UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal Year Ended December 31, 2014
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
Commission File No. 000-16929
SOLIGENIX, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
29 EMMONS DRIVE, SUITE C-10
PRINCETON, NJ
(Address of principal executive offices)
41-1505029
(I.R.S. Employer
Identification Number)
08540
(Zip Code)
(609) 538-8200
(Registrant’s telephone number, including area code)
Securities registered under Section 12 (b) of the Exchange Act:
Title of Each Class
Common Stock, par value $.001 per share
Name of Each Exchange on Which Registered
OTCQB
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No R
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No R
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes R No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 10-K or any amendments to this
Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £
Accelerated filer £
Non-accelerated filer £
Smaller reporting company R
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $26,533,000 (assuming, for this purpose, that
executive officers, directors and holders of 10% or more of the common stock are affiliates), based on the closing price of the registrant’s common stock as
reported on the Over-the-Counter Bulletin Board on June 30, 2014.
As of March 17, 2015, 25,168,354 shares of the registrant’s Common Stock, par value $0.001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
SOLIGENIX, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2014
Table of Contents
Description
Part I
Part II
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Item
1.
1A.
1B.
2.
3.
5.
6.
7.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
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
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Part III
Part IV
Exhibits and Financial Statement Schedules
15.
Signatures
Consolidated Financial Statements
Page
3
25
41
41
41
42
42
43
50
50
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51
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57
60
62
63
64
68
F-1
Item 1. Business
PART I
This Annual Report on Form 10-K contains statements of a forward-looking nature relating to future events or our future financial performance. These
statements are only predictions and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various
factors identified in this report that could cause actual results to differ materially from those indicated in any forward-looking statements, including those set
forth in “Risk Factors” in this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward Looking Statements.”
Our Business Overview
We are a late-stage biopharmaceutical company developing product candidates intended to address unmet medical needs in areas of inflammation, oncology,
and biodefense. We maintain two active business segments: BioTherapeutics and Vaccines/BioDefense.
Our BioTherapeutics business segment is developing a first-in-class photo-dynamic therapy (SGX301) utilizing safe, visible light for the treatment of
cutaneous T-cell lymphoma (“CTCL”), proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment of
gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201),
and our novel innate defense regulator (“IDR”) technology (SGX942) for the treatment of oral mucositis in head and neck cancer.
Our Vaccines/BioDefense business segment includes active development programs for RiVax™, our ricin toxin vaccine candidate, VeloThrax™, our anthrax
vaccine candidate, OrbeShield™, our GI acute radiation syndrome (“GI ARS”) therapeutic candidate and SGX943, our melioidosis therapeutic candidate.
The development of our vaccine programs is supported by our heat stabilization technology, known as ThermoVax™, under existing and on-going
government contract funding. With the recently awarded government contract from the National Institute of Allergy and Infectious Diseases (“NIAID”), we
will attempt to advance the development of RiVax™ to protect against exposure to ricin toxin. We plan to use the funds received under our government
contracts with the Biomedical Advanced Research and Development Authority (“BARDA”) and NIAID to advance the development of OrbeShield™ for the
treatment of GI ARS. Additionally, we have entered into a global and exclusive channel collaboration with Intrexon Corporation (“Intrexon”) through which
we intend to develop and commercialize a human monoclonal antibody therapy (SGX101) to treat melioidosis.
An outline for our business strategy follows:
● Conduct a Phase 3 clinical trial for SGX301 for the treatment of CTCL;
● Conduct a Phase 2 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;
● Initiate a Phase 3 clinical trial of oral BDP, known as SGX203, for the treatment of pediatric Crohn’s disease;
● Evaluate the effectiveness of oral BDP in other therapeutic indications involving inflammatory conditions of the GI tract such as prevention of acute
radiation enteritis;
● Develop RiVax™ and VeloThrax™ in combination with our ThermoVax™ technology, to develop new heat stable vaccines in biodefense and
infectious diseases with the potential to collaborate and/or partner with other companies in these areas;
● Advance the preclinical and manufacturing development of OrbeShield™ as a biodefense medical countermeasure for the treatment of GI ARS;
● Continue to apply for and secure additional government funding for each of our BioTherapeutics and Vaccines/BioDefense programs through grants,
contracts and/or procurements;
● Acquire or in-license new clinical-stage compounds for development; and
● Explore other business development and merger/acquisition strategies, an example of which is our collaboration with Intrexon.
3
Corporate Information
We were incorporated in Delaware in 1987 under the name Biological Therapeutics, Inc. In 1987, we merged with Biological Therapeutics, Inc., a North
Dakota corporation, pursuant to which we changed our name to “Immunotherapeutics, Inc.” We changed our name to “Endorex Corp.” in 1996, to “Endorex
Corporation” in 1998, to “DOR BioPharma, Inc.” in 2001, and finally to “Soligenix, Inc.” in 2009. Our principal executive offices are located at 29 Emmons
Drive, Suite C-10, Princeton, New Jersey 08540 and our telephone number is (609) 538-8200.
Our Products in Development
The following tables summarize our products under development:
BioTherapeutic Product Candidates
Soligenix Product Candidate
SGX301
Therapeutic Indication
Cutaneous T-Cell Lymphoma
SGX942
Oral Mucositis in Head and Neck Cancer
SGX203**
Pediatric Crohn’s disease
SGX201**
Acute Radiation Enteritis
Stage of Development
Phase 2 trial completed; demonstrated significantly
higher response rate (p ≤ 0.04) compared to placebo;
Phase 3 clinical trial planned for the first half of 2015,
with data expected in the second half of 2016
Phase 2 trial initiated in the second half of 2013,
with data expected in the second half of 2015
Phase 1/2 clinical trial completed June 2013, efficacy data,
pharmacokinetic (PK)/pharmacodynamic (PD)
profile and safety confirmed;
Phase 3 clinical trial planned for the second half of 2015,
with data expected in the first half of 2017
Phase 1/2 clinical trial complete;
safety and preliminary efficacy demonstrated;
Phase 2 trial planned for the second half of 2015,
with data expected in the second half of 2016
Vaccine Thermostability Platform**
Soligenix Product
ThermoVax™
Indication
Thermostability of aluminum
adjuvanted vaccines
Stage of Development
Pre-clinical
BioDefense Products**
Soligenix Product
RiVax™
Indication
Vaccine against
Ricin Toxin Poisoning
VeloThrax™
Vaccine against Anthrax Poisoning
Stage of Development
Phase 1B trial complete, safety and neutralizing
antibodies for protection demonstrated;
Phase 1/2 trial planned for the second half of 2015
Pre-clinical;
Phase 1 clinical trial planned for second half of 2016
OrbeShield™
Therapeutic against GI ARS
Pre-clinical program initiated
SGX943/SGX101
Melioidosis
Pre-clinical program initiated
** Contingent upon continued government contract/grant funding or other funding source.
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BioTherapeutics Overview
SGX301 – for Treating Cutaneous T-Cell Lymphoma
SGX301 is a novel, first-in-class, photodynamic therapy that utilizes safe visible light for activation. The active ingredient in SGX301 is synthetic hypericin,
a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours later. Hypericin is also found in several
species of Hypericum plants, although the drug used in SGX301 is chemically synthesized by a proprietary manufacturing process and not extracted from
plants. Importantly, hypericin is optimally activated with visible light thereby avoiding the negative consequences of ultraviolet light. Other light therapies
using UVA light result in serious adverse effects including secondary skin cancers.
Combined with photoactivation, in clinical trials hypericin has demonstrated significant anti-proliferative effects on activated normal human lymphoid cells
and inhibited growth of malignant T-cells isolated from CTCL patients. In both settings, it appears that the mode of action is an induction of cell death in a
concentration as well as a light dose-dependent fashion. These effects appear to result, in part, from the generation of singlet oxygen during photoactivation of
hypericin.
Hypericin is one of the most efficient known generators of singlet oxygen, the key component for phototherapy. The generation of singlet oxygen induces
necrosis and apoptosis in adjacent cells. The use of topical hypericin coupled with directed visible light results in generation of singlet oxygen only at the
treated site. We believe that the use of visible light (as opposed to cancer-causing ultraviolet light) is a major advance in photodynamic therapy. In a published
Phase 2 clinical study in CTCL, after six weeks of twice-weekly therapy, a majority of patients experienced a statistically significant (p-value ≤ 0.04)
improvement with topical hypericin treatment whereas the placebo was ineffective: 58.3% compared to 8.3%, respectively.
SGX301 has received orphan drug designation from the FDA. The Orphan Drug Act is intended to assist and encourage companies to develop safe and
effective therapies for the treatment of rare diseases and disorders. In addition to providing a seven-year term of market exclusivity for SGX301 upon final
FDA approval, orphan drug designation also positions us to be able to leverage a wide range of financial and regulatory benefits, including government grants
for conducting clinical trials, waiver of FDA user fees for the potential submission of a New Drug Application (“NDA”) for SGX301, and certain tax credits.
We anticipate initiating a Phase 3 clinical study of SGX301 in the treatment of CTCL in the first half of 2015.
We estimate the potential worldwide market for SGX301 is in excess of $250 million for all applications, including the treatment of CTCL. This potential
market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined this
potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not be
realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market Information.”
Cutaneous T-Cell Lymphoma
CTCL is a class of non-Hodgkin’s lymphoma (“NHL”), a type of cancer of the white blood cells that are an integral part of the immune system. Unlike most
NHLs, which generally involve B-cell lymphocytes (involved in producing antibodies), CTCL is caused by an expansion of malignant T-cell lymphocytes
(involved in cell-mediated immunity) normally programmed to migrate to the skin. These skin-trafficking malignant T-cells migrate to the skin, causing
various lesions to appear that may change shape as the disease progresses, typically beginning as a rash and eventually forming plaques and tumors. Mycosis
fungoides (“MF”) is the most common form of CTCL. It generally presents with skin involvement only, manifested as scaly, erythematous patches. Advanced
disease with diffuse lymph node and visceral organ involvement is usually associated with a poorer response rate to standard therapies. A relatively
uncommon sub-group of CTCL patients present with extensive skin involvement and circulating malignant cerebriform T-cells, referred to as Sézary
syndrome. These patients have substantially graver prognoses than those with MF.
5
CTCL mortality is related to stage of disease, with median survival generally ranging from about 12 years in the early stages to only 2.5 years when the
disease has advanced. There is currently no FDA-approved drug for front-line treatment of early stage CTCL. Treatment of early-stage disease generally
involves skin-directed therapies. One of the most common unapproved therapies used for early-stage disease is oral 5 or 8-methoxypsoralen (“Psoralen”)
given with ultraviolet A (“UVA”) light, referred to as PUVA, which is approved for dermatological conditions such as disabling psoriasis not adequately
responsive to other forms of therapy, idiopathic vitiligo and skin manifestations of CTCL in persons who have not been responsive to other forms of
treatment. Psoralen is a mutagenic chemical that interferes with DNA causing mutations and other malignancies. Moreover, UVA is a carcinogenic light
source that when combined with the Psoralen, results in serious adverse effects including secondary skin cancers; therefore, the FDA requires a Black Box
warning for PUVA.
CTCL constitutes a rare group of NHLs, occurring in about 4% of the approximate 500,000 individuals living with NHL. We estimate, based upon review of
historic published studies and reports and an interpolation of data on the incidence of CTCL, that it affects over 20,000 individuals in the U.S., with
approximately 2,800 new cases seen annually.
SGX94
SGX94 is an IDR that regulates the innate immune system to simultaneously reduce inflammation, eliminate infection and enhance tissue healing.
SGX94 is based on a new class of short, synthetic peptides known as innate defense regulators (“IDRs”) that have a novel mechanism of action in that it is
simultaneously anti-inflammatory and anti-infective. IDRs have no direct antibiotic activity but modulate host responses, increasing survival after infections
with a broad range of bacterial Gram-negative and Gram-positive pathogens including both antibiotic sensitive and resistant strains, as well as accelerating
resolution of tissue damage following exposure to a variety of agents including bacterial pathogens, trauma and chemo- or radiation-therapy. IDRs represent a
novel approach to the control of infection and tissue damage via highly selective binding to an intracellular adaptor protein, sequestosome-1, also known as
p62, which has a pivotal function in signal transduction during activation and control of the innate defense system. Preclinical data indicate that IDRs may be
active in models of a wide range of therapeutic indications including life-threatening bacterial infections as well as the severe side-effects of chemo- and
radiation-therapy.
SGX94 has demonstrated efficacy in numerous animal disease models including mucositis, colitis, skin infection and other bacterial infections and has been
evaluated in a double-blind, placebo-controlled Phase 1 clinical trial in 84 healthy volunteers with both single ascending dose and multiple ascending dose
components. SGX94 was shown to be safe and well-tolerated in all dose groups when administered by IV over 7 days and was consistent with safety results
seen in pre-clinical studies. SGX94 is the subject of an open Investigational New Drug (“IND”) application which has been cleared by the United States Food
and Drug Administration (the “FDA”). We believe that market opportunities for SGX94 include mucositis, acute methicillin resistant Staphylococcus aureus
(MRSA) bacterial infections, acinetobacter, melioidosis, acute radiation syndrome and as a vaccine adjuvant, with potential opportunities for non-dilutive
funding to support the development.
SGX942 – for Treating Oral Mucositis in Head and Neck Cancer
SGX942 is our product candidate containing our IDR technology platform, SGX94, targeting the treatment of oral mucositis in head and neck cancer patients.
Oral mucositis in this patient population is an area of unmet medical need where there are currently no approved drug therapies. Accordingly, we received
“Fast Track” designation for the treatment of oral mucositis as a result of radiation and/or chemotherapy treatment in head and neck cancer patients from the
FDA in the first half of 2013. Fast Track is a designation that the FDA reserves for a drug intended to treat a serious or life-threatening condition and one that
demonstrates the potential to address an unmet medical need for the condition. Fast Track designation is designed to facilitate the development and expedite
the review of new drugs. For instance, should events warrant, we will be eligible to submit a NDA for SGX942 on a rolling basis, permitting the FDA to
review sections of the NDA prior to receiving the complete submission. Additionally, NDAs for Fast Track development programs ordinarily will be eligible
for priority review.
6
We initiated a Phase 2 clinical study of SGX942 in the treatment of oral mucositis in head and neck cancer patients in the second half of 2013.
We estimate the potential worldwide market for SGX942 is in excess of $500 million for all applications, including the treatment of oral mucositis. This
potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined
this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or
not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market Information.”
Oral Mucositis
Mucositis is the clinical term for damage done to the mucosa by anticancer therapies. It can occur in any mucosal region, but is most commonly associated
with the mouth, followed by the small intestine. We estimate, based upon our review of historic studies and reports, and an interpolation of data on the
incidence of mucositis, that mucositis affects approximately 500,000 people in the U.S. per year and occurs in 40% of patients receiving chemotherapy.
Mucositis can be severely debilitating and can lead to infection, sepsis, the need for parenteral nutrition and narcotic analgesia. TheGI damage causes severe
diarrhea. These symptoms can limit the doses and duration of cancer treatment, leading to sub-optimal treatment outcomes.
The mechanisms of mucositis have been extensively studied and have been recently linked to the interaction of chemotherapy and/or radiation therapy with
the innate defense system. Bacterial infection of the ulcerative lesions is regarded as a secondary consequence of dysregulated local inflammation triggered
by therapy-induced cell death, rather than as the primary cause of the lesions.
We estimate, based upon our review of historic studies and reports, and an interpolation of data on the incidence of oral mucositis, that oral mucositis is a
subpopulation of approximately 90,000 patients in the U.S., with a comparable number in Europe. Oral mucositis almost always occurs in patients with head
and neck cancer treated with radiation therapy (greater than 80% incidence of severe mucositis) and is common in patients undergoing high dose
chemotherapy and hematopoietic cell transplantation, where the incidence and severity of oral mucositis depends greatly on the nature of the conditioning
regimen used for myeloablation.
Oral BDP
Oral BDP (beclomethasone 17,21-dipropionate) represents a first-of-its-kind oral, locally acting therapy tailored to treat GI inflammation. BDP has been
marketed in the U.S. and worldwide since the early 1970s as the active pharmaceutical ingredient in a nasal spray and in a metered-dose inhaler for the
treatment of patients with allergic rhinitis and asthma. Oral BDP is specifically formulated for oral administration as a single product consisting of two
tablets. One tablet is intended to release BDP in the upper sections of the GI tract and the other tablet is intended to release BDP in the lower sections of the
GI tract.
Based on its pharmacological characteristics, oral BDP may have utility in treating other conditions of the gastrointestinal tract having an inflammatory
component. We are planning to pursue development programs in the treatment of pediatric Crohn’s disease, acute radiation enteritis and GI ARS pending
further grant funding. We are also exploring the possibility of testing oral BDP for local inflammation associated with ulcerative colitis, among other
indications.
We are pursuing orphan designations for relevant indications as appropriate in both the US and Europe. An orphan drug designation in the US enables seven
years of market exclusivity upon approval, while the EU approval provides with ten years of market exclusivity.
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SGX203 –for Treating Pediatric Crohn’s Disease
SGX203 is a two tablet delivery system of BDP specifically designed for oral use that allows for administration of immediate and delayed release BDP
throughout the small bowel and the colon. The FDA has given SGX203 orphan drug designation as well as Fast Track designation for the treatment of
pediatric Crohn's disease.
We anticipate initiating a Phase 3 clinical study of SGX203 in the treatment of pediatric Crohn’s disease in the second half of 2015.
We estimate the potential worldwide market for oral BDP is in excess of $500 million for all applications, including the treatment of pediatric Crohn’s
disease. This potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we
have determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our
expectations to change or not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market
Information.”
Pediatric Crohn's Disease
Crohn's disease causes inflammation of the GI tract. Crohn's disease can affect any area of the GI tract, from the mouth to the anus, but it most commonly
affects the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into the lining of the affected organ. The
swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea. Because the symptoms of Crohn's disease are similar to other
intestinal disorders, such as irritable bowel syndrome and ulcerative colitis, it can be difficult to diagnose. People of Ashkenazi Jewish heritage have an
increased risk of developing Crohn's disease.
Crohn's disease can appear at any age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people with Crohn's
disease develop symptoms before 20 years of age. We estimate, based upon our review of historic published studies and reports, and an interpolation of data
on the incidence of Pediatric Crohn’s disease, that Pediatric Crohn's disease is a subpopulation of approximately 80,000 patients in the U.S. with a
comparable number in Europe. Crohn’s disease tends to be both severe and extensive in the pediatric population and approximately 40% of pediatric Crohn’s
patients have involvement of their upper gastrointestinal tract.
Crohn's disease presents special challenges for children and teens. In addition to bothersome and often painful symptoms, the disease can stunt growth, delay
puberty, and weaken bones. Crohn's disease symptoms may sometimes prevent a child from participating in enjoyable activities. The emotional and
psychological issues of living with a chronic disease can be especially difficult for young people.
SGX201 –for Preventing Acute Radiation Enteritis
SGX201 is a delayed-release formulation of BDP specifically designed for oral use. In 2012, we completed a Phase 1/2 clinical trial testing SGX201 in
prevention of acute radiation enteritis. Patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy prior to surgery were
randomized to one of four dose groups. The objectives of the study were to evaluate the safety and maximal tolerated dose of escalating doses of SGX201, as
well as the preliminary efficacy of SGX201 for prevention of signs and symptoms of acute radiation enteritis. The study demonstrated that oral administration
of SGX201 was safe and well tolerated across all four dose groups. There was also evidence of a potential dose response with respect to diarrhea, nausea and
vomiting and the assessment of enteritis according to National Cancer Institute Common Terminology Criteria for Adverse Events for selected
gastrointestinal events. In addition, the incidence of diarrhea was lower than that seen in recent published historical control data in this patient population.
This program was supported in part by a $500,000 two-year Small Business Innovation and Research (“SBIR”) grant awarded by the National Institutes of
Health (“NIH”). We are currently working with our Radiation Enteritis medical advisory board in pursuing additional funding from the NIH to support the
clinical development program.
We have received Fast Track designation from the FDA for SGX201 for acute radiation enteritis.
8
We estimate the potential worldwide market for oral BDP is in excess of $500 million for all applications, including the treatment of acute radiation enteritis.
This potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have
determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to
change or not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market Information.”
Acute Radiation Enteritis
External radiation therapy is used to treat most types of cancer, including cancer of the bladder, uterine, cervix, rectum, prostate, and vagina. During delivery
of treatment, some level of radiation will also be delivered to healthy tissue, including the bowel, leading to acute and chronic toxicities. The large and small
bowels are very sensitive to radiation and the larger the dose of radiation the greater the damage to normal bowel tissue. Radiation enteritis is a condition in
which the lining of the bowel becomes swollen and inflamed during or after radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen
and pelvis need large doses, and almost all patients receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.
Patients with acute enteritis may have nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration and
require hospitalization. With diarrhea, the gastrointestinal tract does not function normally, and nutrients such as fat, lactose, bile salts, and vitamin B 12 are
not well absorbed.
Symptoms will usually resolve within two-six weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness, as over 80% of patients
who receive abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute radiation injury increases the risk of development
of chronic radiation enteropathy, and overall 5% to 15% of the patients who receive abdominal or pelvic irradiation will develop chronic radiation enteritis.
We estimate, based upon our review of historic published studies and reports, and an interpolation of data on the treatment courses and incidence of cancers
occurring in the abdominal and pelvic regions, there to be over 100,000 patients annually in the U.S., with a comparable number in Europe, who receive
abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing acute and chronic radiation enteritis.
Vaccines/BioDefense Overview
ThermoVax™ – Thermostability Technology
Our thermostability technology, ThermoVax™, is a novel method of rendering aluminum salt, (known colloquially as Alum), adjuvanted vaccines stable at
elevated temperatures. Alum is the most widely employed adjuvant technology in the vaccine industry. The value of ThermoVax™ lies in its potential ability
to eliminate the need for cold-chain production, transportation, and storage for Alum adjuvanted vaccines. This would relieve companies of the high costs of
producing and maintaining vaccines under refrigerated conditions. Based on historical reports from the World Health Organization and other scientific
reports, we believe that a meaningful proportion of vaccine doses globally are wasted due to excursions from required cold chain temperature ranges. This is
due to the fact that most Alum adjuvanted vaccines need to be maintained at between 2 and 8 degrees Celsius (“C”) and even brief excursions from this
temperature range (especially below freezing) usually necessitates the destruction of the product or the initiation of costly stability programs specific for the
vaccine lots in question. We believe that the savings realized from the elimination of cold chain costs and related product losses would significantly increase
the profitability of vaccine products. We believe that elimination of the cold chain could further facilitate the use of these vaccines in the lesser developed
parts of the world. ThermoVax™ has the potential to facilitate easier storage and distribution of strategic national stockpile vaccines in emergency settings.
9
ThermoVax™ development was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin (RiVax™) and anthrax
(VeloThrax™) vaccines. Proof-of-concept preclinical studies with ThermoVax™ indicate that it is able to produce stable vaccine formulations using
adjuvants, protein immunogens, and other components that ordinarily would not withstand long temperature variations exceeding customary refrigerated
storage conditions. These studies were conducted with our aluminum-adjuvanted ricin toxin vaccine, RiVax™ and our aluminum-adjuvanted anthrax vaccine,
VeloThrax™. Each vaccine was manufactured, under precise lyophilization conditions using excipients that aid in maintaining native protein structure of the
key antigen. When RiVax™ was kept at 40 degrees C (104 degrees Fahrenheit) for up to one year, all of the animals vaccinated with the lyophilized RiVax™
vaccine developed potent and high titer neutralizing antibodies. In contrast, animals that were vaccinated with the liquid RiVax™ vaccine kept at 40 degrees
C did not develop neutralizing antibodies and were not protected against ricin exposure. The ricin A chain is extremely sensitive to temperature and rapidly
loses the ability to induce neutralizing antibodies when exposed to temperatures higher than 8 degrees C. When VeloThrax™ was kept for up to 16 weeks at
70 degrees C, it was able to develop a potent antibody response, unlike the liquid formulation kept at the same temperature. Moreover, we have also
demonstrated the compatibility of our thermostabilization technology with other secondary adjuvants such as TLR-4 agonists.
We intend to seek out potential partnerships with companies marketing FDA/ex-U.S. health authority approved Alum adjuvanted vaccines that are interested
in eliminating the need for cold chain for their products. We believe that ThermoVax™ also will enable us to expand our vaccine development expertise
beyond biodefense into the infectious disease space and has the potential to allow for the development of multivalent vaccines (e.g., combination ricin-
anthrax vaccine).
RiVax™ – Ricin Toxin Vaccine
RiVax™ is our proprietary vaccine candidate being developed to protect against exposure to ricin toxin, and if approved would be the first ricin vaccine. The
immunogen in RiVax™ induces a protective immune response in animal models of ricin exposure and functionally active antibodies in humans. The
immunogen consists of a genetically inactivated subunit ricin A chain that is enzymatically inactive and lacks residual toxicity of the holotoxin. RiVax™ has
demonstrated statistically significant (p < 0.001) preclinical survival results in a lethal aerosol exposure non-human primate model (Roy et al, 2015,
Thermostable ricin vaccine protects rhesus macaques against aerosolized ricin: Epitope-specific neutralizing antibodies correlate with protection, PNAS Epub
ahead of print March 9, 2015), and has also been shown to be well tolerated and immunogenic in two Phase 1 clinical trials in healthy volunteers. Results of
the first Phase 1 human trial of RiVax™ established that the immunogen was safe and induced antibodies that we believe may protect humans from ricin
exposure. The antibodies generated from vaccination, concentrated and purified, were capable of conferring immunity passively to recipient animals,
indicating that the vaccine was capable of inducing functionally active antibodies in humans. The outcome of this study was published in the Proceedings of
the National Academy of Sciences (Vitetta et al., 2006, A Pilot Clinical Trial of a Recombinant Ricin Vaccine in Normal Humans, PNAS, 103:2268-2273).
The second trial completed in September 2012, sponsored by University of Texas Southwestern Medical Center (“UTSW”), evaluated a more potent
formulation of RiVax™ that contained an aluminum adjuvant (Alum). The results of the Phase 1B study indicated that Alum adjuvanted RiVax™ was safe
and well tolerated, and induced greater ricin neutralizing antibody levels in humans than adjuvant-free RiVax™. The outcomes of this second study were
published in the Clinical and Vaccine Immunology (Vitetta et al., 2012, Recombinant Ricin Vaccine Phase 1B Clinical Trial, Clin. Vaccine Immunol. 10:1697-
9). We have adapted the original manufacturing process for the immunogen contained in RiVax™ for large scale manufacturing and are further establishing
correlates of the human immune response in non-human primates.
The development of RiVax™ has been sponsored through a series of overlapping challenge grants, UC1, and cooperative grants, U01, from the NIH, granted
to Soligenix and to UTSW where the vaccine originated. The second clinical trial was supported by a grant from the FDA’s Office of Orphan Products to
UTSW. To date, we and UTSW have collectively received approximately $25 million in grant funding from the NIH for the development of RiVax™. In
September 2014, we entered into a contract with the NIH for the development of RiVax™ that would provide up to an additional $24.7 million of funding in
the aggregate if options to extend the contract are exercised by the NIH.
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RiVax™ has been granted orphan drug designation by the FDA for the prevention of ricin intoxication.
Assuming development efforts are successful for RiVax™, we believe potential government procurement contract(s) could reach $200 million. This potential
procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have
determined this potential procurement contract value based on assumptions that we believe are reasonable, there are a number of factors that could cause our
expectations to change or not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market
Information.”
Ricin Toxin
Ricin toxin can be cheaply and easily produced, is stable over long periods of time, is toxic by several routes of exposure and thus has the potential to be used
as a biological weapon against military and/or civilian targets. As a bioterrorism agent, ricin could be disseminated as an aerosol, by injection, or as a food
supply contaminant. The potential use of ricin toxin as a biological weapon of mass destruction has been highlighted in a Federal Bureau of Investigations
Bioterror report released in November 2007 titled Terrorism 2002-2005, which states that “Ricin and the bacterial agent anthrax are emerging as the most
prevalent agents involved in WMD investigations” (http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf). In recent years, Al
Qaeda in the Arabian Peninsula has threatened the use of ricin toxin to poison food and water supplies and in connection with explosive devices.
Domestically, the threat from ricin remains a concern for security agencies. As recently as April 2013, letters addressed to the President, a U.S. Senator and a
judge tested positive for ricin.
The Centers for Disease Control has classified ricin toxin as a Category B biological agent. Ricin works by first binding to glycoproteins found on the exterior
of a cell, and then entering the cell and inhibiting protein synthesis leading to cell death. Once exposed to ricin toxin, there is no effective therapy available to
reverse the course of the toxin. The recent ricin threat to government officials has heightened the awareness of this toxic threat. Currently, there is no FDA
approved ricin vaccine, nor is there a known antidote for ricin toxin exposure.
VeloThrax™ – Anthrax Vaccine
VeloThrax™ is our proprietary vaccine candidate based on a recombinant protective antigen (“rPA”) derivative intended for use against anthrax. We have
entered into an exclusive license option with Harvard College to license VeloThrax™ (also known as DNI for dominant negative inhibitor) for a vaccine
directed at the prevention of anthrax infection of humans. VeloThrax™ is a translocation-deficient mutant of a protective antigen with double mutations of
K397D and D425K that impede the conformational changes necessary for endosomal membrane translocation into the cell cytoplasm. In the absence of that
protective antigen translocation step, anthrax toxin trafficking and function cease. We believe that VeloThrax™ is a more immunogenic candidate than native
rPA. This apparent increase in immunogenicity suggests that the DNI rPA is processed and presented to the immune system more efficiently by cellular
antigen processing pathways, which is consistent with known properties of the molecule.
DNI versions of rPA such as VeloThrax™ are also capable of inducing antibodies that neutralize the activity of the anthrax toxin complex. Unlike fully-
functional rPA, VeloThrax™ might be given to a patient post-exposure without risk of enhancing intoxication during an infection, although clinical tests
involving intravenous administration of potentially therapeutic levels of DNI rPA resulted in serious adverse events and so further development of this
product as a therapeutic biological for blocking the effects of infection by B. anthracis was discontinued. Our studies of VeloThrax™ will be at a dose 1,000
times lower than the dose previously tested for an intramuscular or intradermal vaccine.
We believe that VeloThrax™’s greater immunogenicity could lead to a vaccine that can be administered in the fewest possible doses to induce the highest
level of toxin neutralizing antibodies. Utilizing ThermoVax™, we believe that we will be able to develop VeloThrax™ into a vaccine with an improved
stability profile, an issue that has proven challenging in the development of other anthrax vaccines. Extended stability at ambient temperatures would be a
significant improvement for stockpiled vaccines and one which is not expected from conventional vaccines. Assuming long-term stability can be met,
VeloThrax™ could be stockpiled for general prophylactic as well as a post exposure use.
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The overall objective of the VeloThrax™ program is to rapidly and efficiently develop a next generation anthrax vaccine which combines a well-established,
safe and relatively low risk vaccine development and dosing approach with targeted, proven innovative strategies. We expect that VeloThrax™ will combine a
stable, readily manufactured mutant rPA subunit antigen with next generation, clinically compatible adjuvants which have been demonstrated to enhance
potency and reduce the time and number of vaccine doses required to achieve protective titer using a variety of vaccine antigens. We believe that VeloThrax™
has the potential to provide the Public Health Emergency Medical Countermeasures Enterprise (“PHEMCE”) and the DoD with a safe and stable alternative
to the existing licensed anthrax vaccine product. We also intend to adapt newly developed glassification technology (initially developed under an ongoing
NIAID grant to stabilize exceptionally unstable ricin toxin/adjuvant formulations) to enable a thermostable, dried, single vial, pre-formulated adjuvanted rPA
vaccine which is suitable for both long term storage and field use without typical cold chain constraints.
