UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-15070
RegeneRx Biopharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
15245 Shady Grove Road, Suite 470, Rockville, MD
(Address of principal executive offices)
52-1253406
(I.R.S. Employer
Identification No.)
20850
(Zip Code)
Registrant’s telephone number, including area code: 301-208-9191
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value, including associated Series A Participating Cumulative Preferred Stock Purchase Rights
Warrants to Purchase Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. þ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “accelerated filer,” “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer þ
Accelerated filer ☐
Smaller reporting company þ
Emerging growth company ☐
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or
revised 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 þ No
As of March 15, 2019, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $11 million. Such aggregate
market value was computed by reference to the closing price of the Common Stock as quoted on the Over-the-Counter Bulletin Board, or the OTC Bulletin
Board, on March 15, 2019.
The number of shares outstanding of the registrant’s common stock as of March 15, 2019 was 129,581,494.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Exhibits, Financial Statement Schedules
Item 15.
SIGNATURES
INDEX TO FINANCIAL STATEMENTS
EXHIBIT INDEX
2
3
3
14
25
25
26
26
35
35
35
35
36
37
37
39
42
43
44
45
45
46
F-1
48
PART I
This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the words “project,” “believe,” “anticipate,”
“plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may” or other similar expressions. In addition, any statements that refer to
projections of our future financial performance or capital resources, our clinical development programs and schedules, our anticipated growth and trends in
our business, the clinical and pharmaceutical applications of our products, our expectations about our competitive position in the marketplace, potential
business relationships and partnerships, and other characterizations of future events or circumstances are forward-looking statements. We cannot guarantee
that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements. There are a number of important factors
that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements
we make, including those described under “Risk Factors” set forth below. In addition, any forward-looking statements we make in this report speak only as of
the date of this report, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date.
Item 1. Business.
General
RegeneRx Biopharmaceuticals, Inc. (“RegeneRx” or the “Company”) (OTCQB:RGRX) is a biopharmaceutical company focused on the
development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have formulated Tß4 into
three distinct product candidates in clinical development:
• RGN-259, a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352, an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications
that may be treated by systemic administration; and
• RGN-137, a topical gel for dermal wounds and reduction of scar tissue.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of
all of our product candidates.
Current Financial Status
On February 27, 2019, we sold a series of convertible promissory notes to management, the Company’s Board of Directors and accredited investors,
including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings. The
first closing in the amount of $650,000 occurred on February 27th and the second closing, also in the amount of $650,000 will occur within three days of the
Company providing notice of the enrollment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us
that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. Because the Company does not control the timing of the ARISE-3
clinical trial, we cannot be certain that this timing is correct or that it may not change. The notes contain a $0.12 conversion price and the purchasers also
received a warrant exercisable at $0.18 to purchase additional shares of common stock equal to 75% of the number of shares into which each note is initially
convertible. At present, with the receipt of the sale proceeds from the first closing, coupled with the anticipated proceeds from the second closing, we will
have sufficient cash to fund planned operations through the first quarter of 2020. We continuously monitor our cash use as well as the clinical timelines.
We continue to evaluate options including the licensing of additional rights to commercialize our clinical products as well as raising capital through
the capital markets. However, our ability to raise additional capital raises significant concerns about our ability to continue as a going concern. Since
inception, and through December 31, 2018, we have an accumulated deficit of $106 million and we had cash and cash equivalents of $237,261 as of
December 31, 2018. We anticipate incurring additional operating losses in the future as we continue to explore the potential clinical benefits of Tß4-based
product candidates over multiple indications. We have entered into a series of strategic partnerships under licensing and joint venture agreements where our
partners are responsible for advancing development of our product candidates by sponsoring multiple clinical trials.
On March 2, 2018, we entered into a warrant reprice, exercise and issuance agreement (the “Reprice Agreement”) with the holders of the warrants
issued in the 2016 Offering. Under the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants the
exercise price per share of the warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders of the 2016 Offering
3,860,294 new warrants with an exercise price of $0.2301 per share. We received gross proceeds of approximately $1,029,000 pursuant to the exercise and
issued 5,147,059 shares of common stock. Pursuant to the terms of the Reprice Agreement the exercise price of the new warrants was reduced from $0.2301
to $0.125 as a result of the March 2019 note sale.
3
Current Clinical Status
In January 2015, we entered into a Joint Venture Agreement with GtreeBNT whereby we created ReGenTree LLC, (“ReGenTree” or “Joint
Venture”, jointly owned by us and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan
indication in the United States. We are entitled to royalties as a percentage of net sales ranging from single digits to low-double digits based on the medical
indications approved and whether the Joint Venture commercializes products directly or through a third party. RegeneRx possesses one of three board seats of
ReGenTree and certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require
RegeneRx’s board designee’s consent. We currently hold a 38.5% ownership interest in ReGenTree. This ownership interest may be further reduced to as low
as 25% once ReGenTree obtains FDA approval of an NDA for Dry Eye Syndrome in the U.S. In the event ReGenTree is acquired, or a change of control
occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo any future
royalties.
To date ReGenTree has sponsored a Phase 2/3 clinical trial (“ARISE-1”) and Phase 3 clinical trials in patients with dry eye syndrome (“DES”)
(“ARISE-2”) and in patients with neurotrophic keratopathy (“NK”) (“SEER-1”), all in the U.S. In May 2016, we reported the results of the 317-patient
ARISE-1 trial and in October 2017, we reported the results of the ARISE-2 trial. The ARISE-2 study, which was sponsored by ReGenTree and managed by
Ora, Inc. pursuant a recent contract between the parties, demonstrated a number of statistically significant improvements in both signs and symptoms of dry
eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles. The ocular discomfort symptom showed
a statistically significant reduction in the RGN-259-treated group at day 15 as compared to placebo (p=0.0149) in the change from baseline. For sign, RGN-
259 also improved the dry eye patient’s ability to withstand an exacerbated condition in a patient subgroup with both compromised corneal fluorescein
staining and Schirmer’s test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change
from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and fast onset in multiple
sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled data, although ARISE-2 was not successful in
duplicating the results of ARISE-1 where the study population was limited and less diversified. ReGenTree is proceeding with its RGN-259 development plan
as discussed with the FDA in April 2018. Most recently, ReGenTree reaffirmed that the manufacturing of the investigational product for ARISE-3 has been
completed and the protocol for the study has been finalized. ReGenTree and Ora, Inc. have entered into a contract for management of ARISE-3. Ora, Inc.
recently initiated the study with the first patient anticipated to be enrolled in the second quarter of 2019.
The NK trial (SEER-1), a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional patients being
screened, with a goal of forty-six. ReGenTree has expanded its efforts to accelerate patient enrollment by offering incentives to each study site based on
numbers of enrollees as well as payments to referral sites. Earlier in 2018, ReGenTree disclosed that 7 of 17 patients enrolled SEER-1 have completely
healed. To participate in the trial the patients were required to have a persistent epithelial defect (non-healing corneal wound). While these preliminary
observations are encouraging, it should be noted that the patients and treating physicians remain masked while the trial is on-going, so it is not known
whether the healed patients are in the RGN-259 group, placebo group, or distributed among both. As of the date of this report, we do not know when this
study will be completed.
GtreeBNT has developed the CMC (chemistry, manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization in the
U.S. and in Korea. This comprehensive and critical effort ensures that final drug product manufacturing, packaging, stability, purity, reproducibility, etc.,
meets regulatory guidelines and product specifications. The product of this activity is the current product format being utilized in the U.S. trials being
conducted by ReGenTree and will also be utilized in the planned clinical activity to be conducted by GtreeBNT under the RGN-259 license agreement for
Pan Asia.
In February 2017, our licensee for RGN-137, GtreeBNT, received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using RGN-137
to treat patients with epidermolysis bullosa (EB), a genetic disease that causes severe blistering of the skin and internal organs. In August 2017, the Company
amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory was expanded to include Europe, Canada, South
Korea, Australia and Japan. GtreeBNT initiated a small open trial in patients with EB in December 2018 to evaluate RGN-137 in such patients prior to
sponsoring a larger Phase 3 trial.
Currently, we have active partnerships in four major territories: North America, Europe, China and Pan Asia. Our partners have been moving
forward and making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation for
RegeneRx. We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S.,
most of Asia, and Europe; RGN-259 in the EU. In August 2017 we amended the RGN-137 License Agreement with GtreeBNT, expanding the territory to
include Europe, Canada, South Korea, Australia and Japan. Regarding RGN-259, our goal is to wait until satisfactory results are obtained from the current
ophthalmic clinical program in the U.S. before moving into the EU. This should allow us to obtain a higher value for the asset at that time. However, we
intend to continue to develop RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications, either by obtaining
grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to
develop it as we have with RGN-259.
4
We anticipate incurring additional operating losses in the future as we continue to explore the potential clinical benefits of Tß4-based product
candidates over multiple indications. To fund further development and clinical trials we have entered into a series of strategic partnerships under licensing and
joint venture agreements (see “Strategic Partnerships” below) where our partners are responsible for advancing development of our product candidates with
multiple clinical trials.
Overview of Tß4
Tß4 is a synthetic copy of a naturally occurring 43-amino acid peptide that was originally isolated from bovine thymus glands. It plays a vital role in
cell structure and motility and in the protection, regeneration, remodeling and healing of tissues.
Although it is recognized that wound healing and tissue regeneration are complex processes, most companies working to develop new drugs in this
area have focused primarily on the development of growth factors and genetic therapies to stimulate healing and have, to date, failed to demonstrate dramatic
improvements in the healing process. Numerous preclinical animal studies, published by independent researchers, have identified several important biological
activities involving Tß4 that we believe make it potentially useful as a wound healing, repair and tissue regenerating agent. These activities include:
·
·
·
·
Progenitor (Stem) Cell Recruitment and Differentiation. Independent research published in the journal Nature in November 2006 featured the
discovery that Tß4 is the key signaling molecule that recruits and triggers adult epicardial progenitor cells, or EPCs, to differentiate into
coronary blood vessels. EPCs are partially differentiated stem cells that can further differentiate into specific cell types when needed.
Confirmatory research published in 2009 in the Journal of Molecular and Cellular Cardiology concluded that Tß4 is responsible for the
initiation of the embryonic coronary developmental program and EPC differentiation in adult mice. These publications confirm that Tß4’s
interaction with EPCs is necessary for the maintenance of a healthy adult animal heart, as well as for normal embryo and fetal heart
development in mammals. In Neuroscience (2009 and 2010), and the J. Neurosurgery (2010), Tß4 was shown to similarly stimulate
oligodendrogenesis, i.e., the differentiation of oligodendroctye progenitor cells into myelin-producing oligodendrocytes, whereby restoring
functional recovery in animal models of multiple sclerosis, stroke, and traumatic brain injury.
Actin Regulation. Tß4 regulates actin, which comprises up to 10% of the protein of non-muscle cells in the body and plays a central role in cell
structure and in the movement of cells. Independent research studies have indicated that Tß4 stimulates the migration of human keratinocytes, or
skin cells, as well as corneal epithelial cells that protect the eye, human endothelial cells and progenitor cells of the heart and brain. Endothelial
cells are the major cell type responsible for the formation of new blood vessels, a process known as angiogenesis. Certain of these studies
conducted at the National Institutes of Health, or NIH, were the first to suggest the role of Tß4 in wound healing. The data from these studies
encouraged us to license the rights to Tß4 from the NIH in 2001 and to launch an initial clinical development program that targeted the use Tß4
for chronic dermal wounds.
Reduction of Inflammation and scar tissue formation. Uncontrolled inflammation is the underlying basis of many pathologies and injuries.
Independent research has shown that Tß4 is a potent anti-inflammatory agent in skin cells and in corneal epithelial cells in the eye. Tß4 has also
been shown to decrease the levels of inflammatory mediators and to significantly reduce the influx of inflammatory cells in the reperfused heart
of animals. More recent preclinical research suggests that Tß4 blocks activation of the NFκB pathway, which is involved in DNA activation of
inflammatory mediators, thereby modulating inflammation in the body. This anti-inflammatory activity may explain, in part, the mechanism by
which Tß4 appeared to improve functional outcome in the mouse multiple sclerosis model described above, as well as promoting repair in the
heart and skin. In the skin, it has been shown to reduce scar formation by reduction of infiltration of myofibroblasts. Identifying a factor such as
Tß4 that reduces scarring and blocks activation of NFκB suggests that Tß4 could have additional important therapeutic applications for
inflammation-related diseases, such as cancer, osteoarthritis, rheumatic diseases, autoimmune diseases, inflammatory pulmonary disease and
pancreatitis.
Collagen and Laminin-5 Stimulation. Tß4 has a number of additional biological activities shown to reduce inflammation, stimulate the
formation of collagen, and up-regulate the expression of laminin-5, a subepithelial basement membrane protein. Both collagen and laminin-5 are
central to healthy tissue, wound repair and the prevention of disease. Laminin-5 promotes cell migration and maintains cell-cell and cell-matrix
contacts for intact tissues which are important for preventing fluid loss and bacterial infection.
5
·
Anti-Apoptosis. Tß4 has been shown to prevent apoptosis, or programmed cell death, in two animal models and in two tissue types. In the
rodent model, corneal apoptosis, or loss of corneal epithelial cells leading to corneal epithelial thinning, was prevented through topical
administration of Tß4 eye drops. In the heart muscle of ischemic animal models, such as in mice and pigs, cell death was prevented by either
local or systemic administration of Tß4.
Tß4 has shown efficacy in heart repair and regeneration in numerous animal models. A 2004 paper in Nature showed that it could reduce the lesion
size, improve cardiac function and promote survival. The 2006 Nature publication mentioned above further concluded that Tß4’s interaction with EPCs
resulted in the formation of cardiomyocytes that repaired damaged myocardium, or heart tissue, in mice after an induced acute myocardial infarction, or AMI,
commonly known as a heart attack. Research published in the journal Circulation showed Tß4’s cardioprotective effects in a pig ischemic-reperfusion model.
This pig model is accepted as an important model upon which to base human clinical research, as pigs are larger mammals, the anatomy of the pig heart is
similar to that of the human heart, and vascular response processes are completed five to six times faster in pigs than in humans, so that long-term results can
be obtained in a relatively short period of time. This research also identified Tß4’s interaction with EPCs as the underlying basis of cardioprotection through
the differentiation of EPCs into cardiomyocytes, yielding statistically significant cardiac functional recovery results when compared to the administration of
placebo.
Similar research in the area of brain and central nervous system tissues also showed efficacy of repair and regeneration was published in the journal
Neuroscience in 2009. This publication concluded that Tß4 triggered the differentiation of oligodendrocyte progenitor cells to form myelin-producing
oligodendrocytes, which led to the remyelination of axons in the brain of mice with experimental autoimmune encephalomyelitis, or EAE. This mouse model
is an accepted small animal model for the study of multiple sclerosis. Research published in the Journal of Neurosurgery in 2010 and also in the Journal of
Neurological Science in 2014 showed that Tß4 could improve functional neurological outcome in an animal stroke model. A second study was published in
the Journal of Neurosurgery in 2011 demonstrating that administration of Tß4 can significantly improve histological and functional outcomes in rats with
traumatic brain injury, or TBI, indicating that Tß4 has considerable therapeutic potential for patients with TBI. More recently, researchers studying Tß4 under
a material transfer agreement (MTA) found that Tß4 had beneficial effects in animal models of peripheral neuropathy, one of the major complications of
diabetes. This research was published in the Journal of Neurobiology of Disease in December 2012 and appears to corroborate previous findings using Tß4
for repair of central nervous system disorders. A paper in Neuropharmacology in 2014 found many benefits of Tß4 administration in a rat model of spinal
cord injury, including decreased lesion size at 7 days, increased neural and oligodendrocyte survival, increase levels of myelin basic protein (a marker of
mature oligodendrocytes), decreased ED1 (a marker of activated microglia/macrophages), and decreased proinflammatory cytokines. Thus, Tß4 has efficacy
for repair and regeneration in several nervous system injury models including MS, TBI, stroke, peripheral neuropathy, and spinal cord injury and there will
likely be additional applications in this area. We believe that these various biological activities work in concert to play a vital role in the healing and repair of
injured or damaged tissue and suggest that Tß4 is an essential component of the tissue protection and regeneration process that may lead to many potential
medical applications. All of our product candidates utilize Tß4 as the active pharmaceutical ingredient (API), which is manufactured by solid-phase peptide
synthesis and is an exact copy of the naturally occurring peptide. We have created three distinct formulations for various routes of administration and medical
indications.
Our Product Candidates
RGN-259
RGN-259 is our proprietary preservative-free eye drop formulation of Thymosin beta 4. In September 2011, we completed a Phase 2a exploratory
clinical trial evaluating the safety and efficacy of RGN-259 in 72 patients with moderate dry eye syndrome. In November 2011, we reported preliminary
safety and efficacy results from the trial. RGN-259 was deemed safe and well-tolerated, with no observed drug-related adverse events.
In June 2012, we reported preliminary results from a double-masked, vehicle-controlled, physician-sponsored Phase 2 clinical trial evaluating RGN-
259 for the treatment of nine patients (18 eyes) with severe dry eye. RGN-259 was observed to be safe and well-tolerated and met key efficacy objectives
with statistically significant sign and symptom improvements, compared to vehicle control, at various time intervals, including 28 days post-treatment.
Consistent with the reduction of ocular discomfort and fluorescein staining at the 28-day follow-up visit, other improvements seen in the RGN-259-
treated patients included tear film breakup time and increased tear volume production. Likewise, these improvements were seen at other time points in the
study. These results were published in Cornea in 2015.
6
In September 2015, ReGenTree began the Phase 2/3 ARISE-1 clinical trial in patients with dry eye syndrome (and the Phase 3 SEER-1 clinical trial
in patients with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient ARISE-1 dry eye trial. In the trial,
RGN-259 demonstrated statistically significant improvements in both signs and symptoms of dry eye with 0.05% and 0.1% RGN-259 compared to placebo in
a dose dependent manner during a 28-day dosing period. While the primary outcome measures were not met, several key related pre-specified endpoints and
subgroups of patients with more severe dry eye showed statistically significant treatment effects. These results confirmed the findings from the previous
Phase 2 trial providing clear direction for the clinical regulatory pathway and remaining registration trials for RGN-259. Shortly following the ARISE-1 trial,
the FDA approved ReGenTree’s Phase 3 ARISE-2 dry eye protocol and we initiated the ARISE-2 trial that enrolled approximately 600 patients.
The ARISE-2 study, which was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements
in both signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles. The
ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group at day 15 as compared to placebo (p=0.0149) in the
change from baseline. For sign, RGN-259 also improved the dry eye patient’s ability to withstand an exacerbated condition in a patient subgroup with both
compromised corneal fluorescein staining and Schirmer’s test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal
fluorescein staining in the change from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye
syndrome and fast onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled data,
although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited and less diversified.
In February 2019 ReGenTree initiated a 700-patient ARISE-3 trial in patients with dry eye syndrome to confirm the results observed in ARISE-2.
We anticipate the first patient will be enrolled in the second quarter of 2019.
Strategic Partnerships
Lee’s Pharmaceuticals. We are a party to a license agreement with Lee’s Pharmaceutical for the license of Thymosin Beta 4 in any pharmaceutical
form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. In February 2019, the License
Agreement was assigned by Lee’s to their affiliate, Zhaoke Ophthalmology Pharmaceutical Limited. Lee’s previously filed an IND with the Chinese FDA to
conduct a Phase 2, randomized, double-masked, dose-response clinical trial with RGN-259 in China for dry-eye syndrome. Lee's subsequently informed us
that it received notice from China's FDA declining its IND application for a Phase 2b dry eye clinical trial because the API was manufactured outside of
China. The API was manufactured in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop RGN-259 ophthalmic eye drops
in the licensed territory. However, in mid-2016, we were informed by Lee’s that the CFDA modified its manufacturing regulations and will now allow
Chinese companies to utilize API manufactured outside of China for Phase 1 and 2 clinical trials. We have not yet been informed of a projected starting date
for Phase 2 trials.
GtreeBNT. We are a party to a license agreement with GtreeBNT for the license of RGN-259 related to certain development and commercialization
rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan). Separately, we licensed GtreeBNT the rights to RGN-137 which was
recently amended as discussed above. GtreeBNT is currently our second largest stockholder. GtreeBNT filed an IND with the Korean Ministry of Food and
Drug Safety to conduct a Phase 2/3 study with RGN-259 in patients with dry eye syndrome and in July 2015 received approval to conduct the trial. In late
2016 GtreeBNT informed us that it believes marketing approval in the U.S. will allow expedited marketing in Korea, possibly without the need for a clinical
trial. At this point, we are still awaiting marketing approval in the U.S.
U.S. Joint Venture (ReGenTree, LLC).
We are a party to a Joint Venture Agreement with GtreeBNT and a License Agreement with ReGenTree for the commercialization of RGN-259 for
treatment of dry eye and neurotrophic keratopathy in the United States, as well as any other relevant ophthalmic indications.
In September 2015, ReGenTree began the Phase 2/3 ARISE-1 clinical trial in patients with dry eye syndrome (and the Phase 3 SEER-1 clinical trial
in patients with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient ARISE-1 dry eye trial. In the trial,
RGN-259 demonstrated statistically significant improvements in both signs and symptoms of dry eye with 0.05% and 0.1% RGN-259 compared to placebo in
a dose dependent manner during a 28-day dosing period. While the primary outcome measures were not met, several key related pre-specified endpoints and
subgroups of patients with more severe dry eye showed statistically significant treatment effects. These results confirmed the findings from the previous
Phase 2 trial providing clear direction for the clinical regulatory pathway and remaining registration trials for RGN-259. Shortly following the ARISE-1 trial,
the FDA approved ReGenTree’s Phase 3 ARISE-2 dry eye protocol and we initiated the ARISE-2 trial that enrolled approximately 600 patients.
7
The ARISE-2 study, which was sponsored by ReGenTree and managed by Ora, Inc., demonstrated a number of statistically significant improvements
in both signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus placebo, while showing excellent safety, comfort, and tolerability profiles. The
ocular discomfort symptom showed a statistically significant reduction in the RGN-259-treated group at day 15 as compared to placebo (p=0.0149) in the
change from baseline. For sign, RGN-259 also improved the dry eye patient’s ability to withstand an exacerbated condition in a patient subgroup with both
compromised corneal fluorescein staining and Schirmer’s test at baseline. In this population, RGN-259 showed superiority over placebo in reducing corneal
fluorescein staining in the change from baseline at days 15 and 29 (p=0.0207 and 0.0254, respectively). RGN-259 confirmed its global effects on dry eye
syndrome and fast onset in multiple sign and symptom efficacies with no safety issues in the ARISE-1 and ARISE-2 studies as well as in the pooled data,
although ARISE-2 was not successful in duplicating the results of ARISE-1 where the study population was limited and less diversified. Most recently,
ReGenTree reaffirmed that the manufacturing of the investigational product for ARISE-3 has been completed and the protocol for the study has been
finalized. Ora, Inc. recently initiated the study with the first patient anticipated to be enrolled in the second quarter of 2019.
RGN-352
During 2009, we completed a Phase 1a and Phase 1b clinical trial evaluating the safety, tolerability and pharmacokinetics of the intravenous
administration of RGN-352 in 60 healthy subjects (40 in each group, 20 of whom participated in both Phases). Based on the results of these Phase 1 trials and
extensive preclinical efficacy data published in peer-reviewed journals, in the second half of 2010, we began start-up activities for a Phase 2 study to evaluate
RGN-352 (Tß4 Injectable Solution) in patients who had suffered an AMI. We had planned to begin enrolling patients in this clinical trial in the second quarter
of 2011. However, in March 2011, we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged
failure to comply with the current Good Manufacturing Practice (cGMP) regulations. The manufacturer has since closed its manufacturing facility and filed
for bankruptcy protection. The FDA prohibited us from using any of the active drug or placebo formulated by this manufacturer in human trials;
consequently, we must have study drug (RGN-352 and RGN-352 placebo) manufactured by a new cGMP-compliant manufacturer in the event we seek to
move forward with this trial. While we have identified a qualified manufacturer for RGN-352, we elected to postpone activities on this trial until the requisite
funding or a partner is secured.
In addition to the potential application of RGN-352 for the treatment of cardiovascular disease, preclinical research published in the scientific
journals Neuroscience and the Journal of Neurosurgery, among others, indicates that RGN-352 may also prove useful for patients with multiple sclerosis, or
MS, as well as patients suffering a stroke, traumatic brain injury, peripheral neuropathy, or spinal cord injury. In these preclinical studies, the administration of
Tß4 resulted in regeneration of neuronal tissue by promoting remyelination of axons and stimulating oligodendrogenesis, resulting in improvement of
neurological functional activity. In 2012, researchers studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial effects in animal
models of peripheral neuropathy, one of the major complications of diabetes. This research was published in the journal of Neurobiology of Disease in 2012
and appears to corroborate previous findings using Tß4 for repair of central nervous system disorders. We are discussing possible partnership opportunities
with companies interested in developing RGN-352 for cardiac and central nervous system indications and are working with an Asian-based medical center
seeking grant funding for cardiovascular studies.
Based on our Phase 1 data and the preclinical research discussed above, we are evaluating various opportunities for government funding for a Phase
2a clinical trial to show proof-of-concept in each case while also talking with prospective strategic partners with the interest, capabilities and resources to
further develop product candidate in these fields.
RGN-137
Clinical Development — Epidermolysis Bullosa (EB). Starting in 2005, we began conducting a Phase 2 clinical trial designed to assess the safety
and effectiveness of RGN-137 for the treatment of patients with EB. EB is a genetic disease of approximately 10 gene mutations that results in fragile skin
and other epithelial structures (e.g., cornea and GI tract) that can blister spontaneously or separate at the slightest trauma or friction, creating a wound that at
times does not heal or heals poorly. In severe cases, recurrent blistering and tissue loss may be life threatening. EB has been designated as an “orphan”
indication by the FDA’s Office of Orphan Drugs. We closed the Phase 2 trial in late 2011 and we submitted the final report to the FDA in 2014. In February
2017, GtreeBNT received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using RGN-137 to treat patients with EB. In December 2018,
GtreeBNT initiated a small open trial in a limited number of patients with EB.
Clinical Development — Pressure Ulcers. In late 2005, we began conducting Phase 2 clinical trial designed to assess the safety and effectiveness of
RGN-137 for the treatment of patients with chronic pressure ulcers, commonly known as bedsores.
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In January 2009, we reported final data from this trial. RGN-137 was well-tolerated at all three dose levels studied, with no dose-limiting adverse
events, which achieved the primary objective of the study. A follow-on evaluation, reported at the 3rd International Symposium on the Thymosins in Health
and Disease in March 2012, showed that for those pressure ulcer patients’ wounds that healed, RGN-137 mid dose (0.02% Tβ4 gel product) accelerated
wound closure with a median time to healing of 22 days as compared to 57 days for the placebo. Although those results are clinically significant, they were
not statistically significant.
Clinical Development — Venous Stasis Ulcers. In mid-2006 we began conducting a Phase 2 clinical trial designed to assess the safety and
effectiveness of RGN-137 for the treatment of patients with venous stasis ulcers. Venous stasis ulcers are a common type of chronic wound that develops on
the ankle or lower leg in patients with chronic vascular disease. In these patients’ blood flow in the lower extremities is impaired leading to venous
hypertension, edema (swelling) and mild redness and scaling of the skin that gradually progresses to ulceration. In 2009, we reported final data from that trial.
Those results were both clinically and statistically significant.
Our Strategy
We seek to maximize the value of our product candidates by advancing their clinical development and then identifying suitable partners for further
development, regulatory approval, and marketing. We intend to engage in strategic partnerships with companies with clinical development and
commercialization strengths in desired pharmaceutical therapeutic fields. We are actively seeking partners with suitable infrastructure, expertise and a long-
term initiative in our medical fields of interest. To that end, we have entered the licensing and joint ventures discussed above.
In 2004, we entered into a strategic partnership for development and marketing of RGN-137 and RGN-352 for specified fields of use in Europe and
other contiguous countries with Sigma-Tau Group, which was subsequently acquired by Alfa Wassermann S.p.A., both Italian pharmaceutical companies.
Pursuant to the terms of the license, we notified Alfa Wassermann that the license expired by its terms and we, therefore, reacquired rights to our Tß4-based
products in the licensed territory. In August 2017, the Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the
Territory was expanded to include Europe, Canada, South Korea, Australia and Japan. Further, we now control the cardiovascular and neurovascular assets
(RGN-352) in the EU and are able to consolidate them with similar assets in the U.S. and other territories in Asia to create a worldwide portfolio that we
believe will be more attractive to multi-national pharmaceutical companies.
Manufacturing
We use a major contract manufacturer to produce bulk Tß4, which is the active pharmaceutical ingredient, or API, in our product candidates by an
established and proven manufacturing process known as solid-phase peptide synthesis. While we do not currently have long-term supply agreements in place,
we and ReGenTree intend to establish a long-term supply arrangement with at least one manufacturer once practicable. No assurance can be given, however,
that such agreements will be negotiated on favorable terms, or at all. Contractors are selected on the basis of their supply capability, ability to produce a
product in accordance with Current Good Manufacturing Practice, or cGMP, requirements of the FDA and ability to meet our established specifications and
quality requirements. Given our recent licensing and joint venture deals, our partner in Korea and the U.S. are working closely with our current primary
contract manufacturer on the cGMP validation process and consistency runs, among other things, to prepare for the manufacture of bulk Tß4 for use in future
clinical trials and commercialization of our formulated product candidates. Through ReGenTree we are also identifying and qualifying other potential API
manufacturers. RegeneRx will have access to the data resulting from this endeavor should we need to use it for purposes outside the licensed territories.
We also use a number of outside contract manufacturers to formulate bulk Tß4 into our product candidates, RGN-137, RGN-259 and RGN-352. We
use separate manufacturers for each formulation of Tß4. All of these formulations may require modifications, along with additional studies, as we advance
our clinical development programs through commercialization.
Competition
We are engaged in a business that is highly competitive, and our target medical indications are ones with significant unmet needs. Consequently,
there are many enterprises, both domestic and foreign, pursuing therapies and products that could compete with ours. Most of these entities have financial and
human resources that are substantially greater than ours, specifically with regard to the conduct of clinical research and development activities, clinical testing
and in obtaining the regulatory approvals necessary to market pharmaceutical products. Brief descriptions of some of these competitive products follow:
RGN-259. Most specialty ophthalmic companies have a number of products on the market that could compete with RGN-259. There are numerous
antibiotics to treat eye infections to promote corneal wound healing and many eye lubrication products that are soothing to the eye and help eye healing, many
of which are sold without prescriptions. Companies also market steroids to treat certain conditions within our area of interest. Allergan, Inc. markets
Restasis™, Ophthalmic Emulsion, an FDA-approved eye drop used to treat dry eye. Restasis, and other products, have been approved for marketing in certain
other countries where we have licensed RGN-259. Shire PLC is marketing its recently FDA-approved product, Xiidra. We believe RGN-259 is different from
Restasis and Xiidra and any other product or product candidate available for dry eye in that it actively promotes repair using a multi-faceted approach of
increasing cell migration and laminin-5 production, and decreasing inflammation and apoptosis, without any noted adverse effects.
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RGN-352. Currently, we do not believe there are any approved pharmaceutical products for regenerating cardiac tissue following a heart attack, nor
for regeneration of nervous tissue or for the remyelination of axons of patients with multiple sclerosis or patients suffering from traumatic brain injury.
