stock. The trading price of our securities is likely to
be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control,
including limited trading volume. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report,
these factors include:
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our ability to implement our preclinical, clinical and other development or operational plans;
adverse regulatory decisions;
strategic actions by us or our competitors, such as acquisitions or restructurings;
new laws or regulations, or new interpretations of existing laws or regulations, applicable to our business;
actual or anticipated fluctuations in our financial condition or annual or quarterly results of operations;
our cash position;
public reaction to our press releases, other public announcements and filings with the SEC;
changes in investor and financial analyst perceptions of the risks and condition of our business;
changes in, or our failure to meet, performance expectations of investors or financial analysts (including, without limitation,
with respect to the status of development of our lead product candidates);
changes in market valuations of biotechnology companies;
changes in key personnel;
increased competition;
sales of common stock by us or members of our management team;
trading volume of our common stock;
issuances of debt or equity securities;
the granting or exercise of employee stock options or other equity awards;
changes in accounting standards, policies, guidance, interpretations or principles;
ineffectiveness of our internal controls;
actions by institutional or other large shareholders;
significant lawsuits, including patent or stockholder litigation;
general political, market and economic conditions; and
other events or factors, many of which are beyond our control.
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In addition, the stock market in general, and the Nasdaq Capital Market and biotechnology companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of
these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our
actual operating performance. In the past, securities class action litigation has often been instituted against companies following periods
of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a
diversion of management’s attention and resources, which would harm our business, operating results or financial condition.
We are required to meet the Nasdaq Capital Market’s continued listing requirements and other Nasdaq rules, or we may risk
delisting. Delisting could negatively affect the price of our common stock, which could make it more difficult for us to sell securities
in a future financing or for you to sell our common stock.
We are required to meet the continued listing requirements of the Nasdaq Capital Market and other Nasdaq rules, including those
regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price and
certain other corporate governance requirements. In particular, we are required to maintain a minimum bid price for our listed common
stock of $1.00 per share. If we do not meet these continued listing requirements, our common stock could be delisted. Delisting from the
Nasdaq Capital Market would cause us to pursue eligibility for trading of these securities on other markets or exchanges, or on the “pink
sheets.” In such case, our stockholders’ ability to trade, or obtain quotations of the market value of our common stock would be severely
limited because of lower trading volumes and transaction delays. These factors could contribute to lower prices and larger spreads in the
bid and ask prices of these securities. There can be no assurance that our securities, if delisted from the Nasdaq Capital Market in the
future, would be listed on a national securities exchange, a national quotation service, the over-the-counter markets or the pink sheets.
Delisting from the Nasdaq Capital Market, or even the issuance of a notice of potential delisting, would also result in negative publicity,
make it more difficult for us to raise additional capital, adversely affect the market liquidity of our securities, decrease securities
analysts’ coverage of us or diminish investor, supplier and employee confidence.
We may issue additional shares of common stock, warrants or other securities to finance our growth.
We may finance the development of our product pipeline or generate additional working capital through additional equity
financing. Therefore, subject to the rules of the Nasdaq, we may issue additional shares of our common stock, warrants and other equity
securities of equal or senior rank, with or without shareholder approval, in a number of circumstances from time to time. The issuance by
us of shares of our common stock, warrants or other equity securities of equal or senior rank will have the following effects:
•
•
•
the proportionate ownership interest in us held by our existing shareholders will decrease;
the relative voting strength of each previously outstanding share of common stock may be diminished; and
the market price of our common stock may decline.
In addition, if we issue shares of our common stock and/or warrants in a future offering (or, in the case of our common stock, the
exercise of outstanding warrants to purchase our common stock), it could be dilutive to our security holders.
Future sales of our common stock or warrants may cause the market price of our securities to decline.
Sales of substantial amounts of shares of our common stock or warrants in the public market, or the perception that these sales may
occur, could adversely affect the price of our securities and impair our ability to raise capital through the sale of additional equity
securities. As of March 7, 2018, we have approximately
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73.7 million shares of common stock outstanding, of which approximately 71.4 million shares of our outstanding common stock are
freely tradable, or may become freely tradable, without restriction, in the public market unless held by our “affiliates,” as defined under
Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”). Additionally, we have warrants to purchase approximately
36.3 million shares of our common stock outstanding as of March 7, 2018. Approximately 35.9 shares of common stock underlying the
Warrants will be freely tradable upon exercise unless held by our affiliates.
We have registered 6,932,507 shares of our common stock as of March 7, 2018 that we may issue under our employee benefit
plans. These shares can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer
restrictions attached to them. Additionally, pursuant to the 2014 Omnibus Incentive Plan (the “2014 Plan”), our management is
authorized to grant stock options and other equity linked award to our employees, directors and consultants. The 2014 Plan provides that
the number of shares available for future grant under our 2014 Plan will automatically increase on January 1st each year, from January 1,
2015 through January 1, 2024, by an amount equal to four percent of all shares of our capital stock outstanding as of December 31st of
the preceding calendar year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given
year. Unless our board of directors elects not to increase the number of shares underlying our 2014 Plan each year, our stockholders may
experience additional dilution, which could cause our stock price to decline.
Our executive officers and directors hold a significant concentration of our common stock, which could limit the ability of our other
stockholders to influence the direction of our Company.
As calculated by the SEC rules of beneficial ownership, the current executive officers and directors of our Company own 6.7% of
our outstanding common stock as of March 7, 2018. Accordingly, they collectively have the ability to significantly influence or
determine the election of all of our directors or the outcome of most corporate actions requiring stockholder approval such as: (i) a
merger or a sale of our Company, (ii) a sale of all or substantially all of our assets and (iii) amendments to our certificate of
incorporation or bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or
preventing an action that might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with
interests different from those individuals. These individuals also have significant control over our business as officers and directors of
our Company. There is a risk that they may exercise this ability in a manner that advances their best interests and not necessarily those of
our other stockholders.
If shares of our common stock become subject to the penny stock rules, it would become more difficult to trade them.
The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions, including an exemption for any
securities listed on a national securities exchange. The rules impose additional sales practice requirements on broker-dealers for
transactions involving “penny stock”, with some exceptions. If shares of our common stock were delisted from the Nasdaq Capital
Market and determined to be “penny stock”, broker-dealers may find it more difficult to trade such securities and investors may find it
more difficult to acquire or dispose of such securities on the secondary market.
There can be no assurance that we will ever provide liquidity to our investors through a sale of our company.
While acquisitions of pharmaceutical companies like ours are not uncommon, potential investors are cautioned that no assurances
can be given that any form of merger, combination, or sale of our company will take place, or that any merger, combination, or sale,
even if consummated, would provide liquidity or a profit for our investors. You should not invest in our company with the expectation
that we will be able to sell the business in order to provide liquidity or a profit for our investors.
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We incur significant costs as a result of operating as a public company and our management is required to devote substantial time to
complying with public company regulations.
We completed an initial public offering on August 1, 2014. As a public company, we incur significant legal, accounting and other
expenses, including costs associated with our public company reporting requirements under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). We must also follow the rules, regulations and requirements subsequently adopted by the SEC and the
Nasdaq and any failure by us to comply with such rules and requirements could negatively affect investor confidence in us and cause the
market price of our common stock to decline. Our executive officers and other personnel will also need to devote substantial time and
financial resources to comply with these rules, regulations and requirements.
The rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and
made some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from
other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The
increased costs decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business. For
example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability
insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the
amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make
it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive
officers.
Any failure to maintain effective internal control over financial reporting could have a significant adverse effect on our business and
the price of our common stock.
Our management is required to report annually on the effectiveness of our internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act, or Section 404. The rules governing the standards that must be met for our management to assess
our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
In the future, we may identify material weaknesses or significant deficiencies in our internal control over financial reporting, and
we may not be able to remediate them in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the
requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested
improvements and receiving a favorable attestation report from our independent registered public accounting firm, if such a report is
required. We will be unable to issue securities in the public markets through the use of a shelf registration statement if we are not in
compliance with Section 404. Furthermore, failure to achieve and maintain an effective internal control environment could materially
adversely affect our business, reduce the market’s confidence in our common stock, adversely affect the price of our common stock and
limit our ability to report our financial results accurately and timely.
Reports published by analysts, including projections in those reports that exceed our actual results, could adversely affect the price
and trading volume of our common stock.
The projections of securities research analysts may vary widely and may not accurately predict the results we actually achieve. The
price of our common stock may decline if our actual results do not match the projections of these securities research analysts. Similarly,
if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our
business, the price of our common stock could decline. If one or more of these analysts ceases coverage of us or fails to publish reports
on us regularly, the price or trading volume of our common stock could decline.
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If securities or industry analysts do not publish research or reports about our business, the prices of our securities and trading
volume could decline.
The trading market for our securities depends, in part, on the research and reports that securities or industry analysts publish about
us or our business. We do not have any control over these analysts. If no securities or industry analysts commence coverage of our
company, the trading prices for our securities may be negatively impacted.
We have broad discretion in the use of the net proceeds from our public offerings and private placement and may not use them
effectively.
Our management has broad discretion in the application of the net proceeds from our public offerings and private placement and
could spend the proceeds in ways that do not enhance the value of our common stock. Because of the number and variability of factors
that will determine our use of the net proceeds from our completed offerings, their ultimate use may vary substantially from their
currently intended use. The failure by our management to apply these funds effectively could delay the development of our product
candidates or have a material adverse effect on our business. Pending their use, we may invest the net proceeds from the offerings in a
manner that does not produce income or that loses value. If we do not apply or invest the net proceeds from the offerings in ways that
enhance stockholder value, we may fail to achieve expected financial results, which could cause the price of our securities to decline.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may
make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company until
December 31, 2019. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from
certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions
include:
•
•
•
•
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial
reporting;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the
audit and the financial statements;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval
of any golden parachute payments not previously approved.
We have taken advantage of certain reduced reporting burdens. We cannot predict whether investors will find our securities less
attractive if we rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active trading
market for our common stock, and the prices for our securities may be more volatile.
We have no present intention to pay cash dividends and, even if we change that policy, we may be restricted from paying cash
dividends on our common stock.
We do not intend to pay cash dividends for the foreseeable future. We currently expect to retain all future earnings, if any, for use
in the development, operation and expansion of our business. Any determination to pay cash dividends in the future will depend upon,
among other things, our results of operations, plans for expansion, tax considerations, available net profits and reserves, limitations under
law, financial condition, capital requirements and other factors that our board of directors considers to be relevant.
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Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to
our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in
control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your
shares. These provisions could also limit the price that investors might be willing to pay in the future for our securities, thereby
depressing the market prices of our securities. In addition, because our board of directors is responsible for appointing the members of
our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these
provisions:
•
•
•
•
•
•
•
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board of directors;
establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations
to our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders
by written consent;
limit who may call stockholder meetings;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a
shareholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer,
effectively preventing acquisitions that have not been approved by our board of directors; and
require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or
repeal certain provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with
us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting
stock, unless the merger or combination is approved in a prescribed manner.
Risks Related to Cybersecurity
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our
business and reputation to suffer.
In the ordinary course of our business, we store sensitive data, including intellectual property, proprietary business information and
personally identifiable information, in our data centers and on our networks. The secure processing, maintenance and transmission of
this information is critical to our operations and business strategy. Despite our security measures, our information technology and
infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such
breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such
access, disclosure or other loss of information could result in significant costs to address and remediate the incident, lead to legal claims
or proceedings, disrupt our operations, and damage our reputation.
We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our
systems.
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Item 1B. Unresolved Staff Comments
None
Item 2. Properties
In the second quarter of 2011, we opened our corporate headquarters and laboratory in Yonkers, New York. This 15,000 sq. ft.
mixed use office, laboratory space consists of open laboratory and suites for molecular biology, microbiology, tissue culture,
microscopy, a vivarium, and a robotics suite. This facility is leased through December 31, 2027.
Item 3. Legal Proceedings
None
Item 4. Mine Safety Disclosures
None
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock has been publicly traded on the Nasdaq Capital Market under the symbol “CFRX” since September 12, 2014.
The following table sets forth the high and low sales prices of our common stock as reported on the Nasdaq Capital Market for each
quarter in the years ended December 31, 2017 and December 31, 2016.
Fiscal Year Ended December 31, 2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended December 31, 2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$2.50
$2.05
$1.61
$1.30
$4.62
$4.12
$3.28
$2.72
Low
$1.50
$1.10
$0.80
$0.85
$3.00
$2.10
$2.14
$1.35
Holders
On March 7, 2018, the last reported sale price for our common stock on the Nasdaq Capital Market was $1.93 per share. As of
March 7, 2018, there were approximately 1,613 holders of record of our common stock. This number does not include beneficial owners
whose shares are held by nominees in street name.
Dividends
We have not declared or paid any cash dividends on our capital stock since our inception. We intend to retain future earnings, if
any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends to holders of common stock
in the foreseeable future.
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Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended the (“Exchange Act”), or otherwise subject to the liabilities under that Section, and shall
not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act.
The graph set forth below compares the cumulative total stockholder return on our common stock between September 12, 2014 (the
date our common stock began trading on the Nasdaq Capital Market) and December 31, 2017, with the cumulative total return of (a) the
Nasdaq Biotechnology Index and (b) the Nasdaq Composite Index, over the same period. This graph assumes the investment of $100 at
the market close on September 12, 2014 in our common stock, the Nasdaq Biotechnology Index and the Nasdaq Composite Index and
assumes the reinvestment of dividends, if any. The stock price performance of the following graph is not necessarily indicative of future
stock price performance.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, the financial statements and the notes thereto and other financial information included
elsewhere in this Annual Report on Form 10-K.
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We derived the financial data for the years ended December 31, 2017, 2016 and 2015 and as of December 31, 2017 and 2016 from
our audited financial statements, which are included elsewhere in this Annual Report on Form 10-K. We derived the financial data for
the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014 and 2013 from our audited financial statements that
are not included elsewhere in this Annual Report on Form 10-K. The selected financial data in this section are not intended to replace
our financial statements and related notes. Our historical results are not necessarily indicative of our future results.
Statement of Operations Data
Loss from operations
Net loss attributable to common stockholders
Net loss per share of common stock, basic
2017
$(26,563,757)
$(15,517,658)
2016
$(33,532,246)
$(28,538,399)
Year Ended December 31,
2015
$(25,065,336)
$(25,120,964)
2014
$(16,935,911)
$(34,617,536)
2013
$(19,296,434)
$(23,620,702)
and diluted
$
(0.28)
$
(0.85)
$
(1.08)
$
(3.86)
$
(23.35)
Balance Sheet Data
Cash, cash equivalents and marketable securities
Total assets
Long-term liabilities
Total stockholders’ equity (deficit)
2017
$46,853,910
50,189,479
14,575,366
31,193,445
2016
$35,161,154
37,624,470
13,693,419
19,512,854
As of December 31,
2015
$32,921,653
35,861,137
1,416,443
30,675,510
2014
$27,393,059
30,053,622
1,249,046
25,581,507
2013
$ 4,145,270
9,683,835
16,481,765
(52,910,500)
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our
financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including
information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and
uncertainties. You should review the “Risk factors” section of this Annual Report on Form 10-K for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
We are a clinical-stage biotechnology company focused on discovering and developing therapeutic protein and antibody products
for the treatment of life-threatening infectious diseases, including those caused by drug-resistant pathogens, particularly those treated in
hospital settings. Drug-resistant infections account for two million illnesses in the United States and 700,000 deaths worldwide each
year. We intend to address drug-resistant infections using product candidates from our lysin and monoclonal antibody platforms that
target conserved regions of either bacteria or viruses. Lysins are enzymes derived from naturally occurring bacteriophage, which are
viruses that infect bacteria. When recombinantly produced and then applied to bacteria, lysins cleave a key component of the target
bacteria’s peptidoglycan cell wall, which results in rapid bacterial cell death. Lysins kill bacteria faster than conventional antibiotics,
which typically require bacterial cell division and metabolism in order to kill or stop the growth of bacteria. We believe that the
properties of our lysins will make them suitable for targeting antibiotic-resistant organisms, such as Staphylococcus aureus (“Staph
aureus”) which causes serious infections such as bacteremia, endocarditis, pneumonia and osteomyelitis. In addition, our lysins have
demonstrated the ability to clear biofilms in animal models, and we believe they may be useful for the treatment of biofilm-related
infections in prosthetic joints, indwelling devices and catheters. Beyond our lysin programs, we are exploring therapies using other
phage derived lytic agents, antimicrobial peptides and monoclonal antibodies (“mAbs”).
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We have not generated any revenues and, to date, have funded our operations primarily through our IPO, our follow-on public
offerings, private placements of convertible preferred stock and convertible debt to our investors, and grant funding received. In our most
recent financing in July 2017, we sold 32,000,000 shares of our common stock and warrants to purchase an additional 16,000,000 shares
of our common stock at an exercise price of $1.55 per share in an underwritten follow-on offering, generating net proceeds of
approximately $37.1 million after underwriting discounts, commissions and offering expenses payable by us.
We have never been profitable and our net losses were $15.5 million, $28.5 million and $25.1 million for the years ended
December 31, 2017, 2016 and 2015, respectively. We expect to incur significant expenses and increasing operating losses for the
foreseeable future. We expect our expenses to increase in connection with our ongoing activities, particularly as we advance our product
candidates through preclinical activities and clinical trials to seek regulatory approval and, if approved, commercialize such product
candidates. Additionally, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need
additional financing to support our continuing operations. We expect to seek to fund our operations through public or private equity, debt
financings, equity-linked financings, collaborations, strategic alliances, licensing arrangements, research grants or other sources.
Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed
would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate
significant revenues to achieve profitability, and we may never do so.
Financial Operations Overview
Revenue
We have not generated any revenues to date. In the future, we may generate revenues from product sales. In addition, to the extent
we enter into licensing or collaboration arrangements, we may have additional sources of revenue. We expect that any revenue we
generate will fluctuate from quarter to quarter as a result of the amount and timing of payments that we may recognize upon the sale of
our products, to the extent that any products are successfully commercialized, and the amount and timing of fees, reimbursements,
milestone and other payments received under any future licensing or collaboration arrangements. If we fail to complete the development
of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our
results of operations and financial position, would be materially adversely affected.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery
efforts, and the development of our product candidates, which include:
•
•
•
employee-related expenses, including salaries, benefits, travel and non-cash share-based compensation expense;
external research and development expenses incurred under arrangements with third parties such as contract research
organizations, or CROs, contract manufacturers, consultants and academic institutions; and
facilities and laboratory and other supplies.
We expense research and development costs to operations as incurred. We account for non-refundable advance payments for goods
and services that will be used in future research and development activities as expenses when the service has been performed or when
the goods have been received, rather than when the payment is made.
The following summarizes our most advanced current research and development programs.
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CF-301
We are conducting a multi-site, international Phase 2 clinical study of our CF-301 product candidate for the treatment of adult
subjects with Staph aureus bacteremia, including endocarditis, caused by methicillin-resistant (“MRSA”) or methicillin-susceptible
(“MSSA”) Staph aureus. This study is a randomized, double-blind, placebo-controlled trial with expected enrollment of 115 patients to
evaluate the efficacy, safety, tolerability and PK in our target population. CF-301 is a parenteral formulation, dosed as a single, two-hour
IV infusion, of a potent, bactericidal lysin targeting Staph aureus bacteria, making it a highly specific therapeutic candidate. We
previously completed a Phase 1 single ascending dose study in healthy volunteers. CF-301 was generally well-tolerated and there were
no clinical adverse safety signals in the study. We have worldwide intellectual property, development and commercial rights to CF-301
and expect to fund the future development and commercialization costs related to this program.
Other programs
We continue to explore variants of CF-301 to expand our portfolio of lysins targeting biofilm-dependent Staph aureus infections.
We have engineered a novel mutant variant, CF-296, which has properties we believe may make it particularly useful for the treatment
of prosthetic joint infections. We are evaluating CF-296 in animal models to further characterize this compound. In addition, we are
continuing to progress CF-404, which is an aerosolized treatment for life-threatening human influenza composed of three human mAbs
which target all seasonal and most pandemic strains of influenza.
We have focused our research and discovery efforts on identifying lysins that selectively kill specific species of gram-negative
bacteria that are considered to be urgent or serious threats to global health by the CDC or critical priority by the WHO. We have also
acquired worldwide exclusive license rights to patents for composition of matter for nine lysins from Rockefeller. Each lysin targets a
specific species of gram-positive bacteria, including drug-sensitive and drug-resistant forms of Staphylococcus aureus, Streptococcus
pneumoniae, Enterococcus faecalis, Group B streptococcus and Bacillus anthracis.
To date, a large portion of our research and development work has related to the establishment of our lysin platform technologies,
the advancement of our research projects to discovery of clinical candidates, manufacturing and preclinical testing of our clinical
candidates and clinical testing of CF-301. We currently expect to focus the majority of our resources on the CF-301 program. In the
future, we intend to further leverage our employee and infrastructure resources across multiple development programs well as research
projects. In the years ended December 31, 2017, 2016 and 2015, we recorded approximately $17.3 million, $22.1 million and
$15.0 million, respectively, of research and development expenses. A breakdown of our research and development expenses by category
is shown below. We do not currently utilize a formal time or laboratory project expense allocation system to allocate employee-related
expenses, laboratory costs or depreciation to any particular project. Accordingly, we do not allocate these expenses to individual projects
or product candidates. However, we do allocate some portions of our research and development expenses in the product development,
external research and licensing and professional fees categories, by project, including CF-301 and CF-404, as shown below.
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The following table summarizes our research and development expenses by category for the years ended December 31, 2017, 2016
and 2015:
Product development
Personnel related
Professional fees
Laboratory costs
External research and licensing costs
Share-based compensation
Total research and development expense
2017
$10,219,826
3,387,749
1,760,608
1,011,766
482,803
451,334
$17,314,086
Year Ended December 31,
2016
$10,331,021
4,357,177
3,170,364
2,065,064
1,590,668
587,426
$22,101,720
2015
$ 7,457,384
3,178,451
724,486
1,929,799
1,324,425
389,967
$15,004,512
The following table summarizes our research and development expenses by program for the years ended December 31, 2017, 2016
and 2015:
CF-301
CF-404
Other research and development
Personnel related and share-based compensation
Total research and development expense
2017
$10,974,804
797,726
1,707,473
3,839,083
$17,314,086
Year Ended December 31,
2016
$ 8,092,280
5,639,474
3,425,363
4,944,603
$22,101,720
2015
$ 4,847,190
3,315,797
3,273,107
3,568,418
$15,004,512
We anticipate that our research and development expenses will increase substantially in connection with the commencement of
clinical trials for our product candidates. However, the successful development of future product candidates is highly uncertain. This is
due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
•
•
•
•
•
the scope, rate of progress and expense of our research and development activities;
clinical trial results;
the terms and timing of regulatory approvals;
our ability to market, commercialize and achieve market acceptance for our product candidates in the future; and
the expense, filing, prosecuting, defending and enforcing of patent claims and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of CF-301, CF-404 or any other product
candidate that we may develop could mean a significant change in the costs and timing associated with the development of CF-301,
CF-404 or any such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct clinical trials
beyond those which we currently anticipate will be required for the completion of clinical development of CF-301 or if we experience
significant delays in enrollment in any clinical trials of CF-301, we could be required to expend significant additional financial resources
and time on the completion of the clinical development of CF-301.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including non-cash share-based
compensation expense, in our executive, finance, legal, human resource and business development functions. Other general and
administrative expenses include facility costs, insurance expenses and professional fees for legal, consulting and accounting services.