Assuming development efforts are successful for VeloThrax™, we believe potential government procurement contract(s) could reach $500 million. This
potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we
have determined this potential procurement contract value based on assumptions that we believe are reasonable, there are a number of factors that could cause
our expectations to change or not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market
Information.”
Anthrax
Anthrax is an acute infectious disease that is easily transmitted to humans by environmentally durable spores that are produced by Bacillus anthracis. Because
the spores are robust and contagious, anthrax is considered a Category A bioterror threat. Anthrax infection can occur in three forms: cutaneous (skin),
inhalation, and gastrointestinal. Inhaled spores can cause a rapidly progressing form of anthrax since the spores are transported to lymph nodes near the lungs
where they germinate, releasing vegetative bacteria into the bloodstream. Bacteria synthesize a complex series of toxin components that make up anthrax
toxin, resulting in overwhelming toxemia that causes shock and organ failure. Treatment of anthrax involves long-term antibiotic therapy, since ungerminated
spores can lie dormant in the lungs for up to 60 days. Only a few inhaled spores can cause inhalational anthrax. Once the toxin has entered the bloodstream,
antibiotics are ineffective, and only toxin-specific therapy is effective. Passively transferred antibodies can neutralize anthrax toxins and can be used post-
exposure in conjunction with antibiotics. Because of the long residence time of spores in the lung, it is possible to vaccinate post-exposure, but the onset of
neutralizing antibodies must occur during the period of antibiotic therapy.
OrbeShield™ –for Treating GI ARS
OrbeShield™ is an oral immediate and delayed release formulation of the topically active corticosteroid BDP and is being developed for the treatment of GI
ARS. Corticosteroids are a widely used class of anti-inflammatory drugs. BDP is a corticosteroid with predominantly topical activity that is approved for use
in asthma, psoriasis and allergic rhinitis.
OrbeShield™ has demonstrated positive preclinical results in a canine GI ARS model which indicate that dogs treated with OrbeShield™ demonstrated
statistically significant (p=0.04) improvement in survival with dosing at either two hours or 24 hours after exposure to lethal doses of total body irradiation
(“TBI”) when compared to control dogs. OrbeShield™ appears to significantly mitigate the damage to the GI epithelium caused by exposure to high doses of
radiation using a well-established canine model of GI ARS.
The GI tract is highly sensitive to ionizing radiation and the destruction of epithelial tissue is one of the first effects of radiation exposure. The rapid loss of
epithelial cells leads to inflammation and infection that are often the primary cause of death in acute radiation injury. This concept of GI damage also applies
to the clinical setting of oncology, where high doses of radiation cannot be administered effectively to the abdomen because radiation is very toxic to the
intestines. We are seeking to treat the same type of toxicity in our acute radiation enteritis clinical program with SGX201. As a result, we believe that
OrbeShield™ has the potential to be a “dual use” compound, a desirable characteristic which is a specific priority of BARDA for ARS and other medical
countermeasure indications. The FDA has cleared the IND application for OrbeShield™ for the mitigation of morbidity and mortality associated with GI
ARS.
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In September 2013, we received two government contracts from BARDA and NIAID for the advanced preclinical and manufacturing development of
OrbeShield™ leading to FDA approval to treat GI ARS. The BARDA contract contains a two year base period with two contract options, exercisable by
BARDA, for a total of five years and up to $26.3 million. The NIAID contract consists of a one year base period and two contract options, exercisable by
NIAID, for a total of three years and up to $6.4 million. Previously, development of OrbeShield™ had been largely supported by a $1 million NIH grant to
Soligenix’s academic partner, the Fred Hutchinson Cancer Research Center. In July 2012, we received an SBIR grant from NIAID of approximately $600,000
to support further preclinical development of OrbeShield™ for the treatment of acute GI ARS. The FDA has given OrbeShield™ orphan drug designation
and Fast Track designation for the prevention of death following a potentially lethal dose of total body irradiation during or after a radiation disaster.
Assuming development efforts are successful for OrbeShield™, we believe potential government procurement contracts could reach as much as $450 million.
This potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While
we have determined this potential procurement contract value based on assumptions that we believe are reasonable, there are a number of factors that could
cause our expectations to change or not be realized. See “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements – Industry Data and
Market Information.”
GI ARS
ARS occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the GI tract and, later, the lungs. In the event of a
nuclear disaster or terrorist detonation of a nuclear bomb, casualties exposed to greater than 2 grays (“Gy”) of absorbed radiation are at high risk for
development of clinically significant ARS. Exposure to high doses of radiation exceeding 10-12 Gy causes acute GI injury which can result in death. The GI
tract is highly sensitive due to the continuous need for crypt stem cells and production of mucosal epithelium. The extent of injury to the bone marrow and the
GI tract are the principal determinants of survival after exposure to TBI. Although the hematopoietic syndrome can be rescued by bone marrow
transplantation or growth factor administration, there is no established treatment or preventive measure for the GI damage that occurs after high-dose
radiation. As a result, we believe there is an urgent medical need for specific medical counter measures against the lethal pathophysiological manifestations of
radiation-induced GI injury.
SGX943/SGX101– for Treating Melioidosis
SGX943 uses the same active ingredient as SGX94 and is being developed in preclinical studies as a potential treatment for melioidosis. Because SGX943
directly targets the innate immune system (and does not attempt to kill the bacteria directly), we believe it is particularly relevant for antibiotic-resistant
bacteria. The bacteria which causes melioidosis, Burkholderia pseudomallei, is known to be resistant to most antibiotics and to require prolonged treatment
with the few antibiotics that do work. In February 2014, we were awarded a one-year NIAID SBIR grant award of approximately $300,000 to further evaluate
SGX943 as a potential treatment for melioidosis. Preclinical results to date have demonstrated that SGX943 treatment, in combination with standard of care
antibiotics such as doxycycline, can statistically significantly enhance survival in a lethal murine pneumonic melioidosis model (p< 0.001).
SGX 101 is a human monoclonal antibody therapy being developed in preclinical studies as a potential treatment of melioidosis using Intrexon’s advanced
human antibody discovery, isolation, and production technologies. As data becomes available from this work, we intend to pursue grant funding to support
further development of this product candidate.
Melioidosis
Melioidosis is a potentially fatal infection caused by the Gram-negative bacillus, Burkholderia pseudomallei (“Bp”). Highly resistant to many antibiotics, Bp
can cause an acute disease characterized by a fulminant pneumonia and a chronic condition that can recrudesce. There is no preventive vaccine or effective
immunotherapy for melioidosis. We believe that there is an unmet medical need for improved prevention and therapy.
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Bp infection (melioidosis) is a major public health concern in the endemic regions of Southeast Asia and Northern Australia. In Northeast Thailand, which
has a high incidence of melioidosis, the mortality rate associated with Bp infection is over 40 percent, making it the third most common cause of death from
infectious disease in that region after HIV/AIDS and tuberculosis. Bp activity is seen in Southeast Asia, South America, Africa, the Middle East, India, and
Australia. The highest pockets of disease activity occur in Northern Australia and Northeast Thailand with increasing recognition of disease activity in coastal
regions of India.
Beyond its public health significance, Bp and the closely-related Burkholderia mallei (“Bm”) are considered possible biological warfare agents by the DHHS
because of the potential for widespread dissemination through aerosol. Bp like its relative Bm, the cause of Glanders, was studied by the U.S. as a potential
biological warfare agent, but was never weaponized. It has been reported that the Soviet Union was also experimenting with Bp as a biological warfare agent.
Both Bp and Bm have been designated high priority threats by the DHHS in its PHEMCE Strategy released in 2012 and are classified as Category B Priority
Pathogens by NIAID.
The Drug Approval Process
The FDA and comparable regulatory agencies in state, local and foreign jurisdictions impose substantial requirements on the clinical development,
manufacture and marketing of new drug and biologic products. The FDA, through regulations that implement the Federal Food, Drug, and Cosmetic Act, as
amended, or FDCA, and other laws and comparable regulations for other agencies, regulate research and development activities and the testing, manufacture,
labeling, storage, shipping, approval, recordkeeping, advertising, promotion, sale, export, import and distribution of such products. The regulatory approval
process is generally lengthy, expensive and uncertain. Failure to comply with applicable FDA and other regulatory requirements can result in sanctions being
imposed on us or the manufacturers of our products, including holds on clinical research, civil or criminal fines or other penalties, product recalls, or seizures,
or total or partial suspension of production or injunctions, refusals to permit products to be imported into or exported out of the United States, refusals of the
FDA to grant approval of drugs or to allow us to enter into government supply contracts, withdrawals of previously approved marketing applications and
criminal prosecutions.
Before human clinical testing in the U.S. of a new drug compound or biological product can commence, an Investigational New Drug, or IND, application is
required to be submitted to the FDA. The IND application includes results of pre-clinical animal studies evaluating the safety and efficacy of the drug and a
detailed description of the clinical investigations to be undertaken.
Clinical trials are normally done in three phases, although the phases may overlap. Phase 1 trials are smaller trials concerned primarily with metabolism and
pharmacologic actions of the drug and with the safety of the product. Phase 2 trials are designed primarily to demonstrate effectiveness and safety in treating
the disease or condition for which the product is indicated. These trials typically explore various doses and regimens. Phase 3 trials are expanded clinical
trials intended to gather additional information on safety and effectiveness needed to clarify the product’s benefit-risk relationship and generate information
for proper labeling of the drug, among other things. The FDA receives reports on the progress of each phase of clinical testing and may require the
modification, suspension or termination of clinical trials if an unwarranted risk is presented to patients. When data is required from long-term use of a drug
following its approval and initial marketing, the FDA can require Phase 4, or post-marketing, studies to be conducted.
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With certain exceptions, once successful clinical testing is completed, the sponsor can submit a New Drug Application, or NDA, for approval of a drug, or a
Biologic License Application, or BLA, for biologics such as vaccines, which will be reviewed, and if successful, approved by the FDA, allowing the product
to be marketed. The process of completing clinical trials for a new drug is likely to take a number of years and require the expenditure of substantial
resources. Furthermore, the FDA or any foreign health authority may not grant an approval on a timely basis, if at all. The FDA may deny the approval of an
NDA or BLA, in its sole discretion, if it determines that its regulatory criteria have not been satisfied or may require additional testing or information. Among
the conditions for marketing approval, is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to good
manufacturing practice regulations. In complying with standards contained in these regulations, manufacturers must continue to expend time, money and
effort in the area of production, quality control and quality assurance to ensure full technical compliance. Manufacturing facilities, both foreign and domestic,
also are subject to inspections by, or under the authority of, the FDA and by other federal, state, local or foreign agencies.
Even after initial FDA or foreign health authority approval has been obtained, further studies, including Phase 4 post-marketing studies, may be required to
provide additional data on safety and will be required to gain approval for the marketing of a product as a treatment for clinical indications other than those
for which the product was initially tested. For certain drugs intended to treat serious, life-threatening conditions that show great promise in earlier testing, the
FDA can also grant conditional approval. However, drug developers are required to study the drug further and verify clinical benefit as part of the conditional
approval provision, and the FDA can revoke approval if later testing does not reproduce previous findings. The FDA may also condition approval of a
product on the sponsor agreeing to certain mitigation strategies that can limit the unfettered marketing of a drug. Also, the FDA or foreign regulatory
authority will require post-marketing reporting to monitor the side effects of the drug. Results of post-marketing programs may limit or expand the further
marketing of the product. Further, if there are any modifications to the drug, including any change in indication, manufacturing process, labeling or
manufacturing facility, an application seeking approval of such changes will likely be required to be submitted to the FDA or foreign regulatory authority.
In the U.S., the FDCA, the Public Health Service Act, the Federal Trade Commission Act, and other federal and state statutes and regulations that govern or
influence the research, testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of drug, biological, medical device
and food products. Noncompliance with applicable requirements can result in, among other things, fines, recall or seizure of products, refusal to permit
products to be imported into the U.S., refusal of the government to approve product approval applications or to allow the Company to enter into government
supply contracts, withdrawal of previously approved applications and criminal prosecution. The FDA may also assess civil penalties for violations of the
FDCA involving medical devices.
For biodefense development, such as with RiVax™ and OrbeShield™, the FDA has instituted policies that are expected to result in shorter pathways to
market. This potentially includes approval for commercial use utilizing the results of animal efficacy trials, rather than efficacy trials in humans. However, the
Company will still have to establish that the vaccine and countermeasures it is developing are safe in humans at doses that are correlated with the beneficial
effect in animals. Such clinical trials will also have to be completed in distinct populations that are subject to the countermeasures; for instance, the very
young and the very old, and in pregnant women, if the countermeasure is to be licensed for civilian use. Other agencies will have an influence over the
benefit-risk scenarios for deploying the countermeasures and in establishing the number of doses utilized in the Strategic National Stockpile. We may not be
able to sufficiently demonstrate the animal correlation to the satisfaction of the FDA, as these correlates are difficult to establish and are often unclear.
Invocation of the animal rule may raise issues of confidence in the model systems even if the models have been validated. For many of the biological threats,
the animal models are not available and the Company may have to develop the animal models, a time-consuming research effort. There are few historical
precedents, or recent precedents, for the development of new countermeasure for bioterrorism agents. Despite the animal rule, the FDA may require large
clinical trials to establish safety and immunogenicity before licensure and it may require safety and immunogenicity trials in additional populations. Approval
of biodefense products may be subject to post-marketing studies, and could be restricted in use in only certain populations.
Vaccines are approved under the BLA process that exists under the Public Health Service Act. In addition to the greater technical challenges associated with
developing biologics, the potential for generic competition is lower for a BLA product than a small molecule product subject to an NDA under the Federal
Food, Drug and Cosmetic Act. Under the Patient Protection and Affordable Care Act enacted in 2010, a “generic” version of a biologic is known as a
biosimilar and the barriers to entry – whether legal, scientific, or logistical – for a biosimilar version of a biologic approved under a BLA are higher. Indeed,
almost three years after the enactment of the Patient Protection and Affordable Care Act, no biosimilar application has even been filed with the FDA.
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Orphan drug designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition—generally a
disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA or
BLA. After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA or
BLA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-
year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve
any other applications to market the same drug or biologic for the same disease, except in limited circumstances, such as a showing of clinical superiority to
the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease
or condition, or the same drug or biologic 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 or BLA application user fee.
Fast track designation and accelerated approval
The FDA is required to facilitate the development, and expedite the review, of drugs or biologics that are intended for the treatment of a serious or life-
threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the
condition. Under the fast track program, the sponsor of a new drug or biologic candidate may request that the FDA designate the candidate for a specific
indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for the candidate. The FDA must determine if the drug or biologic
candidate qualifies for fast track designation within 60 days of receipt of the sponsor's request. Unique to a fast track product, the FDA may initiate review of
sections of a fast track product's NDA or BLA before the application is complete. This rolling review is available if the applicant provides, and the FDA
approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA's time period goal for
reviewing an application does not begin until the last section of the NDA or BLA is submitted. Additionally, the fast track designation may be withdrawn by
the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
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 accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-
threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means the FDA may
approve the product based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier
than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into
account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of
how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug or biologic
candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical
trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing
studies, will allow the FDA to withdraw the drug or biologic from the market on an expedited basis. All promotional materials for drug candidates approved
under accelerated regulations are subject to prior review by the FDA.
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Pediatric information
Under the Pediatric Research Equity Act, or PREA, NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness
of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for
which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation,
PREA does not apply to any drug for an indication for which orphan designation has been granted.
False Claims Laws
The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for
payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false
or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any
request or demand” for money or property presented to the US government.
Anti-Kickback Laws
The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving
any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the
purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been
interpreted broadly 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, and formulary managers on the other.
United States Healthcare Reform
Federal Physician Payments Sunshine Act and its implementing regulations require that certain manufacturers of drugs, devices, biological and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information
related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or
designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their
immediate family members.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. The
Health Insurance Portability and Accountability Act, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or
HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health
information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates”—independent
contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered
entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business
associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to
enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy
and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus
complicating compliance efforts.
Third-Party Suppliers and Manufacturers
Drug substance and drug product manufacturing is outsourced to qualified suppliers. We do not have manufacturing capabilities/infrastructure and do not
intend to develop the capacity to manufacture drug products substances. We have agreements with third-party manufacturers to supply bulk drug substances
for our product candidates and with third parties to formulate, package and distribute our product candidates. Our employees include professionals with
expertise in pharmaceutical manufacturing development, quality assurance and third party supplier management who oversee work conducted by third-party
companies. We believe that we have on hand or can easily obtain sufficient amounts of product candidates to complete our currently contemplated clinical
trials. All of the drug substances used in our product candidates currently are manufactured by single suppliers. While we have not experienced any supply
disruptions, the number of manufacturers of the drug substances is limited. In the event it is necessary or advisable to acquire supplies from alternative
suppliers, assuming commercially reasonable terms could be reached, the challenge would be the efficient transfer of technology and know-how from current
manufactures to the new supplier. Formulation and distribution of our finished product candidates also currently are conducted by single suppliers but we
believe that alternative sources for these services are readily available on commercially reasonable terms, subject to the efficient transfer of technology and
know-how from current suppliers to the new supplier.
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All of the current agreements for the supply bulk drug substances for our product candidates and for the formulation or distribution of our product candidates
relate solely to the development (including preclinical and clinical) of our product candidates. Under these contracts, our product candidates are manufactured
upon our order of a specific quantity. In the event that we obtain marketing approval for a product candidate, we will qualify secondary suppliers for all key
manufacturing activities supporting the marketing application.
Marketing and Collaboration
We do not currently have and do not intend to establish any sales and marketing capability, other than to potentially market our biodefense vaccine products
directly to government agencies. With respect to other commercialization efforts, we currently intend to seek distribution and other collaboration
arrangements for the sales and marketing of any product candidate that is approved. From time to time, we have had and are having strategic discussions with
potential collaboration partners for our biodefense vaccine product candidates, although no assurance can be given that we will be able to enter into one or
more collaboration agreements for our product candidate on acceptable terms, if at all. We believe that both military and civilian health authorities of the U.S.
and other countries will increase their stockpiling of therapeutics and vaccines to treat and prevent diseases and conditions that could ensue following a
bioterrorism attack.
On December 20, 2012, we re-acquired the North American and European commercial rights to oral BDP through an amendment of our collaboration and
supply agreement with Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”). The amendment requires us to make certain approval and commercialization
milestone payments to Sigma-Tau which could reach up to $6 million. In addition, the Company has agreed to pay Sigma-Tau: (a) a royalty amount equal to
3% of all net sales of oral BDP made directly by the Company, and any third-party partner and/or their respective affiliates in the U.S., Canada, Mexico and in
each country in the European Territory for the later to occur of: (i) a period of ten years from the first commercial sale of oral BDP in each country, or (ii) the
expiration of the Company’s patents and patent applications relating to oral BDP in such country (the “Payment Period”); and (b) 15% of all up-front
payments, milestone payments and any other consideration (exclusive of equity payments) received by the Company and/or a potential partner from the
Company’s and/or potential partner’s licensees, distributors and agents for oral BDP in each relevant country in the territory, which amount will be paid on a
product-by-product and a country-by-country basis for the Payment Period.
Competition
Our competitors are pharmaceutical and biotechnology companies, most of whom have considerably greater financial, technical, and marketing resources
than we do. Universities and other research institutions, including the U.S. Army Medical Research Institute of Infectious Diseases, also compete in the
development of treatment technologies, and we face competition from other companies to acquire rights to those technologies.
SGX301 Competition
The FDA has approved several treatments for later stages (IIB-IV) of CTCL and/or in conditions that are unresponsive to prior treatment. Two are targeted
therapies (Targretin®-caps and Ontak®), two are histone deacetylases inhibitors (Zolina® and Istodax®) and the remaining two are topical therapies (Valchor®
and Targretin®-gel). There are currently no FDA approved therapies for the treatment of front-line, early stage (I-IIA) CTCL; however certain topical
chemotherapies and topical, radiation, photo and other therapies which are approved for indications other than CTCL are prescribed off-label for the treatment
of early stage CTCL. These include psoralen combined with ultraviolet A (UVA) light therapy (“PUVA”); however, PUVA treatments are usually limited to
three times per week and 200 times in total due to the potentially carcinogenic side effect. There are other drugs currently in development that may have the
potential to be used in early stage (I-IIA) CTCL – one in phase 2 (vorinostat) and others in phase 1. Vorinistat has been approved by the FDA to treat CTCL
patients who have conditions that are unresponsive to other therapies. It currently is being studied in a phase 2 trial for the treatment of all stages of CTCL,
with an estimated completion date for the phase 2 trial in September 2016.
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SGX94/942 Competition
Because SGX94 uses a novel mechanism of action in combating bacterial infections, there are no direct competitors at this time. Bacterial infections are
routinely treated with antibiotics and SGX94 treatment is anticipated to be utilized primarily where antibiotics are insufficient (e.g., due to antibiotic
resistance) or contra-indicated (e.g., in situations where the development of antibiotic resistance is a significant concern). Many groups are working on the
antibiotic resistance problem and research into the innate immune system is intensifying, making emerging competition likely (from companies such as
Celtaxsys Inc., Innaxon Therapeutics and Innate Pharma SA).
There is currently one drug approved for the treatment of oral mucositis in hematological cancer (palifermin). There are currently no approved drugs for
treatment of oral mucositis in cancers with solid tumors (e.g., head and neck cancer). There are several drugs in clinical development for oral mucositis – one
in Phase 3 (under development by Daewoong Pharmaceutical Co., Ltd), three in Phase 2 (under development by Cellceutix Corporation, BioAlliance Pharma
S.A. and Alder Biopharmaceuticals Inc.) and one in Phase 1 (under development by ActoGenix N.V.). In addition, there are medical devices approved for the
treatment of oral mucositis including MuGard, GelClair, Episil and Caphosol. These devices attempt to create a protective barrier around the oral ulceration.
Oral BDP Competition
There are a number of approved treatments for Crohn’s disease and additional compounds are in late-stage development.
Remicade (infliximab) and Humira (adalimumab) are currently approved for the treatment of pediatric Crohn’s disease; however, both carry significant Black
Box warnings in their labeling for increased risk of serious infection and malignancy, and therefore are approved for treatment of moderate to severe patients.
There is one other marketed biologic, Tysabri (natalizumab), in a Phase 2 study for pediatric Crohn’s. Entocort (enteric-coated budesonide) also has
completed Phase 3 trials in pediatric Crohn’s disease.
ThermoVaxTM Competition
Multiple groups and companies are working to address the unmet need of vaccine thermostability using a variety of technologies. In addition, other
organizations, such as the Bill and Melinda Gates Foundation and PATH, have programs designed to advance technologies to address this need.
Several stabilization technologies currently being developed involve mixing vaccine antigen +/- adjuvant with various proprietary excipients or co-factors that
either serve to stabilize the vaccine or biological product in a liquid or dried (lyophilized) form. Examples of these approaches include the use of various
plant-derived sugars and macromolecules being developed by companies such as Stabilitech Ltd. Variation Biotechnologies, Inc. (“VBI”) is developing a
lipid system (resembling liposomes) to stabilize viral antigens, including virus-like particles (VLPs), and for potential application to a conventional influenza
vaccine among others.
Other approaches involve process variations to freeze-dry live virus vaccines. For example, PaxVax, Inc. is seeking to employ a spray drying technology in
concert with enteric coating to achieve formulations for room temperature stability of live virus vaccines using adenovirus vectors. VBI is seeking to utilize
their proprietary stabilization technology for a number of vaccines (as a co-development service, similar to the business model being developed by Stabilitech
Ltd.), whereas PaxVax is applying the technology to their own proprietary vaccine development programs. Stabilitech uses combinations of excipients, which
include glassifying sugars similar to the ThermoVax™ technology, and variations in drying cycles during lyophilization, as does the ThermoVax™
technology.
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Additionally, companies like Pharmathene, Inc., Panacea Biotec Ltd., and Compass Biotech Inc. are developing proprietary vaccines with the application of
some form of stabilization technology.
Vaccines/BioDefense Competition
We face competition in the area of biodefense product development from various public and private companies, universities and governmental agencies, such
as the U.S. Army, some of whom may have their own proprietary technologies which may directly compete with our technologies.
BioThrax® (Anthrax Vaccine Adsorbed or AVA) is an anthrax vaccine marketed by Emergent BioSolutions, Inc. was developed nearly 50 years ago from a
culture filtrate derived from anthrax bacteria. Consequently, it contains a number of different proteins, some of which are believed to potentially contribute to
the adverse events that have been reported in the literature (up to 7-8% serious adverse events) and which has prompted agencies like the Institute of
Medicine to recommend adoption of newer and safer anthrax vaccines. BioThrax® is FDA approved for the prevention of anthrax infection, but requires five
doses over a period of 18 months to achieve protective immunity.
There are a number of other companies in preclinical and clinical development of protective antigen-based vaccines and therapeutics including Emergent
BioSolutions Inc., Pharmathene, Inc., Dynavax Technologies Corporation, Panacea Biotec Ltd., Paxvax Inc., Elusys Therapeutics, Inc., and Pfenex Inc.
Emergent is currently developing an anthrax immune globulin therapeutic based on plasma collected from military personnel who have been vaccinated with
BioThrax®, GlaxoSmithKline plc has been approved for an antibody to Bacillus anthracis, referred to as Abthrax™ (raxibacumab), as a post-exposure
therapeutic for anthrax infection. Elusys Therapeutics is developing a monoclonal antibody to Bacillus anthracis, known as Anthim™, as a pre-exposure and
post-exposure prophylaxis against anthrax infection, as well as an active treatment of the disease. Pharmathene and Medarex are collaborating to develop a
human antibody to anthrax, known as Valortim™. Bavarian Nordic is developing a multivalent combination vaccine against both anthrax and smallpox.
The U.S. Army Medical Research Institute of Infectious Diseases, the DoD’s lead laboratory for medical research to counter biological threats is also
developing a ricin vaccine candidate, RVEc™. RVEc™ has been shown to be fully protective in mice exposed to lethal doses of ricin toxin by the aerosol
route. Further studies, in both rabbits and nonhuman primates, were conducted to evaluate RVEc™’s safety as well as its immunogenicity, with positive
results observed.
In the area of radiation-protective antidotes such as OrbeShield™, various companies, such as Cleveland Biolabs, Inc., Aeolus Pharmaceuticals, Inc., Boulder
Biotechnology, Inc., RxBio, Inc., Avaxia Biologics, Inc., Exponential Biotherapies Inc., Osiris Therapeutics, Inc., ImmuneRegen BioSciences, Inc.,
Neumedicines, Inc., Cellerant Therapeutics, Inc., Onconova Therapeutics, Inc., Araim Pharmaceuticals, Inc., EVA Pharmaceuticals, Terapio Corporation,
Cangene Corporation, Humanetics Corporation and the University of Arkansas Medical Sciences Center are developing biopharmaceutical products that may
directly compete with OrbeShield™, even though their approaches to such treatment are different.
RxBio, Avaxia Biologics and the University of Arkansas have programs specifically for GI ARS. RxBio’s Rx100 is a stem cell protectant designed as a single
dose (oral or injection) which has shown promise in nonhuman primate studies. Avaxia is developing an orally delivered anti-TNF antibody as a treatment
agent for exposure to radiation following a nuclear accident, attack or explosion. Pasireotide, a drug in development by Novartis for Cushing’s disease, is
being developed at the University of Arkansas to protect the intestine by reducing pancreatic secretions that exacerbate intestinal inflammation.
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Patents and Other Proprietary Rights
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the U.S. and in other countries. Our policy is to actively
seek to obtain, where appropriate, the broadest intellectual property protection possible for our product candidates, proprietary information and proprietary
technology through a combination of contractual arrangements and patents, both in the U.S. and elsewhere in the world.
We also depend upon the skills, knowledge and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other
contractors, none of which is patentable. To help protect our proprietary knowledge and experience that is not patentable, and for inventions for which patents
may be difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we require all employees,
consultants, advisors and other contractors to enter into confidentiality agreements, which prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions important to our business.
We have issued U.S. patents 8,263,582 and 6,096,731 that cover the use of oral BDP for treating inflammatory disorders of the gastrointestinal tract and the
prevention and treatment of GI GVHD, respectively. U.S. patent numbers 8,263,582 and 6,096,731 are expected to expire in March 2022 and June 2018,
respectively. We also have European patent EP 1392321 claiming the use of topically active corticosteroids in orally administered dosage forms that act
concurrently to treat inflammation in the upper and lower gastrointestinal tract, as well as European patent EP 2242477 claiming the use of orally ingested
BDP for treatment of interstitial lung disease. European patents EP 1392321 and EP 2242477 are expected to expire in March 2022 and January 2029.
The subject of U.S. patent application number 12/633,631 filed December 8, 2009 and corresponding European patent application number 09836727.9 is the
use of topically active BDP in radiation and chemotherapeutics injury. Additionally, we have numerous patent filings currently issued or pending in foreign
jurisdictions covering this subject matter, including Australia, Canada, China, Hong Kong, Israel, India, Japan, South Korea and New Zealand.
ThermoVax™ is the subject of U.S. patent 8,444,991 issued on May 21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried
Vaccine Composition” and also U.S. patent application number 13/474,661 filed May 17, 2012 titled “Thermostable Vaccine Compositions and Methods of
Preparing Same.” The patent application and the corresponding foreign filings for both patents are pending and licensed to us by the University of Colorado
(“UC”) and they address the use of adjuvants in conjunction with vaccines that are formulated to resist thermal inactivation. The license agreement covers
thermostable vaccines for biodefense as well as other potential vaccine indications. U.S. patent 8,444,991 is expected to expire in December 2031.
RiVax™ is the subject of three issued U.S. patent numbers 6,566,500, 6,960,652, and 7,829,668, all titled “Compositions and methods for modifying toxic
effects of proteinaceous compounds.” This patent family includes composition of matter claims for the modified ricin toxin A chain which is the immunogen
contained in RiVax™, and issued in 2003, 2005 and 2010 respectively. The initial filing date of these patents is March 2000 and they are expected to expire in
March 2020. The issued patents contain claims that describe alteration of sequences within the ricin A chain that affect vascular leak, one of the deadly
toxicities caused by ricin toxin. Another U.S. patent number 7,175,848 titled “Ricin A chain mutants lacking enzymatic activity as vaccines to protect against
aerosolized ricin,” was filed in October of 2000 and is expected to expire in October 2020.
In 2013, we expanded our patent portfolio to include innate defense regulation through the acquisition of the novel drug technology, known as SGX94. By
binding to the pivotal regulatory protein p62, also known as sequestosome-1, SGX94 regulates the innate immune system to reduce inflammation, eliminate
infection and enhance healing. As part of the acquisition, we acquired all rights, including composition of matter patents for SGX94 as well as other analogs
and crystal structures of SGX94 with its protein target p62, including U.S. patent 8,124,721 and additional pending applications, both in the US and abroad.
SGX94 was developed pursuant to discoveries made by Professors B. Brett Finlay and Robert Hancock of UBC. U.S. patent 8,124,721 is expected to expire
in April 2028.