However, many pharmaceutical companies and research organizations are developing products, pharmacologic and stem cell therapies and technologies that
are intended to prevent cardiac damage, improve cardiac function, and regenerate cardiac muscle after a heart attack. There are also companies developing
products that are purported to remyelinate neurons and provide functional improvement for patients suffering from multiple sclerosis, stroke, traumatic brain
injury, and peripheral neuropathy. If we, or a partner, were to successfully develop RGN-352 for cardiovascular or central nervous system indications, such
products would have to compete with other drugs or therapies currently being developed or marketed by large pharmaceutical companies for similar
indications.
RGN-137. There are numerous companies developing new pharmaceutical products for wound healing and for EB, in particular. Products and
therapies such as antibiotics, honey-based ointments, silver-based compounds and low frequency cavitational ultrasound are also used to treat certain types of
dermal wounds. Moreover, dermal wound healing is a large and highly fragmented marketplace that includes numerous therapeutic products and medical
devices for treating acute and chronic dermal wounds. Most recently, various other companies are attempting to develop genetic therapies to try to heal or
prevent serious wound disorders.
Government Regulation
In the United States, the Federal Food, Drug, and Cosmetic Act, as amended, or FFDCA, and the regulations promulgated thereunder, and other
federal and state statutes and regulations govern, among other things, the testing, manufacturing, labeling, storing, recordkeeping, distribution, advertising and
promotion of our product candidates. Regulation by governmental authorities in the United States and foreign countries will be a significant factor in the
manufacturing and potential marketing of our product candidates and in our ongoing research and product development activities. Any product candidate we
develop will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to
rigorous preclinical studies, clinical trials and other approval procedures by the FDA and similar health authorities in foreign countries. The process of
obtaining these approvals and subsequent compliance with appropriate federal and state statutes and regulations requires the expenditure of substantial
resources.
Preclinical studies must ordinarily be conducted to evaluate an investigational new drug’s potential safety by toxicology studies and potential
efficacy by pharmacology studies. The results of these studies, among other things, are submitted to the FDA as part of an Investigational New Drug
Application, or IND, which must be reviewed by the FDA before clinical trials can begin. Typically, clinical evaluation involves a three-stage process. Phase
1 clinical trials are conducted with a small number of healthy volunteers to determine the safety profile and the pattern of drug absorption, distribution,
metabolism and excretion, and to assess the drug’s effect on the patient. Phase 2, or therapeutic exploratory, trials are conducted with somewhat larger groups
of patients, who are selected by relatively narrow criteria yielding a more homogenous population that is afflicted with the target disease, in order to
determine preliminary efficacy, optimal dosages and expanded evidence of safety. Phase 2 trials should allow for the determination of the dose to be used in
Phase 3 clinical trials. Phase 3, or therapeutic confirmatory, large scale, multi-center, comparative trials are conducted with patients afflicted with a target
disease in order to provide enough data for the statistical proof of safety and efficacy required by the FDA and other regulatory authorities. The primary
objective of Phase 3 clinical trials is to show that the drug confers therapeutic benefit that outweighs any safety risks. All clinical trials must be registered
with a central public database, such as www.clinicaltrials.gov, and once completed, results of the clinical trials must be entered in the database.
The results of these preclinical studies and clinical trials, along with detailed information on manufacturing, are submitted to the FDA in the form of
a New Drug Application, or NDA, for approval to commence commercial sales. The FDA’s review of an NDA requires the payment of a user fee currently in
excess of $1.8 million, which may be waived for the first NDA submitted by a qualifying small business. In responding to an NDA, the FDA may refuse to
file the application if the FDA determines that the application does not satisfy its regulatory approval criteria, request additional information or grant
marketing approval. Therefore, even if we complete Phase 3 clinical trials for our product candidates and submit an NDA to the FDA, there can be no
assurance that the FDA will grant marketing approval, or if granted, that it will be granted on a timely basis. If the FDA does approve a product candidate, it
may require, among other things, post-marketing testing, including potentially expensive Phase 4 trials, which monitor the safety of the drug. In addition, the
FDA may in some circumstances impose risk evaluation and mitigation strategies that may be difficult and expensive to administer. Product approvals may be
withdrawn if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market.
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Among the conditions for NDA approval is the requirement that the applicable clinical, pharmacovigilance, quality control and manufacturing
procedures conform on an ongoing basis with current Good Clinical Practices, Good Laboratory Practices, current Good Manufacturing Practices, and
computer information system validation standards. During the review of an NDA, the FDA will perform a pre-licensing inspection of select clinical sites,
manufacturing facilities and the related quality control records to determine the applicant’s compliance with these requirements. To assure compliance,
applicants must continue to expend time, money and effort in the area of training, production and quality control. After approval of any product,
manufacturers are subject to periodic inspections by the FDA. If a company fails to comply with FDA regulatory requirements, FDA may pursue a wide
range of remedial actions, including seizure of products, corrective actions, warning letters and fines.
We have received orphan drug designation from the FDA for RGN-137 for the treatment of EB and RGN-259 for the treatment of neurotrophic
keratopathy or NK, (now to be developed by ReGenTree). The FDA may designate a product or products as having orphan drug status to treat a disease or
condition that affects less than 200,000 individuals in the United States, or, if patients of a disease number more than 200,000, the sponsor can establish that it
does not realistically anticipate its product sales will be sufficient to recover its costs. If a product candidate is designated as an orphan drug, then the sponsor
may receive incentives to undertake the development and marketing of the product, including grants for clinical trials, as well as a waiver of the user fees for
submission of an NDA application. For example, as described above, we received a grant from the FDA for our Phase 2 clinical trial of RGN-137 to treat
patients with EB.
Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such
designation, the product is entitled to marketing exclusivity for a period of seven years in the United States and ten years in the EU. There may be multiple
designations of orphan drug status for a given drug and for different indications. Orphan drug designation does not guarantee that a product candidate will be
approved by the FDA for marketing for the designation, and even if a sponsor of a product candidate for an indication for use with an orphan drug designation
is the first to obtain FDA approval of an NDA for that designation and obtains marketing exclusivity, another sponsor’s application for the same drug product
may be approved by the FDA during the period of exclusivity if the FDA concludes that the competing product is clinically superior. In this instance, the
orphan designation and marketing exclusivity originally granted would be lost in favor of the clinically superior product.
Intellectual Property
We hold worldwide patents and patent applications covering peptide compositions, uses and formulations related to dermal and ophthalmic
indications and other organ and tissue repair activities. In 2001, we entered into a license agreement with the NIH under which we received an exclusive
worldwide license from the NIH for all claims within the scope of the NIH’s patent application, and any issued patents, covering the use of Tß4 as a tissue
repair and regeneration factor. In 2007, patents were issued in Europe and the United States related to the original NIH patent application. These patents
expire in July 2019. Corresponding patents have also been granted in Hong Kong, Australia and China and certain other territories. The issued European
patent was opposed by a third party at the European Patent Office and, in December 2009, we argued the case before the Opposition Division of the European
Patent Office in Munich, Germany and prevailed with certain amendments to the claims. In exchange for the exclusive license, we agreed to make certain
minimum royalty and milestone payments to the NIH.
We hold a U.S. patent relating to the use of Tß4 for the treatment of congestive heart failure. This patent was issued in January 2012. In 2006, we
were issued a patent in China for the use of Tß4 to treat EB. We also hold two patents for the treatment of dry eye in the U.S. and a patent for certain neuro
disorders, as well as peripheral neuropathy. Other patent applications for our various product candidates, if issued, will offer protection in the U.S. and certain
other territories through 2033.
We, and our partners, have also filed additional U.S. and international patent applications covering various compositions, uses, formulations and
other components of Tß4, as well as for novel peptides resulting from our research efforts, the latest of which were filed during 2015. There can be no
assurance that these, or any other future patent applications under which we have rights, will result in the issuance of a patent or that any patent issued will
not be subject to challenge or opposition. In the case of a claim of patent infringement by or against us, there can be no assurance that we will be able to
afford the expense of any litigation that may be necessary to enforce our proprietary rights or that relevant patents will not expire prior to approval of any of
our product candidates.
We continuously evaluate our patents and patent applications in certain territories to determine whether it is cost-effective to continue to maintain or
prosecute them. In some cases, we have determined that the value or potential value of such patents and/or applications is not worth the continued effort or
expense and have either ceased efforts to pursue specific patents or abandoned any that have short expiries or cover countries of minimal strategic interest to
us or our partners. We will continue to evaluate our portfolio and take such actions from time to time as appropriate.
Material Agreements
National Institutes of Health
We are party to a license agreement with NIH under which we are obligated to pay an annual minimum royalty of $2,000. In 2013, we amended
certain provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed patent rights during 2013 calendar
year against the 2013 minimum annual royalty. Beginning in 2014, the minimum annual royalty is $2,000. Additionally, we are obligated to pay the NIH a
percentage of sales of qualifying product candidates, if any. There have been no such sales to date. Through December 31, 2018, we have complied with all
minimum royalty requirements, and no milestone payments have been required under the agreement. The patent is due to expire in 2019.
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Lee’s Pharmaceuticals
On July 15, 2012, we entered into a License Agreement with Lee’s Pharmaceutical for the license of Tß4 in any pharmaceutical formulation,
including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. The terms of the License Agreement include
aggregate potential milestone payments of up to $3.6 million and royalties ranging from low double digit to high single digit royalties on commercial sales, if
any. Under the License Agreement, Lee’s is responsible for all developmental costs associated with each product candidate. We provided Tß4 to Lee’s at no
charge for a Phase 2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other developmental and clinical work at a price equal to our cost.
The Company has discussed Lee’s development plans and we have continued to provide information as requested. Lee’s previously filed an
investigational new drug application IND with the Chinese FDA to conduct a Phase 2, randomized, double-masked, dose-response clinical trial with RGN-
259 in China for dry-eye syndrome. Lee’s subsequently informed us that it received notice from China's FDA (CFDA) declining its investigational new drug
(IND) application for a Phase 2b dry eye clinical trial because the API (active pharmaceutical ingredient or Tß4) was manufactured outside of China. The API
was manufactured in the U.S. and provided to Lee's by RegeneRx pursuant to a license agreement to develop RGN-259 ophthalmic eye drops in the licensed
territory. However, in mid-2016, we were informed by Lee’s that the CFDA modified its manufacturing regulations and will now allow Chinese companies to
utilize API manufactured outside of China for Phase 1 and 2 clinical trials. We have not yet been informed of a projected starting date for Phase 2 trials. In
February 2019, the License Agreement was amended and assigned by Lee’s to their affiliate, Zhaoke Ophthalmology Pharmaceutical Limited. There are no
economic changes to the License Agreement.
GtreeBNT
On March 7, 2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of territorial
rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under the License Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and
commercialize RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia, New Zealand,
Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand, Vietnam, and Kazakhstan, and
semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, collectively, the
Territory (the “259 Territory”). Under the License Agreement for RGN-259 we are eligible to receive aggregate potential milestone payments of up to $3.5
million. In addition, we are eligible to receive royalties of a low double-digit percentage of any commercial sales of the licensed product sold by GtreeBNT in
the 259 Territory.
Under the License Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop and
commercialize RGN-137 in the U.S. (the “137 Territory”). Under the License Agreement for RGN-137 we are eligible to receive aggregate potential
milestone payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double-digit percentage of any commercial sales of our
licensed product sold by GtreeBNT in the 137 Territory. Under an amendment to the License Agreement for RGN-137, for which we were compensated, the
137 Territory was expanded to include Europe, Canada, South Korea, Australia and Japan.
Both the License Agreement for RGN-137 and the License Agreement for RGN-259 contain diligence provisions that require the initiation of certain
clinical trials within certain time periods that, if not met, would result in the loss of rights or exclusivity in certain countries. GtreeBNT will pay for all
developmental costs associated with each product candidate. We retain the manufacturing and supply rights for Tß4 in the 259 Territory and 137 Territory and
the parties will negotiate in good faith an exclusive supply agreement for Tß4 as soon as practicable. We will also have the right to exclusively license any
improvements made by GtreeBNT to our products outside of the licensed territory on a royalty-free basis.
The two firms have created a joint development committee and continue to discuss and the development of the licensed products and share
information relating thereto. Both companies will also share all non-clinical and clinical data and other information related to development of the licensed
product candidates.
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ReGenTree - U.S. Joint Venture
On January 28, 2015, we entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company and licensee in certain Pan Asian
countries. The Joint Venture Agreement provides for the creation of the Joint Venture, ReGenTree, LLC (“ReGenTree”), jointly owned by the Company and
GtreeBNT that will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy in the United States, as well as any other relevant
ophthalmic indications.
GtreeBNT is solely responsible for funding all of the product development and commercialization efforts of ReGenTree. GtreeBNT made an initial
contribution of $3 million in cash and received an initial equity stake of 51%. RegeneRx received and initial equity stake of 49% of ReGenTree. GtreeBNT’s
equity stake may increase (and RegeneRx’s would proportionally decrease) upon ReGenTree achieving certain product development milestones (including
receipt of a new drug application (“NDA”) by the U.S. FDA). GtreeBNT has subsequently funded the initial Phase 2b/3 and the ongoing Phase 3 U.S. clinical
trials for dry eye syndrome and neurotrophic keratopathy, respectively.
Our initial ownership interest in ReGenTree was 49% and was reduced to 38.5% after filing of the final clinical study report with the FDA for the
Phase 3 trial for Dry Eye Syndrome completed in 2017. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S.
with RGN-259, our equity ownership may be incrementally reduced to between 38.5% and 25%, with 25% being the final equity ownership upon FDA
approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between single
and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event the ReGenTree entity is acquired or there is
a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will
forgo any future royalties.
The Company is not required or otherwise obligated to provide financial support to ReGenTree.
ReGenTree is responsible for executing all development and commercialization activities under the License Agreement, which activities will be
directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement has a term that extends to
the later of the expiration of the last patent covered by the License Agreement or 25 years from the first commercial sale under the License Agreement. The
License Agreement may be earlier terminated if the Joint Venture fails to meet certain commercialization milestones, or if either party breaches the License
Agreement and fails to cure such breach, or as a result of government action that limits the ability of the Joint Venture to commercialize the product, as a
result of a challenge to a licensed patent, following termination of the license between the Company and certain agencies of the United States federal
government, or upon the bankruptcy of either party.
Development Agreements
While we are not currently directly engaged in development activities, historically we have entered into agreements with outside service providers
for the manufacture and development of Tß4, the formulation of Tß4 into our product candidates, the conduct of nonclinical safety, toxicology and efficacy
studies in animal models, and the management and execution of clinical trials in humans. Terms of these agreements vary in that they can last from a few
months to more than a year in duration. For additional information regarding our research and development expenses over the past two years, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in this report.
Employees
We currently have three full time employees including our President and CEO. We also retain three independent contractors. We believe that we
have good relations with our employees and contractors.
Corporate Information
We were incorporated in Delaware in 1982 under the name Alpha 1 Biomedicals, Inc. In 2000, we changed our corporate name to RegeneRx
Biopharmaceuticals, Inc. Our principal executive office is located at 15245 Shady Grove Road, Suite 470, Rockville, Maryland 20850. Our telephone number
is (301) 208-9191.
Available Information
Our corporate website is www.regenerx.com. Our electronic filings with the U.S. Securities and Exchange Commission, or SEC, including our
annual report on Form 10-K, quarterly reports on Form 10-Q and 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 of 1934, as amended, are available free of charge through our website as soon as reasonably
practicable after we have electronically filed such information with, or furnished such information to, the SEC.
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Item 1A. Risk Factors
Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking statements contained in this report. The descriptions below include any material
changes to and supersede the description of the risk factors affecting our business previously disclosed in “Part II, Item 1A. Risk Factors” of the Annual
Report.
Risks Related to Our Liquidity and Need for Financing
Before giving effect to any potential additional sales of our securities, we estimate that our existing capital resources coupled with the proceeds from the
February 2019 note sales will only be sufficient to fund our operations through the first quarter of 2020.
Even though we sold a series of convertible promissory notes in February 2019 and will receive proceeds of $1,300,000, these proceeds are only
projected to fund our operations at the current level through the first quarter of 2020, therefore we will need to secure additional operating capital to continue
operations beyond the first quarter of 2020. We continuously monitor our cash use as well as the clinical timelines. We will need to secure additional
operating capital in 2019 or early 2020 and are evaluating options including the licensing of additional rights to commercialize our clinical products as well as
raising capital through the capital markets which may cause a reduction in the trading price of our common stock.
We will need substantial additional capital for the continued development of product candidates through marketing approval and for our longer-term
future operations.
We anticipate that substantial new capital resources will be required to continue our longer-term product development efforts, including any and all
follow-on trials that will result from our current clinical programs beyond those currently contemplated, and to scale up manufacturing processes for our
product candidates. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control. These
factors include, without limitation:
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the scope of our, or our partners’, clinical trials, which is significantly influenced by the quality of clinical data achieved as trials are completed
and the requirements established by regulatory authorities;
the speed with which we, or our partners, complete our clinical trials, which depends on our ability to attract and enroll qualifying patients and
the quality of the work performed by our clinical investigators and contract research organizations chosen to conduct the studies;
the time required to prosecute, enforce and defend our intellectual property rights, which depends on evolving legal regimes and infringement
claims that may arise between us and third parties;
the ability to manufacture at scales sufficient to supply commercial quantities of any of our product candidates that receive regulatory approval,
which may require levels of effort not currently anticipated; and
the successful commercialization of our product candidates, which will depend on our, or our partners’, ability to either create or partner with an
effective commercialization organization and which could be delayed or prevented by the emergence of equal or more effective therapies.
Emerging biotechnology companies like us may raise capital through corporate collaborations and by licensing intellectual property rights to other
biotechnology or pharmaceutical enterprises. We intend to pursue this strategy, but there can be no assurance that we will be able to enter into additional
license agreements with respect to our intellectual property or product development programs on commercially reasonable terms, if at all. There are
substantial challenges and risks that will make it difficult to successfully implement any of these alternatives. If we are successful in raising additional capital
through such a license or collaboration, we may have to give up valuable rights to our intellectual property. In addition, the business priorities of a strategic
partner may change over time, which creates the possibility that the interests of the strategic partner in developing our technology may diminish and could
have a potentially material negative impact on the value of our interest in the licensed intellectual property or product candidates.
Further, if we raise additional funds by selling shares of our common stock or securities convertible into our common stock the ownership interest of
our existing stockholders may be significantly diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities
are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants or the
granting of security interests in our assets.
Our failure to successfully address our short-term capital needs and our long-term liquidity requirements would have a material negative impact on
our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials or ceasing our
operations.
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We have incurred losses since inception and expect to incur significant losses in the foreseeable future and may never become profitable.
We have not commercialized any product candidates to date and incurred net operating losses every year since our inception in 1982. We believe
these losses will continue for the foreseeable future, and may increase, as we pursue our product development efforts related to Tß4. As of December 31,
2018, our accumulated deficit totaled approximately $106 million.
As we expand our research and development efforts and seek to obtain regulatory approval of our product candidates to make them commercially
viable, we anticipate substantial and increasing operating losses. Our ability to generate revenues and to become profitable will depend largely on our ability,
alone or through the efforts of third-party licensees and collaborators, to efficiently and successfully complete the development of our product candidates,
obtain necessary regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities either internally or through third-party
suppliers, and market our product candidates. There can be no assurance that we will achieve any of these objectives or that we will ever become profitable or
be able to maintain profitability. Even if we do achieve profitability, we cannot predict the level of such profitability. If we continue to sustain losses over an
extended period of time and are not otherwise able to raise necessary funds to continue our development efforts and maintain our operations, we may be
forced to cease operations.
Our common stock is quoted on the over-the-counter market, which subjects us to the SEC’s penny stock rules and may decrease the liquidity of our
common stock.
Our common stock is traded over-the-counter on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less efficient
than, and not as broad as, a stock exchange. There may be a limited market for our stock now that it is quoted on the OTC Bulletin Board, trading in our stock
may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common stock at or above the price
you paid for such shares or at all.
In addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot
guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while our
shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing while our common stock is
traded on a national securities exchange. Further, we are unable to use short-form registration statements on Form S-3 for the registration of our securities,
which could impair our ability to raise additional capital as needed.
Our common stock is also subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common
stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The
ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market will be limited and, as a
result, the market liquidity for our common stock will likely be adversely affected. We cannot assure you that trading in our securities will not be subject to
these or other regulations in the future.
The report of our independent registered public accounting firm contains explanatory language that substantial doubt exists about our ability to continue
as a going concern.
The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2018, contains
explanatory language that substantial doubt exists about our ability to continue as a going concern, without raising additional capital. As described in this
report, in February 2019, we sold a series of convertible promissory notes to accredited investors and will receive gross proceeds of $1,300,000 which will
fund planned operations through the first quarter of 2020. We will need to secure additional operating capital to continue operations beyond the first quarter of
2020. Therefore, we are seeking sources of capital, but if we are unable to obtain sufficient financing to support and complete these activities, then we would,
in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy
or undergo liquidation, the result of which will adversely affect the value of our common shares.
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Risks Related to Our Business and Operations
Our planned Phase 2 clinical trial of RGN-352 was placed on clinical hold by the FDA in March 2011 due to non-compliance of cGMP regulations by a
contract manufacturer and we are unsure when, if ever, we will be able to resume this trial.
In the second half of 2010, we implemented the development plans for our Phase 2 clinical trial to evaluate RGN-352 in patients who have suffered
an acute myocardial infarction, or AMI. We had planned to begin enrolling patients near the end of the first quarter of 2011. However, in March 2011, we
were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply with current Good
Manufacturing Practice (“cGMP”) regulations. The FDA has prohibited us from using any of the active drug or placebo manufactured by this manufacturer in
human trials, which will require us to identify a cGMP-compliant manufacturer and to have new material produced in the event that we seek to resume this
trial. We learned that the contract manufacturer has closed its manufacturing facility and has filed for bankruptcy protection. Significant preparatory time and
procedures will be required before any new suitable manufacturer would be able to manufacture RGN-352 for the AMI trial. Since we are unable to estimate
the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the FDA clinical hold is resolved and the requisite
funding might be secured. Consequently, there can be no assurance that we will be able to timely initiate trial activities or complete this trial, if at all. As of
the date of this report, we have received no new information on that status of this trial.
All of our drug candidates are based on a single compound.
Our current primary business focus is the development of Tß4, and its analogues, derivatives and fragments, for the regeneration and accelerated
repair of damaged tissue from non-healing dermal and corneal wounds, cardiac injury, central/peripheral nervous system diseases and other conditions, as
well as an improvement in various functions, such as, but not limited to, cardiac and neurological. Unlike many pharmaceutical companies that have a number
of unique chemical entities in development, we are dependent on a single molecule, formulated for different routes of administration and different clinical
indications, for our potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based products that cross formulations would
have a much greater impact on our business prospects than if our product pipeline were more diversified.
We may never be able to commercialize our product candidates.
Although Tß4 has shown biological activity in in vitro studies and in vivo animal models and while we observed clinical activity and efficacious
outcomes in our recent RGN-259 Phase 2a trial and earlier Phase 2 dermal trials, we cannot assure you that our product candidates will exhibit activity or
importance in humans in large-scale trials. Our drug candidates are still in research and development, and we do not expect them to be commercially available
for the foreseeable future, if at all. Only a small number of research and development programs ultimately result in commercially successful drugs. Potential
products that appear to be promising at early stages of development may not reach the market for a number of reasons. These include the possibility that the
potential products may:
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be found ineffective or cause harmful side effects during preclinical studies or clinical trials;
fail to receive necessary regulatory approvals;
be precluded from commercialization by proprietary rights of third parties;
be difficult to manufacture on a large scale; or
be uneconomical or otherwise fail to achieve market acceptance.
If any of these potential problems occurs, we may never successfully market Tß4-based products.
We are subject to intense government regulation, and we may not receive regulatory approvals for our drug candidates.
Our product candidates will require regulatory approvals prior to sale. In particular, therapeutic agents are subject to stringent approval processes,
prior to commercial marketing, by the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign
approvals is costly and time-consuming, and we cannot assure you that such approvals will be granted. Also, the regulations we are subject to change
frequently and such changes could cause delays in the development of our product candidates.
Three of our drug candidates are currently in the clinical development stage, and we cannot be certain that we, or our partners, will successfully
complete the clinical trials necessary to receive regulatory product approvals. The regulatory approval process is lengthy, unpredictable and expensive. To
obtain regulatory approvals in the United States, we or a partner must ultimately demonstrate to the satisfaction of the FDA that our product candidates are
sufficiently safe and effective for their proposed administration to humans. Many factors, known and unknown, can adversely impact clinical trials and the
ability to evaluate a product candidate’s safety and efficacy, including:
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the FDA or other health regulatory authorities, or institutional review boards, or IRBs, do not approve a clinical trial protocol or place a clinical
trial on hold;
suitable patients do not enroll in a clinical trial in sufficient numbers or at the expected rate, for reasons such as the size of the patient
population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the perceptions of investigators and patients regarding
safety, and the availability of other treatment options;
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clinical trial data is adversely affected by trial conduct or patient withdrawal prior to completion of the trial;
there may be competition with ongoing clinical trials and scheduling conflicts with participating clinicians;
patients experience serious adverse events, including adverse side effects of our drug candidates, for a variety of reasons that may or may not be
related to our product candidates, including the advanced stage of their disease and other medical problems;
patients in the placebo or untreated control group exhibit greater than expected improvements or fewer than expected adverse events;
third-party clinical investigators do not perform the clinical trials on the anticipated schedule or consistent with the clinical trial protocol and
good clinical practices, or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;
service providers, collaborators or co-sponsors do not adequately perform their obligations in relation to the clinical trial or cause the trial to be
delayed or terminated;
we are unable to obtain a sufficient supply of manufactured clinical trial materials;
regulatory inspections of manufacturing facilities, which may, among other things, require us or a co-sponsor to undertake corrective action or
suspend the clinical trials, such as the clinical hold with respect to our Phase 2 clinical trial of RGN-352;
the interim results of the clinical trial are inconclusive or negative;
the clinical trial, although approved and completed, generates data that is not considered by the FDA or others to be clinically relevant or
sufficient to demonstrate safety and efficacy; and
changes in governmental regulations or administrative actions affect the conduct of the clinical trial or the interpretation of its results.
There can be no assurance that our, or our partners’, clinical trials will in fact demonstrate, to the satisfaction of the FDA and others, that our
product candidates are sufficiently safe or effective. The FDA or we may also restrict or suspend our clinical trials at any time if it is believed that subjects
participating in the trials are being exposed to unacceptable health risks.
Clinical trials for product candidates such as ours are often conducted with patients who have more advanced forms of a particular condition or other
unrelated conditions. For example, in clinical trials for our product candidate RGN-137, we have studied patients who are not only suffering from chronic
epidermal wounds but who are also older and much more likely to have other serious adverse conditions. During the course of treatment with our product
candidates, patients could die or suffer other adverse events for reasons that may or may not be related to the drug candidate being tested. Further, and as a
consequence that all of our drug candidates are based on Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug
candidate, and that adverse event may have implications for our other trials and other drug candidates. However, even if unrelated to our product candidates,
such adverse events can nevertheless negatively impact our clinical trials, and our business prospects would suffer.
These factors, many of which may be outside of our control, may have a negative impact on our business by making it difficult to advance product
candidates or by reducing or eliminating their potential or perceived value. As a consequence, we may need to perform more or larger clinical trials than
planned. Further, if we are forced to contribute greater financial and clinical resources to a study, valuable resources will be diverted from other areas of our
business. If we fail to complete or if we experience material delays in completing our clinical trials as currently planned, or we otherwise fail to commence or
complete, or experience delays in, any of our other present or planned clinical trials, including as a result of the actions of third parties upon which we rely for
these functions, our ability to conduct our business as currently planned could materially suffer.
We may not successfully establish and maintain development and testing relationships with third-party service providers and collaborators, which could
adversely affect our ability to develop our product candidates.
We have only limited resources, experience with and capacity to conduct requisite testing and clinical trials of our drug candidates. As a result, we
rely and expect to continue to rely on third-party service providers and collaborators, including corporate partners, licensors and contract research
organizations, or CROs, to perform a number of activities relating to the development of our drug candidates, including the design and conduct of clinical
trials, and potentially the obtaining of regulatory approvals. For example, we currently rely on several third-party contractors to manufacture and formulate
Tß4 into the product candidates used in our clinical trials, develop assays to assess Tß4’s effectiveness in complex biological systems, recruit clinical
investigators and sites to participate in our trials, manage the clinical trial process and collect, evaluate and report clinical results.
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We may not be able to maintain or expand our current arrangements with these third parties or maintain such relationships on favorable terms. Our
agreements with these third parties may also contain provisions that restrict our ability to develop and test our product candidates or that give third parties
rights to control aspects of our product development and clinical programs. In addition, conflicts may arise with our collaborators, such as conflicts
concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property
developed during the collaboration. If any conflicts arise with our existing or future collaborators, they may act in their self-interest, which may be adverse to
our best interests. Any failure to maintain our collaborative agreements and any conflicts with our collaborators could delay or prevent us from developing
our product candidates. We and our collaborators may fail to develop products covered by our present and future collaborations if, among other things:
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we or our partners do not achieve our objectives under our collaboration agreements;
we or our partners are unable to obtain patent protection for the products or proprietary technologies we develop in our partnerships;
we are unable to manage multiple simultaneous product development partnerships;
our partners become competitors of ours or enter into agreements with our competitors;
we or our partners encounter regulatory hurdles that prevent commercialization of our product candidates; or
we develop products and processes or enter into additional partnerships that conflict with the business objectives of our other partners.
We also have less control over the timing and other aspects of our clinical trials than if we conducted the monitoring and supervision entirely on our
own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or
applicable regulations. We, and our partners, also rely on clinical research organizations to perform much of our data management and analysis. They may not
provide these services as required or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures, including procedures
required by law, the preclinical studies and clinical trials may take longer than expected, may be delayed or may be terminated, which would have a
materially negative impact on our product development efforts. If we were forced to find a replacement entity to perform any of our preclinical studies or
clinical trials, we may not be able to find a suitable entity on favorable terms or at all. Even if we were able to find a replacement, resulting delays in the tests
or trials may result in significant additional expenditures and delays in obtaining regulatory approval for drug candidates, which could have a material adverse
impact on our results of operations and business prospects.
GtreeBNT Co., Ltd. has limited drug development experience.
We are a party to several license agreements and a Joint Venture with GtreeBNT. Historically, GtreeBNT’s business focus has been in the IT software
industry in Korea with strong IP positions addressing specific software tools and apps such as optimized multimedia software for smart phones. GtreeBNT
made a strategic decision in November 2013 to expand into the biopharmaceutical business through selected strategic alliances with biopharmaceutical
companies in the U.S. and EU. The collaboration with RegeneRx is the first strategic investment in this initiative. While GtreeBNT has hired executives and
staff with significant pharmaceutical experience, the company has no internal drug development experience. As a result, GtreeBNT may face more and
different challenges in the development of these product candidates than would more established pharmaceutical companies.
GtreeBNT Co., Ltd. has limited financial resources.
GtreeBNT has informed us that they have limited financial resources. They have to continuously raise capital to fund research, development,
clinical trials, and operations. Therefore, their ability to finance each of these areas is subject to its ability to secured adequate capital. While GtreeBNT has
been able to finance each of these areas, to date, there is no assurance that they will be able to do so in the future. If GtreeBNT is unable to secure necessary
financing to fund clinical trials or operations, it could have a material adverse impact on RGN-137 and RGN-259 and RegeneRx’s ability to continue funding
operations while these products are under development.
We are subject to intense competition from companies with greater resources and more mature products, which may result in our competitors developing
or commercializing products before or more successfully than we do.