We anticipate that our general and administrative expenses will increase in future periods to support increases in our research and
development activities and as a result of increased headcount, expanded infrastructure, increased legal, compliance, accounting and
investor and public relations expenses associated with being a public company and increased insurance premiums, among other factors.
Interest Income
Interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements,
which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of
contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our
estimates on our limited historical experience, known trends and events and various other factors that we believe are reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in
this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to aid you in fully
understanding and evaluating our financial condition and results of operations.
Fair Value of Warrant Liability
In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value
Measurements and Disclosures (“ASC 820”), we classify and account for our warrant liability as a level 3 financial instrument. The
valuation of a level 3 financial instrument requires inputs that reflect our own assumptions that are both significant to the fair value
measurement and unobservable. We calculate the fair value estimate of our warrant liability on a recurring basis at each measurement
date, based on relevant market information.
We use the Black-Scholes option pricing model to estimate the fair value of our warrant liability using various assumptions that
require management to apply judgment and make estimates, including:
•
•
•
the expected term of the warrant, which we estimate to be the remaining contractual life;
the expected volatility of the underlying common stock, which we estimate based on the historical volatility of a representative
peer group of publicly traded biopharmaceutical companies with similarities to us, including stage of drug development, area of
therapeutic focus, number of employees and market capitalization;
the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the
expected term; and
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•
the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have
no present intention to pay cash dividends.
These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be
determined with precision. If factors change and different assumptions are used, our warrant liability could be materially different in the
future.
Accrued research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process
involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of
service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual
cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.
We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances
known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if
necessary. The significant estimates in our accrued research and development expenses are related to fees paid to CROs in connection
with research and development activities for which we have not yet been invoiced.
We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and
contracts with CROs that conduct research and development on our behalf. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to
our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing
service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If
the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment
expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our
understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and
could result in us reporting amounts that are too high or too low in any particular period. Differences between our estimates and amounts
actually incurred to date, and any resulting adjustments, have not been material.
Stock-based compensation
We account for stock-based compensation in accordance with Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Compensation-Stock Compensation, which we refer to as ASC 718. ASC 718 requires the measurement and
recognition of compensation expense for all stock-based payment awards made to employees and non-employee directors, including
employee stock options. Compensation expense based on the grant date fair value is generally amortized over the requisite service
period of the award on a straight-line basis.
We account for stock options granted to non-employees, which primarily consist of consultants and members of our scientific
advisory board, using the fair value method. Stock options granted to non-employees are subject to periodic revaluation over their
vesting terms and stock-based compensation expense may be recognized using an accelerated recognition model.
We use the Black-Scholes option pricing model to estimate the fair value of stock option awards using various assumptions that
require management to apply judgment and make estimates, including:
•
the expected term of the stock option award, which for non-employees we use the remaining contractual term, but for
employees we calculate using the simplified method, as prescribed by the
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Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, as we have insufficient
historical information regarding our stock options to provide a basis for an estimate;
the expected volatility of the underlying common stock, which we estimate based on the historical volatility of a representative
peer group of publicly traded biopharmaceutical companies with similarities to us, including stage of drug development, area of
therapeutic focus, number of employees and market capitalization;
the risk-free interest rate, which we based on the yield curve of U.S. Treasury securities with periods commensurate with the
expected term of the options being valued;
the expected dividend yield, which we estimate to be zero based on the fact that we have never paid cash dividends and have
no present intention to pay cash dividends; and
the fair value of our common stock on the date of grant.
•
•
•
•
If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the
future.
Recent Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies, of the Notes to Financial Statements, for a discussion of the impact of
new accounting standards on our Financial Statements.
Results of Operations
Comparison of years ended December 31, 2017 and 2016
The following table summarizes our results of operations for the years ended December 31, 2017 and 2016:
Operating expenses:
Research and development
General and administrative
Other income
Research and Development Expenses
Year Ended December 31,
2016
2017
Dollar Change
% Change
$17,314,086
$ 9,249,671
$11,046,099
$22,101,720
$11,430,526
$ 4,993,847
$ (4,787,634)
$ (2,180,855)
$ 6,052,252
(22)%
(19)%
121%
Research and development expense was $17.3 million for the year ended December 31, 2017, compared with $22.1 million for the
year ended December 31, 2016, a decrease of $4.8 million. This decrease was primarily attributable to a $3.3 million decrease in
expenses related to our research headcount, which included a reduction in research and development expense of $1.2 million reflecting
grant funding received for salaries, benefits and laboratory costs in support of the discovery and study of additional product candidates
and a $1.5 million decrease in external professional and consulting fees.
General and Administrative Expenses
General and administrative expense was $9.2 million for the year ended December 31, 2017, compared with $11.4 million for the
year ended December 31, 2016, a decrease of $2.2 million. This decrease was primarily attributable to decreases in severance related
costs of $1.1 million, a decrease in external professional, consulting and legal fees of $0.5 million, a decrease of $0.4 million in expenses
related to our administrative personnel and a $0.2 million decrease in the administrative portion of the expenditure on our office and
laboratory facility and related operating expenses from the reduction of the square footage of our leased premises.
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Other income
Other income was $11.0 million for the year ended December 31, 2017 compared with $5.0 million for the year ended
December 31, 2016, an increase of $6.0 million. This increase was primarily attributable to an increase in non-cash income of
$5.2 million related to the change in fair value of our warrant liability, a decrease of $0.6 million in issuance costs allocated to warrants
issued in our follow-on offerings and an increase in interest income of $0.2 million.
Comparison of years ended December 31, 2016 and 2015
The following table summarizes our results of operations for the years ended December 31, 2016 and 2015:
Operating expenses:
Research and development
General and administrative
Other income (expense)
Research and Development Expenses
Year Ended December 31,
2015
2016
Dollar Change
% Change
$22,101,720
$11,430,526
$ 4,993,847
$15,004,512
$10,060,825
(55,627)
$
$ 7,097,208
$ 1,369,701
$ 5,049,474
47%
14%
(9,077)%
Research and development expense was $22.1 million for the year ended December 31, 2016, compared with $15.0 million for the
year ended December 31, 2015, an increase of $7.1 million. This increase was primarily attributable to a $5.6 million increase in
expenditures on our product candidates as we concluded our Phase 1 clinical study and prepared for a Phase 2 clinical trial of CF-301
and continued to progress CF-404 through IND related manufacturing activities. The increase was also due to a $1.5 million increase in
expenses related to our research headcount, including salaries, benefits and laboratory costs in support of the discovery and study of
additional product candidates.
General and Administrative Expenses
General and administrative expense was $11.4 million for the year ended December 31, 2016, compared with $10.0 million for the
year ended December 31, 2015, an increase of $1.4 million. This increase was primarily attributable to increased severance costs of
$1.4 million, including $0.5 million of non-cash share-based compensation expense, and a $0.2 million increase in accounting and filing
costs related to our SEC filings. These increases were partially offset by a $0.2 million decrease in our Board of Directors fees and
expenses.
Other income (expense)
Other income was $5.0 million for the year ended December 31, 2016 compared with other expense of $0.1 million for the year
ended December 31, 2015, an increase of $5.0 million. In 2016, we had non-cash income of $6.3 million related to the change in fair
value of our warrant liability and interest income of $0.2 million, which were partially offset by expense due to $1.5 million of issuance
costs allocated to the warrants issued in our Follow-on Offering. In 2015, we had non-cash expense of more than $0.1 million related to
the change in fair value of our warrant liability, which was partially offset by interest income of less than $0.1 million from our
marketable securities.
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Liquidity and Capital Resources
Sources of Liquidity
We have financed our operations to date primarily through proceeds from sales of common stock, common stock and warrants,
convertible preferred stock and convertible debt and, to a lesser extent, grant funding. To date, we have not generated any revenue from
the sale of products. We have incurred losses and generated negative cash flows from operations since inception.
Since the date of our initial public offering, we have received gross proceeds of $116.3 million from the sale of registered
securities, $9.6 million from the exercise of the Class B Warrants issued in our IPO and $20.0 million from the sale of securities in a
private placement.
As of December 31, 2017, we had approximately $46.9 million in cash, cash equivalents and marketable securities. We primarily
invest our cash and cash equivalents in commercial money market accounts and our marketable securities in highly rated corporate debt
securities.
Cash flows
The following table shows a summary of our cash flows for the years ended December 31, 2017, 2016 and 2015:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net cash used in operating activities
2017
Year Ended December 31,
2016
2015
$(24,528,993)
$ (9,359,641)
$ 37,076,696
$(29,300,340)
$ (8,968,567)
$ 32,103,109
$(22,182,601)
$(21,600,084)
$ 28,033,013
Net cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in the
components of working capital. Net cash used in operating activities in the year ended December 31, 2017 decreased by $4.8 million as
compared to the comparable period in 2016. This is primarily attributable to our decrease in expenditures of CF-404 as we completed
drug substance manufacturing in 2016 and focused our development efforts on advancing CF-301 into a Phase 2 clinical study. Net cash
used in operating activities increased $7.1 million in the year ended December 31, 2016 as compared to the comparable period in 2015.
This increase is attributable to the increase in our loss from operations in 2016 as we advanced our product candidates and expanded our
research and administrative headcount.
Net cash (used in) provided by investing activities
Net cash used in investing activities in the years ended December 31, 2017, 2016 and 2015 resulted from the investment of our cash
balances into marketable securities less proceeds from any maturities of those securities.
Net cash provided by financing activities
Net cash provided by financing activities in the year ended December 31, 2017 resulted from the completion of a registered
offering of our securities to institutional investors in July 2017, resulting in net proceeds of $37.1 million Net cash provided by financing
activities in the year ended December 31, 2016 resulted primarily from the completion of a registered offering of our securities to
institutional investors in July 2016, resulting in net proceeds of $32.0 million. Net cash provided by financing activities in the year ended
December 31, 2015 resulted primarily from the completion of a private placement of our securities to institutional investors in June 2015,
resulting in net proceeds of $18.3 million and the exercise of the Class B Warrants issued as part of the Units sold in our IPO, resulting
in net proceeds of $9.7 million.
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Funding requirements
All of our product candidates are in early clinical or preclinical development. We expect to continue to incur significant expenses
and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
•
•
•
•
•
•
•
•
•
initiate the planned clinical trials of our product candidates;
continue our ongoing preclinical studies, and initiate additional preclinical studies, of our product candidates;
continue the research and development of our other product candidates and our platform technology;
seek to identify additional product candidates;
acquire or in-license other products and technologies;
seek marketing approvals for our product candidates that successfully complete clinical trials;
establish, either on our own or with strategic partners, a sales, marketing and distribution infrastructure to commercialize any
products for which we may obtain marketing approval;
maintain, leverage and expand our intellectual property portfolio; and
add operational, financial and management information systems and personnel, including personnel to support our product
development and future commercialization efforts.
We believe that our existing cash and cash equivalents and marketable securities, together with interest thereon, will be sufficient to
fund our operations into the second quarter of 2019. We have based this estimate on assumptions that may prove to be wrong, and we
could use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated
with the development and commercialization of our product candidates, and the extent to which we may enter into collaborations with
third parties for development and commercialization of our product candidates, we are unable to estimate the amounts of increased
capital outlays and operating expenses associated with completing the development of our current product candidates. Our future capital
requirements will depend on many factors, including:
•
•
•
•
•
•
•
•
the progress and results of the clinical trials of our lead product candidates;
the scope, progress, results and costs of compound discovery, preclinical development, laboratory testing and clinical trials for
our other product candidates;
the extent to which we acquire or in-license other products and technologies;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of
our product candidates for which we receive marketing approval;
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive
marketing approval;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending intellectual property-related claims; and
our ability to establish any future collaboration arrangements on favorable terms, if at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a
combination of equity and debt offerings, collaborations, strategic alliances and licensing arrangements. We do not have any committed
external source of funds. To the extent that we raise additional capital through the sale of equity or other securities, the ownership
interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely
affect your rights as
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a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds
through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to
us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that
we would otherwise prefer to develop and market ourselves.
We incur significant costs as a public company, including, but not limited to, increased personnel costs, increased directors fees,
increased directors and officers insurance premiums, audit and legal fees, investor relations and external communications fees, expenses
for compliance with the Sarbanes-Oxley Act and rules implemented by the SEC and Nasdaq and various other costs and expenses.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations at December 31, 2017 and the effect such obligations are expected to
have on our liquidity and cash flows in future periods:
Contractual obligations
Operating lease commitments(1)
License and sponsored research agreements(2)
Total contractual obligations
Payments due by period
Total
$7,013,451
1,912,936
$8,926,387
Less than
1 year
$ 640,514
663,187
$1,303,701
1 - 3 years
$1,319,715
649,749
$1,969,464
4 - 5 years
$1,373,032
400,000
$1,773,032
More than
5 years
$3,680,190
200,000
$3,880,190
(1) Represents future minimum lease payments under non-cancelable operating leases for our principal facilities in Yonkers, New York
which expire in 2027. The minimum lease payments above do not include certain utility costs, common area maintenance charges or
real estate taxes.
(2) Represents certain amounts payable under our licenses and sponsored research agreements with The Rockefeller University and
Trellis Bioscience LLC.
We enter into contracts in the normal course of business with contract research organizations, or CROs, for clinical trials, clinical
supply manufacturing, non-clinical and preclinical studies and for other services and products for operating purposes. These contracts
generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual
obligations.
The contractual obligations table also does not include any potential contingent payments upon the achievement by us of specified
clinical, regulatory and commercial events, as applicable, or royalty payments we may be required to make under license agreements we
have entered into with The Rockefeller University and Trellis Bioscience LLC. The occurrence and timing of these events are difficult
to predict and subject to significant uncertainty. Since we are unable to reliably estimate the timing and amounts of such milestone and
royalty payments, or whether they will occur at all, these contingent payments have been excluded from the table above. See “Note 8—
Commitments and Contingencies” on Page F-18 of this Annual Report for additional information.
Effects of Inflation
We do not believe that inflation or changing prices had a significant impact on our results of operations for any periods presented
herein.
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Off-Balance Sheet Arrangements
We did not have during the periods presented, and we are currently not party to, any off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest
rates. As of December 31, 2017, we had cash, cash equivalents and marketable securities of $46.9 million. Because of the short-term
maturities of our cash equivalents and marketable securities, we do not believe that an increase in market rates would have any
significant impact on the fair value of our cash equivalents or marketable securities. If a 10% change in interest rates were to have
immediately occurred on December 31, 2017, this change would not have had a material effect on the fair value of our investment
portfolio as of that date.
While we believe our cash, cash equivalents and marketable securities do not contain excessive credit or liquidity risk, we cannot
provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we
maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured
limits.
We do not own any derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure
with respect to derivative, foreign currency or other financial instruments that would require disclosure under this item.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial
statements is found in Item 15 of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required
to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer
and our principal financial officer, conducted an evaluation as of the end of the period covered by this Annual Report on Form 10-K of
the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act).
Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of December 31, 2017.
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Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.
Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria
set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that, as of December 31, 2017, our internal control over financial
reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm on internal control over financial
reporting due to an exemption established by the JOBS Act for “emerging growth companies”.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) and Rule 15d-15(d) of the Exchange Act, our management, including our principal executive officer
and our principal financial officer, conducted an evaluation of our internal control over financial reporting to determine whether any
changes occurred during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial
officer concluded that there were no changes during the quarter ended December 31, 2017 that materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
The board of directors of the Company (“Board”) held a meeting and decreased the size of the Board from eight to seven members
(effective immediately following the upcoming annual meeting of stockholders (“Annual Meeting”)) and also approved the slate of
director nominees for the Annual Meeting comprising Sol J. Barer, Ph.D., Isaac Blech, Steven C. Gilman, Ph.D., David N. Low, Jr.,
Michael J. Otto, Ph.D., Roger J. Pomerantz, M.D., F.A.C.P. and Cary W. Sucoff. Ms. Ricciardi notified us on March 14, 2018 that she
will not be standing up for re-election at the Annual Meeting.
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Item 10. Directors, Executive Officers and Corporate Governance
Director Biographical Information
Biographical information concerning each of our directors is set forth below:
PART III
Name
Steven C. Gilman, Ph.D.
Roger J. Pomerantz, M.D., F.A.C.P.
Sol J. Barer, Ph.D.
Isaac Blech
David N. Low, Jr.
Michael J. Otto, Ph.D.
Lisa R. Ricciardi
Cary W. Sucoff, J.D.
Age
65
61
70
68
59
69
58
66
Position
President, Chief Executive Officer, Director, Chairman of the Board
Director, Vice Chairman of the Board
Director, Lead Independent Director
Director
Director
Director
Director
Director
Steven C. Gilman, Ph.D. Dr. Gilman has served as Chairman of our board of directors since May 2015. In March 2016, he was
appointed Interim Chief Executive Officer of the Company and in July 2016 he was appointed Chief Executive Officer of the Company.
Until 2015, he served as the Executive Vice President, Research & Development and Chief Scientific Officer at Cubist Pharmaceuticals,
a biopharmaceutical company, until its acquisition by Merck & Co. Prior to joining Cubist in 2008, he served as Chairman of the Board
of Directors and Chief Executive Officer of ActivBiotics, a privately held biopharmaceutical company. Previously, he worked at
Millennium Pharmaceuticals, Inc., where he held a number of senior leadership roles including Vice President and General Manager of
the Inflammation franchise responsible for all aspects of the Inflammation business from early gene discovery to product
commercialization. Prior to Millennium, he was Group Director at Pfizer Global Research and Development, where he was responsible
for drug discovery of novel antibacterial agents as well as several other therapeutic areas. Dr. Gilman has also held scientific, business,
and academic appointments at Wyeth, Cytogen Corporation, Temple Medical School, and Connecticut College. He currently serves on
the board of directors of publicly traded companies Keryx Biopharmaceuticals, Inc., Momenta Pharmaceuticals, Inc., SCYNEXIS Inc.,
and Vericel Corporation. Dr. Gilman received his Ph.D. and M.S. degrees in microbiology from Pennsylvania State University, his post-
doctoral training at Scripps Clinic and Research Foundation, and received a B.A. in microbiology from Miami University of Ohio. He
has authored over 60 publications and is an inventor on 7 patents. We believe that Dr. Gilman’s significant scientific, executive and
board leadership experience in the pharmaceutical and biotechnology industries qualifies him to serve as a member of our board of
directors.
Roger J. Pomerantz, M.D., F.A.C.P. Dr. Pomerantz has served as a member of our board of directors since April 2014 and was
appointed Vice Chairman in May 2014. Since 2014, Dr. Pomerantz has served as President and Chief Executive Officer of Seres
Therapeutics, Inc., a biotechnology company. He has also served as Chairman of the board of directors of Seres since 2013. From 2011
to 2013, he was formerly Worldwide Head of Licensing & Acquisitions, Senior Vice President at Merck & Co., Inc. where he oversaw
all licensing and acquisitions at Merck Research Laboratories. Previously, he served as Senior Vice President and Global Franchise Head
of Infectious Diseases at Merck. Prior to joining Merck, Dr. Pomerantz was Global Head of Infectious Diseases for Johnson & Johnson
Pharmaceuticals. He joined Johnson & Johnson in 2005 as President of Tibotec Pharmaceuticals, Inc. Dr. Pomerantz received his B.A.
in Biochemistry at the Johns Hopkins University and his M.D. at the Johns Hopkins School of Medicine. He received post-graduate
training at the Massachusetts General Hospital, Harvard Medical School and M.I.T. Dr. Pomerantz is Board Certified in both Internal
Medicine and Infectious Diseases. He was Professor of Medicine, Biochemistry and Molecular Pharmacology, Chief of Infectious
Diseases, and the Founding Director and Chair of the Institute for Human Virology and Biodefense at the Thomas Jefferson University
and Medical School. He has developed nine drugs approved world-wide in important diseases, including HIV, HCV, and tuberculosis.
We believe that
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Dr. Pomerantz’s significant scientific, executive and board leadership experience in drug development and in the pharmaceutical
industry qualifies him to serve as a member of our board of directors.
Sol J. Barer, Ph.D. Dr. Barer has served as a member of our board of directors since April 2011. Dr. Barer served as our Chairman
of the board of directors from February 2012 to May 2015. He was appointed Lead Independent Director in May 2015. Dr. Barer spent
most of his professional career with the Celgene Corporation. He was Chairman from January 2011 until June 2011, Executive Chairman
from June 2010 until January 2011 and Chairman and Chief Executive Officer from May 2006 until June 2010. Dr. Barer was the
founder of the biotechnology group at the Celanese Research Company which was subsequently spun out to form Celgene. Dr. Barer
serves as Chairman of the board of directors of the public companies Edge Therapeutics, Aevi Genomic Medicine, and Teva
Pharmaceutical Industries and the private company Centrexion. He is an advisor to biotechnology/medical companies, the Israel Biotech
Fund and not for profit organizations. In 2011, Dr. Barer was Chairman of the University of Medicine and Dentistry of New Jersey
Governor’s Advisory Committee which resulted in sweeping changes in the structure of New Jersey’s medical schools and public
research universities. He previously served as a Commissioner of the NJ Commission on Science and Technology. He was a member of
the Board of Trustees of Rutgers University and served two terms as Chair of the Board of Trustees of BioNJ, the New Jersey
biotechnology organization. We believe that Dr. Barer’s significant scientific, executive and board leadership experience in the
pharmaceutical and biotechnology industries qualifies him to serve as a member of our board of directors.
