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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
For the fiscal year ended December 31, 2020
OR
Commission File Number: 001-36812
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SALARIUS PHARMACEUTICALS, INC.
(previously known as Flex Pharmaceuticals, Inc.)
(Exact name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
46-5087339
(I.R.S. Employer
Identification No.)
2450 Holcombe Blvd., Suite X, Houston, TX 77021
(Address of principal executive offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: (832) 834-6992
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $ 0.0001
Trading Symbol(s)
SLRX
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
Emerging Growth Company
Accelerated Filer
Smaller Reporting Company
☐
☒
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant is $19,157,672 based on a share price of $1.32 which is the closing
price per share on June 30, 2020.
As of March 15, 2021, there were 44,734,328 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed with the United States Securities and Exchange
Commission within 120 days of December 31, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.
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SALARIUS PHARMACEUTICALS, INC.
TABLE OF CONTENTS
Explanatory Note
Special Note Regarding Forward Looking Statements
Summary of Selected Risks associated with our business
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.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders' Equity (Deficit)
Notes to Consolidated Financial Statements
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
SIGNATURES
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
Principle Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-k Summary
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EXPLANATORY NOTE
On July 19, 2019, Salarius Pharmaceuticals, Inc. (formerly known as Flex Pharma, Inc.), or the Company, completed the merger (the
“Merger”) of its wholly owned subsidiary, Falcon Acquisition Sub, LLC (“Merger Sub”), with and into Salarius Pharmaceuticals, LLC (“Private
Salarius”), in accordance with the terms of the Agreement and Plan of Merger, dated January 3, 2019, among the Company, Merger Sub and
Private Salarius (as amended, the “Merger Agreement”). As a result of the Merger, Private Salarius, the surviving company in the Merger,
became a wholly owned subsidiary of the Company. Following the Merger, the business of Private Salarius became the business of the
Company and the Company’s corporate name was changed from Flex Pharma, Inc. to Salarius Pharmaceuticals, Inc.
For accounting purposes, the Merger is treated as a “reverse acquisition” under generally acceptable accounting principles in the United
States (“U.S. GAAP”) and Private Salarius is considered the accounting acquirer. Accordingly, Private Salarius’ historical results of operations
will have replaced the Company’s historical results of operations for all periods prior to the Merger.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The information in this Annual Report on Form 10-K, including in the sections entitled “Business,” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations Overview,” and the information incorporated herein by reference, include forward-
looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These are statements that include, but are not limited to, statements about future periods; the
Company's strategy and ongoing development programs; the Company's clinical trials, including status, costs and expectations related
thereto; the Company's strategic collaborations and license agreements, intellectual property, FDA approval process and government
regulation; the potential for Seclidemstat to target the epigenetic dysregulation underlying Ewing sarcoma and advanced solid tumors
including, but not limited to, prostate, breast, ovarian, melanoma, colorectal and other cancers; expected timing and results of clinical studies;
the nature, strategy and focus of the company; the development and commercial potential of any product candidates; the Company's liquidity
position and need for additional financing; the ability of the Company to access additional financing under the Grant Contract with Cancer
Prevention and Research Institute of Texas; and the Company's ability to continue as a going concern. These forward-looking statements are
based on current expectations and beliefs and involve numerous risks and uncertainties, including those discussed under “Risk Factors,” that
could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions
of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. When
used in this report, the words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “indicate,” “seek,” “should,”
“would,” “aim,” “target” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements
contain these identifying words. All statements, other than statements of historical fact, are statements that could be deemed forward-looking
statements.
If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, our results could differ materially from the
forward-looking statements in this report. All forward-looking statements in this report are current only as of the date of this report. We do not
undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any
statement is made or to reflect the occurrence of unanticipated events.
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SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous risks and uncertainties, including those discussed at length in the section titled “Risk Factors.”
These risks include, among others, the following:
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The approach we are taking to discover and develop novel oncology therapeutics using epigenetic enzymes to
moderate transcription factors and thereby control abnormal protein expression is unproven and may never lead
to marketable products.
Clinical trials are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy
to the satisfaction of applicable regulatory authorities.
Salarius’ therapeutic product candidates are based on a relatively novel technology, which makes it difficult to
predict the timing and cost of development and of subsequently obtaining regulatory approval, if at all.
Salarius’ product candidates may cause undesirable side effects or have other properties that could delay or
prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant
negative consequences following marketing approval, if any. Salarius’ product development program may not
uncover all possible adverse events that patients who take its product candidates may experience.
Salarius may find it difficult to enroll patients in its clinical trials given the limited number of patients who have the
diseases for which its product candidates are being studied. Difficulty in enrolling patients is a common hurdle
faced by early stage biotechnology companies and could, and often does, delay or prevent clinical trials of
product candidates.
Salarius may face potential product liability, and, if successful claims are brought against it, Salarius may incur
substantial liability and costs which could be greater than its insurance coverage or could adversely affect its
financial condition.
We have incurred losses since our inception, have a limited operating history on which to assess our business,
and anticipate that we will continue to incur significant losses for the foreseeable future.
Salarius has never generated any revenue from product sales and may never generate revenue or be profitable.
Raising additional capital may cause dilution to Salarius’ stockholders, restrict its operations or require Salarius to
relinquish rights.
Salarius received Fast Track designation for one or more of its product candidates, but such designation may not
actually lead to a faster development or regulatory review or approval process.
Even if Salarius obtains regulatory approval for a product, Salarius will remain subject to ongoing regulatory
requirements.
Healthcare legislative reform measures may have a material adverse effect on Salarius’ business, financial
condition or results of operations.
Salarius may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims
laws, and health information privacy and security laws. If Salarius is unable to comply, or has not fully complied,
with such laws, it could face substantial penalties.
Reliance on government
its research and
commercialization efforts with respect to those programs that are tied to such funding and may impose
requirements that limit its ability to take specified actions, increase the costs of commercialization and production
of product candidates developed under those programs and subject Salarius to potential financial penalties,
which could materially and adversely affect its business, financial condition and results of operations.
If Salarius fails to comply with environmental, health and safety laws and regulations, Salarius could become
subject to fines or penalties or incur costs and liabilities that could have a material adverse effect on its business,
financial condition or results of operations.
Salarius may not be successful in obtaining or maintaining necessary rights to its targets, product compounds
and processes for its development pipeline through acquisitions and in-licenses.
for Salarius’ programs may add uncertainty
funding
to
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Salarius intends to rely on patent rights for its product candidates and any future product candidates. If Salarius is
unable to obtain or maintain exclusivity from the combination of these approaches, Salarius may not be able to
compete effectively in its markets.
Salarius may not have sufficient patent term protections for its product candidates to effectively protect its
business.
Third-party claims of intellectual property infringement may prevent or delay Salarius’ development and
commercialization efforts.
Salarius may not be successful in meeting its obligations under its existing license agreements necessary to
maintain its product candidate licenses in effect. In addition, if required in order to commercialize its product
candidates, Salarius may be unsuccessful in obtaining or maintaining necessary rights to its product candidates
through acquisitions and in-licenses.
The patent protection and patent prosecution for some of Salarius’ product candidates is dependent on third
parties.
Salarius may not be able to protect its intellectual property rights throughout the world.
Salarius may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be
expensive, time consuming, and unsuccessful.
Salarius relies on or will rely on third parties to conduct its clinical trials, manufacture its product candidates and
perform other services. If these third parties do not successfully perform and comply with regulatory
requirements, Salarius may not be able to successfully complete clinical development, obtain regulatory approval
or commercialize its product candidates and its business could be substantially harmed.
Salarius currently has very limited marketing and sales experience. If Salarius is unable to establish sales and
marketing capabilities or enter into agreements with third parties to market and sell its product candidates,
Salarius may be unable to generate any revenue.
Salarius will need to expand its organization and Salarius may experience difficulties in managing this growth,
which could disrupt its operations.
We may face business disruption and related risks resulting from the ongoing COVID-19 pandemic
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Item 1. Business
Part I
References to “Salarius,” the “Company,” “we,” “us” and “our” refer to Salarius Pharmaceuticals, Inc. and its consolidated subsidiaries
following the completion of the Merger and Salarius Pharmaceuticals, LLC prior to the completion of the Merger. In addition, the word “Flex
Pharma” refers to Salarius Pharmaceuticals, Inc. prior to the completion of the Merger. References to “Notes” refer to the Notes to
Consolidated Financial Statements included herein (refer to Item 8).
Overview
Salarius Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on developing effective treatments for cancers with
high, unmet medical need. Specifically, we are developing treatments for cancers caused by dysregulated gene expression, i.e., genes are
incorrectly turned on or off. The field concerned with regulation of gene expression is called ‘epigenetics’. As cancers are often diseases
driven by gene dysregulation, epigenetics is an area of interest for cancer treatment. Our lead epigenetic-based technology, seclidemstat
(“SP-2577”), may treat cancers by restoring correct gene expression.
In 2011, Salarius licensed SP-2577 and related compounds from the University of Utah Research Foundation. SP-2577 is a small molecule,
administered orally, that inhibits the epigenetic enzyme lysine specific demethylase 1 (“LSD1”). LSD1’s enzymatic activity can cause genes to
turn on or off and thereby affect the cell’s gene expression and overall activity. In addition, LSD1 can act via its scaffolding properties,
independently of its enzymatic function, to remodel chromatin and alter gene expression, modulating cell fate. In healthy cells, LSD1 is
necessary for stem cell maintenance and cell development processes. However, in several cancers LSD1 is highly expressed and acts
aberrantly to incorrectly silence or activate genes leading to disease progression. High levels of LSD1 expression are often associated with
aggressive cancer phenotypes and poor patient prognosis. In addition, recent data from “LSD1 Ablation Stimulates Anti-tumor Immunity and
Enables Checkpoint Blockade” by W. Sheng, et al. and “Inhibition of Histone Lysine-specific Demethylase 1 Elicits Breast Tumor Immunity
and Enhances Antitumor Efficacy of Immune Checkpoint Blockade” by Y. Qin, et al. suggests that LSD1 plays a role in tumor immune activity.
Hence, there has been interest in developing targeted LSD1 inhibitors for treatment of various cancers alone and/or in combination with other
approved agents, such as checkpoint inhibitors.
Recent Events
On March 8, 2021, we completed a public offering of 16,806,722 shares of our common stock, including 2,192,181 shares sold pursuant to
the exercise in full of the underwriters' option to purchase additional shares, at the public offering price of $1.3685 per share. The aggregate
gross proceeds of the offering, before deducting underwriting discounts and commissions and other offering expense, were approximately
$23 million.
On February 11, 2021, we completed an At the Marketing Offering ("ATM offering") with total gross proceeds of approximately $6.3 million.
Total common shares sold by the ATM offering were 2,820,490, with an average selling price of $2.24 per share.
From January 1, 2021 through March 9, 2021, we received approximately $1.5 million from warrants exercised for cash.
Salarius’ Strategy and Ongoing Programs
Salarius’ goal is to develop SP-2577 for treatment of cancers while attempting to maximize return for investors. To achieve this goal, Salarius'
strategy consists of a two-pronged approach: 1) speed-to-market by developing SP-2577 in Ewing sarcoma and Ewing-related sarcomas and
2) market expansion by developing SP-2577 in larger market indications.
Development of SP-2577 in Ewing Sarcoma Patients
Due to Ewing sarcoma being a rare pediatric cancer with a lack of treatment options, the U.S. Food and Drug Administration ("FDA") has put
in place several different types of incentives for companies pursuing therapeutic
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opportunities for this type of cancer. Salarius has benefited from several of these incentives, including SP-2577’s orphan status designation
and designation as a potential treatment for a “rare pediatric disease.” This means that if proven efficacious with a benefit-risk profile that the
FDA judges to be positive and supportive of approval, SP-2577 could qualify for priority review and to receive a priority review voucher
("PRV"), although there can be no assurance that Salarius will be able to do so. If received, Salarius would have the ability to sell the PRV to
other qualifying pharmaceutical companies. Additionally, in December 2019 Salarius announced that SP-2577 had been granted Fast Track
Designation by the FDA for the treatment of relapsed/refractory Ewing sarcoma patients. Fast Track is a process designed by the FDA to
expedite the development and review of new drugs with the potential to treat serious or life-threatening conditions and fill unmet medical
needs. The aim is to streamline the drug development and review process by allowing for more frequent communications with the agency to
assure that questions and issues are resolved quickly, which often leads to earlier drug approval and access by patients. Salarius initiated a
Phase 1/2 clinical trial in the third quarter of 2018 and in the first quarter of 2021 Salarius announced that the recommended phase 2 dose
(RP2D) had been established and the dose expansion phase of the trial would begin. Salarius also announced that it will be combining SP-
2577 with a commonly administered 2 and 3 line regimen, topotecan and cyclophosphamide. This modification allows Salarius to treat
patients earlier in the continuum of care, increasing its potential addressable patient population, and the modification also facilitates patient
access to SP-2577. Additional clinical trials will be necessary to receive FDA approval.
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Disease background: Ewing sarcoma is a devastating pediatric and young adult cancer that suffers from a lack of approved targeted
therapies. The cause of Ewing sarcoma is a chromosomal translocation involving the Ewing sarcoma breakpoint region 1 (“EWSR1”) gene
and ETS family genes, resulting in expression of a fusion oncoprotein. The resulting oncoprotein has been found to co-localize with LSD1
throughout the genome, making LSD1 an attractive therapeutic target for Ewing sarcoma. Based on data from the National Institute of Health
(“NIH”) and physician collaborators, Salarius believes there are approximately 500 Ewing sarcoma patients diagnosed annually in the United
States. Current treatment for Ewing sarcoma consists of an intensive chemotherapy regime, radiation and often disfiguring surgeries. Due to
the harshness of current treatment options, children and adolescents often experience long-term side effects such as slowed growth and
development, learning problems and an increased risk of developing second cancers. According to published literature, including
“Management of recurrent Ewing sarcoma: challenges and approaches” by David Van Mater and Lars Wagner, patients with overt metastasis
(20-30% of patients) or recurrent disease (~20%) have poor prognosis, with less than a 30% chance of experiencing disease-free survival,
and there is currently not a standardized treatment available for recurrent Ewing sarcoma. These are the patients Salarius aims to help.
Development of SP-2577 in Ewing-related Sarcoma (FET-translocated Sarcoma) Patients
Based on SP-2577’s proposed mechanism of action, preclinical data, and encouraging clinical data from our Advanced Solid Tumor trial (see
below), Salarius announced that it expanded the Ewing sarcoma dose expansion trial to include a cohort of Ewing-related sarcomas (also
referred to as FET-translocated sarcomas). These sarcomas, like Ewing sarcoma, are caused by a chromosomal translocation that involves
the FET-family of genes (EWSR1, FUS, or TAF15) which are also found to co-localize with LSD1. Sarcomas of this type include myxoid
liposarcoma, desmoplastic small round cell tumors, clear cell sarcoma and several other sarcoma subtypes. Salarius believes that there are
approximately 1,500 patients with FET-translocated sarcomas diagnosed each year in the United States. Of these, 20-40% are advanced
stage patients with a 30-50% 5-year survival. Current treatments are rarely curative and only delay disease progression on average for ~5
months. Salarius is aiming to help these patients.
Development of SP-2577 in FET-translocated sarcomas provides Salarius with additional paths to SP-2577's approval. In addition, because
FET-translocated sarcomas are orphan diseases, many of the regulatory incentives for pursuing Ewing sarcoma may also apply to FET-
translocated sarcomas. In Salarius' ongoing Phase 1/2 trial, Salarius will enroll up to 30 patients with FET-translocated sarcomas. Fifteen of
the 30 patients will be of the myxoid liposarcoma subtype, which is the most common of the FET-translocated sarcoma according to current
data. Hence, Salarius will be treating three patient groups across Ewing and Ewing-related sarcomas, each with a potential path to regulatory
approval and commercial opportunity. Additional clinical trials will be necessary to receive FDA approval.
Expand SP-2577 Market by Pursuing Large Market Indications
In parallel to Salarius’ development of SP-2577 in Ewing sarcoma and FET-translocated sarcoma patients, Salarius is conducting a Phase
1/2 clinical trial in Advanced Solid Tumors, including patients with breast, ovarian and
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prostate cancers, as well as patients with sarcomas. LSD1 has been implicated in several advanced solid malignancies, with high levels of
LSD1 expression often associated with more aggressive cancers. The possible markets for successful therapies in these indications could be
large and thus greatly expand the potential opportunities for SP-2577 outside of Ewing sarcoma. In December 2018, Salarius received FDA
approval of the protocol design for a second Phase 1/2 Advanced Solid Tumor study with SP-2577. The trial opened in the second quarter of
2019 and is currently in the dose escalation phase. This trial is studying single agent SP-2577 in advanced malignancies, excluding Ewing
sarcoma and central nervous system tumors.
The following table lists Salarius’ programs and their respective stages of development:
Product Candidate
Target
Disease Area
Development Stage
Sponsor
Clinical
SP-2577
SP-2577
LSD1 Overview
Background
LSD1
LSD1
Ewing sarcoma
Advanced Solid Tumors
Phase 1/2, active
recruitment
Phase 1/2, active
recruitment
Salarius
Salarius
LSD1 is an enzyme that is, in part, responsible for epigenetic regulation of genes that support cancer growth. According to B. Majello, et al. in
“Expanding the Role of the Histone Lysine-Specific Demethylase LSD1 in Cancer”, LSD1 dysregulation is a key driver in multiple
malignancies. LSD1 induces a cancer phenotype through its enzymatic activity and through its role as a scaffolding protein in epigenetic
complexes. LSD1 is over-expressed in various cancers, and higher levels of LSD1 are often associated with poor prognosis in several types
of cancer, making LSD1 inhibition an area of interest in cancer research.
SP-2577
SP-2577 is a small-molecule LSD1 inhibitor with a novel scaffold. The molecule was discovered using structure-based computational
screening coupled with chemical screening and further optimization with structure-activity relationship studies.
Salarius believes that SP-2577 is different from the three other LSD1 inhibitors that have active clinical development programs because in
addition to inhibiting LSD1’s enzymatic activity, it also more comprehensively inhibits LSD1’s scaffolding properties. To the best of our
knowledge, SP-2577 is one of two reversible LSD1 inhibitors in clinical development. The two other LSD1 inhibitors in clinical development
are irreversible inhibitors. SP-2577 has differentiated properties that may allow it to be developed in a broader range of cancer indications
and in different combination regimens compared to the other LSD1 inhibitors in clinical development. Thus far, dose escalation data has
demonstrated that SP-2577 has a manageable safety profile. Pharmacokinetic data indicates that SP-2577 can be given at dose levels that
achieve drug exposure levels in patients above where activity was demonstrated in preclinical studies. Salarius believes that SP-2577’s
manageable safety profile will allow for more flexible dosing strategies by potentially having a wide therapeutic window. This is being studied
and developed in Salarius’ ongoing clinical program.
Phase 1/2 Clinical Trials
Ewing Sarcoma and Ewing-Related Sarcoma
Salarius is conducting a multi-site, open-label Phase 1/2 trial of SP-2577 for treatment of patients with relapsed/refractory Ewing sarcoma or
Ewing-related sarcoma (also referred to as FET-translocated sarcoma). Patients must have histologic confirmation of Ewing sarcoma or
Ewing-related sarcoma that is refractory or recurrent and must have received one prior course of therapy for the disease. Among other
inclusion criteria, patients must be 12 years or older and have a life expectancy of greater than 4 months.
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The primary objectives of this clinical trial are to study the safety and tolerability of SP-2577. Secondary objectives include pharmacokinetic
assessment, food effects on drug pharmacokinetics, determination of the maximum tolerated dose (“MTD”) and assessment of preliminary
signs of anti-tumor activity. Additionally, the trial will explore the use of circulating tumor cells (“CTCs”), cell-free DNA (“cfDNA”), Hemoglobin
F and changes in molecular signatures of the tumor as pharmacodynamic markers of disease burden, drug effect and tumor response.
In February 2021, Salarius announced that it reached the recommended phase 2 dose and would initiate the dose expansion portion of the
trial. Ewing sarcoma patients will be treated in combination with topotecan/cyclophosphamide. FET-translocated sarcoma patients will be
treated with single-agent SP-2577.
Salarius has eight active sites: Children’s Hospital Los Angeles, Moffit Cancer Center, Dana-Farber Cancer Institute, MD Anderson Cancer
Center, Johns Hopkins All Children’s Hospital, Nationwide Children's Hospital, Memorial Sloan Kettering and the Sarcoma Oncology Center.
Advanced Solid Tumors
Salarius’ second company-sponsored trial is in Advanced Solid Tumors. It is an open-label Phase 1/2 trial of SP-2577 in patients with
advanced cancers, excluding Ewing sarcoma. The clinical trial follows a similar format to the Ewing sarcoma trial. Patients must be
diagnosed with advanced or recurrent, histologically or cytologically confirmed, solid malignancy that is either metastatic or unresectable.
This trial is currently in dose escalation.
The primary objectives of the clinical trial are to study the safety and tolerability of SP-2577. Secondary objectives include pharmacokinetic
assessment, food effects on drug pharmacokinetics, determination of the MTD and assessment of preliminary signs of anti-tumor activity.
Additionally, the trial will look at Hemoglobin F as an exploratory pharmacodynamic marker.
Ongoing Development Programs
In addition to the aforementioned clinical trials, Salarius is exploring other opportunities with SP-2577, in combination with immunotherapy
agents (checkpoint inhibitors), which include patients with select tumor mutations and, in combination with anti-cancer treatment in
hematological malignancies.
Recent preclinical studies demonstrated that LSD1 inhibition has the potential to sensitize refractory patients to checkpoint inhibitors. While
checkpoint inhibitors have been successful in a subset of patients, they remain ineffective in a large portion of cancer patients. Considering
that the checkpoint inhibitor market is already a multibillion-dollar market, drugs that can be used to increase the clinical benefit of checkpoint
inhibitors are attractive. Importantly, recent data shows that certain mutations in chromatin modifying complexes (e.g. mutations in the
SWI/SNF complex) could increase tumor sensitivity to LSD1’s immunomodulatory effects. Salarius is currently assessing the potential of SP-
2577 to be combined with checkpoint inhibitors through ongoing and planned studies.
Cancer patients who harbor select tumor mutations may be more susceptible to LSD1 inhibition. As such, identifying patients with these
types of mutations could allow Salarius to enrich for patients that have an increased chance of benefiting from SP-2577 treatment. Salarius is
currently conducting preclinical work to identify mutations that may increase patient response to SP-2577’s therapeutic effects.
Strategic Collaborations and License Agreements
The University of Utah Research Foundation
On August 3, 2011, Salarius entered into an Exclusive License Agreement with the University of Utah Research Foundation (the “University
of Utah”), for the exclusive license with respect to patent rights protecting SP-2577 and related compounds. The patent rights were for a
provisional patent. The term of agreement is until the last-to-expire of the patent rights licensed under the agreement, which is expected to be
as late as 2037, unless otherwise terminated by law or by the parties pursuant to the agreement.
In further consideration of the rights granted by the University of Utah, Salarius agreed to pay all past patent expenses incurred in filing and
prosecuting the patent application, and pay all future patent expenses incurred including filing, prosecuting, enforcing and maintaining the
patent right.
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Under the terms of the agreement, Salarius may be obligated to make certain future milestone and royalty payments, including: (i) an earned
royalty payment based on a single digit percentage of net sales and a required minimum annual royalty payment commencing with the third
full calendar year after the first commercial sale in the U.S., Germany, France, Japan or the U.K. ranging from $10,000 to $40,000 per year
which minimum payments are fully creditable towards the earned royalty payment with respect to the relevant calendar year, (ii) a
sublicensee fee based on a single digit percentage of revenues received by sublicensees, (iii) milestone payments in agreed dollar amounts
upon receiving regulatory approvals allowing the marketing and sale of licensed products or licensed methods relating to the patients’ rights
in each of the U.S., the European Union and Japan not exceeding $150,000 in the aggregate and (iv) a milestone payment in an agreed
dollar amount upon the two year anniversary of the first commercial sale of a licensed product not exceeding $1.0 million.
Either party has a right to terminate the agreement for a breach of or default under the agreement following a 60-day cure period. If Salarius
ceases to carry on its business with respect to the patent right granted under the agreement, the University of Utah has a right to terminate
the agreement upon 60 days’ notice. In addition, Salarius may terminate the agreement at any time upon ninety days’ notice to the University
of Utah.
HLB Life Sciences - South Korea
On November 25, 2016, Salarius entered into an Exclusive Pharmaceutical Sublicense Agreement with HLB Life Sciences (“HLBLS”), a
South Korean company, under which HLBLS sublicensed from Salarius the patent and technology rights related to SP-2577 mesylate salt in
South Korea, and for the right to develop, produce, manufacture, use and sell the drug in South Korea. Salarius received from HLBLS a
signing milestone payment not exceeding $500,000 upon entering into the agreement and may receive future annual net royalties ranging
from 5% to 20% of net sales by HLBLS.
Either party may terminate the agreement upon the other party’s breach under the agreement following a one hundred twenty-day cure
period. In addition, Salarius may terminate the agreement upon notice if HLBLS ceases to use commercially diligent efforts for the first
commercial sale of a licensed product, or if HLBLS fails to pay any amounts due under the agreement upon thirty days’ notice. In November
2020, Salarius provided notice to HLBLS of its intent to terminate the agreement for HLBLS’ default of its obligations under the agreement.