We are engaged in a business that is highly competitive. Research and development activities for the development of drugs to treat indications within
our focus are being sponsored or conducted by private and public research institutions and by major pharmaceutical companies located in the United States
and a number of foreign countries. Most of these companies and institutions have financial and human resources that are substantially greater than our own
and they have extensive experience in conducting research and development activities and clinical trials and in obtaining the regulatory approvals necessary
to market pharmaceutical products that we do not have. As a result, they may develop competing products more rapidly that are safer, more effective, or have
fewer side effects, or are less expensive, or they may develop and commercialize products that render our product candidates non-competitive or obsolete.
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With respect to our product candidate RGN-259, there are also numerous ophthalmic companies developing drugs for corneal wound healing and
other front-of-the-eye diseases and injuries, including dry eye syndrome. Amniotic membranes have been successfully used to treat corneal wounds in certain
cases, as have topical steroids and antibacterial agents. Most specialty ophthalmic companies have a number of products on the market that could compete
with RGN-259. There are numerous antibiotics to treat eye infections to promote corneal wound healing and many eye lubrication products that are soothing
to the eye and help eye healing, many of which are sold without prescriptions. Companies also market steroids to treat certain conditions within our area of
interest. Allergan, Inc. markets Restasis™, Ophthalmic Emulsion, which was the only commercially available and FDA-approved eye drop to treat dry eye.
Shire PLC recently received FDA approval to market Xiidra™ for the treatment of dry eye and has launched the product in the U.S. Restasis, and other
products, have been approved for marketing in certain other countries where we have licensed RGN-259.
We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most large pharmaceutical companies and many smaller
biomedical companies are vigorously pursuing the development of therapeutics to treat patients after heart attacks and for other cardiovascular indications.
With respect to our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed Regranex™ for this purpose in
patients with diabetic foot ulcers. Other companies, such as Novartis, are developing and marketing artificial skins, which we believe could also compete with
RGN-137. Other companies are developing genetic therapies to treat wound healing of the skin and internal organs. Wound healing is a large and highly
fragmented marketplace attracting many companies, large and small, to develop products for treating acute and chronic wounds, including, for example,
honey-based ointments, hyperbaric oxygen therapy, and low frequency cavitational ultrasound.
We are also interested in developing potential cosmeceutical products, which are loosely defined as products that bridge the gap between cosmetics
and pharmaceuticals, for example, by improving skin texture and reducing the appearance of aging. This industry is intensely competitive, with potential
competitors ranging from large multinational companies to very small specialty companies. New cosmeceutical products often have a short product life and
are frequently replaced with newer products developed to address the latest trends in appearance and fashion. We may not be able to adapt to changes in the
industry as quickly as larger and more experienced cosmeceutical companies. Further, larger cosmetics companies have the financial and marketing resources
to effectively compete with smaller companies like us in order to sell products aimed at larger markets.
Even if approved for marketing, our technologies and product candidates are unproven and they may fail to gain market acceptance.
Our product candidates, all of which are based on the molecule Tß4, are new and unproven and there is no guarantee that health care providers or
patients will be interested in our product candidates, even if they are approved for use. If any of our product candidates are approved by the FDA, our success
will depend in part on our ability to demonstrate sufficient clinical benefits, reliability, safety, and cost effectiveness of our, or our partners’, product
candidates relative to other approaches, as well as on our ability to continue to develop our product candidates to respond to competitive and technological
changes. If the market does not accept our product candidates, when and if we are able to commercialize them, then we may never become profitable. Factors
that could delay, inhibit or prevent market acceptance of our product candidates may include:
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the timing and receipt of marketing approvals;
the safety and efficacy of the products;
the emergence of equivalent or superior products;
the cost-effectiveness of the products; and
ineffective marketing.
It is difficult to predict the future growth of our business, if any, and the size of the market for our product candidates because the markets are
continually evolving. There can be no assurance that our product candidates will prove superior to products that may currently be available or may become
available in the future or that our research and development activities will result in any commercially profitable products.
We have no marketing experience, sales force or distribution capabilities. If our product candidates are approved, and we are unable to recruit key
personnel to perform these functions, we may not be able to commercialize them successfully.
Although we do not currently have any marketable products, our ability to produce revenues ultimately depends on our, or our partners’, ability to
sell our product candidates if and when they are approved by the FDA and other regulatory authorities. We currently have no experience in marketing or
selling pharmaceutical products, and we do not have a marketing and sales staff or distribution capabilities. Developing a marketing and sales force is also
time-consuming and could delay the launch of new products or expansion of existing product sales. In addition, we will compete with many companies that
currently have extensive and well-funded marketing and sales operations. If we fail to establish successful marketing and sales capabilities or fail to enter into
successful marketing arrangements with third parties, our ability to generate revenues will suffer.
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If we enter markets outside the United States our business will be subject to political, economic, legal and social risks in those markets, which could
adversely affect our business.
There are significant regulatory and legal barriers to entering markets outside the United States that must be overcome if we, or our partners, seek
regulatory approval to market our product candidates in countries other than the United States. We would be subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new
cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political, economic and social
uncertainties including, among others:
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changes and limits in import and export controls;
increases in custom duties and tariffs;
changes in currency exchange rates;
economic and political instability;
changes in government regulations and laws;
absence in some jurisdictions of effective laws to protect our intellectual property rights; and
currency transfer and other restrictions and regulations that may limit our ability to sell certain product candidates or repatriate profits to
the United States.
Any changes related to these and other factors could adversely affect our business if and to the extent we enter markets outside the United States.
Additionally, we have entered into license agreements with Lee’s Pharmaceutical Limited and GtreeBNT Co, Ltd. for the development of certain of our
product candidates in international markets. As a result, these development activities will be subject to compliance in all respects with local laws and
regulations and may be subject to many of the risks described above.
Governmental and third-party payors may subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our
product revenues and delay profitability.
The successful commercialization of our product candidates, if they are approved by the FDA, will likely depend on our ability to obtain
reimbursement for the cost of the product and treatment. Government authorities, private health insurers and other organizations, such as health maintenance
organizations, are increasingly seeking to lower the prices charged for medical products and services. Also, the trend toward managed health care in the
United States, the growth of healthcare maintenance organizations, and recently enacted legislation reforming healthcare and proposals to reform government
insurance programs could have a significant influence on the purchase of healthcare services and products, resulting in lower prices and reducing demand for
our product candidates. The cost containment measures that healthcare providers are instituting, and any healthcare reform could reduce our ability to sell our
product candidates and may have a material adverse effect on our operations. We cannot assure you that reimbursement in the United States or foreign
countries will be available for any of our product candidates, and that any reimbursement granted will be maintained, or that limits on reimbursement
available from third-party payors will not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of third-party
reimbursements for our product candidates would decrease the potential profitability of our operations. We cannot forecast what additional legislation or
regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect the legislation or
regulation would have on our business.
We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these
suppliers do not manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we are unable to
identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities and have little experience in manufacturing pharmaceutical products. We currently rely, and
expect to continue to rely, primarily on peptide manufacturers to supply us with Tß4 for further formulation into our product candidates. We have historically
engaged three separate smaller drug formulation contractors for the formulation of clinical grade product candidates, one for each of our three product
candidates in clinical development, although, as described in this report, the contractor we engaged to formulate and vial RGN-352 has filed for bankruptcy
and closed its manufacturing facility, and our clinical trial involving RGN-352 has been placed on clinical hold. We currently do not have an alternative
source of supply for either Tß4 or the individual drug candidates. If these suppliers, together or individually, are not able to supply us with either Tß4 or
individual product candidates on a timely basis, in sufficient quantities, at acceptable levels of quality and at a competitive price, or if we are unable to
identify a replacement manufacturer to perform these functions on acceptable terms as needed, our development programs could be seriously jeopardized.
The clinical hold on our RGN-352 trial will require us to have new material manufactured by a cGMP-compliant manufacturer in the event that we
seek to resume this trial. Significant preparatory time and procedures will be required before any new manufacturer would be able to manufacture RGN-352
for the AMI trial, due to the time required for revalidation of processes and assays related to such production that were already in place with the original
manufacturer. Since we are unable to estimate the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the
FDA clinical hold is resolved and the requisite funding might be secured.
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Other risks of relying solely on single suppliers for each of our product candidates include:
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the possibility that our other manufacturers, and any new manufacturer that we, or our partners, may identify for RGN-352, may not be able to
ensure quality and compliance with regulations relating to the manufacture of pharmaceuticals;
their manufacturing capacity may not be sufficient or available to produce the required quantities of our product candidates based on our
planned clinical development schedule, if at all;
they may not have access to the capital necessary to expand their manufacturing facilities in response to our needs;
commissioning replacement suppliers would be difficult and time-consuming;
individual suppliers may have used substantial proprietary know-how relating to the manufacture of our product candidates and, in the event we
must find a replacement or supplemental supplier, our ability to transfer this know-how to the new supplier could be an expensive and/or time-
consuming process;
an individual supplier may experience events, such as a fire or natural disaster, that force it to stop or curtail production for an extended period;
an individual supplier could encounter significant increases in labor, capital or other costs that would make it difficult for them to produce our
products cost-effectively; or
an individual supplier may not be able to obtain the raw materials or validated drug containers in sufficient quantities, at acceptable costs or in
sufficient time to complete the manufacture, formulation and delivery of our product candidates.
Our suppliers may use hazardous and biological materials in their businesses. Any claims relating to improper handling, storage or disposal of these
materials could be time-consuming and costly to us, and we are not insured against such claims.
Our product candidates and processes involve the controlled storage, use and disposal by our suppliers of certain hazardous and biological materials
and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage,
handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and
regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be
held liable for any damages that result, and we do not carry insurance for this type of claim. We may also incur significant costs to comply with current or
future environmental laws and regulations.
We face the risk of product liability claims, which could adversely affect our business and financial condition.
We, or our partners, may be subject to product liability claims as a result of our testing, manufacturing, and marketing of drugs. In addition, the use
of our product candidates, when and if developed and sold, will expose us to the risk of product liability claims. Product liability may result from harm to
patients using our product candidates, such as a complication that was either not communicated as a potential side effect or was more extreme than
anticipated. We require all patients enrolled in our clinical trials to sign consents, which explain various risks involved with participating in the trial. However,
patient consents provide only a limited level of protection, and it may be alleged that the consent did not address or did not adequately address a risk that the
patient suffered. Additionally, we will generally be required to indemnify our clinical product manufacturers, clinical trial centers, medical professionals and
other parties conducting related activities in connection with losses they may incur through their involvement in the clinical trials.
Our ability to reduce our liability exposure for human clinical trials and commercial sales, if any, of Tß4 is dependent in part on our ability to obtain
sufficient product liability insurance or to collaborate with third parties that have adequate insurance. Although we intend to obtain and maintain product
liability insurance coverage if we gain approval to market any of our product candidates, we cannot guarantee that product liability insurance will continue to
be available to us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims against us. A product liability claim, even one
without merit or for which we have substantial coverage, could result in significant legal defense costs, thereby potentially exposing us to expenses
significantly in excess of our revenues, as well as harm to our reputation and distraction of our management.
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If any of our key employees discontinue their services with us, our efforts to develop our business may be delayed.
We are highly dependent on the principal members of our management team. The loss of our chairman and Chief Scientific Officer, Allan Goldstein,
or chief executive officer, J.J. Finkelstein could prevent or significantly delay the achievement of our goals. We cannot assure you that Dr. Goldstein or Mr.
Finkelstein, or any other key employees or consultants, will not elect to terminate their employment or consulting arrangements. In addition, we do not
maintain a key man life insurance policy with respect to any of our management personnel. In the future, we anticipate that we will also need to add
additional management and other personnel. Competition for qualified personnel in our industry is intense, and our success will depend in part on our ability
to attract and retain highly skilled personnel. We cannot assure you that our efforts to attract or retain such personnel will be successful.
Mauro Bove, a member of our Board is a director of Lee’s Pharmaceuticals, a relationship which could give rise to a conflict of interest for Mr. Bove.
Mauro Bove is a member of our Board of Directors and currently provides consulting services to Lee’s Pharmaceuticals Group in Hong Kong. There
can be no assurance that we will ever receive any further payments from Lee’s under the current agreement established between RegeneRx and Lee’s. As a
result of Mr. Bove’s relationship with Lee’s, Mr. Bove may have interests that are different from our other stockholders in connection with this agreement and
circumstances that may require the exercise of the Board’s discretion with respect to Lee’s.
Risks Related To Our Intellectual Property
We may not be able to maintain broad patent protection for our product candidates, which could limit the commercial potential of our product candidates.
Our success will depend in part on our, or our partners’ ability to obtain, defend and enforce patents, both in the United States and abroad. We have
attempted to create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and
fragments and derivatives of Tß4. As described elsewhere in this report, we currently do not have adequate financial resources to fund our ongoing business
activities beyond the first quarter of 2020 without additional funding. Thus, we continuously evaluate our issued patents and patent applications and may
decide to limit their therapeutic and/or geographic coverage in an effort to enhance our ability to focus on certain medical conditions and countries within our
financial constraints. As a result, we may not be able to protect our intellectual property rights in indications and/or territories that we otherwise would, and,
therefore, our ability to commercialize Tß4, if at all, could be substantially limited, which could have a material adverse impact on our future results of
operations.
Our patents may expire before any of our product candidates reach commercialization.
Our success will depend in part on our, or our partners’ patents to provide market exclusivity for our product candidates. We have numerous patent
and patent applications in the U.S. and abroad, however, some of our patents are reaching the end of their 20-year patent exclusivity and, therefore, may
expire prior to developing any marketable products or expire shortly after product launch, which could negatively affect our commercial success.
If we, or our partners, are not able to maintain adequate patent protection for our product candidates, we may be unable to prevent our competitors from
using our technology or technology that we license.
Our success will depend in substantial part on our, or our partners’, abilities to obtain, defend and enforce patents, maintain trade secrets and operate
without infringing upon the proprietary rights of others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the NIH, we
have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents covering our use of Tß4 have issued in some countries, we cannot
guarantee whether or when corresponding patents will be issued, or the scope of any patents that may be issued, in other countries. We have attempted to
create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments and
derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties that could be subject to the same risks as our own patents. If
any of these patent applications do not issue, or do not issue in certain countries, or are not enforceable, the ability to commercialize Tß4 in various medical
indications could be substantially limited or eliminated.
In addition, the patent positions of the products being developed by us and our collaborators involve complex legal and factual uncertainties. As a
result, we cannot assure you that any patent applications filed by us, or by others under which we have rights, will result in patents being issued in the United
States or foreign countries. In addition, there can be no assurance that any patents will be issued from any pending or future patent applications of ours or our
partners, that the scope of any patent protection will be sufficient to provide us with competitive advantages, that any patents obtained by us or our partners
will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights we or our partners
may hold. Unauthorized parties may try to copy aspects of our product candidates and technologies or obtain and use information we consider proprietary.
Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will be made to our or our partners’ intellectual
property. In addition, changes in, or different interpretations of, patent laws in the United States and other countries may also adversely affect the scope of our
patent protection and our competitive situation.
22
Due to the significant time lag between the filing of patent applications and the publication of such patents, we cannot be certain that our licensors
were the first to file the patent applications we license or, even if they were the first to file, also were the first to invent, particularly with regards to patent
rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research and academic institutions have developed
technologies, filed patent applications or received patents on various technologies that may be related to our product candidates. Some of these technologies,
applications or patents may conflict with our or our licensors’ technologies or patent applications. A conflict could limit the scope of the patents, if any, that
we or our licensors may be able to obtain or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued to other
companies, we may not be able to develop or obtain alternative technology.
Additionally, there is certain subject matter that is patentable in the United States but not generally patentable outside of the United States.
Differences in what constitutes patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For
example, methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent us from obtaining
patent protection outside of the United States, which would have a material adverse effect on our business, financial condition and results of operations.
Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.
The value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents
that may be obtained and may decrease revenues derived from its patents. For example, the U.S. patent laws were previously amended to change the term of
patent protection from 17 years following patent issuance to 20 years from the earliest effective filing date of the application. Because the time from filing to
issuance of biotechnology applications may be more than three years depending on the subject matter, a 20-year patent term from the filing date may result in
substantially shorter patent protection. Moreover, a divisional patent that is filed after a parent patent, if granted, would begin its term beginning when the
parent patent was initially filed, thus having an impact on the divisional patent’s practical patent life, Future changes to patent laws could shorten our period
of patent exclusivity and may decrease the revenues that we might derive from the patents and the value of our patent portfolio.
We, or our partners, may not have adequate protection for our unpatented proprietary information, which could adversely affect our competitive position.
In addition to our patents, we, and our partners, also rely on trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality
agreements with employees, consultants and potential collaborators. However, we may not have such agreements in place with all such parties and, where we
do, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such
information. Also, our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these
events could prevent us from developing or commercializing our product candidates.
We may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.
As is commonplace in the biotechnology industry, we employ now, and may hire in the future, individuals who were previously employed at other
biotechnology or pharmaceutical companies, including competitors or potential competitors. Although there are no claims currently pending against us, we
may be subject to claims that we or certain employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could
result in substantial costs and would be a significant distraction to management.
Risks Related To Our Securities
Our common stock price is volatile, our stock is highly illiquid, and any investment in our securities could decline substantially in value.
For the period from January 1, 2018 through March 15, 2019 the closing price of our common stock has ranged from $0.09 to $0.35, with an average
daily trading volume of approximately 55,000 shares. In light of our small size and limited resources, as well as the uncertainties and risks that can affect our
business and industry, our stock price is expected to continue to be highly volatile and can be subject to substantial drops, with or even in the absence of news
affecting our business. The following factors, in addition to the other risk factors described in this report, and the potentially low volume of trades in our
common stock since it is not listed on a national securities exchange, may have a significant impact on the market price of our common stock, some of which
are beyond our control:
23
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results of pre-clinical studies and clinical trials;
commercial success of approved products;
corporate partnerships;
technological innovations by us or competitors;
changes in laws and government regulations both in the U.S. and overseas;
changes in key personnel at our company;
developments concerning proprietary rights, including patents and litigation matters;
public perception relating to the commercial value or safety of any of our product candidates;
other issuances of our common stock, or securities convertible into or exercisable for our common stock, causing dilution;
anticipated or unanticipated changes in our financial performance;
general trends related to the biopharmaceutical and biotechnological industries; and
general conditions in the stock market.
The stock market in general has recently experienced relatively large price and volume fluctuations. In particular, the market prices of securities of
smaller biotechnology companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these
companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in its value. You
should also be aware that price volatility may be worse if the trading volume of the common stock remains limited or declines.
Our principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.
Our officers, directors and principal stockholders together control approximately 50% of our outstanding common stock. Included in this group are
previous stockholders of Sigma-Tau and their affiliates, which now have consolidated their holding into Essetifin S.p.A. which holds outstanding shares
representing approximately 27% of our outstanding common stock and GtreeBNT which owns approximately 15.1% of our outstanding common stock.
These stockholders also hold options, warrants, convertible promissory notes and stock purchase rights that provide them with the right to acquire
significantly more shares of common stock. Accordingly, if these stockholders acted together they could control the outcome of all stockholder votes. This
concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common
stock, and therefore may not be in the best interest of our other stockholders.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price of our common stock
and other securities and their trading volume could decline.
The trading market for our common stock and other securities will depend in part on the research and reports that securities or industry analysts
publish about us or our business. We currently have research coverage by one securities and industry analysts, and from time to time other independent
analysts. If securities or industry analysts do not commence or maintain coverage of us, the trading price for our common stock and other securities would be
negatively affected. In the event one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one
or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could
cause the price of our common stock and other securities and their trading volume to decline.
The exercise of options and warrants, conversion of convertible promissory notes, and other issuances of shares of common stock or securities convertible
into common stock will dilute your interest.
As of December 31, 2018, there were outstanding options to purchase an aggregate of 9,044,825 shares of our common stock under our 2000, 2010
and 2018 incentive equity plans at exercise prices ranging from $0.14 per share to $0.64 per share and outstanding warrants to purchase 4,220,594 shares of
our common stock at a weighted average exercise price of $0.24 per share. On February 27, 2019 we sold a series of convertible promissory notes that will
initially be convertible at $0.12 into 10,833,333 shares and also issued warrants to purchase 8,125,000 shares with an exercise price of $0.18 per share. In
March 2018 we entered into a warrant reprice and exercise and issuance agreement (the “Reprice Agreement”) with the holders of the warrants issued in June
2016. Under the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants the exercise price per
share of 5,147,059 warrants was reduced to $0.20 per share. As further consideration, we issued to the holders of the 2016 Offering warrants 3,860,294 new
warrants with an exercise price of $0.2301 per share. Pursuant to the terms of the Reprice Agreement the exercise of the new warrants has been reduced to
$0.125 as a result of the February 2019 convertible note sale. In addition to the notes, options and warrants described above, we had previously issued five
series of convertible promissory notes of which one remained outstanding. In January 2014, we sold a series of convertible promissory notes, which notes
totaled $55,000 and are initially convertible into 916,667 shares of common stock at a conversion price of $0.06 per share. The notes matured in January 2019
and, along with the accrued interest were converted into common stock. The exercise of options and warrants or note conversions at prices below the market
price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our
capital stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts.
24
Any issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock
dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if
we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised or we issue restricted stock, stockholders
may experience further dilution. Holders of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any
offering of shares of any class or series.
Our certificate of incorporation and Delaware law contain provisions that could discourage or prevent a takeover or other change in control, even if such
a transaction would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or
remove our current management.
Our certificate of incorporation provides our Board with the power to issue shares of preferred stock without stockholder approval. In addition, we
are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Subject to specified exceptions, this section provides that
a corporation may not engage in any business combination with any interested stockholder, as defined in that statute, during the three-year period following
the time that such stockholder becomes an interested stockholder. This provision could also have the effect of delaying or preventing a change of control of
our company. The foregoing factors could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.
We may become involved in securities class action litigation that could divert management’s attention and harm our business and our insurance coverage
may not be sufficient to cover all costs and damages.
The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common
stock of pharmaceutical and biotechnology companies. These broad market fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against
that company. If we experience this sort of volatility, we may become involved in this type of litigation in the future. Litigation often is expensive and diverts
management’s attention and resources, which could hurt our business, operating results and financial condition.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities.
Our common stock is quoted on the OTC Bulletin Board under the symbol “RGRX.” Our common stock last traded at $0.17 on March 15, 2019.
The following table sets forth the high and low closing prices for our common stock, as reported by the OTC Bulletin Board, for the periods
indicated. The quotations reported by the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
2017
High
Low
High
Low
0.29 $
0.24 $
0.22 $
0.20 $
0.20 $
0.19 $
0.16 $
0.09 $
0.33 $
0.30 $
0.34 $
0.37 $
0.28
0.26
0.25
0.15
$
$
$
$
25
We have never declared or paid a cash dividend on our common stock and since all of our funds are committed to clinical research we do not
anticipate that any cash dividends will be paid on our common stock in the foreseeable future.
On February 27, 2019 we sold a series of convertible promissory notes to accredited investors including Essetifin S.p.A., our largest stockholder. The
sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on
February 27th and the second closing, also in the amount of $650,000, will occur within three days of the Company providing notice of the enrollment of the
first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to
occur in the second quarter of 2019. Because the Company does not control the timing of the ARISE-3 clinical trial, we cannot be certain that this timing is
correct or that it may not change. The notes contain a $0.12 conversion price and are initially convertible into 10,833,333 chares off common stock. The
purchasers also received a warrant exercisable at $0.18 to purchase additional 8,125,000 shares of common stock.
In January 2019, at note maturity, the holders of the January 2014 Notes elected to convert the note principal and accrued interest into shares of
common stock. As a result, the Company issued 1,149,016 shares of common stock.
In September 2018, at note maturity, the holders of the September 2013 Notes elected to convert the note principal and accrued interest into shares of
common stock. As a result, the Company issued 6,706,076 shares of common stock.
In July 2018, at note maturity, the holders of the July 2013 Notes elected to convert the note principal and accrued interest into shares of common
stock. As a result, the Company issued 2,089,120 shares of common stock.
In March 2018, at note maturity, the holders of the March 2013 Notes elected to convert the note principal and accrued interest into shares of
common stock. As a result, the Company issued 4,700,520 shares of common stock.
On March 2, 2018 we entered into a warrant reprice and exercise and issuance agreement with the holders of the warrants issued in June 2016. Under
the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants the exercise price per share of
5,147,059 warrants was reduced to $0.20 per share. As further consideration, we issued to the holders of the 2016 Offering warrants 3,860,294 new warrants
with an exercise price of $0.2301 per share. Pursuant to the terms of the Reprice Agreement the exercise price of the new warrants will be reduced from
$0.2301 to $0.125 as a result of the February 2019 note sale.
In October 2017, at note maturity, the holders of the 2012 Convertible Notes elected to convert the note principal and accrued interest into shares of
common stock. The note holders also elected to exercise the warrants issued with the 2012 Convertible Notes. As a result, the Company issued 2,906,944
shares of common stock.
Item 6. Selected Financial Data.
Not Applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
You should read the following discussion and analysis together with our financial statements and the related notes included elsewhere in this annual
report.
Business Overview
We are a biopharmaceutical company focused on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ
protection, repair, and regeneration. We have formulated Tß4 into three distinct product candidates in clinical development:
• RGN-259, a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;
• RGN-352, an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications
that may be treated by systemic administration; and
• RGN-137, a topical gel for dermal wounds and reduction of scar tissue.
We are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of
all of our product candidates.
26
Current Financial Circumstances
On February 27, 2019 we sold a series of convertible promissory notes to management, the Board of Directors, and accredited investors, including
Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings. The first closing
in the amount of $650,000 occurred on February 27th and the second closing, also in the amount of $650,000, will occur within three days of the Company
providing notice of the enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree which is anticipated to occur in March
2019. The notes contain a $0.12 conversion price and the purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common
stock equal to 75% of the number of shares into which each note is initially convertible. At present, with the receipt of the sale proceeds from the first closing
coupled with the anticipated proceeds from the second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020.
On March 2, 2018, we entered into a warrant reprice and exercise and issuance agreement (the “Reprice Agreement”) with the holders of the
warrants issued in June 2016. Under the terms of the Reprice Agreement, in consideration of the holders exercising in full all of the 2016 Offering warrants,
the exercise price per share of the warrants was reduced to $0.20 per share. In addition, and as further consideration, we issued to the holders of the 2016
Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. Pursuant to the terms of the Reprice Agreement the exercise price of
the new warrants will be reduced from $0.2301 to $0.125 as a result of the February 2019 note sale. We continuously monitor our cash use as well as the
clinical timelines. We continue to evaluate options including the licensing of additional rights to commercialize our clinical products as well as raising capital
through the capital markets.
Current Clinical Status
In January 2015, we entered into a Joint Venture Agreement with GtreeBNT whereby we created ReGenTree LLC, (“ReGenTree” or “Joint
Venture”, jointly owned by us and GtreeBNT, which will commercialize RGN-259 for treatment of dry eye and neurotrophic keratopathy, an orphan
indication in the United States. We are entitled to royalties as a percentage of net sales ranging from single digits to low-double digits based on the medical
indications approved and whether the Joint Venture commercializes products directly or through a third party. RegeneRx possesses one of three board seats of
ReGenTree and certain major decisions and transactions within ReGenTree, such as commercialization strategy, mergers, and acquisitions, require
RegeneRx’s board designee’s consent. We currently hold a 38.5% ownership interest in ReGenTree. This ownership interest may be further reduced to as low
as 25% once ReGenTree obtains FDA approval of an NDA for Dry Eye Syndrome in the U.S. In the event ReGenTree is acquired, or a change of control
occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo any future
royalties.
To date ReGenTree has sponsored a Phase 2/3 clinical trial (“ARISE-1”) and Phase 3 clinical trials in patients with dry eye syndrome (“DES”)
(“ARISE-2”) and in patients with neurotrophic keratopathy (“NK”) (“SEER-1”), all in the U.S. In May 2016, we reported the results of the 317-patient
ARISE-1 trial and in October 2017, we reported the results of the ARISE-2 trial. The ARISE-2 study, which was sponsored by ReGenTree and managed by
Ora, Inc., demonstrated a number of statistically significant improvements in both signs and symptoms of dry eye syndrome with 0.1% RGN-259 versus
placebo, while showing excellent safety, comfort, and tolerability profiles. The ocular discomfort symptom showed a statistically significant reduction in the
RGN-259-treated group at day 15 as compared to placebo (p=0.0149) in the change from baseline. For sign, RGN-259 also improved the dry eye patient’s
ability to withstand an exacerbated condition in a patient subgroup with both compromised corneal fluorescein staining and Schirmer’s test at baseline. In this
population, RGN-259 showed superiority over placebo in reducing corneal fluorescein staining in the change from baseline at days 15 and 29 (p=0.0207 and
0.0254, respectively). RGN-259 confirmed its global effects on dry eye syndrome and fast onset in multiple sign and symptom efficacies with no safety issues
in the ARISE-1 and ARISE-2 studies as well as in the pooled data, although ARISE-2 was not successful in duplicating the results of ARISE-1 where the
study population was limited and less diversified. ReGenTree is proceeding with its RGN-259 development plan as discussed with the FDA in April 2018.
Most recently, ReGenTree reaffirmed that the manufacturing of the investigational product for ARISE-3 has been completed and the protocol for the study
has been finalized. ReGenTree entered into a management agreement for ARISE-3 with Ora, Inc. and the study was recently initiated with the first patient
anticipated to be enrolled in the second quarter of 2019.
The NK trial (SEER-1), a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional patients being
screened, with a goal of forty-six. ReGenTree has expanded its efforts to accelerate patient enrollment by offering incentives to each study site based on
numbers of enrollees as well as payments to referral sites. In 2018, ReGenTree disclosed that 7 of 17 patients enrolled SEER-1 have completely healed. To
participate in the trial the patients were required to have a persistent epithelial defect (non-healing corneal wound). While these preliminary observations are
encouraging, it should be noted that the patients and treating physicians remain masked while the trial is on-going, so it is not known whether the healed
patients are in the RGN-259 group, placebo group, or distributed among both. It is not known when this study will be completed.
GtreeBNT has developed the CMC (chemistry, manufacturing and controls) dossier required for Phase 3 clinical trials and commercialization in the
U.S. and in Korea. This comprehensive and critical effort ensures that final drug product manufacturing, packaging, stability, purity, reproducibility, etc.,
meets regulatory guidelines and product specifications. The product of this activity is the current product format being utilized in the U.S. trials being
conducted by ReGenTree and will also be utilized in the planned clinical activity to be conducted by GtreeBNT under the RGN-259 license agreement for
Pan Asia.
27
In February 2017, our licensee for RGN-137, GtreeBNT, received permission from the U.S. FDA to sponsor a Phase 3 clinical trial using RGN-137
to treat patients with epidermolysis bullosa (EB), a genetic disease that causes severe blistering of the skin and internal organs. In August 2017, the Company
amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory was expanded to include Europe, Canada, South
Korea, Australia and Japan. GtreeBNT initiated a small open trial in patients with EB in December 2018 to evaluate RGN-137 in such patients prior to
sponsoring a larger Phase 3 trial.
Currently, we have active partnerships in four major territories: North America, Europe, China and Pan Asia. Our partners have been moving
forward and making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation for
RegeneRx. We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S.,
most of Asia, and Europe; RGN-259 in the EU. In August 2017 we amended the RGN-137 License Agreement with GtreeBNT, expanding the territory to
include Europe, Canada, South Korea, Australia and Japan. Regarding RGN-259, our goal is to wait until satisfactory results are obtained from the current
ophthalmic clinical program in the U.S. before moving into the EU. This should allow us to obtain a higher value for the asset at that time. However, we
intend to continue to develop RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications, either by obtaining
grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner with the resources and capabilities to
develop it as we have with RGN-259.