Isaac Blech. Mr. Blech has served as a member of our board of directors since August 2010. Mr. Blech’s current roles at public
companies are Director of Cerecor, Inc., Director of Aevi Genomic Medicine, Inc., and Vice Chairman of Edge Therapeutics, Inc.,
InspireMD, SpendSmart Networks, Inc., and root9B Technologies. He is also Vice Chairman of Centrexion Corporation, Regenovation,
Inc., X4 Pharmaceuticals, Sapience Therapeutics, Aridis Pharmaceuticals, WaveGuide Corporation, Alveo Health, and X-VAX
Technology, Inc., which are all private companies. Over the past 35 years, Mr. Blech has helped found some of the world’s leading
biotechnology companies, including Celgene Corporation, ICOS Corporation, Pathogenesis Corporation, Nova Pharmaceutical
Corporation and Genetic Systems Corporation. These companies are responsible for major advances in oncology, infectious disease and
cystic fibrosis. Mr. Blech earned a B.A. degree from Baruch College in 1975. We believe that Mr. Blech’s broad experience as a
founder, director and major investor in numerous biotechnology companies qualifies him to serve as a member of our board of directors.
David N. Low, Jr. Mr. Low has served as a member of our board of directors since April 2014. Mr. Low has worked as an
investment banker since 1987, with broad investment and advisory experience in the life sciences, biotechnology and medical
technology sectors. Since June 2017, Mr. Low has served as a partner at MTS Healthpartners, a healthcare investment banking boutique.
From 2002 to 2015, Mr. Low was a member of Lazard’s Life Sciences Group as a Managing Director and Senior Advisor. Mr. Low has
advised on major M&A transactions in the life sciences, biotechnology and medical technology sectors, and has worked with private and
public companies to raise capital, including emerging growth companies. Prior to joining Lazard, Mr. Low was a Managing Director at
JP Morgan Chase & Co. and a Senior Vice President at Lehman Brothers. Mr. Low serves on the board of directors of the We Teach
Science Foundation (as Chairman), the Philharmonia Baroque Orchestra, and the French International School. Mr. Low holds an A.B.
from Harvard College, where he graduated cum laude, an M.A. from the Johns Hopkins University School of Advanced International
Studies and an M.B.A. from Yale University. We believe that Mr. Low’s significant investment and financial advisory experience
qualifies him to serve as a member of our board of directors.
Michael J. Otto, Ph.D. Dr. Otto has served as a member of our board of directors since April 2014. Dr. Otto served as Chief
Scientific Officer of Pharmasset from October 1999 until February 2012, when the company was acquired by Gilead Sciences. He led
the research team responsible for the discovery of sofosbuvir for the treatment of HCV infections. In previous capacities he has served as
Associate Director of Anti-Infectives Clinical Research at Rhône-Poulenc Rorer, Vice President for Research and Development at Avid
Therapeutics, Inc., Research Manager at DuPont Pharmaceuticals and Dupont Merck Pharmaceuticals and as Group Leader in
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the Virology Dept. at Sterling Drug in Rensselaer, NY. Prior to joining Sterling Drug, Dr. Otto was Research Assistant Professor at Yale
University School of Medicine, Dept. of Pharmacology. Dr. Otto also served as the US editor for Antiviral Chemistry & Chemotherapy
from 1989 until 2012. Dr. Otto holds a B.S. degree from Loyola University of Chicago and a Ph.D. degree in medical microbiology from
The Medical College of Wisconsin. He is the author or coauthor of over 100 research papers and book chapters and named inventor on
several patents and patent applications. We believe that Dr. Otto’s substantial scientific and executive leadership experience in the
pharmaceutical industry qualifies him to serve as a member of our board of directors.
Cary W. Sucoff. Mr. Sucoff has served on our board of directors since May 2010. Mr. Sucoff has more than 30 years of securities
industry experience encompassing supervisory, banking and sales responsibilities. He has participated in the financing of more than 100
public and private biotech companies. Since 2011, Mr. Sucoff has owned and operated Equity Source Partners LLC, an advisory and
consulting firm. In addition to ContraFect, Mr. Sucoff currently serves on the board of directors of Legacy Education Alliance, Inc. and
First Wave Technologies, Inc. In addition, Mr. Sucoff currently serves as a consultant to Sapience Therapeutics and Galimedix
Pharmaceuticals Inc. Mr. Sucoff is the past President of New England Law/Boston, has been a member of the Board of Trustees for over
25 years and is the current Chairman of the Endowment Committee. Mr. Sucoff received a B.A. from SUNY Binghamton in 1974 and a
J.D. from New England School of Law in 1977, where he was managing editor of the Law Review and graduated magna cum laude. He
has been a member of the Bar of the State of New York since 1978. We believe that Mr. Sucoff’s broad financial and legal experience
qualifies him to serve as a member of our board of directors.
Lisa R. Ricciardi. Ms. Ricciardi has served as a member of our board of directors since February 2017. Since 2015, Ms. Ricciardi
has served as an advisor to early state biotechnology companies and investors. From July 2014 through 2015, Ms. Ricciardi served as
Senior Vice President for Corporate and Business Development with Foundation Medicine, a molecular information company. From
October 2010 to June 2012, she served as Senior Vice President of Business Development at Medco Health Solutions, Inc. until the
business was sold. In addition, she was a Venture Partner at Essex Woodlands Health Ventures. Ms. Ricciardi held numerous executive
management positions at Pfizer, including Senior Vice President in the Licensing and Development Division, closing more than 25
transactions with multi-national firms and biotechnology companies, as well as managing several key product launches in the global
pharmaceuticals division. Ms. Ricciardi is currently a member of the board of directors of United Drug Healthcare Group, PLC in
Dublin, Ireland, and was previously a member of the board of directors at Sepracor and Chimerix. Ms. Ricciardi earned an M.B.A. from
the University of Chicago and a B.A. degree from Wesleyan University. We believe that Ms. Ricciardi’s significant life sciences,
executive and board leadership experience in the pharmaceutical and biotechnology industries qualifies her to serve as a member of our
board of directors.
Executive Officers of the Registrant
Biographical information concerning each of our executive officers is set forth below. Information concerning Steven C. Gilman,
Ph.D., our Chief Executive Officer, may be found above in the section entitled “Director Biographical Information.”
Natalie Bogdanos, J.D. Ms. Bogdanos, age 49, has served as our General Counsel and Corporate Secretary since August of 2014,
and served as a member of the Interim Office of the Chief Executive Officer from March 2017 to June 2017. She has over 19 years of
experience in the legal field, almost 13 of which were serving as the chief legal officer of a publicly traded biotechnology company.
Prior to joining ContraFect in 2014, Ms. Bogdanos served as Associate General Counsel at Memorial Sloan-Kettering Cancer Center
(“MSKCC”), a cancer treatment and research institution, where she held a joint appointment with the Office of the General Counsel and
the Office of Technology Development (“OTD”). At MSKCC, she provided legal counsel and guidance to various departments
throughout the institution while having sole responsibility for the legal oversight of the OTD. She led the contracts group, managed the
institution’s patent portfolio, provided regulatory guidance and compliance, and advised on litigation strategy. Prior to MSKCC, she was
General Counsel at Enzo Biochem,
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Inc. (“Enzo”), a publicly traded international biotechnology and life science company, from 2003 to 2012. At Enzo, she was responsible
for leading the legal department, handling contracts and complex business development agreements, ensuring SEC and regulatory
compliance, overseeing litigation and managing Enzo’s portfolio of 500+ patents and patent applications. Previously, Ms. Bogdanos was
an associate at Amster, Rothstein & Ebenstein from 1999 to 2003 where her practice focused on patent litigation and patent prosecution.
Ms. Bogdanos has also served as a legal consultant to pharmaceutical companies and was a faculty member at the Practising Law
Institute. Prior to attending law school, she was a research technician at the Public Health Research Institute where her work focused on
Staphylococcus aureus. Ms. Bogdanos is an attorney licensed to practice before the United States Patent and Trademark Office. She is
admitted to practice law in New York, the United States District Court, Southern and Eastern District of New York and the United
States Court of Appeals for the Federal Circuit. Ms. Bogdanos received her J.D. from New York Law School and her Bachelor of Arts in
Biology, with honors, from Queens College of the City University of New York.
Cara Cassino, M.D. Dr. Cassino, age 56, has served as our Chief Medical Officer since September 2015, also as Executive Vice
President of Research and Development since October, 2015, and served as a member of the Interim Office of the Chief Executive
Officer from March 2017 to June 2017. Dr. Cassino has over 20 years of experience as a clinician and executive in healthcare, including
over 15 years of experience in pharmaceutical product development with over 20 successful regulatory submissions in the United States
and globally. Prior to joining ContraFect in 2015, Dr. Cassino served as an independent consultant to various pharmaceutical and
biotechnology companies, including Scynexis. Prior to that, she served as Senior Vice President at Forest Laboratories, Inc., a
biopharmaceutical company (acquired by Actavis plc, now Allergan plc), where she oversaw Global Clinical Development from 2013 to
2014. While at Forest, she was responsible for pre- and post-marketing clinical activities for a portfolio of 35 compounds, and also
clinical due diligence for M&A activity, including the $2.9 billion acquisition of Aptalis Pharma and the $1.1 billion acquisition of
Furiex Pharmaceuticals. From 2008 to 2013, Dr. Cassino held a number of senior positions at Pfizer, including Global Medical Team
Leader of Pfizer’s antibacterial franchise which included Zyvox (linezolid) and Medicines Development Group VP for Pulmonary
Vascular Disease and Rare Diseases. Prior to joining Pfizer, Dr. Cassino also served as Executive Medical Director for the late stage
U.S. respiratory franchise at Boehringer-Ingelheim Pharmaceuticals, Inc. and was a member of the academic faculty of the Division of
Pulmonary and Critical Care Medicine at New York University (NYU) School of Medicine for eight years prior to joining industry.
Dr. Cassino received her B.A., summa cum laude, in Chemistry and Fine Arts from NYU where she was elected Phi Beta Kappa,
followed by an M.D. from NYU School of Medicine. She completed her internship and residency in Internal Medicine at NYU/Bellevue
Hospital and a fellowship in Pulmonary/Critical Care Medicine at NYU and Mount Sinai Medical Centers. Dr. Cassino is Board
Certified in both internal medicine and pulmonary medicine.
Michael Messinger, CPA. Mr. Messinger, age 43, currently serves as our Senior Vice President, Finance. He has more than 17
years of experience in finance, accounting and forecasting for clinical development. Prior to joining ContraFect in November 2012 as our
Vice President, Finance, he served as Director of Finance at Lexicon Pharmaceuticals, Inc. (“Lexicon”) for eight years and also held the
position of Controller for three years. Prior to working at Lexicon, Mr. Messinger served as Controller of Coelacanth Corporation (which
was acquired by Lexicon) for two years. While at Lexicon, Mr. Messinger was responsible for the financial management of Lexicon’s
partnership with Symphony Capital, LLC, in addition to coordinating fiscal and program management concerning Lexicon’s
development programs. Mr. Messinger received his B.B.A. degree in accounting from the University of Michigan. He started his career
as an auditor at Ernst & Young LLP.
Josh Muntner. Mr. Muntner, age 49, has served as the Senior Vice President of Business Development since 2015, and served as a
member of the Interim Office of the Chief Executive Officer from March 2017 to June 2017. Mr. Muntner has more than 15 years of
transaction experience assisting life sciences companies with financing and M&A advisory transactions. Prior to joining ContraFect, he
served as Managing Director and Co-Head of Healthcare Investment Banking at Janney Montgomery Scott, a financial services firm
from 2012 to 2015. Mr. Muntner was also a Managing Director at ThinkEquity, an investment bank from 2009 to 2012.
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Previously, Mr. Muntner spent nine years at Oppenheimer & Co. and its U.S. predecessor, CIBC World Markets, in positions of
increasing responsibility. Mr. Muntner also served as an investment banker at Prudential Securities. Mr. Muntner received his B.F.A.
degree from Carnegie Mellon and his M.B.A. degree from The Anderson School at UCLA.
Nancy Dong. Ms. Dong, age 52, currently serves as our Vice President, Finance and Administration. She has more than 21 years of
experience in accounting, strategic planning, budgeting and forecasting, organizational development, financial systems and controls and
human resources. Prior to joining ContraFect in 2010 as Vice President, Controller, she served as controller at XL Marketing, a direct
marketing firm, from 2009 to 2010 and at Alley Corp, a company that provides strategic advice to companies within its network, from
2007 to 2009. She also served as Vice President of Finance and Administration at DCM, a tele-services firm supporting the performing
arts, from 2002 to 2007. Ms. Dong also held the positions of COO and CFO at Semaphore, a project management software development
firm. Ms. Dong received her B.A. degree from Yale University and a MPPM degree from The Wharton School at the University of
Pennsylvania. She started her career as a management consultant at Ernst & Young LLP.
Our board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees,
which is available on our website at http://ir.contrafect.com/governance-docs. We intend to satisfy the disclosure requirement under Item
5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics, as well as
Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on our website at
the address and location specified above.
The remaining information required by this Item 10 will be contained under the headings “Section 16(a) Beneficial Ownership
Reporting Compliance,” and “Corporate Governance – Committees of the Board” in our definitive proxy statement to be filed with the
SEC with respect to our 2018 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item 11 will be contained under the heading “Executive Compensation” in our definitive proxy
statement to be filed with the SEC with respect to our 2018 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be contained under the headings “Executive Compensation – Equity Compensation
Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement to be filed
with the SEC with respect to our 2018 Annual Meeting of Stockholders and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 will be contained under the headings “Certain Relationships and Related Transactions”
and “Corporate Governance – Director Independence” in our definitive proxy statement to be filed with the SEC with respect to our 2018
Annual Meeting of Stockholders and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item 14 will be contained under the heading “Ratification of Appointment of Independent
Registered Public Accounting Firm” in our definitive proxy statement to be filed with the SEC with respect to our 2018 Annual Meeting
of Stockholders and is incorporated herein by reference.
84
Table of Contents
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1)
Index list to Consolidated Financial Statements
PART IV
The following documents are included on pages F-1 through F-27 attached hereto and are filed as part of this Annual Report on
Form 10-K.
Report of Independent Registered Public Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules
F-2
F-3
F-4
F-5
F-6
F-7
F-8
Schedules have been omitted since they are either not required or not applicable or the information is otherwise included herein.
(3) Exhibits
Exhibit
No.
3.1
Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
Incorporated by Reference
Amended and Restated Certificate of
Incorporation of ContraFect Corporation, dated
August 1, 2014, and Certificate of Amendment,
dated May 9, 2016 and Certificate of
Amendment dated May 2, 2017
8-K
001-36577
3.1
May 3, 2017
3.2
Amended and Restated Bylaws of ContraFect
Corporation
8-K
001-36577
3.2
May 10, 2016
4.1
Form of Common Stock Certificate
S-1/A
333-195378
4.1
July 3, 2014
4.2
Representative’s Warrant, dated August 27,
2014
8-K
001-36577
4.14
October 29, 2015
4.3
Form of Noteholder Warrant
S-1/A
333-195378
4.4
Specimen Unit Certificate
4.5
Form of Indenture
4.6
Form of Investor Warrant
4.7
Form of Placement Agent Warrant
S-1/A
333-195378
S-3
333-206786
8-K
001-36577
8-K
001-36577
85
4.7
4.8
4.1
4.1
4.2
July 3, 2014
July 1, 2014
September 4, 2015
June 12, 2015
June 12, 2015
Table of Contents
Exhibit
No.
4.8
Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
Incorporated by Reference
Form of Warrant Agreement by and between
ContraFect Corporation and the American
Stock Transfer & Trust Company, LLC,
dated July 27, 2016
8-K
001-36577
4.1
July 27, 2016
4.9
Form of Warrant Certificate
4.10
Form of Warrant Agreement by and between
ContraFect Corporation and the American
Stock Transfer & Trust Company, LLC,
dated July 25, 2017
8-K
001-36577
8-K
001-36577
4.2
4.1
July 27, 2016
July 25, 2017
4.11
Form of Warrant Certificate
8-K
001-36577
4.2
July 25, 2017
10.1
10.2
10.3
License Agreement, between The
Rockefeller University and ContraFect
Corporation, dated July 12, 2011
Lease Agreement, between Hudson View
Building #3 LLC and ContraFect
Corporation, dated December 1, 2010
Lease Agreement, between Hudson View
Building #3 LLC and ContraFect
Corporation, dated January 1, 2012
S-1
333-195378
10.1
April 18, 2014
S-1
333-195378
10.2
April 18, 2014
S-1
333-195378
10.3
April 18, 2014
10.4#
Form of Indemnification Agreement
S-1/A
333-195378
10.4
July 1, 2014
10.5#
10.6#
10.7#
10.8#
10.9#
Separation and Consulting Agreement by
and between ContraFect Corporation and
Dr. Barry Kappel, dated April 15, 2015
ContraFect Corporation Amended and
Restated 2008 Equity Incentive Plan
ContraFect Corporation Form of Stock
Option Agreement
ContraFect Corporation 2008 Equity
Incentive Plan
ContraFect Corporation 2014 Omnibus
Incentive Plan
10-K
001-36577
10.8
March 15, 2016
S-1
S-1
S-1
333-195378
10.11
April 18, 2014
333-195378
10.12
April 18, 2014
333-195378
10.13
April 18, 2014
S-1/A
333-195378
10.14
July 1, 2014
86
Table of Contents
Exhibit
No.
10.10
10.11
10.12
10.13
10.14#
10.15#
10.16#
Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
Incorporated by Reference
License Agreement, between Trellis Bioscience
LLC and ContraFect Corporation, dated
January 29, 2014
Amendment to the Trellis License Agreement,
dated June 15, 2014
Form of Securities Purchase Agreement between
the Company and Benjamin Small, Birchview
Fund, LLC, Broadfin Healthcare Master Fund,
Ltd., Cormorant Global Healthcare Master Fund,
LP, Jack W. Schuler, Matthew W. Strobeck,
Oracle Institutional Partners, LP, Oracle Partners,
LP, and Richard B. McCormick, dated June 11,
2015
Form of Registration Rights Agreement among
the Company, Benjamin Small, Birchview Fund,
LLC, Broadfin Healthcare Master Fund, Ltd.,
Cormorant Global Healthcare Master Fund, LP,
Jack W. Schuler, Matthew W. Strobeck, Oracle
Institutional Partners, LP, Oracle Partners, LP,
and Richard B. McCormick and Brookline Group
LLC, dated June 11, 2015
Separation Agreement and Release, dated
March 25, 2016, between ContraFect Corporation
and Julia P. Gregory
Letter Agreement, dated July 21, 2016, between
ContraFect Corporation and Steven C. Gilman,
Ph.D.
Consulting Agreement by and between the
Company and Daniel E. Couto, dated May 1,
2016
S-1/A
333-195378
10.15
July 1, 2014
S-1/A
333-195378
10.16
July 1, 2014
8-K
001-36577
10.1
June 12, 2015
8-K
001-36577
10.2
June 12, 2015
8-K
001-36577
10.1
March 25, 2016
8-K
001-36577
10.1
July 21, 2016
10-Q
001-36577
10.1
August 9, 2016
87
Table of Contents
Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
Incorporated by Reference
Exhibit
No.
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
10.25#
10-Q
001-36577
10.1
November 9, 2016
8-K
001-36577
10.1
March 13, 2017
10-K
001-36577
10.27
March 15, 2017
10-K
001-36577
10.28
March 15, 2017
10-K
001-36577
10.29
March 15, 2017
Separation and Consulting Agreement by
and between ContraFect Corporation and
Michael Wittekind, Ph.D., dated
October 3, 2016
Letter Agreement, dated March 13, 2017,
between ContraFect Corporation and
Steven C. Gilman, Ph.D.
Offer Letter, dated June 26, 2014,
between ContraFect Corporation and
Natalie Bogdanos, as amended by
Amendment No. 1, dated November 2,
2015
Offer Letter, dated August 24, 2015,
between ContraFect Corporation and Cara
Cassino, M.D.
Amendment No. 1 to Offer Letter, dated
March 15, 2017, between ContraFect
Corporation and Cara Cassino, M.D.
Employment Agreement by and between
ContraFect Corporation and Nancy Dong
dated July 19, 2010
Employment Agreement by and between
ContraFect Corporation and Michael
Messinger dated November 5, 2012
Offer Letter, dated August 6, 2015,
between ContraFect Corporation and
Joshua B. Muntner
Separation Agreement and Release, dated
January 19, 2018, between ContraFect
Corporation and Lisa R. Ricciardi
*
*
*
*
*
23.1
Consent of Ernst & Young LLP
88
Description
Form
File No.
Exhibit
Filing Date
Filed/Furnished
Herewith
Incorporated by Reference
Table of Contents
Exhibit
No.
31.1
31.2
32.1
32.2
Certification of Chief Executive
Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial
Officer pursuant to Rule 13a-14(a)
and Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Taxonomy Extension
Schema Document
XBRL Taxonomy Extension
Calculation Linkbase Document
XBRL Taxonomy Extension
Definition Linkbase Document
XBRL Taxonomy Extension Label
Linkbase Document
XBRL Taxonomy Extension
Presentation Linkbase Document
*
**
#
Filed herewith.
Furnished herewith.
Indicates management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
89
*
*
**
**
*
*
*
*
*
*
Table of Contents
CONTRAFECT CORPORATION
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of ContraFect Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ContraFect Corporation (the Company) as of December 31,
2017 and 2016, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of
the three years in the period ended December 31, 2017, 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, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our 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 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 audits 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 financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Hartford, Connecticut
March 15, 2018
F-2
Table of Contents
CONTRAFECT CORPORATION
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Deferred rent
Warrant liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 25,000,000 shares authorized and none outstanding at
December 31, 2017 and 2016
Common stock, $0.0001 par value, 200,000,000 shares authorized, 73,656,006 shares issued
and outstanding at December 31, 2017; 100,000,000 shares authorized, 41,656,006 shares
issued and outstanding at December 31, 2016
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2017
2016
$
6,995,046
39,858,864
1,848,063
48,701,973
1,093,903
393,603
$ 50,189,479
$
3,806,984
31,354,170
1,017,645
36,178,799
1,281,152
164,519
$ 37,624,470
$
1,302,431
3,118,237
4,420,668
704,240
13,549,437
321,689
18,996,034
—
$
1,549,845
2,868,352
4,418,197
994,439
12,698,980
—
18,111,616
—
—
—
7,366
192,896,367
(74,820)
(161,635,468)
31,193,445
$ 50,189,479
4,166
165,678,164
(51,666)
(146,117,810)
19,512,854
$ 37,624,470
See accompanying notes.