Under the agreement, HLBLS has the opportunity to remedy such default and a final determination on whether the agreement will be
terminated is pending.
Cancer Prevention and Research Institute of Texas
In June 2016, Salarius entered into a Cancer Research Grant Contract with Cancer Prevention and Research Institute of Texas (“CPRIT”).
The grant contract was for an amount up to $18.7 million to fund the development of LSD-1 inhibitor. The grant was subsequently amended
to remove $2.6 million related to a discontinued prostate cancer program. This is a 3-year grant award which originally expired on May 31,
2019. However, the Company was approved for an extension with a contract end date of November 30, 2021.
Under the agreement, Salarius must provide matching funds equal to 50% of the funds provided by CPRIT. Salarius must make a good faith
effort to spend at least 50% of the CPRIT and matching funds within the State of Texas with Texas-based employees or contractors.
Upon commercialization of SP-2577, and if Salarius’ revenue is above a specified dollar threshold, Salarius is required to pay a single digit
percentage of such revenue during the revenue term until CPRIT receives an amount equal to a single digit multiple of the total grant award.
The revenue term is determined on a country by country basis as revenue during the period beginning on the date of the first commercial
sale of a product or service until there no longer exists any exclusivity for a commercial product or service in such country, which may be as
late as 2037. In the event CPRIT receives such specified percentage of the total grant award from Salarius during the revenue term, Salarius
will continue to pay CPRIT a reduced revenue sharing percentage during the remainder of the revenue term. Additionally, if Salarius is
required to obtain a license under the intellectual property rights of one or more third parties in order to sell commercial products in any given
country, then the revenue sharing percentages may be reduced.
The agreement may be terminated by the mutual consent of the parties or by Salarius at its discretion. CPRIT may also terminate the
agreement upon an event of default, which includes Salarius’ failure to conduct the project within
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the scope agreed by the parties, Salarius’ material breach of the agreement, Salarius’ failure to comply with applicable law, or bankruptcy or
discontinuation of Salarius’ business operations, among others. In addition, the agreement may be terminated by CPRIT if the allocated
funds become legally unavailable during the term and CPRIT is unable to obtain additional funds for such purposes. If CPRIT terminates the
agreement prior to the expiration due to an event of default or if Salarius terminates the agreement, CPRIT may require Salarius to repay
some or all of the disbursed grant.
Manufacturing
Salarius does not own or operate manufacturing facilities for the production of SP-2577 or other product candidates that Salarius develops,
nor does it have plans to develop its own manufacturing operations in the foreseeable future. Salarius currently depends on third-party
contract manufacturers for all its required raw materials, active pharmaceutical ingredients, and finished product candidates for its clinical
trials. Salarius currently employs internal resources and third-party consultants to manage Salarius’ manufacturing contractors.
Sales and Marketing
Salarius has not yet defined its sales, marketing or product distribution strategy for SP-2577 or any of Salarius’ other product candidates
because its product candidates are still in pre-clinical or early-stage clinical development. Salarius’ commercial strategy may include the use
of strategic partners, distributors, a contract sale force, or the establishment of its own commercial and specialty sales force. Salarius plans
to further evaluate these alternatives when and if it approaches FDA approval for one of its product candidates.
Intellectual Property
As of December 31, 2020, Salarius had a worldwide portfolio of 71 patents and patent applications of which 64 were issued or allowed and 7
are pending applications. This portfolio includes composition of matter and methods of use patents on Salarius’ lead candidate, SP-2577.
These patents and patent applications are owned by the University of Utah Research Foundation and are exclusively licensed to Salarius.
In the United States, Salarius’ anticipated first target market, Salarius has two composition of matter patents (US#8,987,335 and
US#9,266,838) and two methods of use patents (US#9,642,857, US#9,555,024) protecting SP-2577 and related compounds which will
expire in 2032.
In addition to patent protection, Salarius seeks to rely on trade secret protection, trademark protection and know-how to expand its
proprietary position around its chemistry, technology and other discoveries and inventions that Salarius consider important to Salarius’
business. Salarius also seeks to protect its intellectual property in part by entering into confidentiality agreements with Salarius’ employees,
consultants, scientific advisors, clinical investigators and other contractors and by requiring Salarius’ employees, commercial contractors, and
certain consultants and investigators, to enter into invention assignment agreements that grant it ownership of any discoveries or inventions
made by them. Further, Salarius seeks trademark protection in the United States and internationally where available and when Salarius
deems appropriate.
LSD1 Inhibition
LSD1 is a widely published epigenetic target and has attracted interest from several large pharmaceutical companies. LSD1 helps drive
cancer progression through demethylation of histones and by acting as a scaffolding protein within various activator and repressor
complexes. According to clinicaltrials.gov, there are four targeted LSD1 inhibitors being actively tested in clinic and are shown in the table
below. The listed LSD1 inhibitors are in Phase 1 or 2 trials for a variety of cancer types.
Company
Salarius
Oryzon
Celgene/Bristol Myers Squibb
Imago
Binding Mechanism
Reversible
Irreversible
Reversible
Irreversible
Drug Name
SP-2577
ORY-1001
CC-90011
IMG-7289
Latest Phase
Phase 1/2
Phase 2
Phase 2
Phase 2
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Competitive Differentiation
Salarius believes that SP-2577 is differentiated in its ability to effectively inhibit LSD1’s scaffolding properties in addition to LSD1’s
demethylation activity. Compared to irreversible LSD1 inhibitors, Salarius’ molecule has a novel binding mechanism (reversible as opposed
to irreversible) and binding location (closer to substrate binding site as opposed to the FAD cofactor of LSD1). This was demonstrated in a
study conducted by A. Sehrawat, et al. in “LSD1 activates a Lethal Prostate Cancer Gene Network Independently of its Demethylase
Function” with SP-2509, an analogue of SP-2577. Compared to LSD1 inhibitors in clinical development, SP-2577 binds to LSD1 in a different
manner, which Salarius hypothesizes may grant it therapeutic advantages over the competition. To further justify this hypothesis, Salarius
compared the ability of SP-2577 and an irreversible LSD1 inhibitor, specifically GSK-LSD1 (analogue to GSK’s former clinical candidate), to
affect cancer cell growth in vitro. SP-2577 was able to better inhibit cell growth across 32 cancer cell types compared to GSK-LSD1.
Government Regulation and Product Approvals
United States Government Regulation
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act,
and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage,
recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and
export of pharmaceutical products. Salarius cannot market a drug product candidate in the United States until the drug has received FDA
approval.
Drug Development Process
The process required before a drug may be marketed in the United States generally include the following:
•
•
•
•
•
•
•
•
completion of extensive non-clinical laboratory tests and animal studies in accordance with the FDA’s Good Laboratory Practices
("GLP") regulations;
submission to the FDA of an Investigational New Drug ("IND") for human clinical testing, which must be deemed effective before
human clinical trials may begin;
approval by an independent institutional review board ("IRB") overseeing each clinical site before each trial may be initiated at that
site;
performance of adequate and well-controlled human clinical trials in accordance with Good Clinical Practices ("GCP") requirements
to establish the safety and efficacy of the drug for each proposed indication;
submission to the FDA of a New Drug Approval (“NDA”) after completion of all pivotal clinical trials;
satisfactory completion of an FDA advisory committee review, if applicable;
satisfactory completion of an FDA pre-approval inspection of the nonclinical, clinical and/or manufacturing sites or facilities at which
the active pharmaceutical ingredient, (“API”), and finished drug product are produced and tested to assess compliance with current
Good Manufacturing Practices (“cGMP”); and
FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
Before testing any drugs with potential therapeutic value in humans, the drug enters the preclinical testing stage. Pre-clinical tests include
laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety
and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including GLP or
GMP.
Before commencing the first clinical trial in humans, an IND must be submitted to the FDA, and the IND must become effective. An IND
sponsor must submit the results of pre-clinical testing to the FDA as part of an IND along with other information, including information about
product chemistry, manufacturing and controls and a proposed clinical trial protocol. Long term pre-clinical tests, such as animal tests of
reproductive toxicity and carcinogenicity,
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may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required prior to the commencement of
clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed
in the IND may begin if all other requirements, including IRB review and approval, have been met. If the FDA raises concerns or questions
about the conduct of the trial, such as whether human research subjects will be exposed to an unreasonable health risk, the IND sponsor and
the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified
investigator. Clinical trials must be conducted in compliance with state and federal regulations, including GCP requirements, which include
the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are
conducted under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to
be evaluated. Each protocol and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the
clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients.
The study protocol and informed consent information for patients in clinical trials must also be submitted to an IRB, for approval of each site
at which the clinical trial will be conducted. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently,
for failure to comply with the IRB’s requirements, or may impose other conditions. Information about certain clinical trials must be submitted
within specific timeframes to the National Institutes of Health (“NIH”) for public dissemination on their www.clinicaltrials.gov website.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In
Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess pharmacological actions,
safety and side effects associated with increasing doses and, if possible, early evidence of effectiveness. Phase 2 usually involves trials in a
limited patient population to study metabolism of the drug, pharmacokinetics, the effectiveness of the drug for a particular indication, dosage
tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of
effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 clinical trials, also called pivotal trials, are undertaken to
obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical
trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of
the drug.
Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies may be required by the
FDA as a condition of approval and are used to gain additional experience from the treatment of patients in the intended therapeutic
indication. The FDA also has express statutory authority to require post-market clinical studies to address safety issues.
FDA Review and Approval Process
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing of the product may begin in the United States. The NDA must include the results of all non-clinical, clinical and other testing and a
compilation of data relating to the product’s toxicology, pharmacology, chemistry, manufacture and controls. The cost of preparing and
submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the
manufacturer and/or sponsor under an approved NDA are also subject to annual product and establishment user fees. These fees are
typically increased annually. Under the Prescription Drug User Fee Act, (“PDUFA”), guidelines that are currently in effect, the FDA has a goal
of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically
takes twelve months from the date the NDA is submitted to FDA, because the FDA has approximately two months to make a “filing” decision.
Within 60 days following submission of the application, the FDA reviews all NDAs submitted to ensure that they are sufficiently complete for
substantive review before it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this
event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA
accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to
determine, among other things, whether the drug is safe and effective and whether the facility in which it is
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manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. The FDA
may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory
committee-typically a panel that includes clinicians and other experts-for review, evaluation and a recommendation as to whether the
application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such
recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCPs.
Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless
compliance with cGMPs is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the
indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete
response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for
the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the
NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the
type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. Even if the FDA
approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be
included in the product labeling, require that post- approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s
safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions,
including distribution and use restrictions or other risk management mechanisms under risk evaluation and mitigation strategy ("REMS") to
ensure that the benefits of the drug outweigh the potential risks. A REMS can include a medication guide, a communication plan for
healthcare professionals and elements to assure safe use, such as special training and certification requirements for individuals who
prescribe or dispense the drug, requirements that patients enroll in a registry and other measures that the FDA deems necessary to assure
the safe use of the drug. The requirement for a REMS can materially affect the potential market and profitability of the drug. The FDA may
prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. Once granted, product
approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing
processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An
NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same
procedures and actions in reviewing NDA supplements as it does in reviewing NDAs. Such supplements are typically reviewed within 10
months of receipt.
Orphan Drug Status
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drug candidates intended to treat a rare disease or condition,
which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in
the United States and for which there is no reasonable expectation that costs of research and development of the drug for the indication can
be recovered by sales of the drug in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA
grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
Although there may be some increased communication opportunities, orphan drug designation does not convey any advantage in or shorten
the duration of the regulatory review and approval process.
If a drug candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such
designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a
full NDA, to market the same drug for the same indication for seven years, except in very limited circumstances, such as if the second
applicant demonstrates the clinical superiority of its product or if FDA finds that the holder of the orphan drug exclusivity has not shown that it
can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the
drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug
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for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation
are tax credits for certain research and a waiver of the NDA application user fee.
As in the United States, designation as an orphan drug for the treatment of a specific indication in the European Union, must be made before
the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years
of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise
clinically superior to the orphan designated product.
The FDA and foreign regulators expect holders of exclusivity for orphan drugs to assure the availability of sufficient quantities of their orphan
drugs to meet the needs of patients. Failure to do so could result in the withdrawal of marketing exclusivity for the orphan drug.
Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite or facilitate the process for development and review of new drug products
that meet certain criteria. Specifically, new drug products are eligible for Fast Track designation if they are intended to treat a serious or life-
threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track
designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug may
request that the FDA designate the drug as a Fast Track product at any time during the clinical development of the product. For a Fast Track-
designated product, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application
is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of
the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first
section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs
intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it
has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or there is a significant improvement in
the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to
the evaluation of an application for a new drug product designated for priority review in an effort to facilitate the review. Salarius has received
FDA designation as a potential treatment for a rare pediatric disease for the use of SP-2577 in Ewing’s Sarcoma. Should SP-2577 prove to
be efficacious in this disease with a positive benefit/risk ratio, Salarius expects to receive a Priority Review Voucher. The Priority Review
Voucher is transferable and may be sold.
Additionally, a product may be eligible for accelerated approval. Drug products studied for their safety and effectiveness in treating serious or
life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval,
which means that they may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect
on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than
survival or irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and
the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug product subject to
accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires as a
condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch
of the product.
In addition, under the provisions of FDA Safety and Innovation Act (“FDASIA”), the FDA established the Breakthrough Therapy Designation
which is intended to expedite the development and review of products that treat serious or life-threatening diseases or conditions. A
breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-
threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over
existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
The designation includes all of the features of Fast Track designation, as well as more intensive FDA interaction and guidance. The
Breakthrough Therapy Designation is distinct from both accelerated approval and priority review, but these can also be granted to the same
product candidate if the relevant criteria are met. The FDA must take certain actions, such as holding timely meetings and providing advice,
intended to expedite
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the development and review of an application for approval of a breakthrough therapy. Requests for breakthrough therapy designation will be
reviewed within 60 days of receipt, and FDA will either grant or deny the request.
Fast Track designation, priority review, accelerated approval and breakthrough therapy designation do not change the standards for
approval, but may expedite the development or approval process by allowing for approval based on a surrogate endpoint likely to predict
clinical benefit of the underlying drug, rather than through a direct measure of clinical benefit. Even if Salarius receives one of these
designations for its product candidates, the FDA may later decide that its product candidates no longer meet the conditions for qualification.
In addition, these designations may not provide Salarius with a material commercial advantage.
Post-Approval Requirements
Once an NDA is approved, a product may be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-
approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion,
industry-sponsored scientific and educational activities and promotional activities involving the internet and social media. Drugs may be
marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-
marketing testing, known as Phase 4 testing, REMS or other surveillance to monitor the effects of an approved product, or restrictions on the
distribution or use of the product. In addition, quality- control, drug manufacture, packaging and labeling procedures must continue to
conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with
the FDA and certain state agencies. Registration with the FDA subjects’ entities to periodic unannounced inspections by the FDA, during
which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend
time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or failure to comply with regulatory
requirements, may result in mandatory revisions to the approved labeling to add new safety information, imposition of post-market studies or
clinical trials to assess new safety risks or imposition of distribution or other restrictions under a REMS program. Other potential
consequences include, among other things:
•
•
•
•
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product
approvals; and
product seizure or detention, or refusal to permit the import or export of products; or injunctions or the imposition of civil or criminal
penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted
only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce
the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses
may be subject to significant liability.
Foreign Regulation
In order to market any product outside of the United States, Salarius would need to comply with numerous and varying regulatory
requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials,
marketing authorization, commercial sales and distribution of Salarius’ products. Whether or not Salarius obtains FDA approval for a product,
Salarius would need to obtain the necessary approvals by the comparable foreign regulatory authorities before Salarius can commence
clinical trials or marketing of the product in foreign countries and jurisdictions.
Some countries outside of the United States have a similar process that requires the submission of a clinical trial application (“CTA”), much
like the IND prior to the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to each country’s national
health authority and an independent ethics committee, much like
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the FDA and an IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, a clinical trial may proceed in that
country. To obtain regulatory approval to commercialize a new drug under European Union regulatory systems, Salarius must submit a
marketing authorization application (“MAA”). The MAA is similar to the NDA, with the exception of, among other things, country-specific
document requirements.
In Canada, biopharmaceutical product candidates are regulated by the Food and Drugs Act and the rules and regulations promulgated
thereunder, which are enforced by the Therapeutic Products Directorate of Health Canada (“TPD”). Before commencing clinical trials in
Canada, an applicant must complete pre-clinical studies and file a CTA with the TPD. After filing a CTA, the applicant must receive different
clearance authorizations to proceed with Phase 1 clinical trials, which can then lead to Phase 2 and Phase 3 clinical trials. To obtain
regulatory approval to commercialize a new drug in Canada, a new drug submission (“NDS”), must be filed with the TPD. If the NDS
demonstrates that the product was developed in accordance with the regulatory authorities’ rules, regulations and guidelines and
demonstrates favorable safety and efficacy and receives a favorable risk/benefit analysis, the TPD issues a notice of compliance which
allows the applicant to market the product.
Other Healthcare Laws
Although Salarius currently does not have any products on the market, Salarius’ current and future business operations may be subject to
additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which
Salarius conducts its business. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, privacy
and security, price reporting and physician sunshine laws. Some of Salarius’ pre-commercial activities are subject to some of these laws.
The federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer or a party acting on its
behalf to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is intended to induce the referral of
business, including the purchase, order, lease of any good, facility, item or service for which payment may be made under a federal
healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The
Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers,
purchasers, formulary managers and beneficiaries on the other.
Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the
exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce
prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet
all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under
the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of
all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an
arrangement involving remuneration is to induce referrals of federal healthcare covered business, the Anti-Kickback Statute has been
violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have
committed a violation. Violations of this law are punishable by up to five years in prison, and can also result in criminal fines, civil money
penalties and exclusion from participation in federal healthcare programs.
Moreover, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the federal civil False Claims Act.
The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented,
for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that are
false or fraudulent or not provided as claimed. Persons and entities can be held liable under these laws if they are deemed to “cause” the
submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a
product off-label. In addition, Salarius’ future activities relating to the reporting of wholesaler or estimated retail prices for Salarius’ products,
the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party
reimbursement for Salarius’ products, and the sale and marketing of Salarius’ products, are subject to scrutiny under this law. Penalties for
federal civil False Claims Act violations may include up to three times the actual damages sustained by the government, plus mandatory civil
penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in federal healthcare
programs,
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and, although the federal False Claims Act is a civil statute, False Claims Act violations may also implicate various federal criminal statutes.
The Health Insurance Portability and Accountability Act (“HIPAA”) created new federal criminal statutes that prohibit among other actions,
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third- party
payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a
healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the federal Anti-Kickback
Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a
violation.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented
or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not
provided as claimed or is false or fraudulent.
Also, many states have similar fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payor, in
addition to items and services reimbursed under Medicaid and other state programs. Additionally, to the extent that any of Salarius’ products
are sold in a foreign country, Salarius may be subject to similar foreign laws.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their implementing
regulations, including the final omnibus rule published on January 25, 2013, mandates, among other things, the adoption of uniform
standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and
security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to
protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates, defined
as independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with
providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against
covered entities and business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in
federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition,
certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than
HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties.
The ACA imposed, among other things, new annual reporting requirements for covered manufacturers for certain payments and other
transfers of value provided to physicians and teaching hospitals, as well as certain ownership and investment interests held by physicians
and their immediate family members.
Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment
interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for
“knowing failures.” Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing
practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.
Because Salarius intends to commercialize products that could be reimbursed under a federal healthcare program and other governmental
healthcare programs, Salarius intends to develop a comprehensive compliance program that establishes internal control to facilitate
adherence to the rules and program requirements to which Salarius will or may become subject. Although the development and
implementation of compliance programs designed to establish internal control and facilitate compliance can mitigate the risk of investigation,
prosecution, and penalties assessed for violations of these laws, the risks cannot be entirely eliminated.
If Salarius’ operations are found to be in violation of any of such laws or any other governmental regulations that apply to Salarius, Salarius
may be subject to penalties, including, without limitation, administrative, civil and criminal penalties, damages, fines, disgorgement,
contractual damages, reputational harm, diminished profits and future earnings, the curtailment or restructuring of Salarius’ operations,
exclusion from participation in federal and state
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healthcare programs and individual imprisonment, any of which could adversely affect Salarius’ ability to operate its business and its financial
results.
Healthcare Reform
In the United States and foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that
could affect Salarius’ future results of operations. There have been and continue to be a number of initiatives at the United States federal and
state levels that seek to reduce healthcare costs.
In particular, the ACA has had, and is expected to continue to have, a significant impact on the healthcare industry. The ACA was designed
to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products,
among other things, the ACA revised the definition of “average manufacturer price” for calculating and reporting Medicaid drug rebates on
outpatient prescription drug prices and imposed a significant annual fee on companies that manufacture or import certain branded
prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may require Salarius to modify
Salarius’ business practices with healthcare providers and entities, and a significant number of provisions are not yet, or have only recently
become, effective.
In the coming years, additional legislative and regulatory changes could be made to governmental health programs that could significantly
impact pharmaceutical companies and the success of its product candidate.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, President Obama
signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to
recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least
$1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. These included
reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative
amendments to the statute, will stay in effect through 2025 unless additional Congressional action is taken. Additionally, in January 2013, the
American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several
providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Moreover, the Drug Supply Chain Security Act, imposes new obligations on manufacturers of pharmaceutical products, among others,
related to product tracking and tracing, which will be phased in over several years beginning in 2016. Among the requirements of this
legislation, manufacturers will be required to provide certain information regarding the drug product to individuals and entities to which
product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. The
transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers
will also be required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this new legislation,
manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted,
stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit
for distribution such that they would be reasonably likely to result in serious health consequences or death.
Coverage and Reimbursement
Sales of Salarius’ product candidates, once approved, will depend, in part, on the extent to which the costs of Salarius’ products will be
covered by third-party payors, such as government health programs, private health insurers and managed care organizations. Third-party
payors generally decide which drugs they will cover and establish certain reimbursement levels for such drugs. In particular, in the United
States, private health insurers and other third-party payors often provide reimbursement for products and services based on the level at
which the government (through the Medicare or Medicaid programs) provides reimbursement for such treatments. Patients who are
prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse
all or part of the associated healthcare costs. Patients are unlikely to use its products unless coverage is provided and reimbursement is
adequate to cover a significant portion of the cost of its products. Sales of Salarius’ product candidates, and any future product candidates,
will therefore depend substantially on the extent to which the costs of Salarius’ product candidates, and any future product candidates, will be
paid by third-party payors. Additionally, the market for Salarius’ product candidates, and any future product candidates, will depend
significantly on access to third-party payors’ formularies without prior authorization, step
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therapy, or other limitations such as approved lists of treatments for which third-party payors provide coverage and reimbursement.
Additionally, coverage and reimbursement for therapeutic products can differ significantly from payor to payor. One third-party payor’s
decision to cover a particular medical product or service does not ensure that other payors will also provide coverage for the medical product
or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require Salarius
to provide scientific and clinical support for the use of Salarius’ products to each payor separately and will be a time-consuming process.
Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs and increasingly challenging the prices
charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state
governments and the prices of drugs have been a focus in this effort. The United States government, state legislatures and foreign
governments have shown significant interest in implementing cost-containment programs, including price controls and transparency
requirements, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-
containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit Salarius’ net
revenue and results. If these third-party payors do not consider Salarius’ products to be cost-effective compared to other therapies, they may
not cover Salarius’ products once approved as a benefit under their plans or, if they do, the level of reimbursement may not be sufficient to
allow Salarius to sell its products on a profitable basis. Decreases in third-party reimbursement for Salarius’ products once approved or a
decision by a third-party payor to not cover its products could reduce or eliminate utilization of Salarius’ products and have an adverse effect
on its sales, results of operations and financial condition. In addition, state and federal healthcare reform measures have been and will be
adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,
which could result in reduced demand for Salarius’ products once approved or additional pricing pressures.
Facilities
Salarius’ principal executive offices are in the Texas Medical Center in Houston, Texas, under a month-to-month lease. This facility consists
of approximately 1,000 square feet and accommodates Salarius’ general and administrative activities. Additionally, Salarius leases laboratory
space from Johnson & Johnson, JLABS facility located adjacent to our corporate office. Salarius does not own any real property. Salarius
believes that its leased facility is adequate to meet its current needs and that additional facilities will be available on commercially reasonable
terms to meet future needs.
Employees and Human Capital Resources
As of March 31, 2020, Salarius had nine full-time employees and one part-time employee. Salarius has never had a work stoppage, and
none of its employees is represented by a labor organization or under any collective bargaining arrangements. Salarius considers its
employee relations to be good.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and
new employees, advisors and consultants. The principal purposes of our equity incentive plans are to attract, retain and reward personnel
through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by
motivating such individuals to perform to the best of their abilities and achieve our objectives.