Financial Operations Overview
We have never generated product revenues, and we do not expect to generate product revenues until the FDA approves one of our product
candidates, if ever, and we begin marketing and selling it. We anticipate incurring additional operating losses in the future as we continue to explore the
potential clinical benefits of Tß4-based product candidates over multiple indications. To fund further development and clinical trials we have entered into a
series of strategic partnerships under licensing and joint venture agreements (see Note 4 of our financial statements) where our partners are responsible for
advancing development of our product candidates with multiple clinical trials.
On February 27, 2019 we sold a series of convertible promissory notes to management, the Board of Directors, and accredited investors, including
Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings. The first closing
in the amount of $650,000 occurred on February 27th and the second closing, also in the amount of $650,000 will occur within three days of the Company
providing notice of the enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now
expect the ARISE-3 clinical trial to occur in the second quarter of 2019. At present, with the receipt of the sale proceeds from the first closing coupled with
the anticipated proceeds from the second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020. We will need
additional funds to continue operations significantly beyond the first quarter of 2020 and will require substantial capital if we wish to internally advance
development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities to raise additional capital and are in the process of
exploring various alternatives, including, without limitation, a public or private placement of our securities, debt financing, corporate collaboration and
licensing arrangements, government grants, or the sale of our company or certain of our intellectual property rights.
Most of our expenditures to date have been for research and development, or R&D, activities and general and administrative, or G&A, activities.
R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our outsourced vendors. Those
costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product candidates, stability studies for both Tß4, and the various
formulations, preclinical toxicology, safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory evaluations, statistical data
analysis, regulatory compliance, quality assurance and other related activities. R&D includes cash and non-cash compensation, travel and other miscellaneous
costs of our internal staff and our independent contractors who focus primarily on management of R&D related activities. R&D also includes a proration of
our common infrastructure costs for office space and communications. We expense our R&D costs as they are incurred.
R&D expenditures are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result,
these expenses could exceed our expectations, possibly materially. We are uncertain as to what we will incur in future research and development costs for our
clinical studies, as these amounts are subject to the outcome of current studies, management's continuing assessment of the economics of each individual
research and development project and the internal competition for project funding.
28
G&A costs include outside professional fees for legal, business development, audit and accounting services. G&A also includes cash and non-cash
compensation, travel and other miscellaneous costs of our internal G&A personnel, two in total, who are wholly dedicated to G&A efforts. G&A also
includes a proration of our common infrastructure costs for office space, and communications. Our G&A expenses also include costs to maintain our
intellectual property portfolio. Historically we have expanded our patent prosecution activities and in some cases, we have filed patent applications for non-
critical strategic purposes intended to prevent others from filing similar patent claims. We continue to closely monitor our patent applications in the United
States, Europe and other countries with the advice of outside legal counsel to determine if they will continue to provide strategic benefits. In cases where we
believe the benefit has been realized or it becomes unnecessary due to the issuance of other patents, or for other reasons that will not affect the strength of our
intellectual property portfolio, we have and will continue to abandon these patent applications in order to reduce our costs of continued prosecution or
maintenance.
Critical Accounting Policies
We prepare our financial statements in conformity with accounting principles generally accepted in the United States. Such accounting principles
require that our management make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Our
actual results could differ materially from those estimates. The items in our financial statements that have required us to make significant estimates and
judgments are as follows:
Revenue Recognition
Subsequent to the adoption of Accounting Standards Codification Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with
customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract
transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation.
The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services to our
customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. Whenever we determine
that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be
performed, and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method. We recognize revenue
using the relative performance method provided that we can reasonably estimate the level of effort required to complete our performance obligations under an
arrangement and such performance obligations are provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount of
payments received or the cumulative amount of revenue earned, as determined using the relative performance method, as of each reporting period.
The Company’s contracts with customers may at times include multiple promises to transfer products and services. Contracts with multiple promises
are analyzed to determine whether the promises, which may include a license together with performance obligations such as providing a clinical supply of
product and steering committee services, are distinct and should be accounted for as separate performance obligations or whether they must be accounted for
as a single performance obligation. The Company accounts for individual performance obligations separately if they are distinct. Determining whether
products and services are considered distinct performance obligations may require significant judgment. If we cannot reasonably estimate when our
performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably estimate when the
performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance.
Whenever the Company determines that an arrangement should be accounted for as a combined performance obligation, we must determine the
period over which the performance obligation will be performed and when revenue will be recognized. Revenue is recognized using either a relative
performance or straight-line method. We recognize revenue using the relative performance method provided that the we can reasonably estimate the level of
effort required to complete our performance obligation under an arrangement and such performance obligation is provided on a best-efforts basis. Revenue
recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the
relative performance method, as of each reporting period.
If the Company cannot reasonably estimate the level of effort required to complete our performance obligation under an arrangement, the
performance obligation is provided on a best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining
obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties and payments contingent upon
achievement of substantive milestones, would be recognized as revenue on a straight-line basis over the period we expect to complete our performance
obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using
the straight-line basis, as of the period ending date.
29
If the Company cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, revenue is
deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the
remaining estimated period of performance.
At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the
milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue
reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within the control
of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore
revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated
to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance
obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such
development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded
on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Amounts received prior to satisfying the above revenue recognition criteria are recorded as unearned revenue in our accompanying condensed
balance sheets.
Contract assets are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional right
to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied. There were no contract assets as of
December 31, 2018.
Contract liabilities result from arrangements where we have received payment in advance of performance under the contract. Changes in contract
liabilities are generally due to either receipt of additional advance payments or our performance under the contract.
We have the following amounts recorded for contract liabilities:
Unearned revenue
$
2,254,848 $
2,124,515
December 31, 2018 December 31, 2017
The contract liabilities amount disclosed above as of December 31, 2018, is primarily related to revenue being recognized on a straight-line basis
over periods ranging from 23 to 30 years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligations
and represents the Company’s best estimate of the period of the obligation.
Variable Interest Entities
We have determined that the Joint Venture is a “variable interest entity”, since the total equity investment at risk is not sufficient to permit the Joint
Venture to finance its activities without additional subordinated financial support. Further, because of GtreeBNT’s majority equity stake in the Joint Venture,
voting control, control of the board of directors, and substantive management rights, and given that we do not have the power to direct the Joint Venture’s
activities that most significantly impact its economic performance, we have determined that it is not the primary beneficiary of the Joint Venture and therefore
is not required to consolidate the Joint Venture. We report its equity stake in the Joint Venture using the equity method of accounting because, while it does
not control the Joint Venture, we can exert significant influence over the Joint Ventures activities by virtue of its board representation.
Because we are not obligated to fund the Joint Venture, and have not provided any financial support, and have no commitment to provide financial
support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero at both December 31, 2018 and 2017. As a result, we
are not recognizing our share of the Joint Venture’s operating losses and will not recognize any such losses until the Joint Venture produces net income (as
opposed to net losses) and at that point we will reduce our share of the Joint Venture’s net income by our share of previously suspended net losses. As of
December 31, 2018, because we have not provided any financial support, we have no financial exposure as a result of its variable interest in the Joint Venture.
Convertible Notes with Detachable Warrants.
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20, Debt with Conversion
and Other Options, the proceeds received from convertible notes are allocated to the instruments based on the relative fair values of the convertible notes
without the warrants and of the warrants themselves at the time of issuance. The portion of the proceeds allocated to the warrants is recognized as additional
paid-in capital and a debt discount. The debt discount related to warrants is accreted into interest expense through maturity of the notes.
30
Derivative Financial Instruments.
Derivative financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying
variables (e.g., interest rate, security price or other variable), which require no initial net investment and permit net settlement. Derivative financial
instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently,
measured at fair value and recorded as liabilities or, in rare instances, assets.
We do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have issued financial
instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii)
may be net-cash settled by the counterparty. In certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our
financial statements. In other instances these instruments are classified as equity instruments in our financial statements.
We estimate the fair values of its derivative financial instrument using the Black-Scholes option pricing model and in certain instances have used a
custom Monte Carlo model where appropriate as these models embody all of the requisite assumptions (including trading volatility, estimated terms and risk-
free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and
subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In
addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical
volatility. Since derivative financial instruments are initially and subsequently carried at fair values, our operating results reflect the volatility in these estimate
and assumption changes in each reporting period.
Upon the adoption of new accounting guidance on January 1, 2018, the embedded conversion features in the Company’s convertible notes are no
longer accounted for as derivative liabilities.
Share-based payment
We account for share-based compensation based on the estimated grant date fair value of the award using the Black-Scholes option-pricing model.
The estimated grant date fair value is recognized over the requisite service period.
Determining the appropriate fair value model and calculating the fair value of share-based payment awards require the input of highly subjective
assumptions, including the expected life of the share-based payment awards and stock price volatility. Since our historical data is limited, the expected life
was determined in accordance with SEC Staff Accounting Bulletin No. 107 guidance for “plain vanilla” options. Since our historical trading volume is
relatively low, we estimated the expected volatility based on monthly closing prices for a period consistent with the expected life of the option.
The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based
compensation expense could be materially different in the future. See Notes 2 and 8 to the Financial Statements for a further discussion on stock-based
compensation and the relative ranges of our historical, underlying assumptions.
Results of Operations
Comparison of years ended December 31, 2018 and 2017
Revenues. For the year ended December 31, 2018, we recorded revenue in the amount of approximately $70,000 versus $57,000 recorded for the
year ended December 31, 2017. The 2018 revenue reflects the amortization over 30 years of the payments we received under the original joint venture license
agreement and the payment we received for the expansion of the territorial rights to include Canada in April 2016. The payments received under the 2017
RGN-137 license amendment were amortized for revenue over 23 years. There were additional payments received pursuant to the license amendment during
2018 and 2017 which resulted in an increase in revenue recognized.
Expenses — Research and development. For the year ended December 31, 2018, our R&D expenditures decreased by $63,000, or 44%, to $81,000,
from approximately $144,000 in 2017. The decrease reflects a further shift of our internal R&D efforts as our partners assume full responsibility for clinical
development and is characterized by decreases in R&D consulting (decrease of $52,000), stock option expense (decrease of $4,000) and internal allocations
and other (decrease of $7,000) versus the prior year. We expect our R&D expenses will remain at low levels unless we decide to reinitiate internal R&D
efforts for our unpartnered programs.
31
Expenses — General and administrative. For the year ended December 31, 2018, our G&A expenses decreased by approximately $45,000, or 3%, to
$1,312,000 from $1,357,000 in 2017. Decreases are reflected in 2018 expenses for salaries (decrease of $54,000), insurance (decrease of $13,000),
sponsorship (decrease of $10,000), travel (decrease of $12,000) and investor relations (decrease of $2,000) which were offset by increases in stock option
expense (increase of $9,000), non-income based tax expense (increase of $33,000) and professional fees (increase of $4,000). We believe that our G&A
expenses will remain at current levels as we wait for data from the upcoming clinical trials being conducted by our partners. If we enter into additional
partnerships or other business transactions, including financings, we will incur additional legal and transaction related expenses.
Expenses - Provision for income tax. For the year ended December 31, 2018, our Statement of Operations does not reflect income tax expense versus
$99,000 reflected in the year ended December 31, 2017. The 2017 expense relates to the recording of a deferred tax credit resulting from the withholding of
certain amounts from the initial payment received under the RGN-137 License Agreement amendment. The withholding is mandated under a United States of
America and The Republic of Korea Tax treaty entered into in 1976.
Net Loss/Income. Our Statement of Operations reflects a net loss of $1,993,553 for the year ended December 31, 2018 versus net income of
$286,487 for the year ended December 31, 2017. The 2018 net loss reflects inducement expense of $582,904 related to the new warrant component of the
March 2018 warrant reprice and exercise agreement (see Note 8). The 2017 period reflects the change in the value of the conversion feature related to the
derivative liability related to our convertible debt as well as the reduction of the value of the investor rights associated with the 2016 Offering. The value of
this conversion feature was indexed to the share price of our common stock and decreased as our share price decreased. The share price of our common stock
decreased from $0.32 on December 31, 2016 to $0.17 on December 31, 2017, which resulted in a decrease in the fair value of our convertible debt derivative
component of $1,761,668 which combined with an unrealized gain related to the investor rights associated with the 2016 Offering which lapsed in the August
2017 in the amount $238,937 and resulted in the recording of a change in fair value of derivative liabilities of $2,000,605. Losses from operations decreased
in 2018 versus 2017, $1,323,369 and $1,444,630, respectively.
Liquidity and Capital Resources
We have not commercialized any of our product candidates to date and have incurred significant losses since inception. In addition, we have
primarily financed our operations through the equity or issuance of debt including the sale of a series of convertible promissory notes through private
placements with accredited investors and the March and August 2014 private placements of common stock with GtreeBNT as well as our entry into the
ReGenTree joint venture in early 2015. The report of our independent registered public accounting firm regarding our financial statements for the year ended
December 31, 2018 contains an explanatory paragraph regarding the uncertainty of our ability to continue as a going concern based upon our history of
operating losses and dependence on future financing in order to meet our planned operating activities.
Our Statement of Operations reflects a net loss of $1,993,553 for the year ended December 31, 2018. We had cash and cash equivalents of $237,261
at December 31, 2018. On February 27, 2019, we sold a series of convertible promissory notes to management, the Board of Directors, and accredited
investors, including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two
closings. The first closing in the amount of $650,000 occurred on February 27, 2019 and the second closing, also in the amount of $650,000 will occur within
three days of the Company providing notice of the enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has
informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. At present, with the receipt of the sale proceeds from the
first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash to fund planned operations through the first quarter of
2020.
We may also receive funds from grants, new partnerships or the raising of additional capital if the market climate warrants. Additionally, we intend
to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous
system indications. This estimate also does not include receipt of any funds from grants, new partnerships or the raising of additional capital if the market
climate warrants. A sale of common stock and warrants, a convertible instrument or additional partnering of licensed rights are possible sources of operating
capital in the future. Additionally, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product
candidate for cardiac and central nervous system indications.
Net Cash Used in Operating Activities. Net cash used in operating activities was $888,000 and $663,000 for the years ended December 31, 2018
and 2017, respectively. In 2018, our statement of cash flows reflects a net inflow of $130,000 related to payments received under license agreements versus
$543,000 from the same source in 2017.
Net Cash Used in Investing Activities. We did not use any cash for investing activities in 2018 or 2017.
Net Cash Provided by Financing Activities. Net cash provided by financing activities totaled $944,000 and $75,000 for the years ended
December 31, 2018 and 2017, respectively. In 2018, the cash provided by financing activities consisted of the proceeds from the warrant reprice transaction in
March 2018 while the 2017 cash provided by financing activities was a result of the exercise of stock options and warrants.
32
Future Funding Requirements
The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and
capital resources. Currently, RegeneRx has active partnerships in three major territories: the U.S., China and Pan Asia. Our partners have been moving
forward and making progress in each territory. In each case, the cost of development is being borne by our partners with no financial obligation for
RegeneRx. Patient accrual, treatment, and follow-up for ophthalmic trials are, in general, relatively fast, as opposed to most other clinical efforts, top line data
from the U.S. dry eye trial was released in October 2017 and data from the NK study in 2019 or possibly later.
We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S.,
Pan Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until the results are obtained from the current ophthalmic clinical trials before moving into
the EU with RGN-259. If successful, this should allow us to obtain a higher value for the asset at that time. However, we intend to continue to develop RGN-
352, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a suitable partner with the
resources and capabilities to develop it as we have with RGN-259.
In addition, the length of time required for clinical trials varies substantially according to the type, complexity, novelty and intended use of a product
candidate. Some of the factors that could impact our liquidity and capital needs include, but are not limited to:
·
·
·
·
·
·
·
·
·
the progress of our clinical trials;
the progress of our research activities;
the number and scope of our research programs;
the progress of our preclinical development activities;
the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent and other intellectual property claims;
the costs related to development and manufacture of preclinical, clinical and validation lots for regulatory purposes and commercialization of
drug supply associated with our product candidates;
our ability to enter into corporate collaborations and the terms and success of these collaborations;
the costs and timing of regulatory approvals; and
the costs of establishing manufacturing, sales and distribution capabilities.
Moreover, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the
clinical trial protocol, including, among others, the following:
·
·
·
·
the number of patients that ultimately participate in the trial;
the duration of patient follow-up that seems appropriate in view of the results;
the number of clinical sites included in the trials; and
the length of time required to enroll suitable patient subjects.
Also, we test our product candidates in numerous preclinical studies to identify indications for which they may be efficacious. We may conduct
multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials
for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.
Our proprietary product candidates have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic
products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data
establish safety and efficacy. Historically, the results from preclinical studies and early clinical trials have often not been predictive of results obtained in later
clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and
efficacy data to obtain necessary regulatory approvals.
In February 2017, we amended our office lease agreement and the term was extended through July 2020. During the extended term our rental
payments will average approximately $4,000 per month.
33
Sources of Liquidity
We have not commercialized any of our product candidates to date and have primarily financed our operations through the issuance of common
stock and common stock warrants in private and public financings in addition to a series of five convertible debt placements from October 2012 to January
2014. In June of 2016, we raised $1,520,000 by selling 5,147,059 shares of common stock and warrants to purchase 5,147,059 shares of common stock to
Sabby. On March 2, 2018, we entered into a warrant reprice and exercise and issuance agreement with Sabby, which, in consideration of the holders
exercising in full all of the 2016 Offering warrants the exercise price per share of the warrants was reduced to $0.20 per share. In addition, and as further
consideration, we issued to the holders of the 2016 Offering warrants 3,860,294 new warrants with an exercise price of $0.2301 per share. Pursuant to the
terms of the Reprice Agreement the exercise price of the new warrants will be reduced from $0.2301 to $0.125 as a result of the March 2019 note sale. We
received gross proceeds of approximately $1,000,000 pursuant the exercise and issued 5,147,059 of common stock. In August 2017, we amended the RGN-
137 License Agreement with GtreeBNT in exchange for a series of payments, the last of which will be received in June 2018. Most recently, on February 27,
2019, we sold a series of convertible promissory notes to accredited investors including Essetifin S.p.A., our largest shareholder. The sale of the notes will
result in gross proceeds to the Company of $1,300,000 over two closings. The first closing in the amount of $650,000 occurred on February 27th and the
second closing, also in the amount of $650,000 will occur within three days of the Company providing notice of the enrolment of the first patent in the
ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second
quarter of 2019. The notes contain a $0.12 conversion price and are initially convertible into 10,833,333 shares of common stock. The purchasers also
received a warrant exercisable at $0.18 to purchase additional 8,125,000 shares of common stock. At present, with the receipt of the sale proceeds from the
first closing coupled with the anticipated proceeds from the second closing, we will have sufficient cash to fund planned operations through the first quarter of
2020.
We continuously monitor our cash use as well as the clinical timelines. We continue to evaluate options including the licensing of additional rights to
commercialize our clinical products as well as raising capital through the capital markets.
We have various strategic agreements and license agreements with: GtreeBNT, ReGenTree and Lee’s. These license agreements provide for the
opportunity for us to receive milestone payments upon specified commercial events and royalty payments in connection with any commercial sales of the
licensed products in the respective territories. However, there are no assurances that we will be able to attain any such milestones or generate any such royalty
payments under the agreements.
Licensing Agreements
As noted above, we have entered into two strategic agreements with GtreeBNT. GtreeBNT licensed the development and commercialization rights
for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights for RGN-137 in
the U.S. In August 2017, the Company amended the License Agreement for RGN-137 held by GtreeBNT. Under the amendment the Territory was expanded
to include Europe, Canada, South Korea, Australia and Japan. In January 2015, we entered into a joint venture and licensing agreement with GtreeBNT that
will commercialize RGN-259 for treatment of dry eye and neurotrophic keratitis in the United States, as well as any other indications within the field of
ophthalmology. The license agreements provide for the opportunity for us to receive milestone payments upon specified commercial events and royalty
payments in connection with any commercial sales of the licensed products in the respective territories. However, there are no assurances that we will be able
to attain any such milestones or generate any such royalty payments under the agreements.
We also have entered into a license agreement with Lee’s Pharmaceuticals that provides for the opportunity for us to receive milestone payments
upon specified events and royalty payments in connection with any commercial sales of Tß4-based products in China, Hong Kong, Macau and Taiwan.
However, there are no assurances that we will be able to attain any such milestones or generate any such royalty payments under the agreement. In February
2019, the License Agreement was amended and assigned by Lee’s to their affiliate, Zhaoke Ophthalmology Pharmaceutical Limited. There are no economic
changes to the License Agreement.
Government Grants
We have pursued, and may continue to pursue, government funding for both RGN-259 and RGN-352. We are not currently receiving funding under a
Government Grant.
Other Financing Sources
Other potential sources of outside capital include entering into additional strategic business relationships, additional issuances of equity securities or
debt financing or other similar financial instruments. If we raise additional capital through a strategic business relationship, we may have to give up valuable
rights to our intellectual property. If we raise funds by selling additional shares of our common stock or securities convertible into our common stock, the
ownership interest of our existing stockholders may be significantly diluted. In addition, if additional funds are raised through the issuance of preferred stock
or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest
expense, restrictive covenants and the granting of security interests in our assets.
34
Our failure to successfully address liquidity requirements could have a materially negative impact on our business, including the possibility of
surrendering our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing operations. There can be no assurance that we
will be able to obtain additional capital in sufficient amounts, on acceptable terms, or at all.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this item are included beginning on page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and timely reported as provided in SEC rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive Officer who currently serves as both our principal executive officer and
our principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. We periodically review the design and effectiveness
of our disclosure controls and procedures, including compliance with various laws and regulations that apply to our operations. We make modifications to
improve the design and effectiveness of our disclosure controls and procedures and may take other corrective action if our reviews identify a need for such
modifications or actions. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we apply judgment in evaluating the cost-
benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.
Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
We have carried out an evaluation, under the supervision and the participation of our management, including our Chief Executive Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as
of December 31, 2018 the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer, in his capacity as principal
executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2018.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on our financial statements.
Because of its inherent limitations, including the possibility of human error and the circumvention or overriding of controls, a system of internal
control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes
in conditions, effectiveness of internal control over financial reporting may vary over time.
35
A significant deficiency is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that is less severe
than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. A material
weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with the participation of our management, including our Chief Executive Officer in his capacity as principal executive
officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2018.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the
rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes to the Company’s Internal Controls over Financial Reporting in the year ended December 31, 2018.
Item 9B. Other Information.
None.
36
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers and Directors
PART III
The following table sets forth as of March 15, 2019, the name, age and position of each person who serves as an executive officer or director of our
company. There are no family relationships among any of our executive officers or directors, with the exception that Mr. Finkelstein is the first cousin of
Dr. Goldstein’s wife.
We seek to assemble a board that, as a whole, possesses the appropriate balance of professional and industry knowledge, financial expertise and
high-level management experience necessary to oversee and direct our business. To that end, our board intends to maintain membership of directors who
complement and strengthen the skills of other members and who also exhibit integrity, collegiality, sound business judgment and other qualities that we view
as critical to effective functioning of the board. The brief biographies below include information, as of the date of this report, regarding the specific and
particular experience, qualifications, attributes or skills of each director or nominee that led the board to believe that the director should serve on the board.
Name
Executive Officers:
Mr. J.J. Finkelstein
Directors:
Dr. Allan L. Goldstein
Mr. R. Don Elsey
Mr. Joseph C. McNay
Mr. Mauro Bove
Age
67
81
65
85
64
President, Chief Executive Officer and Director
Position
Founder, Chairman of the Board and Chief Scientific Officer
Director
Director
Director
Mr. Finkelstein has served as our President and Chief Executive Officer and a member of our Board of Directors since 2002. Mr. Finkelstein also
served as our Chief Executive Officer from 1984 to 1989 and as the Vice Chairman of our Board of Directors from 1989 to 1991. Mr. Finkelstein has worked
as an executive officer and consultant in the bioscience industry for the past 36 years, including serving from 1989 to 1996 as chief executive officer of
Cryomedical Sciences, Inc., a publicly-traded medical device company. Mr. Finkelstein has significant experience in developing early-stage companies. He
has been responsible for the regulatory approval and marketing of several medical devices in the U.S. and abroad. Mr. Finkelstein has previously served on
the executive committee of the Board of Directors of the Technology Council of Maryland and MdBio, Inc. and formerly chaired the MdBio Foundation for
six years, all of which are non-profit entities that support bioscience development and education in the State of Maryland. Mr. Finkelstein received a business
degree in finance from the University of Texas. The Board believes that Mr. Finkelstein’s history and long tenure as our Chief Executive Officer positions him
to contribute to the Board his extensive knowledge of our company and to provide Board continuity. In addition, the Board believes that his experience at
prior companies has provided him with operational and industry expertise, as well as leadership skills that are important to the Board.
Dr. Goldstein has served as the Chairman of our Board of Directors and our Chief Scientific Officer since he founded our company in 1982.
Dr. Goldstein is Emeritus Professor & former Chairman of the Department of Biochemistry and Molecular Medicine at the George Washington University
School of Medicine and Health Sciences. Dr. Goldstein is a recognized expert in the field of immunology and protein chemistry, having authored over 450
scientific articles in professional journals. He is also the inventor on over 25 issued and/or pending patents in biochemistry, immunology, cardiology, cancer
and wound healing. Dr. Goldstein discovered several important compounds, including Ta1, which is marketed worldwide, and Tb4, which is the basis for
RegeneRx’s clinical program. Dr. Goldstein served on the Board of Trustees of the Sabin Vaccine Institute from 2000 to 2012 and on the Board of Directors
of the Richard B. and Lynne V. Cheney Cardiovascular Institute from 2006 to 2012. Dr. Goldstein has also done pioneering work in the area of medical
education, developing distance learning programs for the internet entitled “Frontiers in Medicine,” a medical education series that Dr. Goldstein developed.
The Board believes that Dr. Goldstein’s scientific expertise, industry background and prior experience as our founder all position him to make an effective
contribution to the medical and scientific understanding of the Board, which the committee believes to be particularly important as we continue our Tb4
development efforts.
37
Mr. Elsey has served as a member of our Board of Directors since September 2010. In February 2019, Mr. Elsey joined the Board of Directors of
OpGen, Inc. and will serve as the Chairman of the Audit Committee. Mr. Elsey served as CFO of Senseonics, Inc. a medical device company focused on
continuous glucose monitoring from February 2015 until January 2019 when he retired. From May 2014 until February 2015 Mr. Elsey served as chief
financial officer of Regado Biosciences, a public, late-stage clinical development biopharmaceutical company. From December 2012 to February 2014 Mr.
Elsey served as chief financial officer of LifeCell, Inc., a privately held regenerative medicine company. From June 2005 to December 2012, he served in
numerous finance capacities, most recently as senior vice president and chief financial officer, at Emergent BioSolutions Inc., a publicly held
biopharmaceutical company. He served as the director of finance and administration at IGEN International, Inc., a publicly held biotechnology company, and
its successor BioVeris Corporation, from April 2000 to June 2005. Prior to joining IGEN, Mr. Elsey served as director of finance at Applera, a genomics and
sequencing company, and in several finance positions at International Business Machines, Inc. He received an M.B.A. in finance and a B.A. in economics
from Michigan State University. Mr. Elsey is a certified management accountant. The Board believes that Mr. Elsey’s experience as chief financial officer of a
public company is particularly valuable to our business in that it positions him to contribute to our board’s and audit committee’s understanding of financial
matters.
Mr. McNay has served as a member of our Board of Directors since 2002. He is currently Chairman, Chief Investment Officer and Managing
Principal of Essex Investment Management Company, LLC, positions he has held since 1976 when he founded Essex. He has direct portfolio management
responsibilities for a variety of funds and on behalf of private clients. He is also a member of the firm’s Management Board. Prior to founding Essex, Mr.
McNay was Executive Vice President and Director of Endowment Management & Research Corp. from 1967. Prior to that, Mr. McNay was Vice President
and Senior Portfolio Manager at the Massachusetts Company. Currently he is serving as Trustee of the Dana Farber Cancer Institute, member of the
Children’s Hospital Investment Committee. Mr. McNay served a Trustee for Brigham and Women’s Physicians Organization from 2000 – 2018. He received
his A.B. degree from Yale University and his M.B.A. degree in finance from the Wharton School of the University of Pennsylvania. The Board believes that
Mr. McNay’s extensive financial experience is valuable to our business and also positions him to contribute to the audit committee’s understanding of
financial matters.
Mr. Bove has served as a member of our Board of Directors since 2004 and has more than 30 years of business and management experience within
the pharmaceutical industry. Mr. Bove is currently based in Hong Kong and in Europe, serving as a consultant to emerging pharmaceutical companies
worldwide. Previously, Mr. Bove led for more than 20 years the Corporate & Business Development of Sigma-Tau Finanziaria S.p.A., formerly the holding
company of Sigma-Tau Group, a leading international pharmaceutical company (Sigma-Tau Finanziaria S.p.A. - now Essetifin S.p.a. - and its affiliates are
collectively our largest stockholder). Mr. Bove, who resigned this role with Sigma-Tau on March 31, 2014, has also held a number of senior positions in
business, licensing and corporate development within Sigma-Tau Group. Mr. Bove obtained his law degree at the University of Parma, Italy, in 1980. In 1985,
he attended the Academy of American and International Laws at the International and Comparative Law Center, Dallas, Texas. The Board believes that Mr.
Bove’s extensive business and management experience within the pharmaceutical industry allows him to recognize and advise the Board with respect to
recent industry developments.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of
our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our
company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they
file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations of our directors and officers that
no other reports were required, during the fiscal year ended December 31, 2018, all Section 16(a) filing requirements applicable to our officers, directors and
greater than ten percent beneficial owners were complied with.
Corporate Code of Conduct and Ethics
We have adopted a corporate code of conduct and ethics that applies to all of our employees, officers and directors, as well as a separate code of
ethics that applies specifically to our principal executive officer and principal financial officer. The corporate code of conduct and ethics and the code of
ethics for our principal executive and financial officers are available on our corporate website at www.regenerx.com. If we make any substantive amendments
to the corporate code of conduct and ethics or the code of ethics for our principal executive and financial officers or grant any waivers from a provision of
these codes to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.
Audit Committee and Audit Committee Financial Expert
We have a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of
the audit committee are Messrs. McNay and Elsey. Mr. McNay serves as chairman of the audit committee.
38
Our board of directors periodically reviews the independence of our audit committee members and has determined that all current members of our
audit committee are independent under NYSE Amex listing standards. Although our common stock is no longer listed on the NYSE Amex exchange, we
have determined the independence of our audit committee members using the NYSE Amex definitions of independence.
Our board of directors has also determined that each of Mr. McNay and Mr. Elsey qualifies as an audit committee financial expert, as defined in
applicable SEC rules.
Item 11. Executive Compensation.
Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 2018 and 2017, compensation awarded to or paid to, or earned by, our chief
executive officer who was our only named executive officers for fiscal 2018. For purposes of this report, we sometimes refer to our chief executive officer as
our named executive officer.
Name and Principal Position
Year
J.J. Finkelstein, President and
Chief Executive Officer
2018
2017
Bonus
($)
Salary(1)
($)
102,399
150,000
Option
All Other
Awards(2) Compensation(3)
—
—
($)
38,809
30,973
($)
3,360
3,360
Total
($)
144,568
184.333
(1)
(2)
(3)
Mr. Finkelstein reduced his 2018 salary from $150,000 to $125,000 in March 2018. Additionally, he forwent his October, November and December
2018 salary due to the limited cash held by RegeneRx.