F-3
Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Operations
Operating expenses:
Research and development, including stock-based compensation of
$451,334, $587,426 and $389,967, respectively
General and administrative, including stock-based compensation of
$1,171,794, $1,644,456 and $1,599,895, respectively
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Other expense
Change in fair value of warrant and embedded derivative liabilities
Total other income (expense)
Net loss
Per share information:
Net loss per share of common stock, basic and diluted
Basic and diluted weighted average shares outstanding
2017
Year Ended December 31,
2016
2015
$ 17,314,086
$ 22,101,720
$ 15,004,512
9,249,671
26,563,757
(26,563,757)
11,430,526
33,532,246
(33,532,246)
10,060,825
25,065,337
(25,065,337)
418,135
(905,014)
11,532,978
11,046,099
$(15,517,658)
216,616
(1,569,341)
6,346,572
4,993,847
$(28,538,399)
75,693
—
(131,320)
(55,627)
$(25,120,964)
$
(0.28)
55,595,732
$
(0.85)
33,539,465
$
(1.08)
23,328,922
See accompanying notes.
F-4
Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Comprehensive Loss
Net loss
Other comprehensive loss:
Unrealized loss on available-for-sale securities
Comprehensive loss
2017
$(15,517,658)
Year Ended December 31,
2016
$(28,538,399)
2015
$(25,120,964)
(23,154)
$(15,540,812)
(21,293)
$(28,559,692)
(29,746)
$(25,150,710)
See accompanying notes.
F-5
Table of Contents
CONTRAFECT CORPORATION
Consolidated Statements of Stockholders’ Equity
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Stockholders’
Equity
Common Stock
Shares
Amount
Balance, December 31, 2014
20,217,263 $ 2,021 $118,038,560
(627) $ (92,458,447) $ 25,581,507
Net shares issued in relation to vesting
of performance grant
Issuance of common stock for services
Issuance of securities in private
11,778
28,445
1
3
54,300
167,535
placement
4,728,128
— —
474 19,999,526
(1,665,554)
Financing cost of sale of securities
Issuance of common stock for exercise
of options
23,235
2
—
Issuance of common stock for exercise
of warrants
Share-based compensation
Unrealized loss on marketable
securities
Net loss
2,473,843
247
— —
9,698,317
1,989,862
— —
— —
—
—
Balance, December 31, 2015
27,482,692 $ 2,748 $148,282,546 $
Issuance of common stock for services
Issuance of securities in registered
31,206
3
93,927
offering
Financing cost of sale of securities
Issuance of common stock for exercise
of options
Issuance of common stock for exercise
of warrants
Share-based compensation
Unrealized loss on marketable
securities
Net loss
14,000,000 1,400 16,397,372
(1,383,548)
— —
2,850
1
—
139,258
14
— —
55,984
2,231,883
— —
— —
—
—
Balance, December 31, 2016
41,656,006 $ 4,166 $165,678,164 $
—
—
—
—
—
—
—
—
—
54,301
167,538
—
—
20,000,000
(1,665,554)
—
—
—
2
9,698,564
1,989,862
(29,746)
—
(29,746)
—
(25,120,964)
(25,120,964)
(30,373) $(117,579,411) $ 30,675,510
93,930
—
—
—
—
—
—
—
—
—
16,398,772
(1,383,548)
—
—
—
1
55,998
2,231,883
(21,293)
—
(21,293)
—
(28,538,399)
(28,538,399)
(51,666) $(146,117,810) $ 19,512,854
Issuance of securities in registered
offering
Financing cost of sale of securities
Share-based compensation
Unrealized loss on marketable
securities
Net loss
32,000,000 3,200 27,613,365
(2,018,290)
1,623,128
— —
— —
—
—
—
—
—
—
27,616,565
(2,018,290)
1,623,128
— —
— —
—
—
(23,154)
—
(23,154)
—
(15,517,658)
(15,517,658)
(74,820) $(161,635,468) $ 31,193,445
Balance, December 31, 2017
73,656,006 $ 7,366 $192,896,367 $
See accompanying notes.
F-6
Table of Contents
CONTRAFECT CORPORATION
Statements of Cash Flows
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Stock-based compensation expense
Issuance of common stock in exchange for services
Issuance costs allocated to warrants
Change in fair value of warrant and embedded derivative liabilities
(Decrease) Increase in deferred rent
Net amortization of premium paid on marketable securities
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current and non-current
assets
Increase in accounts payable and accrued liabilities
Net cash used in operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of equity securities
Payment of financing costs of securities sold
Proceeds from exercise of warrants
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information and non-cash investing
and financing activities
Issuance of common stock for services
Issuance of warrants to purchase common stock
2017
Year Ended December 31,
2016
2015
$(15,517,658)
$(28,538,399)
$(25,120,964)
187,249
1,623,128
—
905,014
(11,532,978)
(290,199)
831,793
451,008
2,231,883
93,930
1,569,341
(6,346,572)
22,320
428,783
537,344
1,989,862
167,538
—
131,320
36,077
283,915
(1,059,502)
324,160
(24,528,993)
138,352
649,014
(29,300,340)
(808,108)
600,415
(22,182,601)
(53,162,598)
43,802,957
—
(9,359,641)
(36,459,405)
27,604,030
(113,192)
(8,968,567)
(33,524,927)
11,933,000
(8,157)
(21,600,084)
40,000,000
(2,923,304)
—
37,076,696
3,188,062
3,806,984
$ 6,995,046
35,000,000
(2,952,889)
55,998
32,103,109
(6,165,798)
9,972,781
$ 3,806,984
20,000,000
(1,665,554)
9,698,567
28,033,013
(15,749,672)
25,722,453
$ 9,972,781
$
—
$ 12,383,435
$
93,930
$ 18,601,228
$
$
167,538
—
See accompanying notes.
F-7
Table of Contents
1. Organization and Description of Business
Organization and Business
ContraFect Corporation
Notes to Financial Statements
December 31, 2017
ContraFect Corporation (the “Company”) is a clinical-stage biotechnology company focused on protein and antibody therapeutic
products for life-threatening infectious diseases, particularly those treated in hospital-based settings. The Company intends to address
multi-drug resistant infections using its therapeutic product candidates from its lysin and monoclonal antibody platforms to target
conserved regions of either bacteria or viruses. The Company’s most advanced product candidates are CF-301, a lysin for the treatment
of Staph aureus bacteremia, including endocarditis and CF-404, a combination of mAbs for the treatment of life-threatening seasonal
and pandemic varieties of influenza.
The Company has incurred losses from operations since inception as a research and development organization and has relied on its
ability to fund its operations through public and private debt and equity financings. Management believes its cash, cash equivalents and
marketable securities balances as of December 31, 2017 will be sufficient to fund operations into the second quarter of 2019 and expects
operating losses and negative cash flows to continue at more significant levels in the future as it continues its clinical trials. Transition to
profitability is dependent upon the successful development, approval, and commercialization of its product candidates and achieving a
level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until
it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional
public or private equity financings, and may seek additional capital through arrangements with strategic partners or from other sources.
There can be no assurances that such financing will be available to the Company on satisfactory terms, or at all.
In June 2015, the Company completed a private placement of securities to institutional investors whereby the investors received an
aggregate of 4,728,128 shares of the Company’s common stock and warrants to purchase an additional 2,364,066 shares of common
stock at an exercise price of $8.00 per share. The Company received net proceeds of $18.3 million, net of expenses.
On November 2, 2015, the Company’s Class B Warrants to purchase common stock expired in accordance with their terms. As of
November 2, 2015, holders of the Class B Warrants had exercised 4,812,328 Class B Warrants, resulting in the issuance of 2,406,164
shares of the Company’s common stock and the receipt by the Company of approximately $9.6 million in gross proceeds. The 2,068,005
Class B Warrants that were not exercised prior to expiration were terminated and are no longer exercisable.
On July 27, 2016, the Company completed an underwritten public offering of 14,000,000 shares of its common stock and warrants
to purchase an additional 14,000,000 shares of its common stock at an exercise price of $3.00 per share (the “2016 Offering”). The
public offering price was $2.50 per share of common stock and accompanying warrant, resulting in net proceeds to the Company of
approximately $32.0 million after underwriting discounts and commissions and offering expenses payable by the Company.
On July 25, 2017, the Company completed an underwritten public offering of 32,000,000 shares of its common stock and warrants
to purchase an additional 16,000,000 shares of its common stock at an exercise price of $1.55 per share (the “2017 Offering”). The
public offering price was $1.25 per share of common stock and accompanying warrant, resulting in net proceeds to the Company of
approximately $37.1 million after underwriting discounts and commissions and offering expenses payable by the Company.
The significant increases in common stock outstanding are expected to impact the year-over-year comparability of the Company’s
net loss per share calculations.
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Table of Contents
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial information has been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”).
Principles of Consolidation
The Company has a wholly-owned subsidiary, ContraFect International Limited, in Scotland that establishes legal status for
interactions with the European Economic Area. This subsidiary is dormant or is otherwise non-operative. Any inter-company accounts
have been eliminated in consolidation.
Segment and Geographic Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and
assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief decision
maker view the Company’s operations and manage its business as one operating segment. The Company operates in only one geographic
segment.
Significant Risks and Uncertainties
The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such
factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability
to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other
companies, the price of, and demand for, the Company’s products, the Company’s ability to negotiate favorable licensing or other
manufacturing and marketing agreements for its products and the Company’s ability to raise capital.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period. The Company bases estimates and assumptions on
historical experience when available and on various factors that it believes to be reasonable under the circumstances. On an ongoing
basis, the Company evaluates its estimates and assumptions, including those related to accruals, fair value measurements, stock-based
compensation, warrant valuation and income taxes. The Company’s actual results may differ from these estimates under different
assumptions or conditions. There have been no significant changes from the Company’s original estimates in any periods presented.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and
marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of
credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not
experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The
Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other
hedging arrangements.
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Table of Contents
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities at the date of purchase of three months or less to be cash
equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at
purchase, and money market funds that invest primarily in certificates of deposit, commercial paper and U.S. government and U.S.
government agency obligations. Cash equivalents are reported at fair value.
Marketable Securities
Marketable securities consist of investments in corporate debt securities. Management determines the appropriate classification of
the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. The
Company classifies its marketable securities as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. The
Company classifies marketable securities available to fund current operations as current assets on its consolidated balance sheets.
Marketable securities are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to
hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year.
Marketable securities are recorded at fair value, with unrealized gains and losses included as a component of accumulated other
comprehensive loss in stockholders’ equity and a component of total comprehensive loss in the consolidated statements of
comprehensive loss, until realized. The fair value of these securities is based on quoted prices for identical or similar assets. Realized
gains and losses are included in interest income in the consolidated statement of operations and comprehensive loss on a specific-
identification basis. There were no realized gains or losses on marketable securities for the years ended December 31, 2017, 2016 or
2015. There were no marketable securities that had been in an unrealized loss position for more than 12 months as of December 31, 2017
or 2016.
The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security
is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable
period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the
Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company
will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment
includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment
and changes in value subsequent to the end of the period.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued
liabilities and warrant liabilities. Fair value estimates of these instruments are made at a specific point in time, based on relevant market
information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. The fair value of the Company’s warrant liabilities are based upon unobservable inputs, as
described further below.
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the
inputs used in determining the reported fair values. FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820),
establishes a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants
would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and
are developed based on the best information available in the
F-10
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circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the
investments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant
inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value
measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination
of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is
greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level
of any input that is significant to the fair value measurement.
The Company had no liabilities classified as Level 1 or Level 2. The carrying amounts reported in the accompanying financial
statements for accounts payable and accrued expenses approximate their respective fair values due to their short-term maturities. The
fair value of the warrant and embedded derivative liabilities are discussed in Note 4, “Fair Value Measurements.”
Property, Office Equipment, and Leasehold Improvements
Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment is provided by
the straight-line method over their estimated useful lives, ranging from three to five years.
Leasehold improvements are amortized on a straight line basis over the useful life of the improvement or the initial lease term,
whichever is shorter. Costs for normal repair and maintenance are charged to expense as incurred.
Impairment of Long-lived Assets
In accordance with ASC 360, Property, Plant, and Equipment, the Company’s policy is to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Through December 31, 2017, no impairment of long-lived assets has occurred.
Deferred Rent
The Company has an operating lease for office and laboratory space. Rent expense is recorded on a straight-line basis over the
initial lease term. The difference between the actual cash paid and the straight-line rent expense is recorded as deferred rent.
Research and Development Costs
Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical trial
activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and
investigative sites. Costs for certain development activities, such
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as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient
enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are
based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial
statements as prepaid or accrued expenses.
Share-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which
requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees and
non-employee directors, including employee stock options. Compensation expense based on the grant date fair value is generally
amortized over the requisite service period of the award on a straight-line basis.
The fair value of options is calculated using the Black-Scholes option pricing model on the date of grant based on key assumptions
such as stock price, risk free interest rates, expected volatility and expected term. The Company’s estimates of these assumptions are
primarily based on historical data, peer company data and judgment regarding future trends and factors.
Income Taxes
The Company uses the asset and liability method to calculate deferred tax assets and liabilities. Deferred taxes are recognized
based on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or
settled. The Company records a valuation allowance against a deferred tax asset when it is more-likely-than-not that the deferred tax
asset will not be realized.
The Company is subject to federal, state and local taxes and follows a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company
recognizes tax benefits or expenses of uncertain tax positions in the year such determination is made when the position is “more likely
than not” to be sustained assuming examination by tax authorities. Management has reviewed the Company’s tax positions for all open
tax years (tax years ended December 31, 2008 through December 31, 2016) and concluded that no provision for unrecognized tax
benefits or expense is required in these financial statements. There are no income tax audits in progress as of December 31, 2017.
Grants
The Company recognizes a receivable and the related reduction in its research and development expenses when the actual
reimbursable costs have been incurred and there is reasonable assurance that the Company has complied with the conditions of the
grants and the amounts will be received. For the year ended December 31, 2017, the Company recognized a reduction to its research and
development expense in the amount of approximately $1.2 million. There were no similar grants recognized for the year ended
December 31, 2016 or 2015. The receivable for grants as of December 31, 2017 was $343,372 and is included in prepaid expenses and
other current assets. The Company has $2,054,290 of approved grant award funding remaining as of December 31, 2017.
Net Loss per Share Applicable to Common Stockholders
Basic net loss per share applicable to common stockholders is calculated by dividing net loss applicable to common stockholders
by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per
share applicable to common stockholders is calculated by
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adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period,
determined using the treasury-stock method. For purposes of the dilutive net loss per share applicable to common stockholders
calculation, stock options and warrant are considered to be common stock equivalents but are excluded from the calculation of diluted
net loss per share applicable to common stockholders, as their effect would be anti-dilutive; therefore, basic and diluted net loss per share
applicable to common stockholders were the same for all periods presented.
Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events
and circumstances from non-owner sources, and currently consists of net loss and changes in unrealized gains and losses on
available-for-sale securities.
Recently Adopted Accounting Pronouncements
In March 2016, the FASB issued Accounting Standards Update, Improvements to Employee Share-Based Payment Accounting
(ASU 2016-09). ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest
or are settled, thus eliminating additional paid-in-capital pools. ASU 2016-09 also changed the threshold to qualify for equity
classification from the minimum tax statutory withholding to the maximum tax statutory withholding in the applicable jurisdictions. In
addition, companies are required to elect whether to account for forfeitures as they occur or to estimate the number of awards expected
to be forfeited and adjust the estimate when it is likely to change, which is the method currently required. The new standard was
effective for the annual reporting period beginning January 1, 2017. The Company adopted this guidance as of January 1, 2017. The
Company has elected to recognize forfeitures of share-based payment awards as they occur. The prior year windfall benefits that were
required to be recognized were not material. These changes were applied on a modified retrospective basis. There was no material
impact and cumulative adjustment to accumulated deficit as of January 1, 2017 as a result of the adoption of this standard.
Recent Accounting Pronouncements Not Yet Adopted
In January 2016, the FASB issued a new Accounting Standards Update, Recognition and Measurement of Financial Assets and
Financial Liabilities (ASU 2016-01). ASU 2016-01 amends the guidance in U.S. GAAP on the classification and measurement of
financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to
(1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for
financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of
financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after
December 15, 2017, with early adoption permitted for certain changes. The Company does not anticipate any impact from the adoption
of ASU 2016-01.
In February 2016, the FASB issued a new Accounting Standards Update, Leases (ASU 2016-02), ASU 2016-02 is aimed at making
leasing activities more transparent and comparable and requires most leases be recognized by lessees on the balance sheets as a
right-of-use asset and corresponding lease liability, regardless of whether they are classified as finance or operating leases. The new
standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting
period, with early adoption permitted. The Company is currently evaluating the impact of the new pronouncement on the Company’s
financial statements and related disclosures. The Company anticipates the adoption of ASU 2016-02 to result in the recognition of
additional assets and corresponding liabilities related to leases on its balance sheet and to not have a material impact on its results of
operations or cash flows.
In June 2016, the FASB issued a new Accounting Standards Update, Financial Instruments-Credit Losses (ASU 2016-13). ASU
2016-13 amends the guidance for measuring and recording credit losses on financial assets
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measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets
will be presented at the net amount expected to be collected. This new standard also requires that credit losses related to
available-for-sale debt securities be recorded through an allowance for such losses rather than reducing the carrying amount under the
current, other-than-temporary-impairment model. The new standard is effective for interim and annual periods beginning after
December 15, 2019. The Company is currently evaluating the impact that this new standard will have on its financial statements and
related disclosures.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments (ASU 2016-15), which amended the existing accounting standards for the statement of
cash flows by providing guidance on eight classification issues related to the statement of cash flows. ASU 2016-15 will be effective in
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and early adoption is permitted. The
amendments should be applied retrospectively to all periods presented. For issues that are impracticable to apply retrospectively, the
amendments may be applied prospectively as of the earliest date practicable. The Company does not expect the adoption of ASU
2016-15 will have a material impact on the financial statements and related disclosures.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash (ASU 2016-18), which amended the existing accounting standards for the statement of cash flows by requiring restricted cash to be
included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. ASU 2016-18 will be effective in fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years, and early adoption is permitted. The amendments should be applied retrospectively to all periods presented.
The Company does not expect the adoption of ASU 2016-18 will have a material impact on the financial statements and related
disclosures.
In May 2017, the FASB issued Accounting Standards Update 2017-09, Compensation – Stock Compensation (Topic 718): Scope of
Modification Accounting (ASU 2017-09). This new standard provides guidance about which changes to the terms or conditions of a
share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 allows for prospective
application and is effective for fiscal years beginning after December 15, 2017, and interim periods therein with early adoption permitted
for interim or annual periods. The Company expects to adopt this guidance effective January 1, 2018. The Company does not expect the
adoption of this guidance to have a significant impact on the Company’s consolidated financial statements.
3. Marketable Securities
Marketable securities at December 31, 2017 consisted of the following:
Marketable Securities
Current:
Corporate debt
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$ 39,933,685
$
—
$ (74,820)
$39,858,864
Marketable securities at December 31, 2016 consisted of the following:
Marketable Securities
Current:
Corporate debt
Amortized Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$ 31,405,836
$
24
$ (51,690)
$31,354,170
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Corporate debt includes obligations issued by investment-grade corporations, and may include issues that have been guaranteed by
governments and government agencies.
The duration periods of available-for-sale debt securities as of December 31, 2017 were as follows:
Duration of one year or less
Duration of more than one year
Total
Amortized Cost
$ 38,213,753
1,719,932
$ 39,933,685
Fair Value
$38,144,760
1,714,104
$39,858,864
At December 31, 2017 and December 31, 2016, the Company held 32 and 29 debt securities, respectively, that individually and in
total were in an immaterial unrealized loss position for less than one year. The aggregate fair value of debt securities in an unrealized
loss position at December 31, 2017 and December 31, 2016 was $39,858,864 and $29,343,892, respectively. The Company evaluated its
securities for other-than-temporary impairment and considered the decline in market value for the securities to be primarily attributable
to current economic and market conditions. It is not more likely than not that the Company will be required to sell the securities prior to
the recovery of the amortized cost basis. Based on this analysis, these marketable securities were not considered to be other-than-
temporarily impaired as of December 31, 2017 and December 31, 2016.
4. Fair Value Measurements
The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2017 and December 31, 2016:
Cash equivalents
Marketable securities
Warrant liabilities
Total
Cash equivalents
Marketable securities
Warrant liabilities
Total
Fair Value Measurement As of December 31, 2017
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
$
5,949,477
39,858,864
—
$ 45,808,341
Significant
Other Observable
Inputs
(Level 2)
$
$
—
—
—
—
Significant
Unobservable
Inputs
(Level 3)
$
—
—
13,549,437
$13,549,437
Fair Value Measurement As of December 31, 2016
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
$
3,411,058
31,354,170
—
$ 34,765,228
Significant
Other Observable
Inputs
(Level 2)
$
$
—
—
—
—
Significant
Unobservable
Inputs
(Level 3)
$
—
—
12,698,980
$12,698,980
The Company issued a warrant to the representative of the underwriter of its initial public offering (the “Representative’s
Warrant”). The Company determined that this warrant should be classified as a liability and considers it as a Level 3 financial instrument
(see also Note 9, “Capital Structure”). The Representative’s Warrant will be re-measured at each subsequent reporting period and
changes in fair value will be recognized in
F-15
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the consolidated statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine
the fair value of the warrant liability:
Expected volatility
Remaining contractual term (in years)
Risk-free interest rate
Expected dividend yield
As of
December 31, 2017
As of
December 31, 2016
88.1%
1.67
1.89%
— %
73.9%
2.67
1.47%
— %
The Company issued warrants to the purchasers of its 2016 Offering (the “2016 Warrants”). The Company determined that these
warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 9, “Capital Structure”). The
2016 Warrants will be re-measured at each subsequent reporting period and changes in fair value will be recognized in the consolidated
statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the
warrant liability:
Expected volatility
Remaining contractual term (in years)
Risk-free interest rate
Expected dividend yield
As of
December 31, 2017
As of
December 31, 2016
80.3%
3.58
2.09%
— %
79.9%
4.58
1.93%
— %
The Company issued warrants to the purchasers of its 2017 Offering (the “2017 Warrants”). The Company determined that these
warrants should be classified as a liability and considered as a Level 3 financial instrument (see also Note 9, “Capital Structure”). The
2017 Warrants will be re-measured at each subsequent reporting period and changes in fair value will be recognized in the consolidated
statement of operations. The following assumptions were used in a Black-Scholes option-pricing model to determine the fair value of the
warrant liability:
Expected volatility
Remaining contractual term (in years)
Risk-free interest rate
Expected dividend yield
As of
December 31, 2017
At Issuance on
July 25, 2017
81.5%
4.58
2.20%
— %
82.0%
5.00
1.90%
— %
The following tables present a reconciliation of the Company’s financial liabilities measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) for the years ended December 31, 2017, 2016 and 2015:
Warrant liabilities
Balance at beginning of period
Issuance of 2017 Warrants
Issuance of 2016 Warrants
Change in fair value
Balance at end of period
Year Ended December 31,
2017
$ 12,698,980
12,383,435
—
(11,532,978)
$ 13,549,437
$
2016
444,324
—
18,601,228
(6,346,572)
$12,698,980
2015
$313,004
—
—
131,320
$444,324
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The key inputs into the Black-Scholes option pricing model are the per share value and the expected volatility of the Company’s
common stock. Significant changes in these inputs will directly increase or decrease the estimated fair value of the Company’s warrant
liability.