Legal Proceedings
Salarius is not currently a party to any legal proceedings the outcome of which Salarius believes, if determined adversely to Salarius, would
individually or in the aggregate, have a material adverse effect on its business, financial condition, or results of operations. From time to time,
Salarius may become involved in legal proceedings arising in the ordinary course of business.
Corporate Information and Web Site Access to SEC Filings
The Company was initially incorporated as Flex Pharma, Inc. in Delaware in February 2014. In July 2019, our wholly owned subsidiary,
Falcon Acquisition Sub, LLC, merged with and into Salarius Pharmaceuticals, LLC (“Private Salarius”), with Private Salarius becoming our
wholly owned subsidiary (the “Merger”), and we changed our named to Salarius Pharmaceuticals, Inc. Our principal executive offices are
located at 2450 Holcombe Blvd., Suite X,
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Houston, TX 77021, and our telephone number is (832) 834-6992. Our website address is www.salariuspharma.com. The public can obtain
any documents that we file with the SEC at http://www.sec.gov.
Item 1A. Risk Factors
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this
report, the words “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” and similar expressions are intended to identify forward-
looking statements.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected.
These risks and uncertainties include, but are not limited to, those risks discussed under the heading “Risk Factors” of this report, and
elsewhere in this annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” and Salarius’ financial statements and related notes. The risks and uncertainties described below may not be the only ones
faced by Salarius. If any of the risks actually occur, Salarius’ business, financial condition, operating results and prospects could be materially
and adversely affected. These forward-looking statements speak only as of the date hereof. Salarius expressly disclaims any obligation or
undertaking to update any forward-looking statements contained herein to reflect any change in Salarius’ expectations with regard thereto or
any change in events, conditions or circumstances on which any such statement is based.
Risks Related to the Development of Salarius’ Product Candidates
The approach we are taking to discover and develop novel oncology therapeutics using epigenetic enzymes to moderate
transcription factors and thereby control abnormal protein expression is unproven and may never lead to marketable products.
The scientific discoveries that form the basis for our efforts to discover and develop its current product candidates are relatively recent. To
date, neither we nor any other company has received regulatory approval to market therapeutics using epigenetic enzymes. The scientific
evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. The Successful
development of therapeutic products will require solving a number of issues. In addition, any product candidates that we develop may not
demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory and pre-clinical trials, and they may
interact with human biological systems in unforeseen, ineffective or even harmful ways. For instance, our clinical and pre-clinical data to date
is not validated and we have no way of knowing if after validation our clinical trial data will be complete and consistent. If we do not
successfully develop and commercialize product candidates based upon this technological approach, we may not become profitable and the
value of its capital stock may decline.
Further, our focus on epigenetic enzyme technology for developing product candidates as opposed to multiple, more proven technologies for
drug development increases the risk associated with its business. If we are not successful in developing an approved product using its
technology, we may not be able to identify and successfully implement an alternative product development strategy. In addition, work by
other companies pursuing similar technologies may encounter setbacks and difficulties that regulators and investors may attribute to our
product candidates, whether appropriate or not.
Clinical trials are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities.
Clinical development is expensive, time consuming and involves significant risk. We cannot guarantee that any clinical trials will be
conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of development.
Events that may prevent successful or timely completion of clinical development include but are not limited to:
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the inability to generate satisfactory pre-clinical, toxicology, or other in vivo or in vitro data or diagnostics to support the initiation or
continuation of clinical trials;
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delays in reaching agreement on acceptable terms with clinical research organizations, (“CROs”), and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
delays in obtaining required IRB approval at each clinical trial site;
failure to permit the conduct of a clinical trial by regulatory authorities, after review of an investigational new drug or equivalent
foreign application or amendment;
delays in recruiting qualified patients in its clinical trials;
failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;
failure by Salarius clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of
the FDA, or applicable foreign regulatory guidelines;
patients dropping out of our clinical trials;
adverse events or tolerability or animal toxicology issues significant enough for the FDA or other regulatory agencies to put any or all
clinical trials on hold;
occurrence of adverse events associated with our product candidates;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
the cost of clinical trials of our product candidates;
negative or inconclusive results from our clinical trials which may result in us deciding, or regulators requiring us, to conduct
additional clinical trials or abandon development programs in other ongoing or planned indications for a product candidate; and
delays in reaching agreement on acceptable terms with third-party manufacturers and the time for manufacture of sufficient
quantities of its product candidates for use in clinical trials.
Any inability to successfully complete clinical development and obtain regulatory approval for its product candidates could result in additional
costs or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we
may need to conduct additional pre-clinical trials or the results obtained from such new formulation may not be consistent with previous
results obtained. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow
competitors to develop and bring products to market before we do, which could impair our ability to successfully commercialize our product
candidates and may harm our business and results of operations.
Salarius’ therapeutic product candidates are based on a relatively novel technology, which makes it difficult to predict the timing
and cost of development and of subsequently obtaining regulatory approval, if at all.
Salarius has concentrated its research and development efforts to date on a limited number of product candidates based on its epigenetic
enzyme therapeutic platform and identifying its initial targeted disease indications. Salarius’ future success depends on its successful
development of viable product candidates. Currently, only one of its product candidates Seclidemstat, a reversible LSD1 inhibitor, is in Phase
1 clinical development, and the remainder of its product candidates are in pre-clinical development. There can be no assurance that Salarius
will not experience problems or delays in developing its product candidates and that such problems or delays will not cause unanticipated
costs, or that any such development problems can be solved.
The clinical trial and manufacturing requirements of the FDA, the European Medicines Agency and other regulatory authorities, and the
criteria these regulators use to determine the safety and efficacy of a product candidate, vary substantially according to the type, complexity,
novelty and intended use and market of the product candidate. The regulatory approval process for novel product candidates such as
epigenetic enzyme therapeutics can be more expensive and take longer than for other, better known or more extensively studied product
candidates. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for Salarius’ product
candidates in either the United States or the European Union or how long it will take to commercialize its product candidates, even if
approved for marketing. Approvals by the European Commission may not be indicative of what the FDA, and vice versa, may require for
approval and different or additional pre-clinical trials or clinical trials may
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be required to support regulatory approval in each respective jurisdiction. Delay or failure to obtain, or unexpected costs in obtaining, the
regulatory approval necessary to bring a potential product candidate to market could decrease Salarius’ ability to generate sufficient product
revenue, and Salarius’ business, financial condition, results of operations and prospects may be harmed.
Salarius’ product candidates may cause undesirable side effects or have other properties that could delay or prevent their
regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following
marketing approval, if any.
Undesirable side effects caused by its product candidates could cause Salarius or regulatory authorities to interrupt, delay, or terminate
clinical trials or even if approved, result in a restrictive label or delay regulatory approval by the FDA or comparable foreign authorities.
In addition, to date Salarius’ product candidates have been studied in only a very limited number of patients. Salarius may experience a high
rates or severity of adverse events and comparable or high rates of discontinuation in testing in its future clinical trials. There is no guarantee
that severe side effects will not be identified through ongoing clinical trials of Salarius’ product candidates for current and other indications.
Undesirable side effects and negative results for other indications may negatively impact the development and potential for approval of
Salarius’ product candidates for their proposed indications. Specifically, as a result of concerns regarding the potential teratogenic and
abortifacient effects of SP-2577, pregnant women were excluded from the conducted studies.
Additionally, even if one or more of its product candidates receives marketing approval, and Salarius or others later identify undesirable side
effects caused by such products, potentially significant negative consequences could result, including but not limited to:
•
•
•
•
•
regulatory authorities may withdraw approvals of such products;
regulatory authorities may require additional warnings on the label;
Salarius may be required to create a REMS plan, which could include a medication guide outlining the risks of such side effects for
distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;
Salarius could be sued and held liable for harm caused to patients; and
its reputation may suffer.
Any of these events could prevent Salarius from achieving or maintaining market acceptance of a product candidate, even if approved, and
could significantly harm or cause the complete failure of its business, results of operations, and prospects.
Salarius’ product development program may not uncover all possible adverse events that patients who take its product candidates
may experience. The number of subjects exposed to Seclidemstat or its other product candidates and the average exposure time
in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be
detected once the product is administered to more patients and for greater periods of time.
Clinical trials by their nature use a sample of the potential patient population. However, with a limited number of subjects and limited duration
of exposure, Salarius cannot be fully assured that rare and severe side effects of Seclidemstat or its other product candidates will be
uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients exposed to the drug. If
such safety problems occur or are identified after Seclidemstat or another product candidate reaches the market, the FDA may require that
Salarius amend the labeling of the product or recall the product, or may even withdraw approval for the product.
Some of Salarius’ product candidates may produce results in pre-clinical or clinical settings for indications other than those for
which Salarius contemplates conducting development and seeking FDA approval, and Salarius cannot give any assurance that it
will generate data for any of its product candidates sufficient to receive regulatory approval in its planned indications, which will
be required before they can be commercialized.
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Salarius currently has one product candidate in Phase 1/2 clinical trials for advanced solid tumors - Seclidemstat. This is only one of the
multiple indications for which Salarius plans to develop this product candidate. There can be no assurance that the data that Salarius
develops for its product candidates in its planned indications will be sufficient to obtain regulatory approval.
In addition, none of its product candidates have advanced into a pivotal clinical trial for Salarius’ proposed indications and it may be years
before any such clinical trial is initiated and completed, if at all. Salarius is not permitted to market or promote any of its product candidates
before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and Salarius may never receive such
regulatory approval for any of its product candidates. Salarius cannot be certain that any of its product candidates will be successful in clinical
trials or receive regulatory approval. Further, its product candidates may not receive regulatory approval even if they are successful in clinical
trials. If Salarius does not receive regulatory approvals for its product candidates, Salarius may not be able to continue its operations.
Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier pre-clinical and
clinical trials may not be predictive of future clinical trial results.
Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any
time during the clinical trial process. The results of pre-clinical trials and early clinical trials of Salarius’ product candidates may not be
predictive of the results of larger, later-stage controlled clinical trials. Product candidates that have shown promising results in early-stage
clinical trials may still suffer significant setbacks in subsequent clinical trials. Salarius’ clinical trials to date have been conducted on a small
number of patients in limited numbers of clinical sites for a limited number of indications. Salarius will have to conduct larger, well-controlled
trials in its proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical
development. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to
lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. Moreover, clinical data are often
susceptible to varying interpretations and analyses. Salarius does not know whether any Phase 1, Phase 2, Phase 3, or other clinical trials
Salarius may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to
receive regulatory approval or market its drug candidates.
Salarius may use its financial and human resources to pursue a particular research and/or development program or product
candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater
likelihood of success.
Because Salarius has limited financial and human resources, it may forego or delay pursuit of opportunities with some programs or product
candidates or for other indications that later prove to have greater commercial potential. Salarius’ resource allocation decisions may cause it
to fail to capitalize on viable commercial products or more profitable market opportunities. Salarius’ spending on current and future research
and development programs and future product candidates for specific indications may not yield any commercially viable products. Salarius
may also enter into additional strategic collaboration agreements to develop and commercialize some of its programs and potential product
candidates in indications with potentially large commercial markets. If Salarius does not accurately evaluate the commercial potential or
target market for a particular product candidate, it may relinquish valuable rights to that product candidate through strategic collaborations,
licensing or other royalty arrangements in cases in which it would have been more advantageous for Salarius to retain sole development and
commercialization rights to such product candidate, or Salarius may allocate internal resources to a product candidate in a therapeutic area
in which it would have been more advantageous to enter into a partnering arrangement.
Salarius may find it difficult to enroll patients in its clinical trials given the limited number of patients who have the diseases for
which its product candidates are being studied. Difficulty in enrolling patients is a common hurdle faced by early stage
biotechnology companies and could, and often does, delay or prevent clinical trials of product candidates.
Identifying and qualifying patients to participate in clinical trials of Salarius’ product candidates is essential to its success. The timing of
Salarius’ clinical trials depends in part on the rate at which Salarius can recruit patients to participate in clinical trials of its product candidates,
and Salarius may experience delays in its clinical trials if Salarius encounters difficulties in enrollment, clinical enrollment is inherently difficult,
and often time consuming.
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The eligibility criteria of Salarius’ planned clinical trials may further limit the available eligible trial participants as Salarius expects to require
that patients have specific characteristics that Salarius can measure or meet the criteria to assure their conditions are appropriate for
inclusion in its clinical trials. Salarius may not be able to identify, recruit, and enroll a sufficient number of patients to complete its clinical trials
in a timely manner because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of
competing therapies and clinical trials, and the willingness of physicians to participate in its planned clinical trials. If patients are unwilling to
participate in Salarius’ clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of its product
candidates may be delayed.
If Salarius experiences delays in the completion of, or termination of, any clinical trials of its product candidates, the commercial prospects of
its product candidates could be harmed, and its ability to generate product revenue from any of these product candidates could be delayed or
prevented. In addition, any delays in completing its clinical trials would likely increase its overall costs, impair product candidate development
and jeopardize its ability to obtain regulatory approval relative to its current plans. Any of these occurrences may harm its business, financial
condition, and prospects significantly.
Salarius may face potential product liability, and, if successful claims are brought against it, Salarius may incur substantial liability
and costs which could be greater than its insurance coverage or overall resources. If the use or misuse of Salarius’ product
candidates harms patients, or is perceived to harm patients even when such harm is unrelated to its product candidates, Salarius’
regulatory approvals, if any, could be revoked or otherwise negatively impacted and Salarius could be subject to costly and
damaging product liability claims. If Salarius is unable to obtain adequate insurance or is required to pay for liabilities resulting
from a claim excluded from, or beyond the limits of, its insurance coverage, a material liability claim could adversely affect its
financial condition.
The use or misuse of Salarius’ product candidates in clinical trials and the sale of any products for which Salarius may obtain marketing
approval exposes Salarius to the risk of potential product liability claims. Product liability claims might be brought against Salarius by
consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its product candidates
and approved products, if any. There is a risk that Salarius’ product candidates may induce adverse events. If Salarius cannot successfully
defend against product liability claims, it could incur substantial liability and costs. Patients with the diseases targeted by Salarius’ product
candidates may already be in severe and advanced stages of disease and have both known and unknown significant preexisting and
potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that
may be related to Salarius’ product candidates. Such events could subject Salarius to costly litigation, require it to pay substantial amounts of
money to injured patients, delay, negatively impact or end its opportunity to receive or maintain regulatory approval to market its products, or
require Salarius to suspend or abandon its commercialization efforts. Even in a circumstance in which an adverse event is unrelated to
Salarius’ product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay
Salarius’ regulatory approval process or impact and limit the type of regulatory approvals its product candidates receive or maintain. As a
result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on Salarius’ business,
financial condition or results of operations.
Although Salarius has product liability insurance, which covers its clinical trials in the United States, for up to $2.0 million per occurrence, up
to an aggregate limit of $5.0 million, its insurance may be insufficient to reimburse it for any expenses or losses Salarius may suffer. Salarius
will also likely be required to increase its product liability insurance coverage for the advanced clinical trials that it plans to initiate. If Salarius
obtains marketing approval for any of its product candidates, it will need to expand its insurance coverage to include the sale of commercial
products. There is no way to know if Salarius will be able to continue to obtain product liability coverage and obtain expanded coverage if it
requires it, in sufficient amounts to protect it against losses due to liability, on acceptable terms, or at all. Salarius may not have sufficient
resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage. Where Salarius has
provided indemnities in favor of third parties under its agreements with them, there is also a risk that these third parties could incur liability
and bring a claim under such indemnities. An individual may bring a product liability claim against Salarius alleging that one of its product
candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict
liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. Any product liability claim brought
against Salarius, with or without merit, could result in:
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• withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;
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the inability to commercialize, or if commercialized, decreased demand for, its product candidates;
if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;
initiation of investigations by regulators;
loss of revenues;
substantial costs of litigation, including monetary awards to patients or other claimants;
liabilities that substantially exceed Salarius’ product liability insurance, which Salarius would then be required to pay itself;
an increase in Salarius’ product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable
terms, if at all;
the diversion of management’s attention from Salarius’ business; and
damage to Salarius’ reputation and the reputation of its products and its technology.
Product liability claims may subject Salarius to the foregoing and other risks, which could have a material adverse effect on its business,
financial condition or results of operations.
Risks Related to Salarius’ Financial Condition and Capital Requirements
We have incurred losses since our inception, have a limited operating history on which to assess our business, and anticipate that
we will continue to incur significant losses for the foreseeable future.
We are a clinical development-stage biopharmaceutical company with a limited operating history. We have no products approved for
commercial sale and have not generated any revenue from product sales. To date, we have primarily financed our operations through equity
financings and a grant from CPRIT. We have never been profitable and have incurred operating losses in each year since inception. Our net
losses were $7,352,254 and $6,936,263 for each of the years ended December 31, 2020 and 2019. We have prepared our financial
statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue in existence.
We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities.
Accordingly, we will need to raise substantial additional capital to continue to fund our operations. The amount and timing of our future
funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital
as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our
product candidates.
We have devoted substantially all our financial resources to identify, acquire, and develop our product candidates, including conducting
clinical trials and providing general and administrative support for our operations. To date, we have financed our operations primarily through
the sale of equity securities. The amount of our future net losses will depend, in part, on the rate of our future expenditures and ability to
obtain funding through equity or debt financings, strategic collaborations, or grants. Biopharmaceutical product development is a highly
speculative and competitive undertaking and involves a substantial degree of risk. We expect losses to increase as we complete Phase 1
development and advance into Phase 2 development of our lead product candidates. It may be several years, if ever, before we complete
pivotal clinical trials and have a product candidate approved for commercialization. We expect to invest significant funds into the research
and development of our current product candidates to determine the potential to advance these product candidates to regulatory approval.
We expect to be required to expend a significant amount of funds before we know if we have a clinically successful product candidate.
Even if we obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which
our product candidates may receive approval, and our ability to achieve sufficient market
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acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidates in those markets. Even if
we obtain adequate market share for our product candidates, because the potential markets in which our product candidates may ultimately
receive regulatory approval could be very small, we may never become profitable despite obtaining such market share and acceptance of its
products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future and our expenses will
increase substantially if and as we:
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continue the clinical development of our product candidates;
continue efforts to discover new product candidates;
undertake the manufacturing of our product candidates or increase volumes manufactured by third parties;
advance our programs into larger, more expensive clinical trials;
initiate additional pre-clinical, clinical, or other trials or studies for our product candidates;
seek regulatory and marketing approvals and reimbursement for our product candidates;
establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain marketing
approval and market for ourselves;
seek to identify, assess, acquire, and/or develop other product candidates;
• make milestone, royalty or other payments under third-party license agreements;
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seek to maintain, protect, and expand our intellectual property portfolio;
seek to attract and retain skilled personnel; and
experience any delays or encounters issues with the development and potential for regulatory approval of our clinical candidates
such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies, or supportive studies
necessary to support marketing approval.
Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison
of our results of operations may not be a good indication of our future performance.
Salarius has never generated any revenue from product sales and may never generate revenue or be profitable.
Salarius has no products approved for commercialization and has never generated any revenue. Salarius’ ability to generate revenue and
achieve profitability depends on its ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the
regulatory and marketing approvals necessary to commercialize one or more of its product candidates. Salarius does not anticipate
generating revenue from product sales for the foreseeable future. Salarius’ ability to generate future revenue from product sales depends
heavily on its success in many areas, including but not limited to:
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completing research and development of its product candidates;
obtaining regulatory and marketing approvals for its product candidates;
• manufacturing product candidates and establishing and maintaining supply and manufacturing relationships with third parties that are
commercially feasible, meet regulatory requirements and Salarius’ supply needs in sufficient quantities to meet market demand for its
product candidates, if approved;
• marketing, launching and commercializing product candidates for which Salarius obtains regulatory and marketing approval, either
directly or with a collaborator or distributor;
gaining market acceptance of its product candidates as treatment options;
addressing any competing products;
protecting and enforcing its intellectual property rights, including patents, trade secrets, and know-how;
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negotiating favorable terms in any collaboration, licensing, or other arrangements into which Salarius may enter;
obtaining reimbursement or pricing for its product candidates that supports profitability; and
attracting, hiring, and retaining qualified personnel.
Even if one or more of the product candidates that Salarius develops is approved for commercial sale, Salarius anticipates incurring
significant costs associated with commercializing any approved product candidate. Portions of its current pipeline of product candidates have
been in-licensed from third parties, which make the commercial sale of such in-licensed products potentially subject to additional royalty and
milestone payments to such third parties. Salarius will also have to develop, contract for or acquire manufacturing capabilities to continue
development and potential commercialization of its product candidates. Salarius will need to develop or procure its drug product in a
commercially feasible manner in order to successfully commercialize any future approved product; if any. Additionally, if Salarius is not able
to generate revenue from the sale of any approved products, Salarius may never become profitable.
Raising additional capital may cause dilution to Salarius’ stockholders, restrict its operations or require Salarius to relinquish
rights.
Salarius received substantial funding during the fourth quarter of 2020 and first quarter of 2021 including a warrant inducement program
($3.6 million), At the Market offering ($6.3 million), warrant exercises ($1.5 million), CPRIT funding ($1.7 million) and a public offering of
common stock ($23.0 million). Other than the CPRIT funding, these raises caused significant dilution to stockholders who owned Salarius
shares prior to these capital raises. To the extent that Salarius raises additional capital through the sale of equity, convertible debt or other
securities convertible into equity the ownership interest of Salarius’ stockholders will be diluted, and the terms of these new securities may
include liquidation or other preferences that adversely affect rights of Salarius’ equity holders. Debt financing, if available at all, would likely
involve agreements that include covenants limiting or restricting Salarius’ ability to take specific actions, such as incurring additional debt,
making capital expenditures, making additional product acquisitions, or declaring dividends. If Salarius raises additional funds through
strategic collaborations or licensing arrangements with third parties, Salarius may have to relinquish valuable rights to its product candidates
or future revenue streams or grant licenses on terms that are not favorable to Salarius. Salarius cannot be assured that it will be able to
obtain additional funding when necessary to fund its entire portfolio of product candidates to meet its projected plans. If Salarius is unable to
obtain funding on a timely basis, Salarius may be required to delay or discontinue one or more of its development programs or the
commercialization of any product candidates or be unable to expand its operations or otherwise capitalize on potential business
opportunities, which could materially harm Salarius’ business, financial condition, and results of operations.
Salarius has also historically received funds from state and federal government grants for research and development including CPRIT. The
grants have been, and any future government grants and contracts Salarius may receive may be, subject to the risks and contingencies set
forth below under the risk factor titled “Reliance on government funding for Salarius’ programs may add uncertainty to its research and
commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit its ability to
take specified actions, increase the costs of commercialization and production of product candidates developed under those programs and
subject it to potential financial penalties, which could materially and adversely affect its business, financial condition and results of
operations.” Although Salarius might apply for government contracts and grants in the future, it cannot assure you that it will be successful in
obtaining additional grants for any product candidates or programs. Failure to receive additional government grants in the future may
substantially harm Salarius’ business.
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Risks Related to Regulatory Approval of Salarius’ Product Candidates and Other Legal Compliance Matters
Salarius may seek breakthrough therapy designation by the FDA for one or more of its product candidates, but it might not receive
such designation.
Salarius may seek a breakthrough therapy designation from the FDA for some of its product candidates that reach the regulatory review
process. A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other
drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biological product
may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. For drugs or biological products that have been designated as breakthrough
therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical
development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by
the FDA could also be eligible for accelerated approval.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if Salarius believes one of its product candidates
meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation.
A potential breakthrough therapy designation by the FDA for Salarius’ product candidates may not lead to a faster development or
regulatory review or approval process, and it does not increase the likelihood that Salarius’ product candidates will receive
marketing approval.
The receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval
compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In
addition, even if one or more of Salarius’ product candidates qualify and are designated as breakthrough therapies, the FDA may later decide
that the drugs or biological products no longer meet the conditions for designation and the designation may be rescinded.
Salarius received Fast Track designation for one or more of its product candidates, but such designation may not actually lead to a
faster development or regulatory review or approval process.
If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address
unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. Salarius recently received Fast Track
designation for a product candidate. However, Fast Track designation does not ensure that Salarius will receive marketing approval or that
approval will be granted within any particular time frame. Salarius may not experience a faster development or regulatory review or approval
process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if
it believes that the designation is no longer supported by data from Salarius’ clinical development program. Fast Track designation alone
does not guarantee qualification for the FDA’s priority review procedures.
Even if Salarius obtains regulatory approval for a product, Salarius will remain subject to ongoing regulatory requirements.
If any of Salarius’ product candidates are approved, Salarius will be subject to ongoing regulatory requirements with respect to
manufacturing, labeling, packaging, storage, marketing, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical
trials, and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United
States and requirements of comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority
requirements, including ensuring that quality control and manufacturing procedures conform to cGMP, regulations and corresponding foreign
regulatory manufacturing requirements. As such, Salarius and its contract manufacturers will be subject to continual review and inspections
to assess compliance with cGMP and adherence to commitments made in any NDA or marketing authorization application.