The 2018 & 2017 amounts reflect the aggregate total grant date fair values (computed in accordance with FASB ASC Topic 718 or ASC Topic 505)
The 2018 & 2017 amount reflects payment of life insurance premiums for Mr. Finkelstein in the amount of $3,360
Employment Agreements; Potential Payments Upon Termination or Change in Control
Employment Agreement with Mr. Finkelstein
We entered into an employment agreement with Mr. Finkelstein on April 16, 2014 for him to serve as our president and chief executive officer.
Mr. Finkelstein’s employment agreement has an initial three-year term, which is automatically renewed for additional one-year periods unless either we or
Mr. Finkelstein elect not to renew it. Mr. Finkelstein’s annual base salary was $125,000, which was increased to $150,000 on January 1, 2015 and
subsequently reduced back to $125,000 in March 2018. Mr. Finkelstein’s salary may not be adjusted downward without his written consent, except in a
circumstance which is part of a general reduction or other concessionary arrangement affecting all employees or affecting senior executive officers. Effective
January 1, 2019, Mr. Finkelstein suggested and consented that his salary be reduced to $80,000 annually. Mr. Finkelstein is also eligible to receive an annual
bonus in an amount established by the Board and is entitled to participate in and receive all standard employee benefits and to participate in all of our
applicable incentive plans, including stock option, stock, bonus, savings and retirement plans. We also provide him with $1 million in life insurance.
Mr. Finkelstein is eligible to receive options to purchase common stock under our equity incentive plans. The decision to grant any such options and
the terms of such options are within the discretion of our Board or the compensation committee thereof. All vested options are exercisable for a period of time
following any termination of Mr. Finkelstein’s employment as may be set forth in the applicable benefit plan or in any option agreement between
Mr. Finkelstein and us.
39
In the event that Mr. Finkelstein’s employment is terminated by us without “cause” or by Mr. Finkelstein for “good reason,” each as defined in his
employment agreement, subject to Mr. Finkelstein’s entering into and not revoking a release of claims in a form acceptable to us, Mr. Finkelstein will be
entitled to receive (i) a lump sum payment in an amount equal to one-half of his then annual base salary if within the first anniversary date of this Agreement;
or (ii) a lump sum payment in an amount equal to three-fourths of his then annual base salary if within the first anniversary date and second anniversary date
of this Agreement; or (iii) a lump sum payment in an amount equal to his then annual base salary if any time after the second anniversary date of this
Agreement, less all federal and state withholdings. In the event of a “change in control,” as defined in his employment agreement and Mr. Finkelstein is
involuntarily terminated within 12 months after a change in control event or within 12 months after a change in control event he resigns his employment for
“good reason”, then the Company shall (i) pay Mr. Finkelstein, in a lump sum cash payment, an amount equal to his annual base salary in effect on the date of
his termination from employment, less any applicable federal and state taxes and withholdings. In addition, in each instance Mr. Finkelstein would also be
eligible to receive (i) any earned bonus and accrued vacation pay, and (ii) to the extent that he is eligible for and participates in a Company sponsored health
insurance plan the Company shall pay or reimburse Executive for the amount of any insurance premiums for a twelve-month period, but these payments shall
be limited to the amount of the premiums being paid by the Company for Executive’s coverage or the amount being reimbursed for insurance premiums
immediately prior to the date of his termination from employment.
In addition, if Mr. Finkelstein’s employment is terminated without “cause,” or if there is a “change in control” event, in each case as defined in either
the applicable benefit plan or in Mr. Finkelstein’s employment agreement, then the unvested portion of Mr. Finkelstein’s outstanding options would accelerate
in full.
Outstanding Equity Awards at December 31, 2018
The following table shows certain information regarding outstanding equity awards at December 31, 2018 for the named executive officer, all of
which were stock options granted under our Amended and Restated 2000 Stock Option and Incentive Plan, our 2010 Equity Incentive Plan or our 2018
Equity Incentive Plan.
Name
Mr. Finkelstein
Number of Shares
Underlying
Unexercised Options
(#)
Exercisable
Number of Shares
Underlying Unexercised
Options (#)
Unexercisable
Option Exercise
Price
($)
Option
Expiration Date Note
114,748
150,000
62,500
500,000
35,000
500,000
500,000
75,000
—
50,000
187,500
—
—
—
—
75,000
0.57
0.64
0.21
0.14
0.16
0.21
0.36
0.28
4/10/2019
3/17/2023
7/16/2028
1/24/2019
4/4/2019
3/25/2021
6/30/2022
9/1/2027
(1)
(2)
(2)
(1)
(2)
These options vest in equal installments upon grant and on the first three anniversaries of the grant date. In each case these options were granted
seven years prior to the listed expiration dates.
These options vest in equal installments upon grant and on the first three anniversaries of the grant date. In each case these options were granted ten
years prior to the listed expiration dates.
Post-Employment Compensation
We do not maintain any plans providing for payment or other benefits at, following, or in connection with retirement other than a 401(k) plan which
was available to all employees through 2011. The Company did not make any plan contributions in 2018 or 2017. In addition, we do not maintain any non-
qualified deferred compensation plans.
Director Compensation
The following table sets forth certain information for the fiscal year ended December 31, 2018 with respect to the compensation of our directors.
Mr. Finkelstein’s compensation is disclosed in the Summary Compensation Table above, and he does not receive any additional compensation for his service
as a director. Dr. Goldstein is an employee of our company and his compensation as an employee is set forth in the table below. He does not receive any
additional compensation for his service as a director.
40
The Company had in effect a non-employee director compensation policy which was suspended in November 2011 by our Board of Directors elected
to help the company preserve capital and consistent with this, certain fees accrued in 2011 were forfeited and no retainer or meeting fees were paid to non-
employee directors in 2018 or 2017.
In 2018, each independent director was granted options to purchase 200,000 shares of common stock at an exercise price of $0.21 per share, which
vests in four segments pursuant to each director’s continued service. In 2017, each independent director was granted options to purchase 125,000 shares of
common stock with an exercise price per share of $0.28. These option grants vests in four segments pursuant to each director’s continued service. These
option grants were the only compensation received by non-employee directors in 2018 and 2017.
We also reimburse directors for expenses incurred in attending meetings of the board and other events attended on our behalf and at our request.
Director Compensation for Fiscal 2018
Name
Allan Goldstein, Ph.D.
R. Don Elsey
Joseph McNay
Mauro Bove
Fees Earned
or Paid
in Cash
($)(1)
Option
Awards
($)
All Other
Compensation
($)
Total
($)
—
—
—
—
38,809
31,047
31,047
31,047
90,000(2)
—
—
—
128,809
31,047
31,047
31,047
(1) Options held by each Board member as of December 31, 2018, are as follows:
Allan Goldstein, Ph.D.
R. Don Elsey
Joseph McNay
Mauro Bove
1,706,942
795,000
803,024
832,155
(2) In addition to being Chairman of our Board of Directors, Dr. Goldstein also serves as our Chief Science Officer. In this capacity, Dr. Goldstein received
cash compensation of $90,000 in 2018. In 2018 Dr. Goldstein was also granted options to purchase 250,000 shares of common stock.
We entered into an employment agreement with Dr. Goldstein on April 16, 2014 for him to serve as our Chief Science Officer. Dr. Goldstein’s
employment agreement had an initial one-year term, which has been and will be automatically renewed for additional one-year periods unless either we
or Mr. Goldstein elect not to renew it. Dr. Goldstein’s annual base salary was $75,000 and was increased to $90,000 on January 1, 2015. Dr. Goldstein’s
salary may not be adjusted downward without his written consent, except in a circumstance which is part of a general reduction or other concessionary
arrangement affecting all employees or affecting senior executive officers. Dr. Goldstein is also eligible to receive an annual bonus in an amount
established by the Board and is entitled to participate in and receive all standard employee benefits and to participate in all of our applicable incentive
plans, including stock option, stock, bonus, savings and retirement plans.
Dr. Goldstein is eligible to receive options to purchase common stock under our equity incentive plans. The decision to grant any such options and the
terms of such options are within the discretion of our Board or the compensation committee thereof. All vested options are exercisable for a period of
time following any termination of Dr. Goldstein’s employment as may be set forth in the applicable benefit plan or in any option agreement between
Dr. Goldstein and us.
41
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the ownership of our common stock as of March 15, 2019 by (i) each director; (ii) each
named executive officer; (iii) all currently serving executive officers and directors as a group; and (iv) all those known by us to be beneficial owners of more
than five percent of our common stock. The address for all directors and executive officers is c/o RegeneRx Biopharmaceuticals, Inc., 15245 Shady Grove
Road, Suite 470, Rockville, MD 20850.
Beneficial Owner
5% Stockholders:
Beneficial Ownership(1)
Number of Shares
Percent of Total
Entities affiliated previously affiliated with Essetifin S.p.A., Via Sudafrica, 20, Rome, Italy
00144
GtreeBNT Co., Ltd.
39,155,747(2)
30.2%
22nd FL, Parkview Tower, 248 Jungjail-ro, Bundang-gu, Seongnam-si, Gyeonggi-do 463-
863, Republic of Korea
19,583,333(3)
15.1%
Named Executive Officers and Directors:
J.J. Finkelstein
Allan L. Goldstein
Joseph C. McNay
Mauro Bove
R. Don Elsey
3,229,406(4)
3,106,068(5)
7,218,813(6)
661,322(7)
707,789(8)
2.5%
2.4%
5.6%
*
*
All directors and executive officers as a group (5 persons)
14,923,398(9)
11.5%
*
Less than one percent.
(1) This table is based upon information supplied by officers, directors and principal stockholders. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 129,581,494 shares of common stock outstanding
on March 15, 2019, adjusted as required by rules promulgated by the Securities and Exchange Commission (the “SEC”).
(2) Consists of 34,989,080 shares of common stock held of record held by Essetifin S.p.A. (f/k/a Sigma-Tau Finanziaria, S.p.A.) (“Essetifin”) and 4,166,667
shares of common stock issuable upon conversion of a convertible promissory note. Paolo Cavazza and members of his family directly and indirectly
own 38% of Essetifin. The beneficial ownership of Essetifin and its affiliates is derived from the Schedule 13D/A filed by Essetifin on March 1, 2019.
(3) Consists of 19,583,333 shares of common stock held of record by GtreeBNT which were acquired in two equity purchases in March 2014 and August
2014. The beneficial ownership of GtreeBNT is derived from its Schedule 13D/A filed on April 1, 2015.
(4) Consists of 1,637,991 shares of common stock held of record by Mr. Finkelstein, 1,487,248 shares of common stock issuable upon exercise of options
and 104,167 shares of common stock issuable upon conversion of a convertible promissory note, in each case exercisable within 60 days of March 15,
2019.
(5) Consists of 1,940,793 shares of common stock held of record by Dr. Goldstein, 20,833 shares of common stock issuable upon conversion of a
convertible promissory note and 1,144,442 shares of common stock issuable upon exercise of options, in each case exercisable within 60 days of March
15, 2019.
(6) Consists of 6,524,122 shares of common stock held of record by Mr. McNay, 104,167 shares of common stock issuable upon conversion of a convertible
promissory note and 590,524 shares of common stock issuable upon exercise of options, in each case exercisable within 60 days of March 15, 2019.
(7) Consists of 619,655 shares of common stock issuable upon exercise of options and 41,667 shares of common stock issuable upon conversion of a
convertible promissory note, in each case exercisable within 60 days of March 15, 2019.
(8) Consists of 104,456 shares of common stock held of record by Mr. Elsey, 582,500 shares of common stock issuable upon exercise of options and 20,833
shares of common stock issuable upon conversion of a convertible promissory note, in each case exercisable within 60 days of March 15, 2019.
(9) Consists of 10,207,362 shares of common stock held of record, 291,667 shares of common stock issuable upon conversion of convertible promissory
notes and 4,424,369 shares of common stock issuable upon exercise of options, in each case exercisable within 60 days of March 15, 2019.
42
Equity Compensation Plan Information
The following table provides information as of December 31, 2018 about the securities authorized for issuance to our employees, directors and other
eligible participants under our equity compensation plans, consisting of the Amended and Restated 2000 Stock Option and Incentive Plan, the 2010 Equity
Incentive Plan and the 2018 Equity Incentive Plan
Plan Category
Number of securities to
be issued upon exercise Weighted-average exercise equity compensation plans
of outstanding options, price of outstanding options,
warrants and rights
(a)
(excluding securities
reflected in column (a))
(c)
warrants and rights
(b)
Number of securities
remaining available for
future issuance under
Equity compensation plans approved by security holders
9,044,825 $
Equity compensation plans not approved by security holders
Total
—
9,044,825 $
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
0.28
—
0.28
3,395,000
—
3,395,000
Described below are transactions and series of similar transactions that have occurred during fiscal 2018 to which we were a party or are a party in
which:
GtreeBNT
·
·
the amounts involved exceeded or will exceed $120,000; and
a director, executive officer, beneficial owner of more than five percent of any class of our voting securities or any member of their
immediate family had or will have a direct or indirect material interest.
In August 2017, the Company and GtreeBNT reached an agreement to expand the territorial definition of the RGN-137 License Agreement in Japan
in exchange for a series of payments, two of which were received in 2017 with the remaining two were received in 2018. Under the amendment the Territory
was expanded to include Europe, Canada, South Korea, Australia and Japan.
U.S. Joint Venture
On January 28, 2015, we announced that we had entered into a Joint Venture Agreement with GtreeBNT a shareholder of the Company. ReGenTree,
LLC was created under the Agreement and is jointly owned by us and GtreeBNT. ReGenTree intends to commercialize RGN-259 for treatment of dry eye and
neurotrophic keratopathy, an orphan indication in the United States. GtreeBNT will be responsible for funding all product development and
commercialization efforts and holds a majority interest in ReGenTree that varies depending on development milestones achieved and eventual
commercialization path, if successful. In conjunction with the Joint Venture Agreement, we also entered into a royalty-bearing license with ReGenTree
pursuant to which we granted to ReGenTree the right to develop and exclusively commercialize RGN-259 in the United States. We received a total of $1
million in two tranches under the terms of the License Agreement. The first tranche of $500,000 was received in March 2015 and a second in the amount of
$500,000, was received in September 2015. On April 6, 2016, we received $250,000 from ReGenTree and executed an amendment to the license agreement
on April 28, 2016. Under the amendment, the territorial rights were expanded to include Canada.
43
Our initial ownership interest in ReGenTree was 49% and has been reduced to 38.5% after filing of the final clinical study report with the FDA for
the Phase 3 trial for Dry Eye Syndrome completed in 2017. Based on when, and if, ReGenTree achieves certain additional development milestones in the U.S.
with RGN-259, our equity ownership may be incrementally reduced to between 38.5% and 25%, with 25% being the final equity ownership upon FDA
approval of an NDA for Dry Eye Syndrome in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between single
and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event ReGenTree is acquired, or a change of
control occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable and will forgo any future
royalties.
In September 2015, ReGenTree began a Phase 2/3 clinical trial in patients with dry eye syndrome (“DES”) and a Phase 3 clinical trial in patients
with neurotrophic keratopathy (“NK”), both in the U.S. In May 2016, we reported the results of the 317-patient Phase 2/3 trial (ARISE-1). The FDA approved
ReGenTree’s Phase 3 protocol for DES in late summer 2016 and we initiated a second Phase 3 trial (ARISE-2) that was completed in approximately 600
patients, the results of which have been reported elsewhere in this document.
The NK trial (SEER-1), a smaller study in an orphan population, has enrolled seventeen patients thus far, and has several additional patients being
screened, with a goal of forty-six. In 2018, ReGenTree disclosed that 7 of 17 patients enrolled SEER-1 have completely healed. While these preliminary
observations are encouraging, it should be noted that the patients and treating physicians remain masked while the trial is on-going, so it is not known
whether the healed patients are in the RGN-259 group, placebo group, or distributed among both. It is not known when this study will be completed.
Director Independence
Under NYSE Amex listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as
affirmatively determined by the board. Although our common stock is no longer listed on the NYSE Amex exchange, we have determined the independence
of our directors using the NYSE Amex definitions of independence. Our board consults with counsel to ensure that its determinations are consistent with
relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of the
NYSE Amex, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his family
members, and our company, our senior management and our independent auditors, our board has determined that the following three directors are
independent directors within the meaning of the applicable NYSE Amex listing standards: Mr. Elsey, Mr. Bove and Mr. McNay. In making this determination,
the board found that none of these directors had a material or other disqualifying relationship with us. Mr. Finkelstein, our President and Chief Executive
Officer, and Dr. Goldstein our Chief Scientific Officer, are not independent by virtue of their employment with us.
In determining the independence of Mr. Bove, the board of directors took into account the significant ownership of our common stock by Essetifin
S.p.A. and our License Agreement with Lee’s Pharmaceuticals. The board of directors does not believe that any of the transactions with Lee’s or Essetifin and
its affiliates described in this report has interfered or would reasonably be expected to interfere with Mr. Bove’s exercise of independent judgment in carrying
out his responsibilities as a director of our company.
Item 14. Principal Accounting Fees and Services.
The following table represents aggregate fees billed to us for the fiscal years ended December 31, 2018 and 2017 by our independent registered
public accounting firm CohnReznick LLP. All such fees described below were approved by the audit committee.
Audit fees
Tax fees (1)
Total Fees
$
$
2018
2017
73,000 $
23,000
96,000 $
84,000
53,000
137,000
(1) Tax fees include the preparation of our corporate federal and state income tax returns.
Our audit committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered
public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services, and tax
services up to specified amounts. Pre-approval may also be given as part of the audit committee’s approval of the scope of the engagement of the independent
registered public accounting firm or on an individual explicit case-by-case basis before the independent registered public accounting firm is engaged to
provide each service. On a periodic basis, the independent registered public accounting firm reports to the audit committee on the status of actual costs for
approved services against the approved amounts.
The audit committee has determined that the rendering of the services other than audit services by CohnReznick LLP is compatible with maintaining
that firm’s independence.
44
PART IV
Item 15. Exhibits, Financial Statement Schedules.
See Exhibit Index to Form 10-K following the signature page hereto, which is incorporated herein by reference.
45
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 29, 2019
RegeneRx Biopharmaceuticals, Inc.
(Registrant)
By:
/s/ J.J. Finkelstein
J.J. Finkelstein
President and Chief Executive Officer
46
POWER OF ATTORNEY
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
In addition, each of the following persons hereby constitutes and appoints J.J. Finkelstein as his true and lawful attorney-in-fact and agent, with the
full power of substitution, for him and in his name, to sign any and all amendments to this report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Name
/s/ Allan L. Goldstein
Allan L. Goldstein
/s/ J.J. Finkelstein
J.J. Finkelstein
/s/ R. Don Elsey
R. Don Elsey
/s/ Joseph C. McNay
Joseph C. McNay
/s/ Mauro Bove
Mauro Bove
Title
Chairman of the Board, Chief Scientific
Officer, and Director
President, Chief Executive Officer, and
Director (Principal Executive Officer, Principal
Financial Officer and Principal Accounting
Officer)
Director
Director
Director
47
Date
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
RegeneRx Biopharmaceuticals, Inc.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Regenerx Biopharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of RegeneRx Biopharmaceuticals, Inc. (the “Company”) as of December 31, 2018 and 2017, and the
related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The Company's Ability to Continue as a Going Concern
The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has incurred losses from operations since inception and will need additional capital to fund future operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our 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 the 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 fraud or error. 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 purposes 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 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/ CohnReznick LLP
We have served as the Company’s auditor since 2012.
Tysons, Virginia
March 29, 2019
F-2
RegeneRx Biopharmaceuticals, Inc.
Balance Sheets
December 31,
2018
2017
Current assets
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
ASSETS
Property and equipment, net of accumulated depreciation of $97,921 and $95,168
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable
Unearned revenue
Accrued expenses
Convertible promisory notes, net
Fair value of derivative liabilities
Total current liabilities
Long-term liabilities
Unearned revenue
Convertible promisory notes, net
Fair value of derivative liabilities
Total liabilities
Commitments and contingencies
Stockholders' deficit
Preferred stock, $.001 par value per share, 1,000,000 shares authorized; no shares issued
Common stock, par value $.001 per share, 200,000,000 shares authorized, 128,432,478 and
109,789,703 issued and outstanding
Additional paid-in capital
Accumulated deficit
Total stockholders' deficit
Total liabilities and stockholders' deficit
$
$
$
$
237,261 $
36,609
273,870
1,418
5,752
281,040 $
92,433 $
76,761
91,058
54,754
-
315,006
2,178,087
-
-
2,493,093
181,708
35,442
217,150
4,171
5,752
227,073
66,461
78,893
232,365
591,036
1,184,334
2,153,089
2,045,622
43,819
100,835
4,343,365
-
-
128,433
103,541,291
(105,881,777)
(2,212,053)
281,040 $
109,790
100,333,144
(104,559,226)
(4,116,292)
227,073
The accompanying notes are an integral part of these financial statements.
F-3
Revenues
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Inducement expense
Interest expense
Change in fair value of derivative liabilities
Total other (expense) income
(Loss) income before taxes
Provision for income taxes
Net (loss) income
Basic net (loss) income per common share
Diluted net (loss) income per common share
RegeneRx Biopharmaceuticals, Inc.
Statements of Operations
Years ended December 31,
2018
2017
$
69,667 $
56,652
81,043
1,311,993
1,393,036
(1,323,369)
(582,904)
(87,280)
-
(670,184)
(1,993,553)
-
(1,993,553) $
(0.02) $
(0.02) $
143,911
1,357,371
1,501,282
(1,444,630)
-
(170,883)
2,000,605
1,829,722
385,092
98,605
286,487
0.00
0.00
$
$
$
Weighted average number of common shares outstanding - basic
120,716,329
107,442,936
Weighted average number of common shares outstanding - diluted
120,716,329
120,928,833
The accompanying notes are an integral part of these financial statements.
F-4
RegeneRx Biopharmaceuticals, Inc.
Statements of Changes in Stockholders' Deficit
Years ended December 31, 2018 and 2017
Total
Common stock
Shares
Amount
Additional
paid-in capital
Accumulated stockholders'
deficit
deficit
Balance, December 31, 2016
Issuance of common stock - option exercises
Issuance of common stock - note conversions
Issuance of common stock - warrant exercises
Reclassification of warrant liability
Share-based compensation expense
Net income
Balance, December 31, 2017
Issuance of common stock - note conversions
Issuance of common stock - warrant exercises
Inducement expense related to warrant reprice
Offering expense related to warrant reprice
Cumulative effect adjustment from adoption of
ASU 2017-11
Share-based compensation expense
Net loss
Balance, December 31, 2018
106,787,151 $
95,608
2,506,944
400,000
-
-
-
109,789,703
13,495,716
5,147,059
-
-
-
-
-
128,432,478 $
15,202
373,534
59,600
941,063
271,377
-
106,787 $
96
2,507
400
-
-
-
-
-
-
-
-
286,487
109,790 100,333,144 (104,559,226)
-
796,247
-
1,024,265
-
582,904
-
(85,565)
98,672,368 $ (104,845,713) $ (6,066,558)
15,298
376,041
60,000
941,063
271,377
286,487
(4,116,292)
809,743
1,029,412
582,904
(85,565)
13,496
5,147
-
-
-
-
-
1,285,169
276,129
(1,993,553)
128,433 $ 103,541,291 $ (105,881,777) $ (2,212,053)
671,002
-
(1,993,553)
614,167
276,129
-
The accompanying notes are an integral part of these financial statements.
F-5
RegeneRx Biopharmaceuticals, Inc.
Statements of Cash Flows
Years ended December 31,
2018
2017
Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash used in operating activities:
$
(1,993,553) $
286,487
Depreciation and amortization
Share-based compensation
Non-cash interest expense
Inducement expense
Change in fair value of derivative liabilities
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Unearned revenue
Net cash used in operating activities
Financing activities:
Payment of offering costs
Proceeds from exercise of common stock warrants
Proceeds from exercise of common stock options
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosure of Non-Cash Operating and Financing Activities
Conversion of promissory notes to common stock
Conversion of accrued interest to common stock
Fair value of warrants issued to placement agent
Culmulative effect adjustment from adoption of ASU 2017-11
Fair value of warrants reclassified to equity
2,753
276,129
65,899
582,904
-
(1,167)
25,972
22,436
130,333
(888,294)
(85,565)
1,029,412
-
943,847
55,553
181,708
237,261 $
646,000 $
163,743 $
15,545 $
1,285,169 $
3,048
271,377
122,833
-
(2,000,605)
44,494
(9,234)
75,167
543,348
(663,085)
-
60,000
15,298
75,298
(587,787)
769,495
181,708
300,000
76,041
-
-
- $
941,063
$
$
$
$
$
$
The accompanying notes are an integral part of these financial statements.
F-6
RegeneRx Biopharmaceuticals, Inc.
Notes to Financial Statements
December 31, 2018
1. ORGANIZATION AND BUSINESS
Organization and Nature of Operations.
RegeneRx Biopharmaceuticals, Inc. (“RegeneRx”, the “Company”, “We”, “Us”, “Our”), a Delaware corporation, was incorporated in 1982. We
are focused on the discovery and development of novel molecules to accelerate tissue and organ repair. Our operations are confined to one business
segment: the development and marketing of product candidates based on Thymosin Beta 4 (“Tß4”), an amino acid peptide.
Management Plans to Address Operating Conditions.
Our strategy is aimed at being capital efficient while leveraging our portfolio of clinical assets by seeking strategic relationships with
organizations with clinical development capabilities including development capital. Currently, we have active partnerships in four major territories: North
America, Europe, China and Pan Asia. In each case, the cost of development is being borne by our partners with no financial obligation for RegeneRx.
We still have significant clinical assets to develop, primarily RGN-352 (injectable formulation of Tß4 for cardiac and CNS disorders) in the U.S., Pan
Asia, and Europe, and RGN-259 in the EU. Our goal is to wait until satisfactory results are obtained from the current ophthalmic clinical program in the
U.S. before moving into the EU. However, we intend to continue to develop RGN-352, our injectable systemic product candidate for cardiac and central
nervous system indications, either by obtaining grants to fund a Phase 2a clinical trial in the cardiovascular or central nervous system fields or finding a
suitable partner with the resources and capabilities to develop it as we have with RGN-259.
Since inception, and through December 31, 2018, we have an accumulated deficit of $106 million and we had cash and cash equivalents of
$237,261 as of December 31, 2018. We anticipate incurring additional operating losses in the future as we continue to explore the potential clinical
benefits of Tß4-based product candidates over multiple indications. We have entered into a series of strategic partnerships under licensing and joint
venture agreements where our partners are responsible for advancing development of our product candidates by sponsoring multiple clinical trials. On
February 27, 2019, we sold a series of convertible promissory notes to management, the Company’s Board of Directors and accredited investors
including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two closings.
The first closing in the amount of $650,000 occurred on February 27th and the second closing, also in the amount of $650,000 will occur within three
days of the Company providing notice of the enrollment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree. ReGenTree has
informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. Because the Company does not control the timing of
the ARISE-3 clinical trial, we cannot be certain that this timing is correct or that it may not change. The notes contain a $0.12 conversion price and the
purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common stock equal to 75% of the number of shares into which
each note is initially convertible. At present, with the receipt of the sale proceeds from the first closing coupled with the anticipated proceeds from the
second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020.
While we successfully secured additional operating capital to continue operations through the first quarter of 2020 we will need substantial
additional funds in order to significantly advance development of our unlicensed programs. Accordingly, we will continue to evaluate opportunities to
raise additional capital and are in the process of exploring various alternatives, including, without limitation, a public or private placement of our
securities, debt financing, corporate collaboration and licensing arrangements, or the sale of our Company or certain of our intellectual property rights.
These factors raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of our
liabilities in the normal course of business.
Although we intend to continue to seek additional financing or additional strategic partners, we may not be able to complete a financing or
corporate transaction, either on favorable terms or at all. If we are unable to complete a financing or strategic transaction, we may not be able to continue
as a going concern after our funds have been exhausted, and we could be required to significantly curtail or cease operations, file for bankruptcy or
liquidate and dissolve. There can be no assurance that we will be able to obtain any sources of funding. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we
be forced to take any such actions.
F-7
In addition to our current operational requirements, we continually refine our operating strategy and evaluate alternative clinical uses of Tß4.
However, substantial additional resources will be needed before we will be able to achieve sustained profitability. Consequently, we continually evaluate
alternative sources of financing such as the sharing of development costs through strategic collaboration agreements. There can be no assurance that our
financing efforts will be successful and, if we are not able to obtain sufficient levels of financing, we would delay certain clinical and/or research
activities and our financial condition would be materially and adversely affected. Even if we are able to obtain sufficient funding, other factors including
competition, dependence on third parties, uncertainty regarding patents, protection of proprietary rights, manufacturing of peptides, and technology
obsolescence could have a significant impact on us and our operations.
To achieve profitability, we, and/or a partner, must successfully conduct pre-clinical studies and clinical trials, obtain required regulatory
approvals and successfully manufacture and market those pharmaceuticals we wish to commercialize. The time required to reach profitability is highly
uncertain, and there can be no assurance that we will be able to achieve sustained profitability, if at all.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) requires management to make certain estimates and assumptions that affect the reported earnings, financial position and various
disclosures. Critical accounting policies involved in applying our accounting policies are those that require management to make assumptions about
matters that are highly uncertain at the time the accounting estimate was made and those for which different estimates reasonably could have been used
for the current period. Critical accounting estimates are also those which are reasonably likely to change from period to period and would have a material
impact on the presentation of our financial condition, changes in financial condition or results of operations. Our most critical accounting estimates relate
to accounting policies for revenue recognition, valuation of derivatives and share-based arrangements. Management bases its estimates on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash and highly-liquid investments with original maturities of three months or
less when acquired and are stated at cost that approximates their fair market value.
Concentration of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of
cash and cash equivalents. We limit our exposure to credit loss by placing our cash and cash equivalents with high quality financial institutions and, in
accordance with our investment policy, in securities that are rated investment grade.
Property and Equipment. Property and equipment consist of office furniture and equipment and is stated at cost and depreciated over the
estimated useful lives of the assets (generally two to five years) using the straight-line method. Expenditures for maintenance and repairs which do not
significantly prolong the useful lives of the assets are charged to expense as incurred. Depreciation expense was $2,753 and $3,048 for the years ended
December 31, 2018 and 2017, respectively.
Impairment of Long-lived Assets. When we record long-lived assets, our policy is to regularly perform reviews to determine if and when the
carrying value of our long-lived assets becomes impaired. During the years ended December 31, 2018 and 2017, no impairment losses were recorded.
Convertible Notes with Detachable Warrants. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 470-20, Debt with Conversion and Other Options, the proceeds received from convertible notes are allocated to the instruments
based on the relative fair values of the convertible notes without the warrants and of the warrants themselves at the time of issuance. The portion of the
proceeds allocated to the warrants is recognized as additional paid-in capital and a debt discount. The debt discount related to warrants is accreted into
interest expense through maturity of the notes.
Derivative Financial Instruments. Derivative financial instruments consist of financial instruments or other contracts that contain a notional
amount and one or more underlying variables (e.g. interest rate, security price or other variable), which require no initial net investment and permit net
settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments
are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
F-8
The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the
Company has issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely
related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these instruments are required to be carried as derivative
liabilities, at fair value, in the Company’s financial statements.
The Company estimates the fair values of its derivative financials instrument using the Black-Scholes option pricing model because it embodies
all of the requisite assumptions (including trading volatility, estimated terms and risk-free rates) necessary to fair value these instruments. Estimating fair
values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the
duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and
sensitive to changes in the trading market price of the Company’s common stock, which has a high-historical volatility. Since derivative financial
instruments are initially and subsequently carried at fair values, the Company’s operating results reflect the volatility in these estimate and assumption
changes in each reporting period.