5. Property, Equipment, and Leasehold Improvements
Property, equipment, and leasehold improvements, at cost, consisted of:
Computer equipment
Furniture
Lab equipment
Leasehold improvements
Less: accumulated depreciation and amortization
December 31,
2017
$
19,691
434,697
1,710,881
1,855,004
4,020,273
(2,926,370)
$1,093,903
2016
$
19,691
434,697
1,710,881
1,855,004
4,020,273
(2,739,121)
$1,281,152
Depreciation expense was $187,249, $451,008 and $537,344 for the years ended December 31, 2017, 2016 and 2015, respectively.
6. Accrued Expenses
Accrued expenses consisted of the following:
Accrued compensation costs
Accrued research and development service fees
Accrued facilities operation expenses
Accrued professional fees
Accrued licensing fees
Other accrued expenses
December 31,
2017
$2,107,118
578,562
221,103
168,168
—
43,286
$3,118,237
2016
$1,597,414
504,193
236,296
299,912
180,000
50,537
$2,868,352
7. Net Loss Per Share of Common Stock
Diluted loss per share is the same as basic loss per share for all periods presented because the effects of potentially dilutive items
were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss available to common stockholders
by the weighted-average number of common shares outstanding.
The following table sets forth the computation of basic and diluted loss per share for common stockholders:
Net loss applicable to common stockholders
Weighted average shares of common stock
outstanding
Net loss per share of common stock—basic and
diluted
2017
Year Ended December 31,
2016
$(15,517,658)
$(28,538,399)
2015
$(25,120,964)
55,595,732
33,539,465
23,328,922
$
(0.28)
$
(0.85)
$
(1.08)
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The following potentially dilutive securities outstanding at December 31, 2017, 2016 and 2015 have been excluded from the
computation of diluted weighted average shares outstanding, as they would have been antidilutive given the Company’s net loss:
Options to purchase common stock
Warrants to purchase common stock
8. Commitments and Contingencies
Operating Leases
2017
6,200,151
36,270,103
42,470,254
December 31,
2016
4,691,746
27,214,775
31,906,521
2015
4,313,755
13,503,107
17,816,862
In December 2010, the Company entered into a non-cancellable operating lease for office space and laboratory facilities in
Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the terms
of the lease through December 2027. The lease provides for the option to renew for two additional five-year terms. The premises were
occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.
In January 2012, the Company entered into a non-cancellable operating lease for additional office space and laboratory facilities in
the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for
an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space
under the Fourth Floor Lease and was relieved of its obligations related to such space. Monthly rental payments were adjusted and
together with the Third Floor Lease, future minimum lease payments are as follows:
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
Amount
$ 640,514
653,324
666,391
679,719
693,313
3,680,190
$7,013,451
Rent expense is recognized on the straight-line method over the terms of each lease. Rent expense for the years ended
December 31, 2017, 2016 and 2015, was approximately $587,000, $880,000 and $873,000, respectively.
Rockefeller University
License Agreements
The Company has entered into the following license agreements with The Rockefeller University:
•
On July 12, 2011, the Company entered into a license agreement for the worldwide, exclusive right to a patent covering the
composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the
“CF-301 License”). The Company rebranded PlySS2 as CF-301. The license gives the Company the right to exclusively
develop, make, have made, use, import, lease, sell and offer for sale products that would otherwise infringe a claim of this
patent application or patent.
F-18
Table of Contents
•
On June 1, 2011, the Company entered into a license agreement for the exclusive rights to The Rockefeller University’s interest
in a joint patent application covering the method of delivering antibodies through the cell wall of gram-positive bacteria to the
periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between the
Company and The Rockefeller University, and was jointly discovered and filed by the two parties.
•
On September 23, 2010, the Company entered into a license agreement for the worldwide, exclusive right to develop, make,
have made, use, import, lease, sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and
patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of
diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B Streptococci, Staphylococcus
aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium.
In consideration for the licenses, we paid Rockefeller license initiation fees in cash and stock and are required to pay annual
maintenance fees of $170,000 in 2018 and $200,000 each year thereafter, milestone payments and royalties of up to 5% on net sales
from products to Rockefeller. We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions
and the payment of a certain percentage of all payments we receive from sublicensees.
Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license
agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. The Rockefeller
University may terminate any license agreement in the event of a breach of such agreement by the Company or if the Company
challenges the validity or enforceability of the underlying patent rights. The Company may terminate any license agreement at any time
on 60 days’ notice.
Collaborative Research Agreements
Beginning in October 2009, we entered into a research agreement with Rockefeller where we provided funding for the research.
The initial agreement focused on producing and testing monoclonal antibodies against proteins of Staph aureus. On October 24, 2011,
we entered into a second research agreement with Rockefeller where we provide funding for the research, to identify lysins, enzymes or
small molecules that will kill gram-negative bacteria, and identify and characterize lysins from Clostridia difficile to be engineered into
gut commensal bacteria. On October 25, 2016, we entered into a third research agreement with Rockefeller, where we provide funding
for the identification of novel lysin therapeutic candidates which target gram-negative pathogens. The research collaboration will focus
on gram-negative pathogens such as P. aeruginosa, E. coli, and K. pneumoniae, including antibiotic-resistant strains.
Our current agreement runs through October 24, 2019 for which we will provide funding of $493,187 in 2018 and $249,749 in
2019. Either party may terminate the agreement upon breach of the agreement, following 30 days written notice and failure to cure such
breach. Following the expiration or termination of the agreement, each party will have a non-exclusive license to use for internal
research purposes all research results, including joint intellectual property. If Rockefeller or joint intellectual property develops from
these programs, we will have the right-of-first refusal to negotiate to acquire a royalty-bearing license to utilize such intellectual property
for commercial purposes.
Trellis Biosciences, LLC
On January 29, 2014, the Company entered into a license agreement with Trellis Biosciences, LLC (“Trellis”) that gives it
exclusive rights to all Trellis mAbs in the field of influenza discovered from the Trellis CellSpot platform. Particularly, the license
provides the Company with three fully human mAbs that bind, neutralize and protect animals from all strains of H1, H3 and B influenza,
and that will also cross bind, neutralize and protect animals from all other seasonal or pandemic influenza strains that may arise
(including H5N1 and H7N9).
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The Company will also be required to make payments to Trellis upon the achievement of specified development and regulatory
milestones and upon the achievement of future sales and for royalty on future net sales from products of up to 4%. The Company is
allowed to grant sublicenses to third parties. The license agreement terminates upon the earlier of (i) the Company’s decision to
terminate the agreement at will or for safety reasons, (ii) material breach by either party that is not cured within ninety (90) days, or
(iii) either party’s insolvency.
Separation Agreement
On December 12, 2017, the Company notified Lisa R. Ricciardi that she would no longer be needed to serve as Chief Operating
Officer of the Company effective December 31, 2017. Subject to Ms. Ricciardi entering into a separation agreement, the Company
accrued expense of $0.7 million for the severance payments and continued medical, dental and vision coverage under the Company’s
group healthcare plans, to be provided for a period of 18 months following the effective date of Ms. Ricciardi’s termination, and
recognized share-based compensation expense of $0.2 million for the accelerated vesting of all unvested portions of Ms. Ricciardi’s
stock option grants. The total amount of these charges was recognized as part of general and administrative expenses in the consolidated
statement of operations. Ms. Ricciardi currently remains a member of the Company’s board of directors.
Legal Contingencies
From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These
proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company records a
liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably
estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss
provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the
Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not
misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial
statements. The Company currently has no legal proceedings ongoing that management estimates could have a material effect on the
Company’s financial statements.
9. Capital Structure
Common Stock
As of December 31, 2017, the Company was authorized to issue 200,000,000 shares of common stock at $0.0001 par value per
share.
Follow-on Offerings
On July 25, 2017, the Company sold 32,000,000 shares of its common stock and warrants to purchase an additional 16,000,000
shares of its common stock in an underwritten follow-on offering for gross proceeds of $40.0 million. The Company received net
proceeds of approximately $37.1 million after underwriting discounts, commissions and offering expenses payable by the Company.
On July 27, 2016, the Company sold 14,000,000 shares of its common stock and warrants to purchase an additional 14,000,000
shares of its common stock in an underwritten Follow-on Offering for gross proceeds of $35.0 million. The Company received net
proceeds of approximately $32.0 million after underwriting discounts, commissions and offering expenses payable by the Company.
The Company issued warrants in both follow-on offerings. The 2017 Warrants have an exercise price of $1.55 per share and expire
five years from the date of issuance. The 2016 Warrants have an exercise price of
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$3.00 per share and expire five years from the date of issuance. The 2017 Warrants and 2016 Warrants contain a fundamental transaction
provision that obligates the Company to cash settle the warrants under a limited set of conditions not entirely within the Company’s
control. Due to this conditional obligation, the Company determined that both the 2017 Warrants and the 2016 Warrants should be
classified as liabilities in the Company’s consolidated balance sheet. At issuance, the Company determined the fair value of the 2017
Warrants and 2016 Warrants to be $12.4 million and $18.6 million, respectively, and reclassified these balances from stockholders’
equity to warrant liability. The fair value of these warrants is re-measured at each reporting period and changes in fair value are
recognized in the consolidated statement of operations (see Note 4, “Fair Value Measurements”). Additionally, the Company allocated
approximately $0.9 million and $1.6 million of issuance costs to the 2017 Warrants and 2016 Warrants, respectively, based on the
proportion of the proceeds allocated to the fair value of the warrants. The allocated issuance costs were expensed as other expense in the
Company’s consolidated statement of operations.
Private Placement
On June 12, 2015, the Company closed a private placement of its securities with a group of institutional investors (the “PIPE”).
Each investor received one share of common stock and a warrant to purchase one-half share of common stock at a price of $4.23 per
common share purchased. The closing of the PIPE resulted in the issuance of an aggregate of 4,728,128 common shares and warrants to
purchase an additional 2,364,066 shares of common stock at an exercise price of $8.00 per full share, which expire three years form the
date of issuance (the “PIPE Warrants”). The Company received net proceeds from the PIPE of $18.3 million, after deducting expenses
payable by the Company.
The placement agents in the PIPE received warrants to purchase 4% of the total number of shares of common stock sold in the
PIPE (the “Placement Agent Warrants”), for a total of 189,126 shares of common stock underlying the Placement Agent Warrants. The
Placement Warrants became exercisable upon issuance at an exercise price of $4.65 per share and expire on June 11, 2020.
The common stock and accompanying PIPE Warrants and Placement Agent Warrants have been classified to stockholders’ equity
in the Company’s balance sheet.
Initial Public Offering
In July 2014, the shareholders approved an amended certificate of incorporation that became effectively immediately upon the
closing of the Company’s initial public offering (“IPO”). The approved certificate increased the number of authorized shares of
common stock to 100,000,000 shares. On August 1, 2014, the Company closed its IPO. Each Unit consisted of one share of common
stock, one Class A Warrant to purchase one share of common stock at an exercise price of $4.80 per share and one Class B Warrant to
purchase one-half share of common stock at an exercise price of $4.00 per full share. The closing of the IPO resulted in the sale of an
aggregate of 6,880,333 Units at a public offering price of $6.00 per Unit, less underwriting discounts and commissions and the
underwriter’s expenses, including 880,333 Units issued upon the exercise by the underwriters of their option to purchase additional
Units at the public offering price to cover over-allotments of the Company. The Company received net proceeds from the IPO of
$35.0 million, after deducting underwriting discounts, commissions, and expenses payable by the Company. Following the IPO, the
units separated and the shares of common stock, Class A Warrants and Class B Warrants began to trade separately. The common stock
and accompanying Class A and Class B warrants were classified to stockholders’ equity in the Company’s balance sheet.
On November 2, 2015, the Company’s Class B Warrants to purchase common stock expired in accordance with their terms. As of
November 2, 2015, holders of the Class B Warrants had exercised 4,812,328 Class B Warrants, resulting in the issuance of 2,406,164
shares of the Company’s common stock and the receipt by the Company of approximately $9.6 million in gross proceeds. The 2,068,005
Class B Warrants that were not exercised prior to expiration have terminated and are no longer exercisable.
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Table of Contents
Representative’s Warrant
The Maxim Group, LLC, the representative of the underwriters in the IPO, received the Representative’s Warrant to purchase 3%
of the total number of shares of common stock sold in the IPO, including those shares sold upon the exercise of the over-allotment, for a
total of 206,410 shares of common stock underlying the Representative’s Warrant. The Representative’s Warrant became exercisable at
an exercise price of $7.50 per share beginning 180 days after the effective date of the Company’s registration statement (January 24,
2015) and expires on August 27, 2019. The Company classified the Representative’s Warrant as a liability since it did not meet the
requirements to be included in equity. The fair value of the Representative’s Warrant will be re-measured at each reporting period and
changes in fair value will be recognized in the statement of operations (see Note 3, “Fair Value Measurements”).
Convertible Notes
The Company issued approximately $15.0 million aggregate principal amount of its 8.00% Convertible Notes due May 31, 2015
(the “Convertible Notes”) from June 2013 through June 2014. On August 1, 2014, in conjunction with the closing of the Company’s
IPO, the principal amount of the Convertible Notes, and all accrued and unpaid interest thereon, automatically converted into 5,109,988
shares of common stock. Each purchaser of the Convertible Notes also received a warrant which included an exercise price “cap” that
was analogous to “down round protection” (the “Note Warrants”). Upon the closing of the IPO and based on the terms of the Note
Warrants, the Company determined the total number of shares of the Company’s common stock underlying the Note Warrants to be
3,321,416 at an exercise price of $3.00 per share. There were 3,315,878 shares of common stock underlying the outstanding Note
Warrants as of December 31, 2017 and 2016. The Note Warrants expire five years from the date of issuance.
Sales Agreement
In January 2016, the Company entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”) to sell shares of the
Company’s common stock, with aggregate gross sales proceeds of up to $30 million, through an “at the market” equity offering program
under which Cowen was to act as sales agent. On July 21, 2016, the Company terminated the Sales Agreement. The Company did not
sell any shares under the program.
Voting
The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders
and written actions in lieu of meetings.
Dividends
The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors. As of
December 31, 2017, no dividends have been declared or paid on the Company’s common stock since inception.
Reserved for Future Issuance
The Company has reserved for future issuance the following number of shares of common stock as of December 31, 2017 and
2016:
Options to purchase common stock
Warrants to purchase common stock
F-22
December 31,
2017
6,200,151
36,270,103
42,470,254
2016
4,691,746
27,214,775
31,906,521
Table of Contents
10. Stock Warrants
As of December 31, 2017 and 2016, the Company had warrants outstanding as shown in the table below.
Note Warrants
Class A Warrants (1)
PIPE Warrants
2017 Warrants
2016 Warrants
Representative’s Warrant
Placement Agent Warrants
Other warrants (2)
Warrants to purchase common stock
Weighted-average exercise price per share
December 31,
2017
3,315,878
—
2,364,066
16,000,000
14,000,000
206,410
189,126
194,623
36,270,103
2.74
$
2016
3,315,878
6,880,333
2,364,066
—
14,000,000
206,410
189,126
258,962
27,214,775
3.97
$
(1) On February 1, 2017, the Class A Warrants to purchase common stock expired in accordance with their terms. As none of the
Class A Warrants were exercised prior to expiration, the Class A Warrants have been terminated and are no longer exercisable.
(2) Other warrants are comprised of warrants issued prior to the Company’s IPO, generally in exchange for services rendered to the
Company.
The following table summarizes information regarding the Company’s warrants outstanding and the corresponding exercise price
at December 31, 2017:
Exercise Prices
£ $2.00
$2.01 - $4.99
$5.00 - $7.99
³ $8.00
Shares
Underlying
Outstanding
Warrants
16,005,714
17,606,105
231,409
2,426,875
36,270,103
Expiration Date
September 1, 2021 – July 25, 2022
June 18, 2018 – July 27, 2021
April 30, 2018 – July 22, 2019
June 11, 2018 – January 5, 2022
11. Stock Option and Incentive Plans
Amended and Restated 2008 Equity Incentive Plan
In July 2008, the Company adopted the 2008 Equity Incentive Plan (the “Plan”). On February 26, 2013, the board of directors
approved an amended and restated plan (the “Amended Plan”) to increase the number of shares of common stock available under the
Amended Plan to 1,571,428 and, for new awards, to reduce the period that vested awards would remain exercisable upon termination of
service from ten years to two years. The board of directors also approved an option exchange offer (the “Exchange Offer”) for eligible
option holders with outstanding options with an exercise price in excess of $3.50 per share. The offering period for the Exchange Offer
commenced on March 11, 2013 and expired on April 9, 2013. Participation in the Exchange Offer was voluntary. Options to purchase
647,521 shares of the Company’s common stock, held by a total of 26 participants, including 20 employees, were exchanged under the
tender offer. The exchanged option grants were granted at an exercise price of $3.50 per share. The Company recorded expense
associated with the modification with an immediate charge for the vested portion of option grants exchanged and additional charges as
the remaining unvested portions become vested. The board of directors also increased the number of shares of
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common stock available under the Company’s Amended Plan on February 24, 2014 and April 29, 2014 to 1,857,142 and 2,357,142,
respectively. As of the closing of the Company’s IPO, there will be no further grants made under the Amended Plan.
2014 Omnibus Incentive Plan
In April 2014, the Company’s board of directors adopted the 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan was
approved by the Company’s shareholders on July 3, 2014. The 2014 Plan allows for the granting of incentive and non-qualified stock
options, restricted stock and stock unit awards, stock appreciation rights and other performance-based awards to the Company’s
employees, members of the board of directors and consultants of the Company. On July 28, 2014, the effective date of the 2014 Plan,
the number of shares of common stock reserved pursuant to the 2014 Plan was 571,429. The 2014 Plan provides for an annual increase,
to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2015 and continuing until the
expiration of the 2014 Plan, equal to the lesser of (i) 4% of the outstanding shares of common stock on December 31 immediately
preceding such date or (ii) a lesser amount determined by the Company’s board of directors. Consistent with the provision for an annual
increase, an additional 3,574,237 shares of common stock have been reserved under the 2014 Plan as of December 31, 2017.
The Company recognizes compensation expense for share-based compensation based on the fair value of the underlying
instrument. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. A
summary of stock option activity for the year ended December 31, 2017, is summarized as follows:
Options outstanding at December 31, 2016
Granted
Exercised
Expired
Forfeited
Options outstanding at December 31, 2017
Vested and exercisable at December 31, 2017
Number of
Options
4,691,746
1,770,000
—
(162,633)
(98,962)
6,200,151
4,663,733
Weighted
Average
Exercise Price
4.62
$
1.62
—
4.35
2.29
3.81
4.23
$
$
Weighted
Average Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
5.96
5.12
$
$
150
38
Of the option grants outstanding to purchase 6,200,151 shares of common stock, grants to purchase 657,156 shares of common
stock were issued and are outstanding outside the Company’s incentive plans.
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. The
weighted average grant date fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was $1.62, $3.25
and $4.64, respectively. Total compensation expense recognized amounted to $1,623,128, $2,231,883 and $1,929,112 for the years
ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the total remaining unrecognized compensation cost
related to unvested stock options was $1,973,756 which will be recognized over a weighted average period of approximately 2.36 years.
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Table of Contents
The following weighted average assumptions were used to compute the fair value of stock option grants:
Risk free interest rate
Expected dividend yield
Expected term (in years)
Expected volatility
Year Ended December 31,
2016
1.22%
—
5.01
79.5%
2017
2.07%
—
6.01
79.6%
2015
1.62%
—
5.75
74.4%
Expected volatility—The Company estimated the expected volatility based on an average of the volatility of similar companies with
publicly-traded equity securities. The companies were selected based on their enterprise value, risk profiles, position within the industry,
and with historical information sufficient to meet the expected term of the associated award.
Expected term—The Company based expected term on the midpoint of the vesting period and the contractual term of each
respective option grant.
Risk-free interest rate—The Company estimated the risk-free interest rate in reference to yield on U.S. Treasury securities with a
maturity date commensurate with the expected term of the associated award.
Expected dividend yield—The Company estimated the expected dividend yield based on consideration of its historical dividend
experience and future dividend expectations. The Company has not historically declared or paid dividends to common stockholders.
Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in its continued growth.
12. 401k Savings Plan
In 2010, the Company established a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code (the
401(k) Plan). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to
defer a portion of their annual compensation on a pre-tax basis. During 2015, the Company established an employer matching program
for participants in the 401(k) Plan. The Company incurred approximately $100,000, $124,000 and $88,000 of expense for matching
contributions to the 401(k) Plan during the years ended December 31, 2017, 2016 and 2015, respectively.
13. Income Taxes
The Company has available approximately $145,676,000 and $156,023,000 of unused operating loss carryforwards for federal and
state tax purposes, respectively, that may be applied against future taxable income. The net operating loss carryforwards will expire
through the year 2037 if not utilized prior to that date. The Company has evaluated the positive and negative evidence bearing upon the
realizability of its net deferred tax assets. Based on the Company’s history of operating losses since inception, the Company has
concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, no provision for a
deferred tax asset has been made for the tax benefits of the net operating loss carryforwards as the entire amount is offset by a valuation
allowance. The valuation allowance decreased by approximately $7,797,000 and increased by approximately $12,846,000 during the
years 2017 and 2016, respectively, and was approximately $45,146,000 and $52,943,000 at December 31, 2017 and 2016, respectively.
The Internal Revenue Code of 1986, as amended (the Code) provides for a limitation of the annual use of net operating losses and
other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the
Code) that could limit the Company’s ability to utilize these carryforwards. At this time, the Company has not completed a study to
assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership
changes since the
F-25
Table of Contents
Company’s formation, due to the costs and complexities associated with such a study. The Company may have experienced various
ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, the Company’s ability to utilize the
aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be
applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state
income tax purposes.