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We recently acquired a novel, first-in-class, photodynamic therapy that utilizes safe visible light for activation, which we refer to as SGX301. The active
ingredient in SGX301 is synthetic hypericin, a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours
later. As part of the acquisition, we acquired a license agreement relating to the use of photo-activated hypericin, composition of matter patent for SGX301
(U.S. patent 8,629,302) and additional issued and pending applications, both in the US and abroad. U.S. patent 8,629,302 is expected to expire in June 2032.
In addition to issued and pending patents, we also have “Orphan Drug” designations for SGX301 in the U.S. for CTCL, SGX203 in the U.S. for pediatric
Crohn’s disease, and OrbeShield™ in the U.S. for GI ARS, as well as for RiVax™ in the U.S. Our Orphan Drug designations provide for seven years of post-
approval marketing exclusivity in the U.S. and ten years exclusivity in Europe. We have pending patent applications for this indication that, if granted, may
extend our anticipated marketing exclusivity beyond the U.S. seven year or E.U. ten year post-approval exclusivity provided by Orphan Drug legislation.
Oral BDP License Agreement
On November 24, 1998, the Company, known at the time as Enteron Pharmaceuticals, Inc. (“Enteron”) and George B. McDonald (“Dr. McDonald”) entered
into an exclusive license agreement for the rights to intellectual property, including know-how, relating to oral BDP. The Company has an exclusive license to
commercially exploit the covered products worldwide, subject to Dr. McDonald’s right to make and use the technology for research purposes and the U.S.
Government’s right to use the technology for government purposes. Pursuant to the license agreement, as amended, the Company is required to (i) reimburse
Dr. McDonald for certain out-of-pocket expenses incurred by Dr. McDonald in connection with the patent applications and issued patents, (ii) pay
Dr. McDonald $400,000 upon approval by the FDA of the Company’s first NDA incorporating oral BDP; (iii) pay Dr. McDonald royalty payments equal to
3% of net sales of the covered products and (iv) pay Dr. McDonald $400,000 in cash upon an approval of oral BDP by the European Medicines Agency.
Additionally, in the event that the Company sublicenses its rights under the license agreement, the Company will be required to pay Dr. McDonald 10% of
any sublicense fees and royalty payments paid by the sublicense to the Company.
The term of the license agreement expires upon the expiration of the licensed patent applications or patents. After seven years from the date of the agreement,
Dr. McDonald has the right to terminate the license agreement in its entirety or to terminate exclusivity under the agreement if the Company or its sublicense
has not commercialized or are not actively attempting to commercialize a covered product.
Additionally, the agreement terminates: (i) automatically upon the Company becoming insolvent; (ii) upon 30 days’ notice, if the Company breaches any
obligation under the agreement without curing such breach during the notice period; and (iii) upon 90 days’ notice by the Company. After any termination,
the Company will have the right to sell its inventory for a period not to exceed three months following the date of termination, subject to the payment of the
amounts owed under the agreement.
SGX94 License Agreements
On December 18, 2012, we announced the acquisition of a novel drug technology, known as SGX94, representing a novel approach to modulation of the
innate immune system. SGX94 is an IDR that regulates the innate immune system to reduce inflammation, eliminate infection and enhance tissue healing by
binding to the pivotal regulatory protein p62, also known as sequestosome-1. As part of the acquisition, Soligenix acquired all rights, including composition
of matter patents, preclinical and Phase 1 clinical study datasets for SGX94. We also assumed a license agreement with UBC to advance the research and
development of the SGX94 technology. The license agreement with UBC provides us with exclusive worldwide rights to manufacture, distribute, market sell
and/or license or sublicense products derived or developed from this technology. Under the license agreement we are obligated to pay UBC (i) an annual
license maintenance fee of CAN $1,000, and (ii) milestone payments which could reach up to CAN $1.2 million.
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ThermoVaxTM License Agreement
On September 1, 2009, we executed a worldwide exclusive option to license patent applications with the UC for ThermoVax™ which is the subject of U.S.
patent number 8,444,991 issued on May 21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried Vaccine Composition.”
This patent and its corresponding foreign filings are licensed to Soligenix by the UC and they address the use of adjuvants in conjunction with vaccines that
are formulated to resist thermal inactivation. U.S. Patent 8,444,991 is expected to expire in December 2031. The license agreement also covers thermostable
vaccines for biodefense as well as other potential vaccine indications. In addition, Soligenix in conjunction with UC, filed domestic and foreign patent
applications claiming priority back to a provisional application filed on May 17, 2011 titled: “Thermostable Vaccine Compositions and Methods of Preparing
Same.”
RiVax™ License Agreement
In January 2003, we executed a worldwide exclusive option to license patent applications with UTSW for the nasal, pulmonary and oral uses of a non-toxic
ricin vaccine. In June 2004, we entered into a license agreement with UTSW for the injectable rights to the ricin vaccine and, in October 2004, we negotiated
the remaining oral rights to the ricin vaccine. Our license obligates us to pay $50,000 in annual license fees. Through this license, we have rights to the issued
patent number 7,175,848 titled “Ricin A chain mutants lacking enzymatic activity as vaccines to protect against aerosolized ricin.” This patent includes
methods of use and composition claims for RiVax™.
VeloThrax™ License Option Agreement
On March 5, 2013, we optioned a license to the VeloThrax™ patent from the President and Fellows of Harvard College. VeloThrax™ is the subject of U.S.
patent No. 7,037,503, issued on May 2, 2006 and titled, “Compounds and Methods for the Treatment and Prevention of Bacterial Infection”, along with any
reissue, renewal, reexamination, substitution or extension thereof.
Intrexon Exclusive Channel Collaboration Agreement
On April 27, 2013, we entered into an exclusive channel collaboration agreement with Intrexon (the “Channel Agreement”) that governs an arrangement in
which we intend to use Intrexon’s advanced human antibody discovery, isolation and production technologies for the development of human monoclonal
antibody therapies for a new biodefense application. The target of the channel collaboration will be melioidosis, a potentially lethal disease caused by the
Gram-negative bacteria Burkholderia pseudomallei, which is endemic in Southeast Asia and Northern Australia.
The Channel Agreement grants us an exclusive license to use specified patents and other intellectual property of Intrexon in connection with the research,
development, use, importing, manufacture, sale and offer for sale of products for the treatment of melioidosis through the use of exogenously produced
human recombinant monoclonal antibodies.
In exchange for the license, we paid Intrexon a one-time technology access fee of $1.5 million in common stock. Additionally, the Channel Agreement
requires us to make certain milestone payments to Intrexon which could reach up to $7 million and to pay Intrexon royalty payments based upon sales of
products based upon Intrexon’s technology.
SGX301 License Agreement
In September 2014, we acquired a worldwide exclusive license agreement with New York University and Yeda Research and Development Company Ltd. for
the rights to a novel, first-in-class, photodynamic therapy that utilizes safe visible light for activation, which we refer to as SGX301. Our license obligates us
to pay $25,000 in annual license fees. In addition, we will pay the licensors: (a) a royalty amount equal to 3% of all net sales of SGX301 made directly by us
and/or any affiliates; (b) a royalty amount equal to 2.5% of all net sales of SGX301 made by our sublicensees, subject to stated maximums and (b) 20% of all
payments, not based on net sales, received by us from our sublicensees. The exclusive license includes rights to several issued US patents, including U.S.
patent numbers 6,867,235 and 7,122,518, among other domestic and foreign patent applications. U.S. Patent numbers 6,867,235 and 7,122,518 are expected
to expire in January 2020 and November 2023, respectively.
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We acquired the license agreement for SGX301 and related intangible assets, properties and rights pursuant to asset purchase agreement with Hy Biopharma
Inc. (“Hy Biopharma”). As consideration for the assets acquired, we paid $250,000 in cash and issued 1,849,113 shares of common stock with a market value
of $3,750,000. Provided all future success-orientated milestones are attained, we will be required to make payments of up to $10.0 million, if and when
achieved, payable in common stock of the Company.
Research and Development Expenditure
We spent approximately $9.1 million and $5.1 million in the years ended December 31, 2014 and 2013, respectively, on research and development. The
amounts we spent on research and development per product during the years ended December 31, 2014, and 2013 are set forth in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Employees
As of December 31, 2014, we had 17 full-time employees, 7 of whom are MDs/PhDs.
Available Investor Information
We file electronically with the Securities and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934, as
amended. We make available through our website, free of charge, copies of these reports as soon as reasonably practicable after we electronically file or
furnish them to the SEC. Our website is located at http://www.soligenix.com. You can also request copies of such documents by contacting the company at
(609) 538-8200 or sending an email to info@soligenix.com.
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Item 1A. Risk factors
An investment in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the
other information about these risks contained in this Annual Report, as well as the other information contained in this Annual Report generally, before
deciding to buy our securities. Any of the risks we describe below could adversely affect our business, financial condition, operating results or prospects. The
market prices for our securities could decline if one or more of these risks and uncertainties develop into actual events and you could lose all or part of your
investment. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations.
You should also refer to the other information contained in this Annual Report, including our financial statements and the related notes.
Risks Related to our Business
We have had significant losses and anticipate future losses; if additional funding cannot be obtained, we may reduce or discontinue our product
development and commercialization efforts.
We have experienced significant losses since inception and, at December 31, 2014, had an accumulated deficit of approximately $139.0 million. We expect to
incur additional operating losses in the future and expect our cumulative losses to increase. As of December 31, 2014, we had approximately $5.5 million in
cash available. Based on our projected budgetary needs, funding from existing contracts and grants over the next two years and sales to Lincoln Park Capital
Fund, LLC (“Lincoln Park”) under our $10.6 million equity facility, we expect to be able to maintain the current level of our operations for at least the next
twelve months.
We have sufficient funds through our existing biodefense grant facilities from the NIAID, a division of the NIH, and BARDA to finance our biodefense
projects for the next six years. In September 2014, we entered into a contract with the NIH for the development of RiVaxTM to protect against exposure to
ricin toxin that would provide up to $24.7 million of funding in the aggregate if options to extend the contract are exercised by the NIH. In September 2013,
we entered into contracts with the NIH and BARDA for the development of OrbeShield™ that would provide up to $32.7 million of funding in the aggregate
if options to extend the contracts are exercised by BARDA and the NIH. In September 2009, we received a NIAID grant for approximately $9.4 million for
the development of our biodefense programs. In July 2012, we received an additional SBIR grant from NIAID for $600,000 and in February 2014, we were
awarded a one-year NIAID SBIR grant award of approximately $300,000 to further evaluate SGX943 as a treatment for melioidosis. Our biodefense grants
have an overhead component that allows us an agency-approved percentage over our incurred costs. We estimate that the overhead component associated with
our existing contracts and grants will fund some fixed costs for direct employees working on these contracts and grants as well as other administrative costs.
Our product candidates are positioned for or are currently in clinical trials, and we have not yet generated any significant revenues from sales or licensing of
these product candidates. From inception through December 2014, we have expended approximately $60.9 million developing our current product candidates
for pre-clinical research and development and clinical trials, and we currently expect to spend at least $16.0 million over the next twelve months in
connection with the development of our therapeutic and vaccine products, licenses, employment agreements, and consulting agreements of which
approximately $10.1 million will be reimbursed through our existing government contracts and grants. Unless and until we are able to generate sales or
licensing revenue from one of our product candidates, we will require additional funding to meet these commitments, sustain our research and development
efforts, provide for future clinical trials, and continue our operations. There can be no assurance we can raise such funds. If additional funds are raised
through the issuance of equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights
superior to those of the common stock. If additional funds are raised by the issuance of debt, we may be subject to limitations on our operations. If we cannot
raise such additional funds, we may have to delay or stop some or all of our drug development programs.
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If we are unable to develop our product candidates, our ability to generate revenues and viability as a company will be significantly impaired.
In order to generate revenues and profits, our organization must, along with corporate partners and collaborators, positively research, develop and
commercialize our technologies or product candidates. Our current product candidates are in various stages of early clinical and pre-clinical development and
will require significant further funding, research, development, pre-clinical and/or clinical testing, regulatory approval and commercialization, and are subject
to the risks of failure inherent in the development of products based on innovative or novel technologies. Specifically, each of the following is possible with
respect to any of our product candidates:
● we may not be able to maintain our current research and development schedules;
● we may be unable to secure procurement contracts on beneficial economic terms or at all from the U.S. government or others for our biodefense
products;
● we may encounter problems in clinical trials; or
● the technology or product may be found to be ineffective or unsafe, or may fail to obtain marketing approval.
If any of the risks set forth above occur, or if we are unable to obtain the necessary regulatory approvals as discussed below, we may be unable to develop our
technologies and product candidates and our business will be seriously harmed. Furthermore, for reasons including those set forth below, we may be unable to
commercialize or receive royalties from the sale of any other technology we develop, even if it is shown to be effective, if:
● it is not economical or the market for the product does not develop or diminishes;
● we are not able to enter into arrangements or collaborations to manufacture and/or market the product;
● the product is not eligible for third-party reimbursement from government or private insurers;
● others hold proprietary rights that preclude us from commercializing the product;
● we are not able to manufacture the product reliably;
● others have brought to market similar or superior products; or
● the product has undesirable or unintended side effects that prevent or limit its commercial use.
We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our
future performance.
We are a late-stage biopharmaceutical company. Our operations to date have been primarily limited to developing our technology and undertaking clinical
studies and clinical trials of our product candidates in our two active business segments, BioTherapeutics and Vaccines/BioDefense. We have not yet obtained
regulatory approvals for any of our product candidates. Consequently, any predictions made about our future success or viability may not be as accurate as
they could be if we had commercialized products. Our financial condition has varied significantly in the past and will continue to fluctuate from quarter-to-
quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these
fluctuations include other factors described elsewhere in this Annual Report and also include:
● our ability to obtain additional funding to develop our product candidates;
● delays in the commencement, enrollment and timing of clinical trials;
● the success of our product candidates through all phases of clinical development;
● any delays in regulatory review and approval of product candidates in clinical development;
● our ability to obtain and maintain regulatory approval for our product candidates in the United States and foreign jurisdictions;
● potential side effects of our product candidates that could delay or prevent commercialization, limit the indications for any approved drug, require
the establishment of risk evaluation and mitigation strategies, or cause an approved drug to be taken off the market;
● our dependence on third-party contract manufacturing organizations (“CMOs”) to supply or manufacture our products;
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● our dependence on contract research organizations to conduct our clinical trials;
● our ability to establish or maintain collaborations, licensing or other arrangements;
● market acceptance of our product candidates;
● our ability to establish and maintain an effective sales and marketing infrastructure, either through the creation of a commercial infrastructure or
through strategic collaborations;
● competition from existing products or new products that may emerge;
● the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our products;
● our ability to discover and develop additional product candidates;
● our ability and our licensors’ abilities to successfully obtain, maintain, defend and enforce intellectual property rights important to our business;
● our ability to attract and retain key personnel to manage our business effectively;
● our ability to build our finance infrastructure and improve our accounting systems and controls;
● potential product liability claims;
● potential liabilities associated with hazardous materials; and
● our ability to obtain and maintain adequate insurance policies.
Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
We have no approved products on the market and therefore do not expect to generate any revenues from product sales in the foreseeable future, if at all.
To date, we have no approved product on the market and have not generated any significant product revenues. We have funded our operations primarily from
sales of our securities and from government grants. We have not received, and do not expect to receive for at least the next several years, if at all, any
revenues from the commercialization of our product candidates. To obtain revenues from sales of our product candidates, we must succeed, either alone or
with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing drugs with commercial potential or successfully obtain
government procurement or stockpiling agreements. We may never succeed in these activities, and we may not generate sufficient revenues to continue our
business operations or achieve profitability.
Our business is subject to extensive governmental regulation, which can be costly, time consuming and subjects us to unanticipated delays.
Our business is subject to very stringent federal, foreign, state and local government laws and regulations, including the Federal Food, Drug and Cosmetic
Act, the Environmental Protection Act, the Occupational Safety and Health Act, and state and local counterparts to these acts. These laws and regulations may
be amended, additional laws and regulations may be enacted, and the policies of the FDA and other regulatory agencies may change.
The regulatory process applicable to our products requires pre-clinical and clinical testing of any product to establish its safety and efficacy. This testing can
take many years is uncertain as to outcome, and requires the expenditure of substantial capital and other resources. We estimate that the clinical trials of our
product candidates that we have planned will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon or repeat clinical trials. Favorable results in early studies or trials, if any, may not be repeated in later studies or
trials. Even if our clinical trials are initiated and completed as planned, we cannot be certain that the results will support our product candidate claims.
Success in preclinical testing, Phase 1 and Phase 2 clinical trials does not ensure that later Phase 2 or Phase 3 clinical trials will be successful. In addition, we,
the FDA or other regulatory authorities may suspend clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or
the FDA or other regulatory authorities find deficiencies in our submissions or conduct of our trials. For example, our confirmatory Phase 3 clinical trial for
orBec® (oral BDP) in the treatment of acute GI GVHD was stopped on September 15, 2011 at the recommendation of an independent Data Safety Monitoring
Board (“DSMB”) as it was highly unlikely to achieve the predetermined end point of efficacy based on the interim results. Although no safety concerns were
raised by the DSMB, preliminary findings indicated that there were no significant differences between the orBec® group and placebo group for the primary
endpoint or for the pre-specified secondary endpoints. Given the outcome of the Phase 3 study, we terminated the development of orBec® for the treatment of
acute GI GVHD. Although we hope to obtain FDA approval for oral BDP in similar indications, such treatment of pediatric Crohn's disease acute radiation
enteritis, and GI ARS, there can be no assurances that the FDA will ever approve oral BDP for market launch in any of these indications.
27
We may not be able to obtain, or we may experience difficulties and delays in obtaining, necessary domestic and foreign governmental clearances and
approvals to market a product. Also, even if regulatory approval of a product is granted, that approval may entail limitations on the indicated uses for which
the product may be marketed.
Following any regulatory approval, a marketed product and its manufacturer are subject to continual regulatory review. Later discovery of problems with a
product or manufacturer may result in restrictions on such product or manufacturer. These restrictions may include product recalls and suspension or
withdrawal of the marketing approval for the product. Furthermore, the advertising, promotion and export, among other things, of a product are subject to
extensive regulation by governmental authorities in the U.S. and other countries. If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and/or criminal prosecution.
There may be unforeseen challenges in developing our biodefense products.
For development of biodefense vaccines and therapeutics, the FDA has instituted policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials, rather than efficacy trials in humans, referred to as the Animal Rule. However, we will
still have to establish that the vaccines we are developing are safe in humans at doses that are correlated with the beneficial effect in animals. Such clinical
trials will also have to be completed in distinct populations that are subject to the countermeasures; for instance, the very young and the very old, and in
pregnant women, if the countermeasure is to be licensed for civilian use. Other agencies will have an influence over the risk benefit scenarios for deploying
the countermeasures and in establishing the number of doses utilized in the Strategic National Stockpile. We may not be able to sufficiently demonstrate the
animal correlation to the satisfaction of the FDA, as these correlates are difficult to establish and are often unclear. Invocation of the Animal Rule may raise
issues of confidence in the model systems even if the models have been validated. For many of the biological threats, the animal models are not available and
we may have to develop the animal models, a time-consuming research effort. There are few historical precedents, or recent precedents, for the development
of new countermeasure for bioterrorism agents. Despite the Animal Rule, the FDA may require large clinical trials to establish safety and immunogenicity
before licensure and it may require safety and immunogenicity trials in additional populations. Approval of biodefense products may be subject to post-
marketing studies, and could be restricted in use in only certain populations. The government’s biodefense priorities can change, which could adversely affect
the commercial opportunity for the products we are developing. Further, other countries have not, at this time, established criteria for review and approval of
these types of products outside their normal review process, i.e., there is no Animal Rule equivalent, and consequently there can be no assurance that we will
be able to make a submission for marketing approval in foreign countries based on such animal data.
Additionally, few facilities in the United States and internationally have the capability to test animals with anthrax or ricin, or otherwise assist us in qualifying
the requisite animal models. We have to compete with other biodefense companies for access to this limited pool of highly specialized resources. We therefore
may not be able to secure contracts to conduct the testing in a predictable timeframe or at all.
We are dependent on government funding, which is inherently uncertain, for the success of our biodefense operations.
We are subject to risks specifically associated with operating in the biodefense industry, which is a new and unproven business area. We do not anticipate that
a significant commercial market will develop for our biodefense products. Because we anticipate that the principal potential purchasers of these products, as
well as potential sources of research and development funds, will be the U.S. government and governmental agencies, the success of our biodefense division
will be dependent in large part upon government spending decisions. The funding of government programs is dependent on budgetary limitations,
congressional appropriations and administrative allotment of funds, all of which are inherently uncertain and may be affected by changes in U.S. government
policies resulting from various political and military developments. Our receipt of government funding is also dependent on our ability to adhere to the terms
and provisions of the original grant documents and other regulations. We can provide no assurance that we will receive or continue to receive funding for
grants we have been awarded. The loss of government funds could have a material adverse effect on our ability to progress our biodefense business.
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If the parties we depend on for supplying our drug substance raw materials and certain manufacturing-related services do not timely supply these
products and services, it may delay or impair our ability to develop, manufacture and market our products. We do not have or anticipate having internal
manufacturing capabilities.
We rely on suppliers for our drug substance raw materials and third parties for certain manufacturing-related services to produce material that meets
appropriate content, quality and stability standards, which material will be used in clinical trials of our products and, after approval, for commercial
distribution. To succeed, clinical trials require adequate supplies of drug substance and drug product, which may be difficult or uneconomical to procure or
manufacture. We and our suppliers and vendors may not be able to (i) produce our drug substance or drug product to appropriate standards for use in clinical
studies, (ii) perform under any definitive manufacturing, supply or service agreements with us or (iii) remain in business for a sufficient time to be able to
develop, produce, secure regulatory approval of and market our product candidates. If we do not maintain important manufacturing and service relationships,
we may fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair our ability to obtain
regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement manufacturers and
vendors, we may not be able to enter into agreements with them on terms and conditions favorable to us and, there could be a substantial delay before a new
facility could be qualified and registered with the FDA and foreign regulatory authorities.
The manufacturing of our products is a highly exacting process, and if we or one of our materials suppliers encounter problems manufacturing our
products, our business could suffer.
The FDA and foreign regulators require manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to
confirm compliance with current Good Manufacturing Practice (“cGMP”) or similar requirements that the FDA or foreign regulators establish. We, or our
materials suppliers, may face manufacturing or quality control problems causing product production and shipment delays or a situation where we or the
supplier may not be able to maintain compliance with the FDA’s cGMP requirements, or those of foreign regulators, necessary to continue manufacturing our
drug substance. Any failure to comply with cGMP requirements or other FDA or foreign regulatory requirements could adversely affect our clinical research
activities and our ability to market and develop our products.
We do not have sales and marketing experience and our lack of experience may restrict our success in commercializing some of our product candidates.
We do not have experience in marketing or selling pharmaceutical products whether in the U.S. or internationally. To obtain the expertise necessary to
successfully market and sell any of our products, the development of our own commercial infrastructure and/or collaborative commercial arrangements and
partnerships will be required. Our ability to make that investment and also execute our current operating plan is dependent on numerous factors, including, the
performance of third party collaborators with whom we may contract.
29
We may use our financial and human resources to pursue a particular research 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 we have limited financial and human resources, we are currently focusing on the regulatory approval of certain product candidates. As a result, we
may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on existing
and future product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial
potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing
or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such
product candidate, or we may allocate internal resources to a product candidate in an area in which it would have been more advantageous to enter into a
partnering arrangement.
Even if approved, our products will be subject to extensive post-approval regulation.
Once a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved New Drug Application (“NDA”) is
subject to periodic and other FDA monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of the
failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA approval for
certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional
material to the FDA and report on ongoing clinical trials.
Depending on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of
products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into supply
contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information regarding the safety or
effectiveness of a product could lead the FDA to modify or withdraw product approval.
Even if we obtain regulatory approval to market our product candidates, our product candidates may not be accepted by the market.
Even if the FDA approves one or more of our product candidates, physicians and patients may not accept it or use it. Even if physicians and patients would
like to use our products, our products may not gain market acceptance among healthcare payors such as managed care formularies, insurance companies or
government programs such as Medicare or Medicaid. Acceptance and use of our products will depend upon a number of factors including: perceptions by
members of the health care community, including physicians, about the safety and effectiveness of our drug or device product; cost-effectiveness of our
product relative to competing products; availability of reimbursement for our product from government or other healthcare payers; and effectiveness of
marketing and distribution efforts by us and our licensees and distributors, if any.
The degree of market acceptance of any product that we develop will depend on a number of factors, including:
● cost-effectiveness;
● the safety and effectiveness of our products, including any significant potential side effects, as compared to alternative products or treatment
methods;
● the timing of market entry as compared to competitive products;
● the rate of adoption of our products by doctors and nurses;
● product labeling or product insert required by the FDA for each of our products;
● reimbursement policies of government and third-party payors;
● effectiveness of our sales, marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners, if any; and
● unfavorable publicity concerning our products or any similar products.
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Our product candidates, if successfully developed, will compete with a number of products manufactured and marketed by major pharmaceutical companies,
biotechnology companies and manufacturers of generic drugs. Our products may also compete with new products currently under development by others.
Physicians, patients, third-party payors and the medical community may not accept and utilize any of our product candidates. If our products do not achieve
market acceptance, we will not be able to generate significant revenues or become profitable.
Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the
failure of these products to find market acceptance would harm our business and could require us to seek additional financing.
Our products, if approved, may not be commercially viable due to change in health care practice and third party reimbursement limitations.
Recent initiatives to reduce the federal deficit and to change health care delivery are increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and other fundamental changes to the health care
delivery system. Any changes of this type could negatively impact the commercial viability of our products, if approved. Our ability to successfully
commercialize our product candidates, if they are approved, will depend in part on the extent to which appropriate reimbursement codes and authorized cost
reimbursement levels of these products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such
as health maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare program may
make their own coverage decisions. Any of our product candidates, if approved and when commercially available, may not be included within the then
current Medicare coverage determination or the coverage determination of state Medicaid programs, private insurance companies or other health care
providers. In addition, third-party payers are increasingly challenging the necessity and prices charged for medical products, treatments and services.
Our product candidates may cause serious adverse events or undesirable side effects which may delay or prevent marketing approval, or, if approval is
received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Serious adverse events or undesirable side effects from any of our product candidates could arise either during clinical development or, if approved, after the
approved product has been marketed. The results of future clinical trials may show that our product candidates cause serious adverse events or undesirable
side effects, which could interrupt, delay or halt clinical trials, resulting in delay of, or failure to obtain, marketing approval from the FDA and other
regulatory authorities.
If any of our product candidates cause serious adverse events or undesirable side effects:
● regulatory authorities may impose a clinical hold which could result in substantial delays and adversely impact our ability to continue development
of the product;
● regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and
pharmacies;
● we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;
● we may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on our
ability to commercialize the product;
● we may be required to limit the patients who can receive the product;
● we may be subject to limitations on how we promote the product;
● sales of the product may decrease significantly;
● regulatory authorities may require us to take our approved product off the market;
● we may be subject to litigation or product liability claims; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase
commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.
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The technology on which our channel partnering arrangement with Intrexon is based on is early stage technology in the field of Melioidosis.
Our exclusive channel collaboration arrangement with Intrexon contemplates the use of Intrexon’s modular genetic engineering platform for the development
of active pharmaceutical ingredients and drug products targeting the biodefense countermeasure, melioidosis. Such technology has a limited history of use in
the design and development of human therapeutic product candidates and may therefore involve unanticipated risks or delays. Although we plan to leverage
Intrexon’s technology and scientific expertise to develop products for the treatment of melioidosis, an infectious disease caused by bacteria found in soil and
water, we may not be successful in developing and commercializing these products for a variety of reasons. The risk factors set forth herein that apply to our
other product candidates, which are in various stages of development, also apply to product candidates that we seek to develop under our exclusive
partnership with Intrexon.
We will incur additional expenses in connection with our exclusive channel collaboration arrangement with Intrexon.
Pursuant to our exclusive channel collaboration with Intrexon, we are responsible for future research and development expenses of product candidates
developed under such collaboration. Although it is our intent to pursue government funding to support this development, we expect the level of our overall
research and development expenses going forward will increase. Because our collaboration with Intrexon is new, we have yet to assume development
responsibility and costs associated with such program. In addition, because development activities are determined pursuant to a joint steering committee
comprised of representatives from Intrexon and the Company, future development costs associated with this program may be difficult to anticipate and exceed
our expectations. Our actual cash requirements may vary materially from our current expectations for a number of other factors that may include, but are not
limited to, unanticipated technical challenges, changes in the focus and direction of our development activities or adjustments necessitated by changes in the
competitive landscape in which we operate. If we are unable to continue to financially support such collaboration due to lack of sufficient government
funding or our own working capital constraints, we may be forced to delay our activities. If we are unable to obtain funding, we may be forced to seek
licensing partners or discontinue development.
Federal and/or state health care reform initiatives could negatively affect our business.
The availability of reimbursement by governmental and other third-party payers affects the market for any pharmaceutical product. These third-party payers
continually attempt to contain or reduce the costs of healthcare. There have been a number of legislative and regulatory proposals to change the healthcare
system and further proposals are likely. Medicare's policies may decrease the market for our products. Significant uncertainty exists with respect to the
reimbursement status of newly approved healthcare products.
In addition, third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services. Once approved, we might not be
able to sell our products profitably or recoup the value of our investment in product development if reimbursement is unavailable or limited in scope,
particularly for product candidates addressing small patient populations. On July 15, 2008, the Medicare Improvements for Patients and Providers Act of
2008 became law with a number of Medicare and Medicaid reforms to establish a bundled Medicare payment rate that includes services and drug/labs that
were separately billed at that time. Bundling initiatives that have been implemented in other healthcare settings have occasionally resulted in lower utilization
of services that had not previously been a part of the bundled payment.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing
drug pricing vary widely from country to country. We expect that there will continue to be a number of U.S. federal and state proposals to implement
governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could
have a material adverse effect on our business, financial condition and profitability.
32
We may not be able to retain rights licensed to us by third parties to commercialize key products or to develop the third party relationships we need to
develop, manufacture and market our products.
We currently rely on license agreements from New York University, Yeda Research and Development Company Ltd., the University of Texas Southwestern
Medical Center, the University of British Columbia, Harvard University, the University of Colorado, and George B. McDonald, MD for the rights to
commercialize key product candidates, and we entered into an exclusive channel collaboration agreement with Intrexon pursuant to which we acquired a
license to Intrexon’s advanced human antibody discovery, isolation, and production technologies. We may not be able to retain the rights granted under these
agreements or negotiate additional agreements on reasonable terms, if at all.
Furthermore, we currently have very limited product development capabilities and no manufacturing, marketing or sales capabilities. For us to research,
develop and test our product candidates, we need to contract or partner with outside researchers, in most cases with or through those parties that did the
original research and from whom we have licensed the technologies. If products are successfully developed and approved for commercialization, then we will
need to enter into additional collaboration and other agreements with third parties to manufacture and market our products. We may not be able to induce the
third parties to enter into these agreements, and, even if we are able to do so, the terms of these agreements may not be favorable to us. Our inability to enter
into these agreements could delay or preclude the development, manufacture and/or marketing of some of our product candidates or could significantly
increase the costs of doing so. In the future, we may grant to our development partners rights to license and commercialize pharmaceutical and related
products developed under the agreements with them, and these rights may limit our flexibility in considering alternatives for the commercialization of these
products. Furthermore, third-party manufacturers or suppliers may not be able to meet our needs with respect to timing, quantity and quality for the products.