Upon the adoption of new accounting guidance on January 1, 2018, the embedded conversion features in the Company’s convertible notes are
no longer accounted for as derivative liabilities.
Revenue Recognition. Subsequent to the adoption of Accounting Standards Codification Revenue from Contracts with Customers (“ASC 606”)
on January 1, 2018
The Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with
customers, (ii) identification of distinct performance obligations in the contract, (iii) determination of contract transaction price, (iv) allocation of contract
transaction price to the performance obligations and (v) determination of revenue recognition based on timing of satisfaction of the performance
obligation. The Company recognizes revenues upon the satisfaction of its performance obligation (upon transfer of control of promised goods or services
to our customers) in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. Whenever we
determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance
obligations will be performed, and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method.
We recognize revenue using the relative performance method provided that we can reasonably estimate the level of effort required to complete our
performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Revenue recognized is limited to
the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the relative performance
method, as of each reporting period.
The Company’s contracts with customers may at times include multiple promises to transfer products and services. Contracts with multiple
promises are analyzed to determine whether the promises, which may include a license together with performance obligations such as providing a clinical
supply of product and steering committee services, are distinct and should be accounted for as separate performance obligations or whether they must be
accounted for as a single performance obligation. The Company accounts for individual performance obligations separately if they are distinct.
Determining whether products and services are considered distinct performance obligations may require significant judgment. If we cannot reasonably
estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably
estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of
performance.
Whenever the Company determines that an arrangement should be accounted for as a combined performance obligation, we must determine the
period over which the performance obligation will be performed and when revenue will be recognized. Revenue is recognized using either a relative
performance or straight-line method. We recognize revenue using the relative performance method provided that the we can reasonably estimate the level
of effort required to complete our performance obligation under an arrangement and such performance obligation is provided on a best-efforts basis.
Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined
using the relative performance method, as of each reporting period.
If the Company cannot reasonably estimate the level of effort required to complete our performance obligation under an arrangement, the
performance obligation is provided on a best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining
obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties and payments contingent upon
achievement of substantive milestones, would be recognized as revenue on a straight-line basis over the period we expect to complete our performance
obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined
using the straight-line basis, as of the period ending date.
If the Company cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, revenue
is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the
remaining estimated period of performance.
F-9
At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the
milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant
revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within
the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received
and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price
is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the
performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of
achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Amounts received prior to satisfying the above revenue recognition criteria are recorded as unearned revenue in our accompanying balance
sheets.
Contract assets are generated when contractual billing schedules differ from revenue recognition timing. Contract assets represent a conditional
right to consideration for satisfied performance obligations that becomes a billed receivable when the conditions are satisfied. There were no contract
assets as of December 31, 2018.
Contract liabilities result from arrangements where we have received payment in advance of performance under the contract. Changes in
contract liabilities are generally due to either receipt of additional advance payments or our performance under the contract.
We have the following amounts recorded for contract liabilities:
Unearned revenue
$
2,254,848 $
2,124,515
December 31, 2018 December 31, 2017
The contract liabilities amount disclosed above as of December 31, 2018, is primarily related to revenue being recognized on a straight-line
basis over periods ranging from 23 to 30 years, which, in management’s judgment, is the best measure of progress towards satisfying the performance
obligations and represents the Company’s best estimate of the period of the obligation.
Revenue recognized from contract liabilities during the year ended December 31, 2018, totaled $58,073. Revenue is expected to be recognized
in the future from contract liabilities as the related performance obligations are satisfied.
For details about the Company’s revenue recognition policy prior to the adoption of ASC 606, refer to the Company’s annual report on form 10-
K for the year ended December 31, 2017.
Variable Interest Entities On January 28, 2015, the Company entered into a Joint Venture Agreement with GtreeBNT, a shareholder in the
Company. The Joint Venture Agreement provides for the operation of the joint venture, jointly owned by the Company and GtreeBNT, which is
commercializing RGN-259 for the treatment of dry eye and neurotrophic keratopathy in the U.S. and Canada. The Company has determined that the Joint
Venture is a “variable interest entity”, since the total equity investment at risk is not sufficient to permit the Joint Venture to finance its activities without
additional subordinated financial support. Further, because of GtreeBNT’s majority equity stake in the Joint Venture, voting control, control of the board
of directors, and substantive management rights, and given that the Company does not have the power to direct the Joint Venture’s activities that most
significantly impact its economic performance, the Company determined that it is not the primary beneficiary of the Joint Venture and therefore is not
required to consolidate the Joint Venture. The Company reports its equity stake in the Joint Venture using the equity method of accounting because, while
it does not control the Joint Venture, the Company can exert significant influence over the Joint Ventures activities by virtue of its board representation.
Because the Company is not obligated to fund the Joint Venture and has not provided any financial support and has no commitment to provide
financial support in the future to the Joint Venture, the carrying value of its investment in the Joint Venture is zero at both December 31, 2018 and 2017.
As a result, the Company is not recognizing its share (38.5%) of the Joint Venture’s operating losses and will not recognize any such losses until the Joint
Venture produces net income (as opposed to net losses) and at that point the Company will reduce its share of the Joint Venture’s net income by its share
of previously suspended net losses. As of December 31, 2018, because it has not provided any financial support, the Company has no financial exposure
as a result of its variable interest in the Joint Venture.
F-10
Research and Development. Research and development (“R&D”) costs are expensed as incurred and include all of the wholly-allocable costs
associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include: manufacturing Tb4; formulation of
Tb4 into the various product candidates; stability for both Tb4 and the various formulations; pre-clinical toxicology; safety and pharmacokinetic studies;
clinical trial management; medical oversight; laboratory evaluations; statistical data analysis; regulatory compliance; quality assurance; and other related
activities. R&D includes cash and non-cash compensation, employee benefits, travel and other miscellaneous costs of our internal R&D personnel, who
are wholly dedicated to R&D efforts. R&D also includes a pro-ration of our common infrastructure costs for office space and communications.
Patent Costs. Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since
recoverability of such expenditures is uncertain.
Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Tax Cuts and Jobs Act, which was enacted
on December 22, 2017, included a number of changes to existing U.S. tax laws, most notably the reduction of the U.S. corporate income tax rate from
35% to 21%, beginning in 2018. We remeasured our deferred tax assets and deferred tax liabilities as of December 31, 2017 to reflect the reduction in the
enacted U.S. corporate income tax rate.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and
tax planning strategies in making that assessment. We recorded a full valuation allowance against all estimated net deferred tax assets at December 31,
2018 and 2017.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. Our policy for recording interest and penalties associated with audits is that penalties and interest expense
are recorded in “Income taxes” in our statements of operations.
We have significant net operating loss carryforwards to potentially reduce future federal and state taxable income, and research and
experimentation tax credit carryforwards available to potentially offset future federal and state income taxes. Use of our net operating loss and research
and experimentation credit carryforwards may be limited due to changes in our ownership as defined within Section 382 of the Internal Revenue Code.
Net (Loss) Income Per Common Share. Basic net (loss) income per common share for 2018 and 2017 is based on the weighted-average number
of shares of common stock outstanding during the years. Diluted loss per share is based on the weighted-average number of shares of common stock
outstanding during each year in which a loss is incurred potentially dilutive shares are excluded because the effect is antidilutive. In years where there is
net income, diluted income per share is based on the weighted-average number of shares of common stock outstanding plus dilutive securities with a
purchase or conversion price below the per share price of our common stock on the last day of the year. The potentially dilutive securities include
14,182,086 shares and 25,146,533 shares in 2018 and 2017, respectively, reserved for the conversion of convertible debt or exercise of outstanding
options and warrants. For the year ended December 31, 2017, 13,485,897 dilutive securities related to convertible debt and options, were included in the
diluted income per share calculation.
Share-Based Compensation. We measure share-based compensation expense based on the grant date fair value of the awards which is then
recognized over the period which service is required to be provided. We estimate the grant date fair value using the Black-Scholes option-pricing model
(“Black-Scholes”). We recognized $276,129 and $271,377 in share-based compensation expense for the years ended December 31, 2018 and 2017,
respectively.
Fair Value of Financial Instruments. The carrying amounts of our financial instruments, as reflected in the accompanying balance sheets,
approximate fair value. Financial instruments consist of cash and cash equivalents, accounts payable, and convertible debt and accrued interest. Because
the convertible debt with an interest rate of 5% is with related parties, it was not practicable to estimate the effect of subjective risk factors, which might
influence the value of the debt. The most significant of these risk factors include the lack of collateralization.
F-11
Recently Adopted Accounting Pronouncements.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which provides
guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific
guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the
transaction price, 4) allocate the transaction price, and 5) recognize revenue. In March 2016, the FASB issued an accounting standard update to clarify the
implementation guidance on principal versus agent considerations. In April 2016, the FASB issued an accounting standard update to clarify the
identification of performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. In May 2016,
the FASB issued an accounting standard update to clarify guidance in certain areas and add some practical expedients to the guidance. The amendments
in these 2016 updates do not change the core principle of the previously issued guidance in May 2014. Effective January 1, 2018, the Company adopted
ASU 2014-09 (Topic 606) using the modified retrospective method through a cumulative adjustment to equity, which resulted in an immaterial difference
and no adjustment to our opening balance of accumulated deficit as of January 1, 2018.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception. Part I of this Update addresses the complexity of accounting for certain financial instruments with down round features.
Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of
the pricing of future equity offerings. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a
down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. Part II of this
Update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in
the FASB ASC. For public business entities, the amendments in Part I of this Update are effective for years beginning after December 15, 2018. Effective
January 1, 2018, the Company adopted ASU 2017-11. As a result, the December 31, 2017 qualifying liabilities of approximately $1.3 million were
reclassified as equity as of January 1, 2018. Accordingly, no previously issued financial statements were adjusted as this guidance was applied
prospectively.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09
provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU
does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the
value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company adopted ASU
2017-09 in the first quarter of 2018 and the adoption of this ASU did not have a material effect on the financial statements.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842”), which amends the existing accounting standards for leases.
The new standard requires lessees to record a right-of-use (“ROU”) asset and a corresponding lease liability on the balance sheet (with the exception of
short-term leases), whereas under current accounting standards, the Company’s lease portfolio consists of an operating lease and is not recognized on its
balance sheets. The new standard also requires expanded disclosures regarding leasing arrangements. The new standard is effective for the Company
beginning January 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an alternative
modified transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of
adoption with prior periods not restated.
The new standard provides a number of optional practical expedients in transition. The Company expects to elect: (1) the ‘package of practical
expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct
costs; (2) the use-of-hindsight; and (3) the practical expedient pertaining to land easements. In addition, the new standard provides practical expedients
for an entity’s ongoing accounting that the Company anticipates making, such as the (1) the election for certain classes of underlying asset to not separate
non-lease components from lease components and (2) the election for short-term lease recognition exemption for all leases that qualify.
The Company will adopt ASC 842 as of January 1, 2019, using the alternative modified transition method. The Company has substantially
completed its evaluation of the impact on the Company’s lease portfolio. The Company believes the largest impact will be on the balance sheet for the
accounting of its facilities-related lease, which is its only operating lease entered as a lessee. This lease will be recognized under the new standard as an
ROU asset and operating lease liability. The Company will also be required to provide expanded disclosures for its leasing arrangement. As of December
31, 2018, the Company had approximately $77,000 of undiscounted future minimum operating lease commitments that are not recognized on its balance
sheet as determined under the current standard.
While substantially complete, the Company is still in the process of finalizing its evaluation of the effect of ASC 842 on the Company’s
financial statements and disclosures. The Company will finalize its accounting assessment and quantitative impact of the adoption during the first quarter
of fiscal year 2019. As the Company completes its evaluation of this new standard, new information may arise that could change the Company’s current
understanding of the impact to leases. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by
regulators, standards setters, or the accounting profession, and adjust the Company’s assessment and implementation plans accordingly.
F-12
In June 2018, the FASB issued ASU 2018-07: Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-
employees, and as a result, the accounting for share-based payments to non-employees will be substantially aligned. ASU 2018-07 is effective for fiscal
years beginning after December 15, 2018, including interim periods within that fiscal year, early adoption is permitted but no earlier than an entity’s
adoption date of Topic 606. The Company does not expect this new guidance will have a material impact on its financial statements and related
disclosures.
The Company has evaluated all other issued and unadopted ASUs and believes the adoption of these standards will not have a material impact
on its results of operations, financial position or cash flows.
3. FAIR VALUE MEASUREMENTS
The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii)
able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure fair value which are the following:
•
•
•
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3 — Unobservable inputs.
As of December 31, 2018 and 2017, our only qualifying assets that required measurement under the foregoing fair value hierarchy were funds
held in our Company bank accounts included in Cash and Cash Equivalents valued at $237,261 and $181,708, respectively, using Level 1 inputs. Our
December 31, 2017 balance sheet reflects qualifying liabilities resulting from the price protection provision in the convertible promissory notes issued in
March, July and September of 2013 and January 2014 (see Note 7). Previously we evaluated the derivative liability embedded in the series of convertible
notes using the Black-Scholes model to determine if an adjustment to the carrying value of the liability was required each reporting period. Given the
conditions surrounding the trading of the Company’s equity securities, the Company had valued its derivative instruments related to embedded
conversion features from the issuance of convertible debentures in accordance with the Level 3 guidelines. Our December 31, 2018 balance sheet no
longer reflects these liabilities pursuant to the adoption ASU 2017-11. As a result, the December 31, 2017 qualifying liabilities were reclassified as
equity.
For the year ended December 31, 2018, the following table reconciles the beginning and ending balances for financial instruments that are
recognized at fair value in these financial statements.
F-13
Level 3 -
Derivative liabilities from:
Conversion features
March 2013
July 2013
September 2013
January 2014
Derivative instruments
Balance at
December 31,
2017
New
Issuances
Change in
Fair Values
Reclassifications
Balance at
December 31,
2018
$
$
412,500 $
183,334
588,500
100,835
1,285,169 $
- $
-
-
-
- $
- $
-
-
-
- $
(412,500) $
(183,334)
(588,500)
(100,835)
(1,285,169) $
-
-
-
-
-
4. LICENSES, INTELLECTUAL PROPERTY, AND RELATED PARTY TRANSACTIONS
We have an exclusive, worldwide licensing agreement with the National Institutes of Health (“NIH”) for all claims to Tb4 within their broadly-
defined patent application. In exchange for this exclusive worldwide license, we must make certain royalty and milestone payments to the NIH. In 2013,
we amended certain provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed patent rights
during 2013 calendar year against the 2013 minimum annual royalty of $25,000. Beginning in 2014 the minimum annual royalty is $2,000. No assurance
can be given as to whether or when a patent will be issued, or as to any claims that may be included or excluded within the patent. We have also filed
numerous additional patent applications covering various compositions, uses, formulations and other components of Tb4, as well as to novel peptides
resulting from our research efforts. Some of these patents have been issued, while many patent applications are still pending.
We have also entered into an agreement with a university under the terms of which we have received an exclusive license to technology and
intellectual property. The agreement, which is generally cancelable by us, provided for the payment of a license issue fee and/or minimum annual
payments. The initial license fee of $25,000 was paid in 2010 and no minimum fees were due for the year ended December 31, 2011. Beginning in 2012,
minimum annual maintenance fees are $5,000 annually which was paid in 2012 but has not been paid since. In addition, the agreements provide for
payments upon the achievement of certain milestones in product development. The agreement also requires us to fund certain costs associated with the
filing and prosecution of patent applications. In February 2013, this agreement was amended to include additional technology and intellectual property.
The expanded license does not require payment of an initial license fee or additional annual maintenance fees but will be subject to payments upon the
achievement of certain milestones for a product developed under the amended license of the additional technology and intellectual property.
All license fees are included in Research and Development in the accompanying statements of operations.
In 2012, we entered into a License Agreement (the “Agreement”) with Lee’s Pharmaceutical (HK) Limited (“Lee’s”), headquartered in Hong
Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China,
Hong Kong, Macau and Taiwan. Under the License Agreement, we are eligible to receive milestone payments and royalties, ranging from low double
digit to high single digit percentages of any commercial sales of the licensed products. Lee’s will pay for all developmental costs associated with each
product candidate. We will provide Tß4 to Lee’s at no charge for a Phase 2 ophthalmic clinical trial and will provide Tß4 to Lee’s for all other
developmental and clinical work at a price equal to our cost. We will also have the right to exclusively license any improvements made by Lee’s to
RegeneRx’s products outside of the licensed territory. Lee’s paid us $200,000 upon signing of a term sheet in March 2012, and Lee’s paid us an
additional $200,000 upon signing of the definitive license agreement. The Company is accounting for the License Agreement as a revenue arrangement.
Since participation in the joint development committee is required it was deemed to be a material promise. Management has concluded that the
participation in the joint development committee is not distinct from other promised goods and services. The Company assessed the License Agreement
in accordance with ASC 606. The Company evaluated the promised goods and services under the License Agreement and determined that there was one
combined performance obligation representing a series of distinct goods and services including the license to research, develop and commercialize Tß4 in
any pharmaceutical form and participation in the joint development committee. To-date, management has not been able to reasonably measure the
outcome of the performance obligation, but still expects to recover the costs incurred in satisfying the performance obligation. Accordingly, the Company
has deferred all revenue until such time that it can reasonably measure the outcome of the performance obligation or until the performance obligation
becomes onerous. As of December 31, 2018 and 2017, we have unearned revenue totaling $400,000 pursuant to this Agreement. Revenue will be
recognized for future royalty payments as they are earned. In February 2019, the License Agreement was amended and assigned by Lee’s to their
affiliate, Zhaoke Ophthalmology Pharmaceutical Limited. There are no economic changes to the License Agreement.
F-14
On March 7, 2014, we entered into license agreements with GtreeBNT Co., Ltd. The two Licensing Agreements are for the license of territorial
rights to two of our Thymosin Beta 4-based products candidates, RGN-259 and RGN-137.
Under the License Agreement for RGN-259, our preservative-free eye drop product candidate, GtreeBNT will have the right to develop and
commercialize RGN-259 in Asia (excluding China, Hong Kong, Taiwan, and Macau). The rights will be exclusive in Korea, Japan, Australia, New
Zealand, Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Mongolia, Myanmar (Burma), Philippines, Singapore, Thailand, Vietnam, and
Kazakhstan, and semi-exclusive in India, Pakistan, Bangladesh, Bhutan, Maldives, Nepal, Sri Lanka, Kyrgyzstan, Tajikistan, Turkmenistan and
Uzbekistan, collectively, the Territory (the “259 Territory”). Under the 259 License Agreement we are eligible to receive aggregate potential milestone
payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double digit percentage of any commercial sales of the licensed
product sold by GtreeBNT in the 259 Territory.
Under the License Agreement for RGN-137, our topical dermal gel product candidate, GtreeBNT will have the exclusive right to develop and
commercialize RGN-137 in the U.S. (the “137 Territory”). Under the 137 License Agreement we are eligible to receive aggregate potential milestone
payments of up to $3.5 million. In addition, we are eligible to receive royalties of a low double-digit percentage of any commercial sales of the
Company’s licensed product sold by GtreeBNT in the 137 Territory. In August 2017, we amended the License Agreement for RGN-137 held by
GtreeBNT. Under the amendment, the 137 Territory was expanded to include Europe, Canada, South Korea, Australia and Japan. Under the License
Agreement, the Company received a series of non-refundable payments and is entitled to receive royalties on the future sales of products. The Company
is accounting for the license agreement as a revenue arrangement. Since participation in the joint development committee is required it was deemed to be
a material promise. Management has concluded that the participation in the joint development committee is not distinct from other promised goods and
services. The Company assessed the license agreement in accordance with ASC 606. The Company evaluated the promised goods and services under the
license agreement and determined that there was one combined performance obligation representing a series of distinct goods and services including the
license to research, develop and commercialize RGN-137 and participation in the joint development committee. Revenue is being recognized on a
straight-line basis over a period of 23 years, which, in management’s judgment, is the best measure of progress towards satisfying the performance
obligation and represents the Company’s best estimate of the period of the obligation. As of December 31, 2018 and 2017, we have unearned revenue
totaling $753,623 and $575,971, respectively, pursuant to this agreement. Revenue will be recognized for future royalty payments as they are earned.
Each License Agreement contains diligence provisions that require the initiation of certain clinical trials within certain time periods that, if not
met, would result in the loss of rights or exclusivity in certain countries. GtreeBNT will pay for all developmental costs associated with each product
candidate. We have the right to exclusively license any improvements made by GtreeBNT to our products outside of the licensed territory on a royalty
free basis. The two firms have created a joint development committee and continue to discuss the development of the licensed products and share
information relating thereto. Both companies will also share all non-clinical and clinical data and other information related to development of the licensed
product candidates.
On January 28, 2015, the Company entered into the Joint Venture Agreement with GtreeBNT, a shareholder in the Company. The Joint Venture
Agreement provides for the creation of the Joint Venture, jointly owned by the Company and GtreeBNT, which is commercializing RGN-259 for
treatment of dry eye and neurotrophic keratopathy in the U.S. and Canada.
GtreeBNT is solely responsible for funding all the product development and commercialization efforts of the Joint Venture. GtreeBNT made an
initial contribution of $3 million in cash and received an initial equity stake of 51%. RegeneRx’s ownership interest in ReGenTree was reduced to 38.5%
when the Clinical Study Report was filed for the Phase 2/3 dry eye clinical trial. Based on when, and if, certain additional development milestones are
achieved in the U.S. with RGN-259, our equity ownership may be incrementally reduced to between 38.5% and 25%, with 25% being the final equity
ownership upon approval of an NDA for DES in the U.S. In addition to our equity ownership, RegeneRx retains a royalty on net sales that varies between
single and low double digits, depending on whether commercial sales are made by ReGenTree or a licensee. In the event ReGenTree is acquired or there
is a change of control that occurs following achievement of an NDA, RegeneRx shall be entitled to a minimum of 40% of all proceeds paid or payable
and will forgo any future royalties. The Company is not required or otherwise obligated to provide financial support to the Joint Venture.
The Joint Venture is responsible for executing all development and commercialization activities under the License Agreement, which activities
will be directed by a joint development committee comprised of representatives of the Company and GtreeBNT. The License Agreement has a term that
extends to the later of the expiration of the last patent covered by the License Agreement or 25 years from the first commercial sale under the License
Agreement. The License Agreement may be earlier terminated if the Joint Venture fails to meet certain commercialization milestones, if either party
breaches the License Agreement and fails to cure such breach, as a result of government action that limits the ability of the Joint Venture to
commercialize the product, as a result of a challenge to a licensed patent, following termination of the license between the Company and certain agencies
of the United States federal government, or upon the bankruptcy of either party.
F-15
Under the License Agreement, the Company received $1.0 million in up-front payments and is entitled to receive royalties on the Joint Venture’s
future sales of products. On April 6, 2016, we received $250,000 from ReGenTree and executed an amendment to the license agreement on April 28,
2016. Under the amendment the territorial rights were expanded to include Canada. The Company is accounting for the License Agreement with the Joint
Venture as a revenue arrangement. Since participation in the joint development committee is required it was deemed to be a material promise.
Management has concluded that the participation in the joint development committee is not distinct from other promised goods and services. The
Company assessed the license agreements in accordance with ASC 606. The Company evaluated the promised goods and services under the license
agreements and determined that there was one combined performance obligation representing a series of distinct goods and services including the license
to research, develop and commercialize RGN-259 and participation in the joint development committee. Revenue is being recognized on a straight-line
basis over a period of 30 years, which, in management’s judgment, is the best measure of progress towards satisfying the performance obligation and
represents the Company’s best estimate of the period of the obligation. As of December 31, 2018 and 2017, we have unearned revenue totaling
$1,101,225 and $1,148,544, respectively, pursuant to this agreement. Revenue will be recognized for future royalty payments as they are earned.
5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
Prepaid expenses and other current assets are comprised of the following:
Prepaid insurance
Other
Accrued expenses are comprised of the following:
Accrued professional fees
Accrued other
Accrued compensation
Accrued interest - convertible debt
6. EMPLOYEE BENEFIT PLANS
December 31,
2018
2017
$
$
7,604 $
29,005
36,609 $
2,508
32,934
35,442
December 31,
2018
2017
$
$
9,480 $
32,459
35,411
13,708
91,058 $
9,156
34,771
32,368
156,070
232,365
In 2018 and 2017, the Company provided health and dental insurance to an employee under a group plan. No retirement plan was in place for
2018 or 2017.
F-16
7. CONVERTIBLE NOTES
2012 Convertible Note
On October 19, 2012, we completed a private placement of convertible notes (the “2012 Notes”) raising an aggregate of $300,000 in gross
proceeds. The 2012 Notes were originally scheduled to mature after twenty-four (24) months from issuance. The 2012 Notes bore interest at a rate of five
percent (5%) per annum and were convertible into shares of our common stock at a conversion price of fifteen cents ($0.15) per share (subject to
adjustment as described in the 2012 Notes) at any time prior to repayment, at the election of the investors. In the aggregate, the 2012 Notes were
convertible into up to 2,000,000 shares of our common stock excluding interest.
At any time prior to maturity of the 2012 Notes, with the consent of the holders of a majority in interest of the 2012 Notes, we could prepay the
outstanding principal amount of the 2012 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of bankruptcy by the
Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in
bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90)
days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all
accrued interest on the 2012 Notes would accelerate and automatically become immediately due and payable.
In connection with the issuance of the 2012 Notes, we also issued warrants to each Investor. The warrants were exercisable for an aggregate of
400,000 shares of common stock with an exercise price of fifteen cents ($0.15) per share for a period of five years. The relative fair value of the warrants
issued was $27,097, calculated using the Black-Scholes-Merton valuation model value of $0.07 with an expected and contractual life of 5 years, an
assumed volatility of 74.36%, and a risk-free interest rate of 0.77%. The warrants were recorded as additional paid-in-capital and a discount on the 2012
Notes of $27,097.
The investors, and the principal amount of their respective 2012 Notes and number of shares of common stock issuable upon exercise of their
respective warrants, are as set forth below:
Investor
Sinaf S.A.
Joseph C. McNay
Allan L. Goldstein
J.J. Finkelstein
Note Principal Warrants
200,000 266,667
$
66,667
50,000
$
46,666
35,000
$
20,000
15,000
$
Sinaf S. A. has historically been affiliated with our largest stockholder. The other investors are members of our Board of Directors including Mr.
Finkelstein who serves as our CEO and also the Chairman of our Board of Directors Dr. Goldstein who also serves as our Chief Scientific Officer.
During 2014, the Company amended the existing October 2012 convertible debt agreement with the holders, solely to extend the due date of the
principal and accrued unpaid until interest October 19, 2017. No other terms of the original debt were amended or modified, and the holders did not
reduce the borrowed amount or change the interest rate of the debt. The Company considered the restructuring a troubled debt restructuring as a result of
the Company’s financial condition (see Note 1 discussion of “going concern”). At the date of the amendment, all existing debt discounts and deferred
financing fees were fully amortized and the amendment did not involve any additional fees paid to the holders or third parties; as such there was no gain
recognized as a result of the amendment. The 2012 Notes matured, and the holders elected to convert the note balances of $300,000 and accrued interest
of approximately $76,000 into common stock and also exercised the associated warrants in October 2017.
2013 Convertible Notes
On March 29, 2013, we completed a private placement of convertible notes (the “March 2013 Notes”) raising an aggregate of $225,000 in gross
proceeds. The March 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty (60) months after their date of issuance and were
convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the March 2013
Notes) at any time prior to repayment, at the election of the investors. In the aggregate, the March 2013 Notes were initially convertible into up to
3,750,000 shares of our common stock.
At any time prior to maturity of the March 2013 Notes, with the consent of the holders of a majority in interest of the March 2013 Notes, we
could prepay the outstanding principal amount of the March 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of
bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a
petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation of such petition without dismissal for a period of
ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal
and all accrued interest on the March 2013 Notes would accelerate and automatically become immediately due and payable.
F-17
The investors in the offering included two members of the Board of Directors, Dr. Goldstein and Joseph C. McNay, an outside director. The
principal amounts of their respective March 2013 Notes are as set forth below:
Investor
Joseph C. McNay
Allan L. Goldstein
Note Principal
50,000
$
25,000
$
The Company evaluated the terms of the March 2013 Notes which contained a down round provision under which the conversion price could be
decreased as a result of future equity offerings, as defined in the March 2013 Notes. The adjustment would reduce the conversion price of the March
2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result, the Company concluded that the conversion
feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-
market adjustment at the end of each reporting period until the related March 2013 Notes have been settled prior to the adoption of ASU 2017-11. The
bifurcated liability of $225,000 was recorded on the date of issuance which resulted in a residual debt value of $0. The discount related to the embedded
feature was accreted as an addition to the debt through the maturity of the notes. The March 2013 Notes matured, and the holders elected to convert the
note balances of $225,000 and accrued interest of approximately $57,000 into common stock in March 2018.
On July 5, 2013, we completed a private placement of convertible notes (the “July 2013 Notes”) raising an aggregate of $100,000 in gross
proceeds. The July 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty (60) months after their date of issuance and were
convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the July 2013
Notes) at any time prior to repayment, at the election of the investors. In the aggregate, the July 2013 Notes were initially convertible into up to
1,666,667 shares of our common stock.
At any time prior to maturity of the July 2013 Notes, with the consent of the holders of a majority in interest of the July 2013 Notes, we could
prepay the outstanding principal amount of the July 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of
bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a
petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation of such petition without dismissal for a period of
ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal
and all accrued interest on the July 2013 Notes would accelerate and automatically become immediately due and payable.
The investors in the offering included three current and one former member of Board of Directors, Mr. Finkelstein, Dr. Goldstein, Mr. McNay
and L. Thompson Bowles, previously an outside director. The principal amounts of their respective July 2013 Notes are as set forth below:
Investor
Joseph C. McNay
Allan L. Goldstein
J.J. Finkelstein
L. Thompson Bowles
Note Principal
50,000
$
10,000
$
5,000
$
5,000
$
The Company evaluated the terms of the July 2013 Notes which contained a down round provision under which the conversion price could be
decreased as a result of future equity offerings, as defined in the July 2013 Notes. The adjustment would reduce the conversion price of the July 2013
Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result, the Company concluded that the conversion feature
represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market
adjustment at the end of each reporting period until the related July 2013 Notes have been settled prior to the adoption of ASU 2017-11. The bifurcated
liability of $66,667 was recorded on the date of issuance which resulted in a residual debt value of $33,333. The discount related to the embedded feature
was accreted back to debt through the maturity of the notes. The July 2013 Notes matured, and the holders elected to convert the note balances of
$100,000 and accrued interest of approximately $25,000 into common stock in July 2018.
On September 11, 2013, we completed a private placement of convertible notes raising an aggregate of $321,000 in gross proceeds (the
“September 2013 Notes”). The September 2013 Notes bore interest at a rate of five percent (5%) per annum, matured sixty (60) months after their date
of issuance and were convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described
in the September 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate, the September 2013 Notes were initially
convertible into up to 5,350,000 shares of our common stock.
F-18
At any time prior to maturity of the September 2013 Notes, with the consent of the holders of a majority in interest of the September 2013
Notes, we could prepay the outstanding principal amount of the September 2013 Notes plus unpaid accrued interest without penalty. Upon the
commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or
against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without
dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company,
the outstanding principal and all accrued interest on the September 2013 Notes would accelerate and automatically become immediately due and payable.
The investors in the offering included an affiliate and three current and one former member of the Board of Directors. The principal amounts of
their respective September 2013 Notes are as set forth below:
Investor
SINAF S.A.