The Company’s reserves related to taxes are based on a determination of whether and how much of a tax benefit taken by the
Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present
related to the tax benefit. For the three years ended December 31, 2017, the Company had no unrecognized tax benefits or related
interest and penalties accrued. The Company has not, as yet, conducted a study of research and development (R&D) credit
carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforwards; however, until a study is completed
and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been
provided against the Company’s R&D credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the
valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The
Company would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company’s
uncertain tax positions are related to years that remain subject to examination by relevant tax authorities. Since the Company is in a loss
carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all
tax years in which a loss carryforward is available.
On December 22, 2017, the Tax Cuts and Jobs Act” (the “2017 Tax Act”) was enacted. The 2017 Tax Act lowered the U.S. federal
corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the change in the U.S. federal tax rate required the
Company to re-measure its federal deferred tax assets and liabilities. Effective for tax years beginning on January 1, 2018, the 2017 Tax
Act repealed the performance exception permitting certain executive officer compensation greater than $1 million to be deducted.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which also provides guidance on
accounting for the impacts of the 2017 Tax Act. SAB 118 provides a measurement period of up to one year from enactment for a
company to complete its tax accounting under ASC 740. Once a company is able to make a reasonable estimate and record a provisional
amount for effects of the 2017 Tax Act, it is required to do so. Given the substantial uncertainties surrounding the Tax Act and the short
period of time between December 22, 2017 and December 31, 2017 to calculate the impacts of the 2017 Tax Act, the Company is
accounting for its impact on a provisional (estimated) basis as allowed by SAB 118. Such provisional measurement amounts are
anticipated to change as remaining analysis and review are completed, until the Company records a final amount within the
measurement period.
During the fourth quarter of 2017, the Company reduced its net deferred tax asset balance and offsetting valuation allowance by
$18,284,538 as a provisional amount for the re-measurement of its U.S. deferred tax balances. This amount represents the Company’s
reasonable estimate of the impact from the 2017 Tax Act.
F-26
Table of Contents
The principal components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets/liabilities:
Net operating loss carryovers
Share-based compensation
R&D tax credits
Accrued compensation and severance
Depreciation
Deferred rent
Intangible assets
Valuation allowance
Net deferred tax assets (liabilities)
December 31,
2017
2016
$ 40,879,826
1,702,036
1,750,785
659,458
(201,288)
200,968
154,669
45,146,454
(45,146,454)
—
$
$ 47,860,522
2,168,126
1,783,716
902,688
(386,758)
392,715
221,783
52,942,793
(52,942,793)
—
$
A reconciliation of the statutory U.S. Federal rate to the company’s effective tax rate is as follows:
Federal income tax benefit at statutory rate
State income tax, net of federal benefit
Permanent items including change in fair value of
warrants
Change in valuation allowance
R&D tax credits
Deferred re-measurement
Other
Year Ended December 31,
2017
(34.00)%
(9.95)
2016
(34.00)%
(5.49)
2015
(34.00)%
(5.49)
(22.03)
(50.33)
(3.02)
118.03
(1.30)
(1.54)
42.12
(1.03)
—
(0.06)
1.99
39.70
(0.99)
—
(1.21)
0%
Effective income tax (benefit) expense rate
0%
0%
14. Selected Quarterly Financial Data (Unaudited)
The following tables show a summary of the Company’s unaudited quarterly financial data for each of the four quarters of 2017
and 2016:
Loss from operations
Net loss
Net loss per share of common stock, basic and
diluted
Loss from operations
Net income (loss)
Net income (loss) per share of common stock,
basic and diluted
2017
1st Quarter
$(6,345,013)
$(6,348,164)
2nd Quarter
$(6,079,121)
$(2,836,887)
3rd Quarter
$(6,735,188)
$(1,575,098)
4th Quarter
$(7,404,435)
$(4,757,509)
$
(0.15)
$
(0.07)
$
(0.02)
$
(0.06)
2016
1st Quarter
$(9,154,803)
$(8,923,162)
2nd Quarter
$(9,777,796)
$(9,679,022)
3rd Quarter
$ (7,891,510)
$(10,530,584)
4th Quarter
$(6,708,137)
594,369
$
$
(0.32)
$
(0.35)
$
(0.28)
$
0.01
F-27
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CONTRAFECT CORPORATION
By: /s/ Steven C. Gilman, Ph.D.
Steven C. Gilman, Ph.D.
President and Chief 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
Title
Date
/s/ Steven C. Gilman, Ph.D.
Steven C. Gilman, Ph.D.
/s/ Michael Messinger
Michael Messinger
/s/ Sol J. Barer, Ph.D.
Sol J. Barer, Ph.D.
/s/ Isaac Blech
Isaac Blech
/s/ David N. Low, Jr.
David N. Low, Jr.
/s/ Michael J. Otto, Ph.D.
Michael J. Otto, Ph.D.
President and Chief Executive Officer,
Chairman of the Board
(Principal Executive Officer)
March 15, 2018
Senior Vice President, Finance and
Chief Accounting Officer
(Principal Financial Officer and Principal
Accounting Officer)
March 15, 2018
Lead Independent Director
March 15, 2018
Director
March 15, 2018
Director
March 15, 2018
Director
March 15, 2018
/s/ Roger J. Pomerantz, M.D., F.A.C.P.
Roger J. Pomerantz, M.D., F.A.C.P.
Vice Chairman of the Board
March 15, 2018
/s/ Lisa R. Ricciardi
Lisa R. Ricciardi
/s/ Cary W. Sucoff
Cary W. Sucoff
Director
March 15, 2018
Director
March 15, 2018
EMPLOYMENT AGREEMENT
Exhibit 10.22
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into on July 19, 2010 (the “Effective Date”) by and
between Nancy Dong M.S.., residing at 52 Young Avenue (the “Employee”), and ContraFect Corporation, a Delaware corporation with
offices at 469 Seventh Avenue, 3rd Floor, New York, New York 10018 (the “Company”).
WHEREAS, the Company desires the Employee to serve as an Employee of the Company with the title and duties of it Vice
President (VP) of Finance & Administration and the Employee desires to serve in such capacities;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants contained herein, the parties agree as follows:
1.
2.
3.
Engagement. The Company hereby agrees to engage the Employee as its VP of Finance & Administration, and the Employee
hereby accepts such employment. Employee agrees to report to Company at a mutually agreed date prior to July 20, 2010.
Term. The term of this Agreement will begin on the Effective Date and continue for three years (the “Term”), subject to earlier
termination as provided herein. Thereafter, if this Agreement is not earlier terminated, this Agreement and the Employee’s service
will be automatically renewed for successive one-year terms until terminated by either party in accordance with Section 12 below.
Duties. As VP of Finance & Administration, Employee shall have responsibility for directing and managing the Financial and
Administrative affairs of the Company. This includes preparation and monitoring of the budget, banking relations, financing
responsibilities, maintenance of activities related to the Board of Directors, Human Resources and general Administrative
functions. Employee shall report to the CEO.
4. Monetary Compensation. Upon the Effective Date of this Agreement the Employee shall be paid a salary at the annual rate of one
hundred seventy-five dollars ($175,000.00).
5.
6.
Ownership. The Employee shall receive on the Effective Date a stock option grant of one hundred and ten thousand (110,000)
options from the Company’s Stock Option Plan. These options shall have a ten-year life, vest pro rata over three (3) years and
have a trigger price of $ 0.50.
Registration of Shares and Options. The Company will include the shares purchased by the Employee and his stock options and
the underlying warrants and the options of the Company in the initial registration statement it files under the Securities Act of
1933, as amended if and when it files, subject to approval by the underwriter and such lock-up period that the underwriter
requires.
1
7.
Incentive Bonus.
a.
The Company will award an annual incentive bonus to the Employee. Such incentive bonus shall be based upon criteria
mutually agreed upon by the Board and the Employee in the first thirty (30) days of each year of the Term. If the bonus
criteria are met, the incentive bonus shall be paid to the Employee within thirty (30) days after the completion of the
Company’s financial audit for such year. If all criteria are met, the bonus shall not be less than fifteen percent (15%) of
salary in the same year. Such bonus shall be paid 50% in cash and 50% in equity securities of the Company as determined
by the Board.
Expenses. The Company will reimburse the Employee for travel and other expenses incurred by him in connection with his
services, such reimbursement to be in accordance with policies adopted by the Board for senior executives.
Benefits. During the Term of this contract, the Company shall include the Employee, his wife, and his dependent child in its
program for standard health insurance as determined by the Board for senior executives.
Indemnification. The Company agrees to hold harmless and indemnify the Employee to the fullest extent permitted by law and
will hold the Employee harmless from and against any claim, liability or expense incurred by the Employee in connection with
his relationship to the Company, consistent with the provisions of the Company’s certificate of incorporation and By-Laws and
all in accordance with Delaware law and with policies adopted by the Board. The Employee shall not be indemnified in respect of
any matter in which he is determined to have committed gross negligence. This obligation will include, where permitted in
accordance with the foregoing, prompt payment in advance of any and all costs of defending the same, including payment of
reasonable attorney’s fees and expenses.
8.
9.
10.
11. Early Termination. This Agreement will terminate prior to expiration of the Initial Term or any successive term upon any of the
following:
a.
b.
Death. The Employee’s employment shall terminate upon his death, and the Company shall pay to the Employee’s
executor or trustee his salary, stock options accrued vacation and bonuses for the pay period, up to and including, his date
of death.
Permanent Disability. The Company may terminate the Employee’s service hereunder upon his Permanent Disability. For
purposes of this Agreement, Permanent Disability means an illness or mental condition continuing for at least a period of
six (6) consecutive months arising at any time during the Term, unless with reasonable accommodation the Employee
could perform the essential functions of his position and making such accommodation would not result in an undue
hardship to the Company.
2
c.
d.
e.
Termination for Cause. The Company may terminate the Employee’s service hereunder for Cause or the Employee may
resign without Good Reason (as defined in section (d) below). For purposes of this Agreement, the term “Cause” means
(i) Employee’s willful failure to follow reasonable instructions of the CEO or the Board to perform duties in accordance
with this Agreement, (ii) conviction of the Employee for a felony, or (iii) the Employee’s breach of any non-competition
and confidentiality agreements with the Company. If the Employee’s service is terminated for Cause, the Company will
pay to the Employee the Base Salary accrued through the date of termination, together with all accrued but unreimbursed
expenses, whereupon the Company will have no further obligations to the Employee under this Agreement.
Termination by the Employee for Good Reason or by the Company without Cause . The Employee may terminate his
service hereunder for Good Reason or the Company may terminate his service hereunder without Cause. For all purposes
of this Agreement, the term “Good Reason” means, unless in each case the Employee has given his prior written consent
thereto, (i) the Company substantially reducing the Employee’s duties, position, authority or responsibility hereunder and
not reinstating the same within thirty calendar days after written notice from the Employee, (ii) material breach by the
Company of its obligations under Sections 1 through 10 hereof if not remedied within thirty calendar days after written
notice from the Employee, (iii) reduction of the Employee’s compensation as set by the Company for the preceding year,
unless such reduction in compensation is required for all senior officers of the Company for budgetary reasons. If
termination by the Employee for Good Reason or by the Company without Cause occurs, the Company will pay to the
Employee (i) salary plus incentive bonuses and health care for 18 months, and (ii) all accrued but unreimbursed expenses
incurred by the Employee through the date of such termination. Upon the full payment and transfer of assets listed above,
the Company shall have no further obligations to the Employee under this Agreement.
Termination Obligations. The Employee hereby acknowledges and agrees that all personal property and equipment
furnished to or prepared by the Employee in the course of or incident to his service by the Company, belongs to the
Company and will be promptly returned to the Company upon termination of this Agreement. “Personal property”
includes, without limitation, business plans, marketing plans, all books, manuals, records, reports, notes, contract, lists,
blueprints, and other documents, or materials, or copies thereof (including all computer files), and all other proprietary
information belonging, or relating to the business of the Company or any affiliate. Following termination, the Employee
will not retain any written or other tangible materials containing any proprietary information of the Company or any
affiliate.
3
i.
ii.
Upon termination of this Agreement, unless extended annually as indicated in Section 2, the Employee will be
deemed to have resigned from all offices and similar positions then held with the Company.
The representations and warranties contained herein and the Employee’s obligations under Section 12 below will
survive termination of this Agreement. Any provision hereof required to give meaning and effect to such surviving
provisions will also survive the termination of this Agreement.
12. Restrictive Covenants.
a.
b.
Confidential Information. The Employee acknowledges that, during the course of his service with the Company, he will
have access to Confidential Information and materials not generally known outside the Company. For all purposes of this
Agreement, “Confidential Information” means all information and materials (whether conceived or developed by the
Employee or others), marketing and other business plans, customers and customer information, data strategies, research,
reports, copyrights and patents related to the Company. During the Term of this Agreement, the Employee shall not,
without prior consent of the Company, communicate or divulge any Confidential Information or materials to anyone
other than the Company and its partners or affiliates and those designated by it unless required by law. The Employee
acknowledges that Confidential Information is and shall remain the property of the Company. The confidentiality
obligations hereunder shall not apply to Confidential Information which: (i) is, or later becomes, public knowledge other
than by breach of this Agreement; or (ii) is in the possession of the Employee with the full right to disclose prior to its
receipt from the Company, as evidenced by written records; or (iii) is independently received by the Employee from a
third party, with no restrictions of disclosure. Furthermore, the Employee agrees not to use, without the Company’s
approval Confidential Information for any purposes other than to perform duties for the Company hereunder. The
Employee shall also execute the Company’s standard Confidentiality Agreement.
Ownership of Copyrights and Patents and Intellectual Property. The Employee agrees that any work prepared for the
Company from the date of this Agreement forward, which is eligible for copyright and patent protection under the laws
of the United States or any other country and any proprietary know how developed by the Employee while rendering
services for the Company, will vest in the Company. The Employee hereby grants, transfers and assigns all right, title
and interest in such work and all copyrights and patents in such work and all renewals and extensions thereof to the
Company, and agrees to provide all assistance reasonably requested by the Company in the establishment, preservation
and enforcement of the Company’s copyright and
4
patents in such work, such assistance to be provided at the Company’s expense but without any additional compensation
to the Employee if the Employee is then still serving as SrVP of Development of the Company or is otherwise employed
by the Company and for reasonable compensation and subject to his reasonable availability if he is not. If the Company
cannot, after reasonable effort, secure the Employee’s signature on any documents needed to apply for or prosecute any
patent, copyright or other right or protection relating to an invention, whether because of his physical or mental
incapacity or for any other reason whatsoever, the Employee hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents as his agent and attorney-in-fact, to act for and on his behalf and in his name
and stead for the purpose of executing and filing any such application or applications and taking all other lawfully
permitted actions to further the prosecution and issuance of patents, copyrights, or similar protections thereon, with the
same legal force and effect as if executed by him.
c.
Litigation. The Employee agrees to render assistance and cooperation to the Company at its request regarding any matter,
dispute or controversy with which the Company may become involved and of which the Employee has or may have
reason to have knowledge, information or expertise. Such services will be without additional compensation if the
Employee is then employed by the Company and for reasonable compensation and subject to his reasonable availability if
he is not. The Company agrees to pay all expenses incurred by the Employee, including prompt payment in advance of
any and all claims (including reasonable attorney’s fees and expenses).
d.
Covenants not to Compete.
i.
Non-competition. The Employee acknowledges that his duties hereunder and the services he will provide to the
Company are of a special, unique, unusual and extraordinary character, which gives this Agreement particular value
to the Company, and that it would be difficult to locate any individual or individuals to replace the Employee in the
performance of such duties and services. Therefore, during the Term and for a period of one year after termination
of his service to the Company, the Employee will not, directly or indirectly, enter into, organize, control, engage in,
be employed by, serve as a consultant to, be an officer or director of or have any direct or indirect investment in any
business, person, partnership, association, firm, corporation, or other entity engaged in any business activity
(including, but not limited to, research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business of the Company.
5
ii.
The parties acknowledge that the Company does or will provide services on a worldwide basis and, accordingly,
that it is not fair or appropriate to restrict the foregoing covenant geographically.
iii. Non-diversion. During the Term, and for a period of one year after the date of termination of the Employee’s
service with the Company, the Employee will not divert or attempt to divert or take advantage of or attempt to take
advantage of any actual or potential business or opportunities of the Company which the Employee became aware
of as a result of his employment with the Company.
iv. Non-recruitment. The Employee agrees that the Company has or will invest substantial time and effort in
assembling its workforce. Accordingly, the Employee agrees that during the Term and for a period of one year after
the date of termination of the Employee’s service with the Company, the Employee will not (a) hire away any
critical individuals who were employed by the Company during the one-year period prior to the date of termination
of the Employee’s service with the Company, or (b) directly or indirectly, entice, solicit or seek to induce or
influence any such employees to leave their service with the Company.
v.
vi.
Non-disparagement. The Employee and the Company mutually agree that, during the Term and for a period of five
years thereafter, neither will directly or indirectly disparage the other.
Severability and Modification of any Unenforceable Covenant. It is the parties’ intent that each of the covenants set
forth herein be read and interpreted with every reasonable inference given to its enforceability. However, it is also
the parties’ intent that if any term, provision or condition of such covenants is held by a court of competent
jurisdiction to be invalid or unenforceable, the remainder of the provisions thereof will remain in full force and
effect and will in no way be affected, impaired or invalidated. Finally, it is also the parties’ intent that if a court
should determine any of the covenants set forth herein are unenforceable because of over-breadth, then the court
will modify said covenant so as to make it reasonable and enforceable under the prevailing circumstances.
e.
Survival. The obligations set forth in Section 12d will survive termination of this Agreement.
14. Miscellaneous
a.
No Impediment to Agreement. Except as otherwise disclosed herein, the Employee hereby represents to the Company that
he is not and will not be bound by the provisions of any restrictive covenant or confidentiality agreement which would
constitute an impediment to, or restriction upon, his ability to enter into this Agreement.
6
b.
c.
d.
e.
Severability. Each Section, subsection and clause of this Agreement constitutes a separate and distinct undertaking,
covenant or provision hereof. In the event that any provision of this Agreement shall finally be determined to be unlawful,
such provision shall be deemed severed from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be
deemed effectively given: (a) upon personal delivery to the party to be notified, (b) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) business day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All
communications shall be sent to the respective parties at their address as set forth above, or to such address as subsequently
modified by written notice given in accordance with this Section 13(iii).
Governing Law; Jurisdiction. This Agreement shall be governed in all respects, including validity, interpretation and effect
by the internal laws of the State of New York without regard to its conflict of law principles (other than Section 5-1401 of
the New York General Obligation Law). Each of the parties hereto hereby irrevocably and unconditionally submits to the
nonexclusive jurisdiction of any New York State court sitting in the Borough of Manhattan or any federal court of the
United States of America sitting in the Southern District of New York, and any appellate court from any such court, in any
suit, action or proceeding for the enforcement of any award in connection with any arbitration proceeding and each party
hereby irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law, by removal or otherwise, in such federal
court. Service of process, summons, notice or document by registered mail or overnight courier addressed to either Party
shall be effective service of process for any suit, action or proceeding brought against such Party in such court.
Successors and Assigns. This Agreement shall be binding upon each party’s successors, assigns, heirs, executors, and
administrators. Neither this Agreement nor any rights or obligations hereunder may be assigned by one party without the
consent of the other, except that the Company may assign this Agreement to any of its affiliated entities, and this
Agreement shall inure to the benefit of any successor of the Company, whether by merger, consolidation, sale of assets or
otherwise. References herein to the Company shall be deemed to include any such successor or successors.
7
f.
g.
h.
Complete Agreement. This Agreement, together with the letter agreement, Appendix A, sets forth the entire understanding
and agreement between the parties as to the matters covered herein and supersedes and replaces any prior understanding,
agreement or statement of intent, in each case, written or oral, of any and every nature with respect thereto.
Waiver; Amendments. No modification of or amendment to this Agreement shall be valid unless in writing signed by the
Parties referring specifically to this Agreement and stating the Parties’ intention to modify or amend the same. Any waiver
of any term or condition of this Agreement must be in a writing signed by the Party sought to be charged with such waiver
referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of
any other breach of the same or of any other term or condition of this Agreement.
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but
all of which, when taken together, shall constitute one and the same instrument. It shall not be necessary for each party to
execute the same counterpart hereof. The parties to this Agreement are authorized to execute this Agreement, and transmit
a signed copy of same via facsimile to the other party, who hereby agrees to accept and rely upon such documents as if
they bore original signatures.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
CONTRAFECT CORPORATION
By /s/ Robert C. Nowinski
Robert C. Nowinski, Ph.D.
Its: Chief Executive Officer
EMPLOYEE:
/s/ Nancy Dong
Nancy Dong, M.S.
8
Exhibit 10.23
EMPLOYMENT AGREEMENT
by and between
CONTRAFECT CORPORATION
and
MICHAEL MESSINGER
THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into on November 5, 2012, by and between ContraFect
Corporation, a Delaware corporation (“Employer”) and Michael Messinger, a resident of New Jersey (“Employee”).
WHEREAS, Employer believes that the future services of Employee will be of substantial benefit to Employer and desires to assure
itself of the continued availability of such services, and Employee desires to accept employment with Employer;
NOW, THEREFORE, for and in consideration of the premises above and the mutual promises contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Employment and Duties of Employee.
(a) Employer hereby employs Employee to serve Employer in the capacity of Vice President, Finance, reporting to Employer’s
Executive Vice President and Chief Financial Officer (CFO). Employer shall have the power to determine the precise duties of Employee
as they may change over time and as Employer’s needs shall warrant. Employee agrees to devote Employee’s full working time, attention,
ability, skill and energies to the performance of Employee’s duties hereunder. Employee shall provide professional services on behalf of
Employer in a manner and to an extent consistent with licensing standards, laws, rules and regulations applying to Employee’s profession.
Employee shall work at all locations/offices of Employer as requested by Employer, and upon Employer’s request shall travel as
reasonably needed to carry out his duties. Except as disclosed under section 1(c) below, Employee shall not provide like services for any
other entity or person, whether for compensation or not, except as an employee of Employer.
(b) Employee shall comply with all bylaws, policies, procedures, standards and regulations of Employer now or hereafter
promulgated. Employer shall provide all such information to Employee, and shall train Employee on same. Employee shall participate in
such continuing education as may be required under applicable ethical or licensing standards, laws, rules and regulations applying to
Employee’s profession or as may additionally be provided by Employer. Employer shall pay for costs necessary for Employee to obtain and
maintain all required licenses, credentials, approvals or other certifications to perform Employee’s duties and services hereunder.