Additionally, if we do not enter into relationships with additional third parties for the marketing of our products, if and when they are approved and ready for
commercialization, we would have to build our own sales force or enter into commercialization agreements with other companies. Development of an
effective sales force in any part of the world would require significant financial resources, time and expertise. We may not be able to obtain the financing
necessary to establish a sales force in a timely or cost effective manner, if at all, and any sales force we are able to establish may not be capable of generating
demand for our product candidates, if they are approved.
We may suffer product and other liability claims; we maintain only limited product liability insurance, which may not be sufficient.
The clinical testing, manufacture and sale of our products involves an inherent risk that human subjects in clinical testing or consumers of our products may
suffer serious bodily injury or death due to side effects, allergic reactions or other unintended negative reactions to our products. As a result, product and other
liability claims may be brought against us. We currently have clinical trial and product liability insurance with limits of liability of $10 million, which may
not be sufficient to cover our potential liabilities. Because liability insurance is expensive and difficult to obtain, we may not be able to maintain existing
insurance or obtain additional liability insurance on acceptable terms or with adequate coverage against potential liabilities. Furthermore, if any claims are
brought against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity.
We may use hazardous chemicals in our business. Potential claims relating to improper handling, storage or disposal of these chemicals could affect us
and be time consuming and costly.
Our research and development processes and/or those of our third party contractors may involve the controlled use of hazardous materials and chemicals.
These hazardous chemicals are reagents and solvents typically found in a chemistry laboratory. Our operations also may produce hazardous waste products.
Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. While we attempt to comply
with all environmental laws and regulations, including those relating to the outsourcing of the disposal of all hazardous chemicals and waste products, we
cannot eliminate the risk of contamination from or discharge of hazardous materials and any resultant injury. In the event of such an accident, we could be
held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations.
33
Compliance with environmental laws and regulations may be expensive. Current or future environmental regulations may impair our research, development
or production efforts. We might have to pay civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous
materials. We are not insured against these environmental risks.
We may agree to indemnify our collaborators in some circumstances against damages and other liabilities arising out of development activities or products
produced in connection with these collaborations.
In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive
materials and waste products may require us to incur substantial compliance costs that could materially adversely affect our business, financial condition and
results of operations.
We may not be able to compete with our larger and better financed competitors in the biotechnology industry.
The biotechnology industry is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements. Most of our
existing competitors have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in
developing products and conducting clinical trials. Our competition is particularly intense in the gastroenterology and transplant areas and is also intense in
the therapeutic area of inflammatory bowel diseases. We face intense competition in the biodefense area from various public and private companies and
universities as well as governmental agencies, such as the U.S. Army, which may have their own proprietary technologies that may directly compete with our
technologies. In addition, there may be other companies that are currently developing competitive technologies and products or that may in the future develop
technologies and products that are comparable or superior to our technologies and products. We may not be able to compete with our existing and future
competitors, which could lead to the failure of our business.
Additionally, if a competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our product
candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor of patents covering its
newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such as our current product candidates can extend up to
three and one-half years. See “Business—The Drug Approval Process.”
These competitive factors could require us to conduct substantial new research and development activities to establish new product targets, which would be
costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.
Competition and technological change may make our product candidates and technologies less attractive or obsolete.
We compete with established pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same indications we are
pursuing and that have greater financial and other resources. Other companies may succeed in developing products earlier than us, obtaining FDA approval
for products more rapidly, or developing products that are more effective than our product candidates. Research and development by others may render our
technology or product candidates obsolete or noncompetitive, or result in treatments or cures superior to any therapy we develop. We face competition from
companies that internally develop competing technology or acquire competing technology from universities and other research institutions. As these
companies develop their technologies, they may develop competitive positions that may prevent, make futile, or limit our product commercialization efforts,
which would result in a decrease in the revenue we would be able to derive from the sale of any products.
There can be no assurance that any of our product candidates will be accepted by the marketplace as readily as these or other competing treatments.
Furthermore, if our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA. Even if our products
are successfully developed and approved for use by all governing regulatory bodies, there can be no assurance that physicians and patients will accept our
product(s) as a treatment of choice.
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Furthermore, the pharmaceutical research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are
numerous and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us from forecasting
revenues or income with certainty or even confidence.
Our business could be harmed if we fail to retain our current personnel or if they are unable to effectively run our business.
We currently have 17 employees and we depend upon these employees (in particular Dr. Christopher Schaber, our President and Chief Executive Officer) to
manage the day-to-day activities of our business. Because we have such limited personnel, the loss of any of them or our inability to attract and retain other
qualified employees in a timely manner would likely have a negative impact on our operations. We may be unable to effectively manage and operate our
business, and our business may suffer, if we lose the services of our employees.
Instability and volatility in the financial markets could have a negative impact on our business, financial condition, results of operations, and cash flows.
During recent months, there has been substantial volatility in financial markets due at least in part to the uncertainty with regard to the global economic
environment and the partial government shutdown due to delays in increasing the U.S. debt limit in October 2013. In addition, there has been substantial
uncertainty in the capital markets and access to additional financing is uncertain. Moreover, customer spending habits may be adversely affected by current
and future economic conditions. These conditions could have an adverse effect on our industry and business, including our financial condition, results of
operations, and cash flows.
To the extent that we do not generate sufficient cash from operations, we may need to issue stock or incur indebtedness to finance our plans for growth.
Recent turmoil in the credit markets and the potential impact on the liquidity of major financial institutions may have an adverse effect on our ability to fund
our business strategy through borrowings, under either existing or newly created instruments in the public or private markets on terms we believe to be
reasonable, if at all.
Risks Related to our Intellectual Property
We may be unable to commercialize our products if we are unable to protect our proprietary rights, and we may be liable for significant costs and
damages if we face a claim of intellectual property infringement by a third party.
Our near and long term prospects depend in part on our ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently developing
and marketing substantially equivalent or superior products and technology, possibly at lower prices. We could also incur substantial costs in litigation and
suffer diversion of attention of technical and management personnel if we are required to defend ourselves in intellectual property infringement suits brought
by third parties, with or without merit, or if we are required to initiate litigation against others to protect or assert our intellectual property rights. Moreover,
any such litigation may not be resolved in our favor.
Although we and our licensors have filed various patent applications covering the uses of our product candidates, patents may not be issued from the patent
applications already filed or from applications that we might file in the future. Moreover, the patent position of companies in the pharmaceutical industry
generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents we own or license, now or in the
future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed in the U.S. Patent and Trademark Office (“PTO”)
regarding the breadth of claims allowed in biotechnology patents.
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In addition, because patent applications in the U.S. are maintained in secrecy until patent applications publish or patents issue, and because publication of
discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we and our licensors are the first creators of
inventions covered by any licensed patent applications or patents or that we or they are the first to file. The PTO may commence interference proceedings
involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned or licensed to us may not be
valid or may not afford us protection against competitors with similar technology, and the patent applications licensed to us may not result in the issuance of
patents.
It is also possible that our owned and licensed technologies may infringe on patents or other rights owned by others, and licenses to which may not be
available to us. We may be unable to obtain a license under such patent on terms favorable to us, if at all. We may have to alter our products or processes, pay
licensing fees or cease activities altogether because of patent rights of third parties.
In addition to the products for which we have patents or have filed patent applications, we rely upon unpatented proprietary technology and may not be able
to meaningfully protect our rights with regard to that unpatented proprietary technology. Furthermore, to the extent that consultants, key employees or other
third parties apply technological information developed by them or by others to any of our proposed projects, disputes may arise as to the proprietary rights to
this information, which may not be resolved in our favor.
We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.
The pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies have
employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement claims or litigation arising out of patents
and pending applications of our competitors, or additional interference proceedings declared by the PTO to determine the priority of inventions. The defense
and prosecution of intellectual property suits, PTO proceedings, and related legal and administrative proceedings are costly and time-consuming to pursue,
and their outcome is uncertain. Litigation may be necessary to enforce our issued patents, to protect our trade secrets and know-how, or to determine the
enforceability, scope, and validity of the proprietary rights of others. An adverse determination in litigation or interference proceedings to which we may
become a party could subject us to significant liabilities, require us to obtain licenses from third parties, or restrict or prevent us from selling our products in
certain markets. Although patent and intellectual property disputes might be settled through licensing or similar arrangements, the costs associated with such
arrangements may be substantial and could include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be
available on satisfactory terms or at all.
Competitors may infringe our patents, and we may file infringement claims to counter infringement or unauthorized use. This can be expensive, particularly
for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is
unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse
determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly.
Also, a third party may assert that our patents are invalid and/or unenforceable. There are no unresolved communications, allegations, complaints or threats of
litigation related to the possibility that our patents are invalid or unenforceable. Any litigation or claims against us, whether or not merited, may result in
substantial costs, place a significant strain on our financial resources, divert the attention of management and harm our reputation. An adverse decision in
litigation could result in inadequate protection for our product candidates and/or reduce the value of any license agreements we have with third parties.
Interference proceedings brought before the PTO may be necessary to determine priority of invention with respect to our patents or patent applications.
During an interference proceeding, it may be determined that we do not have priority of invention for one or more aspects in our patents or patent applications
and could result in the invalidation in part or whole of a patent or could put a patent application at risk of not issuing. Even if successful, an interference
proceeding may result in substantial costs and distraction to our management.
36
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or interference proceedings, there is a
risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments. If investors perceive these results to be negative, the price of our common stock could be
adversely affected.
If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against litigation.
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have
to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product candidate; redesign our products or
processes to avoid infringement; stop using the subject matter claimed in the patents held by others; pay damages; and/or defend litigation or administrative
proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.
Risks Related to our Common Stock
Our common stock price is highly volatile.
The market price of our common stock, like that of many other research and development public pharmaceutical and biotechnology companies, has been
highly volatile and may continue to be so in the future due to a wide variety of factors, including:
● announcements by us or others of results of pre-clinical testing and clinical trials;
● announcements of technological innovations, more important bio-threats or new commercial therapeutic products by us, our collaborative partners or
our present or potential competitors;
● our quarterly operating results and performance;
● developments or disputes concerning patents or other proprietary rights;
● acquisitions;
● litigation and government proceedings;
● adverse legislation;
● changes in government regulations;
● our available working capital;
● economic and other external factors; and
● general market conditions.
Since January 1, 2014, the closing stock price of our common stock has fluctuated between a high of $2.49 per share to a low of $0.95 per share. As of March
9, 2015, the last quoted sale price of our common stock as reported on the OTCQB was $2.13 per share. The fluctuation in the price of our common stock has
sometimes been unrelated or disproportionate to our operating performance. In addition, potential dilutive effects of future sales of shares of common stock
by the Company, as well as potential sale of common stock by the holders of warrants and options, could have an adverse effect on the market price of our
shares.
Our common stock trades on the Over-the-Counter Bulletin Board.
Our common stock trades on the OTCQB securities market under the symbol “SNGX.” The OTCQB is a decentralized market regulated by the Financial
Industry Regulatory Authority in which securities are traded via an electronic quotation system that serves more than 3,000 companies, but provides
significantly less liquidity than national market systems such as the NYSE MKT. On the OTCQB, securities are traded by a network of brokers or dealers
who carry inventories of securities to facilitate the buy and sell orders of investors, rather than providing the order matchmaking service seen in specialist
exchanges. OTCQB securities include national, regional, and foreign equity issues. Companies traded on the OTCQB must be current in their reports filed
with the SEC and other regulatory authorities.
37
Since our common stock is not listed on a national exchange or market, the trading market for our common stock may become illiquid. Our common stock is
subject to the penny stock rules of the SEC, which generally are applicable to equity securities with a price of less than $5.00 per share, other than securities
registered on certain national securities exchanges provided that current price and volume information with respect to transactions in such securities is
provided by the exchange or system. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with bid and ask quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. In
addition, the penny stock rules require that, before a transaction in a penny stock that is not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
As a result of these requirements, our common stock could be priced at a lower price and our stockholders could find it more difficult to sell their shares.
Shareholders may suffer substantial dilution related to issued stock warrants and options.
As of December 31, 2014, we had a number of agreements or obligations that may result in dilution to investors. These include:
● warrants to purchase a total of approximately 7,269,500 shares of our common stock at a current weighted average exercise price of approximately
$1.15; and
● options to purchase approximately 2,488,279 shares of our common stock at a current weighted average exercise price of approximately $2.40.
We also have an incentive compensation plan for our management, employees and consultants. We have granted, and expect to grant in the future, options to
purchase shares of our common stock to our directors, employees and consultants. To the extent that warrants or options are exercised, our stockholders will
experience dilution and our stock price may decrease.
Additionally, the sale, or even the possibility of the sale, of the shares of common stock underlying these warrants and options could have an adverse effect on
the market price for our securities or on our ability to obtain future financing.
Anti-takeover provisions in our stockholder rights plan and under Delaware law could make a third party acquisition of the Company difficult.
Our stockholder rights plan contains provisions that could make it more difficult for a third party to acquire us, even if doing so might be deemed beneficial
by our stockholders. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. We are also
subject to certain provisions of Delaware law that could delay, deter or prevent a change in control of the Company. The rights issued pursuant to our
stockholder rights plan will become exercisable the tenth day after a person or group announces acquisition of 15% or more of our common stock or
commences, or announces an intention to make, a tender or exchange offer the consummation of which would result in ownership by the person or group of
15% or more of our common stock. If the rights become exercisable, the holders of the rights (other than the person acquiring 15% or more of our common
stock) will be entitled to acquire, in exchange for the rights’ exercise price, shares of our common stock or shares of any company in which we are merged,
with a value equal to twice the rights’ exercise price.
38
Our shares of common stock are thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to raise
money or otherwise desire to liquidate their shares.
Our common stock has from time to time been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask
prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence
sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company
such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there may be
periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give stockholders any assurance
that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
Since our common stock is not listed on a national securities exchange, U.S. holders of warrants may not be able to exercise their warrants without
compliance with applicable state securities laws and the value of your warrants may be significantly reduced.
Since our securities are not listed for trading on a national exchange, the exercise of the warrants by U.S. holders may not be exempt from state securities
laws. As a result, depending on the state of residence of a holder of the warrants, a U.S. holder may not be able to exercise its warrants unless we comply with
any state securities law requirements necessary to permit such exercise or an exemption applies. Although we plan to use our reasonable efforts to assure that
U.S. holders will be able to exercise their warrants under applicable state securities laws if no exemption exists, there is no assurance that we will be able to
do so. As a result, your ability to exercise your warrants may be limited. The value of the warrants may be significantly reduced if U.S. holders are not able to
exercise their warrants under applicable state securities laws.
Our common stock is deemed to be a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.
Our common stock is subject to Rule 15g-1 through 15g-9 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which imposes
certain sales practice requirements on broker-dealers which sell our common stock to persons other than established customers and “accredited investors”
(generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 (or $300,000 together with their spouses)). For
transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written
consent to the transaction prior to the sale. This rule adversely affects the ability of broker-dealers to sell our common stock and the ability of our
stockholders to sell their shares of common stock.
Additionally, our common stock is subject to the SEC regulations for “penny stock.” Penny stock includes any equity security that is not listed on a national
exchange and has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell
transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny
stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price
quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information
for the penny stock and information of the limited market for penny stocks. These requirements adversely affect the market liquidity of our common stock.
We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, our stockholders’ ability to achieve a
return on their investment will depend on appreciation in the price of our common stock.
We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the
foreseeable future. Consequently, our stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way
to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at
which our stockholders have purchased their shares.
39
Upon dissolution of the Company, our stockholders may not recoup all or any portion of their investment.
In the event of a liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the proceeds and/or assets of the Company
remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be distributed to the holders of common stock on a pro
rata basis. There can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation,
dissolution or winding-up of the Company. In this event, our stockholders could lose some or all of their investment.
The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or
the perception that such sales may occur, could cause the price of our common stock to fall.
On November 18, 2013, we entered into a purchase agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $10.6
million of our common stock. Concurrently with the execution of the purchase agreement, we issued 97,656 shares of our common stock to Lincoln Park as a
fee for its commitment to purchase shares of our common stock under the purchase agreement. From November 18, 2013 through December 31, 2014, we
sold 510,714 additional shares to Lincoln Park and issued 5,743 additional shares to Lincoln Park as additional commitment shares under the purchase
agreement and received proceeds of approximately $1.1 million. The shares that may be sold pursuant to the purchase agreement in the future may be sold by
us to Lincoln Park at our discretion from time to time over a 26-month period. The purchase price for the shares that we may sell to Lincoln Park under the
purchase agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the
trading price of our common stock to fall.
We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements
with Lincoln Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $1.00 per share, subject
to adjustment as set forth in the purchase agreement. Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and
other factors to be determined by us. Lincoln Park may ultimately purchase all, some or none of the additional shares of our common stock that may be sold
pursuant to the purchase agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares. Therefore, sales to Lincoln Park
by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our
common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a
time and at a price that we might otherwise wish to effect sales.
The issuance of our common stock pursuant to the terms of the asset purchase agreement with Hy Biopharma Inc. may cause dilution and the issuance
of such shares of common stock, or the perception that such issuances may occur, could cause the price of our common stock to fall.
On April 1, 2014, we entered into an option agreement pursuant to which Hy Biopharma Inc. granted us an option to purchase certain assets, properties and
rights (the “Hypercin Assets”) related to the development of Hy Biopharma’s synthetic hypericin product candidate for the treatment of CTCL, which we
refer to as SGX301, from Hy Biopharma. In exchange for the option, we paid $50,000 in cash and issued 43,067 shares of common stock in the aggregate to
Hy Biopharma and its assignees. We subsequently exercised the option, and on September 3, 2014, we entered into an asset purchase agreement with Hy
Biopharma, pursuant to which we purchased the Hypercin Assets. Pursuant to the purchase agreement, we paid $250,000 in cash and issued 1,849,113 shares
of common stock in the aggregate to Hy Biopharma and its assignees, and may issue up to an aggregate of $10 million worth of our common stock (subject to
a cap equal to 19.99% of our issued and outstanding common stock) in the aggregate upon attainment of specified milestones. Also on September 3, 2014, we
entered into the Registration Rights Agreement with Hy Biopharma, pursuant to which we have filed a registration statement with the SEC.
40
The number of shares that we may issue under the purchase agreement will fluctuate based on the market price of our common stock. Depending on market
liquidity at the time, the issuance of such shares may cause the trading price of our common stock to fall.
We may ultimately issue all, some or none of the additional shares of our common stock that may be issued pursuant to the purchase agreement. We are
required to register any shares issued pursuant to the purchase agreement, including the 1,849,113 shares already issued, for resale under the Securities Act.
After any such shares are registered, the holders will be able to sell all, some or none of those shares. Therefore, issuances by us under the purchase
agreement could result in substantial dilution to the interests of other holders of our common stock. Additionally, the issuance of a substantial number of
shares of our common stock pursuant to the purchase agreement, or the anticipation of such issuances, could make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease approximately 5,200 square feet of office space at 29 Emmons Drive, Suite C-10, Princeton, New Jersey 08540. This office space
currently serves as our corporate headquarters. In December 2014, we entered into a lease agreement through May 31, 2018 for existing and expanded office
space. The rent for the first 12 months is approximately $12,300 per month, or approximately $20.85 per square foot. This rent increases to approximately
$12,375 per month, or approximately $20.95 per square foot, for the next 12 months, and thereafter to approximately $12,460 per month, or approximately
$21.13 per square foot for the remainder of the lease. Our office space is sufficient to satisfy our current needs.
Item 3. Legal Proceedings
From time to time, we are a party to claims and legal proceedings arising in the ordinary course of business. Our management evaluates our exposure to these
claims and proceedings individually and in the aggregate and allocates additional monies for potential losses on such litigation if it is possible to estimate the
amount of loss and if the amount of the loss is probable.
41
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is quoted on the OTCQB under the symbol “SNGX.” The following table sets forth for the periods indicated, the high and low sales prices
per share of our common stock as reported by the OTCQB.
PART II
Period
Year Ended December 31, 2013:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ending December 31, 2015:
First Quarter (through March 17, 2015)
Price Range
High
Low
$
$
$
$
$
$
$
$
$
2.13 $
2.05 $
2.48 $
2.36 $
2.50 $
2.29 $
2.25 $
2.09 $
2.30 $
0.55
0.86
0.98
1.65
1.75
1.65
1.67
0.91
0.98
As of March 17, 2015, the last reported price of our common stock quoted on the OTCQB was $1.74 per share. The OTCQB prices set forth above represent
inter-dealer quotations, without adjustment for retail mark-up, mark-down or commission, and may not represent the prices of actual transactions.
Transfer Agent
Shares of our common stock are issued in registered form. American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219
(Telephone: (718) 921-8200; Facsimile: (718) 765-8719) is the registrar and transfer agent for shares of our common stock.
Holders of Common Stock
As of March 17, 2015, there were 538 holders of record of our common stock. As of such date, 25,168,354 shares of our common stock were issued and
outstanding.
Dividends
We have never declared nor paid any cash dividends, and currently intend to retain all our cash and any earnings for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our consolidated financial condition, results of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
Item 6. Selected Financial Data
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Note Regarding Forward-Looking Statements – Industry Data and Market Information
This Annual Report on Form 10-K contains forward-looking statements that reflect our current expectations about our future results, performance, prospects
and opportunities. These forward-looking statements are subject to significant risks, uncertainties, and other factors, including those identified in “Risk
Factors” above, which may cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements. The forward-
looking statements within this Form 10-K may be identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “would,” “will” and
other similar expressions. However, these words are not the exclusive means of identifying these statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Except as expressly required by the
federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances occurring
subsequent to the filing of this Form 10-K with the SEC or for any other reason. You should carefully review and consider the various disclosures we make in
this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our
business.
Our Business Overview
We were incorporated in Delaware in 1987. We are a late-stage biopharmaceutical company developing product candidates intended to address unmet medical
needs in the areas of inflammation, oncology and biodefense. We maintain two active business segments: BioTherapeutics and Vaccines/BioDefense.
Our BioTherapeutics business segment is developing a first-in-class photo-dynamic therapy (SGX301) utilizing safe, visible light for the treatment of
cutaneous T-cell lymphoma (“CTCL”), proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment of
gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201),
and our novel innate defense regulator (“IDR”) technology (SGX942) for the treatment of oral mucositis in head and neck cancer.
Our Vaccines/BioDefense business segment includes active development programs for RiVax™, our ricin toxin vaccine candidate, VeloThrax™, our anthrax
vaccine candidate, OrbeShield™, our GI acute radiation syndrome (“GI ARS”) therapeutic candidate and SGX943, our melioidosis therapeutic candidate.
The development of our vaccine programs is supported by our heat stabilization technology, known as ThermoVax™, under existing and on-going
government contract funding. With the recently awarded government contract from the National Institute of Allergy and Infectious Diseases (“NIAID”), we
will attempt to advance the development of RiVax™ to protect against exposure to ricin toxin. We plan to use the funds received under our government
contracts with the Biomedical Advanced Research and Development Authority (“BARDA”) and NIAID to advance the development of OrbeShield™ for the
treatment of GI ARS. Additionally, we have entered into a global and exclusive channel collaboration with Intrexon Corporation (“Intrexon”) through which
we intend to develop and commercialize a human monoclonal antibody therapy (SGX101) to treat melioidosis.
An outline of our business strategy follows:
● Conduct a Phase 3 clinical trial of SGX301 for the treatment of CTCL;
● Conduct a Phase 2 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;
● Conduct a Phase 3 clinical trial of oral BDP, known as SGX203 for the treatment of pediatric Crohn’s disease;
● Evaluate the effectiveness of oral BDP in other therapeutic indications involving inflammatory conditions of the gastrointestinal (“GI”) tract such as
prevention of acute radiation enteritis;
● Develop RiVax™ and VeloThrax™ in combination with our ThermoVax™ technology to develop new heat stable vaccines in biodefense and
infectious diseases with the potential to collaborate and/or partner with other companies in these areas;
43
● Advance the preclinical and manufacturing development of OrbeShield™ as a biodefense medical countermeasure for the treatment of GI ARS;
● Continue to apply for and secure additional government funding for each of our BioTherapeutics and Vaccines/BioDefense programs through grants,
contracts and/or procurements;
● Acquire or in-license new clinical-stage compounds for development; and
● Explore other business development and merger/acquisition strategies, an example of which is our collaboration with Intrexon.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. We evaluate these
estimates and judgments on an on-going basis.
Intangible Assets
One of the most significant estimates or judgments that we make is whether to capitalize or expense patent and license costs. We make this judgment based on
whether the technology has alternative future uses, as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 730, Research and Development. Based on this consideration, we capitalized payments made to legal firms that are engaged in filing and protecting
rights to intellectual property rights for our current product candidates in both the domestic and international markets. We believe that patent rights are one of
our most valuable assets. Patents and patent applications are key components of intellectual property, especially in the early stage of product development, as
their purchase and maintenance gives us access to key product development rights from our academic and industry partners. These rights can also be sold or
sub-licensed as part of our strategy to partner our product candidates at each stage of development as the intangible assets have alternative future use. The
legal costs incurred for these patents consist of work associated with filing new patents designed to protect, preserve, maintain and perhaps extending the lives
of the patents. We capitalize such costs and amortize intangibles over their expected useful life – generally a period of 11 to 16 years.
These intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable
or if the underlying program is no longer being pursued. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset
or group of assets, a loss is recognized for the difference between the fair value and carrying value of the related asset or group of assets.
Fair Value of Financial Instruments
FASB ASC 820 — Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all
financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on
pertinent information available to us on December 31, 2014. Accordingly, the estimates presented in these financial statements are not necessarily indicative
of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).
44
The three levels of the fair value hierarchy are as follows:
● Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed
equities.
● Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2
includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including
volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are
observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the
marketplace.
● Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using
pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their fair value based on the short-term maturity of these instruments. We recognize all derivative financial instruments as assets or liabilities in
the financial statements and measure them at fair value with changes in fair value reflected as current period income or loss unless the derivatives qualify as
hedges. As a result, certain warrants issued in connection with our June 2013 offering were accounted for as derivatives.
Research and Development Costs
Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and
development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and
materials, salaries, stock based compensation, employee benefits, equipment depreciation and allocation of various corporate costs. Purchased in-process
research and development expense represents the value assigned or paid for acquired research and development for which there is no alternative future use as
of the date of acquisition.
Revenue Recognition
Principally our revenues are generated from government contracts and grants. Recording of revenue is applied in accordance with FASB ASC 605, Revenue
Recognition and/or, ASC 605-25, Revenue Recognition – Multiple Element Arrangements. The revenue from government contracts and grants is based upon
subcontractor costs and internal costs incurred that are specifically covered by the grants, plus a facilities and administrative rate that provides funding for
overhead expenses. These revenues are recognized when expenses have been incurred by subcontractors or when we incur internal expenses that are related to
the grant.
Accounting for Warrants
We considered FASB ASC 815, Evaluating Whether an Instrument is Considered Indexed to an Entity’s Own Stock, which provides guidance for determining
whether an equity-linked financial instrument (or embedded feature) issued by an entity is indexed to the entity’s stock, and therefore, qualifying for the first
part of the scope exception in paragraph 815-10-15. We evaluated the provisions in our outstanding warrants and determined that warrants issued in
connection with our June 2013 registered public offering contain provisions that protect holders from a decline in the issue price of our common stock (or
“down-round” provisions) and contain net settlement provisions. Consequently, these warrants are recognized as liabilities at their fair value on the date of
grant and remeasured at fair value on each reporting date. All other warrants issued were indexed to our own stock and therefore are accounted for as equity
instruments for 2014 and 2013.
45
Stock-Based Compensation
Stock options are issued with an exercise price equal to the market price on the date of issuance. Stock options issued to directors upon re-election vest
quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued to employees vest 25% immediately as of the
grant date, then 25% each subsequent year for a period of three years. Stock options vest over each three month period from the date of issuance to the end of
the three year period. These options have a ten year life for as long as the individuals remain employees or directors. In general, when an employee or director
terminates their position the options will expire within three months, unless otherwise extended by the Board.
From time to time, we issue restricted shares of our common stock to vendors and consultants as compensation for services performed. Stock-based
compensation expense recognized during the period is based on the fair value of the portion of share-based payment awards that is ultimately expected to vest
during the period. Typically these instruments vest upon issuance and therefore the entire stock compensation expense is recognized upon issuance to the
vendors and/or consultants.
We determine stock-based compensation expense for options, warrants and shares of common stock granted to non-employees in accordance with FASB ASC
718, Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, and represents the fair value of the consideration received, or
the fair value of the equity instruments issued, whichever may be more reliably measured. For options that vest over future periods, the fair value of options
granted to non-employees is amortized as the options vest. Stock-based compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during the period.
Results of Operations
Year Ended December 31, 2014 Compared to 2013
For the year ended December 31, 2014, we had a net loss of $6,706,972 as compared to a net loss of $10,058,996 for the prior year, representing a decreased
loss of $3,352,024 or 33%. Included in the net loss for December 31, 2014 is a non-cash gain of $3,436,195 versus a non-cash expense of $3,654,770 for
December 31, 2013 which represents the change in the fair value of the warrant liability related to warrants issued in connection with our registered public
offering in June 2013. During the third quarter of 2014, we completed the acquisition of Hypericin, SGX 301, for which we issued common stock with a
value of $3,750,000 and paid cash of $250,000 which was recognized as acquired in-process research and development expense. Additionally, we continued
our progress on the Phase 2 clinical trial with SGX942 for patients suffering from oral mucositis associated with their chemoradiation therapy, (“CRT”) for
head and neck cancer.
For the year ended December 31, 2014 and 2013, revenues and associated costs relate to government contracts and grants awarded in support of the
development of ThermoVax™, RiVax™ GI-ARS, orBec® and OrbeShield™ in GI ARS. For the year ended December 31, 2014, we had revenues of
$7,043,016 as compared to $3,224,152 for the prior year, representing an increase of $3,818,864 or 118%. The increase in revenues was a result of research
and development activities performed under our government contracts associated with OrbeShield™ and the initiation of a research and development
government contract in the fourth quarter for RiVax™.
We incurred costs related to contract and grant revenues in the year ended December 31, 2014 and 2013 of $5,313,855 and $2,544,285, respectively,
representing an increase of $2,769,570 or 109%. These costs primarily relate to payments made to subcontractors and allocated employee costs in connection
with research performed pursuant to contracts and grants. The fluctuations are due to the development activity performed on the contracts and grants
discussed above.
Our gross profit for the year ended December 31, 2014 was $1,729,161 as compared to $679,867 for the prior year, representing an increase of $1,049,294 or
154%. This increase is due primarily to the OrbeShield™ and RiVax™ contracts which provide a management fee and higher negotiated reimbursement for
fixed overhead.
46
Research and development, including acquired in-process research and development costs, increased by $4,015,356 or 79%, to $9,086,535 for the year ended
December 31, 2014 as compared to $5,071,179 for the prior year. This increase is primarily related to the acquisition of Hypericin, SGX 301, for which we
issued common stock with a value of $3,750,000 and paid cash of $250,000 which was recognized as acquired in-process research and development expense.
Additionally, we continued our progress on the Phase 2 clinical trial with SGX942 for patients suffering from oral mucositis associated with their CRT for
head and neck cancer.
General and administrative expenses increased by $638,745 or 23%, to $3,403,975 for the year ended December 31, 2014, as compared to $2,765,230 for the
prior year. This increase is primarily related to increased headcount and an increase in outside professional services.
Other income (expense) for the year ended December 31, 2014 was $3,437,505 as compared to $(3,652,810) for the prior year. The change is primarily
related to non-cash income of $3,436,195 which represents the change in the fair value of the warrant liability related to warrants issued in connection with
our June 2013 registered public offering for the year ended December 31. 2014 as compared to a non-cash expense of $(3,654,770) for the year ended
December 31, 2013.
During the year ended December 31, 2014, in accordance with the State of New Jersey’s Technology Business Tax Certificate Program, which allowed
certain high technology and biotechnology companies to sell unused net operating loss (“NOL”) carryforwards to other New Jersey-based corporate taxpayers
based in New Jersey, we sold New Jersey NOL carryforwards, resulting in the recognition of $616,872 of income tax benefit, net of transaction costs as
compared to $750,356 for the year ended December 31, 2013. There can be no assurance as to the continuation or magnitude of this program in future years.
Business Segments
We maintain two active business segments for the year ended December 31, 2014 and December 31, 2013: Vaccines/BioDefense and BioTherapeutics.
Revenues for the Vaccines/BioDefense business segment for the year ended December 31, 2014 were $6,756,388 as compared to $3,003,822 for the year
ended December 31, 2013, representing an increase of $3,752,566 or 125%. The increase in revenues were a result of our OrbeShield™ contracts and
initiating the RiVax™ contract during the fourth quarter of 2014. Revenues for the BioTherapeutics business segment for the year ended December 31, 2014
were $286,628 as compared to $220,330 for the year ended December 31, 2013, representing an increase of $66,298 or 30%. This increase is primarily
related to work performed under our GI ARS and oral mucositis grants.
Income (loss) from operations for the Vaccines/BioDefense business segment for the year ended December 31, 2014 was $807,164 as compared to
$(1,666,130) for the year ended December 31, 2013. Income from operations is primarily attributable to our gross margins related to our government
contracts. Loss from operations for the BioTherapeutics business segment for the year ended December 31, 2014 was $7,674,381 as compared to $3,069,998
for the year ended December 31, 2013, representing an increase of $4,604,383. This increased loss is due primarily to the acquisition of Hypericin, SGX 301,
for which we issued common stock with a value of $3,750,000 and paid cash of $250,000 which was recognized as acquired in-process research and
development expense and our continued progress in the Phase 2 clinical trial with SGX942 for patients suffering from oral mucositis associated with their
CRT for head and neck cancer.
Amortization and depreciation expense for the Vaccines/BioDefense business segment for the year ended December 31, 2014 was $39,625 as compared to
$37,981 for the year ended December 31, 2013. Amortization and depreciation expense for the BioTherapeutics business segment for the year ended
December 31, 2014 was $199,196 as compared to $190,033 for the year ended December 31, 2013.
47
Financial Condition and Liquidity
Cash and Working Capital
As of December 31, 2014, we had cash and cash equivalents of $5,525,094 as compared to $5,856,242 as of December 31, 2013, representing a decrease of
$331,148 or 6%. As of December 31, 2014, we had working capital of $3,174,214, which excludes a non-cash warrant liability of $3,789,562 as compared to
working capital of $5,855,046 as of December 31, 2013, representing an decrease of $2,680,832 or 46%. The decrease in working capital was primarily the
result of expenditures related to support the Phase 2 clinical trial of SGX942 and a decrease in taxes receivable offset by the net proceeds of $1,937,894
received from our December 2014 registered public offering, proceeds from our Lincoln Park equity line of $470,475 and from the exercise of stock options
of $28,078.
Based on the Company’s current rate of cash outflows, cash on hand, proceeds from government contract and grant programs, proceeds available from the
Lincoln Park equity line and proceeds from the State of New Jersey Technology Business Tax Certificate Transfer Program, management believes that its
current cash will be sufficient to meet the anticipated cash needs for working capital and capital expenditures for at least the next twelve months.
Our plans with respect to our liquidity management include, but are not limited to, the following:
● We have up to $51.4 million in active contract and grant funding still available to support our associated research programs in 2015 and beyond. We
plan to submit additional grant applications for further support of these programs with various funding agencies.
● We have continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners and expect to
continue to do so for the foreseeable future.
● We will pursue NOL sales in the State of New Jersey, pursuant to its Technology Business Tax Certificate Transfer Program. Based on the receipt of
$616,872 in proceeds from the sale of NJ NOL in December 2014, we expect to participate in this program during 2015 and beyond as the program
is available;
● We have a $10.6 million equity facility, with Lincoln Park, through October 2016, of which approximately $9.5 million was available at December
31, 2014; and
● We may seek additional capital in the private and/or public equity markets to continue our operations, respond to competitive pressures, develop new
products and services, and to support new strategic partnerships. We are currently evaluating additional equity financing opportunities and may
execute them when appropriate. However, there can be no assurances that we can consummate such a transaction, or consummate a transaction at
favorable pricing.
Expenditures
Under our budget and based upon our existing product development agreements and license agreements pursuant to letters of intent and option agreements,
we expect our total research and development expenditures for the next 12 months to be approximately $16.0 million before any grant reimbursements, of
which $5.9 million relates to the BioTherapeutics business and $10.1 million relates to the Vaccines/BioDefense business. We anticipate contract and grant
reimbursements in the next 12 months of approximately $10.1 million to offset research and development expenses in the Vaccines/BioDefense business
segment.
48
The table below details our costs for research and development by program and amounts reimbursed for the years ended December 31, 2014 and 2013:
Research & Development Expenses
Oral BDP
RiVax™ & ThermoVax™ Vaccines
SGX94
SGX943/101
SGX301
Other
Total
Reimbursed under Government Contracts and Grants
OrbeShield™
RiVax™ & ThermoVax™ Vaccines
Other
Total
Grand Total
Contractual Obligations
2014
2013
561,655 $
846,870
2,820,807
19,378
4,369,585
468,240
9,086,535 $
1,467,077
1,113,430
659,809
1,500,000
-
330,863
5,071,179
4,100,663
930,573
282,619 $
5,313,855 $
14,400,390 $
672,194
1,872,091
-
2,544,285
7,615,464
$
$
$
$
$
We have commitments of approximately $375,000 at December 31, 2014 for several licensing agreements with consultants and universities. Additionally, we
have collaboration and license agreements, which upon clinical or commercialization success, may require the payment of milestones of up to $7.9 million
and/or royalties up to 6% of net sales of covered products, if and when achieved. However, there can be no assurance that clinical or commercialization
success will occur.
In December 2014, we entered into a lease agreement through May 31, 2018 for existing and expanded office space. The rent for the first 12 months is
approximately $12,300 per month, or approximately $20.85 per square foot. This rent increases to approximately $12,375 per month, or approximately
$20.95 per square foot, for the next 12 months, and thereafter to approximately $12,460 per month, or approximately $21.13 per square foot for the remainder
of the lease.
On September 3, 2014, we entered into an asset purchase agreement with Hy Biopharma, Inc. to which the Company acquired certain intangible assets,
properties and rights of Hy Biopharma related to the development of Hy BioPharma’s synthetic hypericin product. As consideration for the assets acquired,
we paid $250,000 in cash and issued 1,849,113 shares of common stock with a fair value of $3,750,000. These amounts are charged to R&D expense as the
assets will be used in the Company’s R&D activities and do not have alternative future use pursuant to Generally Accepted Accounting Principles in the
United States. Provided all future success-oriented milestones are attained, we will be required to make payments of up to $10.0 million, if and when
achieved. Payments will be payable in restricted securities of the Company.
On April 27, 2013, we entered into an exclusive channel collaboration agreement with Intrexon (the “Channel Agreement”) to use Intrexon’s advanced human
antibody discovery, isolation and production technologies for the development of human monoclonal antibody therapies for a new biodefense application
targeting melioidosis. The Channel Agreement grants an exclusive worldwide license to use specified patents and other intellectual property of Intrexon in
connection with the research, development, use, importing, manufacture, sale and offer for sale of products for the treatment of melioidosis through the use of
exogenously produced human recombinant monoclonal antibodies. The Channel Agreement, upon clinical or commercialization success, may require the
payment of certain milestones up to $7 million, if and when achieved.
In February 2007, our Board of Directors authorized the issuance of 50,000 shares to Dr. Schaber immediately prior to the completion of a transaction, or
series or a combination of related transactions negotiated by our Board of Directors whereby, directly or indirectly, a majority of our capital stock or a
majority of our assets are transferred from us and/or our stockholders to a third party. The amended agreement with Dr. Schaber includes its obligation to
issue such shares if such event occurs.
Employees with employment contracts have severance agreements that will provide separation benefits from the Company if they are involuntarily separated
from employment.
49
As a result of the above agreements, we have future contractual obligations over the next five years as follows:
Year
2015
2016
2017
2018
2019
Total
Research and
Development
Property and
Other Leases
Total
$
$
75,000 $
75,000
75,000
75,000
75,000
375,000 $
130,000 $
157,000
152,000
51,000
-
490,000 $
205,000
232,000
227,000
126,000
75,000
865,000
Item 8. Financial Statements and Supplementary Data
The information required by this Item 8 is contained on pages F-1 through F-21 of this Annual Report on Form 10-K and is incorporated herein by reference.
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
Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable
assurance of achieving their objectives and management necessarily applies its judgment in evaluating the possible controls and procedures.
Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
Based upon that evaluation, our management, including our principal executive officer and principal financial officer, has concluded that, as of the end of the
period covered by this report, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Company management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by the Company’s Board
of Directors, management and other personnel 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 and includes those policies and procedures that:
● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
50
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of
management and directors of the Company; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated
Framework, 1992.
Based on our assessment, management has concluded that, as of December 31, 2014, the Company’s internal control over financial reporting is effective.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that
occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Item 9B. Other Information
None.
51
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The table below contains information regarding the current members of the Board of Directors and executive officers. The ages of individuals are provided as
of March 17, 2015:
Name
Christopher J. Schaber, PhD
Keith L. Brownlie, CPA
Marco M. Brughera, DVM
Gregg A. Lapointe, CPA
Robert J. Rubin, MD
Jerome Zeldis, MD, PhD
Oreola Donini, PhD
Richard Straube, MD
Joseph M. Warusz, CPA
Age
48
62
59
56
69
64
43
63
58
Position
Chairman of the Board, Chief Executive Officer and President
Director
Director
Director
Director
Director
Chief Scientific Officer and Senior Vice President
Chief Medical Officer and Senior Vice President
Vice President of Finance, Acting Chief Financial Officer and Corporate Secretary
Christopher J. Schaber, PhD has over 25 years of experience in the pharmaceutical and biotechnology industry. Dr. Schaber has been our President and
Chief Executive Officer and a director since August 2006. He was appointed Chairman of the Board on October 8, 2009. He also serves on the board of
directors of directors of the Biotechnology Council of New Jersey (“BioNJ”) since January 2009 and the Alliance for Biosecurity since October 2014, and has
been a member of the corporate councils of both the National Organization for Rare Diseases (“NORD”) and the American Society for Blood and Marrow
Transplantation (“ASBMT”) since October 2009 and July 2009, respectively. Prior to joining Soligenix, Dr. Schaber served from 1998 to 2006 as Executive
Vice President and Chief Operating Officer of Discovery Laboratories, Inc., where he was responsible for overall pipeline development and key areas of
commercial operations, including regulatory affairs, quality control and assurance, manufacturing and distribution, pre-clinical and clinical research, and
medical affairs, as well as coordination of commercial launch preparation activities. From 1996 to 1998, Dr. Schaber was a co-founder of Acute Therapeutics,
Inc., and served as its Vice President of Regulatory Compliance and Drug Development. From 1994 to 1996, Dr. Schaber was employed by Ohmeda PPD,
Inc., as Worldwide Director of Regulatory Affairs and Operations. From 1989 to 1994, Dr. Schaber held a variety of regulatory, development and operations
positions with The Liposome Company, Inc., and Elkins-Sinn Inc., a division of Wyeth-Ayerst Laboratories. Dr. Schaber received his BA degree from
Western Maryland College, his MS degree in Pharmaceutics from Temple University School of Pharmacy and his PhD degree in Pharmaceutical Sciences
from the Union Graduate School. Dr. Schaber was selected to serve as a member of our Board of Directors because of his extensive experience in drug
development and pharmaceutical operations, including his experience as an executive senior officer with our Company and Discovery Laboratories, Inc., and
as a member of the board of directors of BioNJ; because of his proven ability to raise funds and provide access to capital; and because of his advanced
degrees in science and business.
Keith L. Brownlie, CPA has been a director since June 2011. Mr. Brownlie currently serves on the Board of Directors of Rxi Pharmaceuticals Corporation, a
publicly traded biotechnology company involved in the research and development of RNAi products for the diagnosis, prevention and treatment of human
diseases, a position he has held since June 2012. From July 2013 until December 2014, Mr. Brownlie served on the Board of Directors of Cancer Genetics,
Inc., a publicly traded, early stage diagnostics company. Mr. Brownlie served as a member of the Board of Directors of Epicept Corporation, a publicly
traded, specialty pharmaceutical company focused on the clinical development and commercialization of pharmaceutical products for the treatment of cancer
and pain, from April 2011 to August 2013 when Epicept Corporation merged with Immune Pharmaceuticals, Inc. From 1974 to 2010, Mr. Brownlie worked
with the accounting firm of Ernst & Young LLP where he served as audit partner for numerous public companies and was the Life Sciences Industry Leader
for the New York metro area. Mr. Brownlie received a BS in Accounting from Lehigh University and is a Certified Public Accountant in the state of New
Jersey. Mr. Brownlie co-founded the New Jersey Entrepreneur of the Year Program and was Vice President and Trustee of the New Jersey Society of CPAs. In
addition, he served as accounting advisor to the board of the Biotechnology Council of New Jersey. Mr. Brownlie was selected to serve as a member of our
Board of Directors because of his vast experience as an audit partner for numerous public companies and as a director of publicly traded specialty
pharmaceutical and biotechnology companies.
52
Marco Brughera, DVM joined the Board of Directors in October 2013. He is the Global Head of the Rare Disease Franchise for Sigma-Tau S.p.A., a
position he has held since October 2012. From December 2011 through January 2014, Dr. Brughera served on the Board of Directors of Gentium S.p.A., a
publicly traded biopharmaceutical company. From January 2011 through October 2012, Dr. Brughera held several other positions with the Sigma-Tau Group,
including Corporate Research and Development Managing Director of Sigma-Tau S.p.A., President of Sigma-Tau Research Switzerland S.A. and board
member of Sigma-Tau Pharmaceuticals, Inc. and of Sigma Tau Rare Diseases S.A. From 2004 to 2010, Dr. Brughera served as the Vice President of
Preclinical Development at Nerviano Medical Sciences S.r.l. (“NMS Group”), a pharmaceutical oncology-focused integrated discovery and development
company. He also served as the Managing Director at Accelera, S.r.l., an independent contract research organization affiliated with the NMS Group. From
1999 to 2004, Dr. Brughera held several senior level positions in the areas of discovery and development toxicology with Pharmacia Corporation and Pfizer,
Inc. Prior to 1999, he held various positions at Pharmacia & Upjohn Company, Inc., and Farmitalia Carlo Erba S.p.A., an Italian pharmaceutical company. Dr.
Brughera earned his degree in veterinary medicine from the University of Milan and is a European Registered Toxicologist. Pursuant to our February 11,
2009 stock purchase agreement with Sigma-Tau Pharmaceuticals, Inc., as long as Sigma-Tau beneficially owns at least 10% of our issued and outstanding
shares of Common Stock, we are required to use our best efforts to secure the election of a Sigma-Tau designee to our Board of Directors. In view of Dr.
Brughera’s background in the areas of drug discovery and development and his experience as an executive officer and a director in the pharmaceutical
industry, the Nominating Committee accepted Dr. Brughera as Sigma-Tau’s designee for election to the Board of Directors.
Gregg Lapointe, CPA, MBA has been a director since March 2009. Mr. Lapointe is currently CEO of Cerium Pharmaceuticals, Inc. and serves on the Board
of Directors of SciClone Pharmaceuticals, Inc., Cambrooke Therapeutics, Inc., Raptor Pharmaceuticals, Inc., and the Board of Trustees of the Keck Graduate
Institute of Applied Life Sciences. He has previously served on the Board of Directors of the Pharmaceuticals Research and Manufacturers of America
(PhRMA) and Questcor Pharmaceuticals, Inc., and has been a member of the Corporate Council of NORD for several years. He previously served in varying
roles for Sigma-Tau Pharmaceuticals, Inc., a private biopharmaceutical company, from September 2001 through February 2012, including Chief Operating
Officer from November 2003 to April 2008 and Chief Executive Officer from April 2008 to February 2012. From May, 1996 to August 2001, he served as
Vice President of Operations and Vice President, Controller of AstenJohnson, Inc. (formerly JWI Inc.). Prior to that, Mr. Lapointe spent several years in the
Canadian medical products industry in both distribution and manufacturing. Mr. Lapointe began his career at Price Waterhouse. Mr. Lapointe received his
B.A. degree in Commerce from Concordia University in Montreal, Canada, a graduate diploma in Accountancy from McGill University and his M.B.A.
degree from Duke University. He is a C.P.A. in the state of Illinois. Mr. Lapointe was selected to serve as a member of our Board of Directors because of his
significant experience in the areas of global strategic planning and implementation, business development, corporate finance, and acquisitions, and his
experience as an executive officer and board member in the pharmaceutical and medical products industries.
Robert J. Rubin, MD has been a director since October 2009. Dr. Rubin was a clinical professor of medicine at Georgetown University from 1995 until 2012
when he was appointed a Distinguished Professor of Medicine. From 1987 to 2001, he was president of the Lewin Group (purchased by Quintiles
Transnational Corp. in 1996), an international health policy and management consulting firm. From 1994 to 1996, Dr. Rubin served as Medical Director of
ValueRx, a pharmaceutical benefits company. From 1992 to 1996, Dr. Rubin served as President of Lewin-VHI, a health care consulting company. From 1987
to 1992, he served as President of Lewin-ICF, a health care consulting company. From 1984 to 1987, Dr. Rubin served as a principal of ICF, Inc., a health care
consulting company. From 1981 to 1984, Dr. Rubin served as the Assistant Secretary for Planning and Evaluation at the Department of Health and Human
Services and as an Assistant Surgeon General in the United States Public Health Service. Dr. Rubin has served on the Board of BioTelemetry, Inc. (formerly
known as CardioNet, Inc.) since 2007. He is a board certified nephrologist and internist. Dr. Rubin received an undergraduate degree in Political Science from
Williams College and his medical degree from Cornell University Medical College. Dr. Rubin was selected to serve as a member of our Board of Directors
because of his vast experience in the health care industry, including his experience as a nephrologist, internist, clinical professor of medicine and Assistant
Surgeon General, and his business experience in the pharmaceutical industry.
53
Jerome Zeldis, MD, PhD has been a director since June 2011. Dr. Zeldis is currently Chief Executive Officer of Celgene Global Health and Chief Medical
Officer of Celgene Corporation, a publicly traded, fully integrated biopharmaceutical company, where he has been employed since 1997. From September
1994 to February 1997, Dr. Zeldis worked at Sandoz Research Institute and the Janssen Research Institute in both clinical research and medical development.
He has been a board member of several biotechnology companies and is currently on the boards of the NJ Chapter of the Arthritis Foundation, the
Castleman’s Disease Organization and PTC Therapeutics, Inc. and Alliqua, Inc. Additionally, he has served as Assistant Professor of Medicine at the Harvard
Medical School (from July 1987 to September 1988), Associate Professor of Medicine at University of California, Davis from (September 1988 to September
1994), Clinical Associate Professor of Medicine at Cornell Medical School (January 1995 to December 2003) and Professor of Clinical Medicine at the
Robert Wood Johnson Medical School (July 1998 to June 2010). Dr. Zeldis received a BA and an MS from Brown University, and an MD, and a PhD in
Molecular Biophysics and Biochemistry from Yale University. Dr. Zeldis trained in Internal Medicine at the UCLA Center for the Health Sciences and in
Gastroenterology at the Massachusetts General Hospital and Harvard Medical School. Dr. Zeldis was selected to serve as a member of our Board of Directors
because of his experience as an executive officer of a publicly traded biopharmaceutical company and in clinical research and medical development, and his
experience in the health care industry, including his experience as an internist, gastroenterologist and professor of medicine.
Oreola Donini, PhD, has been with our company since August 15, 2013 and is currently our Chief Scientific Officer and Senior Vice President, a position
she has held since December 5, 2014. Dr. Donini served as our Vice President of Preclinical Research and Development from August 15, 2013 until
December 4, 2014. She has more than 15 years’ experience in drug discovery and preclinical development with start-up biotechnology companies. From 2012
to 2013, Dr. Donini worked with ESSA Pharma Inc. as Vice President Research and Development. From 2004 to 2012, Dr. Donini worked with Inimex
Pharmaceuticals Inc., (“Inimex”), lastly as Senior Director of Preclinical R&D from 2007-2013. Prior to joining Inimex, she worked with Kinetek
Pharmaceuticals Inc., developing therapies for infectious disease, cancer and cancer supportive care. Dr. Donini is a co-inventor and leader of the Company’s
SGX94 innate defense regulator technology, developed by Inimex and subsequently acquired by the Company. She was responsible for overseeing the
manufacturing and preclinical testing of SGX94, which demonstrated efficacy in combating bacterial infections and mitigating the effects of tissue damage
due to trauma, infection, radiation and/or chemotherapy treatment. These preclinical studies resulted in a successful Phase 1 clinical study and clearance of
Phase 2 protocols for oral mucositis in head and neck cancer and acute bacterial skin and skin structure infections. While with ESSA Pharma Inc. as the Vice
President of Research and Development, Dr. Donini led the preclinical testing of a novel N-terminal domain inhibitor of the androgen receptor for the
treatment of prostate cancer. While with Kinetek Pharmaceuticals Inc., her work related to the discovery of novel kinase and phosphatase inhibitors for the
treatment of cancer. Dr. Donini received her PhD from Queen’s University in Kinston, Ontario, Canada and completed her post-doctoral work at the
University of California, San Francisco. Her research has spanned drug discovery, preclinical development, manufacturing and clinical development in
infectious disease, cancer and cancer supportive care.
Richard Straube, MD has been with our company since January 2014 and is currently our Senior Vice President and Chief Medical Officer. Dr. Straube is a
board-certified pediatrician with 35 years’ experience in both academia and industry, including clinical research experience in host-response
modulation. From 2009 until joining our company, he was Chief Medical Officer of Stealth Peptides Incorporated, a privately-held, clinical stage,
biopharmaceutical company. Prior to joining the Company, Dr. Straube served from 1988 to 1993 in various capacities, including most recently as Senior
Director, Infectious Diseases and Immunology, Clinical Research, for Centocor, Inc., a privately-held biopharmaceutical company focused on developing
monoclonal antibody-based diagnostics. While at Centocor, Inc., Dr. Straube was responsible for the initial anti-cytokine and anti-endotoxin programs
targeted at ameliorating inappropriate host responses to infectious and immunologic challenges. Programs that he managed at Centocor, Inc. include
assessments of immunomodulation using monoclonal removal of inciting molecular triggers, removal of internal immune-messengers, augmentation of
normal host defenses, and maintenance of normal sub-cellular function in the face of injury. From 1993 to 1995, Dr. Straube was Director of Medical Affairs
at T-cell Sciences, Inc., a privately-held biotechnology company. From 1995 to 1997, he was Director of Clinical Investigations of the Pharmaceutical
Products Division of Ohmeda Corp., a privately-held biopharmaceutical company. He served from 1998 to 2007 as Executive Vice President of Research and
Development and Chief Scientific Officer at INO Therapeutics LLC, a privately-held biotherapeutics company, where he was responsible for the clinical trials
and subsequent approval of inhaled nitric oxide for the treatment of persistent pulmonary hypertension of the newborn. From 2007 to 2009, Dr. Straube was
the Chief Medical Officer at Critical Biologics Corporation, a privately-held biotechnology company. Dr. Straube received his medical degree and residency
training at the University of Chicago, completed a joint adult and pediatrician infectious diseases fellowship at the University of California, San Diego
(“UCSD”), and as a Milbank Scholar completed training in clinical trial design at the London School of Hygiene and Tropical Medicine. While on the faculty
at the UCSD Medical Center, his research focused on interventional studies for serious viral infections.
54
Joseph M. Warusz, CPA has been with the company since June 2011 and is currently our Vice President of Finance and Acting Chief Financial Officer, a
position he has held since February 2012. He has more than 30 years of financial management experience in public and private life science companies as well
as large pharma. Prior to joining Soligenix on June 1, 2011 as Vice President of Administration and Controller, he held senior financial positions with Amicus
Therapeutics, Inc. from 2004 to 2005, Orchid Cellmark, Inc. from 2000 to 2004, and NexMed, Inc. from 1998 to 1999. From 2005 to 2011, Mr. Warusz
performed consulting assignments at Ardea BioSciences, Inc., NovaDel Pharma, Inc. and Melior Discovery, all R&D-focused companies in the biotechnology
and specialty pharmaceuticals arenas. Prior to 1998, Mr. Warusz also held management positions in financial analysis, accounting, reporting and auditing at
Bristol-Myers Squibb and Peat Marwick Main & Company. He received his BS in accounting and MBA in finance at Drexel University and is a Certified
Public Accountant.
Board Leadership Structure
Our Board of Directors believes that Dr. Schaber’s service as both the Chairman of our Board of Directors and our Chief Executive Officer is in the best
interest of our Company and our stockholders. Dr. Schaber possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing our
Company and our business and, therefore, is best positioned to develop agendas that ensure that the Board of Directors’ time and attention are focused on the
most important matters. His combined role enables decisive leadership, ensures clear accountability, and enhances our ability to communicate our message
and strategy clearly and consistently to our stockholders, employees, and collaborative partners.
Messrs. Brownlie and Lapointe, Dr. Rubin, and Dr. Zeldis are independent and the Board of Directors believes that the independent directors provide effective
oversight of management. Moreover, in addition to feedback provided during the course of meetings of the Board of Directors, the independent directors hold
executive sessions. Following an executive session of independent directors, the independent directors’ report back to the full Board of Directors regarding
any specific feedback or issues, provide the Chairman with input regarding agenda items for Board of Directors and Committee meetings, and coordinate with
the Chairman regarding information to be provided to the independent directors in performing their duties. The Board of Directors believes that this approach
appropriately and effectively complements the combined Chairman/Chief Executive Officer structure.
Although the Company believes that the combination of the Chairman and Chief Executive Officer roles is appropriate under the current circumstances, our
corporate governance guidelines do not establish this approach as a policy, and the Board of Directors may determine that it is more appropriate to separate
the roles in the future.
Section 16(a) Beneficial Ownership Reporting Compliance
We are required to identify each person who was an officer, director or beneficial owner of more than 10% of our registered equity securities during our most
recent fiscal year and who failed to file on a timely basis reports required by Section 16(a) of the Exchange Act.
55
To our knowledge, based solely on review of these filings and written representations from the certain reporting persons, we believe that during the year
ended December 31, 2014, our officers, directors and significant stockholders have timely filed the appropriate form under Section 16(a) of the Exchange
Act.
Committees of the Board of Directors
Our Board of Directors has the following three committees: (1) Compensation, (2) Audit and (3) Nominating and Corporate Governance. Our Board of
Directors has adopted a written charter for each of these committees, which are available on our website at www.soligenix.com under the “Investors” section.
Audit
Committee
Compensation
Committee
Nominating and
Corporate Governance
Committee
Director
Keith L. Brownlie, CPA
Marco M. Brughera, DVM
Gregg A. Lapointe, CPA
Robert J. Rubin, MD
Jerome Zeldis, MD, PhD
– Committee Chair
– Member
Compensation Committee
Our Board of Directors has a Compensation Committee, which is comprised of Dr. Rubin (Chair), Dr. Brughera and Dr. Zeldis. The Compensation
Committee is responsible for reviewing and approving the executive compensation program, assessing executive performance, setting salary, making grants
of annual incentive compensation and approving certain employment agreements. Our Board of Directors has determined that Dr. Rubin and Dr. Zeldis are
“independent” directors within the meaning of applicable listing standards of The NASDAQ Stock Market LLC (“Nasdaq”) and the Exchange Act and the
rules and regulations thereunder. Our Board of Directors reviewed Dr. Brughera’s relationship as the Global Head of the Rare Disease Franchise for Sigma-
Tau SpA., an affiliate of Sigma-Tau Pharmaceuticals, Inc., which is owns approximately 13.72% of the issued and outstanding shares of our common stock.
Our Board of Directors determined that Dr. Brughera’s position with Sigma-Tau SpA. would not impair his ability to exercise independent judgment.
Nominating and Corporate Governance Committee
Our Board of Directors has a Nominating and Corporate Governance Committee (“Nominating Committee”), which is comprised of Dr. Zeldis (Chair), Mr.
Brownlie and Mr. Lapointe. The Nominating Committee makes recommendations to the Board of Directors regarding the size and composition of our Board
of Directors, establishes procedures for the nomination process, identifies and recommends candidates for election to our Board of Directors. Our Board of
Directors has determined that Dr. Zeldis, Mr. Brownlie and Mr. Lapointe are “independent” directors, as such term is defined by the applicable Nasdaq listing
standards.
Audit Committee
Our Board of Directors has an Audit Committee, which is comprised of Mr. Brownlie (Chair), Mr. Lapointe and Dr. Rubin. The Audit Committee assists our
Board of Directors in monitoring the financial reporting process, the internal control structure and the independent registered public accountants. Its primary
duties are to serve as an independent and objective party to monitor the financial reporting process and internal control system, to review and appraise the
audit effort of the independent registered public accountants and to provide an open avenue of communication among the independent registered public
accountants, financial and senior management, and our Board of Directors. Our Board of Directors has determined that Mr. Brownlie, Mr. Lapointe and Dr.
Rubin are “independent” directors, within the meaning of applicable listing standards of Nasdaq and the Exchange Act and the rules and regulations
thereunder. Our Board of Directors has also determined that the members of the Audit Committee are qualified to serve on the committee and have the
experience and knowledge to perform the duties required of the committee and that Mr. Brownlie qualifies as an “audit committee financial expert” as that
term is defined in the applicable regulations of the Exchange Act.
56
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers and senior financial officers (including our chief executive officer, chief financial
officer, chief accounting officer and any person performing similar functions). A copy of our code of ethics is publicly available on our website at
http://www.soligenix.com under the “Investors” section. If we make any substantive amendments to our code of ethics or grant any waiver, including any
implicit waiver, from a provision of the code to our chief executive officer, chief financial officer or chief accounting officer, we will disclose the nature of
such amendment or waiver in a Current Report on Form 8-K.
Diversity Considerations in Identifying Director Nominees
We do not have a formal diversity policy or set of guidelines in selecting and appointing directors that comprise our Board of Directors. However, when
making recommendations to our Board of Directors regarding the size and composition of our Board of Directors, our Nominating Committee does consider
each individual director’s qualifications, skills, business experience and capacity to serve as a director and the diversity of these attributes for the Board of
Directors as a whole.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee is or has at any time during the past year been one of our officers or employees. None of our executive officers
currently serves or in the past year has served as a member of the Board of Directors or Compensation Committee of any entity that has one or more
executive officers serving on our Board of Directors or Compensation Committee.
Item 11. Executive Compensation
Summary Compensation
The following table contains information concerning the compensation paid during each of the two years ended December 31, 2014 to our Chief Executive
Officer and each of the two other most highly compensated executive officers during 2014 (collectively, the “Named Executive Officers”).
Name
Position
Christopher
J. Schaber1
Joseph
M. Warusz2
Richard
C. Straube3
CEO &
President
VP & Acting
CFO
CMO & Senior
VP
Year
2014
2013
2014
2013
2014
Summary Compensation
Salary
Bonus
Option
Awards
All Other
Compensation
Total
$
$
$
$
412,000 $
402,000 $
115,000 $
239,000 $
150,000 $
199,000 $
191,000 $
186,000 $
41,000 $
90,000 $
67,500 $
89,550 $
29,580 $
33,896 $
21,197 $
32,641 $
706,580
873,896
320,697
398,191
$
300,000
$
62,000
$
276,000
$
21,328
$
659,328
1
Dr. Schaber deferred the payment of his 2014 bonus of $115,000 until January 15, 2015. Option award figures include the value of common stock option
awards at grant date as calculated under FASB ASC 718. Other compensation represents health insurance costs paid by the Company.
2 Mr. Warusz deferred the payment of his 2014 bonus of $41,000 until January 15, 2014. Option award figures include the value of common stock option
awards at grant date as calculated under FASB ASC 718. Other compensation represents health insurance costs paid by the Company.
57
3
Dr. Straube joined the Company on January 1, 2014. He deferred the payment of his 2014 bonus of $62,000 until January 15, 2014. Option award figures
include the value of common stock option awards at grant date as calculated under FASB ASC 718. Other compensation represents health insurance
costs paid by the Company.
Employment and Severance Agreements
In August 2006, we entered into a three-year employment agreement with Christopher J. Schaber, PhD. Pursuant to this employment agreement we agreed to
pay Dr. Schaber a base salary of $300,000 per year and a minimum annual bonus of $100,000. Dr. Schaber’s employment agreement was renewed in
December 27, 2007 for an additional term of three years. We agreed to issue him options to purchase 125,000 shares of our common stock, with one third
immediately vesting and the remainder vesting over three years. Upon termination without “Just Cause” as defined by this agreement, we would pay Dr.
Schaber nine months of severance, as well as any accrued bonuses, accrued vacation, and we would provide health insurance and life insurance benefits for
Dr. Schaber and his dependents. No unvested options shall vest beyond the termination date. Dr. Schaber’s monetary compensation (base salary of $300,000
and bonus of $100,000) remained unchanged from 2006 with the 2007 renewal. Upon a change in control of the Company due to merger or acquisition, all of
Dr. Schaber’s options shall become fully vested, and be exercisable for a period of five years after such change in control (unless they would have expired
sooner pursuant to their terms). In the event of his death during the term of the agreement, all of his unvested options shall immediately vest and remain
exercisable for the remainder of their term and become the property of Dr. Schaber’s immediate family. Dr. Schaber’s employment agreement automatically
renewed in December 2013 for an additional term of three years.
On June 22, 2011, the Compensation Committee eliminated his fixed minimum annual bonus payable and revised it to an annual targeted bonus of 40% of his
annual base salary. On December 6, 2012, the Compensation Committee approved an increase in salary for Dr. Schaber to $402,000. On December 4, 2013,
the Compensation Committee approved an increase in salary for Dr. Schaber to $412,000. On December 4, 2014, the Compensation Committee approved an
increase in salary for Dr, Schaber to $424,360
In May 2011, we entered into a one-year employment agreement with Mr. Joseph M. Warusz, our Acting Chief Financial Officer, Vice President Finance and
Chief Accounting Officer. Pursuant to the agreement, we have agreed to pay Mr. Warusz $175,000 per year and a targeted annual bonus of 20% of base
salary. We also agreed to issue him options to purchase 40,000 shares of our common stock with one-third immediately vesting and the remainder vesting
over three years. Upon termination without “Just Cause”, as defined in Mr. Warusz’s employment agreement, we would pay Mr. Warusz three months of
severance, accrued bonuses and vacation, and health insurance benefits. No unvested options vest beyond the termination date. On December 1, 2011, the
Compensation Committee increased the salary of Mr. Warusz to $180,000. On December 6, 2012, the Compensation Committee approved an increase in
salary for Mr. Warusz to $186,000 and the targeted annual bonus to 35%. On December 4, 2013, the Compensation Committee approved an increase in salary
for Mr. Warusz to $191,000. On December 4, 2014, the Compensation Committee approved an increase in salary for Mr. Warusz to $196,730.
In December 2014, we entered into a one-year employment agreement with Richard C. Straube, MD, our Chief Medical Officer and Senior Vice President.
Pursuant to the agreement, we have agreed to pay Dr. Straube $300,000 per year and a targeted annual bonus of 30% of base salary. We also agreed to issue
him options to purchase 100,000 shares of our common stock with one-third immediately vesting and the remainder vesting over three years. Upon
termination without “Just Cause”, as defined in Dr. Straube’s employment agreement, we would pay Dr. Straube three months of severance, accrued bonuses
and vacation, and health insurance benefits. No unvested options vest beyond the termination date. On December 4, 2014, the Compensation Committee
approved an increase in salary for Dr. Straube to $309,000.
In February 2007, our Board of Directors authorized the issuance of 50,000 shares to Dr. Schaber immediately prior to the completion of a transaction, or
series or a combination of related transactions negotiated by our Board of Directors whereby, directly or indirectly, a majority of our capital stock or a
majority of our assets are transferred from the Company and/or our stockholders to a third party. The amended agreement with Dr. Schaber includes our
obligation to issue such shares to him if such event occurs.
58
Outstanding Equity Awards at Fiscal Year-End
The following table contains information concerning unexercised options, stock that has not vested, and equity incentive plan awards for the Named
Executive Officers outstanding at December 31, 2014. We have never issued Stock Appreciation Rights.
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Number of Securities
Underlying Unexercised
Options
(#)
Exercisable Unexercisable Options (#)
Option
Exercise Price
($)
125,000
45,000
140,000
110,000
112,185
97,500
50,000
25,000
43,750
12,500
40,000
25,310
41,254
22,502
11,250
-
-
-
-
-
32,500
50,000
75,000
56,250
37,500
-
-
13,746
22,498
33,750
- $
- $
- $
- $
- $
32,500 $
50,000 $
75,000 $
56,250 $
37,500 $
- $
- $
13,746 $
22,498 $
33,750 $
5.40
9.40
1.20
4.64
0.64
0.68
2.01
1.50
2.01
1.50
4.10
0.64
0.68
2.01
1.50
Option
Expiration
Date
8/28/2016
8/9/2017
12/17/2018
6/30/2020
11/30/2021
12/04/2022
12/04/2023
12/04/2024
1/06/2024
12/04/2024
5/30/2021
11/30/2021
12/04/2022
12/04/2023
12/04/2024
Name
Christopher J. Schaber
Richard C. Straube
Joseph M. Warusz
Compensation of Directors
The following table contains information concerning the compensation of the non-employee directors during the fiscal year ended December 31, 2014.
Name
Keith Brownlie
Marco Brughera
Gregg A. Lapointe
Robert J. Rubin
Jerry Zeldis
Fees Earned
Paid in Cash1
Option
Awards2
$
$
$
$
$
57,500 $
37,500 $
47,500 $
52,500 $
50,000 $
30,000 $
30,000 $
30,000 $
30,000 $
30,000 $
Total
87,500
67,500
77,500
82,500
80,000
1
Directors who are compensated as full-time employees receive no additional compensation for service on our Board of Directors. Each independent
director who is not a full-time employee is paid $35,000 annually, on a prorated basis, for their service on our Board of Directors, the chairman of
our Audit Committee is paid $15,000 annually, on a prorated basis, and the chairmen of our Compensation and Nominating Committees will be paid
$10,000 annually, on a prorated basis. Additionally, Audit Committee members are paid $7,500 annually and Compensation and Nominating Committee
members are paid $5,000 annually. This compensation is paid quarterly.
2 We maintain a stock option grant program pursuant to the nonqualified stock option plan, whereby members of our Board of Directors or its committees
who are not full-time employees receive an initial grant of fully vested options to purchase 15,000 shares of common stock. Upon re-election to the
Board, each Board member will receive stock options with a value of $30,000, calculated using the closing price of the common stock on the trading day
prior to the date of the annual meeting of the Company’s stockholders, which vest at the rate of 25% per quarter, commencing with the first quarter after
each annual meeting of stockholders.
59
Stock Ownership Policy
In April 2012, our Board of Directors adopted a stock ownership policy applicable to our non-employee directors to strengthen the link between director and
stockholder interests. Pursuant to the stock ownership policy, each non-employee director is required to hold a minimum ownership position in the common
stock equal to the annual cash compensation paid for service on the Board of Directors, exclusive of cash compensation paid for service as a chair or member
of any committees of the Board of Directors.
Stock counted toward the ownership requirement includes common stock held by the director, unvested and vested restricted stock, and all shares of common
stock beneficially owned by the director held in a trust and by a spouse and/or minor children of the director. The policy provides that the ownership
requirement must be attained within three years after the later of June 21, 2012 and the date a director is first elected or appointed to the Board of Directors.
To monitor progress toward meeting the requirement, the Nominating Committee will review director ownership levels at the end of March of each year.
Non-employee directors are prohibited from selling any shares of common stock unless such director is in compliance with the stock ownership policy. A
copy of our director compensation and stock ownership policy is publicly available on our website at www.soligenix.com under the “Investors” section.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The table below provides information regarding the beneficial ownership of the common stock as of March 17, 2015, of (1) each person or entity who owns
beneficially 5% or more of the shares of our outstanding common stock, (2) each of our directors, (3) each of the Named Executive Officers, and (4) our
directors and officers as a group. Except as otherwise indicated, and subject to applicable community property laws, we believe the persons named in the table
have sole voting and investment power with respect to all shares of common stock held by them.
Beneficial Ownership
Name of Beneficial Owner
Randall J. Kirk (1)
NRM VII Holdings I, LLC (1)
Paolo Cavazza (2)
Sigma-Tau Pharmaceuticals, Inc (2)
Hy Biopharma, Inc. (3)
Intrexon Corporation (1)
Christopher J. Schaber (4)
Keith Brownlie (5)
Marco Brughera (6)
Gregg A. Lapointe (7)
Robert J. Rubin (8)
Jerry Zeldis (9)
Joseph Warusz (10)
Richard Straube (11)
All directors and executive officers as a group (8 persons)
Shares of
Common
Stock
Beneficially
Owned
Percent
of Class
6,867,816
5,833,333
3,379,950
3,068,461
1,608,354
1,034,483
813,173
96,880
25,272
162,433
96,880
105,213
167,294
65,625
1,536,036
24.82%
21.08%
13.20%
12.02%
6.39%
4.11%
3.14%
*
*
*
*
*
*
*
5.80%
(1) On June 26, 2013, Randal J. Kirk, on his own behalf and on behalf of Third Security, LLC, NYM VII Holdings I, LLC and Intrexon Corporation, filed
Amendment No. 1 to Schedule 13D with the Securities and Exchange Commission (the “SEC”), which amends the Schedule 13D filed May 9, 2013
with the SEC (as amended, “Schedule 13D”). The Schedule 13D states that Mr. Kirk is Senior Managing Director of, and controls, Third Security, LLC,
which is the Manager of an affiliate that manages NRM VII Holdings I, LLC, and that Mr. Kirk serves as the Chairman and Chief Executive Officer of
Intrexon Corporation. The Schedule 13D indicates that (a) Mr. Kirk, Third Security, LLC and NRM VII Holdings I, LLC have sole voting and
dispositive power with respect to 3,333,333 shares of Common Stock and warrants to purchase 2,500,000 shares of Common Stock exercisable within
60 days of March 17, 2015 held by NRM VII Holdings I, LLC, and (b) Mr. Kirk and Intrexon Corporation have shared voting and dispositive power
with respect to 1,034,483 shares of Common Stock held by Intrexon Corporation. The address of the principal business office of Mr. Kirk is 2875 South
Ocean Boulevard, Suite 214, Palm Beach, Florida 33480. The address of the principal business office of NRM VII Holdings I, LLC is c/o Third
Security, LLC, 1881 Grove Avenue, Redford, Virginia 24141. The address of the principal business office of Intrexon Corporation is 20358 Seneca
Meadows Parkway, Germantown, Maryland 20876.
60
(2) On May 16, 2013, Paolo Cavazza, on his own behalf and on behalf of Sigma-Tau Finanziaria S.p.A., Sigma-Tau International S.A., Sigma-Tau America
S.A. and Sigma-Tau Pharmaceuticals, Inc., filed Amendment No. 4 to Schedule 13D with the SEC, which amends the Schedule 13D filed with the SEC
on February 20, 2009 as amended by Amendment No. 1 filed with the SEC on October 2, 2009, Amendment No. 2 filed with the SEC on June 28, 2010
and Amendment No. 3 filed with the SEC on January 2, 2013 (the “Schedule 13D”). The Schedule 13D indicates that (a) Mr. Cavazza has sole voting
and dispositive power with respect to (i) 59,539 shares held by Mr. Paolo Cavazza and (ii) 164,146 shares of common stock and warrants to purchase
87,804 shares held by SINAF SA, and (b) Mr. Cavazza, Sigma-Tau Finanziaria S.p.A., Sigma-Tau International S.A., Sigma-Tau America S.A. and
Sigma-Tau Pharmaceuticals, Inc. have shared voting and dispositive power with respect to 2,711,392 shares of common stock and warrants to purchase
357,069 shares of common stock exercisable within 60 days of the date of March 17, 2015 held by Sigma-Tau Pharmaceuticals, Inc. Sigma-Tau
Pharmaceuticals, Inc. is a direct wholly-owned subsidiary of Sigma-Tau America S.A., which is a direct wholly-owned subsidiary of Sigma-Tau
International S.A., which is a direct wholly-owned subsidiary of Sigma-Tau Finanziaria S.p.A. Mr. Paolo Cavazza directly and indirectly owns 38% of
Sigma-Tau Finanziaria S.p.A. SINAF SA is an indirect wholly owned subsidiary of Aptafin S.p.A., which is owned by Mr. Paolo Cavazza and members
of his family. Mr. Paolo Cavazza’s address is Via Tesserte, 10, Lugano, Switzerland. The business address of Sigma-Tau Finanziaria S.p.A. is Via
Sudafrica, 20, Rome, Italy 00144. The business address of Sigma-Tau International S.A. is 19-21 Boulevard du Prince Henri, L-1724 Luxembourg. The
business address of Sigma-Tau America S.A. is 19-21 Boulevard du Prince Henri, L-1724 Luxembourg. The business address of Sigma-Tau
Pharmaceuticals, Inc. is 9841 Washingtonian Boulevard, Suite 500, Gaithersburg, Maryland 20878.
(3) On October 3, 2014, Hy BioPharma, Inc. filed a Schedule 13G with the SEC (the “Schedule 13G”). The Schedule 13G indicates that Hy Biopharma,
Inc. has sole voting and dispositive power with respect to shares of common stock held by it. The address of the principal business office of Hy
BioPharma, Inc. is 2500 York Road, #100, Jamison, Pennsylvania 18929.
(4)
(5)
(6)
(7)
(8)
(9)
Includes 75,761 shares of common stock owned by Dr. Schaber, options to purchase 725,310 shares of common stock exercisable within 60 days of
March 17, 2015, and warrants to purchase 12,102 shares of common stock exercisable within 60 days of March 17, 2015. The address of Dr. Schaber is
c/o Soligenix, 29 Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
Includes 35,714 shares of Common Stock, options to purchase 46,880 shares of common stock exercisable within 60 days of the March 17, 2015 and
warrants to purchase 14,286 shares of Common Stock exercisable within 60 days of March 17, 2015. The address of Mr. Brownlie is c/o Soligenix, 29
Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
Includes options to purchase 15,000 shares of common stock owned by Dr. Brughera exercisable within 60 days of March 17, 2015. The address of Dr.
Brughera is c/o Soligenix, 29 Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
Includes 48,781 shares of common stock, options to purchase 84,384 shares of common stock exercisable within 60 days of March 17, 2015, and
warrants to purchase 29,268 shares of common stock exercisable within 60 days of March 17, 2015. The address of Mr. Lapointe is c/o Soligenix, 29
Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
Includes 12,195 shares of common stock, options to purchase 80,634 shares of common stock exercisable within 60 days of March 17, 2015, and
warrants to purchase 7,317 shares of common stock exercisable within 60 days of March 17, 2015. The address of Dr. Rubin is c/o Soligenix, 29
Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
Includes 48,809 shares of Common Stock, options to purchase 38,547 shares of common stock exercisable within 60 days of March 17, 2015 and
warrants to purchase 17,857 shares of Common Stock exercisable within 60 days of March 17, 2015. The address of Dr. Zeldis is c/o Soligenix, 29
Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
(10) Includes 48,955 shares of Common Stock, options to purchase 149,380 shares of common stock owned by Mr. Warusz exercisable within 60 days of
March 17, 2015. The address of Mr. Warusz is c/o Soligenix, 29 Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
61
(11) Includes options to purchase 65,625 shares of common stock exercisable within 60 days of March 17, 2015. The address of Dr. Straube is c/o Soligenix,
29 Emmons Drive, Suite C-10, Princeton, New Jersey 08540.
* Indicates less than 1%.
** Beneficial ownership is determined in accordance with the rules of the SEC. Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days of March 17, 2015 are deemed outstanding for computing the percentage ownership of the stockholder holding
the options or warrants, but are not deemed outstanding for computing the percentage ownership of any other stockholder. Percentage of ownership is
based on 25,168,354 shares of common stock outstanding as of March 17, 2015.
Equity Compensation Plan Information
In December 2005, our Board of Directors approved the 2005 Equity Incentive Plan, which was approved by stockholders on December 29, 2005. In
September 2007, our stockholders approved an amendment to the 2005 Equity Incentive Plan to increase the maximum number of shares of our common
stock available for issuance under the plan by 500,000 shares, bringing the total shares reserved for issuance under the plan to 1,000,000 shares. In September
2010, our stockholders approved a second amendment to the 2005 Equity Incentive Plan to increase the maximum number of shares of our common stock
available for issuance under the plan by 750,000 shares, bringing the total shares reserved for issuance under the plan to 1,750,000 shares. In September 2013,
our stockholders approved a third amendment to the 2005 Equity Incentive Plan to increase the maximum number of shares of our common stock available
for issuance under the plan by 1,250,000 shares, bringing the total shares reserved for issuance under the plan to 3,000,000 shares. The following table
provides information, as of December 31, 2014 with respect to options outstanding under our 1995 Amended and Restated Omnibus Incentive Plan and our
2005 Equity Incentive Plan.
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
(excluding
securities
reflected in
the first
column)
Number of
Securities
to be Issued
upon Exercise
of Outstanding
Options,
Warrants and
Rights
Weighted-
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
2,488,279 $
-
2,488,279 $
2.40
-
2.40
184,045
-
184,045
Plan Category
Equity compensation plans approved by security holders1
Equity compensation plans not approved by security holders
Total
1
Includes our 1995 Amended and Restated Omnibus Incentive Plan and our 2005 Equity Incentive Plan. Our 1995 Plan expired in 2005 and thus no
securities remain available for future issuance under that plan.
Item 13. Certain Relationships and Related Transactions and Director Independence
Related Party Transactions
Other than the employment agreements and compensation paid to our directors, we did not engage in any transactions with related parties since January 1,
2014. For a discussion of our employment agreements and compensation paid to our directors, see “Item 11. Executive Compensation.”
Director Independence
The Board of Directors has determined that Keith Brownlie, Gregg Lapointe, Dr. Robert Rubin and Dr. Jerome Zeldis are “independent” as such term is
defined by the applicable listing standards of Nasdaq. Our Board of Directors based this determination primarily on a review of the responses of the Directors
to questionnaires regarding their employment, affiliations and family and other relationships.
62
Item 14. Principal Accountant Fees and Services
The following table highlights the aggregate fees billed during each of the two years ended December 31, 2014 by EisnerAmper LLP.
Audit fees
Tax fees
Other fees
Total
Other Fees
2014
2013
173,503 $
10,536
11,993
196,032 $
169,150
9,700
-
178,850
$
$
Our principal accountants did not bill us for any services or products other than as reported above in this Item 14 during each of the two years. Other services
include billing for an IT security assessment project that commenced during the year ended December 31, 2014.
Pre-Approval Policies and Procedures
The audit committee has adopted a policy that requires advance approval of all audit services and permitted non-audit services to be provided by the
independent auditor as required by the Exchange Act. The audit committee must approve the permitted service before the independent auditor is engaged to
perform it. The audit committee approved all of the services described above in accordance with its pre-approval policies and procedures.
63
Item 15. Exhibits and Financial Statements Schedules
a.
(1) Consolidated Financial Statements:
Part IV
The financial statements required to be filed by Item 8 of this Annual Report on Form 10-K and filed in this Item 15, are as follows:
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013
Consolidated Statements of Shareholders’ Deficiency for the Years Ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(2) Financial Statement Schedules
F-2
F-3
F-4
F-5
F-6
F-21
Schedules are omitted because they are not applicable, or are not required, or because the information is included in the consolidated financial statements and
notes thereto.
(3) Exhibits:
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Agreement and Plan of Merger, dated May 10, 2006 by and among the Company, Corporate Technology Development, Inc., Enteron
Pharmaceuticals, Inc. and CTD Acquisition, Inc. (incorporated by reference to Exhibit 2.1 included in our Registration Statement on Form
SB-2 (File No. 333-133975) filed on May 10, 2006).
Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 included in our current report on Form
8-K filed on June 22, 2012).
By-laws (incorporated by reference to Exhibit 3.1 included in our Quarterly Report on Form 10-QSB, as amended, for the fiscal quarter ended
June 30, 2003).
Rights Agreement dated June 22, 2007, between the Company and American Stock Transfer & Trust Company, as Rights Agent (incorporated
by reference to Exhibit 4.1 included in our current report on Form 8-K filed on June 22, 2007).
Form of Right Certificate (incorporated by reference to Exhibit 4.2 included in our current report on Form 8-K filed on June 22, 2007).
Form of Warrant issued to each investor in the January 2009 private placement (incorporated by reference to Exhibit 4.18 included in our
Registration Statement on Form S-1 (File No. 333-149239) filed on February 14, 2008).
Form of Warrant issued to each investor in the September 2009 private placement (incorporated by reference to Exhibit 10.2 included in our
current report on Form 8-K filed on September 29, 2009).
Warrant dated April 19, 2010, issued to Fusion Capital Fund II, LLC (incorporated by reference to Exhibit 4.10 included in our Post-Effective
Amendment to Registration Statement on Form S-1 filed on April 20, 2010).
Form of Common Stock Purchase Warrant issued to each investor in the June 2010 private placement (incorporated by reference to Exhibit
10.2 included in our current report on Form 8-K filed on June 18, 2010).
Warrant dated December 20, 2012 and issued to Sigma-Tau to purchase 357,069 shares of the Company’s common stock (incorporated by
reference to Exhibit 10.2 of our current report on Form 8-K filed on December 27, 2012).
Warrant dated December 20, 2012 and issued to SINAF S.A. to purchase 87,804 shares of the Company’s common stock (incorporated by
reference to Exhibit 10.3 of our current report on Form 8-K filed on December 27, 2012).
64
4.9
4.10
4.11
4.12
4.13
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Warrant dated December 20, 2012 and issued to McDonald to purchase 280,000 shares of the Company’s common stock (incorporated by
reference to Exhibit 10.6 of our current report on Form 8-K filed on December 27, 2012).
Form of Common Stock Purchase Warrant issued to each investor in the June 2013 registered public offering (incorporated by reference to
Exhibit 10.3 included in our current report on Form 8-K filed on June 24, 2013).
Form of Warrant issued to Maxim Group LLC (incorporated by reference to Exhibit 10.4 included in our current report on Form 8-K filed on
June 24, 2013).
Form of Warrant to Purchase Common Stock issued to each investor in the December 2014 registered public offering (incorporated by
reference to Exhibit 4.12 included in our Registration Statement on Form S-1 (File No. 333-199761) filed on December 17, 2014).
Form of Warrant to Purchase Common Stock issued to Roth Capital Partners, LLC (incorporated by reference to Exhibit 4.13 included in our
Registration Statement on Form S-1 (File No. 333-199761) filed on December 17, 2014).
Amended and Restated 1995 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 included in our Quarterly Report on Form
10-QSB, as amended, for the fiscal quarter ended September 30, 2003). **
License Agreement between the Company and the University of Texas Southwestern Medical Center (incorporated by reference to Exhibit
10.9 included in our Annual Report on Form 10-KSB filed March 30, 2004, as amended, for the fiscal year ended December 31, 2004).
License Agreement between the Company and Thomas Jefferson University (incorporated by reference to Exhibit 10.9 included in our
Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 2004).
License Agreement between the Company and the University of Texas Medical Branch (incorporated by reference to Exhibit 10.10 included
in our Annual Report on Form 10-KSB, as amended, for the fiscal year ended December 31, 2004).
Consulting Agreement between the Company and Lance Simpson of Thomas Jefferson University. (incorporated by reference to Exhibit
10.43 included in our Annual Report on Form 10-KSB as amended for the fiscal year ended December 31, 2002).
2005 Equity Incentive Plan, as amended on September 25, 2013 (incorporated by reference to Exhibit 10.1 included in our current report on
Form 8-K filed on September 30, 2013). **
Form S-8 Registration of Stock Options Plan dated December 30, 2005 (incorporated by reference to our registration statement on Form S-8
filed on December 30, 2005).
Letter of Intent dated January 3, 2007 by and between the Company and Sigma-Tau Pharmaceuticals, Inc. (incorporated by reference to
Exhibit 10.1 included in our current report on Form 8-K filed on January 4, 2007).
Letter from Sigma-Tau Pharmaceuticals, Inc. dated February 21, 2007 (incorporated by reference to Exhibit 10.1 included in our current
report on Form 8-K filed on February 23, 2007).
Letter dated May 3, 2007 between the Company and Sigma-Tau Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 included in
our current report on Form 8-K filed on May 4, 2007).
Employment Agreement dated December 27, 2007, between Christopher J. Schaber, PhD and the Company (incorporated by reference to
Exhibit 10.30 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008). **
Employment Agreement dated December 27, 2007, between Evan Myrianthopoulos and the Company (incorporated by reference to Exhibit
10.31 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008). **
65
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Common Stock Purchase Agreement dated February 14, 2008, between the Company and Fusion Capital Fund II, LLC (incorporated by
reference to Exhibit 10.35 included in our Registration Statement on Form S-1 filed on February 14, 2008).
Registration Rights Agreement dated February 14, 2008, between the Company and Fusion Capital Fund II, LLC (incorporated by reference
to Exhibit 10.35 included in our Registration Statement on Form S-1 (File No. 333-149239) filed on February 14, 2008).
Letter dated December 1, 2008, between the Company and Sigma-Tau Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1
included in our current report on Form 8-K filed on December 1, 2008).
Exclusive License Agreement dated November 24, 1998, between Enteron Pharmaceuticals, Inc. and George B. McDonald, MD and
amendments (incorporated by reference to Exhibit 10.42 included in our Registration Statement on Form S-1 (File No. 333-157322) filed on
February 13, 2009).
Collaboration and Supply Agreement dated February 11, 2009, between the Company and Sigma-Tau Pharmaceuticals, Inc. (incorporated by
reference to Exhibit 10.43 included in our Registration Statement on Form S-1 (File No. 333-157322) filed on February 13, 2009). †
First Amendment to Common Stock Purchase Agreement dated April 19, 2010 between the Company and Fusion Capital Fund II, LLC
(incorporated by reference to Exhibit 10.34 included in our Post-Effective Amendment to Registration Statement on Form S-1 (File No. 333-
149239) filed on April 20, 2010).
Amendment to Employment Agreement dated as of January 4, 2011, between the Company and Evan Myrianthopoulos (incorporated by
reference to Exhibit 10.1 included in our current report on Form 8-K filed on January 6, 2011). **
Employment Agreement dated as of January 31, 2011 between Kevin Horgan, M.D., and the Company (incorporated by reference to Exhibit
10.1 included in our current report on Form 8-K filed on February 2, 2011). **
Employment Agreement dated as of May 31, 2011, between Joseph M. Warusz and the Company (incorporated by reference to Exhibit 10.1
of our current report on Form 8-K filed on May 31, 2011).**
First Amendment to Employment Agreement dated as of July 12, 2011, between the Company and Christopher J. Schaber, PhD (incorporated
by reference to Exhibit 10.1 of our current report on Form 8-K filed on July 14, 2011).**
Second Amendment to Employment Agreement dated as of July 12, 2011, between the Company and Evan Myrianthopoulos (incorporated by
reference to Exhibit 10.2 of our current report on Form 8-K filed on July 14, 2011).**
Amendment to the Collaboration and Supply Agreement dated July 26, 2011, between Sigma-Tau Pharmaceuticals, Inc. and the Company
(incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed on July 28, 2011).
Amendment to the Exclusive License Agreement dated as of July 26, 2011, between George McDonald, MD and the Company (incorporated
by reference to Exhibit 10.2 of our current report on Form 8-K filed on July 28, 2011).
Separation Agreement dated February 15, 2012, between Evan Myrianthopoulos and the Company (incorporated by reference to Exhibit
10.28 included in our Registration Statement on Form S-1 (File No. 333-184762) filed on November 5, 2012). **
First Amendment to Separation Agreement dated July 2, 2012, between Evan Myrianthopoulos and the Company (incorporated by reference
to Exhibit 10.29 included in our Registration Statement on Form S-1 (File No. 333-184762) filed on November 5, 2012). **
Amendment No. 2 to the Collaboration and Supply Agreement between the Company, Enteron and Sigma-Tau dated as of December 20, 2012
(incorporated by reference to Exhibit 10.1 of our current report on Form 8-K filed on December 27, 2012). †
66
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Amendment to Exclusive License Agreement dated as of December 20, 2012 between Enteron and McDonald (incorporated by reference to
Exhibit 10.4 of our current report on Form 8-K filed on December 27, 2012).
Amendment to Consulting Agreement dated as of December 20, 2012 between Enteron and McDonald (incorporated by reference to Exhibit
10.5 of our current report on Form 8-K filed on December 27, 2012).
Exclusive Channel Collaboration Agreement dated as of April 27, 2013 between the Company and Intrexon Corporation (incorporated by
reference to Exhibit 10.1 of our current report on Form 8-K filed on May 1, 2013). †
Stock Issuance Agreement dated as of April 27, 2013 between the Company and Intrexon Corporation (incorporated by reference to Exhibit
10.2 of our current report on Form 8-K filed on May 1, 2013). †
Form of Securities Purchase Agreement among the Company and investors in the June 2013 registered public offering (incorporated by
reference to Exhibit 10.2 included in our current report on Form 8-K filed on June 24, 2013).
Contract HHSO100201300023C dated September 18, 2013 between the Company and the U.S. Department of Health and Human Services
Biomedical Advanced Research and Development Authority (incorporated by reference to Exhibit 10.1 of our current report on Form 8-K
filed on September 24, 2013). †
Contract HHSN272201300030C dated September 24, 2013 by and between the Company and the National Institutes of Health (incorporated
by reference to Exhibit 10.1 of our current report on Form 8-K filed on September 30, 2013). †
Purchase Agreement dated as of November 18, 2013 between the Company and Lincoln Park Capital Fund, LLC (incorporated by reference
to Exhibit 10.1 of our current report on Form 8-K filed on November 21, 2013).
Registration Rights Agreement dated as of November 18, 2013 between the Company and Lincoln Park Capital Fund, LLC (incorporated by
reference to Exhibit 10.2 of our current report on Form 8-K filed on November 21, 2013)
Employment Agreement dated as of January 6, 2014 between the Company and Richard Straube, M.D. (incorporated by reference to Exhibit
10.1 of our current report on Form 8-K filed on January 8, 2014). **
Asset Purchase Agreement dated September 3, 2014 between the Company and Hy Biopharma, Inc. (incorporated by reference to Exhibit
10.1 of our current report on Form 8-k filed on September 5, 2014). †
Registration Rights Agreement dated September 3, 2014 between the Company and Hy Biopharma, Inc. (incorporated by reference to Exhibit
10.2 of our current report on Form 8-k filed on September 5, 2014).
Contract HHSN272201400039C dated September 17, 2014 by and between the Company and the National Institutes of Health (incorporated
by reference to Exhibit 10.1 of our current report on Form 8-k filed on September 23, 2014). †
10.42
Lease Agreement dated November 21, 2014, between the Company and CPP II, LLC.
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of the Company. *
Consent of EisnerAmper LLP. *
Certification of the Chief Executive Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of
2002). *
Certification of the Chief Financial Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of
2002). *
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
*
**
†
Filed herewith.
Indicates management contract or compensatory plan.
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
67
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
SOLIGENIX, INC.
By:
/s/ Christopher J. Schaber
Christopher J. Schaber, PhD
Chief Executive Officer and President
Date: March 25, 2015
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated
and on the dates indicated.
Name
Capacity
/s/ Christopher J. Schaber
Christopher J. Schaber, PhD
/s/ Keith L. Brownlie
Keith L. Brownlie, CPA
/s/ Marco Brughera
Marco Brughera, DVM
/s/ Gregg A. Lapointe
Gregg A. Lapointe, CPA
/s/ Robert J. Rubin
Robert J. Rubin, MD
/s/ Jerome Zeldis
Jerome Zeldis, MD, PhD
/s/ Joseph M. Warusz
Joseph M. Warusz, CPA
Chairman of the Board, Chief Executive
Officer and President
(principal executive officer)
Director
Director
Director
Director
Director
Vice President of Finance, Acting Chief
Financial Officer and Corporate Secretary
(principal accounting officer)
68
Date
March 25, 2015
March 25, 2015
March 25, 2015
March 25, 2015
March 25, 2015
March 25, 2015
March 25, 2015
SOLIGENIX, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014 and 2013
Consolidated Statements of Changes in Shareholders’ Deficiency for the Years Ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014 and 2013
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-21
Soligenix, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31,
$
$
$
2014
2013
5,525,094 $
794,767
-
172,928
6,492,789
51,510
409,949
6,954,248 $
5,856,242
867,086
750,356
135,391
7,609,075
23,868
632,512
8,265,455
3,003,545 $
3,789,562
315,030
7,108,137
1,520,290
8,281,247
233,739
10,035,276
Assets
Current assets:
Cash and cash equivalents
Contracts and grants receivable
Taxes receivable
Prepaid expenses
Total current assets
Office furniture and equipment, net
Intangible assets, net
Total assets
Liabilities and shareholders’ deficiency
Current liabilities:
Accounts payable
Warrant liability
Accrued compensation
Total current liabilities
Commitments and contingencies
Shareholders’ deficiency:
Preferred stock; 350,000 shares authorized; none issued or outstanding
Common stock, $.001 par value; 50,000,000 shares authorized in 2014 and 2013, respectively; 23,936,568 shares and
-
-
19,626,439 shares issued and outstanding in 2014 and 2013, respectively
Additional paid-in capital
Accumulated deficit
Total shareholders’ deficiency
Total liabilities and shareholders’ deficiency
23,937
138,868,523
(139,046,349)
(153,889)
6,954,248 $
19,626
130,549,930
(132,339,377)
(1,769,821)
8,265,455
$
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Soligenix, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
Revenues:
Grant revenue
Contract revenue
Total revenues
Cost of revenues
Gross profit
Operating expenses:
Research and development
Acquired in-process research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Change in fair value of warrant liability
Interest income
Total other income (expense)
Net loss before income taxes
Income tax benefit
Net loss
Basic net loss per share
Diluted net loss per share
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
2014
2013
1,497,548 $
5,545,468
7,043,016
(5,313,855)
1,729,161
5,086,535
4,000,000
3,403,975
12,490,510
(10,761,349)
2,658,836
565,316
3,224,152
(2,544,285)
679,867
5,071,179
-
2,765,230
7,836,409
(7,156,542)
3,436,195
1,310
3,437,505
(7,323,844)
616,872
(3,654,770)
1,960
(3,652,810)
(10,809,352)
750,356
(6,706,972) $ (10,058,996)
(0.65)
(0.65)
15,463,256
15,463,256
(0.32) $
(0.43) $
20,638,421
23,584,944
Soligenix, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Deficiency
For the Years Ended December 31, 2014 and 2013
Common Stock
Par Value
Additional
Paid–In
Capital
Accumulated
Deficit
Balance, December 31, 2012
Common stock issued in Unit offering, net of offering costs of
$902,158
Warrants issued in Unit offering
Reclassification of warrant liability upon partial exercise of
warrants issued in unit offering
Issuance of common stock to collaboration partner
Issuance of common stock pursuant to Lincoln Park equity
line, net of costs of $71,949
Issuance of shares from exercise of stock options and warrants
Issuance of common stock to vendor
Fair value of common stock warrants to vendors
Stock-based compensation expense
Net loss
Balance, December 31, 2013
Issuance of common stock pursuant to Lincoln Park Equity
line
Issuance of common stock to vendors
Issuance of shares from exercise of stock options
Reclassification of warrant liability upon partial exercise of
warrants issued in unit offering
Fair value of common stock warrants issued to vendors
Issuance of common stock to collaboration partner
Shares issued in connection with acquisition of in-process
research and development
Issuance of common stock from cashless exercise of warrants
Stock-based compensation expense
Common stock issued in unit offering, net of offering costs of
$344,808
Net loss
Balance, December 31, 2014
Shares
11,168,905 $
6,773,995
-
-
1,034,483
383,370
210,582
55,104
-
-
-
19,626,439 $
230,743
121,000
36,672
-
-
43,067
1,849,113
143,004
-
1,886,530
-
23,936,568
11,169 $ 125,820,318 $ (122,280,381) $
6,774
-
6,203,763
(4,827,788)
-
1,034
201,311
1,498,966
-
-
-
-
383
211
55
-
-
-
-
-
-
-
-
(10,058,996)
19,626 $ 130,549,930 $ (132,339,377) $
527,668
235,764
82,093
4,775
803,060
-
231
121
37
-
-
43
470,244
255,919
28,041
1,055,490
4,775
99,959
1,849
143
-
3,748,151
(143)
720,150
-
-
-
-
-
-
-
-
-
1,887
-
-
(6,706,972)
23,937 $ 138,868,523 $ (139,046,349) $
1,936,007
-
Total
3,551,106
6,210,537
(4,827,788)
201,311
1,500,000
528,051
235,975
82,148
4,775
803,060
(10,058,996)
(1,769,821)
470,475
256,040
28,078
1,055,490
4,775
100,002
3,750,000
-
720,150
1,937,894
(6,706,972)
(153,889)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Soligenix, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation
Charge for common stock issued for collaboration agreement
Common stock issued in exchange for services
Issuance of common stock for acquisition of in-process research and development
Warrants issued to vendor
Stock-based compensation
Change in fair value of warrant liability
Change in operating assets and liabilities:
Grants and contracts receivable
Taxes receivable
Prepaid expenses
Accounts payable
Accrued compensation
Total adjustments and change in operating assets and liabilities
Net cash used in operating activities
Investing activities:
Payments for acquisition of in-process research and development
Purchases of office equipment
Net cash used in investing activities
Financing activities:
Net proceeds from sale of units containing common stock and warrants
Net proceeds from issuance of common stock pursuant to the equity line
Proceeds from exercise of options and warrants
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of non cash investing and financing activities:
Fair Value of warrants issued in Unit Offering
Reclassification of warrant liability to additional paid in capital upon
partial exercise of warrants issued in unit offering
Supplemental information:
Cash paid for state income taxes
2014
2013
$
(6,706,972) $ (10,058,996)
245,787
100,002
256,040
4,000,000
4,775
720,150
(3,436,195)
72,319
750,356
(37,537)
1,483,255
81,291
4,240,243
(2,466,729)
230,071
1,500,000
82,148
-
4,775
803,060
3,654,770
(527,778)
(750,356)
5,302
395,787
204,244
5,602,023
(4,456,973)
(250,000)
(50,866)
(300,866)
-
(17,728)
(17,728)
1,937,894
470,475
28,078
2,436,447
(331,148)
5,856,242
5,525,094 $
6,210,537
528,051
235,975
6,974,563
2,499,862
3,356,380
5,856,242
- $
4,827,788
1,055,490 $
201,311
6,994 $
3,080
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Soligenix, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Business
Basis of Presentation
Soligenix, Inc. (the “Company”) is a late-stage biopharmaceutical company developing product candidates intended to address unmet medical needs in the
areas of inflammation, oncology, and biodefense. The Company maintains two active business segments: BioTherapeutics and Vaccines/BioDefense.
The Company’s BioTherapeutics business segment is developing a first-in-class photo-dynamic therapy (SGX301) utilizing safe visible light for the treatment
of cutaneous T-cell lymphoma (“CTCL”), proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment of
gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201),
and our novel innate defense regulator (“IDR”) technology (SGX942) for the treatment of oral mucositis.
The Company’s Vaccines/BioDefense business segment includes active development programs for RiVax™, its ricin toxin vaccine candidate, VeloThrax™,
an anthrax vaccine candidate, OrbeShield™, a GI acute radiation syndrome (“GI ARS”) therapeutic candidate and SGX943, a melioidosis therapeutic
candidate. The development of the vaccine programs is supported by the heat stabilization technology, known as ThermoVax™, under existing and on-going
government contract funding. With the recently awarded government contracts from the National Institute of Allergy and Infectious Diseases (“NIAID”), the
Company will attempt to advance the development of RiVax™ to protect against exposure to ricin toxin. The Company plans to use the funds received under
the government contracts with the Biomedical Advanced Research and Development Authority (“BARDA”) and NIAID to advance the development of
OrbeShield™ for the treatment of GI ARS. Additionally, the Company entered into a global and exclusive channel collaboration with Intrexon Corporation
(“Intrexon”) through which it intends to develop and commercialize a human monoclonal antibody therapy (SGX101) to treat melioidosis.
The Company generates revenues under three active grants primarily from the NIH and government contracts from BARDA and NIAID.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, development of new technological
innovations, dependence on key personnel, protections of proprietary technology, compliance with the United States Food and Drug Administration (the
“FDA”) regulations, litigation, and product liability.
Liquidity
As of December 31, 2014, the Company had cash and cash equivalents of $5,525,094 as compared to $5,856,242 as of December 31, 2013, representing a
decrease of $331,148 or 6%. The decrease in cash was primarily due to net cash used in operations of $2,466,729 partially offset by cash provided by
financing activities of $2,436,447. As of December 31, 2014, the Company had working capital of $3,174,214, which excludes a non-cash warrant liability of
$3,789,562, as compared to working capital of $5,855,046 as of December 31, 2013, representing a decrease of $2,680,832 or 46%. The decrease in working
capital was primarily the result of expenditures related to support the Phase 2 clinical trial of SGX942 and a decrease in taxes receivable offset by the net
proceeds of $1,937,894 received from our registered public offering, proceeds from our Lincoln Park equity line of $470,475 and proceeds from the exercise
of stock options of $28,078.
Based on the Company’s current rate of cash outflows, cash on hand, proceeds from its government contract and grant programs, proceeds expected from the
Lincoln Park Capital Fund, LLC (“Lincoln Park”) equity line and proceeds from the state of New Jersey Technology Business Tax Certificate Transfer
Program, management believes that its current cash will be sufficient to meet the anticipated cash needs for working capital and capital expenditures for at
least the next twelve months.
F-6
Management’s business strategy can be outlined as follows:
● Conduct a Phase 3 clinical trial of SGX301 for the treatment of CTCL;
● Conduct a Phase 2 clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;
● Conduct a Phase 3 clinical trial of oral BDP, known as SGX203 for the treatment of pediatric Crohn’s disease;
● Evaluate the effectiveness of oral BDP in other therapeutic indications involving inflammatory conditions of the GI tract such as prevention of acute
radiation enteritis, prevention of acute radiation syndrome, and treatment of chronic GI GVHD;
● Develop RiVax™ and VeloThrax™ in combination with its proprietary vaccine heat stabilization technology known as ThermoVax™, to develop
new heat stable vaccines in biodefense and infectious diseases with the potential to collaborate and/or partner with other companies in these areas;
● Advance the preclinical and manufacturing development of OrbeShield™ as a biodefense medical countermeasure for the treatment of GI ARS;
● Continue to apply for and secure additional government funding for each of its BioTherapeutics and Vaccine/BioDefense programs through grants,
contracts and/or procurements;
● Acquire or in-license new clinical-stage compounds for development; and
● Explore other business development and merger/acquisition strategies an example of which is the collaboration with Intrexon.
The Company’s plans with respect to its liquidity management include, but are not limited to the following:
● The Company has up to $51.4 million in active government contract and grant funding still available to support its associated research programs
through 2015 and beyond. The Company plans to submit additional contract and grant applications for further support of its programs with various
funding agencies.
● The Company has continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners and
expects to continue to do so for the foreseeable future.
● The Company will pursue Net Operating Loss (“NOLs”) sales in the state of New Jersey pursuant to its Technology Business Tax Certificate
Transfer Program. Based on the receipt, in December 2014, of $616,872 in proceeds pursuant to NOLs sales , the Company expects to participate in
the program during 2015 and beyond;
● The Company has a $10.6 million equity facility, with Lincoln Park, through October 2016, of which approximately $9.5 million was available at
December 31, 2014; and
● The Company may seek additional capital in the private and/or public equity markets to continue its operations, respond to competitive pressures,
develop new products and services, and to support new strategic partnerships. The Company is currently evaluating additional equity financing
opportunities on an ongoing basis and may execute them when appropriate. However, there can be no assurances that the Company can consummate
such a transaction, or consummate a transaction at favorable pricing.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include Soligenix, Inc., and its wholly and majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated as a result of consolidation.
Operating Segments
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by
the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the
performance of the segment. The Company divides its operations into two operating segments: BioTherapeutics and Vaccines/BioDefense.
F-7
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Contracts and Grants Receivable
Contracts and grants receivable consist of unbilled amounts due from various grants from the National Institutes of Health (“NIH”) and contracts from
BARDA and NIAID, an institute of NIH, for costs incurred prior to the period end under reimbursement contracts. The amounts were billed to the respective
governmental agencies in the month subsequent to period end and collected shortly thereafter. Accordingly, no allowance for doubtful amounts has been
established. If amounts become uncollectible, they are charged to operations.
Intangible Assets
One of the most significant estimates or judgments that the Company makes is whether to capitalize or expense patent and license costs. The Company makes
this judgment based on whether the technology has alternative future uses, as defined in Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 730, Research and Development. Based on this consideration, the Company capitalizes payments made to legal firms that are
engaged in filing and protecting rights to intellectual property and rights for its current products in both the domestic and international markets. The Company
believes that patent rights are one of its most valuable assets. Patents and patent applications are a key component of intellectual property, especially in the
early stage of product development, as their purchase and maintenance gives the Company access to key product development rights from Soligenix’s
academic and industry partners. These rights can also be sold or sub-licensed as part of its strategy to partner its products at each stage of development as the
intangible assets have alternative future use. The legal costs incurred for these patents consist of work associated with filing new patents and perhaps
extending the lives of the patents. The Company capitalizes such costs and amortizes intangibles on a straight-line basis over their expected useful life –
generally a period of 11 to 16 years.
The Company did not capitalize any patent related costs during the years ended December 31, 2014 or 2013.
Impairment of Long-Lived Assets
Office furniture and equipment and intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the net book value of such assets exceeds
the estimated future undiscounted cash flows attributable to such assets. If the sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the related asset or group of assets.
Such analyses necessarily involve significant judgment.
The Company did not record any impairment of long-lived assets for the years ended December 31, 2014 or 2013.
Fair Value of Financial Instruments
FASB ASC 820 — Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all
financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on
pertinent information available to the Company on December 31, 2014. Accordingly, the estimates presented in these financial statements are not necessarily
indicative of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).
F-8
The three levels of the fair value hierarchy are as follows:
● Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed
equities.
● Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2
includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including
volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are
observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the
marketplace.
● Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using
pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximate their fair value based on the short-term maturity of these instruments. The Company recognizes all derivative financial instruments as assets or
liabilities in the financial statements and measures them at fair value with changes in fair value reflected as current period income or loss unless the
derivatives qualify as hedges. As a result, certain warrants issued in connection with the June 2013 offering were accounted for as derivatives. See Note 4,
Warrant Liabilities.
Revenue Recognition
The Company’s revenues are primarily generated from government contracts and grants. Revenue is recognized in accordance with FASB ASC 605, Revenue
Recognition and/or ASC 605-25, Revenue Recognition – Multiple Element Arrangements. The revenue from government contracts and grants is based upon
subcontractor costs and internal costs incurred that are specifically covered by the grants, plus a facilities and administrative rate that provides funding for
overhead expenses and management fees. These revenues are recognized when expenses have been incurred by subcontractors or when the Company incurs
reimbursable internal expenses that are related to the government contracts and grants.
Research and Development Costs
Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and
development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and
materials, salaries, stock based compensation, employee benefits, equipment depreciation and allocation of various corporate costs. Purchased in-process
research and development expense represents the value assigned or paid for acquired research and development for which there is no alternative future use as
of the date of acquisition.
Accounting for Warrants
The Company considered FASB ASC 815, Evaluating Whether an Instrument is Considered Indexed to an Entity’s Own Stock, which provides guidance for
determining whether an equity-linked financial instrument (or embedded feature) issued by an entity is indexed to the entity’s stock. The Company evaluated
the warrants’ provisions and determined that warrants issued in connection with the Company’s June 2013 registered public offering contain provisions that
protect holders from a decline in the issue price of the Company’s common stock (or “down-round” provisions) and contain net settlement provisions.
Consequently, these warrants are recognized as liabilities at their fair value on the date of grant and remeasured at fair value on each reporting date. All other
warrants issued were indexed to the Company’s stock and therefore are accounted for as equity instruments for 2014 and 2013.
F-9
Stock-Based Compensation
Stock options are issued with an exercise price equal to the market price on the date of issuance. Stock options issued to directors upon re-election vest
quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued to employees vest 25% immediately as of the
grant date, then 25% each subsequent year for a period of three years. Stock options vest over each three month period from the date of issuance to the end of
the three year period. These options have a ten year life for as long as the individuals remain employees or directors. In general, when an employee or director
terminates their position the options will expire within three months, unless otherwise extended by the Board.
From time to time, the Company issues restricted shares of common stock to vendors and consultants as compensation for services performed. Typically these
instruments vest upon issuance and therefore the entire stock compensation expense is recognized upon issuance to the vendors and/or consultants
Stock compensation expense for options, warrants and shares of common stock granted to non-employees has been determined in accordance with FASB
ASC 505-50, Equity-Based Payments to Non-Employees, and represents the fair value of the consideration received, or the fair value of the equity instruments
issued, whichever may be more reliably measured. For options that vest over future periods, the fair value of options granted to non-employees is amortized
as the options vest.
The fair value of options issued during the years ended December 31, 2014 and 2013 in accordance with FASB ASC 718, Stock Compensation, was estimated
to be $1.48 and $1.65 per share, respectively, using the Black-Scholes option-pricing model and the following assumptions:
● a dividend yield of 0%;
● an expected life of 4 years;
● volatilities ranging from 128% - 165% and 136% - 167% for 2014 and 2013, respectively;
● forfeitures at a rate of 12%; and
● risk-free interest rates ranging from 1.05% to 1.43% and 0.96% to 1.17% for 2014 and 2013, respectively.
The weighted average fair value of each option grant made during 2014 and 2013 was estimated on the date of each grant using the Black-Scholes option
pricing model and amortized ratably over the option vesting periods, which approximates the service period.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. A valuation allowance is established when it is more likely than not that all or a portion of a
deferred tax asset will not be realized. A review of all available positive and negative evidence is considered, including the Company’s current and past
performance, the market environment in which the Company operates, the utilization of past tax credits, and the length of carryback and carryforward
periods. Deferred tax assets and liabilities are measured utilizing tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. No current or deferred income taxes have been provided through December 31, 2014 due to the net
operating losses incurred by the Company since its inception. The Company recognizes accrued interest and penalties associated with uncertain tax positions,
if any, as part of income tax expense. There were no tax related interest and penalties recorded for 2014 and 2013. Additionally, the Company has not
recorded an asset for unrecognized tax benefits or a liability for uncertain tax positions at December 31, 2014 and 2013. Tax years beginning in 2011 for
federal purposes are generally subject to examination by the taxing authorities, although net operating losses from those years are subject to examinations and
adjustments for at least three years following the year in which the tax attributes are utilized.
F-10
Earnings Per Share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity. Since
there is a significant number of options and warrants outstanding, fluctuations in the actual market price can have a variety of results for each period
presented.
Numerator:
Net loss for basic earnings per share
Less change in fair value of warrant liability
Net loss for diluted earnings per share
Denominator:
Weighted-average basic common shares outstanding
Assumed conversion of dilutive securities:
Common stock purchase warrants
Denominator for diluted earnings per share – adjusted weighted-average shares
Basic net loss per share
Diluted net loss per share
For the Year
Ended
December 31,
2014
For the Year
Ended
December 31,
2013
$
$
(6,706,972) $ (10,058,996)
-
3,436,195
(10,143,167) $ (10,058,996)
20,638,421
15,463,256
2,946,523
23,584,944
(0.32) $
(0.43) $
-
15,463,256
(0.65)
(0.65)
$
$
The following table summarizes potentially dilutive adjustments to the weighted average number of common shares which were excluded from the
calculation:
Common stock purchase warrants
Stock options
Total
For the Year
Ended
December 31,
2014
2,546,143
2,488,279
5,034,422
For the Year
Ended
December 31,
2013
8,156,526
2,051,511
10,208,037
Shares issuable upon the exercise of options and warrants outstanding at December 31, 2014 and 2013 were 2,488,279 and 2,051,511 shares issuable upon the
exercise of options, and 7,269,500 and 8,156,526 shares issuable upon the exercise of warrants, respectively. The weighted average exercise price of the
Company’s stock options and warrants outstanding at December 31, 2014 were $2.40 and $1.15 per share, respectively.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and
assumptions such as the fair value of warrants, stock options and recovery of the useful life of intangibles that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those estimates.
F-11
Note 3. Intangible Assets
The following is a summary of intangible assets which consists of licenses and patents:
December 31, 2014
Licenses
Patents
Total
December 31, 2013
Licenses
Patents
Total
Weighted
Average
Remaining
Amortization
Period
(years)
Cost
Accumulated
Amortization
Net Book
Value
4.7
1.9
2.6
5.7
2.6
3.4
$
$
$
$
462,234 $
1,893,185
2,355,419 $
306,495 $
1,638,975
1,945,470 $
462,234 $
1,893,185
2,355,419 $
279,258 $
1,443,649
1,722,907 $
155,739
254,210
409,949
182,976
449,536
632,512
Amortization expense was $222,563 and $223,216 in 2014 and 2013, respectively.
Based on the balance of licenses and patents at December 31, 2014, the annual amortization expense for each of the succeeding five years is estimated to be
as follows:
Year
2015
2016
2017
2018
2019
Amortization
Expense
$
$
$
$
$
173,000
62,000
62,000
62,000
50,949
License fees and royalty payments are expensed annually as incurred as the Company does not attribute any future benefits other than within that period.
Note 4. Warrant Liabilities
Warrants issued in connection with the Company’s June 2013 registered public offering contain provisions that protect holders from a decline in the issue
price of its common stock (or “down-round” provision) and contain net settlement provisions. As a result, the Company accounts for these warrants as
liabilities instead of equity instruments. Down-round provisions reduce the exercise or conversion price of a warrant if the Company issues equity shares for a
price that is lower than the exercise or conversion price of the warrants. Net settlement provisions allow the holder of the warrant to surrender shares
underlying the warrant equal to the exercise price as payment of its exercise price, instead of exercising the warrant by paying cash. The Company evaluates
whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification
of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of a “fixed for
fixed” option. As a result of the Company’s December 2014 registered public unit offering, the exercise price of warrants outstanding in connection with the
public offering completed in June 2013 was adjusted to $0.61 per share.
The Company recognizes these warrants as liabilities at their fair value on the date of grant and remeasures them to fair value on each reporting date.
F-12
The Company recognized an initial warrant liability for the warrants issued in connection with the registered public offering completed in June 2013 totaling
$4,827,788, which was based on the June 25, 2013 closing price of a share of the Company’s common stock as reported on OTC Markets of $0.96. During
the year ended December 31, 2014, 143,004 shares of common were issued upon 586,081 warrants exercised on a cashless basis. On January 22, 2014,
250,000 warrants were exercised and on August 19, 2014, 336,081warrants were exercised. The fair value of the warrants exercised, or $1,055,490 was
reclassified from warrant liability to additional paid-in capital on the respective exercise date. On December 31, 2014, the closing price of the Company’s
common stock as reported on OTC Markets was $0.98. Due to the fluctuations in the market value of the Company’s common stock from December 31, 2013
through December 31, 2014, the Company recognized a non-cash gain of $3,436,195 for the change in the fair value of the warrant liability for 2014.
The assumptions used in connection with the valuation of warrants issued utilizing the binomial method were as follows for the year ended December 31,
2014 and 2013:
Number of shares underlying the warrants
Exercise price
Volatility
Risk-free interest rate
Expected dividend yield
Expected warrant life (years)
Stock Price
Recurring Level 3 Activity and Reconciliation
Initial
Measurement
June 25, 2013
December 31,
2013
January 22,
2014
August 19,
2014
December 31,
2014
5,416,851
1.65
$
140%
1.49%
0
5.0
0.96
$
5,309,438
1.65
$
135%
1.75%
0
4.5
1.80
$
5,309,438
1.65
$
135%
1.30%
0
4.4
2.29
$
5,059,438
1.65
$
130%
1.25%
0
3.9
2.05
$
4,723,357
0.61
128%
1.38%
0
3.5
0.98
$
$
The table below provides a reconciliation of the beginning and ending balances for the liability measured at fair value using significant unobservable inputs
(Level 3). The table reflects gains for the year ended December 31, 2014 for the financial liability categorized as Level 3 as of December 31, 2014.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3):
Warrant liability
Recurring Level 3 Activity and Reconciliation
December 31,
2013
8,281,247 $
$
Decrease from
Warrants
Exercised in
2014
(1,055,490) $
Decrease in
Fair Value
(3,436,195) $
December 31,
2014
3,789,562
The table below provides a reconciliation of the beginning and ending balances for the liability measured at fair value using significant unobservable inputs
(Level 3). The table reflects losses for the year ended December 31, 2013 for the financial liability categorized as Level 3 as of December 31, 2013.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3):
Warrant liability
Initial
Measurement
June 25, 2013
Decrease from
Warrants
Exercised in
2013
$
4,827,788 $
(201,311) $
F-13
Increase in
Fair Value
3,654,770 $
December 31,
2013
8,281,247
Note 5. Income Taxes
The income tax benefit consisted of the following for the years ended December 31, 2014 and December 31, 2013:
Federal
State
Income tax benefit
2014
2013
$
$
- $
(616,872)
(616,872) $
-
(750,356)
(750,356)
The significant components of the Company’s deferred tax assets and liability at December 31, 2014 and 2013 are as follows:
Net operating loss carry forwards
Orphan drug and research and development credit carry forwards
Equity based compensation
Intangibles
Total
Valuation allowance
Income tax benefit
2014
29,594,000 $
3,556,000
2,049,000
2,140,000
37,339,000
(37,339,000)
- $
2013
27,974,000
2,986,000
3,183,000
127,000
34,270,000
(34,270,000)
-
$
$
At December 31, 2014, the Company had NOL carry forwards of approximately $86,120,000 for federal tax purposes and approximately $5,263,000 of New
Jersey NOL carry forwards remaining after the sale of unused net operating loss carry forwards, portions of which are currently expiring each year through
2034. In addition, the Company has $3,556,000 of various tax credits that expire from 2018 to 2034. The Company may be able to utilize their NOLs to
reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section
382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carry
forwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone
an IRC Section 382 analysis, it is likely that the utilization of the NOLs may be substantially limited.
The Company and one or more of its subsidiaries files income tax returns in the U.S. Federal jurisdiction, and various state and local jurisdictions. The
Company is no longer subject to Federal income tax assessment for years before 2011 for Federal and 2010 for New Jersey income tax assessment. However,
since the Company has incurred net operating losses in every tax year since inception, all its income tax returns are subject to examination and adjustments by
the Internal Revenue Service for at least three years following the year in which the tax attributes are utilized.
The net change in the valuation allowance for the years ended December 31, 2014 and 2013 was an increase of approximately $3,069,000 and $1,887,000,
respectively, resulting primarily from net operating losses expiring and generated. As a result of the Company’s continuing tax losses, the Company has
recorded a full valuation allowance against a net deferred tax asset.
Reconciliations of the difference between income tax benefit computed at the federal and state statutory tax rates and the provision for income tax benefit for
the years ended December 31, 2014 and 2013 was as follows:
Income tax loss at federal statutory rate
State tax benefits, plus sale of NJ NOLs, net of federal benefit
Subtotal
Valuation allowance
Income tax benefit
F-14
2014
2013
(34.00)%
(6.00)
(40.00)
31.58
(8.42)%
(34.00)%
(6.00)
(40.00)
33.06
(6.94)%
During the years ended December 31, 2014 and 2013, in accordance with the State of New Jersey’s Technology Business Tax Certificate Program, which
allowed certain high technology and biotechnology companies to sell unused net operating loss carryforwards to other New Jersey-based corporate taxpayers
based in New Jersey, the Company sold New Jersey net operating loss carryforwards, resulting in the recognition of $616,872 and $750,356 of income tax
benefit, net of transaction costs, respectively. There can be no assurance as to the continuation or magnitude of this program in the future.
Note 6. Shareholders’ Equity
Preferred Stock
The Company has 350,000 shares of preferred stock authorized, none of which are issued or outstanding.
Common Stock
The following items represent transactions in the Company’s common stock for the year ended December 31, 2014:
● In January 2014, the Company issued 77,889 shares of common stock in connection with the cashless exercise of 250,000 stock warrants;
● In March 2014, the Company issued 76,932 shares of common stock pursuant to the Lincoln Park facility;
● In April 2014, the Company issued 76,907 shares of common stock pursuant to the Lincoln Park facility;
● In May 2014, the Company issued 43,067 shares of common stock upon the execution of an agreement to evaluate specific oncology technology;
● In May 2014, the Company issued 29,172 shares of common stock upon the exercise of vested stock options;
● In July 2014, the Company issued 76,904 shares of common stock pursuant to the Lincoln Park facility;
● In July 2014, the Company issued 7,500 shares of common stock upon the exercise of vested stock options;
● In August 2014, the Company issued 65,115 shares of common stock with the cashless exercise of 336,081 stock warrants;
● In September 2014, the Company issued 1,849,113 shares of common stock in connection with the Hy BioPharma Acquisition of in process research
and development.
● In December 2014, the Company issued 1,886,530 shares of common stock and 1,169,318 warrants pursuant to a registered direct unit offering of
common stock and warrants. The Company received net proceeds of $1,937,894 from this offering.
● In four separate transactions, the Company issued 121,000 shares of common stock as partial consideration for services performed.
The following items represent transactions in the Company’s common stock for the year ended December 31, 2013:
● In April 2013, the Company issued 1,034,483 shares of common stock related to the execution of an Exclusive Channel Collaboration agreement
with Intrexon Corporation (see Note 9).
● In June 2013, the Company issued 6,773,995 shares of common stock pursuant to a registered direct unit offering of common stock and warrants.
● In October 2013, the Company issued 107,143 shares of common stock for stock warrants exercised.
● In November, the Company issued 383,370 shares of common stock pursuant to the Lincoln Park Capital equity facility.
● In two separate transactions, the Company issued 103,439 shares of common stock for stock options exercised.
● In five separate transactions, the Company issued 55,104 shares of common stock as part of consideration for services performed.
F-15
Warrants
During the year ended December 31, 2014, the Company issued warrants to purchase 1,169,318 shares of common stock pursuant to a registered direct
offering of common stock and warrants.
During the year ended December 31, 2013, the Company issued warrants to purchase 5,416,581 shares of common stock pursuant to a registered direct
offering of common stock and warrants. Additionally, the Company issued 5,000 warrants to a consultant in exchange for services.
A gain of $3,436,195, related to the warrants issued in the June 2013 registered direct offering, was recognized for the change in the fair value of the warrant
liability during the year ended December 31, 2014. A charge of $3,654,770 was incurred during the year ended December 31, 2013 for the change in the fair
value of the warrant liability. Additionally, warrant expense charges of $4,775 were recorded during the years ended December 31, 2014 and 2013.
Equity Line
In November 2013, the Company entered into a common stock purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). The Lincoln Park
equity facility allows the Company to require Lincoln Park to purchase up to 75,000 shares (“Regular Purchase”) of the Company’s common stock every two
business days, up to an aggregate of $10.6 million over approximately a 36-month period depending on certain conditions, including the quoted market price
of the Company’s common stock on such date. The purchase price for the Regular Purchase shall be equal to the lesser of (i) the lowest sale price of the
common shares during the purchase date, or (ii) the average of the three lowest closing sale prices of common shares during the twelve business days prior to
the purchase date. Each Regular Purchase shall not exceed $750,000. Furthermore, for each additional purchase by Lincoln Park, additional commitment
shares in commensurate amounts up to a total of 122,070 shares will be issued based upon the relative proportion of the aggregate amount of $10.0 million.
The Regular Purchase amount may be increased up to 100,000 shares of common stock if the closing price of the common shares is not below $2.50. In
addition to the Regular Purchase and provided that the closing price of the common shares is not below $1.50 on the purchase date, the Company in its sole
discretion may direct Lincoln Park on each purchase date to purchase on the next stock trading day (“Accelerate Purchase Date”) additional shares of
Company stock up to the lesser of (i) two times the number of shares purchased following a Regular Purchase or (ii) 30% of the trading volume of shares
traded on the Accelerated Purchase Date as a price equal to the lesser of the closing sale price on the Accelerated Purchase Date or 95% of the Accelerated
Purchase Date’s volume weighted average price. During the year ended December 31, 2013, the Company received gross proceeds of $600,000 for the
issuance of 383,370 shares of common stock to Lincoln Park. Associated costs of $71,949 were incurred resulting in net proceeds of $528,051.
During the year ended December 31, 2014, in three separate transactions, the Company issued 230,743 shares of common stock receiving net proceeds of
$470,475.
Note 7. Stock Option Plans and Warrants to Purchase Common Stock
Stock Option Plans
The Amended and Restated 1995 Omnibus Plan was replaced by the 2005 Equity Incentive Plan and is divided into four separate equity programs:
1)
2)
3)
4)
the Discretionary Option Grant Program, under which eligible persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of common stock,
the Salary Investment Option Grant Program, under which eligible employees may elect to have a portion of their base salary invested each year in
options to purchase shares of common stock,
the Automatic Option Grant Program, under which eligible nonemployee Board members will automatically receive options at periodic intervals to
purchase shares of common stock, and
the Director Fee Option Grant Program, under which non-employee Board members may elect to have all, or any portion, of their annual retainer fee
otherwise payable in cash applied to a special option grant.
F-16
The 2005 Equity Incentive Plan (“2005 Plan”) is divided into four separate equity programs:
1)
2)
3)
4)
the Discretionary Option Grant Program, under which eligible persons may, at the discretion of the Plan Administrator, be issued common stock or
granted options to purchase shares of common stock,
the Salary Investment Option Grant Program, under which eligible employees may elect to have a portion of their base salary invested each year in
options to purchase shares of common stock,
the Automatic Option Grant Program, under which eligible nonemployee Board members will automatically receive options at periodic intervals to
purchase shares of common stock, and
the Director Fee Option Grant Program, under which non-employee Board members may elect to have all, or any portion, of their annual retainer fee
otherwise payable in cash applied to a special option grant.
In addition, under the 2005 Plan, the Board may elect to pay certain consultants, directors, and employees in common stock. The 2005 Plan was amended in
September 2007 to increase the number of options available under the plan to 1,000,000, in 2010 to increase the number of shares under the plan to 1,750,000
and again in 2013 to increase the number shares available under the plan to 3,000,000.
The table below only accounts for transactions occurring as part of the 2005 Plan.
Shares available for grant at beginning of year
Increase in shares available for the plan
Options granted
Options forfeited or expired
Shares available for grant at end of year
December 31,
2014
672,485
-
(637,495)
149,055
2013
129,711
1,250,000
(791,100)
83,874
184,045
672,485
The total option activity for the 1995 Omnibus Plan and the amended 2005 Plan for the years ended December 31, 2014 and 2013 was as follows:
Balance at December 31, 2012
Granted
Exercised
Forfeited
Balance at December 31, 2013
Granted
Exercised
Forfeited
Balance at December 31, 2014
Weighted
Average
Options
Exercise Price
3.19
1.35
0.57
2.84
2.63
1.79
0.77
3.13
2.40
Options
1,457,724 $
791,100
(103,439)
(93,874)
2,051,511 $
637,495
(36,672)
(164,055)
2,488,279 $
As of December 31, 2014, there were 1,875,609 options exercisable with a weighted average exercise price of $2.64, a weighted average remaining
contractual term of 6.9 years and an intrinsic value of $196,655. The intrinsic value of options exercised during the years ended December 31, 2014 and 2013
was $47,241 and $56,750, respectively. As of December 31, 2014, there were 2,488,279 options outstanding and expected to vest with a weighted average
exercise price of $2.40, weighted average remaining term of 6.9 years and an intrinsic value of $215,103. The aggregate intrinsic value represents the total
pre-tax intrinsic value (the difference between the closing price of our common stock on the last trading day on December 31, 2014 and the exercise price,
multiplied by the number of in-the-money options) what would have been received by the option holders had all option holders exercised their options on
December 31, 2014. This amount changes based on the fair market value of our common stock.
F-17
The Company awarded 637,495 and 791,100 stock options to new employees and existing Board members during the years ended 2014 and 2013,
respectively. During the year ended 2014, under the 2005 Equity Incentive plan, 569,000 option grants were issued to employees and 68,495 option grants
were issued to Board members.
The weighted-average exercise price, by price range, for outstanding options to purchase common stock at December 31, 2014 was:
Price Range
$0.30-$2.20
$2.26-$4.10
$4.64-$9.40
Total
Weighted
Average
Remaining
Contractual
Life in Years
7.7
6.9
3.7
6.9
Outstanding
Options
Exercisable
Options
1,805,755
174,774
507,750
2,488,279
1,193,081
174,778
507,750
1,875,609
The Company’s stock-based compensation for the years ended December 31, 2014 and 2013 was $720,150 and $803,060, respectively. At December 31,
2014, the total compensation cost for stock options not yet recognized was approximately $1,009,941 and will be expensed over the next three years.
Warrants to Purchase Common Stock
Warrant activity for the years ended December 31, 2014 and 2013 was as follows:
Balance at December 31, 2012
Granted
Exercised
Expired/Cancelled
Balance at December 31, 2013
Granted
Exercised
Expired/Cancelled
Balance at December 31, 2014
Warrants
Weighted
Average
Warrant
Exercise Price
3.13
1.65
1.65
15.00
2.17
1.48
1.65
3.49
1.15
2,843,338 $
5,421,581
(107,143)
(1,250)
8,156,526 $
1,169,318
(586,081)
(1,470,263)
7,269,500 $
During the year ended 2014, the Company issued warrants to purchase 1,169,318 shares of common stock, with an exercise price of $1.48, pursuant to a
registered direct offering of common stock and warrants. Warrants of 1,470,263 either expired or were cancelled by the Company with an average exercise
price of $3.49 and 586,081 warrants were exercised with an exercise price of $1.65.
The weighted-average exercise price, by price range, for outstanding warrants at December 31, 2014 was:
Price Range
$.53-$2.05
$5.12-$6.06
Total
Weighted
Average
Remaining
Contractual
Life in Years
3.7
0.5
3.4
Outstanding
Warrants
Exercisable
Warrants
6,672,548
596,952
7,269,500
6,672,548
596,952
7,269,500
During the year ended December 31, 2015, warrants to purchase 596,952 shares of the Company’s common stock will expire.
F-18
Note 8. Concentrations
At December 31, 2014 and 2013, the Company had deposits in major financial institutions that exceeded the amount under protection by the Securities
Investor Protection Corporation (“SIPC”). Currently, the Company is covered up to $1,000,000 by the SIPC. The excess amount at December 31, 2014 was
$4,525,094.
Note 9. Commitments and Contingencies
The Company has commitments of approximately $375,000 at December 31, 2014 for several licensing agreements with consultants and universities.
Additionally, the Company has collaboration and license agreements, which upon clinical or commercialization success, may require the payment of
milestones of up to $7.9 million and/or royalties up to 6% of net sales of covered products, if and when achieved. However, there can be no assurance that
clinical or commercialization success will occur.
In December 2014, the Company entered into a lease agreement through May 31, 2018 for existing and expanded office space. The rent for the first 12
months is approximately $12,300 per month, or approximately $20.85 per square foot. This rent increases to approximately $12,375 per month, or
approximately $20.95 per square foot, for the next 12 months and approximately $12,460 per month, or approximately $21.13 per square foot for the
remainder of the lease.
On September 3, 2014, the Company entered into an asset purchase agreement with Hy Biopharma, Inc. to which the Company acquired certain intangible
assets, properties and rights of Hy Biopharma related to the development of Hy BioPharma’s synthetic hypericin product. As consideration for the assets
acquired, the company paid $250,000 in cash and issued 1,849,113 shares of common stock with a fair value based on the Company’s stock price on the date
of grant of $3,750,000. These amounts are charged to research and development expense as the assets will be used in the Company’s R&D activities and do
not have alternative future use pursuant to Generally Accepted Accounting Principles in the United States. Provided all future success-oriented milestones are
attained, the Company will be required to make additional payments of up to $10.0 million, if and when achieved. Payments will be payable in restricted
securities of the Company.
On April 27, 2013, the Company entered into an exclusive channel collaboration agreement with Intrexon (the “Channel Agreement”) to use Intrexon’s
advanced human antibody discovery, isolation and production technologies for the development of human monoclonal antibody therapies for a new
biodefense application targeting melioidosis. The Channel Agreement grants an exclusive worldwide license to use specified patents and other intellectual
property of Intrexon in connection with the research, development, use, importing, manufacture, sale and offer for sale of products for the treatment of
melioidosis through the use of exogenously produced human recombinant monoclonal antibodies. The Channel Agreement, upon clinical or
commercialization success, may require the payment of certain milestones up to $7 million, if and when achieved.
In February 2007, the Company’s Board of Directors authorized the issuance of 50,000 shares to Dr. Schaber immediately prior to the completion of a
transaction, or series or a combination of related transactions negotiated by its Board of Directors whereby, directly or indirectly, a majority of its capital stock
or a majority of its assets are transferred from the Company and/or its stockholders to a third party. The amended agreement with Dr. Schaber includes its
obligation to issue such shares if such event occurs.
As a result of the above agreements, the Company has future contractual obligations over the next five years as follows:
Year
2015
2016
2017
2018
2019
Total
F-19
Research and
Development
Property and
Other Leases
Total
$
$
75,000 $
75,000
75,000
75,000
75,000
375,000 $
130,000 $
157,000
152,000
51,000
-
490,000 $
205,000
232,000
227,000
126,000
75,000
865,000
Note 10. Operating Segments
The Company maintains two active operating segments: BioTherapeutics and Vaccines/BioDefense. Each segment includes an element of overhead costs
specifically associated with its operations, with its corporate shared services group responsible for support functions generic to both operating segments.
Revenues
Vaccines/BioDefense
BioTherapeutics
Total
Income (loss) from Operations
Vaccines/BioDefense
BioTherapeutics
Corporate
Total
Amortization and Depreciation Expense
Vaccines/BioDefense
BioTherapeutics
Corporate
Total
Interest Income
Corporate
Stock-Based Compensation
Vaccines/BioDefense
BioTherapeutics
Corporate
Total
Identifiable Assets
Vaccines/BioDefense
BioTherapeutics
Corporate
Total
Note 11. Subsequent Events
Since January 1, 2015, the Company has received proceeds of $732,010 pursuant to 1,165,786 stock warrant exercises.
F-20
For the Years Ended
December 31,
2014
2013
6,756,388 $
286,628
7,043,016 $
3,003,822
220,330
3,224,152
807,164 $
(7,674,381)
(3,894,132)
(10,761,349) $
(1,666,130)
(3,069,998)
(2,420,414)
(7,156,542)
39,625 $
199,196
6,966
245,787 $
37,981
190,033
2,057
230,071
1,310 $
1,960
114,920 $
193,926
411,304
720,150 $
80,432
250,431
472,197
803,060
As of December 31,
2014
2013
1,025,220 $
204,308
5,724,720
6,954,248 $
1,870,414
386,721
6,008,320
8,265,455
$
$
$
$
$
$
$
$
$
$
$
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Soligenix, Inc.
We have audited the accompanying consolidated balance sheets of Soligenix, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and
the related consolidated statements of operations, shareholders’ deficiency, and cash flows for each of the years in the two-year period ended December 31,
2014. The financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Soligenix, Inc. and
subsidiaries as of December 31, 2014 and 2015, and the consolidated results of their operations and their cash flows for each of the years in the two-year
period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/ EisnerAmper LLP
Jenkintown, PA
March 25, 2015
F-21
FIRST EXTENSION AND EXPANSION TO LEASE
Exhibit 10.42
THIS FIRST EXTENSION AND EXPANSION TO LEASE made as of this 21 day of November , 2014, by and between CPP II LLC, a Delaware
limited liability company, with an address at c/o Oestreicher Properties Inc., 160 Water Street, New York, New York 10038 ("Landlord"), and SOLIGENIX,
INC., a corporation organized and existing under the laws of the State of Delaware, having its principal place of business at 29 Emmons Drive, Suite C-10,
Princeton, New Jersey 08540 ("Tenant").
WHEREAS, Landlord is the owner of property located at 29 Emmons Drive, in the Township of West Windsor, County of Mercer and State of New
Jersey ("Property"), known as Princeton Commerce Center; and
WHEREAS, by Lease dated the 7th day of February, 2012 ("Lease"), Landlord leased to Tenant and Tenant rented from Landlord, Suite C-10
("Leased Premises"), at the Property, and
WHEREAS, Landlord and Tenant desire to amend the Lease as to Suite C-10 with regard to an extension of the term and expand the Lease to
include Suite G-35.
NOW, THEREFORE, the parties hereto, for good and valuable consideration, receipt of which is hereby acknowledged, agree to amend the Lease as
follows:
AMENDMENT TO TENANT'S LEASE REGARDING SUITE C-10
1. Defined Terms. Each capitalized term used herein and not otherwise defined shall have the meaning given to it in the Lease.
2. Lease Term. Subject to terms and conditions hereof, the Lease for the Leased Premises which is now set to expire on March 31, 2015, is extended,
and such extension shall commence on April 1, 2015 and shall be for thirty-eight (38) months so as to terminate on May 31, 2018.
3. Leased Premises. The existing Leased Premises comprise 5,250 rentable square feet.
4. Rent. Monthly Base Rent for the period terminating March 31, 2015 for Suite C-10 shall be at the current rate paid by Tenant of $19.00 per square
foot per annum. Notwithstanding anything to the contrary contained herein, commencing on April 1, 2015, through the termination of the extension period,
the base rent shall increase to $20.25 per square foot per annum which equates to $106,312.50 yearly or $8,859.38 monthly.
There shall be no rental (either base or additional) due from Tenant for the months of April and May, 2015, except that Tenant shall be liable for its
own utilities and janitorial services.
5. Condition of Leased Premises. Tenant accepts the condition of Suite C-10 “as is” and Landlord will not be required to perform any fit-up or tenant
work with regard to Suite C-10.
6. Workletter Allowance. Landlord shall pay to Tenant, as an allowance for hard costs incurred by Tenant in updating Suite C-10, the sum of $2.00
per square foot or $10,500.00 (the minimum sum to be expended by Tenant for its updating) to be paid immediately upon completion of said updating and
confirmation thereof by Landlord, which confirmation shall not be unreasonably withheld, conditioned or delayed and Landlord shall deliver said payment to
Tenant in no event later than two (2) weeks following the completion of said updates.
7. Renewal Option. Tenant shall have one (1) option to renew its occupancy of the Total Premises, as hereinafter defined, the same being both Suites
C-10 and G-35, under the same terms and conditions as exist pursuant to the Lease dated February 7, 2012 and as called for pursuant to this First Extension
and Expansion to Lease dated _______, 2014. Said option shall be for a period of three (3) years provided Tenant gives written notice to Landlord of the
exercise of said option no later than nine (9) months prior to the expiration of its then term. The option must cover the Total Premises and Tenant must not be
in default either at the time of giving notice or on the date of commencement of the option period.
2
In the event Tenant exercises its option it agrees to accept the Total Premises in its then "as is" condition without any further concessions or fit-up
required of Landlord.
The rent to be paid by Tenant to Landlord during the option period shall be the fair market value of rental then being charged within the Princeton
Commerce Center office park.
8. Balance of Lease Terms. All other terms and conditions of the Lease dated February 7, 2012 for Suite C-10, except where above modified, shall
remain in full force and effect.
LEASE AMENDMENT WITH REGARD TO EXPANSION INTO SUITE G-35
9. New Leased Premises. Effective with the execution of this Lease Expansion, Tenant shall rent from Landlord and Landlord shall lease to Tenant,
an additional 1,825 rentable square feet of space at the Property in Building G, Suite G-35 ("Additional Space").
10. Lease Term for Additional Space. Subject to terms and conditions hereof, the Lease for the Additional Space is anticipated to commence on or
about December 1, 2014. The term of the Lease shall be for thirty-eight (38) full months and shall terminate the last day of the 38th full month from the date
that Tenant is given possession of the Additional space.
3
11. Base Rent. Effective as of the delivery date of the Additional Space, the Lease is hereby amended to provide that the Base Rent payable by
Tenant for the Additional Space shall be:
Rental Periods
Months 1 and 2: Commencing with first full month, rent free, both as to base and additional rent.
Months 3 - 14:
Months 15 - 26:
Months 27 - 38:
$
$
$
Per Annum
Per Month
22.56/SF $
23.12/SF $
23.68/SF $
41,172.00 $
42,194.00 $
43,216.00 $
3,431.00
3,516.16
3,601.33
If the delivery of the Additional Space is not achieved on the first day of a month, then Tenant shall be liable for the payment of rent to Landlord, on
a pro rata basis for that month, until the first day of the first month thereafter, at which time Tenant shall thereafter be liable, on an ongoing monthly basis, for
the full monthly rental for the Additional Space.
12. Additional Rent. Tenant shall, in addition to the Base Rent as called for in ¶11 hereof, pay to Landlord all sums which are designated as
Additional Rent as required pursuant to the Lease.
13. Rent for Total Premises. Provided that Tenant is in compliance with the terms of the Lease, the Lease shall be deemed to be modified as follows:
Commencing with the Additional Space being delivered to Tenant, the Base Rent paid by Tenant shall be the sum of the Base Rent for the Leased Premises as
well as the Base Rent for the Additional Space (the Leased Premises and the Additional Space combined shall be designated as the "Total Premises"), and
which, when combined, shall be the Base Rent for the Total Premises. Tenant shall further be obligated under the lease to pay Tenant's proportionate share of
Additional Rent for the Total Premises as provided in ¶2.02 and Article 3 of the Lease.
14. Condition of Additional Space and Landlord's Fit-Up Obligations. Tenant has examined the Additional Space and is satisfied that it meets its
needs and therefore agrees to accept the same in "as is" condition with the exception of the following which the Landlord will either install or perform in or to
Suite G-35 at Landlord's expense:
(i) install new carpeting as selected by Tenant from samples provided by Landlord as building standard carpet;
4
(ii) paint throughout in a neutral color to be designated by Tenant;
(iii) install new VCT tile in the vestibule;
(iv) install new ceiling tiles throughout;\
(v) remove metal bars existing in the individual offices;
(vi) install new flat acrylic lenses on the light fixtures;
(vii) install new window shades throughout;
(viii) disconnect washer and dryer hook ups, install sheetrock and paint;
(ix) all systems, including HVAC and lighting, shall be in working order;
(x) HVAC diffusers will be cleaned; and
(xi) professionally cleaned prior to delivery.
15. Additional Space - Tenant's Proportionate Share. Commencing with the delivery of the Additional Space to Tenant, the parties acknowledge that
Tenant's Proportionate Share of Additional Rent for the Leased Premises and the Additional Space (the "Total Premises") shall be eleven and two tenths
(11.2%) percent.
The Base Year for the Operating Expenses for the Total Premises shall be calendar year 2014.
16. Security Deposit and First Months Rent. Upon execution of this Lease Expansion, Tenant shall deliver to Landlord checks in the amount of:
(i) $6,862.00 which represents a security deposit for the Additional Space so that the security deposit for the Total Premises will be $36,862.
(ii) $3,431.00 representing the base rental payment for the first full month for the Additional Space, for which the Tenant is liable, which payment
will be for the first day of the third full month of the term.
5
17. Right to First Offer. Tenant shall have the right to receive the first offer to lease Suite G-40 in accordance with ¶r of Amended Exhibit "A".
18. Miscellaneous.
A. Tenant shall be entitled, on an unallocated and undesignated basis, to the use of seven (7) parking spaces in conjunction with the use of the
Additional Space.
B. Tenant shall have the right under the same terms and conditions with regard to sub-leasing the Additional Space as such right is given to Tenant in
the Lease.
C. The covenants, conditions and agreements contained in the Lease shall bind and inure to the benefit of Landlord and Tenant and their respective
successors and assigns, except as otherwise provided therein.
D. Tenant expressly understood and agreed that all terms and conditions of the Lease, except where specified differently in this Lease Expansion, are
applicable to the Additional Space and will remain unchanged and in full force and effect with regard thereto. Tenant acknowledges that such terms and
conditions are acceptable and it will adhere to the same except where a specific modification thereto is made in this First Extension and Expansion to Lease
regarding Suite G-35.
E. Tenant acknowledges that the electric and gas service to the Total Premises are separately metered and, as Tenant provides its own janitorial
services, it is liable for the charges resulting from such usage and services.
F. The parties hereby acknowledge each to the other that no broker has been involved in this transaction other than Paul Goldman of Mercer Oak
Realty LLC and Cushman & Wakefield of NJ and any compensation due to those brokers shall be paid by Landlord pursuant to separate agreement.
G. Exhibit “A” of the Lease is hereby modified, where applicable, by the Amended Exhibit “A” attached hereto and made a part hereof and in the
event there is a conflict between this First Extension and Expansion to Lease and the terms of the Lease and/or the Exhibit “A” attached thereto, the terms of
this First Extension and Expansion to Lease shall be controlling.
6
IN WITNESS WHEREOF, the parties hereto have respectfully signed and sealed this First Extension and Expansion to Lease as of the day and year
first above written.
CPP II LLC, as Landlord
By
/s/ Deborah Tsabari
Deborah Tsabari, Manager
SOLIGENIX, INC., as Tenant as Tenant
By
/s/ Christopher J. Schaber
Christopher J. Schaber
President and CEO
7
AMENDED EXHIBIT "A" TO
LEASE DATED FEBRUARY 7, 2012
29 Emmons Drive
LEASE TERMS
The Property is identified as 29 Emmons Drive, West Windsor Township, Mercer County, New Jersey, and further identified on the official tax map
of West Windsor Township as Lot 5, Block 7.03:
a.
b.
c.
d.
e.
Total Premises: Suite C-10 containing approximately 5,250 rentable square feet and G-35 containing approximately 1,825 rentable square feet.
Term (Article I): The term shall be amended so that the Commencement Date for the Additional Space shall be the date upon which the Additional
Space is delivered to Tenant. The termination date for the Leased Premises shall be May 31, 2018, while the termination date for the Additional
Space shall be the last day of the full thirty-eighth (38th) month following the Commencement Date.
Commencement Date for the Extension Period of the Leased Premises shall be April 1, 2015.
Commencement Date: Commencement Date for the term of the Expansion Period shall be the date of delivery of the Additional Space to Tenant.
Commencement Date: Commencement Date for the option period, if exercised by Tenant, shall be June 1, 2018.
Rent Commencement Date: Rent Commencement Date for the Additional Space shall be the date of delivery of the Additional Space to Tenant.
Base Rent for Leased Premises (existing space Suite C-10):
(i)
(ii)
Tenant's Base Rent shall continue at its current rate of $8,312.50 per month through March 31, 2015;
Commencing with the Extension Period April 1, 2015
Months 1 and 2: April and May, 2015, rent free (Base and Additional Rent)
Months 3 - 38:
f.
Base Rent for Additional Space (Suite G-35):
Months 1 and 2: Rent free (Base and Additional Rent)
Months 3 - 14:
Months 15 - 26:
Months 27 - 38:
$
$
$
$
8
Per Annum Per Month
8,859.38
106,312.50 $
20.25/SF $
Per Annum
Per Month
22.56/SF $
23.12/SF $
23.68/SF $
41,172.00 $
42,194.00 $
43,216.00 $
3,431.00
3,516.16
3,601.33
g.
h.
i.
j.
k.
l.
m.
Rent During Option Period: In the event Tenant exercises its option to extend the Lease for the Total Premises, which option shall commence on
June 1, 2018, Tenant shall pay as Base Rent on the 7,075 square feet comprising the Total Premises, the then fair market rental value being charged
within the Princeton Commerce Center office park.
Months 39 - 75: For Total Premises to be determined as hereinabove.
Estimated Monthly Tenant Utility Cost (Section 3.05): N/A as utilities are directly metered to Tenant. Tenant shall pay all utility costs directly to the
entity supplying the service.
Cost of Living Index: N/A
Tenant's Proportionate Share for Total Premises: 11.2%
Security Deposit: Upon execution of this Lease Expansion, Tenant shall place with Landlord an additional cash deposit of $6,862.00 with regard to
Suite G-35 so that Tenant's security posted for the Total Premises shall be $36,862.00 (the "Security Deposit").
The Base Year for the Total Premises (both C-10 and G-35): 2014
Landlord Contribution for Suite G-35:
(i) install new carpeting as selected by Tenant from samples provided by Landlord as building standard carpet;
(ii) paint throughout in a neutral color to be designated by Tenant;
(iii) install new VCT tile in the vestibule;
(iv) install new ceiling tiles throughout;
(v) remove metal bars existing in the individual offices;
(vi) install new flat acrylic lenses on the light fixtures;
(vii) install new window shades throughout;
(viii) disconnect washer and dryer hook ups, install sheetrock and paint;
(ix) all systems, including HVAC and lighting, shall be in working order;
(x) HVAC diffusers will be cleaned; and
(xi) Professionally cleaned prior to delivery.
n.
Permitted Use (Section 6.01): General and Administrative Office
9
o.
p.
q.
r
s.
Ini.
CP
Landlord's Notice Address:
CPP II LLC
c/o Oestreicher Properties Inc.
160 Water Street
New York, New York 10038
Tenant's Notice Address:
Soligenix, Inc.
29 Emmons Drive,
Suite C-10
Princeton, NJ 08540
Parking Spaces (Section 20.18): Not to exceed seven (7) unassigned and unallocated parking spaces in conjunction with the use of Suite G-35 for
cars.
Tenant shall have the right to receive the first offer to rent Suite
G-40, consisting of 1,125 rentable square feet, which is continguous to the Additional Space, if, as and when that suite becomes available, subject to
the following terms and conditions:
(i) Upon Tenant being notified in writing that Suite G-40 is available for rent by Tenant, Tenant shall notify Landlord in writing within ten (10) days
of receipt of such notice, of its desire to undertake a rental of said suite;
(ii) If Tenant fails to provide written notice as set forth above in (i), within ten (10) days of receipt of Landlord's notice of the availability of Suite G-
40, such non-response shall be deemed a refusal to proceed with a lease thereof and Tenant shall lose all further right to rent said suite.
Broker (Section 20.01): Paul Goldman representing Mercer Oak Realty, LLC and Cushman & Wakefield of NJ.
Ini.
10
The following represents a list of Soligenix, Inc.’s subsidiaries:
SUBSIDIARIES OF SOLIGENIX, INC.
EXHIBIT 21.1
Name
Enteron Pharmaceuticals, Inc.
Orasomal Technologies Inc.
DOR BioDefense Corp.
Soligenix BioPharma Canada Incorporated
Soligenix UK Limited
Ownership
State of
Incorporation
Delaware
Delaware
Delaware
Canada
100.00%
75.30%
100.00%
100.00%
100.00% United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements of Soligenix, Inc. and subsidiaries on Form S-3 (Nos. 333-162375 and 333-
167792) and Form S-8 (Nos. 333-157322, 333-149239, 333-162375, and 333-167792) of our report dated March 25, 2015, on our audits of the consolidated
financial statements as of December 31, 2014 and 2013 and for each of the years in the two-year period ended December 31, 2014, to be filed on or about
March 25, 2015.
/s/ EisnerAmper LLP
Jenkintown, PA
March 25, 2015
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Christopher J. Schaber, Ph.D., certify that:
1. I have reviewed this Form 10-K of the Soligenix, Inc. for the fiscal year ended December 31, 2014;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
March 25, 2015
/s/ Christopher J. Schaber
Christopher J. Schaber, Ph.D.
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Joseph M. Warusz, certify that:
1. I have reviewed this Form 10-K of the Soligenix, Inc. for the fiscal year ended December 31, 2014;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
March 25, 2015
/s/ Joseph M. Warusz
Joseph M. Warusz, CPA
Vice Presient of Finance, Acting Chief Financial
Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with this Form 10-K of Soligenix, Inc. (the “Company”) for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, 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.
March 25, 2015
/s/ Christopher J. Schaber
Christopher J. Schaber, Ph.D.
President and Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with this Form 10-K of Soligenix, Inc. (the “Company”) for the fiscal year ended December 31, 2014, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, 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.
March 25, 2015
/s/ Joseph M. Warusz
Joseph M. Warusz, CPA
Vice Presient of Finance, Acting Chief Financial
Officer