Joseph C. McNay
Allan L. Goldstein
L. Thompson Bowles
R. Don Elsey
Note Principal
150,000
$
100,000
$
11,000
$
5,000
$
5,000
$
The Company evaluated the terms of the September 2013 Notes which contained a down round provision under which the conversion price
could be decreased as a result of future equity offerings, as defined in the September 2013 Notes. The adjustment would reduce the conversion price of
the September 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result, the Company concluded that the
conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a
mark-to-market adjustment at the end of each reporting period until the related September 2013 Notes have been settled prior to the adoption of ASU
2017-11. The bifurcated liability of $267,500 was recorded on the date of issuance which resulted in a residual debt value of $53,500. The discount
related to the embedded feature was accreted back to debt through the maturity of the notes. The September 2013 Notes matured, and the holders elected
to convert the note balances of $321,000 and accrued interest of approximately $81,000 into common stock in September 2018.
2014 Convertible Notes
On January 7, 2014, we completed a private placement of convertible notes raising an aggregate of $55,000 in gross proceeds (the “January
2014 Notes”). The January 2014 Notes bear interest at a rate of 5% per annum, mature sixty (60) months after their date of issuance and are convertible
into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the January 2014 Notes) at any
time prior to repayment, at the election of the investor. In the aggregate, the January 2014 Notes are initially convertible into up to 916,667 shares of our
common stock.
At any time prior to maturity of the January 2014 Notes, with the consent of the holders of a majority in interest of the January 2014 Notes, we
may prepay the outstanding principal amount of the January 2014 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of
bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a
petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of 90
days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all
accrued interest on the January 2014 Notes will accelerate and automatically become immediately due and payable.
The investors in the offering included two current and one former member of the Board of Directors. The principal amounts of their respective
January 2014 Notes are as set forth below:
Investor
Joseph C. McNay
Allan L. Goldstein
L. Thompson Bowles
Note Principal
25,000
$
10,000
$
5,000
$
F-19
The Company evaluated the terms of the January 2014 Notes which contain a down round provision under which the conversion price could be
decreased as a result of future equity offerings, as defined in the January 2014 Notes. The adjustment would reduce the conversion price of the January
2014 Notes to be equivalent to that of the newly issued stock or stock-related instruments. As a result, the Company concluded that the conversion
feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-
market adjustment at the end of each reporting period until the related January 2014 Notes have been settled prior to the adoption of ASU 2017-11. The
bifurcated liability of $55,000 was recorded on the date of issuance which resulted in a residual debt value of $0. The discount related to the embedded
feature is being accreted back to debt through the maturity of the notes. The January 2014 Notes matured, and the holders elected to convert the note
balances of $55,000 and accrued interest of approximately $14,000 into common stock in January 2019.
The outstanding balance of the derivative liability is as follows:
March 2013 Notes
July 2013 Notes
September 2013 Notes
January 2014 Notes
Total fair value of derivative liability
The change in fair value of the derivative liability is as follows:
March 2013 Notes
July 2013 Notes
September 2013 Notes
January 2014 Notes
Warrant liability
Rights liability
December 31, 2018 December 31, 2017
$
$
- $
-
-
-
- $
412,500
183,334
588,500
100,835
1,285,169
For the years ended
December 31, 2018 December 31, 2017
$
- $
(562,500)
-
-
-
-
-
(250,000)
(802,500)
(146,668)
(190,000)
(48,937)
Total change in fair value of derivative
$
- $
(2,000,605)
F-20
The Company recorded interest expense and discount accretion as set forth below:
2012 Notes
March 2013 Notes
July 2013 Notes
September 2013 Notes
January 2014 Notes
Total interest expense
8. STOCKHOLDERS’ EQUITY
For the years ended
December 31, 2018 December 31, 2017
$
- $
14,192
9,677
49,661
13,750
12,999
56,250
18,335
69,550
13,749
$
87,280 $
170,883
Common Stock. In March, July and September of 2018, the March 2013, July 2013 and September 2013 Notes matured, and the holders elected
to convert the note balances and accrued interest into common stock. As a result, we issued 4,700,520, 2,089,120 and 6,706,076 shares of common stock,
respectively. (see Note 7)
On March 2, 2018, we entered into the Reprice Agreement with Sabby Healthcare Master Fund, Ltd., and Sabby Volatility Warrant Master
Fund, Ltd. (collectively, “Sabby”). In connection with that certain securities purchase agreement between the Company and Sabby dated June 27, 2016
(the “Purchase Agreement”) we also issued to Sabby warrants to purchase 5,147,059 shares of common stock (the “Warrant Shares”) at an exercise price
of $0.51 per share (the “Sabby Warrants”). Under the terms of the Reprice Agreement, in consideration of Sabby exercising in full all of the Sabby
Warrants (the “Warrant Exercise”), the exercise price per share of the Sabby Warrants was reduced to $0.20 per share. In addition, and as further
consideration, we issued to Sabby warrants to purchase up to 3,860,294 shares of common stock at an exercise price of $0.2301 per share, the closing bid
price for the Company’s Common Stock on February 28, 2018 (the “New Warrants”). We received gross proceeds of approximately $1,029,000 from the
warrant reprice transaction.
The Reprice Agreement was accounted for as an inducement and consequently, we recognized a non-operating expense of $582,904 equal to the
fair value of the New Warrants calculated using a customized Monte Carlo simulation. The repricing of the Warrant Shares did not result in any
incremental fair value and consequently did not result in any additional expense.
In conjunction with the Reprice Agreement we incurred $101,110 of expenses comprised of: (i) 102,947 warrants valued at $15,545 issued to an
outside third party as a fee for the transaction and (ii) $85,565 of expenses for professional fees. Such expenses were netted against the proceeds from the
transaction. The warrants contained the same terms and conditions as the New Warrants and were valued using the Black-Scholes model.
Registration Rights Agreements. In connection with the sale of certain equity instruments, we have entered into Registration Rights Agreements.
Generally, these Agreements required us to file registration statements with the Securities and Exchange Commission to register common shares to
permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of
outstanding warrants.
The Registration Rights Agreements usually require us to pay penalties for any failure or time delay in filing or maintaining the effectiveness of
the required registration statements. These penalties are usually expressed as a fixed percentage, per month, of the original amount we received on
issuance of the common shares, options or warrants. While to date we have not incurred any penalties under these agreements, if a penalty is determined
to be probable we would recognize the amount as a contingent liability and not as a derivative instrument.
Share-Based Compensation. We recognized $276,129 and $271,377 in stock-based compensation expense for the years ended December 31,
2018 and 2017, respectively. We expect to recognize the compensation cost related to non-vested options as of December 31, 2018 of $273,000 over the
weighted average remaining recognition period of 1.23 years.
F-21
Stock Option and Incentive Plans. On June 13, 2018, at our Annual Meeting of Stockholders, our stockholders approved the 2018 Equity
Incentive Plan (the “2018 Plan”). The terms of the 2018 Plan provide for the discretionary grant of incentive stock options, nonstatutory stock options,
stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, other stock awards and performance cash
awards to our employees, directors and consultants. The total number of shares of our common stock reserved for issuance under the 2018 Plan is
initially 5,000,000 shares of common stock with additional shares being available for grant under the plan annually in an amount equal to 2% of the then
outstanding shares of common stock on July 1 of each calendar year.
We have previously adopted two equity incentive plans, known as the 2000 Equity Incentive Plan, or the 2000 Plan, and the 2010 Equity
Incentive Plan, or the 2010 Plan. Both the 2000 Plan and the 2010 Plan have a term of ten years, with the 2000 Plan already expired and the 2010 Plan
scheduled to expire in July 2020. No further awards may be granted under the 2010 Plan with the approval of the 2018 Plan. All outstanding option
awards granted under the 2000 Plan and the 2010 Plan will continue to be subject to the terms and conditions as set forth in the agreements evidencing
such option awards and the terms of the 2000 Plan and the 2010 Plan. Shares remaining available for issuance under the shares reserve of the 2010 Plan
will not be subject to future awards under the 2018 Plan, and shares subject to outstanding awards under the 2000 Plan and the 2010 Plan that are
terminated or forfeited in the future will not be subject to future awards under the 2018 Plan.
The following summarizes share-based compensation expense for the years ended December 31, 2018 and 2017, which was allocated as
follows:
Research and development
General and administrative
December 31,
2018
2017
79,143 $
83,425
$
196,986 187,952
$ 276,129 $ 271,377
The following summarizes stock option activity for the years ended December 31, 2018 and 2017:
December 31, 2016
Grants
Exercises
Forfeitures
Expirations*
December 31, 2017
2018 Plan approved
Grants
Expirations
December 31, 2018
Vested and expected to vest at December 31, 2018
Exercisable at December 31, 2018
Options Outstanding
Shares
available for
grants
Number of
shares
Exercise price
range
Weighted
average
exercise
price
0.14 - 0.64 $
0.28
0.16
0.21 - 0.64
0.27
0.14 - 0.64
-
0.21
0.16 - 0.22
0.14 - 0.64 $
0.29
0.28
0.16
0.40
0.27
0.29
-
0.21
0.19
0.28
7,698,711 $
1,000,000
(95,608)
(167,915)
(376,400)
8,058,788
-
1,605,000
(618,963)
9,044,825 $
8,955,810
7,039,825
608,029
(1,000,000)
-
124,750
376,400
109,179
5,000,000
(1,605,000)
618,963
4,123,142
F-22
The following summarizes information about stock options outstanding at December 31, 2018:
Options Outstanding, December 31, 2017
Granted
Exercised
Forfeited
Options Outstanding, December 31, 2018
Vested and unvested but expected to vest, December 31, 2018
Exercisable at December 31, 2018
Weighted Average
Number of Shares
8,058,788 $
1,605,000
-
(618,963)
9,044,825 $
8,955,810 $
7,039,825 $
Exercise Price
0.29
0.21
-
0.19
0.28
0.28
0.28
Weighted
Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
4.3 years
4.3 years
3.1 years
$
$
$
20,000
20,000
20,000
Determining the Fair Value of Options. We use the Black-Scholes valuation model to estimate the fair value of options granted. Black-Scholes
considers a number of factors, including the market price and volatility of our common stock. We used the following forward-looking range of
assumptions to value each stock option granted to employees, directors and consultants during the years ended December 31, 2018 and 2017:
Dividend yield
Risk-free rate of return
Expected life in years
Volatility
Forfeiture rate
2018
2017
0.0%
2.76%
5.88
89%
2.6%
0.0%
1.73%
5.88
90%
2.6%
Our dividend yield assumption is based on the fact that we have never paid cash dividends and do not anticipate paying cash dividends in the
foreseeable future. Our risk-free interest rate assumption is based on yields of U.S. Treasury notes in effect at the date of grant. Our expected life
represents the period of time that options granted are expected to be outstanding and is calculated in accordance with the Securities and Exchange
Commission (“SEC”) guidance provided in the SEC’s Staff Accounting Bulletin (“SAB”) 107 and SAB 110, using a “simplified” method. The Company
has used the simplified method and will continue to use the simplified method as it does not have sufficient historical exercise data to provide a
reasonable basis upon which to estimate an expected term. Our volatility assumption is based on reviews of the historical volatility of our common stock.
Using Black-Scholes and these factors, the weighted average fair value of stock options granted to employees and directors was $0.16 and $0.21 for the
years ended December 31, 2018 and 2017, respectively. We do not record tax-related effects on stock-based compensation given our historical and
anticipated operating experience and offsetting changes in our valuation allowance which fully reserves against potential deferred tax assets.
The following table summarizes our warrant activity for 2018 and 2017:
December 31, 2016
Exercises
December 31, 2017
Issuances
Exercises
December 31, 2018
Warrants Outstanding
Number of
shares
Exercise price
range
Weighted
average
exercise
price
5,804,412 $
(400,000)
5,404,412
3,963,241
(5,147,059)
4,220,594 $
F-23
0.15 - 0.51 $
0.15
0.37 - 0.51
0.23
0.20
0.23 - 0.37 $
0.48
0.15
0.50
0.23
0.20
0.24
9.
INCOME TAXES
The Company’s provision for income taxes consists of the following for the years ended December 31, 2018 and 2017:
Current income tax provision (benefit):
Federal
State
Foreign
Total
Deferred income tax provision (benefit):
Federal
State
Foreign
Total
Change in valuation allowance
Total provision for income taxes
2018
2017
$
- $
-
-
-
-
-
98,605
98,605
(344,794)
(107,009)
-
(451,803)
4,816,966
771,423
-
5,588,389
451,803
(5,588,389)
$
- $
98,605
Significant components of the Company’s deferred tax assets at December 31, 2018 and 2017 and related valuation allowances are presented
below:
Deferred tax assets:
Net operating loss carryforwards
Research and experimentation credit carryforward
Charitable contribution carryforward
Accrued expenses, deferred revenue and other
Depreciation and amortization
Share-based compensation
Less - valuation allowance
Net deferred tax assets
Year ended December 31,
2018
2017
$ 13,499,000 $ 13,045,000
2,268,000
4,000
538,000
(1,000)
840,000
16,694,000
2,268,000
4,000
632,000
-
743,000
17,146,000
(17,146,000)
(16,694,000)
$
- $
-
At December 31, 2018, we had net operating loss carryforwards for income tax purposes of approximately $49.1 million, which are available to
offset future federal and state taxable income, if any, and, research and experimental tax credit carryforwards of approximately $2.3 million.
Approximately $47.9 million of the net operating loss carryforward, generated prior to 2018, expires in increments through 2037, while the carryforward
generated in 2018 does not expire.
Section 382 of the Internal Revenue Code imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of
a corporation’s ownership change. During 2009, the Company completed a preliminary study to compute any limits on the net operating losses and credit
carryforwards for purposes of Section 382. It was determined that the Company experienced a cumulative change in ownership, as defined by the
regulations, in 2002. This change in ownership triggers an annual limitation on the Company’s ability to utilize certain U.S. federal and state net
operating loss carryforwards and research tax credit carryforwards, resulting in the potential loss of approximately $9.8 million of net operating loss
carryforwards and $0.2 million in research credit carryforwards. The Company has reduced the deferred tax assets associated with these carryforwards in
its balance sheets. The Company believes that the future use of net operating losses and tax credits presented above may be further reduced as a result of
additional ownership changes subsequent to 2009.
F-24
The provision for income taxes on earnings subject to income taxes differs from the statutory federal rate for the years ended December 31,
2018 and 2017, due to the following:
US Federal statutory rate
State income tax, net of Federal benefit
Foreign tax
Change in fair value of derivative liabilities
Share-based compensation
Permanent differences and other
Research and experimentation credits
Foreign tax credits
Changes in federal tax rate due to Tax Cuts and Jobs Act
Change in valuation allowance
Other
2018
2017
34.00%
21.00%
5.45%
6.52%
25.61%
0.00%
-204.92%
0.00%
13.56%
-2.64%
16.61%
-9.30%
-0.57%
0.01%
0.00%
-25.61%
0.00% 1612.67%
-22.66% -1451.18%
0.00%
7.07%
0.00%
25.62%
The most significant impact on our effective tax rate in 2017 was the revaluation of our deferred tax assets and liabilities at the lower 21% U.S.
corporate tax rate, as proscribed by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017 and lowered the U.S. corporate tax rate from
35% to 21% beginning in 2018.
As discussed in Note 2, we recognize the effect of income tax positions only if those positions more likely than not of being sustained. At
December 31, 2018 and 2017, we had no gross unrecognized tax benefits. We do not expect any significant changes in unrecognized tax benefits over the
next 12 months. In addition, we did not recognize any interest or penalties related to uncertain tax positions at December 31, 2018 and 2017.
The 2008 through 2018 tax years generally remain subject to examination by federal and most state tax authorities. In addition, we would
remain open to examination for earlier years if we were to utilize net operating losses or tax credit carryforwards that originated prior to 2012.
10. COMMITMENTS
Lease. In February 2017, we amended our office lease agreement and the term was extended through July 2020. During the extended term our
rental payments will average approximately $4,000 per month.
The future minimum rent payments as of December 31, are as follows:
2019
2020
Total
$
$
48,101
28,850
76,951
Employment Continuity Agreements. We have entered into employment contracts with our executive officers which provide for severance if the
executive is dismissed without cause or under certain circumstances after a change of control in our ownership. At December 31, 2018, these obligations,
if triggered, could amount to a maximum of approximately $170,000.
F-25
11. SUBSEQUENT EVENTS
Convertible Debt Placement
On February 27, 2019 we sold a series of convertible promissory notes to management, the Company’s Board of Directors and accredited
investors including Essetifin S.p.A., our largest shareholder. The sale of the notes will result in gross proceeds to the Company of $1,300,000 over two
closings. The first closing in the amount of $650,000 occurred on February 27th and the second closing, also in the amount of $650,000 will occur within
three days of the Company providing notice of the enrolment of the first patent in the ARISE-3 clinical trial in DES sponsored by ReGenTree.
ReGenTree has informed us that they now expect the ARISE-3 clinical trial to occur in the second quarter of 2019. The notes contain a $0.12 conversion
price and the purchasers also received a warrant exercisable at $0.18 to purchase additional shares of common stock equal to 75% of the number of
shares into which each note is initially convertible. At present, with the receipt of the sale proceeds from the first closing coupled with the anticipated
proceeds from the second closing, we will have sufficient cash to fund planned operations through the first quarter of 2020.
F-26
EXHIBIT INDEX
Exhibit No.
Description of Exhibit
Reference*
3.1
Restated Certificate of Incorporation
Exhibit 3.1 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
3.2
3.3
3.4
3.5
Certificate of Amendment
Incorporation
to Restated Certificate of
Exhibit 3.2 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Certificate of Amendment
Incorporation
to Restated Certificate of
Exhibit 3.3 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Certificate of Amendment of Restated Certificate of
Incorporation
Exhibit 3.4 to Registration Statement on Form S-8 (File No. 333-
168252) (filed July 21, 2010)
Certificate of Designation of Series A Participating Cumulative
Preferred Stock
Exhibit 3.4 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
3.6
Amended and Restated Bylaws
3.7
Amendment to Amended and Restated Bylaws
4.1
Specimen Common Stock Certificate
4.2
Specimen Rights Certificate
4.3
4.4
4.5
Rights Agreement, dated April 29, 1994, between
the
Company and American Stock Transfer & Trust Company, as
Rights Agent
Amendment No. 1 to Rights Agreement, dated March 4, 2004,
between the Company and American Stock Transfer & Trust
Company, as Rights Agent
Warrant Agreement, dated May 21, 2010, between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent
Exhibit 3.4 to Quarterly Report on Form 10-Q (File No. 001-15070) for
the quarter ended June 30, 2006 (filed August 14, 2006)
Exhibit 3.6 to Registration Statement on Form S-8 (File No. 333-
152250) (filed July 10, 2008)
Exhibit 4.1 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Exhibit 4.2 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Exhibit 4.3 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Exhibit 4.4 to Registration Statement on Form S-1 (File No. 333-
166146) (filed April 16, 2010)
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
May 21, 2010)
4.6
Form of Warrant Certificate
Exhibit 4.6 to Amendment No. 1 to Registration Statement on Form S-1
(File No. 333-166146) (filed May 17, 2010)
10.1 ^
Amended and Restated 2000 Stock Option and Incentive Plan,
as amended
Annex A to the Company’s Proxy Statement on Schedule 14A (File No.
001-15070) (filed May 9, 2008)
48
10.2 ^
2010 Equity Incentive Plan
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
July 20, 2010)
10.3
10.4
10.5
10.6
10.7
10.8
Form of Stock Option Grant Notice and Stock Option
Agreement under the 2010 Equity Incentive Plan
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-15070) (filed
July 20, 2010)
Patent License Agreement — Exclusive, dated January 24,
2001, between the Company and the U.S. Public Health
Service
Exhibit B to Exhibit 10.1 to Amendment No. 1 to Quarterly Report on
Form 10-Q for the quarter ended September 30, 2012 (File No. 001-
15070) (filed January 16, 2013)
Thymosin Beta 4 License and Supply Agreement, dated
January 21, 2004, between the Company and Defiante
Farmaceutica S.A.
Exhibit 10.10 to Registration Statement on Form SB-2 (File No. 333-
113417) (filed March 9, 2004)**
Lease, by and between the Company and The Realty
Associates Fund V, L.P., dated December 10, 2009
Exhibit 10.25 to Annual Report on Form 10-K for the year ended
December 31, 2009 (File No. 001-15070) (filed March 31, 2010)
Form of Warrant to Purchase Common Stock dated April 30,
2009
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
April 16, 2009)
Form of Common Stock Purchase Warrant, dated October 5,
2009
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
September 30, 2009)
10.9
Form of Warrant, dated October 15, 2009
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
October 5, 2009)
10.10
Representative’s Warrant to Purchase Common Stock, dated
May 21, 2010
Exhibit 4.3 to Current Report on Form 8-K (File No. 001-15070) (filed
May 21, 2010)
10.11
Registration Rights Agreement, dated January 4, 2011
Exhibit 10.3 to Current Report on Form 8-K (File No. 001-15070) (filed
January 7, 2011)
10.12
Warrant to Purchase Common Stock, dated January 7, 2011,
issued to Lincoln Park Capital
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
January 7, 2011)
10.13
Form of Warrant to Purchase Common Stock, dated January 7,
2011, issued to the Sigma-Tau Purchasers
Exhibit 4.2 to Current Report on Form 8-K (File No. 001-15070) (filed
January 7, 2011)
10.14 ^
Amended and Restated Change in Control Agreement between
the Company and J.J. Finkelstein, dated July 2, 2012
Exhibit 10.8 to Current Report on Form 10-Q (File No. 001-15070)
(filed August 14, 2012)
10.15 ^
Amended and Restated Change in Control Agreement between
the Company and Allan L. Goldstein, dated July 2, 2012
Exhibit 10.12 to Current Report on Form 10-Q (File No. 001-15070)
(filed August 14, 2012)
10.16
Form of Convertible Promissory Note
10.17
Form of Warrant
10.18
Convertible Note and Warrant Purchase Agreement
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
October 24, 2012)
Exhibit 4.2 to Current Report on Form 8-K (File No. 001-15070) (filed
October 24, 2012)
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
October 24, 2012)
49
10.19
License Agreement with Lee’s Pharmaceutical (HK) Limited
Exhibit 10.1 to Amendment No. 1 to Form 10-Q (File No. 001-15070)
for the quarter ended September 30, 2012 (filed January 16, 2013)**
10.20
Form of Convertible Promissory Note
10.21
Convertible Note Purchase Agreement
10.22
Form of Convertible Promissory Note
10.23
Convertible Note Purchase Agreement
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
April 2, 2013)
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
April 2, 2013)
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
July 11, 2013)
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
July 11, 2013)
10.24 ^
Letter Agreement between the Company and J.J. Finkelstein,
dated July 5, 2013
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-15070) (filed
July 11, 2013)
10.25 ^
Letter Agreement between the Company and Allan L.
Goldstein, dated July 5, 2013
Exhibit 10.4 to Current Report on Form 8-K (File No. 001-15070) (filed
July 11, 2013)
10.26
Form of Convertible Promissory Note
10.27
Convertible Note Purchase Agreement
10.28
Form of Convertible Promissory Note
10.29
Convertible Note Purchase Agreement
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
September 19, 2013)
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
September 19, 2013)
Exhibit 4.1 to Current Report on Form 8-K (File No. 001-15070) (filed
January 9, 2014)
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
January 9, 2014)
10.30 ^
Letter Agreement between the Company and J.J. Finkelstein,
dated January 7, 2014
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-15070) (filed
January 9, 2014)
10.31
Letter Agreement between the Company and Allan L.
Goldstein, dated January 7, 2014
Exhibit 10.3 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed January 9, 2014)
10.32
Securities Purchase Agreement
Exhibit 10.5 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed May 15, 2014)
10.33
License Agreement RGN-259 dated March 7, 2014 with
GtreeBNT (formerly Digital Aria)
Exhibit 10.6 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed May 15, 2014)**
10.34
License Agreement RGN-137 dated March 7, 2014 with
GtreeBNT (formerly Digital Aria)
Exhibit 10.7 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed May 15, 2014)**
10.35 ^
Executive Employment Agreement between the Company and
J.J. Finkelstein dated April 16, 2014
Exhibit 10.1 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed August 14, 2014)
10.36 ^
Executive Employment Agreement between the Company and
Allan L. Goldstein dated April 16, 2014
Exhibit 10.2 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed August 14, 2014)
10.37 ^
Executive Employment Agreement between the Company and
Dane Saglio dated April 16, 2014
Exhibit 10.3 to Quarterly Report on Form10-Q (File No. 001-15070)
(filed August 14, 2014)
50
10.38
Form of First Amendment to Promissory Note dated October
3, 2014
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
October 9, 2014)
10.39
Joint Venture Agreement between the Company and GtreeBNT
Co., Ltd. dated January 28, 2015
Exhibit 10.1 to Quarterly Report on Form 10-Q (File No. 001-15070)
(filed May 15, 2015)
10.40
License Agreement between the Company and ReGenTree,
LLC dated January 28, 2015
Exhibit 10.2 to Quarterly Report on Form 10-Q (File No. 001-15070)
(filed May 15, 2015)
10.41
2014 Amendment to Lease Agreement
Exhibit 10.41 to Annual Report on Form 10-K (File No. 001-15070)
(filed April 11, 2016)
10.42
Securities Purchase Agreement between the Company and
Purchasers identified therein dated June 27, 2016.
Exhibit 10.1 to Current Report on Form 8-K (File No. 001-15070) (filed
July 1, 2016).
10.43
Registration Rights Agreement between the Company and
Purchasers identified therein dated June 27, 2016.
Exhibit 10.2 to Current Report on Form 8-K (File No. 001-15070) (filed
July 1, 2016).
10.44
Amendment No. 2 to the RGN-259 License Agreement
between the Company and ReGenTree, LLC dated April 28,
2016.
Exhibit 10.1 to Quarterly Report on Form 10-Q (File No. 001-15070)
(filed August 22, 2016)
10.45
Amendment No. 2. to Joint Venture Agreement between the
Company and GtreeBNT Co., Ltd. dated May 11, 2016.
Exhibit 10.2 to Quarterly Report on Form 10-Q (File No. 001-15070)
(filed August 22, 2016)
10.46
Amendment No 2. Dated as of August 28, 2017, REN-137
License Agreement between the Company and GTreeBNT
Co., LTD, dated March 7, 2014
Exhibit 10.1 to Quarterly Report on Form 10-Q (File No. 001-15070)
(filed November 14, 2017)**
10.47
Warrant Reprice Agreement between the Company and the
Purchasers identified therein dated March 2, 2018
Exhibit 10.47 to Annual Report on Form 10-K (File No. 001-15070)
(filed March 29, 2018)
10.48
Form of Common Stock Warrant
Exhibit 10.48 to Annual Report on Form 10-K (File No. 001-15070)
(filed March 29, 2018)
10.49 2018 Equity Incentive Plan
23.1 Consent of CohnReznick LLP
Filed herewith
Filed herewith
24.1 Powers of Attorney
Included on signature page
31.1
32.1
101
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934
Filed herewith
Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Filed herewith***
Filed herewith
in XBRL
The following materials from the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2018,
formatted
(eXtensible Business Reporting
Language): (i) Balance Sheets at December 31, 2018 and
2017; (ii) Statements of Operations for the years ended
December 31, 2018 and 2017; (iii) Statements of Changes in
Stockholders’ Deficit; (iv) Statements of Cash Flows for the
years ended December 31, 2018 and 2017; and (v) Notes to
Financial Statements.
51
*
Except where noted, the exhibits referred to in this column have heretofore been filed with the Securities and Exchange Commission as exhibits
to the documents indicated and are hereby incorporated by reference thereto. The Registration Statements referred to are Registration Statements
of the Company.
** The registrant has been granted confidential treatment with respect to certain portions of this exhibit (indicated by asterisks), which have been
filed separately with the Securities and Exchange Commission.
*** This certification is being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, is not being filed for purposes of
Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made
before or after the date hereof, regardless of any general incorporation language in such filing.
^ Compensatory plan, contract or arrangement.
52
Exhibit 10.49
REGENERX BIOPHARMACEUTICALS, INC.
2018 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS EFFECTIVE AS OF &
APPROVED BY THE STOCKHOLDERS: JUNE 13, 2018
TERMINATION DATE: JUNE 13, 2028
1. GENERAL.
(a) Eligible Award Recipients. The persons eligible to receive Awards are Employees, Directors and Consultants.
(b) Available Awards. The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock
Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and
(viii) Other Stock Awards.
(c) Purpose. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Awards as set forth
in Section 1(a), to provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and to provide a means by
which such eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Awards.
2. ADMINISTRATION.
(a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee or
Committees, as provided in Section 2(c).
(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time (A) which of the persons eligible under the Plan shall be granted Awards; (B) when and how each Award shall
be granted; (C) what type or combination of types of Award shall be granted; (D) the provisions of each Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive cash or Common Stock pursuant to a Stock Award; (E) the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such person; and (F) the Fair Market Value applicable to a Stock Award.
(ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement or in
the written terms of a Performance Cash Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Award fully effective.
(iii) To settle all controversies regarding the Plan and Awards granted under it.
(iv) To accelerate the time at which an Award may first be exercised or the time during which an Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.
(v) To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall not impair rights and obligations under any Award
granted while the Plan is in effect except with the written consent of the affected Participant.
(vi) To amend the Plan in any respect the Board deems necessary or advisable. However, except as provided in Section 9(a) relating to
Capitalization Adjustments, to the extent required by applicable law or listing requirements, stockholder approval shall be required for any amendment of the
Plan that either (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of
individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or materially reduces the
price at which shares of Common Stock may be issued or purchased under the Plan, (D) materially extends the term of the Plan, or (E) expands the types of
Awards available for issuance under the Plan. Except as provided above, rights under any Award granted before amendment of the Plan shall not be impaired
by any amendment of the Plan unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.
(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the
requirements of (A) Section 162(m) of the Code regarding the exclusion of performance-based compensation from the limit on corporate deductibility of
compensation paid to Covered Employees, (B) Section 422 of the Code regarding incentive stock options or (C) Rule 16b-3.
(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards, including, but not
limited to, amendments to provide terms more favorable to the Participant than previously provided in the Award Agreement, subject to any specified limits
in the Plan that are not subject to Board discretion; provided however, that except with respect to amendments that disqualify or impair the status of an
Incentive Stock Option, a Participant’s rights under any Award shall not be impaired by any such amendment unless (A) the Company requests the consent of
the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, the
Board may amend the terms of any one or more Awards without the affected Participant’s consent if necessary to maintain the qualified status of the Award as
an Incentive Stock Option or to bring the Award into compliance with Section 409A of the Code.
(ix) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the
Company and that are not in conflict with the provisions of the Plan or Awards.
(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or
Consultants who are foreign nationals or employed outside the United States.
(c) Delegation to Committee.
(i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is
delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that
have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee
is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Committee may, at any time, abolish the
subcommittee and/or revest in the Committee any powers delegated to the subcommittee. The Board may retain the authority to concurrently administer the
Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii) Section 162(m) and Rule 16b-3 Compliance. The Committee may consist solely of two or more Outside Directors, in accordance with
Section 162(m) of the Code, and solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.
(d) Delegation to an Officer. The Board may delegate to one (1) or more Officers the authority to do one or both of the following (i) designate
Employees who are providing Continuous Service to the Company or any of its Subsidiaries who are not Officers to be recipients of Options and Stock
Appreciation Rights (and, to the extent permitted by applicable law, other Stock Awards) and the terms thereof, and (ii) determine the number of shares of
Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation shall
specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a
Stock Award to himself or herself. Notwithstanding the foregoing, the Board may not delegate authority to an Officer to determine the Fair Market Value
pursuant to Section 13(w)(iii) below.