(c) Employee shall disclose in writing to Employer on the date hereof all financial interests or compensation arrangements of
Employee (other than this Employment Agreement), including without limitation, any financial interests or compensation arrangements (as
owner, employee, lessor, lessee, independent contractor, or otherwise) in any Biotech Venture (as hereinafter defined) (such financial
interests and compensation arrangements hereinafter collectively referred to as “Arrangements”). Employee is currently an independent
contractor under a Consulting Agreement with Lexicon Pharmaceuticals, Inc. which is expected to terminate on February 28, 2013.
licenses scientific information or products for the therapy of human diseases.
(i) Biotech Venture shall mean and include without limitation, any entity or person that develops or sells, researches, or
Employee shall not enter into any other Arrangements with any Biotech Venture without the prior written consent of Employer. In the
event that there is a change in any Arrangement, or if any member of Employee’s Immediate Family enters into an Arrangement during the
term of this Agreement, Employee shall immediately disclose such Arrangement to Employer.
Hours and Place of Employment. Employee is generally expected to maintain a regular work week as assigned by the Employer
for employees at his level performing such duties. Employee shall be assigned to work at Employer’s headquarters location in Yonkers,
New York. Employee may also work one (1) day per week from his home through June 2013.
2. Term of Employment. The initial term of employment (the “Initial Term”) of Employee’s employment by Employer under this
Agreement shall commence on November 5, 2012 (the “Commencement Date”) and shall end one (1) year thereafter, unless earlier
terminated as hereinafter provided. Unless either party elects to terminate this Agreement at the end of the Initial Term or any renewal term
by giving the other party notice of such election at least ninety (90) days before the expiration of the Initial Term, this Agreement shall be
deemed to have been renewed for an additional term of one (1) year commencing on the day after the expiration of the then current term
and so on from year to year. Notwithstanding the foregoing, either party shall have the right to terminate this Agreement at any time for any
reason or no reason upon thirty (30) days’ prior written notice. In the event that Employer or Employee gives notice to terminate pursuant to
the foregoing sentence, Employer may elect to have Employee cease working immediately so long as Employer continues to pay Employee
his base salary in accordance with the provisions of Section (3)(a) hereof for the entire thirty (30) day notice period. In the event Employer
elects to have Employee immediately cease working during the thirty (30) day notice period as provided in the foregoing sentence and
Employee finds alternative employment that is not in violation of any provision herein, Employee may accept and engage in the alternative
employment.
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In the event that Employee is terminated by Employer without Cause or Employer fails to renew this Agreement, or in the event that
Employee resigns with Good Reason (as defined below), then in any such event Employee shall be given (i) a severance payment in the
amount that is equal to twelve (12) months of his then-current base salary, (ii) a payment equal to his accrued bonuses under this Agreement
and (iii) a payment equal to twelve (12) months of applicable health insurance premiums (inclusive of dental and vision insurance) due
under COBRA, provided that Employee first signs a Severance and Release Agreement in a form prescribed by Employer. The aforesaid
severance payments shall be paid over twelve (12) months as any regular paycheck.
Good Reason shall mean the occurrence of any of the events or conditions described in the following subsections:
(a) a material dimunition in the Employee’s title or responsibilities;
(b) a material reduction in the Employee’s then effective base salary;
(c) any material breach by the Employer or any of its successors and assigns of this Agreement that is not cured within thirty
(30) days after being given written notice of the facts comprising the alleged good reason;
(d) the failure of the Employer’s successors and/or assigns to assume the obligations of the Employer under this Agreement,
either by written agreement or by operation of law; or
(e) the relocation of Employee’s principal place of employment to a location that is more than fifty (50) miles “as the crow flies”
from its current location.
3. Change of Control.
(a) If there is a Change of Control Event and Employee resigns for Good Reason or is terminated without Cause within twelve
(12) months of such Change in Control Event, then Employee shall be given (i) a severance payment in the amount that is equal to twelve
(12) months of his then-current base salary, (ii) a payment equal to his accrued bonuses under this Agreement, (iii) a payment equal to
twelve (12) months of applicable health insurance premiums (inclusive of dental and vision insurance) due under COBRA, and (iv) all
unvested stock options shall have their remaining vesting schedule accelerated so that all stock options become immediately fully vested
and exercisable, provided that Employee first signs a Severance and Release Agreement in a form prescribed by Employer.
(b) A “Change of Control Event” means any of the following: (i) any person or entity (except for a current stockholder)
becomes the beneficial owner of greater than 50% of the then outstanding voting power of the Employer; (ii) a merger or consolidation
with another entity where the voting securities of the Employer outstanding immediately before the transaction constitute less than a
majority of the voting power of the voting securities of the Employer of the surviving entity outstanding immediately after the transaction;
or (iii) the sale or disposition of all or substantially all of the Employer’s assets.
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4. Compensation of Employee.
(a) As compensation for all services to be performed by Employee from and after the Commencement Date, Employer agrees to
pay to Employee a base salary of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) per annum. All such payments shall be
prorated for any partial month or year and shall be payable in accordance with Employer’s customary payroll practices for Employees.
Federal income taxes, social security taxes and other customary employee payroll deductions shall be deducted from all amounts paid to
Employee as compensation under this Employment Agreement. Employer will review Employee’s performance annually at which time
Employee’s base salary may subsequently be increased.
(b) Effective as of the Commencement Date, Employer shall grant Employee stock options for 150,000 shares of common stock
under its stock option plan which will provide, among other things, for vesting in four equal annual increments over three years (37,500
shares at the commencement of employment, 37,500 at the end of the first year (11/5/13), 37,500 shares at the end of the second year
(11/5/14), and 37,500 shares at the end of the third year (11/5/15)). Such option grant shall have a duration of 10 years. The stock option
plan provides, inter alia, that unvested options shall be forfeited in the event that Employee is no longer an employee as of the vesting date.
(c) The Employee also qualifies for an annual bonus of at least 25% of his annual salary based on the criteria to be mutually
determined with Employer in the first thirty (30) days of each employment year. Such annual bonus may be paid at least 50% in cash and at
most 50% in equity of the Company. Employer shall review Employee’s performance annually with a view towards setting criteria for
possible additional bonus arrangements.
(d) Employee shall be entitled to participate in such fringe benefit programs and in the same manner as Employer may offer to
its senior employees generally, including family health and life insurance, at Employer’s expense. The Employer’s current health insurance
plan also includes optical and dental coverage. However, Employer may amend, decrease or discontinue any benefit program at any time
without advance notice to or consent of the Employee, consistent with the manner in which Employer changes the benefit programs for
other similarly situated employees of Employer.
(e) Within forty-five (45) days of commencing employment, Employer will pay Employee a signing bonus of twenty thousand
dollars ($20,000) less taxable withholdings. The signing bonus shall be repaid to Employer by Employee if Employee voluntarily ceases to
be an employee of Employer within six (6) months of the commencement of his employment.
(f) Employee shall be entitled to reimbursement of all reasonable expenses related to the relocation of Employee and his family
to include: (1) costs for moving personal property of Employee and family, not to exceed ten thousand dollars ($10,000) and (2) any
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security deposits and broker’s fees required in the obtainment of new housing. Such reimbursement shall either be direct billed to the
Employer or the Employee may be reimbursed by the Employer upon presentation of receipts satisfactory to Employer for expenses
actually incurred in connection with the foregoing. The relocation expenses shall be repaid to Employer by Employee if Employee
voluntarily ceases to be an employee of Employer within six (6) months of the commencement of his employment.
5. Absences and Vacation. Paid time off for vacations, personal and sick days shall be limited to an aggregate of twenty (20 days) per
annum during the term of this Agreement, which shall be in addition to company observed holidays, including the winter break between
December 24th and January 1st. Except as to sick days, time off shall be taken at a time reasonably convenient to Employer. In the event
Employee’s employment terminates prior to the end of the term hereof, such entitlement shall be prorated. Any unused time off at the end
of any annual term of this Agreement shall not entitle Employee to payment therefore; up to five (5) unused vacation days may be carried
forward into the next calendar year. However, no more than 10 days of vacation (two working weeks) may be taken at one time, except
under extraordinary circumstances.
6. Expenses. Reasonable reimbursements will be made subject to the submission of receipts for expenses. These expenses should be
incurred within the term of this contract; such reimbursement shall be made to Employee after presentation of receipts to Employer for
expenses actually incurred in connection with the foregoing.
7. Termination Other Than For Cause.
(a) In the event of Employee’s death, Employee’s employment shall terminate immediately and Employee’s estate shall be paid
Employee’s base salary and accrued bonus, if any, through the date on which such death occurred.
(b) If Employee becomes unable to perform the essential functions of Employee’s duties (with reasonable accommodation, if
requested) due to partial or total disability or incapacity resulting from a mental or physical illness or injury or any similar cause, Employer
will continue the payment of Employee’s base salary pursuant to Section 3(a) for a period of three (3) months or for the duration of any
accrued and unused vacation, whichever is longer, following the work day that Employee first is unable to perform the essential functions
of Employee’s duties due to such disability or incapacity. Thereafter, Employer shall have no obligation for the payment of Employee’s
base salary pursuant to Section 3(a) to Employee during the continuance of such disability or incapacity. Notwithstanding anything to the
contrary contained herein, Employee shall not be entitled to receive base salary pursuant to this subsection 6(b) for more than ninety
(90) days, or such additional days if the Employee shall have accrued and unused vacation, in any consecutive twelve (12) month period.
At such time as the federal Family and Medical Leave Act (“FMLA”) shall apply, if ever, Employee shall have such rights as are provided
for thereunder.
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8. Termination For Cause.
(a) Employee’s employment under this Agreement shall be deemed to be terminated upon the occurrence of any of the following
events that shall constitute “Cause”, at Employer’s election, immediately upon Employer giving written notice of such termination to
Employee:
(i) Employee’s conviction of any felony or a crime involving moral turpitude.
(ii) Employee’s failure or refusal to follow, in any material respect, the lawful instructions of Employer or the bylaws,
policies, standards or regulations of Employer, which from time to time may be established or changed, and such failure or refusal is not
cured within fifteen (15) days of receiving written notice of such violation from Employer.
(iii) Employee’s continued failure or refusal to faithfully and diligently perform, in any material respect, the usual and
customary duties of Employee’s employment hereunder, and such failure or refusal is not cured within fifteen (15) days of receiving
written notice of such violation from Employer.
cure such conduct from Employer.
(iv) Employee’s conduct is fraudulent and such conduct is not cured within fifteen (15) days of receiving written notice to
No termination for Cause may occur unless a written notice under this Section 7(a) shall specify the alleged violations in sufficient detail as
to apprise Employee of the default or failure, and Employer’s expectations of what Employee needs to do to cure same.
(b) In the event that Employer fails to pay Employee any installment of the base salary or other amounts owed to Employee
under Sections 3(a) through e) when due, and such non-payment is not cured within fifteen (15) days after Employee shall have notified
Employer in writing of such non-payment, then Employee, provided that Employee is not in default with respect to any of Employee’s
obligations under this Agreement, shall have the option to terminate Employee’s employment under this Agreement immediately upon
Employee giving written notice of such termination to Employer, and Employee shall receive from Employer the severance pay and other
compensation set forth in paragraph 2 of this Agreement, as though he had been terminated by Employer without cause.
9. Proprietary and Confidential Information.
(a) Confidential Information. Employee acknowledges that, during the course of his service with Employer, he will have access
to Confidential Information and materials not generally known outside Employer. For all purposes of this Agreement, “Confidential
Information” means all information and materials (whether conceived or developed by Employee
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or others), marketing and other business plans, customers and customer information, data strategies, research, reports, copyrights and
patents related to Employer. During the Term of this Agreement, Employee shall not, without the prior consent of Employer, communicate
or divulge any Confidential Information or materials to anyone other than Employer and its partners, affiliates, employees, consultants and
those designated by it except in the course of carrying out his duties or as required by law. Employee acknowledges that Confidential
Information is and shall remain the property of Employer. The confidentiality obligations hereunder shall not apply to Confidential
Information which: (i) is, or later becomes, public knowledge other than by breach of this Agreement; or (ii) is in the possession of
Employee with the full right to disclose same prior to his receipt of it from Employer; or (iii) is independently received by Employee from
a third party, with no restrictions of disclosure. Furthermore, Employee agrees not to use Confidential Information for any purposes other
than to perform duties for Employer hereunder. Employee shall also execute Employer’s standard Confidentiality Agreement.
(b) Ownership of Patents and Intellectual Property. Employee agrees that any work prepared for Employer from the date of this
Agreement until the expiration of his employment with Employer, which is eligible for copyright and patent protection under the laws of
the United States or any other country and any proprietary know-how developed by Employee while rendering services for Employer, will
vest in Employer. Employee hereby grants, transfers and assigns all right, title and interest in such work and all copyrights and patents in
such work and all renewals and extensions thereof to Employer, and agrees to provide all assistance reasonably requested by Employer in
the establishment, preservation and enforcement of Employer’s copyright and patents in such work, such assistance to be provided at
Employer’s expense but without any additional compensation to Employee if Employee is employed by Employer and for reasonable
compensation and subject to his reasonable availability if he is not. If Employer cannot, after reasonable effort, secure Employee’s signature
on any documents needed to apply for or prosecute any patent, copyright or other right or protection relating to an invention, whether
because of his physical or mental incapacity or for any other reason whatsoever, Employee hereby irrevocably designates and appoints
Employer and its duly authorized officers and agents as his agent and attorney-in-fact, to act for and on his behalf and in his name and stead
for the purpose of executing and filing any such lawful application or applications and taking all other lawfully permitted actions to further
the prosecution and issuance of patents, copyrights, or similar protections thereon, with the same legal force and effect as if executed by
him.
(c) Litigation. Employee agrees to render reasonable assistance and cooperation to Employer at its request regarding any work
matter, dispute or controversy with which Employer may become involved during the course of his employment with Employer, and of
which Employee has useful knowledge, information or expertise. Such services will be without additional compensation if Employee is
then employed by Employer, and for reasonable compensation and subject to his reasonable availability if he is not. Following his
employment, Employee shall not be required to cooperate other than as a fact witness. Employer agrees to pay all expenses reasonably
incurred or to be incurred by Employee in connection with his cooperation.
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10. Covenants not to Compete.
(a) Non-competition. During the Term and for a period of one (1) year after termination of his service to Employer, Employee
will not, directly or indirectly, enter into, organize, control, engage in, be employed by, serve as a consultant to, be an officer or director of,
or have any direct investment of more than 5% of the outstanding shares in, any business, person, partnership, association, firm,
corporation, or other entity engaged in any business activity with respect to the use of lysins for therapy of human infectious diseases
(including, but not limited to, research, development, manufacturing, selling, leasing, licensing or providing services) which is competitive
with the business of Employer.
(b) Non-diversion. During the Term, and for a period of one year after the date of termination of Employee’s employment with
Employer, Employee will not divert or attempt to divert or take advantage of or attempt to take advantage of any actual or potential
business or opportunities of Employer. Business opportunities that have been considered by, and not pursued by Employer’s Board of
Directors, are not covered by this provision.
(c) Non-recruitment. Employee agrees that Employer has or will invest substantial time and effort in assembling its workforce.
Accordingly, Employee agrees that during the Term and for a period of one year after the date of termination of Employee’s employment
with Employer, Employee will not directly or indirectly, entice, solicit or seek to induce or influence any such employees to leave their
service with Employer.
11. Remedies.
(a) Employee acknowledges that the restrictions contained in Sections 9 and 10, in view of the nature of the business of
Employer, are reasonable and necessary in order to protect the legitimate interests of Employer. Employee acknowledges that any violation
of such restrictions would likely result in irreparable injuries to Employer, and Employee therefore acknowledges that, in the event of
Employee’s violation of any of these restrictions, Employer shall be entitled to seek from any court of competent jurisdiction preliminary
and permanent injunctive relief without proving actual damage or immediate or irreparable harm and without posting any bond. In addition,
Employer shall be entitled to seek damages and an equitable accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights or remedies to which Employer may be entitled.
(b) If the time, geographic, or other limitations specified in Sections 8 and 9 above should be adjudged to exceed limitations
permitted by applicable law in any proceeding, then the affected provisions shall be deemed reformed in such jurisdiction to the maximum
time, geographic, product or service or other limitations permitted by applicable law. If Employee violates any of the restrictions contained
in the foregoing Sections 8 and 9, the restrictive period shall be tolled, and shall not run, during the time of any said breach.
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(c) In view of the difficulty of determining the amount of damages that may result to the parties hereto from the breach of the
provision of Section 8 or 9, it is the intent of the parties hereto that, in addition to monetary damages, any non-breaching party shall have
the right to prevent any such breach in equity or otherwise, including without limitation prevention by means of seeking injunctive relief.
The prevailing party in any such action shall be entitled to an award of its reasonable attorney’s fees and costs.
12. Non-disparagement. Employee and Employer mutually agree that, during the Term and for a period of five years thereafter, neither will
directly or indirectly disparage the other.
13. Entire Agreement; Amendments. This Agreement constitutes the entire agreement and understanding between Employer and Employee
relating to the subject matter hereof, and shall not be amended or changed except by written instrument signed by each of the undersigned
parties. There are no prior or contemporaneous oral or written understandings or agreements between the parties regarding Employee’s
employment by Employer or any other matter.
14. No Waiver. Neither Employee nor Employer shall by any act, delay, indulgence, omission or otherwise be deemed to have waived any
right or remedy hereunder or to have acquiesced in any default in or breach of any of the terms and conditions hereof. No failure to
exercise, nor any delay in exercising, on the part of Employee or Employer, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
15. Governing Law, Venue, Interpretation of Language. The parties agree that this Agreement shall be governed by the laws of the State of
New York and that venue for an action between the parties that arises out of this Agreement shall be in New York county, State of New
York. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the
parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.
16. Resignation as Officer and Director. In the event that Employee’s employment with Employer is terminated for any reason whatsoever,
Employee agrees to immediately resign from any position Employee may hold as an officer or director of, or on behalf of, Employer.
17. Limitation on Authority. Without the express written consent of Employer, the Employee shall have no apparent or implied authority
to:
(a) pledge the credit of Employer or any of its employees;
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(b) bind the Employer under any contract, agreement, note, mortgage or otherwise; or
(c) sell, mortgage, transfer or otherwise dispose of any assets of Employer.
18. Notices. Any notices under this Agreement shall be given in writing in person or by registered or certified U.S. mail, postage prepaid,
return receipt requested, or by facsimile with confirmation, to the parties at their respective addresses set forth below, and such notices shall
be deemed given when received or three (3) days after placed in the mail in the manner provided above. Either party may change such
party’s address for notice by giving notice as provided herein.
(a)
If to Employer:
ContraFect Corporation
28 Wells Avenue, 3rd Floor
Yonkers, NY 10701
(b)
If to Employee:
Michael H Messinger
238 Pennington Harbourton Road
Pennington, NJ 08534
19. Prior Agreements. Employee represents to Employer that (a) there are no restrictions, agreements or understandings to which Employee
is a party that would prevent or make unlawful Employee’s execution of this Agreement or Employee’s employment hereunder,
(b) Employee’s execution of this Agreement and Employee’s employment hereunder shall not constitute a breach of any contract,
agreement or understanding, oral or written, to which Employee is a party or by which Employee is bound, (c) Employee is free and able to
execute this Agreement and to enter into employment by Employer, and (d) Employee shall not divulge to Employer any trade secrets or
proprietary information that belongs to any other person or entity.
20. No Assignment. This Agreement and the rights and obligations of both parties hereunder are personal in nature, and shall not be
assignable by either party hereto, except by operation of law. Notwithstanding the foregoing, Employer shall assign its rights and
obligations under this Agreement to any successor in interest.
21. Headings. Headings used in this Agreement are solely for the convenience of the parties and shall be given no effect in the construction
or interpretation of this Agreement.
22. Miscellaneous.
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(a) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an
original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This
Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of
the parties reflected hereon as the signatories.
(b) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or
unenforceable in whole or in part.
(c) Survival. Any provisions of this Agreement which, by their terms, are intended to survive the expiration or termination of
this Agreement, shall so survive, including but not limited to the restrictive covenant and the provisions relating to non-solicitation, and
confidentiality.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed and delivered as of the day and year set forth
below.
CONTRAFECT CORPORATION
By: /s/ Julia P. Gregory
EVP and CFO
By: /s/ Michael Messinger
Michael Messinger
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Exhibit 10.24
28 Wells Avenue, 3rd FI
Yonkers, NY 10701
914 207-2300 tel
914 207-2399 fax
WWW.CONTRAFECT.COM
August 6, 2015
AS AMENDED
Joshua B. Muntner
30 Fifth Avenue
Apartment #12F
New York, New York 10011
Dear Josh:
We are pleased to present an offer of employment with ContraFect Corporation (hereinafter the “Company”). The general terms of this
offer are as follows:
You are being hired into the position of Senior Vice President, Business Development, reporting to the Company’s Chief Executive
Officer. Your starting date is expected to be on or about August 24, 2015; duties and responsibilities have been/will be described to you,
and may change from time to time at the discretion of management.
Your base salary will be at the annualized rate of $300,000.00, less all applicable taxes and withholdings, to be paid in accordance with the
Company’s regular payroll practices (currently semi-monthly pay periods). Such base salary may be adjusted from time to time in
accordance with normal business practices and in the sole discretion of the Company. In this position, you will be an exempt employee,
meaning that you will not be entitled to overtime pay.
You will be eligible for an annual incentive bonus of 30% of your annual base salary based upon mutually agreed-upon goals (50%
corporate/50% individual). ContraFect will guarantee payment of 50% of your full 2015 bonus, calculated at $45,000.00 before
withholdings, payable in the 2016 bonus-payment cycle.
You will be granted incentive stock options to purchase an aggregate number of 50,000 shares of ContraFect common stock, subject to the
terms of ContraFect Corporation’s 2014 Omnibus Incentive Plan. All stock option grants will be priced after you join the Company, on the
date that the Compensation Committee approves the grant.
You will receive a signing bonus of $25,000, less all applicable taxes and withholdings, within 45 days of your date of hire. This signing
bonus must be repaid in full should your employment with ContraFect cease due to voluntary resignation or termination for Cause during
your first year of employment. For purposes of this paragraph, Cause is defined as: (i) the commission of an act of embezzlement, fraud,
theft, misappropriation of assets or property (tangible or intangible) of the Company; (ii) gross negligence or misconduct in the
performance of your duties; or (iii) the conviction of a felony, or any crime involving moral turpitude.
In the event that you are terminated by the Company without Cause, or in the event that you resign with Good Reason, as defined below,
you will be given (i) a severance payment in the amount that is equal to twelve (12) months of your then-current base salary, (ii) a payment
equal to your accrued bonuses and (iii) a payment equal to twelve (12) months of applicable health insurance premiums (inclusive of dental
and vision insurance) due under COBRA, provided that you first sign a Severance and Release Agreement in a form prescribed by the
Company. These severance payments shall be paid over twelve (12) months as any regular paycheck.
Good Reason shall mean the occurrence of any of the events or conditions as described here: (i) a material diminution of your title,
responsibilities, or who you report to; (ii) a material reduction in your then-effective base salary, or (iii) the relocation of your principal
place of employment to a location that is more than fifty (50) miles “as the crow flies” from its current location.
If there is a Change of Control Event and you resign for Good Reason, or you are terminated without Cause within twelve (12) months of
such Change of Control Event, you will receive the severance benefits as outlined above, and, in addition, your then-outstanding stock
options and other equity awards, if any, will become immediately fully vested and exercisable. All such benefits are conditioned upon the
execution of a Severance and Release Agreement in a form prescribed by the Company or its successors.
A “Change of Control Event” means any of the following: (i) any person or entity (except for a current stockholder) becomes the beneficial
owner of greater than 50% of the then-outstanding voting power of the Company; (ii) a merger or consolidation with another entity where
the voting securities of the Company outstanding immediately before the transaction constitute less than a majority of the voting power of
the voting securities of the surviving entity outstanding immediately after the transaction, or (iii) the sale or disposition of all or
substantially all of the Company’s assets.
As a full-time employee, you will be eligible for standard Company benefits, including medical benefits, paid holidays, paid sick/personal
days and paid vacation. These are each described in the Employee Handbook.
This offer is expressly conditioned on the following:
a.
b.
Satisfactory completion of a background check, all required forms, including a form 1-9 which establishes your authorization to
work in the United States and a W-4 form;
Your execution and delivery to us of the enclosed Confidential Information and Inventions Assignment Agreement simultaneously
with your execution and return to us of this Offer Letter on or before Friday, August 7, 2015;
c.
Please note that ContraFect is an at-will employer. This means you can resign your employment at any time, with or without cause
or reason, and reciprocally, the Company can terminate your employment, with or without cause, reason, and/or advance notice.
Your acceptance of this offer shall also mean that you agree to, at all times, abide by the Company’s policies and procedures.
Please confirm your acceptance of this offer by signing below. You further acknowledge by signing below that with this Offer Letter you
received the Confidential Information and Inventions Assignment Agreement referred to above.
We are delighted to invite you to join ContraFect. It is an exciting time in our Company’s history as we have just begun clinical trials on
CF-301, the first lysin-based therapy in a new class of medicines cleared by the FDA for human trials. We are using ContraFect’s technical
expertise to develop biotherapeutic products for infectious diseases that have high rates of unmet medical needs, particularly products used
in hospital-based markets. We are confident that you will play an important role in the growth and success of the Company.
Sincerely,
/s/ Julia P. Gregory
Julia P. Gregory
Chief Executive Officer
ACKNOWLEGED, ACCEPTED and AGREED:
/s/ Josh Muntner
EMPLOYEE SIGNATURE
DATED:
Exhibit 10.25
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (the “Agreement”) is made effective as of the Effective Date (defined below), by and between
Lisa R. Ricciardi (“Executive”) and ContraFect Corporation, a Delaware corporation (the “Company”).
WHEREAS, Executive’s employment with the Company ended on December 31, 2017 (the “Separation Date”); and
WHEREAS, in connection with Executive’s separation, Executive and the Company desire to enter into this Agreement upon the
terms set forth herein.
NOW, THEREFORE, in exchange for the good and valuable consideration set forth herein, the adequacy of which is specifically
acknowledged, Executive and the Company (collectively referred to as the “parties” or individually as a “party”) hereby agree as follows:
1. Termination. Effective as of the Separation Date, Executive’s employment with the Company terminated and Executive ceased to
serve in or hold any employee or officer role or any other position with the Company or any of its affiliates (except for the consulting
relationship described in Section 2 and except that Executive did not cease to serve as a member of the Company’s Board of Directors (the
“Board”)) and Executive ceased to exercise or convey any authority (actual, apparent or otherwise) on behalf of the Company or any of its
affiliates. During the Severance Period (as defined below), Executive will not be compensated for Executive’s Board service and Executive
hereby waives any entitlement to such compensation during the Severance Period that Executive may have under the Company’s
non-employee director compensation policies or practices as in effect from time to time.
2. Consulting. From the Separation Date through March 31, 2018 (the “Transition Period”), Executive will remain reasonably
available to answer questions and provide such other transitional consulting services relating to Executive’s areas of expertise and work
experience as are reasonably requested from time to time by the Company. Executive acknowledges and agrees that Executive will not be
entitled to compensation for providing such consulting services other than the payments and benefits expressly set forth herein during the
Transition Period. Following the Transition Period and for the remainder of the Severance Period, Executive may provide such consulting
services at an hourly rate of $250. For the avoidance of doubt, the parties intend for Executive to incur a “separation from service” within
the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as of the Separation Date and, accordingly,
the level of services Executive provides following the Separation Date will in all events be less than 20% of the average level of bona fide
services performed by Executive for the Company and its subsidiaries as an employee prior to the Separation Date.
3. Payments.
(a) To the extent unpaid, the Company will promptly pay Executive all base salary earned during the payroll period in which the
Separation Date occurred and will also reimburse any business expenses incurred by Executive prior to the Separation Date that are
reimbursable under the Company’s expense reimbursement policy, including reimbursements that will be incurred for any conferences
booked prior to the Separation Date that will occur during the Severance Period.
(b) Subject to Executive’s continued compliance with this Agreement and the Confidentiality Agreement (as defined below):
(i) The Company will pay Executive an amount in cash equal to $690,000, payable in substantially equal installments in
accordance with the Company’s ordinary payroll practices over the eighteen months following the Separation Date (the “Severance
Period”), provided, however, that no payments will be made prior to the later of the first payroll payment date that occurs (i) at least five
days following the Effective Date or (ii) in 2018 (the “First Payroll Date”), and any amounts otherwise payable prior to the First Payroll
Date will be paid in a lump sum to Executive on the First Payroll Date without interest thereon.
(ii) Executive acknowledges that Executive has no target bonus for 2017 and is not entitled to receive any severance in
respect of Executive’s target bonus.
(iii) If Executive timely elects to receive continued medical, dental or vision coverage under the Company’s group
healthcare plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company will pay
the entire COBRA premiums under such plans for Executive and Executive’s dependents who were covered under such plans as of the
Separation Date during the period commencing on the Separation Date and ending upon the earliest of (x) the date that is eighteen
(18) months after the Separation Date, (y) the date that Executive becomes no longer eligible for COBRA and (z) the date Executive
becomes eligible to receive comparable coverage from a subsequent employer (and Executive agrees to promptly notify the Company of
such eligibility if the same occurs during the COBRA payment period). Notwithstanding the foregoing, if the Company determines that it
cannot provide the foregoing benefit without potentially violating applicable law (including, without limitation, Section 2716 of the Public
Health Service Act) or incurring an excise tax, the Company shall in lieu thereof provide to Executive a taxable monthly payment in an
amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s and Executive’s covered
dependent’s group health coverage in effect on the Separation Date (which amount shall be based on the premium for the first month of
COBRA coverage), which payments shall commence in the month following the month in which the Company makes such determination
and shall end on the earlier of (A) the date that is eighteen (18) months after the Separation Date, (B) the date that Executive becomes no
longer eligible for COBRA and (C) the date Executive becomes eligible to receive healthcare coverage from a subsequent employer (and
Executive agrees to promptly notify the Company of such eligibility if the same occurs during the COBRA payment period), subject to any
delay that may be required under Section 409A of the Code.
4. Vesting of Options. Exhibit A to this Agreement sets forth a complete list of all outstanding Company stock options held by
Executive (the “Options”). Effective as of the Separation Date, each Option shall vest in full. In addition, subject to earlier termination in
connection with a corporate transaction (to the extent provided in the documents governing the Options), Executive shall be entitled to
exercise the Option until (and including) the day prior to the second anniversary of the Separation Date. Executive acknowledges that any
Option intended to qualify as an “incentive stock option” under Section 422 of the Code may cease to so qualify as of the Effective Date.
Except as otherwise set forth in this Section 4, the Options shall continue in effect subject to their terms.
- 2 -
5. General Release and Waiver.
(a) Release of Claims. Executive agrees that, other than with respect to the Retained Claims (as defined below), the foregoing
consideration represents settlement in full of all outstanding obligations owed to Executive by the Company, any of its direct or indirect
subsidiaries and affiliates, and any of their current and former officers, directors, equity holders, managers, employees, agents, investors,
attorneys, shareholders, administrators, affiliates, benefit plans, plan administrators, insurers, trustees, divisions, and subsidiaries and
predecessor and successor corporations and assigns (collectively, the “Releasees”). Executive, on Executive’s own behalf and on behalf of
Executive’s heirs, family members, executors, agents, successors and assigns, other than with respect to the Retained Claims, hereby and
forever releases the Releasees from, and agrees not to sue concerning, or in any manner to institute, prosecute, or pursue, any claim,
complaint, charge, duty, obligation, or cause of action relating to any matters of any kind, whether presently known or unknown, suspected
or unsuspected, that Executive may possess against any of the Releasees arising from any omissions, acts, facts, or damages that have
occurred up to and through the date Executive executes this Agreement, including, without limitation:
any of its direct or indirect subsidiaries or affiliates and the termination of that relationship;
(i) any and all claims relating to or arising from Executive’s employment or service relationship with the Company or
(ii) any and all claims relating to, or arising from, Executive’s right to purchase, or actual purchase of any shares of stock
or other equity interests of the Company or any of its affiliates, including, without limitation, any claims for fraud, misrepresentation,
breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;
(iii) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination;
harassment; retaliation; breach of contract, both express and implied; breach of covenant of good faith and fair dealing, both express and
implied; promissory estoppel; negligent or intentional infliction of emotional distress; fraud; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander;
negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; conversion; and disability benefits;
(iv) any and all claims for violation of any federal, state, or municipal statute, including, but not limited to, Title VII of
the Civil Rights Act of 1964; the Civil Rights Act of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the
Equal Pay Act; the Fair Credit Reporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection
Act; the Employee Retirement Income Security Act of 1974; the Worker Adjustment and Retraining Notification Act; the Family and
Medical Leave
- 3 -
Act; the Sarbanes-Oxley Act of 2002; the New York State Human Rights Law; the New York State Worker Adjustment and Retraining
Notification Act; the New York Retaliatory Actions by Employers Law; the New York State Labor Law; Section 125 of the New York
Workers’ Compensation Law; and the New York State Civil Rights Law;
(v) any and all claims for violation of the federal or any state constitution;
(vi) any and all claims arising out of any other laws and regulations relating to employment or employment
discrimination;
treatment of any of the proceeds received by Executive as a result of this Agreement; and
(vii) any claim for any loss, cost, damage, or expense arising out of any dispute over the non-withholding or other tax
(viii) any and all claims for attorneys’ fees and costs.
(b) Retained Claims. Executive agrees that the release set forth in this Section 5 shall be and remain in effect in all respects as a
complete general release as to the matters released. Notwithstanding the foregoing, for the avoidance of doubt, nothing herein will be
deemed to release any rights or remedies in connection with (i) Executive’s ownership of vested equity securities of the Company
(including any vested Options), (ii) Executive’s right to indemnification, advancement or defense by the Company or any of its affiliates
pursuant to contract, directors’ and officers’ liability insurance or applicable law, (iii) claims for breach of this Agreement, (iv) claims that
cannot be released as a matter of law, including, but not limited to, claims for workers’ compensation and Executive’s right to file a charge
with or participate in a charge by the Equal Employment Opportunity Commission, or any other local, state, or federal administrative body
or government agency that is authorized to enforce or administer laws related to employment, against the Company (with the understanding
that Executive’s release of claims herein bars Executive from recovering such monetary relief from the Company or any Releasee), claims
for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law, (v) claims to
continued participation in certain of the Company’s group benefit plans pursuant to the terms and conditions of COBRA, (vi) claims to any
benefit entitlements vested as the date of separation of Executive’s employment, pursuant to written terms of any employee benefit plan of
the Company or its affiliates and Executive’s rights under applicable law (collectively, the “Retained Claims”). In addition, nothing in this
Agreement or the Confidentiality Agreement shall prohibit Executive from reporting possible violations of federal law or regulation to any
governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange
Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or
regulation.
(c) Waiver. Executive understands and acknowledges that Executive is waiving and releasing any rights Executive may have
under the Age Discrimination in Employment Act of 1967 (“ADEA”), and that this waiver and release is knowing and voluntary. Executive
understands and agrees that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the date
Executive executes this Agreement. Executive understands and acknowledges that the consideration given for this waiver and release is in
- 4 -
addition to anything of value to which Executive was already entitled. Executive further understands and acknowledges that Executive has
been advised by this writing that: (a) Executive should consult with an attorney prior to executing this Agreement; (b) Executive has 21
days within which to consider this Agreement; (c) Executive has 7 days following Executive’s execution of this Agreement to revoke this
Agreement by delivering written notice to the General Counsel of the Company (which notice shall be deemed delivered only upon actual
receipt); (d) this Agreement shall not be effective until after the revocation period has expired; and (e) nothing in this Agreement prevents
or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it
impose any condition precedent, penalties, or costs for doing so, unless specifically authorized by federal law. In the event Executive signs
this Agreement and returns it to the Company in less than the 21 day period identified above, Executive hereby acknowledges that
Executive has freely and voluntarily chosen to waive the time period allotted for considering this Agreement.
(d) Voluntary Execution of Agreement. Executive understands and agrees that Executive executed this Agreement voluntarily,
without any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of
Executive’s claims against the Company and any of the other Releasees. Executive acknowledges that: (a) Executive has read this
Agreement; (b) Executive has not relied upon any representations or statements made by the Company that are not specifically set forth in
this Agreement; (c) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of
Executive’s own choice or has elected not to retain legal counsel; (d) Executive understands the terms and consequences of this Agreement
and of the releases it contains; and (e) Executive is fully aware of the legal and binding effect of this Agreement.
6. Return of Company Property. Executive hereby represents that Executive has returned all property of the Company or its affiliates
(including, without limitation, proprietary information or intellectual property) that is within Executive’s custody or control, other than to
the extent reasonably necessary for Executive’s performance of service under Section 2(provided that Executive will promptly return such
property upon termination of such services or the Company’s earlier request).
7. Taxes. The Company may withhold from any amounts payable under this Agreement any federal, state, local or foreign
withholding or other taxes or charges. Executive agrees to pay any taxes that may be due on the payments to Executive provided in this
Agreement beyond any withheld by the Company and to provide to the Company such information pertaining to Executive as may be
reasonably requested by the Company and its affiliates to comply with applicable tax laws.
8. Effective Date. Executive has seven days after Executive executes this Agreement to revoke it by delivering written notice of such
revocation to the General Counsel of the Company at the Company’s principal executive offices (such notice to be deemed delivered only
upon actual receipt), and this Agreement will become effective on the eighth day after Executive executes this Agreement (the “Effective
Date”), so long as it has not been revoked by Executive before that date.
- 5 -
9. Restrictive Covenants. Ancillary to and as a condition to Executive’s right to receive the payments set forth in this Agreement,
Executive agrees to the following provisions, which Executive acknowledges represent a fair balance of the Company’s rights to protect its
business and Executive’s right to pursue employment:
(a) Confidentiality Agreement. Executive reaffirms Executive’s obligations under the Confidential Information and Inventions
Assignment Agreement between Executive and the Company dated September 28, 2017 (the “Confidentiality Agreement”) and
acknowledges that such obligations survive Executive’s termination of employment with the Company as set forth in the Confidentiality
Agreement. Furthermore, in accordance with 18 U.S.C. § 1833, notwithstanding anything to the contrary in this Agreement or the
Confidentiality Agreement: (i) Executive shall not be in breach of this Agreement or the Confidentiality Agreement, and shall not be held
criminally or civilly liable under any federal or state trade secret law (x) for the disclosure of a trade secret that is made in confidence to a
federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law,
or (y) for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing
is made under seal; and (ii) if Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive
may disclose the trade secret to Executive’s attorney, and may use the trade secret information in the court proceeding, if Executive files
any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.
(b) Non-Compete. During the Severance Period, Executive shall not, without the Company’s prior written consent, on
Executive’s own behalf, or as owner, manager, stockholder, consultant, director, officer, or employee of any Competitor; provided that
nothing in this Section will prohibit Executive from being a passive owner of not more than 2% of the outstanding equity interests in any
entity that is publicly traded, so long as Executive has no active participation in the business of such entity. For purposes of this Agreement,
Competitor means a business entity that is primarily engaged in the production of therapies that use lysins to treat infectious diseases.
(c) Non-Solicit. During the Severance Period, Executive will not solicit, induce or encourage any (i) employee of the Company
or its affiliates to terminate his or her employment with the Company and (ii) distributor, supplier, customer, client or agent of the
Company or its affiliates, in case of either (i) or (ii) that is known to Executive by reason of her employment with the Company, to
terminate or modify its relationship with the Company or its affiliates; provided that nothing in this Section will prohibit general
solicitations not targeted to any such employee, distributor, supplier, customer, client or agent.
(d) Non-Disparagement. Executive agrees that Executive shall not disparage, criticize or defame the Company, its affiliates and
their respective affiliates, directors, officers, agents, partners, stockholders, employees, products, services, technology or business, either
publicly or privately. Promptly following the execution of this Agreement, the Company agrees that it shall instruct its officers and
members of its Board of Directors to not, disparage, criticize or defame Executive, either publicly or privately. Nothing in this Section 9
shall prohibit true statements made in any evidence or testimony required by a court, arbitrator or government agency or reasonably
necessary to enforce a party’s rights under this Agreement.
- 6 -
(e) Reformation. In the event the terms of this Section 9 are determined by any court of competent jurisdiction to be
unenforceable by reason of extending for too great a period of time or over too great a geographical area or by reason of being too extensive
in any other respect, they will be interpreted to extend only over the maximum period of time for which they may be enforceable, over the
maximum geographical area as to which they may be enforceable or to the maximum extent in all other respects as to which they may be
enforceable, all as determined by such court in such action.
10. General Provisions.
(a) Severability. In the event any provision of this Agreement is found to be unenforceable by a court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that
the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory
in the judgment of such a court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining
provisions shall not be affected thereby.
(b) Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in
interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but Executive has participated in
the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the
Agreement and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement. Either party’s failure to enforce any provision of this Agreement shall not in
any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of
this Agreement.
(c) Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with its express terms,
and otherwise in accordance with the substantive laws of the State of New York, without reference to the principles of conflicts of law of
the State of New York or any other jurisdiction that would result in the application of the substantive laws of any jurisdiction other than the
State of New York, and where applicable, the laws of the United States. The venue for any action, suit or other legal proceeding arising
under or relating to any provision of this Agreement shall be in New York County, State of New York, and the Company and Executive
each consents to the jurisdiction of such a court. The parties hereto waive any and all rights to a trial by jury with respect to any action
arising hereunder.
(d) Notices. Any notices under this Agreement shall be given in writing in person or by registered or certified U.S. mail, postage
prepaid, return receipt requested, by overnight mail next business day delivery service or by facsimile with confirmation, (i) if the
Company, to the attention of the Company’s General Counsel at its principal executive offices, and (ii) if to Executive, at the last known
address or facsimile number for Executive in the Company’s personnel files. Notices hereunder shall be deemed given when received or
three days after placed in the mail in the manner provided above. Either party may change such party’s address for notice by giving notice
as provided herein.
- 7 -
(e) Entire Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between
the parties in respect of the subject matter contained herein and supersedes all prior or simultaneous representations, discussions,
negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of
Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any
circumstances whatsoever.
(f) Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
(g) Successors. This Agreement shall be binding upon and inure to the benefit of the Company, Executive and their respective
successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees and legatees, as applicable.
None of Executive’s rights or obligations hereunder may be assigned or transferred by Executive, other than Executive’s rights to payments
hereunder, which may be transferred only by will or pursuant to the applicable laws of descent and distribution.
[Signature Page Follows]
- 8 -
IN WITNESS WHEREOF, and intending to be legally bound, the parties have executed the foregoing on the dates shown below.
CONTRAFECT CORPORATION
By: /s/ Steven C. Gilman
Name: Steven C. Gilman
Title: Chief Executive Officer
Date: 1/12/2018
EXECUTIVE
/s/ Lisa R. Ricciardi
Lisa R. Ricciardi
Date: 1/11/2018
Exhibit A
Options
Award Type
Option
Option
Option
Grant Date
2/14/2017
5/2/2017
11/6/2017
Exercise Price Per Share
1.70
$
1.60
$
1.02
$
Shares Subject to Award
30,000
22,500
250,000
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-3 No. 333-206057) of ContraFect Corporation,
(2) Registration Statement (Form S-3 No. 333-206786) of ContraFect Corporation,
(3) Registration Statement (Form S-3 No. 333-211748) of ContraFect Corporation,
(4) Registration Statement (Form S-3 No. 333-217989) of ContraFect Corporation,
(5) Registration Statement (Form S-8 No. 333-199046) pertaining to the Amended and Restated 2008 Equity Incentive Plan and 2014
Omnibus Incentive Plan, and
(6) Registration Statement (Form S-8 No. 333-217943) pertaining to the 2014 Omnibus Incentive Plan;
of our report dated March 15, 2018, with respect to the consolidated financial statements of ContraFect Corporation included in this
Annual Report (Form 10-K) of ContraFect Corporation for the year ended December 31, 2017.
/s/ Ernst & Young LLP
Hartford, Connecticut
March 15, 2018
I, Steven C. Gilman, certify that:
1. I have reviewed this Annual Report on Form 10-K of ContraFect Corporation;
CERTIFICATION
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (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 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 15, 2018
/s/ Steven C. Gilman, Ph.D.
Steven C. Gilman, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
I, Michael Messinger, certify that:
1. I have reviewed this Annual Report on Form 10-K of ContraFect Corporation;
CERTIFICATION
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (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 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 15, 2018
/s/ Michael Messinger
Michael Messinger
Senior Vice President, Finance
(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 this Annual Report on Form 10-K of ContraFect Corporation (the “Company”) for the year ended December 31,
2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Steven C. Gilman,
President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge on
the date hereof:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: March 15, 2018
/s/ Steven C. Gilman, Ph.D.
Steven C. Gilman, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with this Annual Report on Form 10-K of ContraFect Corporation (the “Company”) for the year ended December 31,
2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael Messinger,
Senior Vice President, Finance of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge on the date
hereof:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: March 15, 2018
/s/ Michael Messinger
Michael Messinger
Senior Vice President, Finance
(Principal Financial Officer)