Any regulatory approvals that Salarius receives for its product candidates may be subject to limitations on the approved indicated uses for
which the product candidate may be marketed or to the conditions of approval, or
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contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and
efficacy of the product candidate. Salarius will be required to report adverse reactions and production problems, if any, to the FDA and
comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or
commercialization, or increased costs to assure compliance. If its original marketing approval for a product candidate was obtained through
an accelerated approval pathway, Salarius could be required to conduct a successful post-marketing clinical trial in order to confirm the
clinical benefit for its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of
marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the
regulatory agency may impose restrictions on that product or Salarius, including requiring withdrawal of the product from the market. If
Salarius fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
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issue warning letters;
impose civil or criminal penalties;
suspend or withdraw regulatory approval;
suspend any of Salarius’ ongoing clinical trials;
refuse to approve pending applications or supplements to approved applications submitted by Salarius;
impose restrictions on Salarius’ operations, including closing its contract manufacturers’ facilities; or
require a product recall.
Any government investigation of alleged violations of law would be expected to require Salarius to expend significant time and resources in
response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely
affect its ability to develop and commercialize its products and the value of Salarius and its operating results would be adversely affected.
Healthcare legislative reform measures may have a material adverse effect on Salarius’ business, financial condition or results of
operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs or otherwise change or
reform the provision of healthcare products and services to the patient population. For example, in March 2010, the Patient Protection and
Affordable Care Act (“ACA”), as amended by the Health Care and Education Reconciliation Act (the “Health Care Reform Law”), was passed,
which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S.
pharmaceutical industry. The Health Care Reform Law, among other things, addresses a new methodology by which rebates owed by
manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected,
increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program
to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded
prescription drugs, and promotes a new Medicare Part D coverage gap discount program.
In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted
and Salarius expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower
pricing for its product candidates, or additional pricing pressures.
Salarius may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health
information privacy and security laws. If Salarius is unable to comply, or has not fully complied, with such laws, it could face
substantial penalties.
If Salarius obtains FDA approval for any of its product candidates and begins commercializing those products in the United States, its
operations may be subject to various federal and state fraud and abuse laws, including, without
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limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may
impact, among other things, its proposed sales, marketing, and education programs. In addition, Salarius may be subject to patient privacy
regulation by both the federal government and the states in which Salarius conduct its business. The laws that may affect its ability to operate
include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service
reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that
are false or fraudulent;
• HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and
making false statements relating to healthcare matters;
• HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes
specified requirements relating to the privacy, security, and transmission of individually identifiable health information;
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the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices,
biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to
payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and
investment interests held by physicians and other healthcare providers and their immediate family members and applicable group
purchasing organizations; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payor, including governmental and private payors, to comply with the pharmaceutical
industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or
otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require
drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures, and state laws governing the privacy and security of health information in specified
circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating
compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of
Salarius’ business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation
has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal
anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific
intent to violate it. Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services
resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If Salarius’ operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to
Salarius, Salarius may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in
government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of its operations, any
of which could adversely affect its ability to operate Salarius’ business and its results of operations.
Reliance on government funding for Salarius’ programs may add uncertainty to its research and commercialization efforts with
respect to those programs that are tied to such funding and may impose requirements that limit its ability to take specified actions,
increase the costs of commercialization and production of product candidates developed under those programs and subject
Salarius to potential financial penalties, which could materially and adversely affect its business, financial condition and results of
operations.
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During the course of Salarius’ development of its product candidates, it has been funded in part through federal and state grants, including
but not limited to the funding it received from CPRIT. If CPRIT terminates the agreement prior to the expiration due to an event of default or if
Salarius terminates the agreement, CPRIT may require Salarius to repay some or all of the disbursed grant.
In addition to the funding Salarius has received to date, it intends to continue to apply for federal and state grants to receive additional
funding in the future. Contracts and grants funded by the U.S. government, state governments and their related agencies include provisions
that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including
powers of the government to:
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require repayment of all or a portion of the grant proceeds, in specified cases with interest, in the event Salarius violates specified
covenants pertaining to various matters that include a failure to achieve specified milestones or to comply with terms relating to use
of grant proceeds, or failure to comply with specified laws;
terminate agreements, in whole or in part, for any reason or no reason;
reduce or modify the government’s obligations under such agreements without the consent of the other party;
claim rights, including intellectual property rights, in products and data developed under such agreements;
audit contract related costs and fees, including allocated indirect costs;
suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or
regulations;
impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such
agreements;
impose qualifications for the engagement of manufacturers, suppliers and other contractors as well as other criteria for
reimbursements;
suspend or debar the contractor or grantee from doing future business with the government;
control and potentially prohibit the export of products;
pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to
government agreements; and
limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal year basis, thereby leaving some
uncertainty about the future availability of funding for a program even after it has been funded for an initial period.
In addition to those powers set forth above, the government funding Salarius may receive could also impose requirements to make payments
based upon sales of its products, if any, in the future.
Salarius may not have the right to prohibit the U.S. government from using specified technologies developed by it, and Salarius may not be
able to prohibit third-party companies, including its competitors, from using those technologies in providing products and services to the U.S.
government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed
under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property Salarius licenses
now or in the future.
In addition, government contracts and grants normally contain additional requirements that may increase Salarius’ costs of doing business,
reduce its profits, and expose it to liability for failure to comply with these terms and conditions. These requirements include, for example:
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specialized accounting systems unique to government contracts and grants;
• mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have
been spent;
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public disclosures of some contract and grant information, which may enable competitors to gain insights into Salarius’ research
program; and
• mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs
and environmental compliance requirements.
If Salarius fails to maintain compliance with any such requirements that may apply to it now or in the future, Salarius may be subject to
potential liability and to termination of Salarius’ contracts.
If Salarius fails to comply with environmental, health and safety laws and regulations, Salarius could become subject to fines or
penalties or incur costs and liabilities that could have a material adverse effect on its business, financial condition or results of
operations.
Salarius’ research and development activities and its third-party manufacturers’ and suppliers’ activities involve the controlled storage, use,
and disposal of hazardous materials, including the components of its product candidates and other hazardous compounds. Salarius and its
manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these
hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at Salarius’ and its
manufacturers’ facilities pending their use and disposal. Salarius cannot eliminate the risk of contamination, which could cause an
interruption of its commercialization efforts, research and development efforts and business operations, environmental damage resulting in
costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials
and specified waste products. Although Salarius believes that the safety procedures utilized by it and its third-party manufacturers for
handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, Salarius cannot
guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, Salarius may
be held liable for any resulting damages and such liability could exceed its resources and state or federal or other applicable authorities may
curtail Salarius’ use of specified materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are
complex, change frequently, and have tended to become more stringent. Salarius cannot predict the impact of such changes and cannot be
certain of its future compliance. Salarius does not currently carry biological or hazardous waste insurance coverage.
Risks Related to Salarius’ Intellectual Property
Salarius may not be successful in obtaining or maintaining necessary rights to its targets, product compounds and processes for
its development pipeline through acquisitions and in-licenses.
Presently, Salarius has rights to the intellectual property, through licenses from third parties and under patents and patent applications that
Salarius owns, to modulate only a subset of the known epigenetic enzyme targets. Because Salarius’ programs may involve a range of
targets, including targets that require the use of proprietary rights held by third parties, the growth of its business may depend in part on
Salarius’ ability to acquire, in-license or use these proprietary rights. In addition, Salarius’ product candidates may require specific
formulations to work effectively and efficiently and these rights may be held by others. Salarius may be unable to acquire or in-license any
compositions, methods of use, processes or other third-party intellectual property rights from third parties that it identifies. The licensing and
acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing
strategies to license or acquire third-party intellectual property rights that Salarius may consider attractive. These established companies may
have a competitive advantage over Salarius due to their size, cash resources and greater clinical development and commercialization
capabilities.
For example, Salarius has previously and may continue to collaborate with academic institutions worldwide to accelerate its pre-clinical and
clinical research or development under written agreements with these institutions. Typically, these institutions provide an option to negotiate a
license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation for
intellectual property, Salarius may be unable to negotiate a license within the specified time frame or under terms that are acceptable to it. If
Salarius is unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking Salarius’ ability to
pursue its program.
In addition, companies that perceive Salarius to be a competitor may be unwilling to assign or license rights to it. Salarius also may be unable
to license or acquire third-party intellectual property rights on terms that would allow it
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to make an appropriate return on its investment. If Salarius is unable to successfully obtain rights to third-party intellectual property rights, its
business, financial condition and prospects for growth could suffer.
Salarius intends to rely on patent rights for its product candidates and any future product candidates. If Salarius is unable to
obtain or maintain exclusivity from the combination of these approaches, Salarius may not be able to compete effectively in its
markets.
Salarius relies or will rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual
property related to its technologies and product candidates. Its success depends in large part on its and its licensors’ ability to obtain
regulatory exclusivity and maintain patent and other intellectual property protection in the United States and in other countries with respect to
its proprietary technology and products.
Salarius has sought to protect its proprietary position by filing patent applications in the United States and abroad related to its product
candidates that are important to its business. This process is expensive and time consuming, and Salarius may not be able to file and
prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Salarius will fail to
identify patentable aspects of its research and development output before it is too late to obtain patent protection.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual
questions for which legal principles remain unsolved. The patent applications that Salarius owns or in-licenses may fail to result in issued
patents with claims that cover its product candidates in the United States or in other foreign countries. There is no assurance that all
potentially relevant prior art relating to its patents and patent applications has been found, which can invalidate a patent or prevent a patent
from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover Salarius’ product
candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found
unenforceable or invalidated. Furthermore, even if they are unchallenged, Salarius’ patents and patent applications may not adequately
protect its intellectual property, provide exclusivity for its product candidates, or prevent others from designing around Salarius claims. Any of
these outcomes could impair Salarius’ ability to prevent competition from third parties, which may have an adverse impact on its business.
Salarius, independently or together with its licensors, has filed several patent applications covering various aspects of its product candidates.
Salarius cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will
be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents
owned by or licensed to Salarius after patent issuance could deprive Salarius of rights necessary for the successful commercialization of any
product candidates that Salarius may develop. Further, if Salarius encounters delays in regulatory approvals, the period of time during which
Salarius could market a product candidate under patent protection could be reduced.
If Salarius cannot obtain and maintain effective protection of exclusivity from its regulatory efforts and intellectual property rights, including
patent protection or data exclusivity, for its product candidates, Salarius may not be able to compete effectively and its business and results
of operations would be harmed.
Salarius may not have sufficient patent term protections for its product candidates to effectively protect its business.
Patents have a limited term. In the United States, the statutory expiration of a patent is generally 20 years after it is filed. Although various
extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering its product candidates are
obtained, once the patent life has expired for a product candidate, Salarius may be open to competition from generic medications. In
addition, upon issuance in the United States any patent term can be adjusted based on specified delays caused by the applicant(s) or the
U.S. Patent and Trademark Office (“USPTO”).
Patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be
available to extend the patent or data exclusivity terms of Salarius’ product candidates. Salarius will likely rely on patent term extensions, and
Salarius cannot provide any assurances that any such patent term extensions will be obtained and, if so, for how long. As a result, Salarius
may not be able to maintain exclusivity for its product candidates for an extended period after regulatory approval, if any, which would
negatively impact its business, financial condition, results of operations and prospects. If Salarius does not have
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sufficient patent terms or regulatory exclusivity to protect its product candidates, its business and results of operations will be adversely
affected.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Salarius’ ability to protect its
products, and recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of its patent
applications and the enforcement or defense of its issued patents.
As is the case with other biotechnology companies, Salarius’ success is heavily dependent on patents and the ability to enforce and protect
these patients. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore
costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-
ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in specified
circumstances and weakened the rights of patent owners in specified situations. In addition to increasing uncertainty with regard to Salarius’
ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.
Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change
in unpredictable ways that would weaken Salarius’ ability to obtain new patents or to enforce Salarius’ existing patents and patents that it
might obtain in the future. Some of Salarius’ patent claims may be affected by the recent U.S. Supreme Court decision in Association for
Molecular Pathology v. Myriad Genetics. In Myriad, the Supreme Court held that unmodified isolated fragments of genomic sequences, such
as the DNA constituting the BRCA1 and BRCA2 genes, are not eligible for patent protection because they constitute a product of nature. The
exact boundaries of the Supreme Court’s decision remain unclear as the Supreme Court did not address other types of nucleic acids.
On December 16, 2014, the USPTO issued guidance to patent examiners titled 2014 Interim Guidance on Patent Subject Matter Eligibility
(Fed. Reg. 79 (241): 74618-33. These guidelines instruct USPTO examiners on the ramifications of the Prometheus and Myriad rulings and
apply the Myriad ruling to natural products and principles including all naturally occurring nucleic acids. In addition, the USPTO continues to
provide updates to its guidance and this is a developing area. The recent USPTO guidance could make it impossible for Salarius to pursue
similar patent claims in patent applications Salarius may prosecute in the future.
Salarius’ patent portfolio contains claims of various types and scope, including chemically modified mimics, as well as methods of medical
treatment. The presence of varying claims in Salarius’ patent portfolio significantly reduces, but may not eliminate, its exposure to potential
validity challenges under Myriad or future judicial decisions. However, it is not yet clear what, if any, impact this recent Supreme Court
decision or future decisions will have on the operation of Salarius’ business.
For Salarius’ U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in
the patent law. On September 16, 2011, the Leahy-Smith America Invents Act (the “Leahy-Smith Act”) was signed into law. The Leahy-Smith
Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be
prosecuted and may also affect patent litigation. The USPTO has promulgated regulations and developed procedures to govern
administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in
particular, the first to file provisions, did not come into effect until March 16, 2013. Accordingly, it is not yet clear what, if any, impact the
Leahy-Smith Act will have on the operation of Salarius’ business. However, the Leahy-Smith Act and its implementation could increase the
uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents, all of
which could have a material adverse effect on Salarius’ business, financial condition or results of operations.
An important change introduced by the Leahy-Smith Act is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system
for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same
invention. A third party that files a patent application in the USPTO after that date but before Salarius could therefore be awarded a patent
covering an invention of Salarius’ even if Salarius had made the invention before it was made by the third party. This will require Salarius to
be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Salarius’ ability to obtain and maintain
valid and enforceable patents depends on whether the differences between its technology and the prior art allow its technology to be
patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after
filing, Salarius cannot be certain that it was the first to either
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(i) file any patent application related to its product candidates or (ii) invent any of the inventions claimed in its patents or patent applications.
Among some of the other changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement
suit and new procedures providing opportunities for third parties to challenge any issued patent in the USPTO. Included in these new
procedures is a process known as Inter Partes Review (“IPR”), which has been generally used by many third parties over the past two years
to invalidate patents. The IPR process is not limited to patents filed after the Leahy-Smith Act was enacted, and would therefore be available
to a third party seeking to invalidate any of Salarius’ U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary
standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third
party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same
evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use
the USPTO procedures to invalidate Salarius’ patent claims that would not have been invalidated if first challenged by the third party as a
defendant in a district court action.
If Salarius is unable to maintain effective proprietary rights for its product candidates or any future product candidates, Salarius
may not be able to compete effectively in its proposed markets.
In addition to the protection afforded by patents, Salarius relies on trade secret protection and confidentiality agreements to protect
proprietary know-how that is not patentable or that Salarius elects not to patent, processes for which patents are difficult to enforce and any
other elements of its product candidate discovery and development processes that involve proprietary know-how, information or technology
that is not covered by patents. However, trade secrets can be difficult to protect. Salarius seeks to protect its proprietary technology and
processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors, and contractors. Salarius
also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and
physical and electronic security of its information technology systems. While Salarius has confidence in these individuals, organizations and
systems, agreements or security measures may be breached, and Salarius may not have adequate remedies for any breach. In addition, its
trade secrets may otherwise become known or be independently discovered by competitors.
Although Salarius expects all of its employees and consultants to assign their inventions to Salarius, and all of its employees, consultants,
advisors, and any third parties who have access to its proprietary know- how, information, or technology to enter into confidentiality
agreements, Salarius cannot provide any assurances that all such agreements have been duly executed or that its trade secrets and other
confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to its trade secrets or
independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of Salarius’ trade
secrets could impair its competitive position and may have a material adverse effect on its business, financial condition or results of
operations. Additionally, if the steps taken to maintain its trade secrets are deemed inadequate, Salarius may have insufficient recourse
against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay Salarius’ development and commercialization efforts.
Salarius’ commercial success depends in part on its ability to develop, manufacture, market and sell its product candidates and use its
proprietary technology without infringing the patent rights of third parties.
Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the area of epigenetic enzyme inhibitors and
related technologies. Salarius is aware of U.S. and foreign patents and pending patent applications owned by third parties that cover
therapeutic uses of epigenetic inhibitors. Salarius is currently monitoring these patents and patent applications. Salarius may in the future
pursue available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In
addition, or alternatively, Salarius may consider whether to seek to negotiate a license of rights to technology covered by one or more of such
patents and patent applications. If any patents or patent applications cover its product candidates or technologies, Salarius may not be free
to manufacture or market its product candidates, as planned, absent such a license, which may not be available to Salarius on commercially
reasonable terms, or at all.
It is also possible that Salarius has failed to identify relevant third-party patents or applications. For example, applications filed before
November 29, 2000 and applications filed after that date that will not be filed outside the
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United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including Salarius, to identify all third-
party patent rights that may be relevant to its product candidates and technologies because patent searching is imperfect due to differences
in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Salarius may fail to identify
relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood
that such patent applications may issue with claims of relevance to its technology. In addition, Salarius may be unaware of one or more
issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or Salarius may incorrectly
conclude that a third-party patent is invalid, unenforceable or not infringed by its activities. Additionally, pending patent applications that have
been published can, subject to specified limitations, be later amended in a manner that could cover Salarius’ technologies, its product
candidates or the use of its product candidates.
There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexamination proceedings before the
USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which Salarius is developing product candidates. As the biotechnology and pharmaceutical
industries expand and more patents are issued, the risk increases that its product candidates may be subject to claims of infringement of the
patent rights of third parties.
Parties making claims against Salarius may obtain injunctive or other equitable relief, which could effectively block its ability to further
develop and commercialize one or more of its product candidates. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of employee resources from its business. In the event of a successful
claim of infringement against Salarius, Salarius may have to pay substantial damages, including treble damages and attorneys’ fees for willful
infringement, pay royalties, redesign its infringing products or obtain one or more licenses from third parties, which may be impossible or
require substantial time and monetary expenditure.
Salarius may not be successful in meeting its obligations under its existing license agreements necessary to maintain its product
candidate licenses in effect. In addition, if required in order to commercialize its product candidates, Salarius may be unsuccessful
in obtaining or maintaining necessary rights to its product candidates through acquisitions and in-licenses.
Salarius currently has rights to the intellectual property, through licenses from third parties and under patents that Salarius does not own, to
develop and commercialize its product candidates. Because its programs may require the use of proprietary rights held by third parties, the
growth of its business will likely depend in part on its ability to maintain in effect these proprietary rights. Any termination of license
agreements with third parties with respect to its product candidates would be expected to negatively impact its business prospects.
Salarius may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights
from third parties that Salarius identifies as necessary for its product candidates.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are
also pursuing strategies to license or acquire third-party intellectual property rights that Salarius may consider attractive. These established
companies may have a competitive advantage over Salarius due to their size, cash resources, and greater clinical development and
commercialization capabilities. In addition, companies that perceive Salarius to be a competitor may be unwilling to assign or license rights to
Salarius. Even if Salarius is able to license or acquire third-party intellectual property rights that are necessary for its product candidates,
there can be no assurance that they will be available on favorable terms.
Salarius collaborates with academic institutions worldwide to identify product candidates, accelerate its research and conduct development.
Typically, these institutions have provided Salarius with an option to negotiate an exclusive license to any of the institution’s rights in the
patents or other intellectual property resulting from the collaboration. Regardless of such option, Salarius may be unable to negotiate a
license within the specified timeframe or under terms that are acceptable to Salarius. If Salarius is unable to do so, the institution may offer
the intellectual property rights to other parties, potentially blocking its ability to pursue a program of interest to Salarius.
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If Salarius is unable to successfully obtain and maintain rights to required third-party intellectual property, Salarius may have to abandon
development of that product candidate or pay additional amounts to the third-party, and its business and financial condition could suffer.
The patent protection and patent prosecution for some of Salarius’ product candidates is dependent on third parties.
While Salarius normally seeks and gains the right to fully prosecute the patents relating to its product candidates, there may be times when
patents relating to its product candidates are controlled by its licensors. If future licensors fail to appropriately and broadly prosecute and
maintain patent protection for patents covering any of its product candidates, its ability to develop and commercialize those product
candidates may be adversely affected and Salarius may not be able to prevent competitors from making, using, importing, and selling
competing products. In addition, even where Salarius now has the right to control patent prosecution of patents and patent applications
Salarius has licensed from third parties, Salarius may still be adversely affected or prejudiced by actions or inactions of its licensors in effect
from actions prior to Salarius assuming control over patent prosecution.
If Salarius fails to comply with obligations in the agreements under which Salarius licenses intellectual property and other rights
from third parties or otherwise experience disruptions to its business relationships with its licensors, Salarius could lose license
rights that are important to its business.
Salarius is a party to intellectual property licenses and supply agreements that are important to its business and may enter into additional
license agreements in the future. Salarius’ existing agreements impose, and Salarius expects that future license agreements will impose,
various diligence, milestone payment, royalty, purchasing, and other obligations on it. If Salarius fails to comply with its obligations under
these agreements, or Salarius is subject to a bankruptcy, its agreements may be subject to termination by the licensor, in which event
Salarius would not be able to develop, manufacture, or market products covered by the license or subject to supply commitments.
Salarius may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time
consuming, and unsuccessful.
Competitors may infringe Salarius’ patents or the patents of its licensors. If Salarius or one of its licensing partners were to initiate legal
proceedings against a third party to enforce a patent covering one of its product candidates, the defendant could counterclaim that the patent
covering its product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging
invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several
statutory requirements, including lack of novelty, obviousness, written description, clarity or non- enablement. Grounds for an unenforceability
assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or
made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Interference proceedings provoked by third parties or brought by Salarius or declared by the USPTO may be necessary to determine the
priority of inventions with respect to Salarius’ patents or patent applications or those of its licensors. An unfavorable outcome could require
Salarius to cease using the related technology or to attempt to license rights to it from the prevailing party. Salarius’ business could be
harmed if the prevailing party does not offer Salarius a license on commercially reasonable terms. Its defense of litigation or interference
proceedings may fail and, even if successful, may result in substantial costs and distract its management and other employees. In addition,
the uncertainties associated with litigation could have a material adverse effect on its ability to raise the funds necessary to continue its
clinical trials, continue its research programs, license necessary technology from third parties, or enter into development partnerships that
would help Salarius bring its product candidates to market.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of Salarius’ confidential information could be compromised by disclosure during this type of litigation. There could also be public
announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a material adverse effect on the price of its common stock.
Salarius may be subject to claims that its employees, consultants, or independent contractors have wrongfully used or disclosed
confidential information of third parties or that its employees have wrongfully used or disclosed alleged trade secrets of their
former employers.
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Salarius employs individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including
Salarius’ competitors or potential competitors. Although Salarius has written agreements and makes every effort to ensure that its
employees, consultants, and independent contractors do not use the proprietary information or intellectual property rights of others in their
work for Salarius, Salarius may in the future be subject to any claims that its employees, consultants, or independent contractors have
wrongfully used or disclosed confidential information of third parties. Litigation may be necessary to defend against these claims. If Salarius
fails in defending any such claims, in addition to paying monetary damages, Salarius may lose valuable intellectual property rights or
personnel, which could adversely impact its business. Even if Salarius is successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management and other employees.
Salarius may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and
its intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition,
the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States.
Competitors may use Salarius’ technologies in jurisdictions where Salarius has not obtained patent protection to develop its own products
and may also export infringing products to territories where Salarius has patent protection, but enforcement is not as strong as that in the
United States. These products may compete with its products and its patents or other intellectual property rights may not be effective or
sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The
legal systems of some countries, particularly some developing countries, do not favor the enforcement of patents, trade secrets, and other
intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for Salarius to stop the
infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce Salarius’
patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert Salarius’ efforts and attention from
other aspects of its business, could put Salarius’ patents at risk of being invalidated or interpreted narrowly and its patent applications at risk
of not issuing and could provoke third parties to assert claims against Salarius. Salarius may not prevail in any lawsuits that Salarius initiates
and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, its efforts to enforce its intellectual
property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Salarius
develops or licenses.
Risks Related to Salarius’ Reliance on Third Parties
Salarius relies on or will rely on third parties to conduct its clinical trials, manufacture its product candidates and perform other
services. If these third parties do not successfully perform and comply with regulatory requirements, Salarius may not be able to
successfully complete clinical development, obtain regulatory approval or commercialize its product candidates and its business
could be substantially harmed.
Salarius has relied upon and plans to continue to rely upon third-parties such as CROs, hospitals, etc. to conduct, monitor and manage its
ongoing clinical programs. Salarius relies on these parties for execution of clinical trials and manages and controls only some aspects of their
activities. Salarius remains responsible for ensuring that each of its trials is conducted in accordance with the applicable protocol, legal,
regulatory, and scientific standards and its reliance on these third parties does not relieve Salarius of its regulatory responsibilities. Salarius
and its CROs and other vendors are required to comply with all applicable laws, regulations and guidelines, including those required by the
FDA and comparable foreign regulatory authorities for all of its product candidates in clinical development. If Salarius or any of its CROs or
vendors fail to comply with applicable laws, regulations and guidelines, the results generated in its clinical trials may be deemed unreliable
and the FDA or comparable foreign regulatory authorities may require Salarius to perform additional clinical trials before approving its
marketing applications. Salarius cannot be assured that its CROs and other vendors will meet these requirements, or that upon inspection by
any regulatory authority, such regulatory authority will determine that efforts, including any of its clinical trials, comply with applicable
requirements. Its failure to comply with these laws, regulations and guidelines may require Salarius to repeat clinical trials, which would be
costly and delay the regulatory approval process.
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If any of Salarius’ relationships with these third-parties terminate, Salarius may not be able to enter into arrangements with alternative third
parties in a timely manner or do so on commercially reasonable terms. In addition, third parties may not prioritize Salarius’ clinical trials
relative to those of other customers and any turnover in personnel or delays in the allocation of third party employees may negatively affect
its clinical trials. If third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, Salarius’
clinical trials may be delayed or terminated and Salarius may not be able to meet its current plans with respect to its product candidates.
CROs, in particular, may also involve higher costs than anticipated, which could negatively affect Salarius’ financial condition and operations.
In addition, Salarius does not currently have, nor does Salarius currently plan to establish the capability to manufacture product candidates
for use in the conduct of its clinical trials, and Salarius lacks the resources and the capability to manufacture any of its product candidates on
a clinical or commercial scale without the use of third-party manufacturers. Salarius plans to rely on third-party manufacturers and their
responsibilities will include purchasing from third-party suppliers the materials necessary to produce its product candidates for its clinical trials
and regulatory approval. There are expected to be a limited number of suppliers for the active ingredients and other materials that Salarius
expects to use to manufacture its product candidates, and Salarius may not be able to identify alternative suppliers to prevent a possible
disruption of the manufacture of its product candidates for its clinical trials, and, if approved, ultimately for commercial sale. Although Salarius
generally does not expect to begin a clinical trial unless Salarius believes it has a sufficient supply of a product candidate to complete the
trial, any significant delay or discontinuity in the supply of a product candidate, or the active ingredient or other material components in the
manufacture of the product candidate could delay completion of its clinical trials and potential timing for regulatory approval of its product
candidates, which would harm its business and results of operations.
Salarius expects to rely on third parties to manufacture its clinical product supplies, and Salarius intends to rely on third parties to
produce and process its product candidates, if approved, and Salarius’ commercialization of any of its product candidates could
be stopped, delayed or made less profitable if those third parties fail to obtain approval of government regulators, fail to provide
Salarius with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
Salarius does not currently have nor does it currently plan to develop the infrastructure or capability internally to manufacture its clinical
supplies for use in the conduct of Salarius’ clinical trials, and Salarius lacks the resources and the capability to manufacture any of its product
candidates on a clinical or commercial scale. Salarius currently relies on outside vendors to manufacture its clinical supplies of its product
candidates and plans to continue relying on third parties to manufacture its product candidates on a commercial scale, if approved.
Salarius does not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of its product candidates and
its current costs to manufacture its drug products is not commercially feasible, and the actual cost to manufacture its product candidates
could materially and adversely affect the commercial viability of its product candidates. As a result, Salarius may never be able to develop a
commercially viable product.
In addition, Salarius’ reliance on third-party manufacturers exposes Salarius to the following additional risks:
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•
•
•
Salarius may be unable to identify manufacturers on acceptable terms or at all;
Salarius’ third-party manufacturers might be unable to timely formulate and manufacture Salarius’ product or produce the quantity
and quality required to meet Salarius’ clinical and commercial needs, if any;
contract manufacturers may not be able to execute Salarius’ manufacturing procedures appropriately;
Salarius’ future third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for
the time required to supply its clinical trials or to successfully produce, store and distribute its products;
• manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict
compliance with cGMPs and other government regulations and corresponding foreign standards. Salarius does not have control over
third-party manufacturers’ compliance with these regulations and standards;
•
Salarius may not own, or may have to share, the intellectual property rights to any improvements made by Salarius’ third-party
manufacturers in the manufacturing process for its product candidates; and
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•
Salarius’ third-party manufacturers could breach or terminate their agreement with Salarius.
Each of these risks could delay Salarius’ clinical trials, the approval, if any of its product candidates by the FDA or the commercialization of
its product candidates or result in higher costs or deprive Salarius of potential product revenue. In addition, Salarius relies on third parties to
perform release testing on its product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are
not reliable, patients could be put at risk of serious harm and could result in product liability suits.
The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of
advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production,
particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production
costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel,
as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in Salarius’
supply of its product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period
of time to investigate and remedy the contamination. Salarius cannot be assured that any stability or other issues relating to the manufacture
of its product candidates will not occur in the future. Additionally, Salarius’ manufacturers may experience manufacturing difficulties due to
resource constraints or as a result of labor disputes or unstable political environments. If Salarius’ manufacturers were to encounter any of
these difficulties, or otherwise fail to comply with their contractual obligations, Salarius’ ability to provide its product candidates to patients in
clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials,
increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Salarius to commence
new clinical trials at additional expense or terminate clinical trials completely.
Salarius may be unable to realize the potential benefits of any current or future collaboration.
Salarius has entered into strategic collaborations and license agreements with the University of Utah, HLBLS, and CPRIT. While Salarius
may seek to enter into future collaborations for the development and commercialization of its product candidates, there can be no assurance
that it will be able to do so. Even if Salarius is successful in entering into a collaboration with respect to the development and/or
commercialization of one or more product candidates, there is no guarantee that the collaboration will be successful and Salarius may be
unable to realize in full or in part the potential benefits of any of its current collaborations.
Collaborations may pose a number of risks, including:
•
•
•
•
•
•
•
collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and
may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject
to the collaboration;
collaborators may not perform their obligations as expected;
any such collaboration may significantly limit Salarius’ share of potential future profits from the associated program, and may require
it to relinquish potentially valuable rights to its current product candidates, potential products or proprietary technologies or grant
licenses on terms that are not favorable to Salarius;
collaborators may cease to devote resources to the development or commercialization of Salarius’ product candidates if the
collaborators view its product candidates as competitive with their own products or product candidates;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of
development, might cause delays or termination of the development or commercialization of product candidates, and might result in
legal proceedings, which would be time consuming, distracting and expensive;
collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them,
which could cause them to divert resources away from the collaboration;
collaborators may infringe the intellectual property rights of third parties, which may expose Salarius to litigation and potential liability;
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•
•
the collaborations may not result in Salarius achieving revenues to justify such transactions; and
collaborations may be terminated and, if terminated, may result in a need for Salarius to raise additional capital to pursue further
development or commercialization of the applicable product candidate.
As a result, a collaboration may not result in the successful development or commercialization of Salarius’ product candidates.
Salarius enters into various contracts in the normal course of its business in which Salarius indemnifies the other party to the
contract. In the event Salarius has to perform under these indemnification provisions, it could have a material adverse effect on its
business, financial condition and results of operations.
In the normal course of business, Salarius periodically enters into academic, commercial, service, collaboration, licensing, consulting and
other agreements that contain indemnification provisions. With respect to Salarius’ academic and other research agreements, Salarius
typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made,
used, sold or performed pursuant to the agreements for which Salarius has secured licenses, and from claims arising from Salarius’ or its
sublicensees’ exercise of rights under the agreement. With respect to Salarius’ collaboration agreements, Salarius indemnifies its
collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as
for alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, Salarius indemnifies
them from claims arising from the good faith performance of their services.
Should Salarius’ obligation under an indemnification provision exceed applicable insurance coverage or if Salarius were denied insurance
coverage, Salarius’ business, financial condition and results of operations could be adversely affected. Similarly, if Salarius is relying on a
collaborator to indemnify Salarius and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable
insurance coverage, and if the collaborator does not have other assets available to indemnify Salarius, its business, financial condition and
results of operations could be adversely affected.
Risks Related to Commercialization of Salarius’ Product Candidates
Salarius currently has very limited marketing and sales experience. If Salarius is unable to establish sales and marketing
capabilities or enter into agreements with third parties to market and sell its product candidates, Salarius may be unable to
generate any revenue.
Although some of its employees may have marketed, launched, and sold other pharmaceutical products in the past while employed at other
companies, Salarius has no experience selling and marketing its product candidates and Salarius currently has no marketing or sales
organization. To successfully commercialize any products that may result from its development programs, Salarius will need to find one or
more collaborators to commercialize its products or invest in and develop these capabilities, either on its own or with others, which would be
expensive, difficult and time consuming. Any failure or delay in the timely development of Salarius’ internal commercialization capabilities
could adversely impact the potential for success of its products.
If commercialization collaborators do not commit sufficient resources to commercialize its future products and Salarius is unable to develop
the necessary marketing and sales capabilities on its own, Salarius will be unable to generate sufficient product revenue to sustain or grow
its business. Salarius may be competing with companies that currently have extensive and well-funded marketing and sales operations,
particularly in the markets its product candidates are intended to address. Without appropriate capabilities, whether directly or through third-
party collaborators, Salarius may be unable to compete successfully against these more established companies.
Salarius may attempt to form collaborations in the future with respect to its product candidates, but it may not be able to do so,
which may cause it to alter its development and commercialization plans.
Salarius may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect
to its programs that it believes will complement or augment its existing business. Salarius may face significant competition in seeking
appropriate strategic collaborators, and the negotiation process to secure appropriate terms is time consuming and complex. Salarius may
not be successful in its efforts to establish such a strategic collaboration for any product candidates and programs on terms that are
acceptable to it, or at all.
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This may be because Salarius’ product candidates and programs may be deemed to be at too early of a stage of development for
collaborative effort, its research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape
may be viewed as too intense or risky, and/or third parties may not view its product candidates and programs as having sufficient potential for
commercialization, including the likelihood of an adequate safety and efficacy profile.
Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize Salarius’ product candidates
could delay the development or commercialization of its product candidates, which may reduce their competitiveness even if they reach the
market. Absent a strategic collaborator, Salarius would need to undertake development and/or commercialization activities at its own
expense. If Salarius elects to fund and undertake development and/or commercialization activities on its own, it may need to obtain additional
expertise and additional capital, which may not be available to it on acceptable terms or at all. If Salarius is unable to do so, it may not be
able to develop its product candidates or bring them to market and its business may be materially and adversely affected.
If the market opportunities for its product candidates are smaller than Salarius believes they are, Salarius may not meet its future
revenue expectations and, assuming approval of a product candidate, its business may suffer.
Given the small number of patients who have the diseases that Salarius is targeting, its eligible patient population and pricing estimates may
differ significantly from the actual market addressable by its product candidates. For example, based off data from the National Institute of
Health (NIH) and physician collaborators, Salarius believes that there are approximately 500 Ewing sarcoma patients diagnosed annually in
the United States. Because the patient populations in the market for its product candidates may be small, Salarius must be able to
successfully identify patients and acquire a significant market share to achieve profitability and growth, which would negatively affect its
revenue and operating results.
Salarius faces substantial competition and its competitors may discover, develop or commercialize products faster or more
successfully than Salarius.
The development and commercialization of new drug products is highly competitive. Salarius faces competition from major pharmaceutical
companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with
respect to oncology therapies and the other product candidates that it may seek to develop or commercialize in the future. The list of
companies working on some form of cancer treatment is almost limitless with big and small companies working on every aspect of oncology
therapies worldwide.
If Salarius’ competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates
more rapidly than Salarius, it could result in its competitors establishing a strong market position before Salarius is able to enter the market.
Many of Salarius’ competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug
development resources than it does. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in
even more resources being concentrated in its competitors. Large pharmaceutical companies in particular have extensive expertise in pre-
clinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other
public and private organizations conducting research may seek patent protection with respect to potentially competitive products or
technologies. These organizations may also establish exclusive collaborative or licensing relationships with Salarius’ competitors. Failure of
Seclidemstat or other product candidates to effectively compete against established treatment options or in the future with new products
currently in development would harm Salarius’ business, financial condition, results of operations and prospects.
The commercial success of any of Salarius’ current or future product candidates will depend upon the degree of market
acceptance by physicians, patients, third-party payors, and others in the medical community.
Even if Salarius obtains the necessary approvals from the FDA and comparable foreign regulatory authorities, the commercial success of
Salarius’ products will depend in part on the health care providers, patients, and third-party payors accepting its product candidates as
medically useful, cost-effective, and safe. Any product that Salarius
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brings to the market may not gain market acceptance by physicians, patients and third-party payors. The degree of market acceptance of any
of Salarius’ products will depend on a number of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;
the prevalence and severity of the disease and any side effects;
the clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved labeling;
the convenience and ease of administration;
the cost of treatment;
the willingness of the patients and physicians to accept these therapies;
the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend these
therapies to patients based on such risks and benefits;
the marketing, sales and distribution support for the product;
the publicity concerning its products or competing products and treatments; and
the pricing and availability of third-party insurance coverage and reimbursement.
Even if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product remains uncertain. Efforts
to educate the medical community and third-party payors on the benefits of the products may require significant investment and resources
and may never be successful. If its products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors, and
other health care providers, Salarius will not be able to generate sufficient revenue to become or remain profitable.
Salarius may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product
candidates.
Although a substantial amount of Salarius’ effort will focus on the continued clinical testing, potential approval, and commercialization of its
existing product candidates, the success of Salarius’ business is also expected to depend in part upon its ability to identify, license, discover,
develop, or commercialize additional product candidates.
Research programs to identify new product candidates require substantial technical, financial, and human resources. Salarius may focus its
efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Salarius’ research programs or
licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons,
including but not limited to the following:
•
•
•
•
•
•
•
Salarius’ research or business development methodology or search criteria and process may be unsuccessful in identifying potential
product candidates;
Salarius may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
its product candidates may not succeed in pre-clinical or clinical testing;
its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the
products unmarketable or unlikely to receive marketing approval;
competitors may develop alternatives that render Salarius’ product candidates obsolete or less attractive;
product candidates Salarius develops may be covered by third parties’ patents or other exclusive rights;
the market for a product candidate may change during Salarius’ program so that such a product may become unreasonable to
continue to develop;
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•
•
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.
If any of these events occur, Salarius may be forced to abandon its development efforts for a program or programs, or Salarius may not be
able to identify, license, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on its
business, financial condition or results of operations and could potentially cause Salarius to cease operations.
Failure to obtain or maintain adequate reimbursement or insurance coverage for products when approved to market, if any, could
limit Salarius’ ability to market those products and decrease its ability to generate revenue.
The pricing, coverage, and reimbursement of Salarius’ approved products, if any, must be sufficient to support its commercial efforts and
other development programs and the availability and adequacy of coverage and reimbursement by third-party payors, including
governmental and private insurers, are essential for most patients to be able to afford expensive treatments. Sales of Salarius’ approved
products, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of its approved products, if any, will
be paid for or reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or
government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, Salarius
may have to subsidize or provide products for free or Salarius may not be able to successfully commercialize its products.
In addition, there is significant uncertainty related to the insurance coverage and reimbursement for newly approved products. In the United
States, the principal decisions about coverage and reimbursement for new drugs are typically made by Centers for Medicare and Medicaid
Services, (“CMS”), an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new
drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS
to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates such as
Salarius’ and what reimbursement codes its product candidates may receive if approved.
Outside the United States, international operations are generally subject to extensive governmental price controls and other price-restrictive
regulations, and Salarius believes the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and
will continue to put pressure on the pricing and usage of products. In many countries, the prices of products are subject to varying price
control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that
Salarius is able to charge for its products, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient
to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may
result in restrictions on coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate
payment for its products. Salarius expects to experience pricing pressures in connection with products due to the increasing trend toward
managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The
downward pressure on healthcare costs in general, particularly prescription drugs has and is expected to continue to increase in the future.
As a result, profitability of Salarius’ products, if any, may be more difficult to achieve even if they receive regulatory approval.
Risks Related to Salarius’ Business Operations
Salarius’ future success depends in part on its ability to retain its president and chief executive officer and to attract, retain, and
motivate other qualified personnel.
Salarius is a small company with a limited number of employees performing multiple tasks each. Salarius is highly dependent on David J.
Arthur, its president and chief executive officer, the loss of whose services may adversely impact the achievement of its objectives. Although
Mr. Arthur’s employment agreement contains a non-compete provision for a period of one year following the termination of his employment
agreement, he could leave Salarius’
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employment at any time, as he is an “at will” employee. Recruiting and retaining other qualified employees, consultants, and advisors for
Salarius’ business, including scientific and technical personnel, will also be critical to Salarius success. There is currently a shortage of highly
qualified personnel in Salarius’ industry, which is likely to continue. Additionally, this shortage of highly qualified personnel is particularly
acute in the area where Salarius is located. As a result, competition for personnel is intense and the turnover rate can be high. Salarius may
not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology
companies for individuals with similar skill sets. In addition, failure to succeed in development and commercialization of Salarius’ product
candidates may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or
the loss of the services of Mr. Arthur may impede the progress of Salarius’ research, development, and commercialization objectives and
would negatively impact Salarius’ ability to succeed in its product development strategy.
Salarius will need to expand its organization and Salarius may experience difficulties in managing this growth, which could disrupt
its operations.
As of December 31, 2020, Salarius had 7 full-time employees and 2 part-time employees. As Salarius’ development and commercialization
plans and strategies develop, Salarius expects to need additional managerial, operational, sales, marketing, financial, legal, and other
resources. Its management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a
substantial amount of time to managing these growth activities. Salarius may not be able to effectively manage the expansion of its
operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees, and
reduced productivity among remaining employees. Salarius’ expected growth could require significant capital expenditures and may divert
financial resources from other projects, such as the development of additional product candidates. If its management is unable to effectively
manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenue could be reduced and
Salarius may not be able to implement its business strategy. Salarius’ future financial performance and its ability to commercialize product
candidates and compete effectively will depend, in part, on its ability to effectively manage any future growth.
Risks Related to Our Common Stock
The terms of the warrants could impede our ability to enter into certain transactions or obtain additional financing.
The terms of the warrants require us, upon the consummation of any “fundamental transaction” (as defined in the securities), to, among other
obligations, cause any successor entity resulting from the fundamental transaction to assume all of our obligations under the warrants and
the associated transaction documents. In addition, holders of warrants are entitled to participate in any fundamental transaction on an as-
converted or as-exercised basis, which could result in the holders of our common stock receiving a lesser portion of the consideration from a
fundamental transaction. The terms of the warrants could also impede our ability to enter into certain transactions or obtain additional
financing in the future.
Future sales of a significant number of our shares of common stock in the public markets, or the perception that such sales could
occur, could depress the market price of our shares of our common stock or cause our stock price to decline.
Sales of a substantial number of our shares of common stock in the public markets, or the perception that such sales could occur, including
from the exercise of warrants or sales of common stock issuable thereunder, could cause the market price of our shares of common stock to
decline and impair our ability to raise capital through the sale of additional equity securities. A substantial number of shares of common stock
are being offered by this prospectus. We cannot predict the number of these shares that might be sold nor the effect that future sales of our
shares of common stock, including shares issuable upon the exercise of warrants, would have on the market price of our shares of common
stock.
We do not currently intend to pay dividends on our common stock, and any return to investors is expected to come, if at all, only
from potential increases in the price of our common stock.
At the present time, we intend to use available funds to finance our operations. Accordingly, while payment of dividends rests within the
discretion of our board of directors, we have no intention of paying any such dividends in
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the foreseeable future. Any return to investors is expected to come, if at all, only from potential increases in the price of our common stock.
If we are unable to maintain listing of our securities on the Nasdaq Capital Market or another reputable stock exchange, it may be
more difficult for our stockholders to sell their securities.
Nasdaq requires listing issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, Nasdaq should
delist our securities from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a
reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders.
For example, if at any time the bid price of our common stock closes at below $1.00 per share for more than 30 consecutive trading days, we
may be subject to delisting from the Nasdaq Capital Market. If we receive a delisting notice, we would have 180 calendar days to regain
compliance (subject to any additional 180-day compliance period which may be available to us), which would mean having a bid price above
the minimum of $1.00 for at least 10 consecutive days in the 180-day period. During this 180-day period, we would anticipate reviewing our
options to regain compliance with the minimum bid requirements, including conducting a reverse stock split. To the extent that we are unable
to resolve any listing deficiency, there is a risk that our common stock may be delisted from Nasdaq, which would adversely impact liquidity of
our common stock and potentially result in even lower bid prices for our common stock. On March 15, 2021, the closing price of our common
stock was $1.62 per share.
General Risks
Failure in Salarius’ information technology and storage systems could significantly disrupt the operation of Salarius’ business
and/or lead to potential large liabilities.
Salarius’ ability to execute its business plan and maintain operations depends on the continued and uninterrupted performance of its
information technology systems. Information technology systems are vulnerable to risks and damages from a variety of sources, including
telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up
measures, some of Salarius’ and its vendors’ servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks,
computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use of non-public
information which in turn could lead to operational difficulties and liabilities.
A security breach or privacy violation that leads to disclosure of consumer, customer, supplier, partner or employee information (including
personally identifiable information or protected health information) could harm Salarius’ reputation, compel Salarius to comply with disparate
state and foreign breach notification laws and otherwise subject it to liability under laws that protect personal data, resulting in increased
costs or loss of revenue.
The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less
regulated and remote areas of the world. As a result, Salarius may not be able to address these techniques proactively or implement
adequate preventative measures. If its computer systems are compromised, it could be subject to fines, damages, litigation and enforcement
actions, and it could lose trade secrets, the occurrence of which could harm its business. Despite precautionary measures to prevent
unanticipated problems that could affect its information technology systems, sustained or repeated system failures that interrupt Salarius’
ability to generate and maintain data could adversely affect its ability to operate its business. In addition, a data security breach could distract
management or other key personnel from performing their primary operational duties.
The interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain,
contradictory and in flux. Among other things, foreign privacy laws impose significant obligations on U.S. companies to protect the personal
information of foreign citizens. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with Salarius’
data practices, which could have a material adverse effect on Salarius’ business. Complying with these various laws could cause Salarius to
incur substantial costs or require it to change its business practices in a manner adverse to its business.
We may face business disruption and related risks resulting from the ongoing COVID-19 pandemic.
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The outbreak of COVID-19 has spread worldwide. On March 11, 2020, the World Health Organization declared the outbreak a pandemic.
The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third
parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult
to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access
capital, which could negatively impact the Company’s long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain
and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, clinical trials or the drug
procurement, financing, or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a
material impact on the Company’s liquidity, capital resources, operations, and business and those of the third parties on which we rely.
The COVID-19 pandemic is significantly affecting the United States, global economies, and businesses worldwide. While the potential
magnitude and duration of the economic and social impact of the COVID-19 pandemic is difficult to assess or predict, the impact on the
global financial markets may, in the future, reduce our ability to access capital, which could negatively impact our short-term and long-term
liquidity. The COVID-19 pandemic could also have a material and negative impact on our liquidity, capital resources (including our ability to
secure additional financing if and when needed), our business and operations, and our workforce, as well as those of the third parties with
which we do business or upon which we rely. While the situation is fluid and we do not yet know the full extent of potential delays or impacts
on us or on healthcare systems or the global economy in general, at this time, we are experiencing minimal disruption to our clinical trials and
have experienced no disruptions to manufacturing capabilities. However, we may experience disruptions in the future that have and could
further adversely impact our business operations, preclinical studies and clinical trials, and certain aspects of our supply chain may be
disrupted as certain of our third party suppliers and manufacturers have paused their operations in response to the COVID-19 pandemic or
have otherwise encountered delays in providing supplies and services. We continue to evaluate the extent to which these delays will impact
our ability to manufacture our product candidates for our clinical trials and conduct other research and development operations and maintain
applicable timelines. The ultimate impact of the COVID-19 pandemic on our business operations as well as our preclinical studies and clinical
trials remains uncertain and subject to change and will depend on future developments, which cannot be accurately predicted.
Item 1B. Unresolved Staff Comments
Not applicable.
Items 2. Properties
The Company presently leases office space under operating lease agreements on a month to month basis.
Item 3. Legal Proceedings
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our common stock is on the Nasdaq Capital Market under the symbol “SLRX.”
As of February 28, 2021, we had approximately 140 record holders of our common stock. Because many of our shares are held by brokers
and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these
record holders.
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Unregistered Sale of Equity Securities
On December 11, 2019, we entered into an investor relations consulting services agreement. In accordance with the agreement, we agreed
to issue 24,752 unregistered shares of our common stock as part of the consideration for the services period ended on December 10, 2020.
As of December 31, 2020, we have 6,188 unregistered shares to be issued to the consultant. The issuance described above is exempt from
the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder.
Item 6. Selected Financial Data
Not required.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other
users to assess our financial condition and results of operations. Statements that are not historical are forward-looking and involve risks and
uncertainties discussed under the headings “SPECIAL NOTE REGARDING Forward-Looking Statements” and “Risk Factors” of this report.
The following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and
the related notes thereto included elsewhere in this report. These risks could cause our actual results to differ materially from any future
performance suggested below.
Introduction
Our Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the
accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition,
and cash flows.
Overview
We are a clinical-stage biotechnology company focused on developing effective epigenetic-based cancer treatments for indications with high
unmet medical need. Our lead epigenetic enzyme technology was licensed from the University of Utah Research Foundation in 2011.
Epigenetics refers to the system that regulates gene expression through conformational changes to the chromatin rather than changes to the
DNA sequence itself. Our lead compound, Seclidemstat (“SP-2577”), is a small molecule that inhibits the epigenetic enzyme lysine specific
demethylase 1 (“LSD1”). LSD1 is an enzyme that removes mono- and di-methyl marks on histones (core protein of chromatin) to alter gene
expression. LSD1’s enzymatic activity can cause genes to turn on or off and thereby affect the cell’s gene expression and overall activity. In
addition, LSD1 can act via its scaffolding properties, independently of its enzymatic function, to alter gene expression and modulate cell fate.
In healthy cells, LSD1 is necessary for stem cell maintenance and cell development processes. However, in several cancers LSD1 is highly
expressed and acts aberrantly to incorrectly silence or activate genes leading to disease progression. High levels of LSD1 expression are
often associated with aggressive cancer phenotypes and poor patient prognosis. Hence, development of targeted LSD1 inhibitors is of
interest for the treatment of various cancers. SP-2577 uses a novel, reversible mechanism to effectively inhibit LSD1’s enzymatic and
scaffolding properties and thereby treat and prevent cancer progression.
Our first indication of interest for SP-2577 is a devastating bone and soft-tissue cancer called Ewing sarcoma. Ewing sarcoma mostly afflicts
adolescents and young adults, with the median age of diagnosis being 15. The most commonly expressed fusion oncoprotein in Ewing
sarcoma is the EWS-FLI fusion protein, which is present in approximately 85% of Ewing sarcoma cases. The LSD1 enzyme associates with
EWS-FLI (and other E26 Transformation-Specific (“ETS”) fusion proteins) and is thought to promote tumorigenesis. We believe the SP-2577
molecule helps inhibit EWS-FLI activity by disrupting EWS-FLI from associating with coregulators (including LSD1) that are necessary for its
cancer promoting activity. Therefore, we believe that SP-2577 can potentially reverse the aberrant gene expression and thereby possibly
prevent Ewing sarcoma cell proliferation and even promote cell death. Preclinical studies of SP-2577 in certain Ewing sarcoma animal
models show a significant tumor reduction as well as a significant survival benefit compared to untreated animals. Our ongoing Phase 1/2
clinical trial is designed
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as a single agent dose escalation followed by a dose expansion study. The trial can enroll up to 50 relapsed or refractory Ewing sarcoma
patients. The primary objectives of the study are to assess the safety and tolerability of SP-2577. Secondary objectives include assessing
preliminary efficacy of SP-2577.
As LSD1 can associate with over 60 regulatory proteins other than EWS-FLI, we believe that LSD1 may also play a critical role in
progression of various other cancer types. These include both solid tumors and hematologic malignancies. In the second quarter of 2019, we
initiated a second company-sponsored Phase 1 trial to study SP-2577 in Advanced Solid Tumors. The Advanced Solid Tumor (“AST”) trial is
a single agent dose escalation, dose expansion study enrolling patients with advanced malignancies, excluding Ewing sarcoma or central
nervous system tumors.
In addition, recent data from “LSD1 Ablation Stimulates Anti-tumor Immunity and Enables Checkpoint Blockade” by W. Sheng, et al. and
“Inhibition of Histone Lysine-specific Demethylase 1 Elicits Breast Tumor Immunity and Enhances Antitumor Efficacy of Immune Checkpoint
Blockade” by Y. Qin, et al. suggests that LSD1 plays a role in tumor immune activity and can sensitize tumors to checkpoint inhibitors. These
recent works have sparked interest in combining LSD1 inhibitors with checkpoint inhibitors. We are conducting preclinical work with SP-2577
in this area.
We have no products approved for commercial sale and have not generated any revenue from product sales. We have never been profitable
and have incurred operating losses in each year since inception. We had an accumulated deficit of $19,428,954 as of December 31, 2020.
Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and
from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years as we initiate and
continue the clinical development of, and seek regulatory approval for, our product candidates, add personnel necessary to continue to
operate as a public company, and work to develop an advanced clinical pipeline of product candidates. We expect that our operating losses
will fluctuate significantly from quarter-to-quarter and year-to-year due to timing of clinical development programs and efforts to achieve
regulatory approval.
As of December 31, 2020, we had cash and cash equivalents of $11.1 million. As of December 31, 2020, we have received an aggregate of
$10.4 million from the CPRIT grant. A portion of the remaining $8.3 million CPRIT grant was for a castration-resistant prostate study
(approximately $2.6 million). We elected not to pursue the study, and accordingly this amount will no longer be available. In February 2021,
we received $0.9 million from CPRIT and there was $4.8 million of funds available for us to draw upon meeting certain requirements. We
believe that as of December 31, 2020, CPRIT fund matching requirements had been fully met. Additionally, on March 8, 2021 we completed
a public offering of our shares, with net proceeds of $21.1 million.
We believe that our cash and cash equivalents currently on hand are sufficient to fund our anticipated operating and capital requirements
through at least 12 months from the date this report is filed, however we will continue to require substantial additional capital to continue our
clinical development activities and may need such additional capital sooner than 12 months. Accordingly, we will need to raise substantial
additional capital to continue to fund our operations. The amount and timing of our future funding requirements will depend on many factors,
including the pace and results of our development, regulatory approvals and authorizations, commercialization efforts and market conditions.
Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our
ability to develop and commercialize our product candidates.
We intend to obtain additional capital through the sale of equity securities in one or more offerings or through issuances of debt instruments.
We may also consider new collaborations or selectively partnering our technology. However, we cannot provide any assurance that we will
be successful in accomplishing any of our plans to obtain additional capital or be able to do so on terms acceptable to us.
Recent Events
On March 8, 2021, we completed a public offering of 16,806,722 shares of our common stock, including 2,192,181 shares sold pursuant to
the exercise in full of the underwriters' option to purchase additional shares, at the public offering price of $1.3685 per share. The aggregate
gross proceeds of the offering, before deducting underwriting discounts and commissions and other offering expense, were approximately
$23 million.
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From January 1, 2020 through March 9, 2021, we received approximately $1.5 million from warrants exercised for cash.
On February 11, 2021, we completed an At the Marketing Offering ("ATM offering") with total gross proceeds of approximately $6.3 million.
Total common shares sold by the ATM offering were 2,820,490, with an average selling price of $2.24 per share.
During the fourth quarter of 2020 and first quarter of 2021, we received $1.7million from the Cancer Prevention Research Institute of Texas.
We estimate we will have approximately $37 million cash availability when we issue the Form 10-K Annual Report for the year ended
December 31, 2020
Results of Operations
The following table sets forth the consolidated results of our operations for the year ended December 31, 2020 compared to the year ended
December 31, 2019.
Year ended December 31
2020
2019
Change
$
Grant revenue
$
$
5,233,301
6,913,853
6,105,793
258,551
(3,047)
178,587
$
3,465,055
4,018,951
7,711,181
1,311,333
15,648
1,833
$
(7,352,254)
$
(6,936,263)
$
1,768,246
2,894,902
(1,605,388)
(1,052,782)
(18,695)
176,754
(415,991)
Research and development expenses
General and administrative expenses
Change in fair value of warrant liability
Interest income (expense), net
Government grants and other income
Net loss
Grant Revenue
Grant revenue, which was derived solely from the CPRIT grant, was $5.2 million during the year ended December 31, 2020 compared to
$3.5 million during the year ended December 31, 2019. The increase in revenue from the CPRIT grant was due to an increase in overall
expenses which resulted in an increase in the amount of expenses reimbursable under the grant. Given the nature of the development
process, grant revenue will fluctuate depending on the stage of development and the timing of expenses.
Research and Development Expenses
Research and development expenses were $6.9 million during the year ended December 31, 2020 compared to $4.0 million during the year
ended December 31, 2019. This increase of $2.9 million was principally due to the manufacturing of our active pharmaceutical ingredient in
preparation of forecasted increased enrollment and clinical trial activity and higher personnel and consulting fees offsetting lower clinical trial
spending.
General and Administrative Expense
General and administrative expenses were $6.1 million for the year ended December 31, 2020 compared to $7.7 million for the year ended
December 31, 2019, a decrease of $1.6 million. During the current period lower professional fees and non-recurring costs associated with
our July 2019 merger and transformation into a public company more than offset significantly higher personnel related expenses and
increased director & officers insurance costs.
Change in Fair Value of Warrant Liability
The change in fair value of warrant liability was primarily due to the fluctuation of the price of our common stock which was $0.91 per share
on December 31, 2020 compared to $3.78 per share on December 31, 2019.
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Liquidity and Capital Resources
Overview
Since inception, we have incurred operating losses and we anticipate that we will continue to incur losses for the foreseeable future. To date,
we have generated revenue from the CPRIT grant, and have not generated any cash inflows from product sales.
We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales
unless and until we obtain regulatory approval for and commercializes any of our product candidates. At the same time, we expect our
expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research,
development, manufacture and clinical trials of, and seek regulatory approval for our product candidates.
Resulting from the capital raise activity during the fourth quarter of 2020 and the first quarter of 2021, we presently have sufficient cash and
cash equivalents to enable us to fund our anticipated level of operations and meet our obligations as they become due during the twelve
months following the date of issuance of this Annual Report on Form 10-K.
As of December 31, 2020, we had $13.0 million of working capital and our cash and cash equivalents totaled $11.1 million, which were held
in bank deposit accounts. Our cash and cash equivalents balance increased during the year ended December 31, 2020, primarily due to the
capital received from financing activities partially offset by our net loss incurred.
Cash Flows
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash equivalents
Operating Activities
Year Ended December 31
2020
2019
$
$
(10,311,363)
(2,600)
17,693,677
7,379,714
$
$
(11,580,096)
5,607,908
3,579,307
(2,392,881)
Cash used in operating activities was $10.3 million for the year ended December 31, 2020, as compared to $11.6 million for the year ended
December 31, 2019. Our receivable from CPRIT increased $3.9 million in the current period reflecting unreimbursed CPRIT allowable cash
spending.
Investing Activities
Net cash provided by investing activities during the year ended December 31, 2019 was related to $5.6 million net cash received from Flex
Pharma merger and the sale of the HOTSHOT business.
Financing Activities
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Net proceeds from issuance of equity securities
Payment of dividend
Payments on note payable
Net proceeds from warrants exercised for cash
Net cash provided by financing activities
$
14,798,944
—
(974,435)
3,869,168
17,693,677 $
4,130,786
(133,594)
(417,885)
—
3,579,307
Year Ended December 31
2020
2019
Net cash provided by financing activities was $17.7 million and $3.6 million for the years ended December 31, 2020 and 2019. An increase of
$14.1 million resulting primarily from the sale of our common and preferred shares during February and August 2020 and the exercise of
warrants during the fourth quarter 2020. During the year ended December 31, 2019, we made dividend payments of $0.13 million to
preferred unit holders, whereas no such payments during the year ended December 31, 2020 . Principal payments on the insurance
financing note were $0.97 million during the year ended December 31, 2020 compared to $0.42 for the year ended December 31, 2019.
Future Capital Requirements
We expect to continue to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory
approval of any of our product candidates, we anticipate we will need substantial additional funding in connection with our continuing
operations.
We expect our research and development expenses to substantially increase in connection with our ongoing activities, particularly as we
advance our product candidates in or towards clinical development.
Salarius’ future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
•
•
•
•
•
•
•
the terms and timing of any strategic alliance, licensing and other arrangements that Salarius may establish;
the initiation and progress of Salarius’ ongoing pre-clinical studies and clinical trials for its product candidates;
the number of programs Salarius pursues;
the outcome, timing and cost of regulatory approvals;
the cost and timing of hiring new employees to support Salarius’ continued growth;
the costs involved in patent filing, prosecution, and enforcement; and
the costs and timing of having clinical supplies of Salarius’ product candidates manufactured.
We believe that our cash and cash equivalents currently on hand (approximately $37 million on March 18, 2021) are sufficient to fund our
anticipated operating and capital requirements through at least 12 months from the date this report is filed.
We expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowing and
strategic alliances with partner companies and CPRIT. To the extent that we raise additional capital through the issuance of additional equity
or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams,
research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional
funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or
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commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop
and market itself.
Successful development of product candidates is highly uncertain and may not result in approved products. Completion dates and
completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate that we will make determinations
as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and
clinical success of each product candidate and ongoing assessments as to each product candidate’s commercial potential. We will need to
raise additional capital and may seek to do so through public or private equity or debt financings, government or other third-party funding,
marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these
approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or
at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial
condition and our ability to develop our product candidates.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to
make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities as of the date of the consolidated balance sheet and the reported amounts of expenses during the reporting period. In accordance
with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the
circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different
assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of
material revisions in estimates are reflected in our consolidated financial statements prospectively from the date of the change in estimate.
Our significant accounting policies are described in Note 2 to our audited consolidated financial statements for the year ended December 31,
2020 in this Annual Report on Form 10-K. We believe that our accounting policies relating to revenue recognition, research and development
expenses, stock-based compensation and fair value of financial instruments are the most critical to understanding and evaluating our
reported financial results. We have identified these policies as critical because they both are important to the presentation of our financial
condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may
change in future periods. For more information regarding these policies, you should refer to Note 2 of our audited consolidated financial
statements included in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
Salarius has not entered into any off-balance sheet arrangements and does not have any holdings in variable interest entities.
Application of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which is intended to simplify the subsequent
measurement of goodwill. The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the
fair value of a reporting unit with its carrying amount. An impairment charge is immediately recognized by which the carrying amount exceeds
the fair value. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The adoption
of this ASU did not have an impact on the Company’s consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in Salarius’ financial instruments and in Salarius’ financial position represents the potential loss arising from adverse
changes in interest rates. As of December 31, 2020, Salarius’ cash was only held in checking and saving accounts. Therefore, Salarius has
minimal market risk related to the fair market value of its portfolio.
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Item 8. Financial Statements and Supplementary Data
SALARIUS PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statement of Stockholders' Equity (Deficit)
Notes to Consolidated Financial Statements
58
59
60
61
62
63
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Salarius Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Salarius Pharmaceuticals, Inc. (the Company) as of December 31, 2020 and 2019, the
related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31,
2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Houston, Texas
March 18, 2021
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SALARIUS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
Assets
Current assets:
Cash and cash equivalents
Grants receivable from CPRIT
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Note payable
Deferred revenue
Warrant liability
Total liabilities
Commitments and contingencies (NOTE 5)
Stockholders' equity (deficit):
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; none issued or
outstanding
Common stock, $0.0001 par value; 100,000,000 shares authorized; 23,810,541 and
4,519,533 shares issued at December 31, 2020 and December 31, 2019, and 23,808,546
and 4,511,174 shares outstanding at December 31, 2020 and December 31, 2019,
respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2020
December 31,
2019
$
$
$
$
$
$
$
11,118,614
3,855,996
822,050
15,796,660
22,639
8,865,909
247,113
24,932,321
1,853,756
383,138
477,028
—
59,211
2,773,133
3,738,900
—
955,899
4,694,799
25,016
8,865,909
308,674
13,894,398
1,790,966
160,783
502,332
541,701
317,762
3,313,544
—
—
2,381
41,585,761
(19,428,954)
22,159,188
24,932,321
$
451
22,657,103
(12,076,700)
10,580,854
13,894,398
See accompanying notes to consolidated financial statements.
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SALARIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Grant revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss before other income (expense)
Change in fair value of warrant liability
Government grants and other income
Interest income (expense), net
Loss from operations
Net loss
Fair value increase related to warrant modification
Loss attributable to common stockholders
Loss per common share — basic and diluted
Total net loss per share
Twelve Months Ended December 31
2020
2019
$
5,233,301
$
3,465,055
6,913,853
6,105,793
13,019,646
(7,786,345)
258,551
178,587
(3,047)
(7,352,254)
(7,352,254)
(396,407)
(7,748,661)
(0.50)
(0.50)
$
$
$
$
4,018,951
7,711,181
11,730,132
(8,265,077)
1,311,333
1,833
15,648
(6,936,263)
(6,936,263)
—
(6,936,263)
(2.12)
(2.12)
$
$
$
$
Weighted-average number of common shares outstanding — basic and diluted
15,578,611
3,268,637
See accompanying notes to consolidated financial statements.
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SALARIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities
Net loss
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation, amortization and impairment
Equity-based compensation expense
Change in fair value of warrant liability
Changes in operating assets and liabilities:
Grants receivable
Accounts receivable
Inventory
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Net cash used in operating activities
Investing activities
Purchase of property and equipment
Net cash received in reverse acquisition
Net proceeds received from disposal of discontinued operations
Net cash (used in) provided by investing activities
Financing activities
Proceeds from issuance of equity securities
Payment of dividends
Warrants exercised for cash
Payments on note payable
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest
Non-cash investing and financing activities:
Issuance of shares for license
Conversion of liabilities to equity securities
Issuance of common shares for business combination
Change in accrued capital expenditures
Accrued issuance costs for warrants exercised for cash
Prepaid expense financed by note payable
Twelve Months Ended December 31
2020
2019
$
(7,352,254) $
(6,936,263)
18,058
319,391
(258,551)
(3,855,996)
—
—
1,140,117
(2,782)
222,355
(541,701)
(10,311,363)
(2,600)
—
—
(2,600)
14,798,944
—
3,869,168
(974,435)
17,693,677
7,379,714
3,738,900
11,118,614 $
127,408
751,618
(1,311,333)
—
690
1,169
91,582
(519,276)
(320,637)
(3,465,054)
(11,580,096)
—
5,403,634
204,274
5,607,908
4,130,786
(133,594)
—
(417,885)
3,579,307
(2,392,881)
6,131,781
3,738,900
8,663 $
9,005
— $
— $
— $
8,657 $
56,915 $
949,131 $
110,474
2,869,412
11,093,561
—
—
920,217
$
$
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
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SALARIUS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Balance at December 31, 2018
Issuance of equity securities, net
Issuance of equity securities for
license, net
Equity-based compensation
expense
Distribution to stockholders
Effect of reverse acquisition
Net loss
Balance at December 31, 2019
Issuance of equity securities, net
Preferred shares converted to
common shares
Warrants exercised for cash
Equity-based compensation
expense
Issuance of equity securities
for services
Modification of warrants
exercise prices and terms
Increase in fair value for
warrants modification
Net loss
Balance at December 31, 2020
Common Stock
Shares
2,032,763
1,711,350
Amount
203
170
12,907
31,586
—
722,568
—
4,511,174
1
5
—
72
—
451
—
—
—
—
—
—
—
Preferred Stock
Shares
Amount
—
Additional
Paid-In
Capital
3,869,120
6,932,166
Accumulated
Deficit
(5,140,437)
—
Total
Stockholders'
Equity (Deficit)
(1,271,114)
6,932,336
—
110,473
—
110,474
751,613
(99,758)
11,093,489
0
—
—
—
—
— $22,657,103 $ (12,076,700) $
—
—
—
(6,936,263)
13,483,870
1,348
1,246,519
125
14,797,471
1,246,519
4,517,910
125
452
(1,246,519)
—
(125)
—
—
3,811,801
30,509
18,564
3
2
—
—
—
—
23,808,546
—
—
2,381
—
—
—
—
—
—
—
—
—
269,390
49,996
396,407
(396,407)
—
—
—
— $41,585,761 $ (19,428,954) $
—
(7,352,254)
See accompanying notes to consolidated financial statements.
61
751,618
(99,758)
11,093,561
(6,936,263)
10,580,854
14,798,944
—
3,812,253
269,393
49,998
396,407
(396,407)
(7,352,254)
22,159,188
—
—
—
—
—
—
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SALARIUS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
Nature of Business
Salarius Pharmaceuticals, Inc. (“Salarius” or the “Company”), together with its subsidiaries, Salarius Pharmaceuticals, LLC, Flex Innovation
Group LLC, and TK Pharma, Inc., is a clinical-stage biotechnology company focused on developing effective epigenetic-based cancer
treatments for indications with high unmet medical need. Salarius’ lead epigenetic enzyme technology was licensed from the University of
Utah Research Foundation in 2011. The Company is located in Houston, Texas.
Merger with Flex Pharma, Inc.
On January 3, 2019, Flex Pharma, Inc. ("Flex Pharma"), Salarius Pharmaceuticals LLC ("Private Salarius") and Falcon Acquisition Sub, LLC
(“Merger Sub”), a wholly owned subsidiary of Flex Pharma, entered into an Agreement and Plan of Merger (the “Merger Agreement”).
Pursuant to the Merger Agreement, Merger Sub merged with and into Private Salarius, with Private Salarius continuing as a wholly owned
subsidiary of Flex Pharma and the surviving company of the merger. The merger was completed on July 19, 2019. After the merger, Flex
Pharma was renamed Salarius Pharmaceuticals, Inc. The merger was accounted for as a reverse acquisition with Private Salarius being
deemed the acquiring company for accounting purposes. See Note 3.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States ("GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the
Accounting Standard Codification ("ASC") and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board ("FASB").
The Company considered its going concern disclosure requirements in accordance with ASC 205-40-50. As of December 31, 2020, the
Company had determined that substantial doubt about the Company's ability to continue as a going concern existed. Subsequently, the
Company took into consideration of capital raise transactions conducted in the first quarter of 2021. As a result, substantial doubt about the
Company’s ability to continue as a going concern for the 12 months from the date of issuance of these financial statements is alleviated.
The Company is subject to risks common to companies in the biotechnology industry and the future success of the Company is dependent
on its ability to successfully complete the development of, and obtain regulatory approval for, its product candidates, manage the growth of
the organization, obtain additional financing necessary in order to develop, launch and commercialize its product candidates, and compete
successfully with other companies in its industry.
Private Salarius’ historical financial statements have replaced Flex Pharma’s historical consolidated financial statements with respect to
periods prior to the completion of the merger with retroactive adjustments to Private Salarius' legal capital to reflect the legal capital of Flex
Pharma. Flex Pharma (renamed Salarius Pharmaceuticals, Inc.) remains the continuing registrant and reporting company. Accordingly, the
historical financial and operating data of Salarius Pharmaceuticals, Inc., which covers periods prior to the closing date of the merger, reflects
the assets, liabilities and results of operations of Private Salarius and does not reflect the assets, liabilities and results of operations of Flex
Pharma Inc. for the periods prior to July 19, 2019. The Company retrospectively adjusted its Statement of Changes in Stockholders’ Equity
(Deficit) and the weighted average shares used in determining loss per common share to reflect the conversion of the outstanding common
unit, profits interest common unit and Series A Preferred unit of Private Salarius that converted into shares of the Company’s common stock
upon the merger, and to reflect the effect of the 25 to 1 reverse stock split of the Company’s common stock which occurred upon the merger.
Principles of Consolidation
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The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America as
defined by the FASB ASC requires management to make estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
Salarius considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.
At December 31, 2020 and 2019, Salarius held approximately $0 and $1.0 million, respectively, for funds received from Cancer Prevention
and Research Institution of Texas ("CPRIT"). These funds are to be used for costs for allowable expenses, primarily research and
development expenses. The grant has a mandatory fund matching requirement. Subject to CPRIT review, the Company believes that all
matching fund requirements have been met at December 31, 2020.
Intangibles
Intangible assets that have finite useful lives are amortized over their useful lives, and are reviewed for impairment when warranted by
economic conditions. Intangible assets are included in other assets in the Company's Consolidated Balance Sheets.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be
recoverable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by
which the carrying amount of the asset exceeds the fair value of the asset. During the twelve months ended December 31, 2020 and 2019
impairment charges related to long-lived assets was $0 and $0.11 million, respectively.
Goodwill
Goodwill is not amortized, but is tested at least annually for impairment at the reporting unit level. The Company has determined that the
reporting unit is the single operating segment disclosed in its current financial statements.
Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The first step in the impairment
process is to determine the fair value of the reporting unit and then compare it to the carrying value, including goodwill. If the fair value
exceeds the carrying value, no further action is required and no impairment loss is recognized. Additional impairment assessments may be
performed on an interim basis if the Company encounters events or changes in circumstances that would indicate that, more likely than not,
the carrying value of goodwill has been impaired. There was no impairment of goodwill in 2020 or 2019.
Financial Instruments and Credit Risks
Financial instruments that potentially subject the Company to credit risk include cash and cash equivalents and restricted cash. Cash is
deposited in demand accounts in federally insured domestic institutions to minimize risk. Insurance is provided through the Federal Deposit
Insurance Corporation (“FDIC”). Although the balances in these accounts exceed the federally insured limit from time to time, the Company
has not incurred losses related to these deposits.
Warrants
In conjunction with the reverse merger transaction, the Company issued rights to receive warrants to purchase the Company’s common
stock. The Company determines whether the warrants should be classified as a liability or equity. For warrants classified as liabilities, the
Company estimates the fair value of the warrants at each reporting
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period using Level 3 inputs with changes in fair value recorded in the Statement of Operations within Change in fair value of warrant liability.
The estimates in valuation models are based, in part, on subjective assumptions, including but not limited to stock price volatility, the
expected life of the warrants, the risk-free interest rate and the fair value of the common stock underlying the warrants, and could differ
materially in the future. The Company will continue to adjust the fair value of the warrant liability at the end of each reporting period for
changes in fair value from the prior period until the earlier of the exercise or expiration of the applicable warrant. For warrants classified as
equity contracts, the Company allocates the transaction proceeds to the warrants and any other free-standing instruments issued in the
transaction based on an allowable allocation method.
Clinical Trial Accruals
The Company’s preclinical and clinical trials are performed by third party contract research organizations (CROs) and/or clinical investigators,
and clinical supplies are manufactured by contract manufacturing organizations (CMOs). Invoicing from these third parties may be monthly
based upon services performed or based upon milestones achieved. The Company accrues these expenses based upon its assessment of
the status of each clinical trial and the work completed, and upon information obtained from the CROs and CMOs. The Company’s estimates
are dependent upon the timeliness and accuracy of data provided by the CROs and CMOs regarding the status and cost of the studies, and
may not match the actual services performed by the organizations. This could result in adjustments to the Company’s research and
development expenses in future periods. To date the Company has had no significant adjustments.
Grants Receivable and Revenue Recognition
Salarius’ source of revenue has been from a grant received from CPRIT. Grant revenue is recognized when qualifying costs are incurred and
there is reasonable assurance that conditions of the grant have been met. Cash received from grants in advance of incurring qualifying costs
is recorded as deferred revenue and recognized as revenue when qualifying costs are incurred. The Company records revenue and a
corresponding grants receivable when qualifying costs are incurred before the grants are received.
Research and Development Costs
Research and development costs consist of expenses incurred in performing research and development activities, including pre-clinical
studies and clinical trials. Research and development costs include salaries and personnel-related costs, consulting fees, fees paid for
contract research services, the costs of laboratory equipment and facilities, license fees and other external costs. Research and development
costs are expensed when incurred.
Equity-Based Compensation
Salarius measures equity-based compensation based on the grant date fair value of the awards and recognizes the associated expense in
the financial statements over the requisite service period of the award, which is generally the vesting period.
The Company uses the Black-Scholes option valuation model to estimate the fair value of the stock-based compensation and incentive units.
Assumptions utilized in these models include expected volatility calculated based on implied volatility from traded stocks of peer companies,
dividend yield and risk-free interest rate. Additionally, forfeitures are accounted for in compensation cost as they occur.
Loss Per Share
Basic net loss per share is calculated by dividing the net loss applicable to common stockholders by the weighted average number of shares
of common stock outstanding during the period. Since the Company was in a loss position for all periods presented, diluted net loss per
share is the same as basic net loss per share for all periods, as the inclusion of all potential common shares outstanding is anti-dilutive.
The number of anti-dilutive shares, consisting of common shares underlying (i) common stock options, (ii) stock purchase warrants, (iii)
unvested restricted stock and (iv) rights entitling holders to receive warrants to purchase the Company's common shares, which have been
excluded from the computation of diluted loss per share, was 10,796,149 and 360,234 shares as of December 31, 2020 and 2019,
respectively.
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Income Taxes
Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes ("ASC 740"), which provides for deferred taxes using an
asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the
financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax
assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. The Company has
evaluated available evidence and concluded that the Company may not realize the benefit of its deferred tax assets; therefore, a valuation
allowance has been established for the full amount of the deferred tax assets.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the
Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to
whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of
the available facts and circumstances. As of December 31, 2020 and 2019, the Company did not have any significant uncertain tax positions
and no interest or penalties have been charged. The Company's practice is to recognize interest and/or penalties related to income tax
matters in income tax expense. The Company is subject to routine audits by taxing jurisdictions.
Application of New Accounting Standards
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which is intended to simplify the subsequent
measurement of goodwill. The pronouncement allows an entity, during its annual or interim goodwill impairment evaluation, to compare the
fair value of a reporting unit with its carrying amount. An impairment charge is immediately recognized by which the carrying amount exceeds
the fair value. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The adoption
of this ASU did not have an impact on the Company’s consolidated financial statements.
Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The guidance eliminates
certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim
periods. This guidance also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill
and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual and interim periods in fiscal years beginning
after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this change will have on its
consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, which requires the measurement of all expected credit losses for financial assets including trade receivables held at
the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Subsequent to the issuance
of ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. This ASU
does not change the core principle of the guidance in ASU 2016-13, instead these amendments are intended to clarify and improve
operability of certain topics included within the credit losses guidance. The FASB also subsequently issued ASU No. 2019-04, Codification
Improvements to Topic 326, Financial Instruments—Credit Losses, Derivatives and Hedging (Topic 815), and Financial Instruments (Topic
842), which did not change the core principle of the guidance in ASU 2016-13 but clarified that expected recoveries of amounts previously
written off and expected to be written off should be included in the valuation account and should not exceed amounts previously written off
and expected to be written off. The guidance is effective for fiscal years, and interim periods within those years, beginning after December
15, 2019 for public business entities, excluding smaller reporting companies. Early adoption is permitted. As a smaller reporting company, the
guidance will be effective for the Company during the first quarter of 2023. The Company is in the process of assessing the impact adoption
will have on its consolidated financial statements.
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NOTE 3. REVERSE ACQUISITION AND DISPOSAL
Reverse Acquisition
On January 3, 2019, Flex Pharma, Private Salarius and Merger Sub entered into the Merger Agreement. Pursuant to the Merger Agreement,
Merger Sub merged with and into Private Salarius, with Private Salarius continuing as a wholly owned subsidiary of Flex Pharma and the
surviving company of the merger. The merger was completed on July 19, 2019. After the merger, Flex Pharma was renamed Salarius
Pharmaceuticals, Inc. The merger was accounted for as a reverse acquisition business acquisition with Private Salarius being deemed the
acquiring company for accounting purposes. Private Salarius, as the accounting acquirer, recorded the assets acquired and liabilities
assumed of Flex Pharma in the merger at their fair values as of the acquisition date. Private Salarius’ historical financial statements have
replaced Flex Pharma’s historical consolidated financial statements with respect to periods prior to the completion of the merger with
retroactive adjustments to Private Salarius' legal capital to reflect the legal capital of Flex Pharma. Flex Pharma (which was renamed
Salarius Pharmaceuticals, Inc. in connection with the merger) remains the continuing registrant and reporting company.
Private Salarius was determined to be the accounting acquirer based on the following facts and circumstances: (1) members of Private
Salarius owned approximately 80.7% of the voting interests of the combined company immediately following the closing of the transaction;
(2) the majority of the board of directors of the combined company was composed of directors designated by Private Salarius under the
terms of the Merger Agreement; and (3) existing members of Private Salarius management became the management of the combined
company.
The business purposes of the merger included, among other purposes, obtaining the following potential advantages: (i) the combined
organization’s resources would be immediately available to support Private Salarius’ research on Seclidemstat; and (ii) the public company
status would allow the Company greater potential access to additional capital.
At the closing of the merger, each outstanding common unit, profits interest common unit and Series A Preferred unit of Private Salarius
converted into shares of the Company’s common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a
25 to 1 reverse stock split of the Company’s common stock) at the conversion ratio formulae described in the Merger Agreement.
In addition, at the closing of the merger, the Company distributed one right per share of common stock to stockholders of record as of the
close of business on July 18, 2019. Each right entitles such stockholders to receive a warrant to purchase shares of the Company’s common
stock six months and one day following the closing date of the merger. See Note 7.
The Company accounted for the acquisition as a reverse merger using purchase accounting. Because the merger qualifies as a reverse
acquisition and given that Private Salarius was a private company at the time of the merger and therefore its value was not readily
determinable, the fair value of the merger consideration was deemed to be equal to the sum of the quoted market capitalization of the
Company at the merger date, the fair value of the Flex Pharma options that fully vested upon the merger together, and the fair value of the
rights to receive warrants that were granted to the pre-merger Flex Pharma stockholders. Total purchase consideration is as follows:
Flex Pharma market capitalization at closing
Fair value of rights to warrants
Fair value of Flex Pharma outstanding options on the merger date
Total purchase consideration
$
$
10,963,526
1,629,095
132,227
12,724,848
The Company recorded all tangible and intangible assets acquired and liabilities assumed at their preliminary estimated fair values on the
merger date. The following represents the allocation of the estimated purchase consideration:
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Fair value of assets acquired
Cash
Accounts receivable
Inventory
Prepaid expense and other current assets
Goodwill and intangibles
Total fair value of assets acquired
Fair value of liabilities assumed
Accounts payable, accrued liabilities and other current liabilities
Total fair value of liabilities assumed
Net assets acquired
Disposition of HOTSHOT Business
$
5,405,826
15,168
122,235
106,319
8,937,899
14,587,447
1,862,599
1,862,599
$
12,724,848
On July 24, 2019, the Company sold specified assets related to the HOTSHOT business to Cliff-Cartwright Corporation, an unrelated party,
for cash consideration of $299,135. HOTSHOT was a consumer product that prevents and targets exercise-associated muscle cramps. The
Company acquired the HOTSHOT business as a result of the reverse acquisition with Flex Pharma. The transaction was treated as a sale of
a business. Details of the transaction are as follows:
Proceeds from sale
Carrying value of tangible assets sold
Carrying value of goodwill and intangible assets sold
Cost incurred related to the sale
Liabilities transferred upon sale
Total gain on sale of HOTSHOT
$
$
299,135
(135,544)
(71,990)
(94,861)
3,260
—
The Company had no assets and liabilities presented as discontinued operations as of December 31, 2020 and 2019.
Unaudited Pro Forma Disclosure
The following unaudited pro forma financial information summarizes the results of operations for the twelve months ended December 31,
2020 and 2019 as if the merger and disposal described above had been completed as of January 1, 2019. Pro forma information primarily
reflects adjustments relating to the reversal of transaction costs. Assuming that the merger had been completed as of January 1, 2019, the
transaction costs would have been expensed in the prior period.
Revenues
Net loss
Net loss per share
Twelve Months Ended December 31
2020
5,233,301
(7,352,254)
0.50
$
$
2019
3,465,055
(10,865,500)
(3.32)
$
$
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NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at December 31, 2020 and 2019 consisted of the following:
Prepaid clinical trial expenses
Prepaid insurance
Other prepaid and current assets
Total prepaid expenses and other current assets
December 31, 2020
December 31, 2019
$
$
— $
684,268
137,782
822,050 $
202,743
617,096
136,060
955,899
Prepaid insurance is comprised of prepaid directors' and officers' insurance. In July 2020 and 2019, the Company financed their directors'
and officers' insurance premium with a short term note, the principal amount of which is approximately $0.9 million, bearing interest at a rate
of 2.49% and 4.61%, respectively. The note payable balance was $0.5 million and $0.5 million as of December 31, 2020 and 2019,
respectively, and is included within Current Liabilities on the Consolidated Balance Sheets.
NOTE 5. COMMITMENTS AND CONTINGENCIES
License Agreement with the University of Utah Research Foundation
In 2011, the Company entered into a license agreement with the University of Utah, under which, the Company acquired license to LSD 1. In
exchange for the license, the Company issued 2% equity ownership in the Company based on a fully diluted basis at the effective date of the
agreement and subject to certain adjustments specified in the agreement, granted revenue sharing rights on any resulting products or
processes to commence on first commercial sale, and milestone payments based upon regulatory approval of any resulting product or
process as well as on the second anniversary of first commercial sale.
Cancer Prevention and Research Institute of Texas
In June 2016, the Company entered into a Cancer Research Grant Contract with CPRIT. Pursuant to the contract, CPRIT awarded the
Company a grant up to $18.7 million to fund development of LSD 1 inhibitor. This is a 3-year grant award originally expired on May 31, 2019.
The grant now expires on November 30, 2021 with extensions available.
The Company will retain ownership over any intellectual property developed under the contract ("Project Result"). With respect to non-
commercial use of any Project Result, the Company agreed to grant to CPRIT a nonexclusive, irrevocable, royalty-free, perpetual, worldwide
license with right to sublicense any necessary additional intellectual property rights to exploit all Project Results by CPRIT, other
governmental entities and agencies of the State of Texas, and private or independent institutions of higher education located in Texas, for
education, research and other non-commercial purposes.
The Company is obligated to make revenue-sharing payments to CPRIT with respect to net sales of any product covered by the contract, up
to a maximum repayment of certain percentage of the aggregate amount paid to the Company by CPRIT under the CPRIT contract. The
payments are determined as a percentage of net sales, which may be reduced if the Company is required to obtain a license from a third
party to sell any such product. In addition, upon meeting the foregoing limitation on revenue-sharing payments, the Company agreed to make
continued revenue-sharing payments to CPRIT of less than 1% of net sales.
The CPRIT grant is subject to funding conditions including a matching funds requirement where the Company will match 50% of funding from
the CPRIT grant. As of December 31, 2020, the Company has received an aggregate of $10.4 million from the CPRIT grant. A portion of the
remaining $8.3 million CPRIT grant was for a castration-resistant prostate study (approximately $2.6 million). The Company elected not to
pursue the study, and accordingly this amount will no longer be available. During the twelve months ended December 31, 2020, the
Company received $0.8 million from CPRIT. At December 31, 2020 and December 31, 2019, the Company had grants receivable of $3.9
million and deferred revenue of $0.5 million, respectively, related to CPRIT contract.
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Lease Agreement
The Company presently leases office space under operating lease agreements on a month to month basis.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of
observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two
are considered observable and the last is considered unobservable, are used to measure fair value:
Level 1-Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2-Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3-Significant unobservable inputs including Salarius’ own assumptions in determining fair value.
The Company believes the recorded values of its financial instruments, including cash and cash equivalents, restricted cash, accounts
payable and note payable approximate their fair values due to the short-term nature of these instruments.
The following table sets forth a summary of changes in the fair value of Level 3 liabilities, the warrants associated with the Flex Pharma
merger measured at fair value on a recurring basis for the twelve months ended December 31, 2020 and 2019:
Description
Warrant liability
Balance at December 31,
2019
Change in Fair Value
Balance at December
31, 2020
$
317,762 $
(258,551) $
59,211
7. STOCKHOLDERS' EQUITY
The accompanying consolidated statements of stockholders' equity (deficit) and the footnotes to the financial statements have been
retroactively adjusted to reflect the equity structure (that is, the number and type of equity interests issued) of Flex Pharma, the legal parent
(accounting acquiree) of the merger closed on July 19, 2019, with the retained earnings and other equity balances of Private Salarius before
the merger. Private Salarius' equity was restated using the exchange ratio established in the merger agreement to reflect the number of
shares of Flex Pharma issued in the merger. Concurrent with the merger, the Company's shareholders approved a 1-for-25 reverse stock
split, which became effective on July 19, 2019. Total shares owned by Flex Pharma pre-merger shareholders (net of fractional shares paid in
cash) was 722,568 shares after reverse stock-split.
Preferred Stock and Common Stock
On February 11, 2020, the Company completed a public offering with total gross proceeds of approximately $11.0 million, which includes the
full exercise of the underwriter's over-allotment option to purchase an additional 1,252,173 shares and warrants prior to deducting
underwriting discounts and commissions and offering expenses payable by Salarius (the “February Offering”). The February Offering was
comprised of 7,101,307 Class A units, priced at a public offering price of $1.15 per unit, with each unit consisting of one share of common
stock and a five-year warrant to purchase one share of common stock at an exercise price of $1.15 per share, and 1,246,519 Class B units,
priced at a public offering price of $1.15 per unit, with each unit consisting of one share of Series A convertible preferred stock and a five-
year warrant to purchase one share of common stock with and exercise price of $1.15 per share. A total of 8,343,480 shares of common
stock, 1,246,519 shares of Series A convertible preferred stock, and warrants to purchase up to 9,599,999 shares of common stock were
issued in the offering, including the
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full exercise of the over-allotment option. The convertible preferred stock issued in this transaction includes a beneficial ownership limitation
on conversion, but has no dividend rights (except to the extent that dividends are also paid on the common stock). The conversion price of
the Series A convertible preferred stock issued in the February Offering as well as the exercise price of the warrants are fixed and do not
contain any variable pricing features or any price based anti-dilutive features.
As of December 31, 2020, all 1,246,519 shares of Series A convertible preferred stock were converted to common stock.
On August 3, 2020, the Company completed a public offering with total gross proceeds of approximately $6.2 million, which includes the full
exercise of the underwriter's over-allotment option to purchase an additional 669,181 shares prior to deducting underwriting discounts and
commissions and offering expenses payable by Salarius. A total of 5,130,390 common shares of common stock were issued in the offering,
priced at a public offering price of $1.20 per share.
During the twelve months ended December 31, 2019, the Company issued 960,489 common shares (4,035 Series A preferred units and 350
profit interest units of Private Salarius) for $4,377,591 (net of offering cost of $10,617) of which, $2,869,412 was received in advance, in
2018.
On October 24, 2019, the Company entered into a common stock purchase agreement with Aspire Capital, which provides that the Company
may offer under certain conditions to Aspire Capital up to an aggregate of $10.9 million of the Company's common shares over 30 months.
During the twelve months ended December 31, 2019, the Company issued 750,861 common shares to Aspire Capital, 101,810 shares were
issued in consideration for entering into the purchase agreement, and 649,051 shares were issued for cash. The agreement with Aspire
Capital expired during the year ended December 31, 2020.
Right to Warrants
Pursuant to the Merger Agreement (see Note 3), Flex Pharma distributed one right per share of common stock to stockholders of record as
of the close of business on July 18, 2019. Each right entitled such stockholders to receive a warrant to purchase the Company's common
shares on January 20, 2020. These warrants are exercisable, in the aggregate, into 142,711 shares of the Company's common stock with a
5-year term from January 20, 2020, and an exercise price of $15.17 per share. The warrants are subject to a cashless exercise, at the option
of the Company, at the closing of an issuance and sale of the Company’s common stock in certain qualified financing, upon the closing of
which the holders of warrants shall be entitled to receive a number of shares of common stock equal to the greater of two formulae defined
by the Merger Agreement, which are based on the volume weighted average price of the Company's common stock during the 10
consecutive trading days ending on the trading day immediately preceding the date of exercise. As a result, the warrants have been
classified as a liability.
The Company accounted for these warrants at fair value using Level 3 inputs. The Company determined the fair value of this warrant liability
using a Black-Scholes valuation model as the Company believes the value will closely approximate the value from the binomial asset pricing
model that consisted of a conditional probability weighted expected return method that values the Company’s equity securities assuming
various possible future outcomes to estimate the allocation of value within one or more of the scenarios. Using this method, unobservable
inputs included the Company’s equity value, expected timing of possible outcomes, risk free interest rates and stock
price volatility.
Variables used in the Black-Scholes model are as follows:
December 31, 2020
December 31, 2019
Discount rate
Expected life (years)
Expected volatility
Expected dividend
Wedbush Warrant
1.69 %
5.06 years
105.93 %
— %
0.27 %
4.06 years
130.56 %
— %
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On July 19, 2019, upon the closing of the merger, the Company elected to issue warrants to purchase 42,928 common shares to Wedbush
Securities Inc. ("Wedbush") to satisfy $0.5 million of the $1.0 million success fee payable to Wedbush at the closing of the merger. The
remaining $0.5 million success fee was paid in cash. These warrants have an exercise price of $18.90 and a 5-year term. As of
December 31, 2020, all warrants issued to Wedbush were outstanding.
Warrant Inducement
As discussed above, on February 11, 2020, the Company consummated a registered public offering of 7,101,307 Class A units and
1,246,519 Class B units. Each Class A unit consisted of one share of the Company’s common stock, par value $0.0001 per share, and a five-
year warrant to purchase one share of common stock at an exercise price of $1.15 per share (each a “Warrant”). Each Class B unit consisted
of one share of the Company’s Series A convertible preferred stock, par value $0.0001 per share, and a Warrant. On December 11, 2020,
the Company entered into warrant exercise inducement offer letters (“Inducement Letters”) with certain holders of 3,964,065 Warrants
(collectively, the “Exercising Holders”) pursuant to which such holders agreed to exercise on December 11, 2020 for cash, their Warrants to
purchase 3,964,065 shares of Common Stock in exchange for the Company’s agreement to (i) lower the exercise price of the Warrants held
by the Exercising Holders to $0.90 and (ii) issue new warrants (the “Inducement Warrants”) to purchase up to 3,964,065 shares of Common
Stock. Each Inducement Warrant is exercisable at a price per share of $1.182 and expires on June 11, 2026.
This issuance of Inducement Warrants increased the fair value to these certain warrant holders by approximately $0.4 million. This increase
in fair value is recorded in additional paid in capital due to the accumulated deficit and it increased the net loss available to common
shareholders on the consolidated statement of operations.
8. EQUITY-BASED COMPENSATION
Equity Incentive Plans
The Company has granted options to employees, directors, and consultants under the Salarius Pharmaceuticals, Inc. 2015 Equity Incentive
Plan as amended and restated effective as of June 19, 2020 (the "2015 Plan"). On July 19, 2019, the Company completed a merger with
Flex Pharma and Flex Pharma had fully vested options to purchase 90,279 common shares outstanding as of the date of the merger and
34,385 of these options continue to be exercisable as of December 31, 2020. The 2015 Plan provides for the grant of incentive stock options
("ISOs"), nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance-based stock
awards and other stock-based awards. Additionally, the 2015 Plan provides for the grant of performance-based cash awards. ISOs may be
granted only to the Company's employees. All other awards may be granted to the Company's employees, including officers, and to non-
employee directors and consultants. As of December 31, 2020 and 2019, there were 108,348 and 25,145 shares, respectively, remaining
available for the grant of stock awards under the 2015 Plan.
The Company has awarded stock options to its employees, directors and consultants, pursuant to the plan described above. Stock options
generally vest over one to four years and have a contractual term of ten years. Stock options are valued using the Black-Scholes option
pricing model and compensation cost is recognized based on the resulting value over the service period. Expected volatilities utilized in the
model are based on implied volatilities from traded stocks of peer companies. Similarly, the dividend yield is based on historical experience
and the estimate of future dividend yields. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of
grant. The expected term of the options is based on the average period the stock options are expected to remain outstanding. The fair value
of the option grants of $1,196,469 and $642,360 respectively, has been estimated with the following assumptions for the year ended
December 31, 2020 and 2019:
Risk-free interest rate
Volatility
Expected life (years)
Expected dividend yield
2020
0.28%-0.555%
113.17%-130.41%
5-6 years
0.00%
2019
1.61%
103.70%
5.79
0.00%
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The following table summarizes stock option activity for employees and non-employees for the twelve months ended December 31, 2020 and
2019:
Outstanding at December 31, 2018
Granted
Options from Flex Pharma
Exercised
Forfeited
Expired
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic
Value
— $
—
Shares
— $
101,082
65,151
—
—
—
Weighted-
Average
Exercise Price
—
8.00
75.42
—
—
—
166,233 $
84,321 $
1,468,118 $
—
36,613
33,766
1,563,972 $
73,975 $
34.42
60.09
0.93
2.44
35.89
6.53 $
3.45 $
—
—
4.87 $
5.41 $
175,770
—
As of December 31, 2020 and 2019, there was approximately $1.34 million and $0.5 million of total unrecognized compensation cost,
respectively, related to unvested stock options. Total unrecognized compensation cost will be adjusted for future changes in employee and
non-employee forfeitures, if any. The Company expects to recognize that cost over a remaining weighted-average period of 1.65 years.
On September 10, 2019, the Company granted 101,082 stock options, in the aggregate, to certain employees, directors and a consultant.
These awards vest monthly over 3 months to 4 years as continuous services are provided, and expense is being recognized over this period.
During the year ended December 31, 2020, the Company granted 1,468,118 stock options, in the aggregate, to certain employees and
directors. These award vest over 4.5 months to 4 years as continuous services are provided, and expense is being recognized over this
period.
During the year ended December 31, 2020, the Company granted 24,145 shares common stock to its Employee Stock Purchase Plan
("ESPP") participants. Fair value of the grants are valued using the Black-Scholes option pricing model and compensation cost is recognized
based on the resulting value over the derived service period.
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9. INCOME TAX
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized
differently in the financial statements and tax returns. Under this method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of liabilities and assets using enacted tax rates and laws in effect
in the years in which the differences are expected to reverse. Deferred tax assets are evaluated for realization based on a more-likely-than-
not criteria in determining if a valuation allowance should be provided. The ultimate realization of deferred tax assets is dependent upon the
Company attaining future taxable income during periods in which those temporary differences become deductible.
As of December 31, 2020 and 2019, the Company had deferred tax assets of $2.8 million and $1 million, respectively, against which a full
valuation allowance had been recorded. The change in the valuation allowance for the year ended December 31, 2020 was an increase of
$1.9 million. The increase in the valuation allowance for the year ended December 31, 2020 was mainly attributable to increases in net
operating losses and capitalization of research and development expenses, which resulted in an increase in the deferred tax assets with a
corresponding valuation allowance. Significant components of the Company’s deferred tax assets at December 31, 2020 and 2019 were as
follows:
December 31
2020
2019
Capitalized R&D Expenses
Other Deferred Items
Stock Compensation
Net Operating Loss - US
R&D Credits
Net deferred tax assets (liabilities)
Valuation Allowance
Net deferred tax assets (liabilities)
$
$
$
1,725,015 $
87,432
28,048
673,186
325,329
2,839,010 $
(2,839,010)
— $
—
(5,174)
70,108
887,947
—
952,881
(952,881)
—
A reconciliation of the federal statutory tax rate and the effective tax rates for the year ended December 31, 2020 is as follows:
Federal Tax at Statutory Rate
Permanent
Change in VA
Other items
R&D Credit
Effective Tax Rate
December 31
2020
2019
21.00 %
0.63 %
(25.65)%
(0.40)%
4.42 %
— %
21.00 %
(8.69)%
(12.31)%
— %
— %
— %
The Company had approximately $3.2 million and $4.2 million of Federal gross net operating loss (“NOL”) carryforwards as of December 31,
2020 and 2019, respectively. Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net
operating loss carry forwards and R&D credits could be subject to annual limitations against taxable income in future periods, which could
substantially limit the eventual
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utilization of such carry forwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial
ownership and therefore no determination has been made whether the net operating loss carry forward is subject to any Internal Revenue
Code Section 382 limitation. To the extent there is a limitation, there could be a reduction in the deferred tax asset with an offsetting reduction
in the valuation allowance.
The Federal net operating loss carryforward of $3.2 million have an indefinite life, while the R&D credits of $0.33 million begin to expire in
2039.
10. PAYROLL PROTECTION PROGRAM
On April 13, 2020, the Company was granted a loan of approximately $0.18 million from the Paycheck Protection Program ("PPP")
established under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The loan matures on April 13, 2022 and bears
interest at a rate of 1% per annum. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying
expenses as described in the CARES Act. The proceeds of the loan were used in full to pay for payroll disbursement after it was received,
which the Company expects to comply with the PPP eligibility and loan forgiveness criteria. As such, the loan was accounted as a
government grant. The Company will continually reassess its ability to meet the forgiveness conditions, and it may have to reverse income if
it can no longer support a conclusion that it expects to meet the conditions.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES
Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments,
net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased
limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We
continue to examine the impact of the CARES Act. Currently, we are unable to determine the impact, if any, that the CARES Act will have on
our business, financial condition or results of operations.
11. SUBSEQUENT EVENTS
On March 8, 2021 the Company completed a public offering of common stock with total gross proceeds of $23 million and issued 16,806,722
shares of common stock.
On February 11, 2021, the Company completed an At the Marketing Offering ("ATM offering") with total gross proceeds of approximately
$6.3 million. Total common shares sold in the ATM offering were 2,820,490, with an average selling price of $2.24 per share.
During the subsequent period, the Company received approximately $1.5 million from warrants exercised for cash.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC,
and that such information is accumulated and communicated to our management, including our principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required disclosures.
As of December 31, 2020, our management, including our principal executive officer and principal financial officer, had evaluated the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-
15(e)) pursuant to Rule 13a-15(b) under the Exchange Act. Based upon and as of the date of the evaluation, our principal executive officer
and principal financial officer concluded that
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information required to be disclosed is recorded, processed, summarized and reported within the specified periods and is accumulated and
communicated to management, including our principal executive officer and principal financial officer, to allow for timely decisions regarding
required disclosure of material information required to be included in our periodic SEC reports. In connection with the audit of our
consolidated financial statements as of and for the years ended December 31, 2017 and 2018, we identified a material weakness in our
internal control over financial reporting related to the failure to evaluate or identify the accounting implication of various transactions which
was mainly due to the lack of accounting personnel with necessary knowledge and experience related to financial reporting. During the year
ended December 31, 2019, we designed and implemented processes and internal controls to remediate this material weakness. We
engaged consultants and added accounting personnel, including a Chief Financial Officer and Controller, with necessary knowledge and
experience. With the oversight of senior management and our audit committee, we have taken steps to remediate the underlying causes of
the material weakness. Based on the foregoing, our management determined that our disclosure controls and procedures were effective as
of December 31, 2020.
No change in our company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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). Under the supervision and with the participation of our management, including our principal
executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2020 based on the framework in Internal Control—Integrated Framework 2013 issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31, 2020.
Item 9B. Other Information
Management Changes
On March 18, 2020, Mr. Scott Jordan, who currently serves as our Chief Business Officer, notified us of his intention to resign, effective April
30, 2020. Mr. Jordan's resignation is not the result of any disagreement with our board of directors or the Company on any matter relating to
its operations, policies or practices.
In addition, on March 18, 2020, we entered into a Separation and Release Agreement (the "Separation Agreement") with Mr. Jordan in
connection with his resignation. Pursuant to the Separation Agreement, Mr. Jordan will receive benefits and payments related to his
resignation consisting of (i) a severance payment equal to eleven months of Mr. Jordan's current base salary and (ii) reimbursements for
health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 until the earlier of (x) eleven months from the
effective date of Mr. Jordan's resignation and (y) the date Mr. Jordan becomes covered under another employer group health plan.
On March 9, 2020, we entered into a Consulting Agreement (the "Consulting Agreement") with Mr. Bruce McCreedy who currently serves as
a director on our board of directors. Pursuant to the terms of the Consulting Agreement, Mr. McCreedy served as our interim Chief Scientific
Officer from the date of the agreement until September 30, 2020.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this item will be set forth under the captions “Election of Directors – Nominees for Election for a Three-Year Term
Until the 2021 Annual Meeting,” “Election of Directors – Directors Continuing in Office Until the 2022 Annual Meeting,” “Election of Directors –
Directors Continuing in Office Until the 2023 Annual Meeting,” “Executive Officers,” “Information Regarding the Board of Directors and
Corporate Governance – Code of Ethics,” “Information Regarding the Board of Directors and Corporate Governance – Information Regarding
Committees of the Board of Directors – Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive
proxy statement to be filed with the SEC, in connection with our 2020 annual meeting of stockholders (the “Proxy Statement”), which is
expected to be filed not later than 120 days after the end of our
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fiscal year ended December 31, 2020, and is incorporated in this report by reference. Certain information required by this item concerning
executive officers is set forth in Part I of this report under the caption “Executive Officers of the Registrant” and is incorporated herein by
reference.
Item 11. Executive Compensation
The information required by this item will be set forth under the captions “Executive and Director Compensation”, “Corporate Governance —
Compensation Committee Interlocks and Insider Participation” and “Information Regarding the Board of Directors and Corporate Governance
— Non-Employee Director Compensation” in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management”
and “Executive and Director Compensation — Equity Compensation Plan Information” in the Proxy Statement and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be set forth under the captions “Certain Related-Person Transactions” and “Corporate Governance
— Director Independence” in the Proxy Statement and is incorporated herein by reference.
Item 14. Principle Accounting Fees and Services
The information required by this item will be set forth under the caption “Ratification of the Selection of Independent Registered Public
Accounting Firm — Principal Accountant Fees and Services” in the Proxy and is incorporated herein by reference.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements.
The response to this portion of Item 15 is set forth under Part II, Item 8 above.
(a)(2) Financial Statement Schedules.
We have omitted these schedules because they are not required, or are not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits.
Exhibit
Number
2.1^
2.2
2.3
2.4
3.1
3.2
3.3
3.5
4.1
4.2
Exhibit Title
Agreement and Plan of Merger, dated January 3, 2019, by and
among Flex Pharma, Inc., Falcon Acquisition Sub, LLC, and
Salarius Pharmaceuticals, LLC
Amendment No. 1 to the Agreement and Plan of Merger, dated
June 27, 2019, by and among Flex Pharma, Inc., Falcon
Acquisition Sub, LLC, and Salarius Pharmaceuticals, LLC
Waiver No. 1 to the Agreement and Plan of Merger, dated July
18, 2019, by and among Flex Pharma, Inc., Falcon Acquisition
Sub, LLC, and Salarius Pharmaceuticals, LLC
Asset Purchase Agreement, dated July 23, 2019, by and among
the Registrant, Flex Innovation Group LLC and Cliff-Cartwright
Corporation
Amended and Restated Certificate Amended and Restated
Certificate of Incorporation of the Registrant Incorporation of the
Registrant
Certificate of Amendment of Certificate of Incorporation of the
Registrant filed with the Secretary of State of Delaware on July
18, 2019
Amended and Restated Bylaws of the Registrant, effective July
19, 2019
Certificate of Designation of Preferences, Rights and Limitations
of Series A Convertible Preferred Stock, dated February 10,
2020.
Form of Common Stock Certificate of Form of Common Stock
Certificate of Registrant
Registration Rights Agreement, dated October 24, 2019, by and
between the Registrant and Aspire Capital Fund
77
Filed with
this Form
10-K
Incorporated by Reference
Form
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
S-1
8-K
File No.
001-36812
Exhibit 2.1
001-36812
Exhibit 2.1
001-36812
Exhibit 2.3
001-36812
Exhibit 2.1
001-36812
Exhibit 3.1
001-36812
Exhibit 3.1
001-36812
Exhibit 3.2
001-36812
Exhibit 3.1
333-201276
Exhibit 4.1
001-36812
Exhibit 4.1
Date Filed
01/04/2019
07/01/2019
07/22/2019
07/24/2019
02/09/2015
07/22/2019
07/22/2019
02/12/2020
12/29/2014
10/28/2019
Table of Contents
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Form of Indenture between Flex Pharma, Inc. and one or more
trustees to be named
Form of Common Stock Warrant Agreement and Warrant
Certificate between Flex Pharma, Inc. and one or more warrant
agents to be named.
Form of Preferred Stock Warrant Agreement and Warrant
Certificate between Flex Pharma, Inc. and one or more warrant
agents to be named.
Form of Debt Securities Warrant Agreement and Warrant
Certificate between Flex Pharma, Inc. and one or more warrant
agents to be named
Form of Common Stock Purchase Form of Common Stock
Purchase Warrant
Form of Preferred Stock Form of Preferred Stock Certificate of
Registrant
Common Stock Purchase Warrant dated February 11, 2020
4.10
Form of Inducement Warrant dated December 11, 2020
4.11
10.1+
10.2*
10.3*
10.4*
10.5+
10.6+
10.7+
10.8+
10.9+
x
Description of Registrant's Securities
Form of Indemnification Agreement between the Registrant and
its directors and officers
Exclusive License Agreement, dated August 3, 2011, between
the University of Utah Research Foundation and Salarius
Pharmaceuticals, LLC
Exclusive Pharmaceutical Sublicense Agreement, dated
November 25, 2016, between HLB LifeScience Co., Ltd.
Cancer Research Grant Contract, dated June 1, 2016, between
the Cancer Prevention and Research Institute of Texas and
Salarius Pharmaceuticals, LLC
Amended and Restated Executive Employment Agreement,
dated February 5, 2019, between David J. Arthur and Salarius
Pharmaceuticals, LLC
Amendment to Amended and Restated Executive Employment
Agreement dated September 10, 2019, among David J. Arthur,
the Registrant and Salarius Pharmaceuticals, LLC
Separation and Release Agreement between Scott Jordan and
the Registrant, dated March 18, 2020
Offer of Employment with the Registrant dated September 11,
2019 between Mark Rosenblum and the Registrant
Consulting Agreement between Bruce McCreedy and the
Registrant, dated March 6, 2020
78
S-3
S-3
S-3
S-3
S-1/A
S-1/A
8-K
8-K/A
8-K
S-4
S-4
S-4
S-4
8-K
10-K
8-K
10-K
333-231010
Exhibit 4.4
333-231010
Exhibit 4.6
333-231010
Exhibit 4.7
333-231010
Exhibit 4.8
333-235879
Exhibit 4.8
333-235879
Exhibit 4.9
001-36812
Exhibit 4.1
001-36812
Exhibit 4.1
001-36812
Exhibit 10.1
333-229666
Exhibit 10.1
333-229666
Exhibit 10.2
333-229666
Exhibit 10.3
333-229666
Exhibit 10.5
001-36812
Exhibit 10.5
001-36812
Exhibit 10.7
001-36812
Exhibit 10.1
001-36812
Exhibit 10.9
04/24/2019
04/24/2019
04/24/2019
04/24/2019
02/06/2020
02/06/2020
02/12/2020
12/11/2020
07/22/2019
02/14/2019
02/14/2019
02/14/2019
02/14/2019
09/16/2019
03/23/2020
09/16/2019
03/23/2020
Table of Contents
10.10+
10.11
10.12
10.13+
10.14+
Forms of Stock Option Agreement, Notice of Exercise and Stock
Option Grant Notice under the Flex Pharma, Inc. 2015 Equity
Plan
Common Stock Purchase Agreement, dated October 24, 2019
between Salarius Pharmaceuticals, Inc. and Aspire Capital
Fund, LLC
Employment Agreement between Mark J. Rosenblum and
Salarius Pharmaceutical, Inc., dated April 24, 2020
Salarius Pharmaceuticals, Inc., 2015 Equity Incentive Plan, as
amended
Salarius Pharmaceuticals, Inc., 2015 Employee Stock Purchase
Plan, as amended
10.15+
Form of Inducement Letter dated December 11, 2020
10.16
Subsidiaries of the Registrant
10-K
001-36812
Exhibit 10.4
03/24/2015
8-K
8-K
8-K
8-K
8-K
S-1
001-36812
Exhibit 10.1
001-36812
Exhibit 10.1
001-36812
Exhibit 10.1
001-36812
Exhibit 10.2
001-36812
Exhibit 10.1
333-235879
Exhibit 21
10/28/2019
4/29/2020
06/19/2020
06/19/2020
12/11/2020
01/10/2020
32.1
31.2
23.1
24.1
31.1
Consent of Ernst & Young LLP
Power of attorney (included on Signature Page)
Certification of Principal Executive Officer Pursuant to Securities
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial and Accounting Officer
Pursuant to Securities Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH XBRL Schema Document
101.CAL
101.DEF
101.LAB
101.PRE
XBRL Calculation Linkbase Document
XBRL Definition Linkbase Document
XBRL Label Linkbase Document
XBRL Presentation Linkbase Document
32.2
X
X
X
X
X
X
X
X
X
X
X
X
^
*
+
The schedules and exhibits to this exhibit have been omitted pursuant to Item
601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be
furnished to the SEC upon request.
Portions of this exhibit have been omitted and provided separately to the SEC
pursuant to a request for confidential treatment.
Management contract or compensatory plans or arrangements.
Item 16. Form 10-K Summary
79
Table of Contents
None.
80
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly authorized.
March 18, 2021 SALARIUS PHARMACEUTICALS, INC.
SIGNATURES
By: /s/ David J. Arthur
David J. Arthur
President & Chief Executive Officer
Each of the undersigned officers and directors of Salarius Pharmaceuticals, Inc., hereby constitutes and appoints David J. Arthur and Mark J.
Rosenblum, their true and lawful attorney-in-fact and agent, for them and in their name, place and stead, in any and all capacities, to sign
their name to any and all amendments to this Report on Form 10-K, and other related documents, and to cause the same to be filed with the
Securities and Exchange Commission, granting unto said attorneys, full power and authority to do and perform any act and thing necessary
and proper to be done in the premises, as fully to all intents and purposes as the undersigned could do if personally present, and the
undersigned for himself hereby ratifies and confirms all that said attorney shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated
SIGNATURE
TITLE
/s/ William K. McVicar William K. McVicar Chairman of the Board
/s/ David J. Arthur David J. Arthur
/s/ Mark J. Rosenblum Mark J.
Rosenblum
/s/ Tess Burleson Tess Burleson
/s/ Arnold Hanish
Arnold Hanish
/s/ Paul Lammers Paul Lammers
/s/ Jon Lieber
Jon Lieber
/s/ Bruce McCreedy Bruce McCreedy
Director, President & Chief Executive Officer (Principal
Executive Officer)
Chief Financial Officer (Principal Financial and Accounting
Officer)
Director
Director
Director
Director
Director, Interim Chief Scientific Officer
DATE
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
Exhibit 4.11
DESCRIPTION OF THE COMPANY’S SECURITIES REGISTERED
UNDER SECTION 12 OF THE EXCHANGE ACT OF 1934
The summary of general terms and provisions of the capital stock of Salarius Pharmaceuticals, Inc. (the “Company”) set forth below does not purport to be
complete and is subject to and qualified by reference to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of
Incorporation”) and Amended and Restated Bylaws (the “Bylaws,” and together with the Certificate of Incorporation, the “Charter Documents”), each of
which is included as an exhibit to the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and
incorporated by reference herein. For additional information, please read the Charter Documents and the applicable provisions of the Delaware General
Corporation Law (the “DGCL”).
Authorized Capital Stock
The Company is authorized to issue up to 110,000,000 shares, of which (i) 100,000,000 have been designated common stock, par value $0.0001 per share
(“Common Stock”), and (ii) 10,000,000 have been designated preferred stock, par value $0.0001 per share (“Preferred Stock”).
Common Stock
Voting Rights
The holders of shares of Common Stock have the exclusive power to vote on all matters presented to the Company’s stockholders unless Delaware law or
the certificate of designation for an outstanding series of Preferred Stock gives the holders of that series of Preferred Stock the right to vote on certain
matters. Each holder of shares of Common Stock is entitled to one vote per share.
When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the Common Stock entitled to vote and present in
person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the
Charter Documents or by law, a different vote is required in which case such express provision shall govern and control the decision of such question.
Directors are elected by a plurality of the voting power of the shares present in person or represented by proxy and entitled to vote on the election of
directors at a meeting at which a quorum is present, and stockholders are not entitled to cumulate their votes for the election of directors.
Dividend Rights
Subject to any prior rights of any Preferred Stock then outstanding, the holders of shares of Common Stock are entitled to receive dividends ratably out of
funds legally available, when and if declared by the Company’s board of directors (the “Board”).
No Preemptive or Similar Rights
The Common Stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
If the Company becomes subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to the stockholders of the Company
would be distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time, subject to prior
satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of
Preferred Stock.
Anti-Takeover Provisions in Charter Documents
Certain provisions of the Charter Documents, which are summarized below, may have the effect of delaying, deferring or preventing another person from
acquiring control of the Company. These provisions may discourage takeovers, coercive or otherwise, and are also designed, in part, to encourage persons
seeking to acquire control of the Company to negotiate first with the Board. The Company believes that the benefits of increased protection of the
Company’s potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire the
Company because negotiation of these proposals could result in an improvement of their terms. These provisions include the following:
Board of Directors Vacancies. Pursuant to the Charter Documents, the Board may fill vacant directorships. In addition, directors may only be
removed for cause and only upon the affirmative vote of at least sixty-six and two-thirds percent of the voting power of outstanding voting stock. In
addition, the number of directors constituting the Board may be set only by a resolution adopted by a majority vote of the Board. These provisions may
have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company and will make it more
difficult to change the composition of the Board, which will promote continuity of management.
Classified Board. The Charter Documents provide that the Board is classified into three classes of directors, with each class serving three-year
staggered terms. A third-party may be discouraged from making a tender offer or otherwise attempting to obtain control of the Company as it is more
difficult and time-consuming for stockholders to replace a majority of the directors on a classified board of directors.
Stockholder Action; Special Meeting of Stockholders. Pursuant to Section 228 of the Delaware General Corporation Law (“DGCL”), any action
required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a
consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at which all shares of stock entitled to vote thereon were present and voted,
unless the Certificate of Incorporation provides otherwise. The Certificate of Incorporation provides that stockholders may not take action by written
consent but may only take action at annual or special meetings of stockholders. As a result, a holder controlling a majority of the Company’s capital stock
would not be able to amend the Bylaws or remove directors without holding a meeting of stockholders called in accordance with the Charter Documents.
The Bylaws provides that special meetings of the stockholders may be called only upon a resolution approved by a majority of the total number of directors
that the Company would have if there were no vacancies. These provisions might delay the ability of the Company’s stockholders to force consideration of
a proposal or for stockholders controlling a majority of the Company’s capital stock to take any action, including the removal of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations. The Bylaws provide advance notice procedures for
stockholders seeking to bring business before the Company’s annual meeting of stockholders or to nominate candidates for election as directors at the
Company’s annual meeting of stockholders. The Bylaws specify certain requirements regarding the form and content of a stockholder’s notice and prohibit
the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions might preclude stockholders from
bringing matters before the Company’s annual meeting of stockholders or from making nominations for directors at the Company’s annual meeting of
stockholders if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of
proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
No Cumulative Voting. The DGCL provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s
certificate of incorporation provides otherwise. The Certificate of Incorporation does not provide for cumulative voting.
Amendment of Charter Provisions and Bylaws. The Charter Documents provides that the Bylaws may be adopted, amended, altered or repealed by
either (i) a vote of a majority of the total number of directors of the Board or (ii) in addition to any other vote otherwise required by law, the affirmative
vote of the holders of at least sixty-six and two-thirds percent of the voting power of all of the then outstanding shares of capital stock entitled to vote
generally in the election of directors.
2
Our Charter Documents also provide that the provisions of the Certificate of Incorporation relating to provisions relating to the management of the
business, Board, director liability, indemnification and forum selection., may only be amended, altered, changed or repealed by the affirmative vote of the
holders of at least sixty-six and two-thirds percent of the voting power of all of the Company’s outstanding shares of capital stock entitled to vote generally
in the election of directors, voting together as a single class.
Issuance of Undesignated Preferred Stock. The Board has the authority, without further action by the Company’s stockholders, to designate and
issue shares of preferred stock with rights and preferences, including super voting, special approval, dividend or other rights or preferences on a
discriminatory basis. The existence of authorized but unissued shares of undesignated preferred stock would enable the Board to render more difficult or to
discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or other means.
Business Combinations with Interested Stockholders. The Company is subject to the provisions of Section 203 of the DGCL. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with an interested stockholder (i.e.,
subject to certain exceptions, a person or group owning 15% or more of the corporation’s voting stock) for a period of three years following the date the
person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner.
Forum Selection. The Charter Documents provide that unless the Company consents in writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for:
•
•
•
•
any derivative action or proceeding brought on behalf of the Company;
any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Company to the
Company or the Company’s stockholders;
any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of the Company to the
Company or its stockholders; and
any action asserting a claim against Salarius governed by the internal affairs doctrine.
in each such case, subject to such Court of Chancery of the State of Delaware having personal jurisdiction over the indispensable parties named as
defendants therein. The Charter Documents also provides that any person or entity purchasing or otherwise acquiring any interest in shares of the
Company’s capital stock will be deemed to have notice of, and to have consented to, this forum selection provision.
Although these provisions benefit the Company by providing increased consistency in the application of Delaware law for the specified types of actions
and proceedings, the provisions may have the effect of increasing the costs of and discouraging lawsuits against the Company’s directors, officers,
employees and agents. The enforceability of similar exclusive forum provisions in other companies’ charters has been challenged in legal proceedings, and
it is possible that, in connection with one or more actions or proceedings described above, a court could rule that this provision in the Certificate of
Incorporation is inapplicable or unenforceable. For example, the choice of forum provisions summarized above are not intended to, and would not, apply to
suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other claim for which
the federal courts have exclusive jurisdiction. Additionally, there is uncertainty as to whether the Company’s choice of forum provisions would be
enforceable with respect to suits brought to enforce any liability or duty created by the Securities Act of 1933, as amended (the “Securities Act”), or other
claims for which the federal courts have concurrent jurisdiction, and in any event stockholders will not be deemed to have waived the Company’s
compliance with federal securities laws and rules and regulations thereunder.
Listing
The Common Stock is listed on the Nasdaq under the symbol “SLRX.”
3
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-201816) pertaining to the 2014 Equity Incentive Plan, 2015 Equity Incentive Plan
and 2015 Employee Stock Purchase Plan of Salarius Pharmaceuticals, Inc. (formerly known as Flex Pharma, Inc.);
(2) Registration Statement (Form S-8 Nos. 333-210283, 333-216534, 333-223499, 333-230104 and 333-246310) pertaining to
the 2015 Equity Incentive Plan and 2015 Employee Stock Purchase Plan of Salarius Pharmaceuticals, Inc. (formerly known
as Flex Pharma, Inc.);
(3) Registration Statement (Form S-3 No. 333-231010 and 333-252169) of Salarius Pharmaceuticals, Inc. (formerly known as
Flex Pharma, Inc.);
(4) Registration Statement (Form S-1 No. 333-235879) of Salarius Pharmaceuticals, Inc.
of our report dated March 18, 2021, with respect to the consolidated financial statements of Salarius Pharmaceuticals, Inc.
included in this Annual Report (Form 10-K) of Salarius Pharmaceuticals, Inc. for the year ended December 31, 2020.
/s/ Ernst & Young LLP
Houston, Texas
March 18, 2021
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David J. Arthur, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Salarius Pharmaceuticals, Inc. for the year ended December 31, 2020;
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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me 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 my
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 my 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
5.
the registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
all significant deficiencies and material weakness 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.
Dated: March 18, 2021
By:
/s/ David J. Arthur
Name: David J. Arthur
Title: Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Rosenblum, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2020 of Salarius Pharmaceuticals, Inc.;
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:
a.
b.
c.
d.
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
5.
the registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
b.
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.
Dated: March 18, 2021
By:
/s/ Mark Rosenblum
Name: Mark Rosenblum
Title: Chief Financial Officer
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2020 of Salarius Pharmaceuticals,
Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J.
Arthur, 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:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 18, 2021
By:
/s/ David J. Arthur
Name: David J. Arthur
Title: Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2020 of Salarius Pharmaceuticals,
Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark
Rosenblum, Chief Financial 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:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Dated: March 18, 2021
By:
/s/ Mark Rosenblum
Name: Mark Rosenblum
Title: Chief Financial Officer
(Principal Financial Officer)