(e) Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
(f) Cancellation and Re-Grant of Stock Awards. Neither the Board nor any Committee shall have the authority to: (i) reduce the exercise price of any
outstanding Options or Stock Appreciation Rights under the Plan, or (ii) cancel any outstanding Options or Stock Appreciation Rights that have an exercise
price or strike price greater than the current Fair Market Value of the Common Stock in exchange for cash or other Stock Awards under the Plan, unless the
stockholders of the Company have approved such an action within twelve (12) months prior to such an event.
2
3. SHARES SUBJECT TO THE PLAN.
(a) Share Reserve. Subject to Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued
pursuant to Stock Awards from and after the Effective Date shall initially be five million (5,000,000) shares and shall increase annually on July 1 for each
year the Plan is in effect starting on July 1, 2019 by the number of shares equal to two percent (2%) of the then issued and outstanding shares of Common
Stock of the Company. For clarity, the Share Reserve in this Section 3(a) is a limitation on the number of shares of the Common Stock that may be issued
pursuant to the Plan and does not limit the granting of Stock Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or
acquisition as permitted by, as applicable, NASDAQ Listing Rule 5635(c) or, if applicable, NYSE Listed Company Manual Section 303A.08, AMEX
Company Guide Section 711 or other applicable rule, and such issuance shall not reduce the number of shares available for issuance under the Plan.
Furthermore, if a Stock Award or any portion thereof (i) expires or otherwise terminates without all of the shares covered by such Stock Award having been
issued or (ii) is settled in cash (i.e., the Participant receives cash rather than stock), such expiration, termination or settlement shall not reduce (or otherwise
offset) the number of shares of Common Stock that may be available for issuance under the Plan.
(b) Reversion of Shares to the Share Reserve. If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to the Company
because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares that are forfeited shall revert to and
again become available for issuance under the Plan. Any shares reacquired by the Company pursuant to Section 8(g) or as consideration for the exercise of an
Option shall again become available for issuance under the Plan.
(c) Incentive Stock Option Limit. Notwithstanding anything to the contrary in this Section 3 and, subject to the provisions of Section 9(a) relating to
Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock
Options shall initially be five million (5,000,000) shares of Common Stock and then shall be the number of shares of Common Stock reserved for issuance
under the Plan pursuant to Section 3(a) for subsequent years that the Plan is in effect.
(d) Section 162(m) Limitation on Annual Grants. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the
Company may be subject to the applicable provisions of Section 162(m) of the Code, a maximum of one million (1,000,000) shares of Common Stock subject
to Options, Stock Appreciation Rights and Other Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at
least one hundred percent (100%) of the Fair Market Value on the date any such Stock Award is granted may be granted to any Participant during any
calendar year. Notwithstanding the foregoing, if any additional Options, Stock Appreciation Rights or Other Stock Awards whose value is determined by
reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value on the date the Stock Award are
granted to any Participant during any calendar year, compensation attributable to the exercise of such additional Stock Awards shall not satisfy the
requirements to be considered “qualified performance-based compensation” under Section 162(m) of the Code unless such additional Stock Award is
approved by the Company’s stockholders.
(e) Source of Shares. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares
repurchased by the Company on the open market or otherwise.
4. ELIGIBILITY.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to employees of the Company or a “parent corporation” or
“subsidiary corporation” thereof (as such terms are defined in Sections 424(e) and (f) of the Code). Stock Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants; provided, however, Nonstatutory Stock Options and SARs may not be granted to Employees, Directors and
Consultants who are providing Continuous Service only to any “parent” of the Company, as such term is defined in Rule 405 promulgated under the
Securities Act, unless the stock underlying such Stock Awards is treated as “service recipient stock” under Section 409A of the Code because the Stock
Awards are granted pursuant to a corporate transaction (such as a spin off transaction) or unless such Stock Awards comply with the distribution requirements
of Section 409A of the Code.
3
(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value on the date of grant and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
5. PROVISIONS RELATING TO OPTIONS AND STOCK APPRECIATION RIGHTS. Each Option or SAR shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant,
and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. If
an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option. The provisions of separate
Options or SARs need not be identical; provided, however, that each Option Agreement or Stock Appreciation Right Agreement shall conform to (through
incorporation of provisions hereof by reference in the applicable Award Agreement or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option or SAR shall be exercisable after the expiration of
ten (10) years from the date of its grant or such shorter period specified in the Award Agreement.
(b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise price (or strike price) of each Option or
SAR shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option or SAR on the date the Option
or SAR is granted. Notwithstanding the foregoing, an Option or SAR may be granted with an exercise price (or strike price) lower than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option or SAR if such Option or SAR is granted pursuant to an assumption of or
substitution for another option or stock appreciation right pursuant to a Corporate Transaction and in a manner consistent with the provisions of
Sections 409A and, if applicable, 424(a) of the Code. Each SAR will be denominated in shares of Common Stock equivalents.
(c) Purchase Price for Options. The purchase price of Common Stock acquired pursuant to the exercise of an Option shall be paid, to the extent
permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board
shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods)
and to grant Options that require the consent of the Company to utilize a particular method of payment. The permitted methods of payment are as follows:
(i) by cash, check, bank draft or money order payable to the Company;
(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock
subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise
price to the Company from the sales proceeds;
(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;
(iv) if the option is a Nonstatutory Stock Option, by a “net exercise” arrangement pursuant to which the Company will reduce the number of
shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise
price; provided, however, that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate
exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Common Stock will no longer be
subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are reduced to pay the exercise price pursuant to
the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(v) in any other form of legal consideration that may be acceptable to the Board.
(d) Exercise and Payment of a SAR. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to
the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. The appreciation
distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of Common Stock
equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock
Appreciation Right on such date, over (B) the strike price that will be determined by the Board at the time of grant of the Stock Appreciation Right. The
appreciation distribution in respect to a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form
of consideration, as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.
4
(e) Transferability of Options and SARs. The Board may, in its sole discretion, impose such limitations on the transferability of Options and SARs as
the Board shall determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options and
SARs shall apply:
(i) Restrictions on Transfer. An Option or SAR shall not be transferable except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant; provided, however, that the Board may, in its sole discretion, permit transfer of the
Option or SAR in a manner that is not prohibited by applicable tax and securities laws upon the Participant’s request. Except as explicitly provided herein,
neither an Option nor a SAR may be transferred for consideration.
(ii) Domestic Relations Orders. Notwithstanding the foregoing, an Option or SAR may be transferred pursuant to a domestic relations order;
provided, however, that if an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.
(iii) Beneficiary Designation. Notwithstanding the foregoing, the Participant may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Participant, shall thereafter be entitled to
exercise the Option or SAR and receive the Common Stock or other consideration resulting from such exercise. In the absence of such a designation, the
executor or administrator of the Participant’s estate shall be entitled to exercise the Option or SAR and receive the Common Stock or other consideration
resulting from such exercise.
(f) Vesting Generally. The total number of shares of Common Stock subject to an Option or SAR may vest and therefore become exercisable in
periodic installments that may or may not be equal. The Option or SAR may be subject to such other terms and conditions on the time or times when it may
or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options or SARs may vary. The provisions of this Section 5(f) are subject to any Option or SAR provisions governing the minimum
number of shares of Common Stock as to which an Option or SAR may be exercised.
(g) Termination of Continuous Service. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant
and the Company, if a Participant’s Continuous Service terminates (other than for Cause or upon the Participant’s death or Disability), the Participant may
exercise his or her Option or SAR (to the extent that the Participant was entitled to exercise such Award as of the date of termination of Continuous Service)
but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Participant’s Continuous Service (or
such longer or shorter period specified in the applicable Award Agreement), or (ii) the expiration of the term of the Option or SAR as set forth in the Award
Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Option or SAR within the time specified herein or in the
Award Agreement (as applicable), the Option or SAR shall terminate.
(h) Extension of Termination Date. If the exercise of an Option or SAR following the termination of the Participant’s Continuous Service (other than
for Cause or upon the Participant’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate
the registration requirements under the Securities Act, then the Option or SAR shall terminate on the earlier of (i) the expiration of a total period of three
(3) months (that need not be consecutive) after the termination of the Participant’s Continuous Service during which the exercise of the Option or SAR would
not be in violation of such registration requirements, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement. In
addition, unless otherwise provided in a Participant’s Award Agreement, if the sale of any Common Stock received upon exercise of an Option or SAR
following the termination of the Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading policy, then the Option
or SAR shall terminate on the earlier of (i) the expiration of a period equal to the applicable post-termination exercise period after the termination of the
Participant’s Continuous Service during which the sale of the Common Stock received upon exercise of the Option or SAR would not be in violation of the
Company’s insider trading policy, or (ii) the expiration of the term of the Option or SAR as set forth in the applicable Award Agreement.
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(i) Disability of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the
Company, if a Participant’s Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise his or her Option or SAR (to
the extent that the Participant was entitled to exercise such Option or SAR as of the date of termination of Continuous Service), but only within such period of
time ending on the earlier of (i) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in
the Award Agreement), or (ii) the expiration of the term of the Option or SAR as set forth in the Award Agreement. If, after termination of Continuous
Service, the Participant does not exercise his or her Option or SAR within the time specified herein or in the Award Agreement (as applicable), the Option or
SAR (as applicable) shall terminate.
(j) Death of Participant. Except as otherwise provided in the applicable Award Agreement or other agreement between the Participant and the
Company, if (i) a Participant’s Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within the period (if any)
specified in the Award Agreement for exercisability after the termination of the Participant’s Continuous Service (for a reason other than death), then the
Option or SAR may be exercised (to the extent the Participant was entitled to exercise such Option or SAR as of the date of death) by the Participant’s estate,
by a person who acquired the right to exercise the Option or SAR by bequest or inheritance or by a person designated to exercise the Option or SAR upon the
Participant’s death, but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Award Agreement), or (ii) the expiration of the term of such Option or SAR as set forth in the Award Agreement. If, after the
Participant’s death, the Option or SAR is not exercised within the time specified herein or in the Award Agreement (as applicable), the Option or SAR shall
terminate.
(k) Termination for Cause. Except as explicitly provided otherwise in a Participant’s Award Agreement or other individual written agreement between
the Company or any Affiliate and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option or SAR shall terminate
immediately upon such Participant’s termination of Continuous Service, and the Participant shall be prohibited from exercising his or her Option or SAR
from and after the time of such termination of Continuous Service.
(l) Non-Exempt Employees. No Option or SAR, whether or not vested, granted to an Employee who is a non-exempt employee for purposes of the
Fair Labor Standards Act of 1938, as amended, shall be first exercisable for any shares of Common Stock until at least six months following the date of grant
of the Option or SAR. Notwithstanding the foregoing, consistent with the provisions of the Worker Economic Opportunity Act, (i) in the event of the
Participant’s death or Disability, (ii) upon a Corporate Transaction in which such Option or SAR is not assumed, continued, or substituted, (iii) upon a Change
in Control, or (iv) upon the Participant’s retirement (as such term may be defined in the Participant’s Award Agreement or in another applicable agreement or
in accordance with the Company’s then current employment policies and guidelines), any such vested Options and SARs may be exercised earlier than six
months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with
the exercise or vesting of an Option or SAR will be exempt from his or her regular rate of pay.
6. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS AND SARS.
(a) Restricted Stock Awards. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s election, shares of Common Stock may be (i) held in book entry
form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (ii) evidenced by a certificate, which
certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change
from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical; provided, however, that each Restricted
Stock Award Agreement shall conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of
the following provisions:
(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the
Company, (B) past services to the Company or an Affiliate, or (C) any other form of legal consideration (including future services) that may be acceptable to
the Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in
accordance with a vesting schedule to be determined by the Board.
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(iii) Termination of Participant’s Continuous Service. If a Participant’s Continuous Service terminates, the Company may receive through a
forfeiture condition or a repurchase right any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination of
Continuous Service under the terms of the Restricted Stock Award Agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its sole discretion,
so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(v) Dividends. A Restricted Stock Award Agreement may provide that any dividends paid on Restricted Stock will be subject to the same vesting
and forfeiture restrictions as apply to the shares subject to the Restricted Stock Award to which they relate.
(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and
conditions of separate Restricted Stock Unit Award Agreements need not be identical; provided, however, that each Restricted Stock Unit Award Agreement
shall conform to (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following
provisions:
(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the
Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant
for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the
Board, in its sole discretion, and permissible under applicable law.
(ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions on or conditions to the vesting of
the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.
(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination
thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such
restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time
after the vesting of such Restricted Stock Unit Award.
(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit
Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend
equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the
Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all of the same
terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
(vi) Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement,
such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.
(c) Performance Awards.
(i) Performance Stock Awards. A Performance Stock Award is a Stock Award that may vest or may be exercised contingent upon the attainment
during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of
Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of
whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee, in its sole discretion. The
maximum number of shares covered by an Award that may be granted to any Participant in a calendar year attributable to Stock Awards described in this
Section 6(c)(i) (whether the grant, vesting or exercise is contingent upon the attainment during a Performance Period of the Performance Goals) shall not
exceed one million (1,000,000) shares of Common Stock. The Board may provide for or, subject to such terms and conditions as the Board may specify, may
permit a Participant to elect for, the payment of any Performance Stock Award to be deferred to a specified date or event. In addition, to the extent permitted
by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.
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(ii) Performance Cash Awards. A Performance Cash Award is a cash award that may be paid contingent upon the attainment during a
Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service.
At the time of grant of a Performance Cash Award, the length of any Performance Period, the Performance Goals to be achieved during the Performance
Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee, in its
sole discretion. In any calendar year, the Committee may not grant a Performance Cash Award that has a maximum value that may be paid to any Participant
in excess of five hundred thousand dollars ($500,000). The Board may provide for or, subject to such terms and conditions as the Board may specify, may
permit a Participant to elect for, the payment of any Performance Cash Award to be deferred to a specified date or event. The Committee may specify the
form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her
Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property.
(iii) Board Discretion. The Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of
Performance Goals and to define the manner of calculating the Performance Criteria it selects to use for a Performance Period.
(iv) Section 162(m) Compliance. Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to
an Award intended to qualify as “performance-based compensation” thereunder, the Committee shall establish the Performance Goals applicable to, and the
formula for calculating the amount payable under, the Award no later than the earlier of (a) the date ninety (90) days after the commencement of the
applicable Performance Period, or (b) the date on which twenty-five percent (25%) of the Performance Period has elapsed, and in either event at a time when
the achievement of the applicable Performance Goals remains substantially uncertain. Prior to the payment of any compensation under an Award intended to
qualify as “performance-based compensation” under Section 162(m) of the Code, the Committee shall certify the extent to which any Performance Goals and
any other material terms under such Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Common
Stock). Notwithstanding satisfaction of any completion of any Performance Goals, to the extent specified at the time of grant of an Award to “covered
employees” within the meaning of Section 162(m) of the Code, the number of shares of Common Stock, Options, cash or other benefits granted, issued,
retainable and/or vested under an Award on account of satisfaction of such Performance Goals may be reduced by the Committee on the basis of such further
considerations as the Committee, in its sole discretion, shall determine.
(d) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock, including
the appreciation in value thereof (e.g., options or stock rights with an exercise price or strike price less than 100% of the Fair Market Value of the Common
Stock at the time of grant) may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this
Section 6. Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the persons to whom and the time or times at
which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other
Stock Awards and all other terms and conditions of such Other Stock Awards.
7. COVENANTS OF THE COMPANY.
(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock
reasonably required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable
pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority
that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. A Participant shall not be
eligible for the grant of a Stock Award or the subsequent issuance of Common Stock pursuant to the Stock Award if such grant or issuance would be in
violation of any applicable securities law.
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(c) No Obligation to Notify or Minimize Taxes. The Company shall have no duty or obligation to any Participant to advise such holder as to the time
or manner of exercising such Stock Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such holder of a pending
termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to
minimize the tax consequences of a Stock Award to the holder of such Stock Award.
8. MISCELLANEOUS.
(a) Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute
general funds of the Company.
(b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of a Stock Award to any
Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument,
certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant.
(c) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its
terms, if applicable, and (ii) the issuance of the Common Stock subject to such Stock Award has been entered into the books and records of the Company.
(d) No Employment or Other Service Rights. Nothing in the Plan, any Award Agreement or any other instrument executed thereunder or in
connection with any Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or
an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the
state in which the Company or the Affiliate is incorporated, as the case may be.
(e) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the
Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order
in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(f) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ
a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she
is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written
assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account
and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (A) the issuance of the shares upon the exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the Securities Act, or (B) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
(g) Withholding Obligations. Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any
federal, state or local tax withholding obligation relating to an Award by any of the following means or by a combination of such means: (i) causing the
Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the
Participant in connection with the Award; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law (or such lesser amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting
purposes); (iii) withholding cash from an Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by
such other method as may be set forth in the Award Agreement.
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(h) Electronic Delivery. Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically
or posted on the Company’s intranet (or other shared electronic medium controlled by the Company to which the Participant has access).
(i) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the
payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for
deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with
Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee or otherwise providing services to the Company.
The Board is authorized to make deferrals of Awards and determine when, and in what annual percentages, Participants may receive payments, including
lump sum payments, following the Participant’s termination of Continuous Service, and implement such other terms and conditions consistent with the
provisions of the Plan and in accordance with applicable law.
(j) Compliance with Section 409A. To the extent that the Board determines that any Award granted hereunder is subject to Section 409A of the Code,
the Award Agreement evidencing such Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1)
of the Code. To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code. Notwithstanding
anything to the contrary in this Plan (and unless the Award Agreement specifically provides otherwise), if the shares of Common Stock are publicly traded
and a Participant holding an Award that constitutes “deferred compensation” under Section 409A of the Code is a “specified employee” for purposes of
Section 409A of the Code, no distribution or payment of any amount shall be made upon a “separation from service” before a date that is six (6) months
following the date of such Participant’s “separation from service” (as defined in Section 409A of the Code without regard to alternative definitions
thereunder) or, if earlier, the date of the Participant’s death.
9. ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.
(a) Capitalization Adjustments. In the event of a Capitalization Adjustment, the Board shall appropriately and proportionately adjust: (i) the class(es)
and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued
pursuant to the exercise of Incentive Stock Options pursuant to Section 3(c), (iii) the class(es) and maximum number of securities that may be awarded to any
person pursuant to Sections 3(d) and 6(c)(i), and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final, binding and conclusive.
(b) Dissolution or Liquidation. Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the
Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture
condition or the Company’s right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and the shares of
Common Stock subject to the Company’s repurchase rights or subject to a forfeiture condition may be repurchased or reacquired by the Company
notwithstanding the fact that the holder of such Stock Award is providing Continuous Service; provided, however, that the Board may, in its sole discretion,
cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have
not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) Corporate Transaction. The following provisions shall apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in
the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the Participant or unless otherwise
expressly provided by the Board at the time of grant of a Stock Award.
(i) Stock Awards May Be Assumed, Continued or Substituted. In the event of a Corporate Transaction, any surviving corporation or acquiring
corporation (or the surviving or acquiring corporation’s parent company) may assume or continue any or all Stock Awards outstanding under the Plan or may
substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to
the stockholders of the Company pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of
Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor’s parent company, if
any), in connection with such Corporate Transaction. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only
a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award, or may choose to assume or continue the Stock Awards
held by some, but not all Participants. The terms of any assumption, continuation or substitution shall be set by the Board.
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(ii) Stock Awards Not Assumed, Continued or Substituted. In the event of a Corporate Transaction in which the surviving corporation or
acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such
outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted, the vesting of such Stock Awards (and,
with respect to Options and Stock Appreciation Rights, the time when such Stock Awards may be exercised) shall be accelerated in full to a date prior to the
effective time of such Corporate Transaction (contingent upon the effectiveness of the Corporate Transaction) as the Board shall determine (or, if the Board
shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall
terminate if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase rights held by the
Company with respect to such Stock Awards shall lapse (contingent upon the effectiveness of the Corporate Transaction); provided, however, that the Board
may require Participants to complete and deliver to the Company a notice of exercise before the effective date of a Corporate Transaction, which is contingent
upon the effectiveness of such Corporate Transaction.
(iii) Payment for Stock Awards in Lieu of Exercise. Notwithstanding the foregoing, in the event of a Corporate Transaction in which the
surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock
awards for such outstanding Stock Awards and the Stock Award will terminate if not exercised at or prior to the effective time of a Corporate Transaction in
accordance with Section 9(c)(ii), the Board may provide, in its sole discretion, that the holder of such Stock Award may not exercise such Stock Award but
will receive a payment, in such form as may be determined by the Board, equal in value, at the effective time, to the excess, if any, of (A) the value of the
property the Participant would have received upon the exercise of the Stock Award, over (B) any exercise price payable by such holder in connection with
such exercise. For purposes of clarity, this payment may be zero ($0) if the value of the property is equal to or less than the exercise price. Payments under
this provision may be delayed to the same extent that payment of consideration to the holders of the Company’s Common Stock in connection with the
Corporate Transaction is delayed as a result of escrows, earn outs, holdbacks, or any other contingencies.
The Board need not take the same action or actions with respect to all Stock Awards or portions thereof or with respect to all Participants. The Board may
take different actions with respect to the vested and unvested portions of a Stock Award.
(d) Change in Control. In the event of a Change in Control, then, as of the effective time of such Change in Control, the vesting of all outstanding
Stock Awards (and, with respect to Options and Stock Appreciation Rights, the time when such Stock Awards may be exercised) shall be accelerated in full
and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse.
10. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless terminated sooner by the Board, the Plan shall automatically
terminate on the day before the tenth (10th) anniversary of the Effective Date. No Awards may be granted under the Plan while the Plan is suspended or after
it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Award granted while the Plan is
in effect except with the written consent of the affected Participant.
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11. EFFECTIVE DATE OF PLAN.
This Plan shall become effective on the Effective Date.
12. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s
conflict of laws rules.
13. DEFINITIONS. As used in the Plan, the following definitions shall apply to the capitalized terms indicated below:
(a) “Affiliate” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 promulgated
under the Securities Act. The Board shall have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the
foregoing definition.
(b) “Award” means a Stock Award or a Performance Cash Award.
(c) “Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an Award.
(d) “Board” means the Board of Directors of the Company.
(e) “Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or
subject to any Stock Award after the Effective Date without the receipt of consideration by the Company through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, as that term is used in Statement of
Financial Accounting Standards No. 123 (revised). Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be
treated as a Capitalization Adjustment.
(f) “Cause” shall have the meaning ascribed to such term in any written agreement between the Participant and the Company in effect at the time of the
termination of the Participant’s Continuous Service defining such term and, in the absence of such agreement, such term shall mean, with respect to a
Participant, the occurrence of any of the following events that has a material negative impact on the business or reputation of the Company: (i) such
Participant’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof;
(ii) such Participant’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participant’s intentional,
material violation of any contract or agreement between the Participant and the Company or of any statutory duty owed to the Company; (iv) such
Participant’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) such Participant’s gross misconduct. The
determination that a termination of the Participant’s Continuous Service is either for Cause or without Cause shall be made by the Company in its sole
discretion. Any determination by the Company that the Continuous Service of a Participant was terminated with or without Cause for the purposes of
outstanding Awards held by such Participant shall have no effect upon any determination of the rights or obligations of the Company or such Participant for
any other purpose.
(g) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%)
of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an
investor, any affiliate thereof or any other Exchange Act Person that acquires the Company’s securities in a transaction or series of related transactions the
primary purpose of which is to obtain financing for the Company through the issuance of equity securities (which includes an offering of Common Stock to
the general public through a registration statement filed with the Securities and Exchange Commission), or (B) solely because the level of Ownership held by
any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase
or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for
the operation of this subsection (B)) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person
becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the
then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;
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(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the
consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or
indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving
Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the
surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding
voting securities of the Company immediately prior to such transaction;
(iii) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company
and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its
Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the
Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease,
license or other disposition; or
(iv) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for
purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing or any other provision of this Plan, the term Change in Control shall not include a sale of assets, merger or other transaction
effected exclusively for the purpose of changing the domicile of the Company.
(h) “Code” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.
(i) “Committee” means a committee of one or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).
(j) “Common Stock” means the common stock of the Company.
(k) “Company” means RegeneRx Biopharmaceuticals, Inc., a Delaware corporation.
(l) “Consultant” means any natural person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory
services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services.
However, service solely as a Director, or payment of a fee for such service, shall not cause a Director to be considered a “Consultant” for purposes of the
Plan. Notwithstanding the foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration Statement under the Securities Act is
available to register either the offer or the sale of the Company’s securities to such person.
(m) “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s
service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service; provided, however, if the Entity for which a Participant is
rendering services ceases to qualify as an Affiliate, as determined by the Board, in its sole discretion, such Participant’s Continuous Service shall be
considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer
of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of (i) any leave of
absence approved by the Board or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the
Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in
a Stock Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or
policy applicable to the Participant, or as otherwise required by law.
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(n) “Corporate Transaction” means the consummation, in a single transaction or in a series of related transactions, of any one or more of the following
events:
(i) a sale or other disposition of all or substantially all, as determined by the Board, in its sole discretion, of the consolidated assets of the
Company and its Subsidiaries;
(ii) a sale or other disposition of at least fifty percent (50%) of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or
similar transaction into other property, whether in the form of securities, cash or otherwise.
(o) “Covered Employee” shall have the meaning provided in Section 162(m)(3) of the Code.
(p) “Director” means a member of the Board.
(q) “Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code, and shall be determined by the Board on the
basis of such medical evidence as the Board deems warranted under the circumstances.
(r) “Effective Date” means the effective date of this Plan document, which is the date of the annual meeting of stockholders of the Company held in
2010 provided this Plan is approved by the Company’s stockholders at such meeting.
(s) “Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such
services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.
(t) “Entity” means a corporation, partnership, limited liability company or other entity.
(u) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(v) “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except
that “Exchange Act Person” shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any
Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the
Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity Owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person,
Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.
(w) “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on any established market, the Fair Market Value of a share of
Common Stock, unless otherwise determined by the Board, shall be the closing sales price for such stock as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in a source the Board deems reliable.
(ii) Unless otherwise provided by the Board, if there is no closing sales price for the Common Stock on the date of determination, then the Fair
Market Value shall be the closing selling price on the last preceding date for which such quotation exists.
(iii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in good faith and in a manner
that complies with Sections 409A and 422 of the Code.
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(x) “Incentive Stock Option” means an option granted pursuant to Section 5 of the Plan that is intended to be, and qualifies as, an “incentive stock
option” within the meaning of Section 422 of the Code.
(y) “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive
compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director
(except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
(“Regulation S-K”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3.
(z) “Nonstatutory Stock Option” means any option granted pursuant to Section 5 of the Plan that does not qualify as an Incentive Stock Option.
(aa) “Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
(bb) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.
(cc) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option
grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(dd) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding
Option.
(ee) “Other Stock Award” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and
conditions of Section 6(d).
(ff) “Other Stock Award Agreement” means a written agreement between the Company and a holder of an Other Stock Award evidencing the terms and
conditions of an Other Stock Award grant. Each Other Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(gg) “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives
compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or
an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated corporation,” either directly or indirectly, in any capacity
other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.
(hh) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have
acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ii) “Participant” means a person to whom an Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(jj) “Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 6(c)(ii).
(kk) “Performance Criteria” means the one or more criteria that the Committee shall select for purposes of establishing the Performance Goals for a
Performance Period. The Performance Criteria that shall be used to establish such Performance Goals may be based on any one of, or combination of, the
following as determined by the Committee: (i) earnings (including earnings per share and net earnings); (ii) earnings before interest, taxes and depreciation;
(iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity or average stockholder’s equity;
(vi) return on assets, investment, or capital employed; (vii) stock price; (viii) margin (including gross margin); (ix) income (before or after taxes); (x)
operating income; (xi) operating income after taxes; (xii) pre-tax profit; (xiii) operating cash flow; (xiv) sales or revenue targets; (xv) increases in revenue or
product revenue; (xvi) expenses and cost reduction goals; (xvii) improvement in or attainment of working capital levels; (xviii) economic value added (or an
equivalent metric); (xix) market share; (xx) cash flow; (xxi) cash flow per share; (xxii) share price performance; (xxiii) debt reduction; (xxiv) implementation
or completion of projects or processes; (xxv) customer satisfaction; (xxvi) stockholders’ equity; (xxvii) capital expenditures; (xxviii) debt levels;
(xxix) operating profit or net operating profit; (xxx) workforce diversity; (xxxi) growth of net income or operating income; (xxxii) billings;
(xxxiii) achievement of clinical trial milestones, such as patient enrollment or successful completion of the trial; (xxxiv) execution of a new licensor
agreement; (xxxv) receipt of a milestone payment under a licensor agreement and (xxxvi) to the extent that an Award is not intended to comply with Section
162(m) of the Code, other measures of performance selected by the Board or the Committee.
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(ll) “Performance Goals” means, for a Performance Period, the one or more goals established by the committee for the Performance Period based upon
the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or
business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more
relevant indices. Unless specified otherwise by the Committee (i) in the Award Agreement at the time the Award is granted or (ii) in such other document
setting forth the Performance Goals at the time the Performance Goals are established, the Committee shall appropriately make adjustments in the method of
calculating the attainment of Performance Goals for a Performance Period as follows: (1) to exclude restructuring and/or other nonrecurring charges; (2) to
exclude exchange rate effects, as applicable, for non-U.S. dollar denominated Performance Goals; (3) to exclude the effects of changes to generally accepted
accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; and (5) to exclude the effects of any “extraordinary items”
as determined under generally accepted accounting principles.
(mm) “Performance Period” means the period of time selected by the Committee over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may
be of varying and overlapping duration, at the sole discretion of the Board.
(nn) “Performance Stock Award” means a Stock Award granted under the terms and conditions of Section 6(c)(i).
(oo) “Plan” means this RegeneRx Biopharmaceuticals, Inc. 2010 Equity Incentive Plan.
(pp) “Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).
(qq) “Restricted Stock Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the
terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(rr) “Restricted Stock Unit Award” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of
Section 6(b).
(ss) “Restricted Stock Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Unit Award
evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and
conditions of the Plan.
(tt) “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(uu) “Securities Act” means the Securities Act of 1933, as amended.
(vv) “Stock Appreciation Right” or “SAR” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and
conditions of Section 5.
(ww) “Stock Appreciation Right Agreement” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing
the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the
Plan.
(xx) “Stock Award” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock
Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.
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(yy) “Stock Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock
Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(zz) “Subsidiary” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock
having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned
by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form
of voting or participation in profits or capital contribution) of more than fifty percent (50%).
(aaa) “Ten Percent Stockholder” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-168252, 333-152250 and 333-
111386) of RegeneRx Biopharmaceuticals, Inc. (the “Company”) of our report, which includes an explanatory paragraph relating to the Company’s ability to
continue as a going concern, dated March 29, 2019, on our audits of the financial statements of RegeneRx Biopharmaceuticals, Inc. as of December 31, 2018
and 2017 and for the years then ended, included in this Annual Report on Form 10-K for the year ended December 31, 2018.
EXHIBIT 23.1
/s/ CohnReznick LLP
Tysons, Virginia
March 29, 2019
EXHIBIT 31.1
I, J.J. Finkelstein, certify that:
I have reviewed this annual report on Form 10-K of RegeneRx Biopharmaceuticals, Inc.;
CERTIFICATION
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;
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;
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:
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;
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;
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
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
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):
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
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 29, 2019
/s/ J.J. Finkelstein
J.J. Finkelstein
President and Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of RegeneRx Biopharmaceuticals, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2018, as
filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, J.J. Finkelstein, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as
of and for the periods presented in this report.
This certification accompanies this Report to which it relates, shall not be deemed "filed" with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended
(whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.
Date: March 29, 2019
/s/ J.J. Finkelstein
J.J. Finkelstein
President and Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer)