UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
Commission File Number 001-36019
TONIX PHARMACEUTICALS HOLDING CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation
or organization)
509 Madison Avenue, Suite 306
New York, New York
(Address of principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
26-1434750
(IRS Employer Identification No.)
10022
(Zip Code)
(212) 980-9155
(Registrant’s telephone number, including area code)
Title of each class
Common Stock, $0.001 par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Accelerated filer x
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ¨ No x
The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2015, based on the closing sales price of the
common stock as quoted on The NASDAQ Global Market was $107,689,550. For purposes of this computation, all officers, directors, and
5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such
directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.
As of March 2, 2016, there were 18,873,264 shares of registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 2016 Annual Meeting of Stockholders are incorporated herein by reference in Part III of
this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange
Commission within 120 days of the registrant's fiscal year ended December 31, 2015.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Signatures
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ITEM 1 - BUSINESS
PART I
This Annual Report on Form 10-K (including the section regarding Management's Discussion and Analysis of Financial Condition
and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and
prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are
forward-looking statements.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management,
such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently
subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include,
without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those discussed elsewhere in this
Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of
the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and
copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain
additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures
made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our
business, financial condition, results of operations and prospects.
Tonix Pharmaceuticals ®, Tonmya ® and other trademarks and intellectual property of ours appearing in this report are our
property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other
companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of
these companies.
Tonmya is the proposed trade name for TNX-102 SL for fibromyalgia, or FM, and has been conditionally accepted by the FDA.
TNX-102 SL for FM and PTSD is an investigational new drug and has not been approved for any indication.
Business Overview
Tonix Pharmaceuticals Holding Corp., together with its subsidiaries (collectively “we,” “our,” “us,” “Tonix” or the “Company”),
is a clinical-stage pharmaceutical company dedicated to the invention and development of next-generation medicines. Our most advanced
drug development programs are directed toward disorders affecting the central nervous system, or CNS, and include FM and post-traumatic
stress disorder, or PTSD. These disorders are characterized by chronic disability, inadequate treatment options, high utilization of
healthcare services, and significant economic burden. We have assembled a management team with significant industry experience to lead
the development of our product candidates. We complement our management team with a network of scientific, clinical, and regulatory
advisors that includes recognized experts in the fields of FM, PTSD and other central nervous system disorders.
Our lead product candidate, TNX-102 SL (cyclobenzaprine HCl sublingual tablets) is in Phase 3 clinical development as a
potential treatment for FM. In addition, TNX-102 SL is in Phase 2 clinical development as a potential treatment for PTSD. Our nonclinical
pipeline includes a development program for the treatment of alcohol use disorders, or AUD, as well as two biodefense development
programs for protection from smallpox virus and from radiation injury. We hold worldwide development and commercialization rights to
all of our product candidates.
Our clinical-stage product candidates are as follows:
TNX-102 SL
TNX-102 SL is a small, rapidly disintegrating tablet containing cyclobenzaprine, or CBP, for sublingual administration and
transmucosal absorption. We are developing TNX-102 SL for two indications:
3
Fibromyalgia. Fibromyalgia is a debilitating syndrome that occurs in five to 15 million U.S. adults and is associated with a
substantial negative impact on social and occupational function, including disrupted relationships with family and friends, social isolation,
reduced activities of daily living and leisure activities, avoidance of physical activity, and loss of career or inability to advance in careers or
education. Many patients fail to adequately respond to the medications approved for FM, or discontinue therapy due to poor tolerability.
Prescription pain and sleep medications not approved for FM are frequently taken for symptomatic relief, despite the lack of evidence that
such medications provide a meaningful or durable therapeutic effect.
Post-traumatic stress disorder. An estimated 8.4 million adults in the U.S. suffer from PTSD, a chronic disorder that is
characterized by avoidance, emotional numbing, hyperarousal, and sleep disturbances. People with PTSD suffer significant impairment in
their functioning, including occupational activities and social relations, and are at elevated risk for impulsive, violent behaviors toward
others and themselves, including suicide. Many patients fail to adequately respond to the medications approved for PTSD. Antidepressants,
sedative-hypnotics and antipsychotics not approved for PTSD are commonly prescribed despite generally weak evidence in support of their
use.
TNX-201
TNX-201 is an oral formulation of dexisometheptene mucate that we were developing for episodic tension-type headache, or
ETTH. On February 16, 2016, we announced that we discontinued development of TNX-201 because it lacked efficacy.
Our Strategy
Our objective is to develop and commercialize our product candidates. The principal components of our strategy are to:
• Develop TNX-102 SL for multiple central nervous system disorders. We currently are pursuing the development of TNX-102
SL for two separate indications, FM and PTSD. Our broad development strategy is designed to explore the clinical potential of
TNX-102 SL in disorders that are underserved by currently available medications and represent large unmet medical needs;
• Maximize the commercial potential of TNX-102 SL. We plan to commercialize TNX-102 SL for indications including FM and
PTSD either on our own or through collaboration with partners. We believe TNX-102 SL can be marketed to U.S. physicians
either by an internal sales force that we will build or by a contract sales organization, which we would engage. An alternative
strategy would be to enter into partnership agreements with drug companies that already have significant marketing capabilities
in the same, or similar, therapeutic areas. If we determine that such a strategy would be more favorable than developing our
own sales capabilities, we would seek to enter into collaborations with pharmaceutical or biotechnology companies for the
commercialization of TNX-102 SL;
•
•
•
Pursue a broad intellectual property strategy to protect our product candidates. We are pursuing a broad patent strategy for
our product candidates, and we endeavor to generate new patent applications as supported by our innovations and conceptions
as well as to advance their prosecution. In the case of TNX-102 SL, we own patents and patent applications protecting its
composition-of-matter, certain methods of its use, its formulation, and its pharmacokinetic properties. We plan to
opportunistically apply for new patents to protect TNX-102 SL and our other product candidates;
Provide value propositions to merit market demand and reimbursement for our product candidates. We are designing the
development programs for our product candidates to demonstrate their value propositions to patients, prescribers, and third-
party payors. In the case of TNX-102 SL, we have been engaged in market research and commercial assessment activities, the
results of which we may use to inform future commercial strategy. We plan to continue these activities in tandem with our
clinical development of TNX-102 SL and to conduct similar work in relation to our other product candidates as they advance in
their development; and
Pursue additional indications and commercial opportunities for our product candidates. We will seek to maximize the value
of TNX-102 SL, and our other product candidates by pursuing other indications and commercial opportunities for such
candidates. For example, we own rights related to the development and commercialization of CBP for generalized anxiety
disorder, depression, and fatigue related to disordered sleep.
Disease and Market Overview
Our product candidates address disorders that are not well served by currently available therapies and represent large potential
commercial market opportunities. Background information on the disorders and related commercial markets that may be addressed by our
clinical-stage product candidates is set forth below.
4
Fibromyalgia
FM is a chronic syndrome characterized by widespread musculoskeletal pain accompanied by fatigue, sleep, memory and mood
issues. The peak incidence of FM occurs between 20-50 years of age, and 80-90% of diagnosed patients are female. FM may have a
substantial negative impact on social and occupational function, including disrupted relationships with family and friends, social isolation,
reduced activities of daily living and leisure activities, avoidance of physical activity, and loss of career or inability to advance in career or
education. According to published estimates, there are approximately five to fifteen million people suffering from FM in the U.S. (Vincent
et al, Arthritis Care Res 2013;65:786-792; Lawrence et al, Arthritis Rheum 2008;58:26-35). Based on our market research, we believe that
sales in the U.S. of FDA-approved medications for FM were approximately $1.2 billion in 2014, representing approximately 5.6 million
prescriptions.
According to a report by Frost and Sullivan that we commissioned, despite the availability of approved medications, the majority
of patients fail therapy due to either insufficient efficacy or poor tolerability, or both. Prescription pain and sleep medications are frequently
prescribed off-label for symptomatic relief, despite the lack of evidence that such medications provide a meaningful or durable therapeutic
benefit, and many of these medications carry significant safety risks and risk of dependence.
Post-traumatic Stress Disorder
PTSD is a chronic syndrome that may develop after a person is exposed to one or more traumatic events, such as warfare, sexual
assault, serious injury, or threat of imminent death. The core symptom clusters of PTSD are avoidance, emotional numbing, hyperarousal,
and intrusion, where the triggering event is commonly re-experienced by the individual through intrusive, recurrent recollections,
flashbacks, and nightmares. People with PTSD suffer significant impairment in their daily functioning, including occupational activities and
social relations, and are at elevated risk for impulsive violent behaviors toward others and themselves, including suicide. Of those who
experience significant trauma, approximately 20% of women and 8% of men develop PTSD. According to the U.S. Department of Veterans
Affairs, the prevalence rate of PTSD in the military population is higher than that among civilians. As of 2009, there were approximately
500,000 veterans receiving treatment for PTSD in the Veterans Health Administration, or VHA. Based on March 2014 VHA data,
approximately 20% of military personnel involved in recent conflicts were seen at VHA facilities for potential or provisional PTSD.
The medications currently approved by the FDA for the treatment of PTSD show little evidence of a treatment effect in men, lack
evidence of efficacy in those for whom the traumatic event was combat-related, and carry suicidality warnings. Sleep disturbances are
central features of PTSD and are predictive of disease severity, depression, substance abuse, and suicidal ideation, yet are resistant to the
approved medications and present a difficult therapeutic challenge. Current PTSD treatments include off-label use of anxiolytics, sedative-
hypnotics, and antipsychotics, many of which lack reliable evidence of efficacy, and have significant safety liabilities and dependence risk.
Our Product Candidates
We currently are focused on developing a portfolio of product candidates, including one product candidate in clinical development
for registration in two indications. We believe that our product candidates offer innovative therapeutic approaches and may provide
significant advantages relative to current therapies. The following table summarizes our most advanced product candidates, for which we
plan to complete the required clinical and nonclinical studies to support their NDA filings:
Product Candidate
TNX-102 SL
TNX-102 SL
Indication
Fibromyalgia
Post-traumatic stress disorder
Stage of Development
Phase 3
Phase 2
Commercialization Rights
Worldwide
Worldwide
TNX-102 SL
Overview
TNX-102 SL is a sublingual tablet formulation of CBP that efficiently delivers CBP across the oral mucosal membrane into the
systemic circulation. We are developing TNX-102 SL for fibromyalgia and post-traumatic stress disorder. We own all rights to TNX-102
SL in all geographies, and we bear no obligations to third-parties for any future development or commercialization.
Excipients used in TNX-102 SL are approved for pharmaceutical use. Some of the excipients were specially selected to promote a
local oral environment that facilitates mucosal absorption of CBP.
5
TNX-102 SL contains 2.8 mg of CBP. We selected this dose with the goal of providing a balance of efficacy, safety, and
tolerability that would be acceptable as a first-line therapy and for long-term use, and in patient populations characterized by burdensome
symptoms and sensitivity to medications.
TNX-102 SL is a serotonin 2A and alpha-1 adrenergic receptor antagonist as well as an inhibitor of serotonin and norepinephrine
reuptake, and we refer to it as a Serotonin and Norepinephrine receptor Antagonist and Reuptake Inhibitor, or SNARI. In FM, pregabalin is
believed to exert its clinical benefit primarily by blocking calcium channels, and both duloxetine and milnacipran are believed to exert their
clinical benefit mainly by inhibiting the reuptake of serotonin and norepinephrine. In PTSD, both paroxetine and sertraline are believed to
exert their clinical benefit primarily by blocking serotonin reuptake. As such, TNX-102 SL acts upon cellular receptors that play important
roles in the treatment of FM and PTSD, including the receptors that mediate serotonin and norepinephrine reuptake. In addition, TNX-102
SL also acts upon other receptors in the central nervous system not targeted by products approved for these indications, including the
serotonin 2A and alpha-1 adrenergic receptors.
CBP is the active ingredient of two products that are approved in the U.S. for the treatment of muscle spasm: FLEXERIL ® (oral
immediate-release tablet, 5 mg and 10 mg dosage forms) and AMRIX ® (oral extended-release capsule, 15 mg and 30 mg dosage forms).
FLEXERIL brand of cyclobenzaprine immediate-release tablet has been discontinued since May 2013. There are numerous generic
versions of cyclobenzaprine immediate-release tablets on the market. CBP-containing products are not indicated for the treatment of FM or
PTSD. CBP-containing products are approved for short term use (two to three weeks) only. Immediate-release, or IR, CBP tablets are
recommended for three times per day dosing, which results in relatively stable blood levels of CBP after several days of treatment.
Extended-release CBP capsules taken once a day mimic, and flatten, the pharmacokinetic profile of three times per day immediate-release
CBP tablets.
We designed TNX-102 SL to be administered once-daily at bedtime and intended for long-term dosing regimen. We believe the
selected dose of TNX-102 SL and its pharmacokinetic profile will enable it to achieve a desirable balance of efficacy, safety, and
tolerability in FM and PTSD. Our Phase 1 comparative trials showed that, on a dose-adjusted basis, TNX-102 SL results in faster systemic
absorption and significantly higher plasma levels of CBP in the first hour following sublingual administration relative to oral immediate-
release CBP tablets. In clinical studies, TNX-102 SL, 2.8 mg was generally well-tolerated, with no serious adverse events reported in these
studies. Some subjects experienced transient numbness of the tongue after TNX-102 SL administration.
We expect that any applications we submit to the Food and Drug Administration, or FDA, for approval of TNX-102 SL will be
submitted under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, for product candidates containing an active
ingredient that is similar or identical to an already approved product. In general, the development timeline for a 505(b)(2) New Drug
Application, or NDA, is shorter and less expensive than an NDA developed under Section 505(b)(1), which is for new chemical entities, or
NCEs, that have never been approved in the United States. Currently, we are pursuing the development of TNX-102 SL for two separate
indications. These indications are fibromyalgia, for which TNX-102 SL is in Phase 3 development, and post-traumatic stress disorder, for
which TNX-102 SL is in Phase 2 development. We believe that TNX-102 SL has the potential to provide clinical benefit to these and
possibly other CNS indications that are underserved by currently marketed products.
TNX-102 SL – Fibromyalgia Program
We are developing TNX-102 SL for the treatment of FM under an effective investigational new drug, or IND, application. Our
therapeutic approach to FM was initially supported by results from a randomized, double-blind, placebo-controlled Phase 2a clinical trial of
TNX-102 immediate release capsules, or TNX-102 capsules, which we have also referred to as VLD CBP (Moldofsky et al, J Rheumatol
2011;38:2653-63). This study demonstrated significant decreases in pain and other symptoms in patients treated with TNX-102 capsules
daily between dinner and bedtime for eight weeks. This study also demonstrated that treatment with TNX-102 capsules led to a significant
improvement in objective measures of sleep quality, which we believe relates to the mechanism by which CBP leads to improvement of
FM symptoms.
Clinical Development Plan
At an End-of-Phase 2/Pre-Phase 3 meeting with the FDA in February 2013, we discussed the design of our clinical program,
including the acceptability of the pivotal study design and the proposed registration plan, to support the approval of TNX-102 SL for the
management of FM. On the basis of our discussions with the FDA, we believe that positive results from two adequate, well-controlled
efficacy and safety studies and long-term (six- and 12-month) safety exposure studies would provide sufficient evidence of efficacy and
safety to support FDA approval of TNX-102 SL for the management of FM.
6
Phase 2b “BESTFIT” Study
In September 2013, we commenced enrollment of our BESTFIT trial, a randomized, double-blind, placebo-controlled Phase 2b
clinical trial of TNX-102 SL in FM. We reported preliminary top line results from the BESTFIT trial in September 2014. In the BESTFIT
trial, 205 patients with FM were randomized at 17 U.S. centers to treatment with either TNX-102 SL 2.8 mg or placebo sublingual tablets at
bedtime daily for 12 weeks. The primary outcome measure of the BESTFIT trial was the mean change in week 12 average daily pain
intensity from baseline on the 11-point Numeric Rating Scale, using a daily telephonic diary. In the BESTFIT trial, TNX-102 SL did not
achieve statistical significance in the primary outcome measure (p=0.172). However, the trial demonstrated that TNX-102 SL had a
statistically significant effect on pain as measured by a 30% responder analysis of the primary pain data (p=0.033), in which a responder is
defined as a subject for whom pain intensity was reduced by at least 30% at week 12 as compared to baseline. The 30% response rate in the
final analysis was 34.0% in the active treatment arm as compared to 20.6% in the control arm. The BESTFIT trial also showed statistically
significant improvements with TNX-102 SL in the declared secondary analyses of the Patient Global Impression of Change (p=0.025) and
the Fibromyalgia Impact Questionnaire-Revised, or FIQ-R (p=0.014). The study showed statistically significant improvement with TNX-
102 SL on measures of sleep quality, including the Patient-Reported Outcomes Measurement Information System, or PROMIS, Sleep
Disturbance instrument (p=0.005). In addition, statistically significant improvements with TNX-102 SL were observed on several FIQ-R
items (pain, sleep quality, anxiety, stiffness, and sensitivity) as well as on the overall symptom subdomain.
TNX-102 SL was well tolerated in the BESTFIT trial. Among patients randomized to the active and control arms, 86% and 83%,
respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth
numbness occurring in 44% of participants on TNX-102 SL vs. 2% on placebo, and bitter taste in 8% on TNX-102 SL compared to none on
placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking
TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.
Phase 3 “AFFIRM” Study
Following our report of the results of the BESTFIT trial, we requested guidance from the FDA on our proposed use of a 30% pain
responder analysis as the primary efficacy endpoint in a prospective Phase 3 registration program. In January 2015, we announced receipt
of the written guidance, whereby the FDA accepted our proposal to use a 30% pain responder analysis as the primary efficacy endpoint to
support the approval of TNX-102 SL for the management of FM.
In the second quarter of 2015, we commenced the AFFIRM trial, a 500 patient, randomized, double-blind trial comparing TNX-
102 SL to placebo (1:1 ratio), in which study medication is administered sublingually once daily at bedtime for 12 weeks. The primary
endpoint of the AFFIRM trial is the FDA-agreed upon 30% pain responder analysis. We expect to report top line results from the AFFIRM
trial in the third quarter of 2016.
Long-Term Safety Exposure Study
In August 2015, we completed Study F203, a 12-month open-label extension study of TNX-102 SL in patients who had completed
the BESTFIT study. The goal of Study F203 was to obtain the prerequisite long-term safety exposure data to support a New Drug
Application, or NDA, filing for TNX-102 SL for the management of FM, a chronic medical condition. We believe that we have sufficient
long-term exposure data from F203 to support an NDA filing for TNX-102 SL.
Bioequivalence Pharmacokinetic Study (F105)
We have completed the clinical phase of a Phase 1 bioequivalence pharmacokinetic study (F105) that compared the
pharmacokinetic profiles of single-doses of TNX-102 SL, 2.8 mg tablets manufactured at two facilities: the facility used to produce study
medication for our Phase 2b BESTFIT study and the facility used to produce study medication for our ongoing Phase 3 AFFIRM study and
the to-be-marketed product. The study demonstrated that the TNX-102 SL 2.8 mg tablets manufactured at the two different facilities are
bioequivalent.
Prospective Phase 3 “REAFFIRM” Study
In the second quarter of 2016, we plan to commence the REAFFIRM trial, a second randomized, double-blind Phase 3 clinical
trial of TNX-102 SL, to support product registration. We currently expect that the size and design of the REAFFIRM trial will be similar to
that of the AFFIRM trial.
Open-label Extension Study for AFFIRM and REAFFIRM
Patients who successfully complete the AFFIRM or REAFFIRM studies are or will be eligible to enroll into the three-month open
label extension study, or Study F303. Study F303 is designed to capture additional safety and efficacy information after the patients
completed the three month double-blind randomized treatment.
7
Prospective Multi-dose Pharmacokinetic Study
Since TNX-102 SL will be submitted as a 505(b)(2) NDA using CBP 5 mg IR tablets as our reference product, we plan to study
TNX-102 SL, 2.8 mg in comparison to CBP 5 mg IR tablets in a multiple-dose pharmacokinetic study. The results of this study will provide
information regarding blood levels of CBP at steady state after repeated dosing of CBP 5 mg IR tablet and TNX-102 SL. We expect the
data from this study to serve as a ‘bridge’ to enable us to use the reference product labeling information to support the TNX-102 SL NDA.
Nonclinical Development
In addition to the clinical studies necessary to support the TNX-102 SL 505(b)(2) NDA filing for the management of fibromyalgia,
we proposed, and the FDA has accepted, our nonclinical data package to support the NDA filing, as the NDA requires nonclinical
information that is not completely available in the reference product labeling. In 2014, we completed dose-ranging studies to identify the
doses for the chronic toxicity studies requested by the FDA to augment the nonclinical information in the CBP labeling which will be used
to support the TNX-102 SL labeling for long-term use. In January 2015, we engaged an FDA-certified Good Laboratory Practices
laboratory to conduct a six-month repeated-dose toxicology study of TNX-102 in rats and a nine-month repeated-dose toxicology study in
dogs required for the NDA filing and to support Phase 3 clinical studies outside the U.S. The in-life portion of these studies has been
completed and reports are being prepared. Based on the prescribing information of AMRIX and FLEXERIL (discontinued since May 2013)
and the post-marketing surveillance information, there is no evidence of abuse for CBP. As a result, the FDA has advised that we will not
have to assess the abuse potential of TNX-102 SL for the TNX-102 SL 505(b)(2) NDA submission.
Manufacturing
The TNX-102 SL drug product manufactured for our Phase 2b BESTFIT study was manufactured in a small-scale current Good
Manufacturing Practice, or cGMP, facility that is licensed to manufacture clinical trial materials, but not equipped for large-scale
commercial production. For Phase 3 trials and for the commercial product, we have engaged a commercial cGMP facility that is capable of
manufacturing the registration batches to support the NDA. The product’s comparability is supported by the bioequivalence results of the
single-dose pharmacokinetic study (F105).
Other NDA Requirements
We have an Agreed Initial Pediatric Study Plan, or iPSP, with the FDA. The iPSP contains (i) an agreement whereby we will
submit a protocol to conduct a single dose, open-label pharmacokinetic study in adolescent patients (13-17 years of age) with fibromyalgia
before our NDA filing and (ii) a partial waiver of the requirement to submit pediatric assessments of TNX-102 SL per Section 505B(a)(4)
(A)(i) of the FDCA. A Final Pediatric Study Plan requirement will be determined at the time of the NDA approval.
Based our discussions with the FDA and the FDA official meeting minutes, we will not have to conduct special populations
(geriatric and renal/hepatic impaired), drug-drug interaction or cardiovascular safety studies to support the NDA filing. Due to the well-
established safety profile of CBP at much higher doses than we proposed for FM, the FDA has not requested a risk management plan or
medication guide for this product.
Regulatory Strategy
We expect to register TNX-102 SL with the FDA through the provisions of Section 505(b)(2). This regulatory pathway may help
to accelerate product development and reduce overall business risk. The 505(b)(2)-based product development plan for TNX-102 SL is
designed to leverage the safety data that have been generated by other manufacturers for CBP-containing products and accepted by the
FDA in support of their product registrations, in addition to the safety data we generate. TNX-102 SL contains significantly less CBP than
other marketed products that contain CBP. We believe that the nonclinical safety data package from these products, together with their
marketing experience, will provide an adequate safety margin to support TNX-102 SL development and marketing application for FM.
If NDA approval of TNX-102 SL is granted, in addition to the three-year marketing exclusivity provided by law, we expect this
product to be protected by patents that extend through at least 2021, during which time it should not be subject to generic substitution. We
plan to continue to support the TNX-102 SL program with new patent applications as we obtain data from the clinical evaluation of our
new formulation in healthy human subjects and in FM patients. For example, we have recently filed patent applications on TNX-102 SL
which, if issued, would be expected to provide protection from generic substitution until at least 2033.
8
TNX-102 SL – Post-traumatic Stress Disorder Program
We are developing TNX-102 SL for the management of PTSD under a separate IND, cleared by the FDA in June 2014, and we are
currently conducting our AtEase trial, a Phase 2 clinical trial of TNX-102 SL in military-related PTSD. Patients who successfully complete
the AtEase study are eligible to enroll into a three-month open-label extension study (P202).
Parallels between Fibromyalgia and Post-traumatic Stress Disorder
The clinical presentations of FM and PTSD share a number of similarities and clinical overlap. For example, in a survey of males
with PTSD or major depression, 49% of PTSD patients met the American College of Rheumatology criteria for FM compared to 5% of
major depression patients (Amital et al, J Psychosom Res 2006;61:663-669). Conversely, in a different survey of FM patients, 57% of the
patients had symptoms associated with PTSD (Cohen et al, Semin Arthritis Rheum 2002;32:38-50).
As with FM, a core feature of PTSD is sleep disturbance. Sleep disturbances are believed to exacerbate daytime symptoms of
PTSD, including irritability, poor concentration, and diminished interest in significant activities. The sleep disturbances of PTSD, which
include nightmares and night terrors, may be more pronounced than those typically experienced by FM patients.
Development Rationale
Our rationale for developing TNX-102 SL for treatment of PTSD is supported by the following:
•
•
Results from our BESTFIT study, which showed that treatment with TNX-102 SL resulted in: 1) an observed statistically
significant improvement of FM, a separate but related central nervous system disorder having significant overlap with PTSD
(Chrousos, 2009); 2) an observed statistically significant improvement in sleep quality in FM, which is similarly impaired in
PTSD and central to the neuropathology (Germain, 2013); and 3) statistically significant improvements in anxiety and sensory
sensitivity, symptoms that are of particular relevance to PTSD.
In research from peer-reviewed scientific publications, we have identified a number of compounds that are antagonists of the
serotonin 2A and/or alpha-1 adrenergic receptors that have been shown to have beneficial effects in treating PTSD. Therefore,
it is our belief that TNX-102 SL, a serotonin 2A and alpha-1 adrenergic receptor antagonist, will have a therapeutic effect in
treating PTSD.
Clinical Development Plan
Phase 2 “AtEase” Study
In the first quarter of 2015, we commenced the AtEase trial, a randomized, double-blind, placebo-controlled, 12-week Phase 2
trial of TNX-102 SL in approximately 240 patients with military-related PTSD. In the AtEase study, patients are randomized in a 2:1:2
ratio to TNX-102 SL 2.8 mg, TNX-102 SL 5.6 mg, or placebo, respectively, sublingually once daily at bedtime. This trial is being
conducted at approximately 25 U.S. centers. In December 2015, we announced that enrollment in AtEase has completed.
The primary objective of the AtEase trial is to evaluate the efficacy of TNX-102 SL 2.8 mg as compared to placebo sublingual
tablet following 12 weeks of treatment using the Clinician-Administered PTSD Scale for DSM-5 (CAPS-5). If the AtEase study achieves
success in its primary outcome measure, it could serve as one of the two pivotal studies required to establish sufficient evidence of efficacy
and safety to support the approval of TNX-102 SL for PTSD. We expect to report top line results from the AtEase study in the second
quarter of 2016.
Manufacturing
The TNX-102 SL drug product manufactured for our Phase 2 AtEase trial was manufactured in a small-scale cGMP facility that is
licensed to manufacture clinical trial materials, but not equipped for large-scale commercial production. For Phase 3 trials and for the
commercial product, we have engaged a commercial cGMP facility that is capable of manufacturing the registration batches to support the
NDA. The product’s comparability is supported by the bioequivalence results of single-dose pharmacokinetic study (F105). An End-of-
Phase 2 Chemistry, Manufacturing and Controls Meeting has been held in February 2016 to discuss the quality data requirement for the
NDA filing. As of the date of this filing, we have not received the FDA official minutes from the meeting.
9
Regulatory Strategy
We expect to register TNX-102 SL in PTSD with the FDA through the provisions of Section 505(b)(2). The FDA approvals of
paroxetine and sertraline for treating PTSD established a regulatory approval pathway for symptom reduction in PTSD. Based on our
communications with the FDA to date, we believe that positive results from two adequate, well-controlled efficacy and safety studies and
long-term (six- and 12-month) safety exposure studies (F203 and P202) would support FDA approval of TNX-102 SL for the management
of PTSD.
We plan to meet with the FDA after we complete the AtEase study to further discuss our development plan for TNX-102 SL for
PTSD, including the proposed design of the registration program that would be required to support approval of an NDA for this indication.
If we achieve our primary outcome measure in the AtEase study, it could qualify as one of the two studies required to support the NDA.
We expect that we can use the long-term safety exposure data generated by our clinical development of TNX-102 SL in FM (F203) to
supplement the long-term safety exposure data required for the PTSD NDA.
If the results from the AtEase study are positive, we plan to seek Fast Track Development and/or Breakthrough Therapy
designation for TNX-102 SL in PTSD. The Breakthrough Therapy designation process is a relatively new and uncertain process for drugs
intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition, the preliminary
clinical evidence of which indicates that the drug may demonstrate substantial improvement over existing therapies, in which the majority
of requests for designation have been denied.
TNX-201 – Episodic Tension-type Headache Program
We were developing TNX-201 for the treatment of episodic tension-type headache under an IND cleared by the FDA in October
2014. ETTH is the most common type of headache, estimated to account for over 60% of headaches. In the second quarter of 2015, we
initiated a single-dose Phase 2 proof-of-concept clinical trial to evaluate the ability of TNX-201 140 mg to improve headache pain as well
as its tolerability in patients with ETTH. This trial was conducted at approximately 10 U.S. centers and randomized approximately 150
patients to receive TNX-201 140 mg or placebo capsules. This trial assessed efficacy following a dose of study medication according to a
variety of measures at several time points, including the difference between the two study arms in the number of subjects who report
complete relief from their headache pain at two hours. This study was designed to test the activity and tolerability of TNX-201 to support
possible future efficacy and safety studies. We reported top line results from this study on February 16, 2016. Since TNX-201 failed to
show any efficacy, we abandoned development of TNX-201.
Additional Product Candidates
We also have a pipeline of other product candidates, including TNX-301. TNX-301 is a fixed dose combination drug product, or
CDP, containing two FDA-approved drugs, disulfiram and selegiline. We intend to develop TNX-301 CDP under Section 505(b)(2) of the
FDCA as a potential treatment for AUD, and we have commenced development work on TNX-301 formulations. We held a Pre-IND
Meeting with the FDA in February 2016 to discuss the clinical development of TNX-301 for AUD. As of the date of this filing, we have
not received the FDA official minutes from the meeting.
In addition, we own rights to intellectual property on two biodefense technologies: one relating to the development of novel
smallpox vaccines; and the other to the development of protective agents against radiation exposure. We have begun non-clinical research
and development on these programs. The FDA Animal Efficacy Rule provides a mechanism for product licensure when human efficacy
studies are not feasible or ethical. As a result, the licensure of these biodefense products in the U.S. may not require human efficacy studies,
which we believe will reduce our development costs and risks compared to the development of other NCEs or new biologic candidates.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include
large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions,
government agencies and research institutions. We believe that key competitive factors that will affect the development and commercial
success of our product candidates are efficacy, safety, tolerability, reliability, price and reimbursement level. Many of our potential
competitors, including many of the organizations named below, have substantially greater financial, technical and human resources than we
do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory
approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be
in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more
effectively marketed and sold, than any drug we may commercialize and may render our product candidates obsolete or non-competitive
before we can recover the expenses of developing and commercializing any of our product candidates. We anticipate that we will face
intense and increasing competition as new drugs enter the market and advanced technologies become available. Further, the development of
new treatment methods for the conditions we are targeting could render our drugs non-competitive or obsolete.
The markets for medicines to treat FM, PTSD and other CNS conditions are well developed and populated with established drugs
marketed by large and small pharmaceutical, biotechnology and generic drug companies. Eli Lilly (Cymbalta), Forest Laboratories
(Savella), and Pfizer (Lyrica) market FDA approved drugs for FM. Cymbalta lost its U.S. patent exclusivity in December 2013.
GlaxoSmithKline (Paxil) and Pfizer (Zoloft) market FDA approved drugs for PTSD. Paxil and Zoloft lost their U.S. patent exclusivities in
2003 and 2006, respectively.
10
A number of companies are developing prescription medications for FM, including Allergan, Daiichi Sankyo, Meda, Merck,
the
Pfizer, RiboCor and Theravance. Clinical
website www.clinicaltrials.gov. Medications that are used off-label for the treatment of FM include gabapentin; anti-depressants, such as
amitriptyline, venlafaxine, and trazodone; muscle relaxants, such as cyclobenzaprine; tramadol; opioids; and benzodiazepine, as well as
non-benzodiazepine sedative hypnotics.
registered with
the FDA and
the U.S. are
reported on
trials
in
A number of companies are developing prescription medications for PTSD, including Actavis, Bionomics, Johnson and Johnson,
Lundbeck, Marinus Pharmaceuticals, Merck, Otsuka, and Pfizer. Medications that are used off-label for the treatment of PTSD include anti-
depressants, such as nefazodone and trazodone; the antihistamine cyproheptadine; and certain atypical antipsychotics, such as olanzapine
and risperidone.
Intellectual Property
We believe that we have an extensive patent portfolio and substantial know-how relating to TNX-102 SL and our other product
candidates. Our patent portfolio, described more fully below, includes claims directed to TNX-102 SL compositions and methods of use.
As of March 1, 2016, we are either the owner of record of or own the contractual right to five issued U.S. patents and 26 issued non-U.S.
patents. We are actively pursuing an additional 17 U.S. patent applications, of which six are provisional and 11 are non-provisional, five
international patent applications, and 70 non-U.S./non-international patent applications.
We strive to protect the proprietary technology that we believe is important to our business, including our proprietary technology
platform, our product candidates, and our processes. We seek patent protection in the United States and internationally for our products,
their methods of use and processes of manufacture, and any other technology to which we have rights, where available and when
appropriate. We also rely on trade secrets that may be important to the development of our business.
Our success will depend on 1) the ability to obtain and maintain patent and other proprietary rights in commercially important
technology, inventions and know-how related to our business, 2) the validity and enforceability of our patents, 3) the continued
confidentiality of our trade secrets, and 4) our ability to operate without infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary
position.
We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any
patent applications we may own or license in the future, nor can we be certain that any of our existing patents or any patents we may own
or license in the future will be useful in protecting our technology. For this and more comprehensive risks related to our intellectual
property, please see “Risk Factors — Risks Relating to Our Intellectual Property.”
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most
countries in which we file, the patent term is 20 years from the date of filing the first non-provisional priority application. In the United
States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S.
Patent and Trademark Office, or PTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent.
The term of a U.S. patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent
term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Amendments
permit a patent term extension of up to five years beyond the statutory 20-year term of the patent for the approved product if the active
ingredient has not been previously approved in the U.S. The length of the patent term extension is related to the length of time the drug is
under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of
product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and some
other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical
trials and other factors involved in the filing of a new drug application, or NDA, we expect to apply for patent term extensions for patents
covering our product candidates and their methods of use.
The patent portfolios for our proprietary technology platform and our three most advanced product candidates as of March 1, 2016
are summarized below.
11
TNX-102 SL
Our patent portfolio for TNX-102 SL includes patent applications directed to compositions of matter of CBP, formulations
containing CBP, and methods for treating FM and other CNS conditions utilizing these compositions and formulations. The portfolio
includes issued U.S. patents, such as U.S. Patent Nos. 6,541,523, 6,395,788 and 6,358,944, and corresponding issued foreign counterpart
patents or applications. U.S. Patent Nos. 6,541,523, 6,395,788 and 6,358,944 are expected to expire in 2020, unless they are eligible for
patent term extensions on the basis of FDA approvals.
The unique pharmacokinetic profile of TNX-102 SL was discovered by Tonix and its development partners and is termed the “PK
Technology.” The patent portfolio for TNX-102 SL relating to the PK Technology includes patent applications directed to compositions of
matter of CBP, formulations containing CBP, and methods for treating FM and other CNS conditions utilizing these compositions and
formulations. The PK Technology patent portfolio includes U.S. Patent Application No. 13/918,692. If U.S. and non-U.S. patents claiming
priority from those applications issue, those patents would expire in 2033, excluding any patent term adjustments or extensions.
Certain eutectic compositions were discovered by development partners and are termed the “Eutectic Technology.” The patent
portfolio for TNX-102 SL relating to the Eutectic Technology includes patent applications directed to eutectic compositions containing
CBP, eutectic CBP formulations, methods for treating FM and other CNS conditions utilizing eutectic CBP compositions and formulations,
and methods of manufacturing eutectic CBP compositions. The Eutectic Technology patent portfolio includes U.S. patent applications, such
as U.S. Patent Application No. 14/214,433. If U.S. and non-U.S. patents claiming priority from those applications issue, those patents
would expire in 2034 or 2035, excluding any patent term adjustments or extensions.
TNX-201 — Isometheptene Isomers
Our patent portfolio for TNX-201, relating to isometheptene isomers and termed the “Isometheptene Technology”, includes patent
applications directed to purified isomers of isometheptene, pharmaceutical compositions containing that isometheptene isomer,
isometheptene isomer formulations, methods for modulating headache and other CNS conditions and treating CNS conditions utilizing
isometheptene isomers, and methods of manufacturing isometheptene isomers. The Isometheptene Technology patent portfolio includes
U.S. Patent Application No. 14/158,735 as well as U.S. Patent Application No 14/657,885. If U.S. and non-U.S. patents claiming priority
from those applications issue, those patents would expire in 2034 and 2035, respectively, excluding any patent term adjustments or
extensions.
TNX-301 — Alcohol Use Disorders
Our patent portfolio for disulfiram and selegiline combinations includes patents and patent applications. It includes claims directed
to disulfiram and selegiline, pharmaceutical compositions containing disulfiram and selegiline, disulfiram and selegiline formulations,
methods of treating AUD, and methods of modulating alcohol abuse and dependence. It includes issued U.S. Patent Nos. 8,093,300 and
8,481,599. The patent expiring last is expected to expire in 2024, excluding any patent term extensions.
Biodefense Technology
We own the rights to develop a potential biodefense technology, which is a new vaccine candidate against smallpox. With respect
to the smallpox vaccine candidate, we own U.S. non-provisional Patent Application No. 14,207,727 and related intellectual property rights.
The smallpox vaccine technology relates to proprietary forms of live vaccinia vaccines which may be safer than ACAM2000, the only
currently available replication competent, live vaccinia vaccine to protect against smallpox disease. We believe that this technology, after
further development, may be of interest to biodefense agencies in the U.S. and other countries.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. For example,
significant aspects of our proprietary technology platform are based on unpatented trade secrets and know-how. Trade secrets and know-
how can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and
invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners. These
agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us
ownership of technologies that are developed through a relationship with a third party. We also seek to preserve the integrity and
confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our
information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security
measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become
known or be independently discovered by competitors. To the extent that our contractors use intellectual property owned by others in their
work for us, disputes may arise as to rights in related or resulting inventions and know-how.
12
Issued Patents
Our current patents owned are as follows:
Very-Low Dose Cyclobenzaprine
Patent No.
6,541,523
Title
Methods for Treating or Preventing Fibromyalgia Using Very Low
U.S.A
Country / Region
Doses of Cyclobenzaprine
6,395,788
Methods and Compositions for Treating or Preventing Sleep
U.S.A.
Disturbances and Associated Illnesses Using Very Low Doses of
Cyclobenzaprine
6,358,944
Method and Compositions for Treating Generalized Anxiety
U.S.A.
Disorder
299369
Uses Compositions for Treating or Preventing Sleep Disturbances
Austria
Using Very Low Doses of Cyclobenzaprine
Expiration
Date
Aug. 11, 2020
Aug. 11, 2020
Aug. 23, 2020
Aug. 11, 2020
1202722
Uses Compositions for Treating or Preventing Sleep Disturbances
Belgium, France, Ireland,
Aug. 11, 2020
Using Very Low Doses of Cyclobenzaprine
Luxembourg, Monaco, Portugal,
Switzerland, U.K.
60021266.1 Uses Compositions for Treating or Preventing Sleep Disturbances
Germany
Using Very Low Doses of Cyclobenzaprine
2245944
Uses Compositions for Treating or Preventing Sleep Disturbances
Spain
Using Very Low Doses of Cyclobenzaprine
1047691
Uses Compositions for Treating or Preventing Sleep Disturbances
Hong Kong
Using Very Low Doses of Cyclobenzaprine
Aug. 11, 2020
Aug. 11, 2020
Aug. 11, 2020
516749
Uses Compositions for Treating or Preventing Sleep Disturbances
New Zealand
Aug. 11, 2020
Using Very Low Doses of Cyclobenzaprine
AUD Treatment
Patent No.
Title
Country / Region
8,093,300
Compositions and Methods for Increasing Compliance with
U.S.A.
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
Expiration
Date
May 23, 2024
8,481,599
Compositions and Methods for Increasing Compliance with
U.S.A.
Nov. 4, 2022
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
2002354017 Compositions and Methods for Increasing Compliance with
Australia
Nov. 4, 2022
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
2463987
Compositions and Methods for Increasing Compliance with
Canada
Nov. 4, 2022
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
1441708
Compositions and Methods for Increasing Compliance with
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
Austria, Belgium, Denmark, France,
Germany, Luxembourg, Monaco,
Portugal, Switzerland, U.K.
Nov. 4, 2022
532583
Compositions and Methods for Increasing Compliance with
New Zealand
Nov. 4, 2022
Therapies Using Aldehyde Dehydrogenase Inhibitors and Treating
Alcoholism
13
Pending Patent Applications
Our current pending patent applications are as follows:
Sublingual Cyclobenzaprine/Amitriptyline
Title
Application No.
Compositions and Methods for Transmucosal Absorption
13/918,692
Compositions and Methods for Transmucosal Absorption
P20130102101
2013274003
Compositions and Methods for Transmucosal Absorption
BR112014031394-6 Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Not yet assigned
Compositions and Methods for Transmucosal Absorption
Not yet assigned
Compositions and Methods for Transmucosal Absorption
13804115.7
Compositions and Methods for Transmucosal Absorption
2013/24661
Compositions and Methods for Transmucosal Absorption
15110186.6
Compositions and Methods for Transmucosal Absorption
P-00 2015 00202
Compositions and Methods for Transmucosal Absorption
236268
Compositions and Methods for Transmucosal Absorption
139/KOLNP/2015
Not yet assigned
Compositions and Methods for Transmucosal Absorption
MX/a/2014/015436 Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
PI 2014703784
Compositions and Methods for Transmucosal Absorption
631144
Compositions and Methods for Transmucosal Absorption
11201408318R
Compositions and Methods for Transmucosal Absorption
102121267
Compositions and Methods for Transmucosal Absorption
2013-000737
Compositions and Methods for Transmucosal Absorption
2015/00288
Country / Region
U.S.A.
Argentina
Australia
Brazil
Canada
China
European Patent Office
Gulf Cooperation Council
Hong Kong
Indonesia
Israel
India
Japan
Mexico
Malaysia
New Zealand
Singapore
Taiwan
Venezuela
South Africa
PTSD Treatment
Application No.
Title
Country / Region
12/948,828
Methods and Compositions for Treating Symptoms Associated with Post-Traumatic
U.S.A.
Stress Disorder Using Cyclobenzaprine
10831895.7
Methods and Compositions for Treating Symptoms Associated with Post-Traumatic
European Patent Office
13103530.6
Methods and Compositions for Treating Symptoms Associated with Post-Traumatic
Hong Kong
Stress Disorder Using Cyclobenzaprine
Stress Disorder Using Cyclobenzaprine
Sleep Disorder Treatment
Application No.
14/477,981
Methods and Compositions for Treating Fatigue Associated with Disordered Sleep
Using Very Low Dose Cyclobenzaprine
Title
Country / Region
U.S.A.
Depression Treatment
Application No.
13/412,571
2012225548
2,829,200
12755254.5
2013-557811
2016-7041
614725
714294
Title
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Country / Region
U.S.A.
Australia
Canada
European Patent Office
Japan
Japan
New Zealand
New Zealand
14
Cyclobenzaprine/Amitriptyline Eutectics
Application No.
14/214,433
Title
Country / Region
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Hydrochloride
14/776,624
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Hydrochloride
U.S.A.
U.S.A.
2014233277
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Australia
BR112015022095-9 Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Brazil
Hydrochloride
Hydrochloride
2,904,812
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Canada
201480024011.1
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
China
Hydrochloride
14762323.5
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Europe
Hydrochloride
Hydrochloride
P-00 2015 06570
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Indonesia
241353
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Hydrochloride
Hydrochloride
3392/KOLNP/2015 Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Hydrochloride
2016-503239
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Hydrochloride
Israel
India
Japan
MX/a/2015/012622 Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Mexico
PI 2015703142
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Malaysia
Hydrochloride
Hydrochloride
631152
515361124
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
New Zealand
Saudi Arabia
11201507124X
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Singapore
Hydrochloride
Hydrochloride
2015/07443
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
South Africa
103109816
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Taiwan
Hydrochloride
Hydrochloride
2014-000391
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline
Venezuela
PCT/US2015/051068 Eutectic Formulations of Cyclobenzaprine Hydrochloride
PCT
Hydrochloride
Isometheptene Isomer
Title
Application No.
14/158,735
2014207347
BR 11 2015 017176
2,898,450
02010-2015
TBA
14740447.9
6716/DELNP/2015
P00201504975
239971
2015-553872
10-2015-7022165
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
Isometheptene Isomer
(R)-IMH Synthesis
PI 2015702325
MX/a/2015/009268
710347
11201505558Y
2015/05795
1514082.5
62/196,455
PCT/US2015/034292 Novel (R)-Isometheptene Compositions and Uses
62/146,067
62/251,011
62/298,026
Compounds for Use as Pain Therapeutics
Compounds, Compositions, and their Uses as Pain Therapeutics
Compounds, Compositions, and their Uses as Pain Therapeutics
Country / Region
U.S.A.
Australia
Brazil
Canada
Chile
China
European Patent Office
India
Indonesia
Israel
Japan
Republic of Korea
Malaysia
Mexico
New Zealand
Singapore
South Africa
United Kingdom
U.S.A.
PCT
U.S.A.
U.S.A.
U.S.A.
PCT/IB2015/00934 Eutectic Isometheptene Mucate
Eutectic Isometheptene Mucate
14/657,885
62/181,012
62/181,030
PCT/US2015/000154 Compounds for Use as Pain Therapeutics
Imidazoline Receptor Type 1 Ligands for Use as Analgesics
Imidazoline Receptor Type 1 Ligands for Use as Analgesics
PCT/US2015/000153
Imidazoline Receptor Type 1 Ligands for Use as Therapeutics
PCT
U.S.A.
U.S.A.
U.S.A.
PCT
PCT
15
Cocaine Addiction Treatment
Application No.
13/820,338
2809966
2011314358
11832859.0
2013-527062
10-2013-7008187
13114135.2
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Treatment for Cocaine Addiction
Neurocognitive Dysfunction Treatment
Title
Title
Application No.
12/151,200
09743321.2
2723688
Method for Treating Neurocognitive Dysfunction
Method for Treating Neurodegenerative Dysfunction
Method for Treating Neurodegenerative Dysfunction
Novel Smallpox Vaccines
Application No.
14207727
Novel Smallpox Vaccines
Title
Trademarks and Service Marks
Country / Region
U.S.A.
Canada
Australia
European Patent Office
Japan
Republic of Korea
Hong Kong
Country / Region
U.S.A.
European Patent Office
Canada
Country / Region
U.S.A.
We seek trademark and service mark protection in the United States and outside of the United States where available and when
appropriate. We are the owner of the following U.S. federally registered marks: TONIX PHARMACEUTICALS (Reg. No. 4656463,
issued 12/16/2015) and TONMYA (Reg. No. 4868328, issued 12/08/2015).
We are the owner of the following marks for which applications for U.S. federal registration are currently pending: FYMRALIN
(Serial No. 86/516046, filed 01/27/2015), MODALTIN (Serial No. 86/631228, filed 05/15/2015), RAPONTIS (Serial No. 86/631236, filed
05/15/2015), IMADAZIO (Serial No. 86/631242, filed 05/15/2015), PROTECTIC (Serial No. 86/636119, filed 05/20/2015) and TONIX
PHARMACEUTICALS (Serial No. 86/400401, filed 09/19/2014).
Research and Development
We have approximately 15 employees dedicated to research and development. We anticipate that our research and development
expenditures will increase several fold as we continue our late-stage clinical development of TNX-102 SL and advance other candidates in
our pipeline. We need to raise additional capital to fund our development plans and there is no certainty that we will be successful in
continuing to attract new investments. Our research and development operations are located in New York, NY, San Diego, CA, San Jose,
CA, Dublin, Ireland and Montreal, Canada. We have used, and expect to continue to use, third parties to conduct our nonclinical and
clinical studies.
Manufacturing
We have contracted with third-party cGMP-compliant contract manufacturing organizations, or CMOs, for the manufacture of
TNX-102 SL drug substances and drug products for investigational purposes, including nonclinical and clinical testing. For TNX-102 SL,
we have engaged a cGMP facility for manufacturing of to-be-marketed product for Phase 3 clinical and commercial. Our manufacturing
operations are managed and controlled in Dublin, Ireland.
All of our compounds are small molecules, synthesized using industry standard processes, and our drug products are formulated
using commercially available pharmaceutical grade excipients.
Government Regulation
The FDA and other federal, state, local and foreign regulatory agencies impose substantial requirements upon the clinical
development, approval, labeling, manufacture, marketing and distribution of drug products. These agencies regulate, among other things,
research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, record
keeping, advertising and promotion of our product candidates. The regulatory approval process is generally lengthy and expensive, with no
guarantee of a positive result. Moreover, failure to comply with applicable FDA or other requirements may result in civil or criminal
penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from
the market.
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The FDA regulates, among other things, the research, manufacture, promotion and distribution of dr ugs in the United States under
the FDCA and other statutes and implementing regulations. The process required by the FDA before prescription drug product candidates
may be marketed in the United States generally involves the following:
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completion of extensive nonclinical laboratory tests, animal studies and formulation studies, all performed in accordance with
the FDA’s Good Laboratory Practice regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials in accordance with the FDA’s regulations, including Good
Clinical Practices, to establish the safety and efficacy of the product candidate for each proposed indication;
submission to the FDA of an NDA for drug products, or a Biologics Drug Application, or BLA, for biologic products;
satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to
assess compliance with cGMP regulations; and
FDA review and approval of the NDA or BLA prior to any commercial marketing, sale or shipment of the drug.
The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any
approvals for our product candidates will be granted on a timely basis, if at all.
Nonclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate
toxicity in animals and other animal studies. The results of nonclinical tests, together with manufacturing information and analytical data,
are submitted as part of an IND to the FDA. Some nonclinical testing may continue even after an IND is submitted. The IND also includes
one or more protocols for the initial clinical trial or trials and an investigator’s brochure. An IND automatically becomes effective 30 days
after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to the proposed clinical trials
as outlined in the IND and places the clinical trial on a clinical hold. In such cases, the IND sponsor and the FDA must resolve any
outstanding concerns or questions before any clinical trials can begin. Clinical trial holds also may be imposed at any time before or during
studies due to safety concerns or non-compliance with regulatory requirements. An independent institutional review board, or IRB, at each
of the clinical centers proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at
that center. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are
reasonable in relation to anticipated benefits. The IRB also approves the consent form signed by the trial participants and must monitor the
study until completed.
Clinical Trials
Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified medical
investigators according to approved protocols that detail the objectives of the study, dosing procedures, subject selection and exclusion
criteria, and the parameters to be used to monitor participant safety. Each protocol for a U.S. study is submitted to the FDA as part of the
IND.
Human clinical trials are typically conducted in three sequential phases, but the phases may overlap, or be combined.
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Phase 1 clinical trials typically involve the initial introduction of the product candidate into healthy human volunteers. In Phase
1 clinical trials, the product candidate is typically tested for safety, dosage tolerance, absorption, metabolism, distribution,
excretion and pharmacodynamics.
Phase 2 clinical trials are generally conducted in a limited patient population to gather evidence about the efficacy of the
product candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible
adverse effects and safety risks. Phase 2 clinical trials, in particular Phase 2b trials, can be undertaken to evaluate clinical
efficacy and to test for safety in an expanded patient population at geographically dispersed clinical trial sites.
Phase 3 clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at
geographically dispersed clinical trial sites. The size of Phase 3 clinical trials depends upon clinical and statistical considerations
for the product candidate and disease, but sometimes can include several thousand patients. Phase 3 clinical trials are intended
to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling.
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial approval. These clinical
trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term
safety follow-up.
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Clinical testing must satisfy extensive FDA regulations. Reports detailing the results of the clinical trials must be submitted at least
annually to the FDA and safety reports must be submitted for serious and unexpected adverse events. Success in early-stage clinical trials
does not assure success in later-stage clinical trials. The FDA, an IRB or we may suspend a clinical trial at any time on various grounds,
including a finding that the research subjects or patients are being exposed to an unacceptable health risk.
New Drug Applications
Assuming successful completion of the required clinical trials, the results of product development, nonclinical studies and clinical
trials are submitted to the FDA as part of an NDA. An NDA also must contain extensive manufacturing information, as well as proposed
labeling for the finished product. An NDA applicant must develop information about the chemistry and physical characteristics of the drug
and finalize a process for manufacturing the product in accordance with cGMP. The manufacturing process must be capable of consistently
producing quality product within specifications approved by the FDA. The manufacturer must develop methods for testing the quality,
purity and potency of the final product. In addition, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf life. Prior to approval, the FDA will
conduct an inspection of the manufacturing facilities to assess compliance with cGMP.
The FDA reviews all NDAs submitted before it accepts them for filing. The FDA may request additional information rather than
accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information and is subject to review before the
FDA accepts it for filing. After an application is filed, the FDA may refer the NDA to an advisory committee for review, evaluation and
recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers them carefully when making decisions. The FDA may deny approval of an
NDA if the applicable regulatory criteria are not satisfied. Data obtained from clinical trials are not always conclusive and the FDA may
interpret data differently than we interpret the same data. The FDA may issue a complete response letter, which may require additional
clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA. If a product receives
regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be
limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing which
involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require surveillance
programs to monitor the safety of approved products which have been commercialized. Once issued, the FDA may withdraw product
approval if ongoing regulatory requirements are not met or if safety or efficacy questions are raised after the product reaches the market.
Section 505(b) NDAs
There are two types of NDAs: the Section 505(b)(1) NDA, or full NDA, and the Section 505(b)(2) NDA. We intend to file Section
505(b)(2) NDAs for TNX-102 SL for FM and PTSD, and for certain other products, that might, if accepted by the FDA, save time and
expense in the development and testing of our product candidates. We may need to file a Section 505(b)(1) NDA for certain other products
in the future. A full NDA is submitted under Section 505(b)(1) of the FDCA, and must contain full reports of investigations conducted by
the applicant to demonstrate the safety and effectiveness of the drug. A Section 505(b)(2) NDA may be submitted for a drug for which one
or more of the investigations relied upon by the applicant was not conducted by or for the applicant and for which the applicant has no right
of reference from the person by or for whom the investigations were conducted. A Section 505(b)(2) NDA may be submitted based in
whole or in part on published literature or on the FDA’s finding of safety and efficacy of one or more previously approved drugs, which
are known as reference drugs. Thus, the filing of a Section 505(b)(2) NDA may result in approval of a drug based on fewer clinical or
nonclinical studies than would be required under a full NDA. The number and size of studies that need to be conducted by the sponsor
depends on the amount and quality of data pertaining to the reference drug that are publicly available, and on the similarity of and
differences between the applicant’s drug and the reference drug. In some cases, extensive, time-consuming, and costly clinical and
nonclinical studies may still be required for approval of a Section 505(b)(2) NDA.
Our drug approval strategy for our new formulations of approved chemical entities is to submit Section 505(b)(2) NDAs to the
FDA. As such, we plan to submit NDAs under Section 505(b)(2) for TNX-102 SL for FM and PTSD. The FDA may not agree that this
product candidate is approvable for FM or PTSD as Section 505(b)(2) NDAs. If the FDA determines that Section 505(b)(2) NDAs are not
appropriate and that full NDAs are required for TNX-102 SL, the time and financial resources required to obtain FDA approval for TNX-
102 SL could substantially and materially increase, and TNX-102 SL might be less likely to be approved. If the FDA requires full NDAs
for TNX-102 SL, or requires more extensive testing and development for some other reason, our ability to compete with alternative
products that arrive on the market more quickly than our product candidates would be adversely impacted. If CBP-containing products are
withdrawn from the market by the FDA for any reason, we may not be able to reference such products to support our anticipated TNX-102
SL 505(b)(2) NDA, and we may be required to follow the requirements of Section 505(b)(1).
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Patent Protections
An applicant submitting a Section 505(b)(2) NDA must certify to the FDA with respect to the patent status of the reference drug
upon which the applicant relies in support of approval of its drug. With respect to every patent listed in the FDA’s Orange Book, which is
the FDA’s list of approved drug products, as claiming the reference drug or an approved method of use of the reference drug, the Section
505(b)(2) applicant must certify that: (1) there is no patent information listed in the orange book for the reference drug; (2) the listed patent
has expired; (3) the listed patent has not expired, but will expire on a particular date; (4) the listed patent is invalid or will not be infringed
by the manufacture, use, or sale of the product in the Section 505(b)(2) NDA; or (5) if the patent is a use patent, that the applicant does not
seek approval for a use claimed by the patent. If the applicant files a certification to the effect of clause (1), (2) or (5), FDA approval of the
Section 505(b)(2) NDA may be made effective immediately upon successful FDA review of the application, in the absence of marketing
exclusivity delays, which are discussed below. If the applicant files a certification to the effect of clause (3), the Section 505(b)(2) NDA
approval may not be made effective until the expiration of the relevant patent and the expiration of any marketing exclusivity delays.
If the Section 505(b)(2) NDA applicant provides a certification to the effect of clause (4), referred to as a paragraph IV
certification, the applicant also must send notice of the certification to the patent owner and the holder of the NDA for the reference drug.
The filing of a patent infringement lawsuit within 45 days of the receipt of the notification may prevent the FDA from approving the
Section 505(b)(2) NDA for 30 months from the date of the receipt of the notification unless the court determines that a longer or shorter
period is appropriate because either party to the action failed to reasonably cooperate in expediting the action. However, the FDA may
approve the Section 505(b)(2) NDA before the 30 months have expired if a court decides that the patent is invalid or not infringed, or if a
court enters a settlement order or consent decree stating the patent is invalid or not infringed.
Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years certain brand-
name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of
Section 505(b)(2) is successfully challenged in court, the FDA may be required to change its interpretation of Section 505(b)(2) which
could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit. The pharmaceutical industry is highly
competitive, and it is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay
approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly
delay, or even prevent, the approval of the new product. Moreover, even if the FDA ultimately denies such a petition, the FDA may
substantially delay approval while it considers and responds to the petition.
Marketing Exclusivity
Market exclusivity provisions under the FDCA can delay the submission or the approval of Section 505(b)(2) NDAs, thereby
delaying a Section 505(b)(2) product from entering the market. The FDCA provides five-year marketing exclusivity to the first applicant to
gain approval of an NDA for an NCE, meaning that the FDA has not previously approved any other drug containing the same active
moiety. This exclusivity prohibits the submission of a Section 505(b)(2) NDA for any drug product containing the active ingredient during
the five-year exclusivity period. However, submission of a Section 505(b)(2) NDA that certifies that a listed patent is invalid,
unenforceable, or will not be infringed, as discussed above, is permitted after four years, but if a patent infringement lawsuit is brought
within 45 days after such certification, FDA approval of the Section 505(b)(2) NDA may automatically be stayed until 7½ years after the
NCE approval date. The FDCA also provides three years of marketing exclusivity for the approval of new and supplemental NDAs for
product changes, including, among other things, new indications, dosage forms, routes of administration or strengths of an existing drug, or
for a new use, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are
deemed by FDA to be essential to the approval of the application. Five-year and three-year exclusivity will not delay the submission or
approval of another full NDA; however, as discussed above, an applicant submitting a full NDA under Section 505(b)(1) would be required
to conduct or obtain a right of reference to all of the nonclinical and adequate and well-controlled clinical trials necessary to demonstrate
safety and effectiveness.
Other types of exclusivity in the United States include orphan drug exclusivity and pediatric exclusivity. The FDA may grant
orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer
than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be
recovered from sales in the United States for that drug. Seven-year orphan drug exclusivity is available to a product that has orphan drug
designation and that receives the first FDA approval for the indication for which the drug has such designation. Orphan drug exclusivity
prevents approval of another application for the same drug for the same orphan indication, for a period of seven years, regardless of
whether the application is a full NDA or a Section 505(b)(2) NDA, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity. Pediatric exclusivity, if granted, provides an additional six months to an existing
exclusivity or statutory delay in approval resulting from a patent certification. This six-month exclusivity, which runs from the end of other
exclusivity protection or patent delay, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-
issued “Written Request” for such a study.
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Section 505(b)(2) NDAs are similar to full NDAs filed under Section 505(b)(1) in that they are entitled to any of these forms of
exclusivity if they meet the qualifying criteria. They also are entitled to the patent protections described above, based on patents that are
listed in the FDA’s Orange Book in the same manner as patents claiming drugs and uses approved for NDAs submitted as full NDAs.
Breakthrough Therapy Designation
On July 9, 2012, the Food and Drug Administration Safety and Innovation Act, or FDASIA, was signed. FDASIA Section 902
provides for a new drug designation –Breakthrough Therapy. A Breakthrough Therapy is a drug:
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intended alone or in combination with one or more other drugs to treat a serious or life threatening disease or condition; and
preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one
or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
If a drug is designated as Breakthrough Therapy, the FDA will expedite the development and review of such drug. In the event
that our AtEase study of TNX-102 SL in PTSD is successful, we will request Breakthrough Therapy designation for TNX-102 SL. The
Breakthrough Therapy designation process is relatively new, and the majority of requests for designation have been denied. We cannot
predict the likelihood of success in seeking Breakthrough Therapy designation.
Other Regulatory Requirements
Maintaining substantial compliance with appropriate federal, state and local statutes and regulations requires the expenditure of
substantial time and financial resources. Drug manufacturers are required to register their establishments with the FDA and certain state
agencies, and after approval, the FDA and these state agencies conduct periodic unannounced inspections to ensure continued compliance
with ongoing regulatory requirements, including cGMPs. In addition, after approval, some types of changes to the approved product, such
as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. The
FDA may require post-approval testing and surveillance programs to monitor safety and the effectiveness of approved products that have
been commercialized. Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation
by the FDA, including:
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record-keeping requirements;
reporting of adverse experiences with the drug;
providing the FDA with updated safety and efficacy information;
reporting on advertisements and promotional labeling;
drug sampling and distribution requirements; and
complying with electronic record and signature requirements.
In addition, the FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed
on the market. There are numerous regulations and policies that govern various means for disseminating information to health-care
professionals as well as consumers, including to industry sponsored scientific and educational activities, information provided to the media
and information provided over the Internet. Drugs may be promoted only for the approved indications and in accordance with the
provisions of the approved label.
The FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result in
administrative or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products, including
warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution and disgorgement of profits, recall or
seizure of products, total or partial suspension of production or distribution, withdrawal of approvals, refusal to approve pending
applications, and criminal prosecution resulting in fines and incarceration. The FDA and other agencies actively enforce the laws and
regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be
subject to significant liability. In addition, even after regulatory approval is obtained, later discovery of previously unknown problems with
a product may result in restrictions on the product or even complete withdrawal of the product from the market.
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Food and Drug Administration Amendments Act of 2007
In September 2007, the Food and Drug Administration Amendments Act of 2007, or FDAAA, became law. This legislation grants
significant new powers to the FDA, many of which are aimed at improving drug safety and assuring the safety of drug products after
approval. In particular, the new law authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate
changes to drug labeling to reflect new safety information, and require risk evaluation and mitigation strategies for certain drugs, including
certain currently approved drugs. In addition, the new law significantly expands the federal government’s clinical trial registry and results
databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate these
and other provisions of the new law are subject to substantial civil monetary penalties.
The FDA has not yet implemented many of the provisions of the FDAAA, so we cannot predict the impact of the new legislation
on the pharmaceutical industry or our business. However, the requirements and changes imposed by the FDAAA may make it more
difficult, and more costly, to obtain and maintain approval for new pharmaceutical products, or to produce, market and distribute existing
products. In addition, the FDA’s regulations, policies and guidance are often revised or reinterpreted by the agency or the courts in ways
that may significantly affect our business and our products. It is impossible to predict whether additional legislative changes will be
enacted, or FDA regulations, guidance or interpretations changed, or what the impact of such changes, if any, may be.
Employees
As of March 1, 2016, we had 28 full-time employees, of whom eight hold M.D. or Ph.D. degrees. We have 15 employees
dedicated to research and development. Our research and development operations are located in New York, NY, San Diego and San Jose,
CA, Dublin, Ireland and Montreal, Canada. We have used, and expect to continue to use, third parties to conduct our nonclinical and
clinical studies as well as part-time employees. None of our employees are represented by a collective bargaining agreement, and we
believe that our relations with our employees are good.
Corporate Information
Our principal executive offices are located at 509 Madison Avenue, Suite 306, New York, New York 10022, and our telephone
number is (212) 980-9155. Our website addresses are www.tonixpharma.com, www.tonix.com, and www.krele.com. We do not
incorporate the information on our websites into this annual report, and you should not consider such information part of this annual report.
We were incorporated on November 16, 2007 under the laws of the State of Nevada as Tamandare Explorations Inc. On October
11, 2011, we changed our name to Tonix Pharmaceuticals Holding Corp.
Item 1A. Risk Factors
RISKS RELATED TO OUR BUSINESS
We have a history of operating losses and expect to incur losses for the foreseeable future. We may never generate revenues or, if we
are able to generate revenues, achieve profitability.
We are focused on product development, and we have not generated any revenues to date. We have incurred losses in each year of
our operations, and we expect to continue to incur operating losses for the foreseeable future. These operating losses have adversely
affected and are likely to continue to adversely affect our working capital, total assets and shareholders’ equity.
The Company and its prospects should be examined in light of the risks and difficulties frequently encountered by new and early-
stage companies in new and rapidly evolving markets. These risks include, among other things, the speed at which we can scale up
operations, our complete dependence upon development of products that currently have no market acceptance, our ability to establish and
expand our brand name, our ability to expand our operations to meet the commercial demand of our clients, our development of and
reliance on strategic and customer relationships and our ability to minimize fraud and other security risks.
The process of developing our products requires significant clinical development and laboratory testing and clinical trials. In
addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales,
marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with others. We expect to incur
substantial losses for the foreseeable future as a result of anticipated increases in our research and development costs, including costs
associated with conducting preclinical and nonclinical testing and clinical trials, and regulatory compliance activities.
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Our ability to generate revenues and achieve profitability will depend on numerous factors, including success in:
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developing and testing product candidates;
receiving regulatory approvals;
commercializing our products; and
establishing a favorable competitive position.
Many of these factors will depend on circumstances beyond our control. We cannot assure you that we will ever have a product
approved by the FDA, that we will bring any product to market or, if we are successful in doing so, that we will ever become profitable.
We expect to incur substantial additional operating expenses over the next several years as our research, development, preclinical
and nonclinical testing, and clinical trial activities increase. The amount of future losses and when, if ever, we will achieve profitability are
uncertain. We have no products that have generated any commercial revenue, do not expect to generate revenues from the commercial sale
of products in the near future, and might never generate revenues from the sale of products. Our ability to generate revenue and achieve
profitability will depend on, among other things, successful completion of the development of our product candidates; obtaining necessary
regulatory approvals from the FDA; establishing manufacturing, sales, and marketing arrangements with third parties; and raising sufficient
funds to finance our activities. We might not succeed at any of these undertakings. If we are unsuccessful at some or all of these
undertakings, our business, prospects, and results of operations may be materially adversely affected.
We have a limited operating history and 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 development-stage biopharmaceutical company with a limited operating history. Our operations to date have been
primarily limited to developing our technology and undertaking preclinical and nonclinical testing and clinical trials of our clinical-stage
product candidates, TNX-102 SL for FM and PTSD. We have not yet obtained regulatory approvals for TNX-102 SL or any of our other
product candidates. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we
had a longer operating history or 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:
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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 clinical trials through all phases of clinical development, including trials of our product candidate TNX-102
SL;
any delays in regulatory review and approval of product candidates in clinical development;
our ability to obtain and maintain regulatory approval for our product candidate TNX-102 SL for FM and PTSD or any of our
other product candidates in the United States and foreign jurisdictions;
potential nonclinical toxicity and/or 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, or CMOs, to supply or manufacture our products;
our dependence on third party contract research organizations, or CROs, to conduct our clinical trials and nonclinical research;
our ability to establish or maintain collaborations, licensing or other arrangements;
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• market acceptance of our product candidates;
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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 leverage our proprietary technology platform 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 generated no product revenues. We have funded our operations
primarily from sales of our securities. We have not received, and do not expect to receive for at least the next couple of 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. We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations or
achieve profitability.
We are largely dependent on the success of our clinical-stage product candidate, TNX-102 SL for FM and PTSD, and we cannot be
certain that this product candidate will receive regulatory approval or be successfully commercialized.
We currently have no products for sale, and we cannot guarantee that we will ever have any drug products approved for sale. We
and our product candidates are subject to extensive regulation by the FDA and comparable regulatory authorities in other countries
governing, among other things, research, testing, clinical trials, manufacturing, labeling, promotion, selling, adverse event reporting and
recordkeeping. We are not permitted to market any of our product candidates in the United States until we receive approval of an NDA for
a product candidate from the FDA or the equivalent approval from a foreign regulatory authority. Obtaining FDA approval is a lengthy,
expensive and uncertain process. We currently have one product candidate in clinical stages of development for two indications: TNX-102
SL for the management of FM and PTSD, and the success of our business currently depends on its successful development, approval and
commercialization. Any projected sales or future revenue predictions are predicated upon FDA approval and market acceptance of TNX-
102 SL. If projected sales do not materialize for any reason, it would have a material adverse effect on our business and our ability to
continue operations.
TNX-102 SL has not completed the clinical development process; therefore, we have not yet submitted an NDA or foreign
equivalent or received marketing approval for these product candidates anywhere in the world. The clinical development programs for
TNX-102 SL for FM or PTSD may not lead to commercial products for a number of reasons, including if we fail to obtain necessary
approvals from the FDA or foreign regulatory authorities because our clinical trials fail to demonstrate to their satisfaction that these
product candidates are safe and effective or a clinical program may be put on hold due to unexpected safety issues. We may also fail to
obtain the necessary approvals if we have inadequate financial or other resources to advance our product candidates through the clinical
trial process. Any failure or delay in completing clinical trials or obtaining regulatory approvals for TNX-102 SL for FM or PTSD in a
timely manner would have a material adverse impact on our business and our stock price.
23
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 TNX-102 SL for
FM and PTSD. 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 a therapeutic area in which it would have been more
advantageous to enter into a partnering arrangement.
We may need additional capital. If additional capital is not available or is available at unattractive terms, we may be forced to delay,
reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our
operations.
In order to develop and bring our product candidates to market, we must commit substantial resources to costly and time-
consuming research, preclinical and nonclinical testing, clinical trials and marketing activities. We anticipate that our existing cash and cash
equivalents will enable us to maintain our current operations for at least the next 12 months. We anticipate using our cash and cash
equivalents to fund further research and development with respect to our lead product candidates. We may, however, need to raise
additional funding sooner if our business or operations change in a manner that consumes available resources more rapidly than we
anticipate. Our requirements for additional capital will depend on many factors, including:
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successful commercialization of our product candidates;
the time and costs involved in obtaining regulatory approval for our product candidates;
costs associated with protecting our intellectual property rights;
development of marketing and sales capabilities;
payments received under future collaborative agreements, if any; and
• market acceptance of our products.
To the extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in
dilution to our shareholders. In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to
the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are
not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our
commercialization efforts or curtail our operations. In addition, we may be required to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to technologies, product candidates or products that we would
otherwise seek to develop or commercialize ourselves or license rights to technologies, product candidates or products on terms that are
less favorable to us than might otherwise be available.
We will require substantial additional funds to support our research and development activities, and the anticipated costs of
preclinical and nonclinical testing and clinical trials, regulatory approvals and eventual commercialization. Such additional sources of
financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be
unable to commence clinical trials or obtain approval of any product candidates from the FDA and other regulatory authorities. In addition,
we could be forced to discontinue product development, forego sales and marketing efforts and forego attractive business opportunities.
Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our
shareholders.
There is no assurance that we will be successful in raising the additional funds needed to fund our business plan. If we are not able
to raise sufficient capital in the near future, our continued operations will be in jeopardy and we may be forced to cease operations and sell
or otherwise transfer all or substantially all of our remaining assets.
24
We face intense competition in the markets targeted by our product candidates. Many of our competitors have substantially greater
resources than we do, and we expect that all of our product candidates under development will face intense competition from existing or
future drugs.
We expect that all of our product candidates under development, if approved, will face intense competition from existing and
future drugs marketed by large companies. These competitors may successfully market products that compete with our products,
successfully identify drug candidates or develop products earlier than we do, or develop products that are more effective, have fewer side
effects or cost less than our products.
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.
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.
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.
If we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would be
negatively affected.
Our success will depend in part on our ability to obtain patents and maintain adequate protection of our technologies and products.
If we do not adequately protect our intellectual property, competitors may be able to use our technologies to produce and market drugs
using our technologies and patents in direct competition with us and erode our competitive advantage. Some foreign countries lack rules
and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. Many
companies have had difficulty protecting their proprietary rights in these foreign countries. We may not be able to prevent misappropriation
of our proprietary rights and intellectual property rights in these and other countries.
We have received, and are currently seeking, patent protection for numerous compounds and methods of treating diseases.
However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in
protecting our products by obtaining and defending patents related to them. These risks and uncertainties include the following: patents that
may be issued or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide us any competitive advantage;
our competitors, many of which have substantially greater resources than we and many of which have made significant investments in
competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make,
use, and sell our potential products either in the United States or in international markets; there may be significant pressure on the United
States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United
States for treatments that prove successful as a matter of public policy regarding worldwide health concerns; and countries other than the
United States may have less robust patent laws than those upheld by United States courts, allowing foreign competitors the ability to
exploit these laws to create, develop, and market competing products using our technologies and patents.
25
Moreover, any patents issued to us may not provide us with meaningful protection, or others may challenge, circumvent or narrow
our patents. Third parties may also independently develop products similar to our products, duplicate our unpatented products or design
around any patents or propriety technologies on products we develop. Additionally, extensive time is required for development, testing and
regulatory review of a potential product. While extensions of patent term due to regulatory delays may be available, it is possible that,
before any of our product candidates can be commercialized, any related patent, even with an extension, may expire or remain in force for
only a short period following commercialization, thereby reducing any advantages to us of the patent.
In addition, the United States Patent and Trademark Office, or USPTO, and patent offices in other jurisdictions have often
required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to
cover only the innovations specifically exemplified in the patent application, thereby limiting the scope of protection against competitive
challenges. Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated.
Our success depends on our patents and patent applications that may be licensed exclusively to us and other patents and patent
applications to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or
published literature that may affect our business either by blocking our ability to commercialize our product candidates, by preventing the
patentability of our product candidates to us or our licensors, or by covering the same or similar technologies. These patents, patent
applications, and published literature may limit the scope of our future patent claims or adversely affect our ability to market our product
candidates.
In addition to patents, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions,
and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets
or other proprietary information. If they do not adequately protect our rights, third parties could use our technology, and we could lose any
competitive advantage we may have. In addition, others may independently develop similar proprietary information or techniques or
otherwise gain access to our trade secrets, which could impair any competitive advantage we may have.
Patent protection and other intellectual property protection is crucial to the success of our business and prospects, and there is a
substantial risk that such protections will prove inadequate.
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 present and future patents and other proceedings of our competitors. The defense and prosecution of
intellectual property suits are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary to
determine the enforceability, scope, and validity of the proprietary rights of others. An adverse determination in litigation 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. Third
parties may assert that our patents are invalid and/or unenforceable in these proceedings. Such litigation 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.
Third parties may also assert that our patents are invalid in patent office administrative proceedings. These proceedings include
oppositions in the European Patent Office and inter partes review and post-grant review proceedings in the USPTO. The success rate of
these administrative challenges to patent validity in the United States is higher than it is for validity challenges in litigation.
Interference or derivation proceedings brought before the USPTO may be necessary to determine priority of invention with respect
to innovations disclosed in our patents or patent applications. During these proceedings, 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 or derivation proceeding may result in substantial
costs and distraction to our management.
26
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or
interference or derivation 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.
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 or
administrative proceedings could result in inadequate protection for our product candidates and/or reduce the value of any license
agreements we have with third parties.
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.
If preclinical and nonclinical testing or clinical trials for our product candidates are unsuccessful or delayed, we will be unable to meet
our anticipated development and commercialization timelines.
We rely and expect to continue to rely on third parties, including CROs and outside consultants, to conduct, supervise or monitor
some or all aspects of preclinical and nonclinical testing and clinical trials involving our product candidates. We have less control over the
timing and other aspects of these preclinical and nonclinical testing activities and clinical trials than if we performed the monitoring and
supervision entirely on our own. Third parties may not perform their responsibilities for our preclinical and nonclinical testing and clinical
trials on our anticipated schedule or, for clinical trials, consistent with a clinical trial protocol. Delays in preclinical and nonclinical testing,
and clinical trials could significantly increase our product development costs and delay product commercialization. In addition, many of the
factors that may cause, or lead to, a delay in the clinical trials may also ultimately lead to denial of regulatory approval of a product
candidate.
The commencement of clinical trials can be delayed for a variety of reasons, including delays in:
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•
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demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
reaching agreement on acceptable terms with prospective contract research organizations and trial sites;
developing a stable formulation of a product candidate;
• manufacturing sufficient quantities of a product candidate; and
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obtaining institutional review board approval to conduct a clinical trial at a prospective site.
Once a clinical trial has begun, it may be delayed, suspended or terminated by us or the FDA or other regulatory authorities due to
a number of factors, including:
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ongoing discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical trials;
failure to conduct clinical trials in accordance with regulatory requirements;
lower than anticipated recruitment or retention rate of patients in clinical trials;
inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a
clinical hold;
lack of adequate funding to continue clinical trials;
negative results of clinical trials;
investigational drug product out-of-specification; or
nonclinical or clinical safety observations, including adverse events and serious adverse events.
If clinical trials are unsuccessful, and we are not able to obtain regulatory approvals for our product candidates under development,
we will not be able to commercialize these products, and therefore may not be able to generate sufficient revenues to support our business.
27
We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory
manner, it may harm our business.
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials. While we have agreements
governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’
activities. Nevertheless, we will be responsible for ensuring that our clinical trials are conducted in accordance with the applicable protocol,
legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the FDA’s current good clinical practices requirements, or cGCP, for conducting,
recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights,
integrity and confidentiality of clinical trial participants are protected. The FDA enforces these cGCPs through periodic inspections of trial
sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated
in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving any
marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with cGCPs. In addition, our
clinical trials, including our planned Phase 3 trial of TNX-102 SL in FM, will require a sufficiently large number of test subjects to evaluate
the effectiveness and safety of TNX-102 SL. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient
number of patients, our clinical trials may be delayed or we may be required to repeat such clinical trials, which would delay the regulatory
approval process.
Our CROs are not our employees, and we are not able to control whether or not they devote sufficient time and resources to our
clinical trials. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also
be conducting clinical trials, or other drug development activities which could harm our competitive position. If our CROs do not
successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data
they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our
clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully
commercialize our product candidates. As a result, our financial results and the commercial prospects for such product candidates would be
harmed, our costs could increase, and our ability to generate revenues could be delayed.
We also rely on other third parties to store and distribute drug products for our clinical trials. Any performance failure on the part
of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products,
if approved, producing additional losses and depriving us of potential product revenue.
We have never conducted a Phase 3 clinical trial or submitted an NDA before, and may be unable to do so for, TNX-102 SL or other
product candidates we are developing.
In addition to our ongoing AFFIRM trial of TNX-102 SL in FM, we plan to initiate a second Phase 3 confirmatory trial in support
of product registration prior to completion of the ongoing AFFIRM trial. As these trials are intended to provide evidence to support
marketing approval by the FDA, they are considered pivotal, or registration, trials. The conduct of pivotal clinical trials and the submission
of a successful NDA is a complicated process. Although members of our management team have extensive industry experience, including
in the development, clinical testing and commercialization of drug candidates, our company has never conducted a pivotal clinical trial
before (other than the ongoing AFFIRM trial), has limited experience in preparing, submitting and prosecuting regulatory filings, and has
not submitted an NDA before. Consequently, we may be unable to successfully and efficiently execute and complete these planned clinical
trials in a way that leads to NDA submission and approval of TNX-102 SL and other product candidates we are developing. We may
require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates
that we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent or delay commercialization of
TNX-102 SL and other product candidates we are developing.
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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 TNX-102 SL or any of our other product candidates could arise either
during clinical development or, if approved, after the approved product has been marketed. The results of future clinical trials, including
TNX-102 SL, 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 TNX-102 SL or any of our other product candidates cause serious adverse events or undesirable side effects or suffer from
quality control issues:
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regulatory authorities may impose a clinical hold or risk evaluation and mitigation strategies, or REMS, which could result in
substantial delays, significantly increase the cost of development, and/or adversely impact our ability to continue development
of the product;
regulatory authorities may require the addition of statements, specific warnings, or contraindications to the product label, or
restrict the product’s indication to a smaller potential treatment population;
• we may be required to change the way the product is administered or conduct additional clinical trials;
• 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;
• we may, voluntarily or involuntarily, initiate field alerts for product recall, which may result in shortages;
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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
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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.
If we are unable to file for approval of TNX-102 SL under Section 505(b)(2) of the FDCA or if we are required to generate additional
data related to safety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated
development and commercialization timelines.
Our current plans for filing NDAs for our product candidates include efforts to minimize the data we will be required to generate
in order to obtain marketing approval for our product candidates and therefore reduce the development time. We held an End-of-Phase 2
meeting with the FDA in February 2013 to discuss our most advanced development program, in which we are developing TNX-102 SL for
the management of FM. In late 2014, following the results of the BESTFIT trial, we corresponded with the FDA to further discuss our
Phase 3 registration program plan. We held a pre-IND meeting with the FDA in October 2012 to discuss the development of TNX-102 SL
in PTSD. Although our interactions with the FDA have encouraged our efforts to continue to develop TNX-102 SL for FM and PTSD, there
is no assurance that we will satisfy the FDA’s requirements for approval in these indications. The timeline for filing and review of our
NDAs for TNX-102 SL for FM and PTSD is based on our plan to submit those NDAs under Section 505(b)(2) of the FDCA, which would
enable us to rely in part on data in the public domain or elsewhere. We have not yet filed an NDA under Section 505(b)(2) for any of our
product candidates. Depending on the data that may be required by the FDA for approval, some of the data may be related to products
already approved by the FDA. If the data relied upon is related to products already approved by the FDA and covered by third-party patents
we would be required to certify that we do not infringe the listed patents or that such patents are invalid or unenforceable. As a result of the
certification, the third-party would have 45 days from notification of our certification to initiate an action against us. In the event that an
action is brought in response to such a certification, the approval of our NDA could be subject to a stay of up to 30 months or more while
we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity
expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to
generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the approval of our product
candidates. Even if no exclusivity periods apply to our applications under Section 505(b)(2), the FDA has broad discretion to require us to
generate additional data on the safety and efficacy of our product candidates to supplement third-party data on which we may be permitted
to rely. In either event, we could be required, before obtaining marketing approval for any of our product candidates, to conduct substantial
new research and development activities beyond those we currently plan to engage in order to obtain approval of our product candidates.
Such additional new research and development activities would be costly and time consuming.
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We may not be able to realize shortened development timelines for TNX-102 SL for FM or PTSD, and the FDA may not agree
that any of our products qualify for marketing approval. If CBP-containing products are withdrawn from the market by the FDA for any
safety reason, we may not be able to reference such products to support a 505(b)(2) NDA for TNX-102 SL, and we may need to fulfill the
more extensive requirements of Section 505(b)(1). If we are required to generate additional data to support approval, we may be unable to
meet our anticipated development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at
all, and may be unable to obtain marketing approval of our product candidates.
We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As we advance our product candidates through preclinical and nonclinical testing and clinical trials, and develop new product
candidates, we will need to increase our product development, scientific, regulatory and compliance and administrative headcount to
manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative
capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to
effectively manage our operations, growth and various projects requires that we:
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successfully attract and recruit new employees with the expertise and experience we will require;
• manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop a marketing, distribution and sales infrastructure in addition to a post-marketing surveillance program if we seek to
market our products directly; and
continue to improve our operational, manufacturing, quality assurance, financial and management controls, reporting systems
and procedures.
If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely
affected.
Our executive officers and other key personnel are critical to our business, and our future success depends on our ability to retain
them.
Our success depends to a significant extent upon the continued services of Dr. Seth Lederman, our President and Chief Executive
Officer. Dr. Lederman has overseen Tonix Pharmaceuticals, Inc., a wholly-owned subsidiary, since inception and provides leadership for
our growth and operations strategy as well as being an inventor on many of our patents. Loss of the services of Dr. Lederman would have a
material adverse effect on our growth, revenues, and prospective business. The loss of any of our key personnel, or the inability to attract
and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and
could materially adversely affect our business, financial condition and results of operations.
Any employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In
addition, we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also
depend in part on the continued service of our key scientific and management personnel and our ability to identify, hire, and retain
additional personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel
necessary for the development of our business. Moreover, competition for personnel with the scientific and technical skills that we seek is
extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly.
If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.
Over time we will need to hire additional qualified personnel with expertise in drug development, product registration, clinical,
preclinical and nonclinical research, quality compliance, government regulation, formulation and manufacturing, financial matters and sales
and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research
institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful.
Attracting and retaining qualified personnel will be critical to our success.
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We rely on third parties to manufacture the compounds used in our trials, and we intend to rely on them for the manufacture of any
approved products for commercial sale. If these third parties do not manufacture our product candidates in sufficient quantities and at
an acceptable cost, clinical development and commercialization of our product candidates could be delayed, prevented or impaired.
We have no manufacturing facilities, and we have no experience in the clinical or commercial-scale manufacture of drugs or in
designing drug manufacturing processes. We intend to rely on CMOs to manufacture some or all of our product candidates in clinical trials
and our products that reach commercialization. Completion of our clinical trials and commercialization of our product candidates requires
the manufacture of a sufficient supply of our product candidates. We have contracted with outside sources to manufacture our development
compounds, including TNX-102 SL. If, for any reason, we become unable to rely on our current sources for the manufacture of our product
candidates, either for clinical trials or, at some future date, for commercial quantities, then we would need to identify and contract with
additional or replacement third-party manufacturers to manufacture compounds for nonclinical, preclinical, clinical, and commercial
purposes. Although we are in discussions with other manufacturers we have identified as potential alternative CMOs of TNX-102 SL, we
may not be successful in negotiating acceptable terms with any of them.
We believe that there are a variety of manufacturers that we may be able to retain to produce these products. However, once we
retain a manufacturing source, if our manufacturers do not perform in a satisfactory manner, we may not be able to develop or
commercialize potential products as planned. Certain specialized manufacturers are expected to provide us with modified and unmodified
pharmaceutical compounds, including finished products, for use in our preclinical and nonclinical testing and clinical trials. Some of these
materials are available from only one supplier or vendor. Any interruption in or termination of service by such sole source suppliers could
result in a delay or interruption in manufacturing until we locate an alternative source of supply. Any delay or interruption in manufacturing
operations (or failure to locate a suitable replacement for such suppliers) could materially adversely affect our business, prospects, or results
of operations. We do not have any short-term or long-term manufacturing agreements with many of these manufacturers. If we fail to
contract for manufacturing on acceptable terms or if third-party manufacturers do not perform as we expect, our development programs
could be materially adversely affected. This may result in delays in filing for and receiving FDA approval for one or more of our products.
Any such delays could cause our prospects to suffer significantly.
Failure by our third-party manufacturers to comply with the regulatory guidelines set forth by the FDA with respect to our product
candidates could delay or prevent the completion of clinical trials, the approval of any product candidates or the commercialization of
our products.
Such third-party manufacturers must be inspected by FDA for current Good Manufacturing Practice, or cGMP, compliance before
they can produce commercial product. We may be in competition with other companies for access to these manufacturers' facilities and
may be subject to delays in manufacture if the manufacturers give other clients higher priority than they give to us. If we are unable to
secure and maintain third-party manufacturing capacity, the development and sales of our products and our financial performance may be
materially affected.
Manufacturers are obligated to operate in accordance with FDA-mandated requirements. A failure of any of our third-party
manufacturers to establish and follow cGMP requirements and to document their adherence to such practices may lead to significant delays
in the availability of material for clinical trials, may delay or prevent filing or approval of marketing applications for our products, and may
cause delays or interruptions in the availability of our products for commercial distribution following FDA approval. This could result in
higher costs to us or deprive us of potential product revenues.
Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production,
recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. We, or our contracted
manufacturing facility, must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection may
significantly delay FDA approval of our products. If we fail to comply with these requirements, we would be subject to possible regulatory
action and may be limited in the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition,
and results of operations may be materially harmed.
Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the Drug Enforcement Agency and
corresponding state and foreign agencies to ensure strict compliance with cGMP requirements and other requirements under Federal drug
laws, other government regulations and corresponding foreign standards. If we or our third-party manufacturers fail to comply with
applicable regulations, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure by the government to grant
marketing approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions and
criminal prosecutions.
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Corporate and academic collaborators may take actions to delay, prevent, or undermine the success of our products.
Our operating and financial strategy for the development, clinical testing, manufacture, and commercialization of drug candidates
is heavily dependent on our entering into collaborations with corporations, academic institutions, licensors, licensees, and other parties. Our
current strategy assumes that we will successfully establish these collaborations, or similar relationships; however, there can be no
assurance that we will be successful establishing such collaborations. Some of our existing collaborations are, and future collaborations
may be, terminable at the sole discretion of the collaborator. Replacement collaborators might not be available on attractive terms, or at all.
The activities of any collaborator will not be within our control and may not be within our power to influence. There can be no assurance
that any collaborator will perform its obligations to our satisfaction or at all, that we will derive any revenue or profits from such
collaborations, or that any collaborator will not compete with us. If any collaboration is not pursued, we may require substantially greater
capital to undertake development and marketing of our proposed products and may not be able to develop and market such products
effectively, if at all. In addition, a lack of development and marketing collaborations may lead to significant delays in introducing proposed
products into certain markets and/or reduced sales of proposed products in such markets.
Data provided by collaborators and others upon which we rely that has not been independently verified could turn out to be false,
misleading, or incomplete.
We rely on third-party vendors, scientists, and collaborators to provide us with significant data and other information related to
our projects, clinical trials, and our business. If such third parties provide inaccurate, misleading, or incomplete data, our business,
prospects, and results of operations could be materially adversely affected.
Our product candidates are novel and still in development.
We are a clinical-stage pharmaceutical company focused on the development of drug product candidates, all of which are still in
development. Our drug development methods may not lead to commercially viable drugs for any of several reasons. For example, we may
fail to identify appropriate targets or compounds, our drug candidates may fail to be safe and effective in clinical trials, or we may have
inadequate financial or other resources to pursue development efforts for our drug candidates. Our drug candidates will require significant
additional development, clinical trials, regulatory clearances and additional investment by us or our collaborators before they can be
commercialized.
Successful development of our products is uncertain.
Our development of current and future product candidates is subject to the risks of failure and delay inherent in the development
of new pharmaceutical products, including: delays in product development, clinical testing, or manufacturing; unplanned expenditures in
product development, clinical testing, or manufacturing; failure to receive regulatory approvals; emergence of superior or equivalent
products; inability to manufacture on its own, or through any others, product candidates on a commercial scale; and failure to achieve
market acceptance.
Because of these risks, our research and development efforts may not result in any commercially viable products. If a significant
portion of these development efforts are not successfully completed, required regulatory approvals are not obtained or any approved
products are not commercially successfully, our business, financial condition, and results of operations may be materially harmed.
Clinical trials required for our product candidates are expensive and time-consuming, and their outcome is uncertain.
In order to obtain FDA approval to market a new drug product, we must demonstrate proof of safety and effectiveness in humans.
To meet these requirements, we must conduct "adequate and well controlled" clinical trials. Conducting clinical trials is a lengthy, time-
consuming, and expensive process. The length of time may vary substantially according to the type, complexity, novelty, and intended use
of the product candidate, and often can be several years or more per trial. Delays associated with products for which we are directly
conducting clinical trials may cause us to incur additional operating expenses. The commencement and rate of completion of clinical trials
may be delayed by many factors, including, for example: inability to manufacture sufficient quantities of stable and qualified materials
under cGMP, for use in clinical trials; slower than expected rates of patient recruitment; failure to recruit a sufficient number of patients;
modification of clinical trial protocols; changes in regulatory requirements for clinical trials; the lack of effectiveness during clinical trials;
the emergence of unforeseen safety issues; delays, suspension, or termination of the clinical trials due to the institutional review board
responsible for overseeing the study at a particular study site; and government or regulatory delays or "clinical holds" requiring suspension
or termination of the trials.
The results from early clinical trials are not necessarily predictive of results obtained in later clinical trials. Accordingly, even if we
obtain positive results from early clinical trials, we may not achieve the same success in future clinical trials. Clinical trials may not
demonstrate sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates.
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Our clinical trials may be conducted in patients with CNS conditions, and in some cases, our product candidates are expected to be
used in combination with approved therapies that themselves have significant adverse event profiles. During the course of treatment, these
patients could suffer adverse medical events or die for reasons that may or may not be related to our product candidates. We cannot ensure
that safety issues will not arise with respect to our product candidates in clinical development.
The failure of clinical trials to demonstrate safety and effectiveness for the desired indications could harm the development of that
product candidate and other product candidates. This failure could cause us to abandon a product candidate and could delay development
of other product candidates. Any delay in, or termination of, our clinical trials would delay the filing of our NDAs with the FDA and,
ultimately, our ability to commercialize our product candidates and generate product revenues. Any change in, or termination of, our
clinical trials could materially harm our business, financial condition, and results of operations.
We are subject to extensive and costly government regulation.
Product candidates employing our technology are subject to extensive and rigorous domestic government regulation including
regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and
Human Services, the United States Department of Justice, state and local governments, and their respective foreign equivalents. The FDA
regulates the research, development, preclinical and nonclinical testing and clinical studies, manufacture, safety, effectiveness, record-
keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of biopharmaceutical products.
The FDA regulates small molecule chemical entities as drugs, subject to an NDA under the FDCA. If products employing our technologies
are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained FDA
approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding United States
regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our
products. The regulatory review and approval process, which includes preclinical and nonclinical testing and clinical trials of each product
candidate, is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct
clinical trials. We or our collaborators must obtain regulatory approval for each product we intend to market, and the manufacturing
facilities used for the products must be inspected and meet legal requirements. Securing regulatory approval requires the submission of
extensive preclinical, nonclinical and clinical data and other supporting information for each proposed therapeutic indication in order to
establish the product's safety and efficacy, and in the case of biologics also potency and purity, for each intended use. The development and
approval process takes many years, requires substantial resources, and may never lead to the approval of a product.
Even if we are able to obtain regulatory approval for a particular product, the approval may limit the indicated medical uses for
the product, may otherwise limit our ability to promote, sell, and distribute the product, may require that we conduct costly post-marketing
surveillance, and/or may require that we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for
example, manufacturing changes or revised labeling, may require further regulatory review and approval. Once obtained, any approvals
may be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the product, such as a
previously unknown safety issue.
If we, our collaborators, or our contract manufacturers fail to comply with applicable regulatory requirements at any stage during
the regulatory process, such noncompliance could result in, among other things delays in the approval of applications or supplements to
approved applications; refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements
to approved applications; warning letters; fines; import and/or export restrictions; product recalls or seizures; injunctions; total or partial
suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations by the
FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
We do not have, and may never obtain, the regulatory approvals we need to market our product candidates.
Following completion of clinical trials, the results are evaluated and, depending on the outcome, submitted to the FDA in the form
of an NDA in order to obtain FDA approval of the product and authorization to commence commercial marketing. In responding to an
NDA, the FDA may require additional testing or information, may require that the product labeling be modified, may impose post-
approval study and other commitments or reporting requirements or other restrictions on product distribution, or may deny the application.
The FDA has established performance goals for review of NDAs: six months for priority applications and ten months for standard
applications. However, the FDA is not required to complete its review within these time periods. The timing of final FDA review and
action varies greatly, but can take years in some cases and may involve the input of an FDA advisory committee of outside experts. Product
sales in the United States may commence only when an NDA is approved.
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To date, we have not applied for or received the regulatory approvals required for the commercial sale of any of our products in
the United States or in any foreign jurisdiction. None of our product candidates have been determined to be safe and effective, and we have
not submitted an NDA to the FDA or an equivalent application to any foreign regulatory authorities for any of our product candidates.
It is possible that none of our product candidates will be approved for marketing. Failure to obtain regulatory approvals, or delays
in obtaining regulatory approvals, may adversely affect the successful commercialization of any drugs or biologics that we or our partners
develop, may impose additional costs on us or our collaborators, may diminish any competitive advantages that we or our partners may
attain, and/or may adversely affect our receipt of revenues or royalties.
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 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 payors; and effectiveness of marketing and distribution
efforts by us and our licensees and distributors, if any.
The degree of market acceptance of any pharmaceutical product that we develop will depend on a number of factors, including:
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cost-effectiveness;
the safety and effectiveness of our products, including any significant potential side effects (including drowsiness and dry
mouth), 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.
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.
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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.
If we fail to establish marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties, we will not be
able to create a market for our product candidates.
Our strategy with our product candidates is to control, directly or through contracted third parties, all or most aspects of the
product development process, including marketing, sales and distribution. Currently, we do not have any sales, marketing or distribution
capabilities. In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or develop an
internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third
parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure would require substantial
resources, which may divert the attention of our management and key personnel and defer our product development efforts. To the extent
that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts
may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will
experience delays in product sales and incur increased costs.
Sales of pharmaceutical products largely depend on the reimbursement of patients' medical expenses by government health care
programs and private health insurers. Without the financial support of the government or third-party payors, the market for our products
will be limited. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products
and services. Recent proposals to change the health care system in the United States have included measures that would limit or eliminate
payments for medical products and services or subject the pricing of medical treatment products to government control. Significant
uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors may not reimburse sales of our
products or enable our collaborators to sell them at profitable prices.
Our business strategy might involve out-licensing product candidates to or collaborating with larger firms with experience in
marketing and selling pharmaceutical products. There can be no assurance that we will be able to successfully establish marketing, sales, or
distribution relationships; that such relationships, if established, will be successful; or that we will be successful in gaining market
acceptance for our products. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our
product revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will depend upon the
efforts of such third-parties. If we are unable to establish such third-party sales and marketing relationships, or choose not to do so, we will
have to establish and rely on our own in-house capabilities.
We, as a company, have no experience in marketing or selling pharmaceutical products and currently have no sales, marketing, or
distribution infrastructure. To market any of our products directly, we would need to develop a marketing, sales, and distribution force that
both has technical expertise and the ability to support a distribution capability. The establishment of a marketing, sales, and distribution
capability would significantly increase our costs, possibly requiring substantial additional capital. In addition, there is intense competition
for proficient sales and marketing personnel, and we may not be able to attract individuals who have the qualifications necessary to market,
sell, and distribute our products. There can be no assurance that we will be able to establish internal marketing, sales, or distribution
capabilities. If we are unable to, or choose not to establish these capabilities, or if the capabilities we establish are not sufficient to meet our
needs, we will be required to establish collaborative marketing, sales, or distribution relationships with third parties.
In the event that we are successful in bringing any products to market, our revenues may be adversely affected if we fail to obtain
acceptable prices or adequate reimbursement for our products from third-party payors.
Our ability to commercialize pharmaceutical products successfully may depend in part on the availability of reimbursement for
our products from:
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private health insurers; and
other third party payors, including Medicare and Medicaid.
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We cannot predict the availability of reimbursement for health care products to be approved in the future. Third-party payors,
including Medicare and Medicaid, are challenging the prices charged for medical products and services. Government and other third-party
payors increasingly are limiting both coverage and the level of reimbursement for new drugs whether approved under Section 505(b)(1),
505(b)(2), or 505(j) of the FDCA, through direct payment mechanisms and through cost containment programs such as the Medicaid Drug
Rebate Program. Third-party insurance coverage may not be available to patients for any of our products.
The continuing efforts of government and third-party payors to contain or reduce the costs of health care may limit our
commercial opportunity. If government and other third-party payors do not provide adequate coverage and reimbursement for any
prescription product we bring to market, doctors may not prescribe them or patients may ask to have their physicians prescribe competing
drugs with more favorable reimbursement. In some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. In
addition, we expect that increasing emphasis on managed care in the United States will continue to put pressure on the pricing of
pharmaceutical products. Cost control initiatives could decrease the price that we receive for any products in the future. Further, cost
control initiatives could impair our ability to commercialize our products and our ability to earn revenues from this commercialization.
If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with
international operations could materially adversely affect our business.
If TNX-102 SL or any of our other product candidates are approved for commercialization outside of the United States, we intend
to enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we
will be subject to additional risks related to entering into international business relationships, including:
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different regulatory requirements for drug approvals;
reduced protection for intellectual property rights, including trade secret and patent rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations
incident to doing business in another country;
• workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including
earthquakes, hurricanes, floods and fires; and
difficulty in importing and exporting clinical trial materials and study samples.
We face the risk of product liability claims and may not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that are inherent in the development of drugs. If the use of one or
more of our or our collaborators' drugs harms people, we may be subject to costly and damaging product liability claims brought against us
by clinical trial participants, consumers, health care providers, pharmaceutical companies or others selling our products. Our inability to
obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products we develop, alone or with collaborators. While we currently carry clinical trial insurance
and product liability insurance, we cannot predict all of the possible harms or side effects that may result and, therefore, the amount of
insurance coverage we hold now or in the future may not be adequate to cover all liabilities we might incur. We intend to expand our
insurance coverage to include the sale of commercial products if we obtain marketing approval for our drug candidates in development, but
we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. If we are unable
to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant
liabilities, which may materially and adversely affect our business and financial position. If we are sued for any injury allegedly caused by
our or our collaborators' products, our liability could exceed our total assets and our ability to pay the liability. A product liability claim or
series of claims brought against us would decrease our cash and could cause our stock price to fall.
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We 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 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.
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.
If we enter into collaborations with third parties, they might also work with hazardous materials in connection with our
collaborations. 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.
Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured
liabilities.
We carry insurance for most categories of risk that our business may encounter, however, we may not have adequate levels of
coverage. We currently maintain general liability, clinical trial, property, workers’ compensation, products liability and directors’ and
officers’ insurance, along with an umbrella policy, which collectively costs approximately $300,000 per annum. We cannot provide any
assurances that we will be able to maintain existing insurance at current or adequate levels of coverage. Any significant uninsured liability
may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
If we retain collaborative partners and our partners do not satisfy their obligations, we will be unable to develop our partnered product
candidates.
In the event we enter into any collaborative agreements, we may not have day-to-day control over the activities of our
collaborative partners with respect to any of these product candidates. Any collaborative partner may not fulfill its obligations under these
agreements. If a collaborative partner fails to fulfill its obligations under an agreement with us, we may be unable to assume the
development of the products covered by that agreement or enter into alternative arrangements with a third party. In addition, we may
encounter delays in the commercialization of the product candidate that is the subject of the agreement. Accordingly, our ability to receive
any revenue from the product candidates covered by these agreements will be dependent on the efforts of our collaborative partner. We
could also become involved in disputes with a collaborative partner, which could lead to delays in or termination of our development and
commercialization programs and time-consuming and expensive litigation or arbitration. In addition, any such dispute could diminish our
collaborators’ commitment to us and reduce the resources they devote to developing and commercializing our products. Conflicts or
disputes with our collaborators, and competition from them, could harm our relationships with our other collaborators, restrict our ability to
enter future collaboration agreements and delay the research, development or commercialization of our product candidates. If any
collaborative partner terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, our chances of
successfully developing or commercializing these product candidates would be materially and adversely affected. We may not be able to
enter into collaborative agreements with partners on terms favorable to us, or at all. Our inability to enter into collaborative arrangements
with collaborative partners, or our failure to maintain such arrangements, would limit the number of product candidates that we could
develop and ultimately, decrease our sources of any future revenues.
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RISKS RELATED TO OUR STOCK
Sales of additional shares of our common stock could cause the price of our common stock to decline.
Sales of substantial amounts of our common stock in the public market, or the availability of such shares for sale, by us or others,
including the issuance of common stock upon exercise of outstanding options and warrants, could adversely affect the price of our common
stock. We and our directors and officers may sell shares into the market, which could adversely affect the market price of shares of our
common stock.
The market price for our common stock may be volatile, and your investment in our common stock could decline in value.
The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of
biotechnology and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been
highly volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of
particular companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the
market price of our common stock:
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announcements of technological innovations or new products by us or our competitors;
announcement of FDA approval or disapproval of our product candidates or other product-related actions;
developments involving our discovery efforts and clinical trials;
developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or
other litigation against us or our potential licensees;
developments involving our efforts to commercialize our products, including developments impacting the timing of
commercialization;
announcements concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;
public concerns as to the safety or efficacy of our product candidates or our competitors’ products;
changes in government regulation of the pharmaceutical or medical industry;
changes in the reimbursement policies of third party insurance companies or government agencies;
actual or anticipated fluctuations in our operating results;
changes in financial estimates or recommendations by securities analysts;
developments involving corporate collaborators, if any;
changes in accounting principles; and
the loss of any of our key scientific or management personnel.
In the past, securities class action litigation has often been brought against companies that experience volatility in the market price
of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion of
management’s attention and resources, which could adversely affect our business, operating results and financial condition.
We do not anticipate paying dividends on our common stock and, accordingly, shareholders must rely on stock appreciation for any
return on their investment.
We have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The
declaration of dividends is subject to the discretion of our board of directors and will depend on various factors, including our operating
results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an
investment in our company if you require dividend income from your investment in our company. The success of your investment will
likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable. There is
no guarantee that our common stock will appreciate in value.
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We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline.
Our quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The
nature of our business involves variable factors, such as the timing of the research, development and regulatory pathways of our product
candidates, which could cause our operating results to fluctuate.
Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our
operating results are not a good indication of our future performance.
The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.
Our articles of incorporation give our board of directors the right to create new series of preferred stock. As a result, the board of
directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which
could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the
right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The
possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue
any shares of preferred stock or to create a series of preferred stock, we may issue such shares in the future.
If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or if we
discover material weaknesses and deficiencies in our internal control and accounting procedures, our stock price could decline
significantly and raising capital could be more difficult.
If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we
discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline
significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments
of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing these assessments.
If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our
internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to
produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or
prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information,
and the trading price of our common stock could drop significantly.
Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over
actions requiring stockholder approval.
As of March 2, 2016, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and
their respective affiliates, beneficially own approximately 30.5% of our outstanding shares of common stock. As a result, these
stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including
the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting
together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might
harm the market price of our common stock by:
•
•
•
delaying, deferring or preventing a change in corporate control;
impeding a merger, consolidation, takeover or other business combination involving us; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish
about us or our business. Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage
increases, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in
turn could cause our stock price or trading volume to decline.
39
ITEM 1B – UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments at December 31, 2015.
ITEM 2 – PROPERTIES
We maintain our principal office at 509 Madison Avenue, Suite 306, New York, New York 10022. Our telephone number at that
office is (212) 980-9155 and our fax number is (212) 923-5700. On February 11, 2014, we entered into a lease amendment and expansion
agreement, whereby we agreed to lease additional premises for office space, commencing May 1, 2014 and expiring on April 30, 2019. In
connection therewith, the original letter of credit was increased by $72,354 to $132,417 and we deposited an additional $72,354 into the
restricted cash account maintained at the bank that issued the letter of credit. Including the additional premises, the total square footage of
our principal office space is approximately 4,800.
On April 28, 2014, we entered into a lease for approximately 3,578 square feet of office space in San Jose, California, whereby we
agreed to lease premises, commencing August 1, 2014 and expiring on October 31, 2018. In connection therewith, we paid a security
deposit of $44,546.
On June 19, 2015, we entered into a lease for approximately 2,450 square feet of office space in Dublin, Ireland, whereby we
agreed to lease premises, commencing June 1, 2015 and expiring on May 31, 2018.
On July 27, 2015, we entered into a lease for approximately 132 square feet of office space in Montreal, Canada, whereby we
agreed to lease premises, commencing August 1, 2015 and expiring on July 31, 2016. In connection therewith, we paid a security deposit of
$800.
On August 24, 2015, we entered into a lease for approximately 2,762 square feet of office space in San Diego, California, whereby
we agreed to lease premises, commencing September 1, 2015 and expiring on August 31, 2019. In connection therewith, we paid a security
deposit of $11,272.
Future minimum lease payments are as follows (in thousands):
Year Ending December 31,
2016
2017
2018
2019
$
$
670
683
607
181
2,141
We believe that our existing facilities are suitable and adequate to meet our current business requirements.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of
business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time
that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or
in the aggregate, a material adverse effect on our business, financial condition or operating results.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
40
PART II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock has been listed on The NASDAQ Global Market under the symbol “TNXP” since August 11, 2014. Previous
to that date, our common stock was listed on The NASDAQ Capital Market under the symbol “TNXP.” Prior to August 9, 2013, our
common stock was traded on the OTCQB under the symbol “TNXP.” 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 NASDAQ Stock Market.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2015
Low
High
8.65 $
10.72 $
9.89 $
7.84 $
5.61
5.88
5.14
5.05
Fiscal Year 2014
Low
High
21.00 $
14.43 $
15.21 $
8.14 $
9.15
8.14
5.85
5.33
$
$
$
$
$
$
$
$
On March 2, 2016, the closing sale price of our common stock, as reported by The NASDAQ Stock Market, was $2.38 per share.
On March 2, 2016, there were 115 holders of record of our common stock. Because many of our shares of common stock are held by
brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these
record holders.
Dividend Policy
We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock
in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business.
Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board deems relevant.
Equity Compensation Information
The following table summarizes information about our equity compensation plans as of December 31, 2015.
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by stockholders
Total
Weighted-Average
Exercise Price of
Outstanding Options
(b)
Number of Options
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))
(c)
10.64
—
10.64
651,357
—
651,357
Number of Shares
of Common Stock
to be Issued
upon Exercise
of Outstanding
Options
(a)
1,656,643
—
1,656,643
41
Stock Performance Graph
The following stock performance graph illustrates a comparison of the total cumulative stockholder return on our common stock
since August 9, 2013, which is the date our common stock first began trading on the NASDAQ Global Market, to three indices: S&P 500
Index, the NASDAQ Composite Index and the NASDAQ Biotechnology Index. An investment of $100 (with reinvestment of all
dividends) is assumed to have been made in Tonix’s common stock and in each index since August 9, 2013, and its relative performance is
tracked through December 31, 2015. The returns shown are based on historical results and are not intended to suggest future performance.
Tonix Pharmaceuticals Holding Corp.
S&P 500
NASDAQ Composite
NASDAQ Biotechnology
Recent Sales of Unregistered Securities
None.
August 9, 2013
$
100.00 $
100.00
100.00
100.00
As of December 31,
2014
2013
2015
268.49 $
110.19
114.71
116.26
152.08 $
125.26
131.71
156.25
199.74
126.98
141.08
174.64
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our registered securities during the period covered by this Annual Report.
42
ITEM 6 – SELECTED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in conjunction with our Consolidated Financial Statements
and the related Notes thereto, Management's Discussion and Analysis of Financial Condition and Results of Operations and other financial
information included elsewhere in this Annual Report on Form 10-K. The data set forth below with respect to our Consolidated Statements
of Income for the years ended December 31, 2015, 2014 and 2013 and the Consolidated Balance Sheet data as of December 31, 2015 and
2014 are derived from our Consolidated Financial Statements which are included elsewhere in this Annual Report on Form 10-K and are
qualified by reference to such Consolidated Financial Statements and related Notes thereto. The data set forth below with respect to our
Consolidated Statements of Income for the years ended December 31, 2012 and 2011 and the Consolidated Balance Sheet data as of
December 31, 2013, 2012 and 2011 are derived from our Consolidated Financial Statements, which are not included elsewhere in this
Annual Report on Form 10-K. The weighted average number of shares of common stock outstanding for the years ended December 31,
2012 and 2011 reflect a 20:1 reverse stock split that was effective on May 1, 2013.
TONIX PHARMACEUTICALS HOLDING CORP.
2015
2014
Year ended December 31,
2013
(in thousands, except per share data)
2012
2011
COSTS AND EXPENSES:
Research and development
General and administrative
Operating Loss
Other income
Change in fair value of warrant liability
Interest and other financing costs, net
NET LOSS
Net loss per common share, basic and diluted
Weighted average common shares outstanding,
basic and diluted
As of December 31,
Current assets:
Cash, cash equivalents and marketable
securities
Working capital
Total assets
Accumulated deficit
Total stockholders' equity
$
$
$
35,504 $
12,658
48,162
18,617 $
9,039
27,656
4,650 $
6,238
10,888
2,584 $
4,078
6,662
1,158
2,220
3,378
(48,162)
(27,656)
(10,888)
(6,662)
(3,378)
-
-
108
-
-
40
-
-
4
2
(1,177)
(1,613)
-
-
(92)
(48,054) $
(27,616) $
(10,884) $
(9,450) $
(3,470)
(2.86) $
(2.77) $
(3.37) $
(5.58) $
(3.24)
16,791,059
9,985,515
3,231,311
1,693,416
1,071,295
2015
2014
2013
(in thousands)
2012
2011
$
43,016 $
39,709
47,018
(102,398)
40,262
38,184 $
35,654
39,542
(54,344)
36,092
8,202 $
6,420
8,736
(26,728)
6,512
1,785 $
872
2,117
(15,844)
959
41
(782)
425
(6,395)
(2,454)
43
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-
looking statements that reflect Management's current views with respect to future events and financial performance. You can identify these
statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar
words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team
as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed
with the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those in
forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are based upon
reasonable data derived from and known about our business and operations and the business and operations of the Company. No
assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions.
Factors that could cause differences include, but are not limited to, expected market demand for the Company’s services, fluctuations in
pricing for materials, and competition.
Business Overview
We are a clinical-stage pharmaceutical company dedicated to the invention and development of next-generation medicines. Our
clinical-stage product candidates, TNX-102 SL and TNX-201, are directed toward conditions affecting the CNS. In the second quarter of
2015, we initiated a Phase 3 clinical trial of our most advanced candidate, TNX-102 SL, for the treatment of FM. We are also developing
TNX-102 SL as a potential treatment for PTSD, and we commenced a Phase 2 trial for this indication in the first quarter of 2015. We
completed a Phase 2 trial of TNX-201 in ETTH in the first quarter of 2016. When the drug failed to show efficacy, development was
terminated. Our pipeline includes a preclinical program for the treatment of AUD as well as two biodefense development programs for
protection from smallpox virus and from radiation injury. We hold worldwide development and commercialization rights to all of our
candidates.
Our therapeutic strategy in FM is supported by results from the randomized, double-blind, placebo-controlled Phase 2b BESTFIT
trial of TNX-102 SL in FM. Although the BESTFIT trial demonstrated only a positive trend and did not achieve statistical significance for
TNX-102 SL in the primary efficacy analysis of change in mean pain intensity at week 12, it did demonstrate statistical significance
(p<0.05) in a 30% responder analysis of the primary pain data, a declared secondary endpoint in which a responder is defined as a subject
for whom pain intensity was reduced by at least 30% at week 12 as compared to baseline. The BESTFIT trial also showed statistically
significant improvements with TNX-102 SL in the declared secondary analyses of the Patient Global Impression of Change (p<0.05) and
the Fibromyalgia Impact Questionnaire-Revised, or FIQ-R (p<0.05). In addition, the study showed statistically significant improvement
with TNX-102 SL on measures of sleep quality as well as on several FIQ-R items. TNX-102 SL was well tolerated in the BESTFIT trial,
and the most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 44% of participants on
TNX-102 SL vs. 2% on placebo, and bitter taste in 8% on TNX-102 SL compared to none on placebo. These local adverse events did not
appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were
similar between TNX-102 SL and placebo. No serious adverse events were reported. Among subjects randomized to the active and control
arms, 86% and 83%, respectively, completed the 12-week dosing period. In August 2015, we completed a 12-month open-label extension
study of TNX-102 SL, into which patients who completed the BESTFIT study were eligible to enroll.
On the basis of our discussions with the FDA, we believe that positive results from two adequate, well-controlled efficacy and
safety studies and long-term (six- and 12-month) safety exposure studies would provide sufficient evidence of efficacy and safety to
support FDA approval of TNX-102 SL for the management of FM. Following the BESTFIT study, we received written guidance from the
FDA which accepted our proposal to use a 30% pain responder analysis as the primary efficacy endpoint in our Phase 3 program to support
the approval of TNX-102 SL for the management of FM. We initiated the randomized, double-blind, placebo-controlled, 12-week Phase 3
AFFIRM trial of TNX-102 SL in 500 patients with FM in the second quarter of 2015, from which we expect to report top line results from
this trial in the third quarter of 2016. We plan to initiate a second Phase 3 trial of TNX-102 SL in FM in the second quarter of 2016. An
End-of-Phase 2 Chemistry, Manufacturing and Controls meeting was held in February 2016 to discuss the quality data requirement for the
TNX-102 SL NDA submission. As of the date of this filing, we have not received the FDA official minutes from the meeting.
44
We are evaluating TNX-102 SL for the treatment of military-related PTSD in the randomized, double-blind, placebo-controlled
Phase 2 AtEase study, from which we expect to report top line results in the second quarter of 2016. The primary objective of the AtEase
trial is to evaluate the efficacy of TNX-102 SL 2.8 mg as compared to placebo sublingual tablet following 12 weeks of treatment using the
Clinician-Administered PTSD Scale. Based on our communications with the FDA to date, we believe that positive results from two
adequate, well-controlled efficacy and safety studies and long-term (six- and 12-month) safety exposure studies would support FDA
approval of TNX-102 SL for the management of PTSD. If we achieve our primary outcome measure in the AtEase study, it could qualify
as one of the two studies required to support the NDA. We expect that we can use the data generated by our clinical development of TNX-
102 SL in FM to supplement the long-term safety exposure data required for the PTSD NDA.
We were developing TNX-201 for the treatment of ETTH. We completed a 150-patient Phase 2 study in ETTH and announced
results of the study on February 16, 2016. In that study patients were randomized at approximately 10 U.S. centers to receive TNX-201 140
mg (4 x 35 mg) or placebo capsules. The primary efficacy endpoint was the difference between the two study arms in the number of
subjects who report complete relief from their headache pain at two hours following a dose of study medication. We reported top line
results from this study on February 16, 2016. Since TNX-201 failed to show efficacy, we abandoned development of TNX-201.
We also have a pipeline of other product candidates, including TNX-301. TNX-301 is a fixed dose CDP, containing two FDA-
approved drugs, disulfiram and selegiline. We intend to develop TNX-301 CDP under Section 505(b)(2) of the FDCA as a potential
treatment for AUD, and we have commenced development work on TNX-301 formulations. We have initiated pre-IND consultation with
the FDA to discuss the clinical development program of TNX-301 for AUD. A pre-IND meeting was held in February 2016. As of the date
of this filing, we have not received the FDA official minutes from the meeting. In addition, we own rights to intellectual property on two
biodefense development programs for protection from smallpox virus and from radiation injury. We have begun non-clinical research and
development on these programs. The FDA Animal Efficacy Rule provides a mechanism for product licensure when human efficacy studies
are not feasible or ethical. As a result, the licensure of these biodefense products in the U.S. may not require human efficacy studies, which
we believe will reduce our development costs and risks compared to the development of other NCEs or new biologic candidates.
Current Operating Trends
Our current research and development efforts are focused on developing TNX-102 SL for FM and PTSD, but we also expend
increasing effort on our other pipeline programs, including TNX-301. Our research and development expenses consist of manufacturing
work and the cost of drug ingredients used in such work, fees paid to consultants for work related to clinical trial design and regulatory
activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies, and for other
medical research addressing the potential efficacy and safety of our drugs. We believe that significant investment in product development
is a competitive necessity, and we plan to continue these investments in order to be in a position to realize the potential of our product
candidates and proprietary technologies.
We are currently conducting a Phase 3 clinical trial of TNX-102 SL in FM and a Phase 2 clinical trial of TNX-102 SL in PTSD. In
the second quarter of 2016, we plan to begin a second Phase 3 trial of TNX-102 SL in FM. Clinical trials can be very expensive. If these
and additional necessary clinical trials are successful, we plan to prepare and submit applications to the FDA for marketing approval for our
drug candidates. This process entails significant costs. As a result of these and other factors, we expect our research and development
expenses to increase significantly over the next 12 to 24 months.
We expect that all of our research and development expenses in the near-term future will be incurred in support of our current and
future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous
uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and
efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for each
drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants. As we obtain results from
trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products.
Completion of clinical trials may take several years, and the length of time generally varies substantially according to the type, complexity,
novelty and intended use of a product candidate.
The commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy
during clinical trials, unforeseen safety issues, slower than expected patient recruitment, or government delays. In addition, we may
encounter regulatory delays or rejections as a result of many factors, including results that do not support the intended safety or efficacy of
our product candidates, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product
development. As a result of these risks and uncertainties, we are unable to accurately estimate the specific timing and costs of our clinical
development programs or the timing of material cash inflows, if any, from our product candidates. Our business, financial condition and
results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the
FDA that the results of our trials are inadequate to justify regulatory approval, insofar as cash in-flows from the relevant drug or program
would be delayed or would not occur.
45
Results of Operations (in thousands except per share data)
We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of
our research and development efforts and the timing and outcome of regulatory submissions. Due to these uncertainties, accurate
predictions of future operations are difficult or impossible to make.
Fiscal year Ended December 31, 2015 Compared to Fiscal year Ended December 31, 2014
Revenues and Cost of Goods Sold. We had no revenues or cost of goods sold during the fiscal years ended December 31, 2015 and
2014.
Research and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2015 were
$35,504, an increase of $16,887, or 91%, from $18,617 for the fiscal year ended December 31, 2014. This increase is primarily due to
increased development work related to TNX-102 SL and TNX-201, including formulation development, manufacturing, human safety and
efficacy trials as well as pharmacokinetic studies. In 2015, we incurred $14,596, $4,963, $4,111 and $2,991 in clinical, non-clinical,
manufacturing and medical research, respectively, as compared to $5,948, $1,501, $3,743 and $1,560 in 2014, respectively. Costs related to
product development increased to $884 for the fiscal year ended December 31, 2015 from $727 for the fiscal year ended December 31,
2014, an increase of $157, or 22%. The increase is primarily due to additional trials conducted in 2015. During the year ended December
31, 2014, we acquired intellectual property rights for $858, as compared to $0 in the current period.
Compensation-related expenses increased to $4,085 for the fiscal year ended December 31, 2015, from $2,014 for the fiscal year
ended December 31, 2014, an increase of $2,071, or 103%. We incurred $1,231 in stock-based compensation in connection with the vesting
of stock options in 2015, which were previously issued to officers and consultants, as compared to $655 in stock-based compensation in
2014. The increase in cash compensation-related costs of $1,495 was primarily a result of annual salary increases and added personnel.
Regulatory and legal costs increased to $1,763 for the fiscal year ended December 31, 2015, from $1,403 for the fiscal year ended
December 31, 2014, an increase of $360, or 26%. The increase in regulatory and legal costs is primarily due to the increase in active trials.
Travel, meals and entertainment costs increased to $1,353 for the fiscal year ended December 31, 2015, from $580 for the fiscal
year ended December 31, 2014, an increase of $773, or 133%. Travel, meals and entertainment costs include travel related to clinical
development, including investigator meetings and medical-related conferences, which primarily accounted for the increase from
2014. Other research and development costs increased to $758 for the fiscal year ended December 31, 2015, from $283 for the fiscal year
ended December 31, 2014, an increase of $475, or 168%. Other research and development costs include rent, insurance and other office-
related expenses.
General and Administrative Expenses. General and administrative expenses for the fiscal year ended December 31, 2015 were
$12,658, an increase of $3,619, or 40%, from $9,039 incurred in the fiscal year ended December 31, 2014. This increase is primarily due to
compensation-related expenses and professional services.
Compensation-related expenses increased to $5,824 for the fiscal year ended December 31, 2015, from $4,511 for the fiscal year
ended December 31, 2014, an increase of $1,313, or 29%. We incurred $3,158 in stock-based compensation in connection with the 2014
employee stock purchase plan and the vesting of restricted stock units and stock options in 2015, which were previously issued to board
members, officers and a consultant, as compared to $2,434 in stock-based compensation in 2014. The increase in cash compensation-related
costs of $589 was primarily a result of annual salary increases and added personnel.
Professional services for the fiscal year ended December 31, 2015 totaled $4,247, an increase of $1,683, or 66%, over the $2,564
incurred for the fiscal year ended December 31, 2014. Of professional services, legal fees totaled $1,756 for the fiscal year ended
December 31, 2015, an increase of $753, or 75%, from $1,003 incurred for the fiscal year ended December 31, 2014. Of the legal fees
incurred, $1,173 were patent-related costs in 2015, as compared to $554 in 2014. Audit and accounting fees incurred in the fiscal years
ended December 31, 2015 and 2014 amounted to $513 and $515, respectively, a decrease of $2, or 0%. Investor and public relations fees
totaled $1,333 for the fiscal year ended December 31, 2015, an increase of $459, or 53%, from $874 incurred in the fiscal year ended
December 31, 2014. The increase is due to additional non-deal roadshows and attending investor-related conferences. Other consulting fees
and other professional fees totaled $645 for the fiscal year ended December 31, 2015, an increase of $473, or 275%, from $172 for the
fiscal year ended December 31, 2014. Other professional fees include human resources, finance and corporate consultants.
Travel, meals and entertainment costs for the fiscal year ended December 31, 2015 were $872, an increase of $471, or 117%, from
$401 incurred in the fiscal year ended December 31, 2014. Travel, meals and entertainment costs include travel related to business
development and investor relations activities, which accounted for the primary increase from 2014. Office and other administrative
expenses for the fiscal year ended December 31, 2015 totaled $1,715, an increase of $191, or 13%, as compared to of $1,524 for the year
ended December 31, 2014. Office and other administrative expenses include rent, depreciation, insurance, business taxes, dues and
subscriptions and other office related expenses.
46
Net Loss. As a result of the foregoing, the net loss for the year ended December 31, 2015 was $48,054, compared to a net loss of
$27,616 for the year ended December 31, 2014.
Fiscal year Ended December 31, 2014 Compared to Fiscal year Ended December 31, 2013
Revenues and Cost of Goods Sold. We had no revenues or cost of goods sold during the fiscal years ended December 31, 2014 and
2013.
Research and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2014 were
$18,617, an increase of $13,967, or 300%, from $4,650 for the fiscal year ended December 31, 2013. This increase is primarily due to
increased development work related to TNX-102 SL, including formulation development, manufacturing, human safety and efficacy trials
as well as pharmacokinetic studies. In 2014, we incurred $3,743, $5,948 and $1,501 in manufacturing cost, clinical activities and cost, and
non-clinical activities and cost, respectively, as compared to $1,161, $1,733 and $432 in 2013, respectively. During the year ended
December 31, 2014, we acquired intellectual property rights for $858 as compared to $0 in the year ended December 31, 2013. In addition,
beginning in 2014, we began classifying certain salaries, bonuses, and stock-based compensation to research and development expenses
based on individuals’ responsibilities. Included in the year ended December 31, 2014 was $655 related to stock-based compensation in
connection with the vesting of stock options and cash compensation of $1,310, primarily as a result of added personnel.
General and Administrative Expenses. General and administrative expenses for the fiscal year ended December 31, 2014 were
$9,039, an increase of $2,801, or 45%, from $6,238 incurred in the fiscal year ended December 31, 2013. This increase is primarily due to
compensation related expenses and professional services.
Compensation related expenses increased to $4,511 for the fiscal year ended December 31, 2014 from $3,248 for the fiscal year
ended December 31, 2013, an increase of $1,263, or 39%. We incurred $2,434 in stock-based compensation in connection with the vesting
of stock options in 2014 previously issued to board members, officers and a consultant as compared to $1,717 in stock-based compensation
in 2013. The increase in cash compensation related costs of $546 was primarily a result of annual salary increases and added personnel, net
with classification of wages and benefits related to research and development from general and administrative expenses.
Professional services for the fiscal year ended December 31, 2014 totaled $2,564, an increase of $682, or 36%, over the $1,882
incurred for the fiscal year ended December 31, 2013. Of professional services, legal fees totaled $1,003 for the fiscal year ended
December 31, 2014, an increase of $100, or 11%, from $903 incurred for the fiscal year ended December 31, 2013. Of the legal fees
incurred, $554 were patent related costs in the 2014 year as compared to $458 in 2013. Audit and accounting fees incurred in the fiscal
years ended December 31, 2014 and 2013 amounted to $515 and $244, respectively, an increase of $271, or 111%. The increase is due to
additional work required in 2014 related to Sarbanes Oxley as well additional audit and accounting fees related to our additional
subsidiaries. Investor and public relations fees totaled $874 for the fiscal year ended December 31, 2014, an increase of $219 or 33%, from
$655 incurred in fiscal year ended December 31, 2013. The increase is due to expenses incurred during an analyst day as well as costs
incurred related to brand awareness and drug name development. Other consulting fees and other professional fees totaled $172 for the
fiscal year ended December 31, 2014, an increase of $92, or 115%, from $80 for the fiscal year ended December 31, 2013. Other
professional fees include human resources, finance and corporate consultants.
Travel, meals and entertainment costs for the fiscal year ended December 31, 2014 were $401, an increase of $87, or 28%, from
$314 incurred in the fiscal year ended December 31, 2013. Travel, meals and entertainment costs include travel related to investor relations
activities, which accounted for the primary increase from 2013. Rent for the fiscal years ended December 31, 2014 and 2013 totaled $246
and $124, respectively. In 2014, we increased the size of our corporate headquarters in New York and opened a satellite office in
California. Market- related materials and analysis for the fiscal year ended December 31, 2014 was $210, an increase of $162, or 338%,
from $48 incurred in the fiscal year ended December 31, 2013.The increase is mainly due to updated company materials presented at
investor relations events. Depreciation expense in fiscal 2014 totaled $36, an increase of $19, or 112%, over the expense of $17 incurred in
fiscal 2013, as a result of the purchase of new office computers.
Net Loss. As a result of the foregoing, the net loss for the year ended December 31, 2014 was $27,616, compared to a net loss of
$10,884 for the year ended December 31, 2013.
47
Liquidity and Capital Resources
As of December 31, 2015, we had working capital of $39.7 million, comprised primarily of cash and cash equivalents of $19.2
million, short-term investments of $23.8 million and prepaid expenses and other of $3.3 million, offset by $3.0 million of accounts payable
and $3.6 million of accrued expenses. A significant portion of the accounts payable and accrued expenses are due to work performed in
relation to our ongoing clinical trials of TNX-102 SL in FM and PTSD. For the years ended December 31, 2015 and 2014, we used
approximately $42.5 million and $22.8 million of cash in operating activities, respectively, which represents cash outlays for research and
development and general and administrative expenses in such periods. Increases in cash outlays principally resulted from clinical, non-
clinical, manufacturing, medical research, regulatory cost, and payroll. For the year ended December 31, 2015, net proceeds from financing
activities were $47.7 million, predominately from the sale of our common stock. In the comparable 2014 period, approximately $47.8
million was raised through the sale of shares of common stock and $5.7 million from the exercise of warrants, net offset by the repayments
of related party promissory notes of $0.3 million. At December 31, 2014, we had cash of $38.2 million. Our cash and cash equivalents
consisted of bank deposit accounts and money market funds.
Cash used in investing activities for the year ended December 31, 2015 was approximately $24.2 million, of which $28.6 million
related to the purchase of marketable securities, $0.1 million related to the purchase of equipment and leasehold improvements and $0.1
million related to the purchase of an intangible asset, offset by maturities of marketable securities of $4.7 million, as compared to cash used
for the year ended December 31, 2014 of approximately $0.3 million, reflecting the purchase of equipment.
August 2013 financing
On August 9, 2013, we entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC
(“Roth”), as representative of the underwriters named therein (the “First Underwriters”), pursuant to which we agreed to offer to the public
through the First Underwriters an aggregate of 2,680,000 units (each a “Unit”, and collectively, the “Units”) at a public offering price of
$4.25 per Unit in an underwritten public offering (the “August 2013 Financing”). Each Unit consisted of (i) one share of common stock and
(ii) one Series A Warrant (the “Warrants”) to purchase one share of common stock. The Warrants are exercisable at an exercise price of
$4.25 per share, subject to anti-dilutive adjustment, and expire on the fifth anniversary of the date of issuance. The Warrants will be
exercisable on a “cashless” basis in certain circumstances. Pursuant to the Underwriting Agreement, the Company also granted the First
Underwriters an option for a period of 45 days to purchase up to (i) 402,000 additional Units or (ii) 402,000 additional shares of common
stock and/or additional Warrants to purchase up to 402,000 shares of common stock, on the same terms, to cover over-allotments, if any.
The August 2013 Financing closed on August 14, 2013. The First Underwriters purchased the Units at an eight percent discount to
the public offering price, for an aggregate discount of approximately $0.9 million (or $0.34 per unit). We received net cash proceeds of
$10.0 million after deducting underwriting discounts and commissions and offering expenses of $0.4 million. On August 14, 2013, the First
Underwriters exercised their over-allotment option by purchasing for $4,000 additional Warrants to purchase 402,000 shares of common
stock.
The First Underwriters received warrants to purchase up to an aggregate of 107,200 shares of common stock, or four percent of the
total number of shares included in the Units, which warrants have an exercise price of $4.25.
January 2014 financing
On January 24, 2014, we entered into an underwriting agreement with Roth, as representative of several underwriters (collectively,
the “Second Underwriters”), relating to the issuance and sale of 2,898,550 shares of our common stock in an underwritten public offering
(the “January 2014 Financing”). The public offering price for each share of common stock was $15.00. We granted the Second
Underwriters a 45-day option to purchase up to an additional 434,782 shares of common stock to cover over-allotments, if any.
The January 2014 Financing closed on January 29, 2014. The Second Underwriters purchased the shares at a six percent discount
to the public offering price, for an aggregate discount of approximately $2.6 million (or $0.90 per share). We also paid offering expenses of
approximately $0.2 million. We received net proceeds of approximately $40.7 million. The over-allotment option expired unexercised.
July 2014 financing
On July 11, 2014, we entered into subscription agreements with investors, relating to the issuance and sale of 657,000 shares of
our common stock in a registered direct offering. The purchase price for each share of common stock was $11.90.
48
Roth acted as the exclusive placement agent in this offering pursuant to the terms of a placement agent agreement, dated July 11,
2014, between us and Roth. Pursuant to the placement agent agreement, we agreed to pay Roth a placement agent fee equal to six percent of
the gross proceeds of the offering.
The registered direct offering closed on July 16, 2014 and we received net proceeds of approximately $7.2 million, after deducting
placement agent fees and offering expenses of approximately $0.6 million.
February 2015 financing
On February 4, 2015, we entered into an underwriting agreement with Roth and Oppenheimer & Co Inc. (collectively, the
“Representatives”), as representatives of several underwriters (collectively, the “Third Underwriters”), relating to the issuance and sale of
4,900,000 shares of our common stock, in an underwritten public offering (the “February 2015 Financing”). The public offering price for
each share of common stock was $5.85. We granted the Third Underwriters a 45-day option to purchase up to an additional 735,000 shares
of common stock to cover over-allotments, if any.
The February 2015 Financing closed on February 9, 2015. The Third Underwriters purchased the shares at a six percent discount
to the public offering price, for an aggregate discount of $1.7 million (or $0.35 per share). We also paid offering expenses of approximately
$0.3 million. We received net proceeds of approximately $26.7 million. On February 24, 2015, the Third Underwriters partially exercised
the over-allotment option and purchased 418,700 shares of common stock for net proceeds of approximately $2.3 million, net of an
aggregate discount of $0.1 million (or $0.35 per share).
July 2015 financing
On July 14, 2015, we entered into an underwriting agreement with the Representatives of the Third Underwriters, relating to the
issuance and sale of 2,325,000 shares of our common stock, in an underwritten public offering (the “July 2015 Financing”). The public
offering price for each share of common stock was $7.50. We granted the Third Underwriters a 45-day option to purchase up to an
additional 348,750 shares of common stock to cover over-allotments, if any.
The July 2015 Financing closed on July 17, 2015. The Third Underwriters purchased the shares at a six percent discount to the
public offering price, for an aggregate discount of $1.0 million (or $0.45 per share). We also paid offering expenses of approximately $0.2
million. We received net proceeds of approximately $16.2 million. On July 17, 2015, the Third Underwriters fully exercised the over-
allotment option and purchased 348,750 shares of common stock for net proceeds of approximately $2.5 million, net of an aggregate
discount of $0.2 million (or $0.45 per share).
Future liquidity requirements
We expect to incur losses and net cash outflows from operations for the near future. We expect to incur increasing research and
development expenses, including expenses related to additional clinical trials. We expect that our general and administrative expenses will
increase in the future as we expand our business development, add infrastructure and incur additional costs related to being a public
company, including incremental audit fees, investor relations programs and increased professional services.
Our future capital requirements will depend on a number of factors, including the progress of our research and development of
product candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing
and our success in developing markets for our product candidates. We believe our existing cash is sufficient to fund our operating expenses
and planned clinical trials for at least the next 12 months.
We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our history and
historical operating losses, our operations have not been a source of liquidity. We may need to obtain additional capital in order to fund
future research and development activities. Future financing may include the issuance of equity or debt securities, obtaining credit facilities,
or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative
financing. Furthermore, if we issue additional equity or debt securities, shareholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of existing holders of our common stock.
If additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or
eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to
develop or commercialize independently.
49
Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2015 (in thousands):
Research and Development Obligations
Operating Lease Obligations
Total
Payment Due By Period
Less than
1 Year
$
$
19,687 $
665
20,352 $
1 to 3 Years
3 to 5 Years
380 $
1,290
1,670 $
- $
181
181 $
More than
5 Years
Total
21,067
2,136
23,203
- $
-
- $
We are a party to research and development agreements in the normal course of business with CROs for clinical trials and clinical
manufacturing, with vendors for preclinical research studies and for other services and products for operating purposes. We have included
as purchase obligations our commitments under agreements to the extent they are quantifiable and are not cancelable.
Transactions with Related Parties
We have entered into an agreement with Lederman & Co., LLC (“Lederman & Co”), a company under the control of Dr. Seth
Lederman, our Chief Executive Officer and Chairman of the Board of Directors. Effective October 15, 2013, Lederman & Co received
$0.3 million per annum for its consulting services. On February 11, 2014, the agreement with Lederman & Co was terminated, and we
simultaneously entered into an employment agreement with Dr. Lederman.
On July 31 and August 1, 2013, we sold three promissory notes in the aggregate principal face amount of $0.3 million to two
related parties in exchange for $0.3 million. The notes were payable on demand at any time after one year from issuance and bore no
interest. On July 31, 2014 and August 1, 2014, we repaid $0.2 million and $0.1 million, respectively.
On March 18, 2014, Tonix Barbados entered into an asset purchase agreement (the “Starling Agreement”) with Starling
Pharmaceuticals, Inc. (“Starling”) and an asset purchase agreement (the “Leder Agreement”) with Leder Laboratories, Inc. (“Leder”). Seth
Lederman, the Company’s Chairman and Chief Executive Officer, is the Chairman, CEO and majority owner (through majority-owned
entities) of Starling and Leder.
Pursuant to the Starling Agreement, Tonix Barbados acquired from Starling rights to a United States patent application for radio-
and chemo-protective agents and related intellectual property rights, in exchange for $0.1 million and 25,000 shares of our common stock.
Pursuant to the Leder Agreement, Tonix Barbados acquired from Leder rights to a United States patent application for novel
smallpox vaccines and related intellectual property rights, in exchange for $0.1 million and 25,000 shares of our common stock.
Stock Compensation
Stock Options
In February 2012, we approved the 2012 Incentive Stock Options Plan, which was amended and restated in February 2013 (“2012
Plan”). The 2012 Plan provides for the issuance of options to purchase up to 550,000 shares of our common stock to officers, directors,
employees and consultants. Under the terms of the 2012 Plan, we may issue Incentive Stock Options, as defined by the Internal Revenue
Code, and nonstatutory options. The Board of Directors determines the exercise price, vesting and expiration period of the options granted
under the 2012 Plan. However, the exercise price of an Incentive Stock Option must be at least 100% of fair value of the common stock at
the date of the grant (or 110% for any shareholder that owns 10% or more of our common stock). The fair market value of the common
stock determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in a good faith.
Additionally, the vesting period of the grants under the 2012 Plan should not be more than five years and expiration period not more than
ten years. We reserved 550,000 shares of our common stock for future issuance under the terms of the 2012 Plan.
We measure the fair value of stock options on the date of grant, based on a Binomial option pricing model using certain
assumptions discussed in the following paragraph, and the closing market price of our common stock on the date of the grant. For
employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. Stock options granted
pursuant to the Plans typically vest 1/3rd 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten
years from the date of grant. Share-based compensation expense related to awards is amortized over the applicable vesting period using the
straight-line method.
50
In May 2012, we issued options to purchase 175,000 shares of common stock pursuant to the 2012 Plan having an exercise price of
$30.00. In February 2013, we issued options to purchase 226,500 shares of common stock pursuant to the 2012 Plan having an exercise
price of $10.20. In February 2014, we issued options to purchase 173,500 shares of common stock pursuant to the 2012 Plan having an
exercise price of $15.88.
On June 9, 2014, we approved the Tonix Pharmaceuticals Holding Corp. 2014 Stock Incentive Plan (the “2014 Plan” and together
with the 2012 Plan, the “Plans”). Under the terms of the 2014 Plan, the Company may issue (1) stock options (incentive and nonstatutory),
(2) restricted stock, (3) stock appreciation rights, or SARs, (4) restricted stock units, or RSUs, (5) other stock-based awards, and (6) cash-
based awards. The 2014 Plan provides for the issuance of up to 1,800,000 shares of common stock, provided, however, that, of the
aggregate number of 2014 Plan shares authorized, no more than 200,000 of such shares may be issued pursuant to stock-settled awards
other than options (that is, restricted stock, RSUs, SARs, performance awards, other stock-based awards and dividend equivalent awards, in
each case to the extent settled in shares of common stock). The Board of Directors determines the exercise price, vesting and expiration
period of the grants under the 2014 Plan. However, the exercise price of an incentive stock option may not be less than 110% of fair value
of the common stock at the date of the grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10%
shareholder. The fair value of the common stock is determined based on quoted market price or in absence of such quoted market price, by
the Board of Directors in good faith. Additionally, the vesting period of the grants under the 2014 Plan may not be more than five years and
expiration period not more than ten years. The Company reserved 1,800,000 shares of its common stock for future issuance under the
terms of the 2014 Plan.
On June 17, 2014, 295,100 and 60,000 options were granted to employees/directors and consultants, respectively, under the 2014
Plan (of which 255,300 and 60,000 were outstanding at December 31, 2015), with an exercise price of $9.87, a 10 year life and fair value of
$8.76. As of December 31, 2015, the fair value related to consultant grants was $5.78.
On October 29, 2014, 321,700 options were granted to employees and directors under the 2014 Plan (of which 281,900 were
outstanding at December 31, 2015), with an exercise price of $6.68, a 10 year life and fair value of $5.80.
On February 25, 2015, 419,500 and 30,000 options were granted to employees/directors and consultants, respectively, under the
2014 Plan (of which 415,700 employee/director options and 30,000 consultant options were outstanding at December 31, 2015), with an
exercise price of $5.95, a 10 year life and fair value of $4.69. Additionally, we granted options to purchase 7,143 shares of our common
stock to Seth Lederman as a non-cash bonus, with an exercise price of $5.95, a 10 year life and fair value of $4.43. As of December 31,
2015, the fair value related to consultant grants was $6.34.
On April 14, 2015, 7,600 options were granted to employees under the 2014 Plan (all of which were outstanding at December 31,
2015), with an exercise price of $6.34, a 10 year life and fair value of $4.56.
On July 27, 2015, 4,000 options were granted to an employee under the 2014 Plan (all of which were outstanding at December 31,
2015), with an exercise price of $8.25, a 10 year life and fair value of $5.71.
On October 21, 2015, 38,000 options were granted to employees under the 2014 Plan (all of which were outstanding at December
31, 2015), with an exercise price of $6.33, a 10 year life and fair value of $4.57.
On November 30, 2015, 7,000 options were granted to an employee under the 2014 Plan (all of which were outstanding at
December 31, 2015), with an exercise price of $6.77, a 10 year life and fair value of $5.11.
On February 9, 2016, 411,125 options were granted to employees with an exercise price of $5.03. Additionally, 200,000 options
were granted to employees with an exercise price of $5.03, exercisable for a period of ten years, vesting 1/3 each upon the Corporation’s
common stock having an average closing sale price equal to or exceeding each of $6.00, $7.00 and $8.00 per share for 20 consecutive
trading days, subject to a one year minimum service period prior to vesting.
Employee Stock Purchase Plan
On June 9, 2014, we approved the Tonix Pharmaceuticals Holdings Corp. 2014 Employee Stock Purchase Plan (the “2014
ESPP”). The 2014 ESPP allows eligible employees to purchase up to an aggregate of 300,000 shares of our common stock. Under the 2014
ESPP, on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering
period, which allows the eligible employees to purchase shares of our common stock at the end of the offering period. Each offering period
under the 2014 ESPP is for six months, which can be modified from time-to-time. Subject to limitations, each participant will be permitted
to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the offering period by the
applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at the beginning or end of each
offering period, whichever is less. A participant must designate in his or her enrollment package the percentage (if any) of compensation to
be deducted during that offering period for the purchase of stock under the 2014 ESPP, subject to the statutory limit under the Code.
51
The 2014 ESPP is considered a compensatory plan with the related compensation cost written off over the six month offering
period. In February 2015, 13,978 shares that were purchased as of December 31, 2014, were issued under the 2014 ESPP, and
approximately $70,000 of employee payroll deductions accumulated at December 31, 2014, related to acquiring such shares, were
transferred from accrued expenses to additional paid in capital. In July 2015, 18,021 shares that were purchased as of June 30, 2015, were
issued under the 2014 ESPP, and approximately $0.1 million of employee payroll deductions accumulated at June 30, 2015, related to
acquiring such shares, was transferred from accrued expenses to additional paid in capital. The compensation expense related to the 2014
ESPP for the year ended December 31, 2015 was $0.1 million. As of December 31, 2015, approximately $0.1 million of employee payroll
deductions, which had been withheld since July 1, 2015, the commencement of the offering period ended December 31, 2015, are included
in accrued expenses in the accompanying balance sheet. In January 2016, 17,595 shares that were purchased as of December 31, 2015 were
issued under the 2014 ESPP, and the employee payroll deductions accumulated at December 31, 2015, related to acquiring such shares,
were transferred from accrued expenses to additional paid in capital. As of December 31, 2015, after giving effect to shares purchased as
described above, there were 250,406 shares available for future purchase under the 2014 ESPP.
On February 25, 2015, we granted an aggregate of 42,000 RSUs with a fair value of $6.24 per unit to our non-employee directors
for board services in 2015, in lieu of cash, which vest one year from the grant date.
Stock-based compensation expense related to RSUs of $0.2 million was recognized during the year ended December 31, 2015. As
of December 31, 2015, 42,000 unvested RSUs were outstanding and stock-based compensation relating to such RSUs of $43,680 remains
unamortized and is expected to be amortized over the remaining period of approximately two months. As of February 25, 2016, the RSUs
for the non-employee directors vested and the non-employee directors were entitled to receive their stock awards and the remaining related
compensation has been recognized.
On February 9, 2016, we granted an aggregate of 56,250 RSUs with a fair value of $3.81 per unit to our non-employee directors
for board services in 2016, in lieu of cash, which vest one year from the grant date.
Lease Commitments
On February 11, 2014, we entered into a lease amendment and expansion agreement, whereby we agreed to lease additional
premises for office space, commencing May 1, 2014 and expiring on April 30, 2019. In connection therewith, the original letter of credit
was increased by $72,354 to $132,417 and we deposited an additional $72,354 into the restricted cash account maintained at the bank that
issued the letter of credit.
On April 28, 2014, we entered into a lease for approximately 3,578 square feet of office space in San Jose, California, whereby we
agreed to lease premises, commencing August 1, 2014 and expiring on October 31, 2018. In connection therewith, we paid a security
deposit of $44,546.
On June 19, 2015, we entered into a lease for approximately 2,450 square feet of office space in Dublin, Ireland, whereby we
agreed to lease premises, commencing June 1, 2015 and expiring on May 31, 2018.
On July 27, 2015, we entered into a lease for approximately 132 square feet of office space in Montreal, Canada, whereby we
agreed to lease premises, commencing August 1, 2015 and expiring on July 31, 2016. In connection therewith, we paid a security deposit of
$800.
On August 24, 2015, we entered into a lease for approximately 2,762 square feet of office space in San Diego, California, whereby
we agreed to lease premises, commencing September 1, 2015 and expiring on August 31, 2019. In connection therewith, we paid a security
deposit of $11,272.
Future minimum lease payments are as follows (in thousands):
Year Ending December 31,
2016 $
2017
2018
2019
$
670
683
607
181
2,141
52
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We
evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Research and Development. We outsource our research and development efforts and expenses related costs as incurred, including
the cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials. The value
ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related to particular
research and development projects and had no alternative future uses.
We estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our
obligations under contracts with vendors, consultants and clinical research organizations and clinical site agreements in connection with
conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may
result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We account
for trial expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We
determine accrual estimates that take into account discussions with applicable personnel and outside service providers as to the progress or
state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if
actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date based on the facts and
circumstances known to us at that time. Our clinical trial accruals and prepaid assets are dependent upon the timely and accurate reporting
of contract research organizations and other third-party vendors.
Stock-Based Compensation. All stock-based payments to employees and to nonemployee directors for their services as directors
consisted of grants of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the
consolidated statements of operations as compensation expense over the relevant vesting period. Restricted stock payments to
nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the
date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are
nonforfeitable, the measurement date is the date the award is issued.
Income Taxes. Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating
loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial
reporting amounts measured at the current enacted tax rates. We record an estimated valuation allowance on its deferred income tax assets
if it is not more likely than not that these deferred income tax assets will be realized. We recognizes a tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-
term leases) at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease,
measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a
specified asset for the lease term. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating
leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting
for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. We
are currently evaluating the impact of adopting this guidance.
53
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our cash and cash equivalents primarily consist of securities issued by the U.S. government, deposits, and money market deposits
managed by commercial banks. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary
control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. As of December
31, 2015, we had cash and cash equivalents and marketable securities of $43.0 million consisting of cash and highly liquid investments
deposited in highly rated financial institutions in the United States.
Our portfolio of marketable securities includes certificates of deposit, corporate notes and U.S. Treasury and government agency
bonds classified as available-for-sale securities, with no security having a maturity in excess of two years. Our primary exposure to market
risk is interest income sensitivity, which is affected by changes in the general level of interest rates. Due to the short-term duration of our
investment portfolio and the relatively low risk profile of our investments, we believe that our exposure to interest rate risk is not significant
and a 1% movement in market interest rates would not have a significant impact on the total value of our investment portfolio.
Foreign Currency Risk
We do not hold more than a de minimus amount of foreign currency denominated financial instruments.
Effects of Inflation
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation and changing
prices during the years ended December 31, 2015, 2014 and 2013 had a significant impact on our results of operations.
54
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TONIX PHARMACEUTICALS HOLDING CORP.
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets as of December 31, 2015 and 2014
Consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of comprehensive loss for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of stockholders’ equity for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013
Notes to consolidated financial statements
F-2
F-3
F-4
F-5
F-6 – F-7
F-8
F-9 – F-21
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Tonix Pharmaceuticals Holding Corp.
We have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp. (the "Company") as of December
31, 2015 and 2014, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for the
each of the three years in the period ended December 31, 2015. These 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. 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 Tonix
Pharmaceuticals Holding Corp. as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States
of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tonix
Pharmaceuticals Holding Corp.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 3, 2016 expressed an unqualified opinion thereon.
/s/ EisnerAmper LLP
New York, New York
March 3, 2016
F-2
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
(Dollars In Thousands)
Current assets:
Cash and cash equivalents
Marketable securities – available for sale, at fair value
Prepaid expenses and other
ASSETS
Total current assets
Property and equipment, net
Restricted cash
Intangible asset
Security deposits
Total assets
2015
2014
$
19,175 $
23,841
3,343
46,359
350
132
120
57
38,184
-
852
39,036
328
133
45
$
47,018 $
39,542
LIABILITIES AND STOCKHOLDERS' EQUITY
$
Current liabilities:
Accounts payable
Accrued expenses
Total current liabilities
Deferred rent payable
Total liabilities
Commitments (Note 10)
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued or outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized; 18,831,669 and 10,805,220 shares
issued and outstanding as of December 31, 2015 and 2014, respectively and 17,595 and 13,978 shares
to be issued as of December 31, 2015 and 2014, respectively
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive (loss) income
Total stockholders' equity
Total liabilities and stockholders' equity
3,049 $
3,601
6,650
106
6,756
-
-
1,487
1,895
3,382
68
3,450
-
-
19
142,658
(102,398)
(17)
11
90,423
(54,344)
2
40,262
36,092
$
47,018 $
39,542
See the accompanying notes to the consolidated financial statements
F-3
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands Except Per Share Amounts)
COSTS AND EXPENSES:
Research and development
General and administrative
Operating Loss
Interest income, net
NET LOSS
Net loss per common share, basic and diluted
Year ended December 31,
2014
2015
2013
$
$
$
35,504 $
12,658
48,162
18,617 $
9,039
27,656
4,650
6,238
10,888
(48,162)
(27,656)
(10,888)
108
40
4
(48,054) $
(27,616) $
(10,884)
(2.86) $
(2.77) $
(3.37)
Weighted average common shares outstanding, basic and diluted
16,791,059
9,985,515
3,231,311
See the accompanying notes to the consolidated financial statements
F-4
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Dollars In Thousands)
Net loss
Other comprehensive loss:
Foreign currency translation gain (loss)
Unrealized loss on available for sale securities
Total other comprehensive (loss) gain
Year ended December 31,
2014
2015
2013
$
(48,054) $
(27,616) $
(10,884)
8
(27)
(19)
3
-
3
(1)
-
(1)
Comprehensive loss
$
(48,073) $
(27,613) $
(10,885)
See the accompanying notes to the consolidated financial statements
F-5
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars In Thousands Except Per Share Amounts)
Additional
Accumulated
Other
Common stock
Paid in Comprehensive Accumulated
Gain (loss)
Deficit
Total
Amount
Shares
- 2,159,159 $
-
-
Capital
2 $
-
16,801 $
1,717
Preferred stock
Shares
Amount
Balance at December 31, 2012
Stock-based compensation
Issuance of common stock in exchange
for exercise of warrants in April 2013
($8.00 per share)
Issuance of common stock and warrants
in August 2013 ($4.25 per share) net of
transaction expenses of $1,352
Issuance of common stock in exchange
for exercise of warrants in December
2013 ($4.25 per share)
Issuance of common stock in exchange
for exercise of warrants in December
2013 ($8.00 per share)
Issuance of common stock in exchange
for 3,185 warrants exercised on a cashless
basis
Warrants issued for services rendered
Foreign currency translation adjustment
Net loss
Balance at December 31, 2013
Issuance of common stock in exchange
for exercise of warrants ($4.25 per share)
Issuance of common stock in January
2014 ($15.00 per share) net of transaction
expenses of $2,824
Issuance of common stock in July 2014
($11.90 per share) net of transaction
expenses of $636
Issuance of common stock to acquire
intellectual property rights from related
party in March 2014 ($12.15 per share)
Issuance of common stock in exchange
for 48,240 warrants exercised on a
cashless basis
Employee stock purchase plan
Stock-based compensation
Foreign currency translation adjustment
Net loss
Balance, December 31, 2014
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
38,334
-
307
- 2,680,000
3
10,039
-
884,885
1
3,760
-
70,031
-
560
1,672
-
-
-
-
-
-
-
- 5,834,081
-
-
-
-
6
-
51
-
-
33,235
- 1,331,911
1
5,660
- $
-
(15,844) $
-
959
1,717
-
-
-
-
-
-
(1)
-
(1)
-
-
307
-
10,042
-
3,761
-
560
-
-
-
(10,884)
(26,728)
-
51
(1)
(10,884)
6,512
-
5,661
- 2,898,550
3
40,651
-
-
40,654
-
657,000
1
7,181
7,182
-
50,000
-
608
-
608
33,678
-
-
-
-
-
-
-
-
-
- 10,805,220 $
-
-
-
-
-
11 $
-
35
3,053
-
-
90,423 $
-
-
-
3
-
2 $
-
-
-
-
(27,616)
(54,344) $
-
35
3,053
3
(27,616)
36,092
F-6
Preferred stock
Shares
Amount
Balance, December 31, 2014
Issuance of common stock in February
2015 ($5.85 per share) net of transaction
expenses of $2,115
Issuance of common stock in July 2015
($7.50 per share) net of transaction
expenses of $1,369
Issuance of common stock in exchange for
exercise of warrants ($4.25 per share)
Employee stock purchase plan
Stock-based compensation
Foreign currency translation adjustment
Unrealized loss on available for
sale securities
Net loss
Balance, December 31, 2015
- $
-
-
-
-
-
-
-
- $
Additional
Accumulated
Other
Common stock
Paid in Comprehensive Accumulated
Amount
Capital
Gain (loss)
Deficit
11 $
90,423 $
2 $
(54,344) $
Shares
- 10,805,220 $
Total
36,092
- 5,318,700
5
28,995
-
-
29,000
- 2,673,750
3
18,682
-
-
-
-
2,000
31,999
-
-
-
-
9
160
4,389
-
-
-
- 18,831,669 $
-
-
19 $ 142,658 $
-
-
-
8
(27)
-
(17) $
-
-
-
-
(48,054)
(102,398) $
18,685
9
160
4,389
8
(27)
(48,054)
40,262
See the accompanying notes to the consolidated financial statements
F-7
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Warrants issued for services rendered
Stock-based compensation
Common stock issued in exchange for intellectual property
Changes in operating assets and liabilities:
Prepaid expenses and other
Accounts payable
Accrued interest
Accrued expenses
Security deposit
Deferred rent payable
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and fixtures
Purchase of intangible asset
Maturities of marketable securities
Purchase of marketable securities
Increase in restricted cash balance
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party promissory notes
Proceeds from exercise of warrants
Proceeds, net of expenses of $3,484, $3,460 and $3,454 from sale of common stock
Repayments of related party promissory notes
Net cash provided by financing activities
Year ended December 31,
2014
2015
2013
$
(48,054) $
(27,616) $
(10,884)
161
-
4,389
-
(2,524)
1,583
-
1,874
(11)
54
(42,528)
(118)
(120)
4,710
(28,643)
-
(24,171)
-
9
47,685
-
47,694
36
-
3,088
608
(423)
728
-
729
(45)
55
(22,840)
(319)
-
-
-
(73)
(392)
-
5,661
47,836
(280)
53,217
17
51
1,717
-
(204)
(60)
(3)
856
-
(7)
(8,517)
(15)
-
-
-
-
(15)
280
4,628
10,042
-
14,950
Effect of currency rate change on cash
(4)
(3)
(1)
Net (decrease) increase in cash
Cash, beginning of the period
Cash, end of period
Supplemental disclosures of cash flow information:
Interest paid
Non cash financing activities:
Issuance of common stock under employee benefit plan
(19,009)
38,184
29,982
8,202
19,175 $
38,184 $
- $
160 $
- $
- $
$
$
$
6,417
1,785
8,202
3
-
See the accompanying notes to consolidated financial statements
F-8
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BUSINESS
Tonix Pharmaceuticals Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a
clinical-stage pharmaceutical company dedicated to the identification and development of novel pharmaceutical products for challenging
disorders of the central nervous system (“CNS”). All drug product candidates are still in development.
On May 15, 2015, Tonix Sub formed Tonix Medicines, Inc. (“Tonix Medicines”) for the purpose of manufacturing and
distributing pharmaceutical products in the U.S.
On October 29, 2014, Tonix Sub formed Tonix Pharma Holdings Limited (“Tonix International Holding”), which was
incorporated under the laws of Ireland and is a tax resident in Bermuda, for the purpose of acquiring the rights to develop and
commercialize Tonix products. Tonix International Holding formed Tonix Pharma Limited (“Tonix Ireland”) for the purpose of
manufacturing, trading and developing Tonix products. On December 15, 2014, Tonix Sub and Tonix International Holding entered into an
intercompany license agreement whereby Tonix Sub granted Tonix International Holding a non-exclusive right to exercise certain product
technologies and related intangible rights. As consideration, Tonix International Holding paid licensing fees to Tonix Sub.
On October 24, 2013, Tonix Sub formed Tonix Pharmaceuticals (Barbados) Ltd. (“Tonix Barbados”). Tonix Barbados had
previously entered into a license agreement and a cost-sharing agreement with Tonix Sub, pursuant to which Tonix Barbados acquired the
rights to develop and commercialize certain products for non-U.S. markets. Tonix Barbados was liquidated and dissolved during the year
ended December 31, 2015. All assets have been transferred to, and liabilities were assumed by, Tonix International Holding.
On April 23, 2013, Tonix Sub formed a wholly owned subsidiary, Tonix Pharmaceuticals (Canada), Inc. (“Tonix Canada”), in the
province of New Brunswick, Canada for the purpose of obtaining research and development credits from the Canadian government for any
research and development studies performed in Canada.
On August 16, 2010, Tonix Sub formed Krele LLC ("Krele") in the state of Delaware. Krele is a limited liability corporation
whose sole member is Tonix Pharmaceuticals Inc. Krele was established to commercialize products that are generic versions of predicate
new drug application products or versions of drug efficacy study implementation products. Tonix Sub expects that its relationship to Krele
will be similar to that of several other pharmaceutical companies and their subsidiaries that market generic versions of the parent's branded
products at different periods in their product life-cycle.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Tonix Pharmaceuticals Holding Corp. and its direct and indirect
wholly owned subsidiaries referred to in Note 1 (hereafter referred to as the “Company” or “Tonix”).
All significant intercompany balances and transactions have been eliminated in consolidation.
Recent accounting pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-
term leases) at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease,
measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a
specified asset for the lease term. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating
leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting
for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The
company is currently evaluating the impact of adopting this guidance.
F-9
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risks and uncertainties
The Company's primary efforts are devoted to conducting research and development for the treatment of disorders of the central
nervous system. The Company has experienced net losses and negative cash flows from operations since inception and expects these
conditions to continue for the foreseeable future. Further, the Company does not have any commercial products available for sale and has
not generated revenues and there is no assurance that if the Food and Drug Administration (“FDA”) approval of their products is received
that the Company will be able to generate cash flow to fund operations. In addition, there can be no assurance that the Company's research
and development will be successfully completed or that any product will be FDA-approved or commercially viable.
At December 31, 2015, the Company had working capital of $39.7 million, after raising $47.7 million through the sale of common
stock during 2015. Management believes that the Company has sufficient funds to meet its research and development and other funding
requirements for at least the next 12 months. The Company expects that cash used in operations for research and development will increase
significantly over the next several years. In the event the funding obtained is not sufficient to complete the development and
commercialization of its current product candidates, the Company intends to raise additional funds through equity or debt financing. If the
Company is unsuccessful in raising additional financing, it will need to reduce costs and operations in the future.
Use of estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include the useful life of fixed assets, assumptions used in the fair
value of stock-based compensation and other equity instruments, and the percent of completion of research and development contracts.
Cash equivalents
The Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an
original maturity of three months or less when purchased. At December 31, 2015, cash equivalents, which consisted of money market
funds, amounted to $7.6 million.
Marketable securities
Marketable securities consist primarily of certificates of deposit and corporate, U.S. agency, and U.S. treasury bonds with
maturities greater than three months and up to two years at the time of purchase. These securities, which are classified as available for sale,
are carried at fair value, with unrealized gains and losses, net of any tax effect, reported in stockholders’ equity as accumulated other
comprehensive (loss) income. As investments are available for current operations, they are classified as current irrespective of their
maturities. Amortization of premiums is included in interest income. For the year ended December 31, 2015, the amortization of bond
premiums totaled $65,000. As of December 31, 2015, amortized cost basis of the securities approximate their fair value. The values of
these securities may fluctuate as a result of changes in market interest rates and credit risk. The schedule of maturities at December 31,
2015 is as follows (in thousands):
U.S. Treasury bonds
U.S agency bonds
Corporate bonds
Certificates of deposit
Total
Intangible asset with indefinite lives
Maturities as of
December 31, 2015
1 Year or Less
1 to 2 Years
$
$
- $
1,248
6,142
7,994
15,384 $
2,750
2,531
-
3,176
8,457
During the year ended December 31, 2015, the Company purchased certain internet domain rights, which were determined to have
an indefinite life. Identifiable intangibles with indefinite lives are not amortized but are reviewed for impairment whenever events or
changes in circumstances indicate that its carrying amount may not be recoverable, or at least annually.
F-10
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and development costs
The Company outsources its research and development efforts and expenses related costs as incurred, including the cost of
manufacturing product for testing, as well as licensing fees and costs associated with planning and conducting clinical trials. The value
ascribed to patents and other intellectual property acquired is expensed as research and development costs, as such property related to
particular research and development projects and had no alternative future uses (see note 12).
The Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations
and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are
subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which
materials or services are provided under such contracts. The Company accounts for trial expenses according to the timing of various aspects
of the trial. The Company determines accrual estimates taking into account discussion with applicable personnel and outside service
providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company
adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as
of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are
dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method
over the asset's estimated useful life, which is three years for computer assets, five years for furniture and all other equipment and term of
lease for leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Depreciation and amortization
expense for the years ended December 31, 2015, 2014 and 2013 was $96,000, $36,000 and $17,000, respectively. All property and
equipment is located in the United States.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit
carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts
measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is
not more likely than not that these deferred income tax assets will be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of
being realized upon ultimate settlement. As of December 31, 2015, the Company has not recorded any unrecognized tax benefits.
Stock-based compensation
All stock-based payments to employees and to nonemployee directors for their services as directors, including grants of restricted
stock units (“RSUs”), and stock options, are measured at fair value on the grant date and recognized in the consolidated statements of
operations as compensation or other expense over the relevant service period. Stock-based payments to nonemployees are recognized as an
expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is
reached or the date performance is completed. In addition, for awards that vest immediately and are non-forfeitable, the measurement date
is the date the award is issued.
Foreign currency translation
Operations of the Canadian subsidiary are conducted in local currency which represents its functional currency. The U.S. dollar is
the functional currency of the other foreign subsidiaries. Balance sheet accounts of the Canadian subsidiary were translated from foreign
currency into U.S. dollars at the exchange rate in effect at the balance sheet date and income statement accounts were translated at the
average rate of exchange prevailing during the period. Translation adjustments resulting from this process, were included in accumulated
other comprehensive loss on the consolidated balance sheet.
F-11
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity of a business during a period from transactions and other events
and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by
owners and distributions to owners. Other comprehensive income (loss) represents foreign currency translation adjustments and unrealized
gains or losses from available for sale securities.
Per share data
Basic and diluted net loss per common share is calculated by dividing net loss, by the weighted average number of outstanding
shares of common stock, adjusted to give effect to the 20-for-1 reverse stock split, which was effected on May 1, 2013 (see Note 7).
As of December 31, 2015, 2014 and 2013, there were outstanding warrants to purchase an aggregate of 1,729,217, 1,745,755 and
3,126,656 shares, respectively, of the Company’s common stock (see Note 9). The Company has issued to employees, directors and
consultants, options to acquire shares of the Company’s common stock of which 1,656,643, 1,226,800 and 376,500 were outstanding at
December 31, 2015, 2014 and 2013, respectively. In addition at December 31, 2015, there were outstanding, 42,000 unvested RSUs. In
computing diluted net loss per share for the years ended December 31, 2015, 2014 and 2013, no effect has been given to such options,
warrants and RSUs as their effect would be anti-dilutive.
NOTE 3 – RESTRICTED CASH
Restricted cash at December 31, 2015 and 2014 of approximately $132,000, collateralizes a letter of credit issued in connection
with the lease of office space in New York City (see Note 10).
NOTE 4 – OTHER BALANCE SHEET INFORMATION
Components of selected captions in the consolidated balance sheets consist of:
Property, plant and equipment, net:
Office furniture and equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
Prepaid expenses and other:
Contract-related
Professional fees and other
Accrued expenses:
Contract-related
Compensation and compensation-related
Professional fees and other
F-12
December 31,
2015
2014
(in thousands)
351 $
179
530
(180)
350 $
2,826 $
517
3,343 $
2,246 $
1,128
227
3,601 $
240
172
412
(84)
328
519
333
852
604
868
423
1,895
$
$
$
$
$
$
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – FAIR VALUE MEASUREMENTS
Fair value measurements affect the Company’s accounting for certain of its financial assets. Fair value is defined 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 and is measured according to a hierarchy that includes:
Level 1: Observable inputs, such as quoted prices in active markets.
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 2 assets and liabilities include debt securities with quoted market prices that are traded less
frequently than exchange-traded instruments. This category includes U.S. government agency-backed
debt securities and corporate-debt securities.
Level 3: Unobservable inputs in which there is little or no market data.
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31,
2015 (in thousands):
Description
Assets:
Cash equivalents
Marketable securities – available for sale
Total assets
December 31,
2015
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
$
$
7,649 $
23,841
7,649 $
13,920
31,490 $
21,569 $
—
9,921
9,921
NOTE 6 – SALE OF COMMON STOCK
February 2015 financing
On February 4, 2015, the Company entered into an underwriting agreement with Roth Capital Partners, LLC (“Roth”), and
Oppenheimer & Co Inc. (collectively, the “Representatives”), as representatives of several underwriters (collectively, the “Underwriters”),
relating to the issuance and sale of 4,900,000 shares of the Company’s common stock, in an underwritten public offering (the “February
2015 Financing”). The public offering price for each share of common stock was $5.85. The Company granted the Underwriters a 45-day
option to purchase up to an additional 735,000 shares of common stock to cover over-allotments, if any.
The February 2015 Financing closed on February 9, 2015. The Underwriters purchased the shares at a six percent discount to the
public offering price, for an aggregate discount of $1.7 million (or $0.35 per share). The Company also paid offering expenses of
approximately $0.3 million. The Company received net proceeds of approximately $26.7 million. On February 24, 2015, the Underwriters
partially exercised the over-allotment option and purchased 418,700 shares of common stock for net proceeds of approximately $2.3
million, net of an aggregate discount of $0.1 million (or $0.35 per share).
July 2015 financing
On July 14, 2015, the Company entered into an underwriting agreement with the Representatives of the Underwriters, relating to
the issuance and sale of 2,325,000 shares of the Company’s common stock, in an underwritten public offering (the “July 2015 Financing”).
The public offering price for each share of common stock was $7.50. The Company granted the Underwriters a 45-day option to purchase
up to an additional 348,750 shares of common stock to cover over-allotments, if any.
The July 2015 Financing closed on July 17, 2015. The Underwriters purchased the shares at a six percent discount to the public
offering price, for an aggregate discount of $1.0 million (or $0.45 per share). The Company also paid offering expenses of approximately
$0.2 million. The Company received net proceeds of approximately $16.2 million. On July 17, 2015, the Underwriters fully exercised the
over-allotment option and purchased 348,750 shares of common stock for net proceeds of approximately $2.5 million, net of an aggregate
discount of $0.2 million (or $0.45 per share).
F-13
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2014 financing
On January 24, 2014, the Company entered into an underwriting agreement with Roth, as representative of several underwriters
(collectively, the “Second Underwriters”), relating to the issuance and sale of 2,898,550 shares of its common stock in an underwritten
public offering (the “January 2014 Financing”). The public offering price for each share of common stock was $15.00. The Company
granted the Second Underwriters a 45-day option to purchase up to an additional 434,782 shares of common stock to cover over-allotments,
if any.
The January 2014 Financing closed on January 29, 2014. The Second Underwriters purchased the shares at a six percent discount
to the public offering price, for an aggregate discount of $2,608,695 (or $0.90 per share). The Company also paid offering expenses of
$215,756. The Company received net proceeds of $40,653,799. The over-allotment option expired unexercised.
July 2014 financing
On July 11, 2014, the Company entered into subscription agreements with investors, relating to the issuance and sale of 657,000
shares of the Company’s common stock in a registered direct offering. The purchase price for each share of common stock was $11.90.
Roth acted as the exclusive placement agent in this offering pursuant to the terms of a placement agent agreement, dated July 11,
2014, between the Company and Roth. Pursuant to the placement agent agreement, the Company agreed to pay Roth a placement agent fee
equal to six percent of the gross proceeds of the offering.
The registered direct offering closed on July 16, 2014 and the Company received net proceeds of $7,182,670, after deducting
placement agent fees and offering expenses of approximately $0.6 million.
August 2013 financing
On August 9, 2013, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth, as
representative of the underwriters named therein (the “Third Underwriters”), pursuant to which the Company agreed to offer to the public
through the Third Underwriters an aggregate of 2,680,000 units (each a “Unit”, and collectively, the “Units”) at a public offering price of
$4.25 per Unit in an underwritten public offering (the “August 2013 Financing”). Each Unit consisted of (i) one share of common stock and
(ii) one Series A Warrant (the “Warrants”) to purchase one share of common stock. The Warrants are exercisable at an exercise price of
$4.25 per share, subject to anti-dilutive adjustment, and expire on the fifth anniversary of the date of issuance. The Warrants will be
exercisable on a “cashless” basis in certain circumstances. Pursuant to the Underwriting Agreement, the Company also granted the Third
Underwriters an option for a period of 45 days to purchase up to (i) 402,000 additional Units or (ii) 402,000 additional shares of common
stock and/or additional Warrants to purchase up to 402,000 shares of common stock, on the same terms, to cover over-allotments, if any.
The August 2013 Financing closed on August 14, 2013. The Third Underwriters purchased the Units at an eight percent discount
to the public offering price, for an aggregate discount of approximately $0.9 million (or $0.34 per unit). The Company received net cash
proceeds of $10 million after deducting underwriting discounts and commissions and offering expenses of $0.4 million. On August 14,
2013, the Third Underwriters exercised their over-allotment option by purchasing for $4,000 additional Warrants to purchase
402,000 shares of common stock.
The Third Underwriters received warrants to purchase up to an aggregate of 107,200 shares of common stock, or four percent of
the total number of shares included in the Units, which warrants have an exercise price of $4.25.
NOTE 7 – STOCKHOLDERS' EQUITY
On May 1, 2013, the Company filed an amendment to its Articles of Incorporation and effected a 20-for-1 reverse stock split of its
issued and outstanding shares of common stock, $0.001 par value, whereby 43,182,599 outstanding shares of the Company’s common stock
were exchanged for 2,159,159 shares of the Company's common stock. All per share amounts and number of shares in the consolidated
financial statements and related notes have been retroactively restated to reflect the reverse stock split, resulting in the transfer of $41.0
million from common stock to additional paid in capital at December 31, 2012.
F-14
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – SHARE-BASED COMPENSATION
2012 incentive stock option plan
In April, 2012, the Company’s stockholders approved the 2012 Incentive Stock Option Plan (the “2012 Plan”). The 2012 Plan
provides for the issuance of options to purchase up to 200,000 shares of the Company’s common stock to officers, directors, employees and
consultants of the Company. Under the terms of the 2012 Plan, the Company may issue incentive stock options as defined by the Internal
Revenue Code of 1986, as amended (the “Code”) to employees of the Company and may also issue nonstatutory options to employees and
others. The Company’s board of directors (“Board of Directors”) determines the exercise price, vesting and expiration period of the grants
under the 2012 Plan. However, the exercise price of an incentive stock option may not be less than 110% of fair value of the common stock
at the date of the grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of
the common stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good
faith. Additionally, the vesting period of the grants under the 2012 Plan may not be more than five years and expiration period not more
than ten years. The Company reserved 200,000 shares of its common stock for future issuance under the terms of the 2012 Plan. On
February 12, 2013, the 2012 Plan was amended and restated to increase the number of shares reserved under the plan to 550,000. At
December 31, 2015, all reserved shares under the 2012 Plan were subject to granted awards outstanding.
2014 incentive stock option plan
On June 9, 2014, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2014 Stock Incentive Plan (the
“2014 Plan” and together with the 2012 Plan, the “Plans”).
Under the terms of the 2014 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3)
stock appreciation rights (“SARs”), (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2014 Plan provides for the
issuance of up to 1,800,000 shares of common stock, provided, however, that, of the aggregate number of 2014 Plan shares authorized, no
more than 200,000 of such shares may be issued pursuant to stock-settled awards other than options (that is, restricted stock, RSUs, SARs,
performance awards, other stock-based awards and dividend equivalent awards, in each case to the extent settled in shares of common
stock). The Board of Directors determines the exercise price, vesting and expiration period of the grants under the 2014 Plan. However, the
exercise price of an incentive stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10%
or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined
based on quoted market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the vesting
period of the grants under the 2014 Plan may not be more than five years and expiration period not more than ten years. The Company
reserved 1,800,000 shares of its common stock for future issuance under the terms of the 2014 Plan. As of December 31, 2015, 651,357
shares were available for future grants under the 2014 Plan.
General
A summary of the stock option activity and related information for the Plans for the years ended December 31, 2015, 2014 2013 is
as follows:
Shares
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2013
Grants
Exercised
Forfeitures or expirations
Outstanding at January 1, 2014
Grants
Exercised
Forfeitures or expirations
Outstanding at January 1, 2015
Grants
Exercised
Forfeitures or expirations
Outstanding at December 31, 2015
Vested and expected to vest at December 31, 2015
Exercisable at December 31, 2015
150,000 $
226,500 $
-
-
376,500 $
850,300 $
-
-
1,226,800 $
513,243 $
-
(83,400)
1,656,643 $
1,656,643 $
744,385 $
F-15
30.00
10.20
18.09
9.53
12.40
6.01
8.17
10.64
10.64
14.37
$
$
$
$
$
-
-
-
-
-
-
8.35 $
8.35 $
7.66 $
1,125,299
1,125,299
120,817
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate intrinsic value in the preceding tables represents the total pretax intrinsic value, based on options with an exercise
price less than the Company’s closing stock price at the respective dates of issuance.
The Company measures the fair value of stock options on the date of grant, based on a Binomial option pricing model using
certain assumptions discussed in the following paragraph, and the closing market price of the Company's common stock on the date of the
grant. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the
award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. Stock options
granted pursuant to the Plans vest 1/3rd 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten
years from the date of grant. Share-based compensation expense related to awards is amortized over the applicable vesting period using the
straight-line method.
The weighted-average grant-date fair value of stock options granted was $4.74 in 2015, $8.20 in 2014 and $7.83 in 2013.
The assumptions used in the valuation of stock options granted during the years ended December 31, 2015, 2014 and 2013 were as
follows:
Risk-free interest rate
Expected term of option
Expected stock price volatility
2015
1.47% to 2.35%
6.0 to 9.91 years
80.91% to 92.13%
2014
2.03% to 2.52%
6.0 to 9.72 years
92.87% to 100.73%
2013
2.02%
6.0 years
99.96%
The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of
the options as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff
Accounting Bulletin, and the expected stock price volatility is based on comparable companies’ historical stock price volatility since the
Company does not have sufficient historical exercise or volatility data because its equity shares have been publicly traded for only a limited
period of time.
Share-based compensation expense relating to options granted of $4.1 million, $3.1 million and $1.7 million was recognized for
the years ended December 31, 2015, 2014 and 2013, respectively.
As of December 31, 2015, the Company had approximately $4.6 million of total unrecognized compensation cost related to non-
vested awards granted under the Plans, which the Company expects to recognize over a weighted average period of 1.76 years.
2014 employee stock purchase plan
On June 9, 2014, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2014 Employee Stock
Purchase Plan (the “2014 ESPP”). The 2014 ESPP allows eligible employees to purchase up to an aggregate of 300,000 shares of the
Company’s common stock. Under the 2014 ESPP, on the first day of each offering period, each eligible employee for that offering period
has the option to enroll for that offering period, which allows the eligible employees to purchase shares of the Company’s common stock at
the end of the offering period. Each offering period under the 2014 ESPP is for six months, which can be modified from time-to-time.
Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s
accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of the fair market
value of our common stock at the beginning or end of each offering period, whichever is less. A participant must designate in his or her
enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the
2014 ESPP, subject to the statutory limit under the Code. As of December 31, 2015, after giving effect to shares purchased as described
below, there were 250,406 shares available for future issuance under the 2014 ESPP.
The 2014 ESPP is considered a compensatory plan with the related compensation cost written off over the six month offering
period. In February 2015, 13,978 shares that were purchased as of December 31, 2014, were issued under the 2014 ESPP, and
approximately $0.1 million of employee payroll deductions accumulated at December 31, 2014, related to acquiring such shares, were
transferred from accrued expenses to additional paid in capital. In July 2015, 18,021 shares that were purchased as of June 30, 2015, were
issued under the 2014 ESPP, and approximately $0.1 million of employee payroll deductions accumulated at June 30, 2015, related to
acquiring such shares, was transferred from accrued expenses to additional paid in capital. The compensation expense related to the 2014
ESPP for the year ended December 31, 2015 was $0.1 million. As of December 31, 2015, approximately $0.1 million of employee payroll
deductions, which had been withheld since July 1, 2015, the commencement of the offering period ended December 31, 2015, are included
in accrued expenses in the accompanying balance sheet. In January 2016, 17,595 shares that were purchased as of December 31, 2015, were
issued under the 2014 ESPP, and the employee payroll deductions accumulated at December 31, 2015, related to acquiring such shares,
were transferred from accrued expenses to additional paid in capital.
F-16
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted stock units
On February 25, 2015, the Company granted an aggregate of 42,000 RSUs with a fair value of $6.24 per unit to its non-employee
directors for board services in 2015, in lieu of cash, which vest one year from the grant date.
Stock-based compensation expense related to RSUs of $0.2 million was recognized during the year ended December 31, 2015. As
of December 31, 2015, 42,000 unvested RSUs were outstanding and stock-based compensation relating to such RSUs of $44,000 remains
unamortized and is being amortized over the remaining period of approximately two months. As of February 25, 2016, the RSUs for the
non-employee directors vested.
NOTE 9 – STOCK WARRANTS
The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company, all
of which were vested and exercisable, at December 31, 2015:
Exercise
Price
Number
Outstanding
$
$
$
4.25
12.00
25.00
918,979
456,009
354,229
1,729,217
Expiration
Date
August 2018
December 2017 to February 2018
January 2017 to February 2019
On January 1, 2013, the Company issued warrants to non-employees to purchase 10,800 shares of the Company's common stock at
an exercise price of $12.00 per share expiring five years from the date of issuance vesting ratably over twelve months beginning January 1,
2013 in connection with services. Compensation of $51,000 related to outstanding warrants was recognized for the year ended December
31, 2013.
In connection with the August 2013 Financing, the Company issued to investors Warrants to purchase 2,680,000 shares of the
Company's common stock. The Warrants are exercisable at $4.25 per share, expire five years from the date of issuance, and may be
exercised on a cashless basis under certain circumstances. In addition, the Company issued to the Third Underwriters warrants to purchase
509,200 shares of the Company's common stock. The warrants are exercisable at $4.25 per share, expire five years from the date of
issuance, and may be exercised on a cashless basis.
The Company measures the fair value of the vested portion of the issued warrants based on a Binomial option pricing model using
certain assumptions discussed in the following paragraph, and the closing market price of the Company's common stock on the date of the
fair value determination.
The assumptions used in the valuation of warrants, which vested during the year ended December 31, 2013, were as follows:
Risk-free interest rate
Life of warrant
Expected stock price volatility
Expected dividend yield
0.77 to 1.75 %
4.75 to 4.01 years
91.31% to 102.46 %
$
0.0
The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of
the options as of the grant date. The expected stock price volatility is based on comparable companies’ historical stock price volatility since
the Company does not have sufficient historical exercise or volatility data because its equity shares have been publicly traded for only a
limited period of time.
In April 2013, the Company issued an aggregate of 38,334 shares of its common stock upon the exercise of warrants at $8.00 per
share.
F-17
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2013, the Company issued an aggregate of 884,885 and 70,031 shares of its common stock upon the exercise
of warrants at $4.25 and $8.00 per share, respectively.
In December 2013, the Company issued 1,672 shares of its common stock upon the exercise of 3,185 warrants exercisable at
$4.25 per share on a cashless basis.
In January 2014, 750 warrants with an exercise price of $20.00 expired.
In August 2014, the Company issued 33,678 shares of its common stock upon the exercise of 48,240 warrants exercisable at $4.25
per share on a cashless basis.
In January 2015, 14,538 warrants with an exercise price of $20.00 expired.
During the years ended December 31, 2015 and 2014, the Company issued an aggregate of 2,000 and 1,331,911 shares of its
common stock upon the exercise of warrants at $4.25 per share.
NOTE 10 – COMMITMENTS
Operating leases
On February 11, 2014, the Company entered into a lease amendment and expansion agreement, whereby the Company agreed to
lease additional premises for office space in New York City, commencing May 1, 2014 and expiring on April 30, 2019. In connection
therewith, the original letter of credit was increased by $72,000 to $132,000 and the Company deposited an additional $72,354 into the
restricted cash account maintained at the bank that issued the letter of credit.
As of December 31, 2015, future minimum lease payments for office space are as follows (in thousands):
Year Ending December 31,
2016
2017
2018
2019
$
$
670
683
607
181
2,141
Rent expense charged to operations, which differs from rent paid due to rent credits and to increasing amounts of base rent, is
calculated by allocating total rental payments on a straight-line basis over the term of the lease. During the years ended December 31, 2015
and 2014, rent expense was $0.6 million and $0.2 million, respectively and as of December 31, 2015 and 2014, deferred rent payable was
$112,000 and $52,000, respectively, including the unamortized reimbursement referred to below and the current portion, which at
December 31, 2015 and 2014, is $6,000 and $17,000, which is included in accrued expenses in 2015 and in prepaid expenses and other in
2014. In December 2015, the Company received a reimbursement of approximately $53,000 for leasehold improvements the Company
incurred from the lessor of our San Diego facility. The reimbursement is being accounted for as deferred rent and is being amortized as a
reduction to rent expense over the remaining term of the lease. As of December 31, 2015, the remaining unamortized amount is $34,000.
Research and development agreements
During 2015 and 2014, the Company entered into contracts with various contract research organizations for which there are
outstanding commitments aggregating approximately $20.1 million at December 31, 2015 for future work to be performed.
Lederman employment agreement
On February 11, 2014, the Company entered into an employment agreement (the “Agreement”) with Dr. Seth Lederman
(“Lederman”) to continue to serve as President, Chief Executive Officer and Chairman of the Board of Directors of the Company.
Previously, the Company entered into a consulting agreement with Lederman & Co, pursuant to which Lederman received compensation
for serving as the Company’s President and Chief Executive Officer. On February 11, 2014, the consulting agreement was terminated.
F-18
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Agreement, which has an initial term of one year and automatically renews for successive one year terms unless either party
delivers written notice not to renew at least 60 days prior to the end of the current term, provides for various payments and benefits to
Lederman in the event Lederman’s employment is terminated without cause (as defined therein), Lederman resigns for Good Reason (as
defined therein) or in the event employment is terminated as a result of death or permanent disability.
Defined contribution plan
Effective April 1, 2014, the Company established a qualified defined contribution plan (the “401(k) Plan”) pursuant to Section
401(k) of the Code, whereby all eligible employees may participate. Participants may elect to defer a percentage of their annual pretax
compensation to the 401(k) plan, subject to defined limitations. The Company is required to make contributions to the 401(k) Plan equal to
100 percent of each participant’s pretax contributions of up to 19 percent of his or her eligible compensation, and the Company is also
required to make a contribution equal to six percent of each participant’s salary, on an annual basis, subject to limitations under the Code.
For the years ended December 31, 2015 and 2014, the Company charged operations $0.4 million for both periods for contributions under
the 401(k) Plan.
NOTE 11 – INCOME TAXES
Components of the Net Loss consist of the following (in thousands):
Foreign
Domestic
Year Ended
December 31,
2014
2015
(45,303)
(2,751)
(48,054)
(14,693)
(12,923)
(27,616)
2013
(502)
(10,382)
(10,884)
In 2015, the foreign losses were primarily comprised of $43.9 million related to the Bermudan operations of Tonix International
Holding, which included a licensing fee of $4.0 million charged by Tonix Sub pursuant to a licensing agreement with Tonix Sub. In 2014,
the foreign losses are comprised of $9.0 million related to the Bermudan operations of Tonix International Holding, which included a
licensing fee of $8.0 million charged by Tonix Sub and $5.7 million related to Tonix Barbados pursuant to a cost sharing agreement with
Tonix Sub. In 2013, the foreign losses are primarily comprised of $0.5 million related to Tonix Canada.
The operations and management of Tonix International Holding are located in Bermuda, and accordingly, are not subject to
income taxes in Ireland, which is its country of incorporation. The operations of Tonix International Holding are not subject to income tax
in Bermuda.
A reconciliation of the effect of applying the federal statutory rate to the net loss and the effective income tax rate used to
calculate the Company's income tax provision is as follows:
Statutory federal income tax
State income tax, net of federal tax effect
Permanent difference
Change in valuation allowance
Foreign loss not subject to income tax
Other
Year Ended
December 31,
2014
2013
2015
(35.0)%
(0.6)%
0.2%
4.6%
32.7%
(1.9)%
(35.0)%
(10.2)%
0.3%
22.0%
24.0%
(1.1)%
Income tax provision
0%
0%
F-19
(34.0)%
(10.5)%
6.7%
37.8%
0.0%
0.0%
0%
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities and related valuation allowance as of December 31, 2015 and 2014 are as follows (in
thousands):
Deferred tax assets:
Research and development credit carryforward (1)
Net operating loss carryforwards
Stock-based compensation
Accrued bonuses
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
December 31,
2015
2014
6
11,645
3,186
388
224
15,449
6
11,320
1,336
200
364
13,226
(15,449)
(13,226)
$
0 $
0
(1) The Company has incurred research and development (“R&D”) expenses, a portion of which may qualify for tax credits. The Company
has not conducted an R&D credit study to quantify the amount of credits and has not claimed an R&D credit on its federal tax returns
filed except for $6,000 in 2007. The Company may conduct the study in future years and may establish the R&D credit carryforward
for prior years. In such event, the net operating loss carryforward will be correspondingly reduced by the amount of the credit.
At December 31, 2015, the Company had available unused net operating loss (“NOL”) carryforwards of approximately
$24 million that expire from 2027 to 2035 for federal tax purposes. The Company also has approximately $27 million of NOL
carryforwards for New York State and New York City purposes expiring from 2030 to 2035. Additionally, the Company has $0.2 million
of foreign NOL balances in various jurisdictions with various expiration periods. At December 31, 2015, the Company has a research and
development carryforward of $6,000 for federal tax purposes that expires in 2027. A portion of these NOL and research and development
credit carryforwards are subject to annual limitations in their use in accordance with Internal Revenue Code (“IRC”) section 382. The NOL
carryforwards at December 31, 2015 have been reduced to reflect IRC section 382 ownership changes through December 31, 2014 and the
resultant inability due to annual limitations, to utilize a portion of the NOL prior to its expiration. Additional adjustments may be required
based on ownership activity during 2015.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated
to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over
the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as
our projections for future growth. As such, the Company has determined that it is not more likely than not that the deferred tax assets will
be realized and accordingly, has provided a full valuation allowance against its gross deferred tax assets. The increase in the valuation
allowance for the years ended December 31, 2015, 2014 and 2013 was $2.2 million, $3.8 million and $4.1 million, respectively.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. However, as
of December 31, 2015 there are no unrecognized tax benefits recorded. The Company is subject to taxation in the United States and
various states and foreign jurisdictions. As of December 31, 2015, the Company's tax returns remain open and subject to examination by the
tax authorities for the tax years 2012 and after.
NOTE 12 – RELATED PARTY TRANSACTIONS
Dr. Seth Lederman, the Company’s Chief Executive Officer and Chairman of the Board is one of the primary founders of the
Company. We previously entered into an agreement with a company under his control, Lederman & Co. Total expenses paid under this
agreement were $38,000 and $0.3 million during the years ended December 31, 2014 and 2013, respectively.
On July 31 and August 1, 2013, the Company sold three promissory notes in the aggregate principal face amount of $0.3 million
to two related parties in exchange for $0.3 million. The notes were payable on demand at any time after one year from issuance and bore no
interest. On July 31, 2014 and August 1, 2014, the Company repaid $0.2 million and $0.1 million, respectively.
F-20
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intellectual property acquired
On March 18, 2014, Tonix Barbados entered into an agreement with Leder Laboratories, Inc. (“Leder”), to acquire intellectual
property related to novel smallpox vaccines. As consideration, $0.1 million was paid in cash and 25,000 shares of the Company’s common
stock valued at $0.3 million were issued to Leder.
On March 18, 2014, Tonix Barbados entered into an agreement with Starling Pharmaceuticals, Inc. (“Starling”), to acquire
intellectual property related to radio- and chemo-protective agents. As consideration, $0.1 million was paid in cash and 25,000 shares of the
Company’s common stock valued at $0.3 million were issued to Starling.
Seth Lederman, the Company’s Chairman and Chief Executive Officer, is the Chairman, CEO and majority owner (through
majority-owned entities) of Starling and Leder.
NOTE 13 – SUMMARY QUARTERLY DATA (unaudited)
Unaudited quarterly financial data for fiscal 2015 and 2014 is summarized as follows:
Operating Loss
NET LOSS
Net loss per common share, basic and diluted
Operating Loss
NET LOSS
Net loss per common share, basic and diluted
2015 Quarter Ended
March 31,
June 30,
September 30,
December 31,
(in thousands, except per share amounts)
(9,696) $
(11,784) $
(13,280) $
(13,402)
(9,681) $
(11,763) $
(13,250) $
(13,360)
(0.71) $
(0.73) $
(0.72) $
(0.71)
2014 Quarter Ended
March 31,
June 30,
September 30,
December 31,
(in thousands, except per share amounts)
(5,169) $
(6,049) $
(7,434) $
(5,164) $
(6,044) $
(7,419) $
(0.59) $
(0.61) $
(0.71) $
(9,004)
(8,989)
(0.83)
$
$
$
$
$
$
Because loss per share amounts are calculated using the weighted average number of common shares outstanding during each
quarter, the sum of the per share amounts for the four quarters does not equal the total loss per share amount for the year.
NOTE 14 – SUBSEQUENT EVENTS
On February 9, 2016, the Company granted options to purchase an aggregate of 411,125 shares of the Company’s common stock
to employees with an exercise price of $5.03, exercisable for a period of ten years, vesting 1/3 on the first anniversary and 1/36th each
month thereafter for 24 months. Additionally, the Company granted options to purchase 200,000 shares of the Company’s common stock to
employees with an exercise price of $5.03, exercisable for a period of ten years, vesting 1/3 each upon the Company’s common stock
having an average closing sale price equal to or exceeding each of $6.00, $7.00 and $8.00 per share for 20 consecutive trading days, subject
to a one year minimum service period prior to vesting.
On February 9, 2016, the Company granted an aggregate of 56,250 RSUs with a fair value of $3.81 per unit to its non-employee
directors for board services in 2016, in lieu of cash, which vest one year from the grant date.
F-21
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their costs.
Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we
are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s report on internal control over financial reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our
company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as a
process designed by, or under the supervision of, a company’s principal executive and principal financial officer and effected by the our
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:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company;
(2) 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 in accordance with authorizations of management and directors of the company; and
(3) 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 its 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 risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and
management necessarily applies its judgment in evaluating the cost-benefit relationship of possible enhancements to controls and
procedures.
We conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
this evaluation, our principal executive officer and principal financial officer conclude that, at December 31, 2015, our internal control over
financial reporting was effective.
55
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by EisnerAmper LLP,
an independent registered public accounting firm, as stated in its report below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Tonix Pharmaceuticals Holding Corp.
We have audited the internal controls over financial reporting of Tonix Pharmaceuticals Holding Corp. (the "Company") as of December
31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's report on internal control over financial reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Tonix Pharmaceuticals Holding Corp. maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2015, based on criteria established in the Internal Control - Integrated Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of Tonix Pharmaceuticals Holding Corp. as of and for the year ended December 31, 2015 and our report
dated March 3, 2016 expressed an unqualified opinion thereon.
/s/ EisnerAmper LLP
New York, New York
March 3, 2016
ITEM 9B – OTHER INFORMATION
None.
56
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The names of our executive officers and directors and their age, title, and biography as of March 2, 2016 are set forth below:
Name
Seth Lederman
Bradley Saenger
Bruce Daugherty
Gregory Sullivan
Stuart Davidson
Patrick Grace
Donald W. Landry
Ernest Mario
Charles E. Mather IV
John Rhodes
Samuel Saks
Age
58
42
58
50
59
60
61
77
56
59
61
Title
President, CEO and Chairman of the Board of Directors
Chief Financial Officer
Chief Scientific Officer, Controller and Secretary
Chief Medical Officer
Director
Director
Director
Director
Director
Lead Director
Director
Directors are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their
successors are elected. Officers are elected annually and serve at the discretion of the Board of Directors.
Seth Lederman, MD became our President, Chief Executive Officer, Chairman of the Board and a Director in October 2011. Dr.
Lederman founded Tonix Pharmaceuticals, Inc., a wholly-owned subsidiary of the Company (“Tonix Sub”) in June of 2007 and has acted
as its Chairman of the Board of Directors since its inception and as President since June 2010. Dr. Lederman is an inventor on key patents
and patent applications underlying our programs including: TNX-102 SL fibromyalgia; TNX-102 SL for post-traumatic stress disorder;
TNX-201 for episodic tension-type headache; and TNX-301 for alcoholism. Dr. Lederman has been the Chairman of Krele since its
inception in August 2010. Dr. Lederman has also been the President and a director of Tonix Pharmaceuticals (Canada), Inc. since its
inception in April 2013, a director of Tonix Pharmaceuticals (Barbados), Ltd. from December 2013 until it was dissolved in 2015.
Lederman served as a director of Tonix Pharma Limited between December 2014 and September 2015 and Tonix Pharma Holdings
Limited between December 2014 and November 2015. Since 1996, Dr. Lederman has been an Associate Professor at Columbia University,
but has been on leave since November 2015. As an Assistant Professor at Columbia, Dr. Lederman discovered and characterized the CD40-
ligand and invented therapeutic candidates to treat autoimmune diseases and transplant rejection. Dr. Lederman has been a Manager of
L&L Technologies LLC, or L&L, since 1996. In addition, Dr. Lederman has been the Managing Member of Seth Lederman Co, LLC
since January 2007 and the Managing Member of Lederman & Co, LLC, or Lederman & Co, since 2002, both of which are
biopharmaceutical consulting and investing companies. Dr. Lederman has also been the Managing Member of Targent Pharmaceuticals,
LLC, or Targent, since 2000, and Managing Member of Plumbline LLC since 2002. Targent was a founder of Targent Pharmaceuticals Inc.
on which Board of Directors Dr. Lederman served from inception in 2001 until the sale of its assets to Spectrum Pharmaceuticals Inc. in
2006. Between January 2007 and November 2008, Dr. Lederman was a Managing Partner of Konanda Pharma Partners, LLC, a Director of
Konanda Pharma Fund I, LP, and a Managing Partner of Konanda General Partner, LLC, which were related private growth equity fund
entities. As well, between January 2007 and November 2008, Dr. Lederman was Chairman of Validus Pharmaceuticals, Inc. and Fontus
Pharmaceuticals, Inc., which were portfolio companies of the Konanda private growth equity funds. Since December 2011, Dr. Lederman
has served as CEO and Chairman of Leder Laboratories Inc., or Leder Labs, and Starling Pharmaceuticals Inc., or Starling, which are
biopharmaceutical development companies. Since March 2013, Dr. Lederman has been the chairman of Leder Laboratories, Ltd., a wholly-
owned subsidiary of Leder Laboratories Inc. Since 2015, Dr. Lederman has served as a member of the US – Japan Business Council.
Between 2006 and 2011, Dr. Lederman was a director of Research Corporation, a New York-based non-profit organization. Dr. Lederman
received his BA degree in Chemistry from Princeton University in 1979 and his MD from Columbia University in 1983. Dr. Lederman has
been a New York State licensed physician since 1985. Dr. Lederman’s significant experience with our patent portfolio and his experience
as an entrepreneur, seed capital investor, fund manager, and director of start-up biopharmaceutical companies were instrumental in his
selection as a member of the board of directors.
Bradley Saenger, CPA became our Chief Financial Officer in February 2016. Mr. Saenger has worked for Tonix since May 2014,
as the Director of Accounting (May 2014 – December 2015) and VP of Accounting (January 2016 – February 2016). Between June 2013
and March 2014, Mr. Saenger worked for Shire Pharmaceuticals as a consultant in the financial analyst research and development group.
Since November 2015, Mr. Saenger has been a director of Tonix Pharma Holdings Limited. Between February 2013 and May 2013, Mr.
Saenger worked for Stewart Health Care System as a financial consultant. Between October 2011 and December 2012, Mr. Saenger was an
Associate Director of Accounting at Vertex Pharmaceuticals, Inc. Between January 2005 and September 2011, Mr. Saenger worked for
Alere Inc., as a Manager of Corporate Accounting and Consolidations (2007 – 2011) and Manager of Financial Reporting (2005 – 2006).
Mr. Saenger also worked for PricewaterhouseCoopers LLP, Shifren Hirsowitz, public accountants and auditors in Johannesburg, South
Africa, Investec Bank in Johannesburg, South Africa and Norman Sifris and Company, public accountants and auditors in Johannesburg,
South Africa. Mr. Saenger received his Bachelor’s and Honors’ degrees in Accounting Science from the University of South Africa. Mr.
Saenger is a Chartered Accountant in South Africa and a Certified Public Accountant in the Commonwealth of Massachusetts.
57
Bruce Daugherty, PhD became our Controller in April 2012, our Secretary in November 2012 and our Chief Scientific Officer in
August 2013. Between April 2012 and August 2013, Dr. Daugherty was our Senior Director of Drug Development. Dr. Daugherty has also
been the Secretary and a director of Tonix Pharmaceuticals (Canada), Inc. since its inception in April 2013. Since September 2015, Dr.
Daugherty has been a director of Tonix Pharma Limited. Since January 2009, Dr. Daugherty has worked as a consultant to academia and
biotechnology companies in drug discovery/development and licensing through his consulting company, LeClair Pharma Consulting, LLC.
Dr. Daugherty was a consultant to our company between November 2011 and March 2012. In 2009, Dr. Daugherty was employed at
Assumption College in Mendham, New Jersey, where he was a lecturer in Biology for freshman students. From 1987 to 2008, Dr.
Daugherty was employed at Merck & Co., where he was a scientist in drug discovery and development. Dr. Daugherty earned his MBA
from Emory University’s Goizueta Business School, his PhD in Molecular Genetics and Microbiology from Rutgers University-Robert
Wood Johnson Medical School, his MS in Zoology from Rutgers University and his BA in Biology from Washington University in St.
Louis.
Gregory Sullivan, MD became our Chief Medical Officer on June 3, 2014. Prior to that date, he served on our Scientific Advisory
Board since October 2010, and had also provided ad hoc consulting services. Previously, Dr. Sullivan had been a member of the faculty of
Columbia University since July 1999, where he served as an Assistant Professor of Psychiatry in the Department of Psychiatry at Columbia
University Medical Center (CUMC) until June 2014. Between June 1997 and August 2014, Dr. Sullivan maintained a part-time psychiatry
practice. He served as a Research Scientist at the New York State Psychiatric Institute (NYSPI) from December 2006 to June 2014. He also
served as a member of the Institutional Review Board of the NYSPI from January 2009 to June 2014. As Principal Investigator and Co-
Investigator on several human studies of posttraumatic stress disorder (PTSD), Dr. Sullivan has administered the recruitment, biological
assessments, treatment, and safety of participants with PTSD in clinical trials of the disorder. He has published more than 50 articles and
chapters on research topics ranging from stress and anxiety disorders to abnormal serotonin receptor expression in depression, PTSD and
panic disorder. He is a recipient of grants from the National Institute of Mental Health (NIMH), the Anxiety Disorders Association of
America, NARSAD, the Dana Foundation, and the American Foundation for Suicide Prevention. Dr. Sullivan received a BA in Biology
from the University of California, Berkeley, and received his MD from the College of Physicians & Surgeons at Columbia University. He
completed his residency training in psychiatry at CUMC, and then a two-year NIMH-sponsored research fellowship in anxiety and affective
disorders before joining the faculty at Columbia.
Stuart Davidson became a Director in October 2011. Between July 2010 and October 2011, Mr. Davidson served as a director of
Tonix Sub. Since 2011, Mr. Davidson has been a Managing Director of Sonen Capital. Since 1994, Mr. Davidson has been a Managing
Partner of Labrador Ventures. Prior to Labrador, Mr. Davidson founded and served as CEO of Combion, Inc., which was acquired by
Incyte. He also served as President of Alkermes, Inc., a biotechnology company focused on drug delivery. Mr. Davidson received his
Bachelor’s Degree from Harvard College in 1978 and his MBA from Harvard Business School in 1984. Mr. Davidson’s prior experience as
a venture capital investor, entrepreneur, and biotechnology industry executive experience in the leadership of pharmaceutical companies
was instrumental in his selection as a member of our board of directors.
Patrick Grace became a Director in October 2011. Between June 2007 and October 2011, Mr. Grace served as a director of Tonix
Sub. Mr. Grace was the co-founder of and served as the Managing Partner of Apollo Philanthropy Partners, L.L.C. from October 2008 until
October 2012. He has also been President of MLP Capital, Inc., an investment holding company, since 1996. Mr. Grace served in various
senior management roles with W. R. Grace & Co. from 1977 to 1995, and was last President and CEO of Grace Logistics Services, Inc.
From January 2002 to August 2002, Mr. Grace was also President and Chief Executive Officer of Kingdom Group, LLC (“Kingdom”), a
provider of turnkey compressed natural gas fueling systems, and he was Executive Vice President of Kingdom from August 1999 to
December 2000. Since 1996, he has been a director of Chemed Corporation. Mr. Grace was a liberal arts major at the University of Notre
Dame and earned a MBA in finance from Columbia University. Mr. Grace’s extensive executive experience, along with his membership on
the board of directors of a public company, was instrumental in his selection as a member of our board of directors.
Donald W. Landry, MD, PhD became a Director in October 2011. Between June 2007 and October 2011, Dr. Landry served as a
director of Tonix Sub. Dr. Landry has been a member of the faculty of Columbia University since 1986, and has served as the Samuel Bard
Professor of Medicine, Chair of the Department of Medicine and Physician-in-Chief at New York Presbyterian Hospital/Columbia
University since 2008. Since 1996, he has been a director of Sensient Technologies Corp. Dr. Landry was a co-founder and has been a
member of L&L since 1996. Dr. Landry received his BS degree in Chemistry from Lafayette College in 1975, his PhD in Organic
Chemistry from Harvard University in 1979 and his M.D. from Columbia University in 1983. Dr. Landry has been a New York State
licensed physician since 1985. In 2008, Dr. Landry was awarded the Presidential Citizens Medal, the second-highest award that the
President can confer upon a civilian. Dr. Landry’s significant medical and scientific background was instrumental in his selection as a
member of the board of directors.
58
Ernest Mario, PhD became a Director in October 2011. Between September 2010 and October 2011, Dr. Mario served as a
director of Tonix Sub. Dr. Mario is a former Deputy Chairman and Chief Executive of Glaxo Holdings plc and a former Chairman and
Chief Executive Officer of ALZA Corporation. Since April 2014, Dr. Mario has served as Chairman of Capnia, Inc., a specialty
pharmaceutical company in Palo Alto, CA. Between August 2007 and February 2014, Dr. Mario served as the Chief Executive Officer and
Chairman of Capnia, Inc. and between February 2014 and April 2014, Dr. Mario served as Executive Chairman. From 2003 to 2007, he
was Chairman and Chief Executive of Reliant Pharmaceuticals, Inc. Dr. Mario is currently a director of Boston Scientific Corp. (since
2001), Capnia Inc. (since 2007), Celgene Corp. (since 2007), Chimerix, Inc. (since February 2013) and Kindred Biosciences, Inc. (since
February 2013). Dr. Mario is also Chairman of Chimerix. Between 2012 and 2015, Dr. Mario served as a director of XenoPort Inc. Between
2001 and 2013, Dr. Mario was a director of Maxygen Inc. He is Chairman of the American Foundation for Pharmaceutical Education and
serves as an advisor to The Ernest Mario School of Pharmacy at Rutgers University. In 2007, Dr. Mario was awarded the Remington Medal
by the American Pharmacists’ Association, pharmacy’s highest honor. Dr. Mario received a PhD and an MS in physical sciences from the
University of Rhode Island and a BS in pharmacy from Rutgers University. Dr. Mario brings to his service as a director his significant
executive leadership experience, including his experience leading several pharmaceutical companies, as well as his membership on public
company boards and foundations. He also has extensive experience in financial and operations management, risk oversight, and quality and
business strategy.
Charles E. Mather IV became a Director in October 2011. Between April and October 2011, Mr. Mather served as a director of
Tonix Sub. Mr. Mather has been a Managing Director of Equity Capital Markets at BTIG since March 2015. From December 2009 to
February 2015 he was the Head of Private and Alternative Capital and Co-Head of Equity Capital Markets at Janney Montgomery Scott.
Between May 2007 and September 2008, Mr. Mather was the head of the Structured Equity Group at Jefferies Group Inc. Prior to that, Mr.
Mather held various senior investment banking positions at Cowen and Company, including as Co-Head of the Private Equity Group. Since
July 2015, Mr. Mather has served as a director of the Finance Company of Pennsylvania. Mr. Mather received a BA in History from Brown
University and an MBA in Finance from The Wharton School, University of Pennsylvania. Mr. Mather’s extensive experience advising life
science companies as an investment banker was instrumental in his selection as a member of our board of directors.
John Rhodes became a Director in October 2011 and Lead Director in February 2014. Mr. Rhodes has served as President and
CEO of the New York State Energy Research and Development Authority since September 2013. Between October 2010 and October
2011, Mr. Rhodes served as a director of Tonix Sub. Between 2005 and 2013, Mr. Rhodes was a director of Dewey Electronics Company, a
manufacturer of electronic and electromechanical systems for the military and commercial markets. Between January 2013 and September
2013, he served as director of the Center for Market Innovation at Natural Resources Defense Council. Between April 2007 and June 2010,
Mr. Rhodes was a Senior Advisor to Good Energies, Inc., a renewable energy company. Mr. Rhodes is a former Vice President of Booz
Allen Hamilton, Inc. Mr. Rhodes is a graduate of Princeton University and the Yale School of Management. Mr. Rhodes’ extensive
business and consulting experience, along with his membership on the board of directors of a public company was instrumental in his
selection as a member of our board of directors.
Samuel Saks, MD became a Director in May 2012. Between 2003 and April 2009, Dr. Saks was the chief executive officer and a
director of Jazz Pharmaceuticals, Inc., a publicly-held biopharmaceutical company, which he co-founded in 2003. From April 2011 until
February 2012, Dr. Saks served as interim Chief Medical Officer of Threshold Pharmaceuticals, a publicly-held biopharmaceutical
company. Between November 2013 and May 2015, Dr. Saks served as the Chief Development Officer of Auspex Pharmaceuticals, Inc., a
publicly-held biopharmaceutical company. From 2001 until 2003, Dr. Saks was company group chairman of ALZA Corporation and a
member of the Johnson & Johnson Pharmaceuticals Operating Committee. From 1992 until 2001, Dr. Saks held various positions at ALZA,
including Chief Medical Officer and Group Vice President, where he was responsible for clinical, regulatory and commercial activities.
Previously, Dr. Saks held clinical research and development management positions with Schering-Plough, Xoma and Genentech. Dr. Saks
formerly served as a scientific advisor to ArQule Pharmaceuticals, CMEA Ventures and ProQuest Investments. Dr. Saks is currently a
director of Velocity Pharmaceutical Development LLC (since 2011), Depomed (since 2012), Bullet Biotechnology, Inc. (since 2012),
NuMedii (since 2013) and PDL BioPharma, Inc. (since September 2015). Between 2009 and May 2015, Dr. Saks was a director of Auspex
Pharmaceuticals. From September 2005 until October 2010, Dr. Saks served on the board of directors of Trubion Pharmaceuticals, a
publicly-held biopharmaceutical company. Dr. Saks has also served on the board of directors of Corixa, Coulter and Ribozyme. Dr. Saks is
board certified in oncology and received a B.S. and an M.D. from the University of Illinois. Mr. Saks’ extensive scientific and medical
expertise and experience in formulating partnering and business development strategies, including those involving larger pharmaceutical
companies, was instrumental in his selection as a member of our board of directors.
Family Relationships
None.
59
Board Independence
The board of directors has determined that (i) Seth Lederman, has a relationship which, in the opinion of the board of directors,
would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent
director” as defined in the Marketplace Rules of The NASDAQ Stock Market and (ii) Stuart Davidson, Patrick Grace, Donald Landry,
Ernest Mario, Charles Mather, John Rhodes and Samuel Saks are each an independent director as defined in the Marketplace Rules of The
NASDAQ Stock Market.
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 2015, the Board of Directors held four meetings, the Audit Committee held five
meetings, the Compensation Committee held three meetings and the Nominating and Corporate Governance Committee held three
meetings. The Board and Board committees also approved certain actions by unanimous written consent.
Board Committees
The Board of Directors has standing Audit, Compensation, and Governance and Nominating Committees. Information concerning
the membership and function of each committee is as follows:
Board Committee Membership
Audit
Committee
Compensation Committee
Nominating and
Corporate Governance
Committee
**
*
*
**
*
*
*
*
**
Name
Seth Lederman
Stuart Davidson
Patrick Grace
Donald W. Landry
Ernest Mario
Charles E. Mather IV
John Rhodes
Samuel Saks
* Member of Committee
** Chairman of Committee
Audit Committee
Our Audit Committee consists of Patrick Grace, Charles Mather and John Rhodes, with Mr. Grace elected as Chairman of the
Committee. Our Board of Directors has determined that each of Messrs. Grace, Mather and Rhodes are “independent” as that term is
defined under applicable SEC rules and under the current listing standards of the NASDAQ Stock Market. Mr. Grace is our audit
committee financial expert.
Our Audit Committee’s responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance of
the independent auditors, (ii) appointing, replacing and discharging the independent auditor, (iii) pre-approving the professional services
provided by the independent auditor, (iv) reviewing the scope of the annual audit and reports and recommendations submitted by the
independent auditor, and (v) reviewing our financial reporting and accounting policies, including any significant changes, with management
and the independent auditor. The Audit Committee reviewed and discussed with management the Company’s audited financial statements
for the year ended December 31, 2015.
Compensation Committee
Our Compensation Committee consists of Stuart Davidson, Ernest Mario and Samuel Saks, with Mr. Davidson elected as
Chairman of the Committee. Our Board of Directors has determined that all of the members are “independent” under the current listing
standards of the NASDAQ Stock Market. Our Board of Directors has adopted a written charter setting forth the authority and
responsibilities of the Compensation Committee.
Our Compensation Committee has responsibility for, among other things, evaluating and making decisions regarding the
compensation of our executive officers and directors, assuring that the executive officers are compensated effectively in a manner
consistent with our stated compensation strategy, producing an annual report on executive compensation in accordance with the rules and
regulations promulgated by the SEC, periodically evaluating and administering the terms and administration of our incentive plans and
benefit programs and monitoring of compliance with the legal prohibition on loans to our directors and executive officers.
60
Nominating Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Donald Landry, Charles Mather and John Rhodes, with Mr.
Rhodes elected as Chairman of the Committee. The Board of Directors has determined that all of the members are “independent” under the
current listing standards of the NASDAQ Stock Market.
Our Nominating and Corporate Governance Committee has responsibility for assisting the Board in, among other things, effecting
the organization, membership and function of the Board and its committees. The Nominating and Corporate Governance Committee shall
identify and evaluate the qualifications of all candidates for nomination for election as directors. In addition, the Nominating and Corporate
Governance Committee is responsible for developing, recommending and evaluating corporate governance standards and a code of business
conduct and ethics.
Nomination of Directors
As provided in its charter and our company’s corporate governance principles, the Nominating and Corporate Governance
Committee is responsible for identifying individuals qualified to become directors. The Nominating and Corporate Governance Committee
seeks to identify director candidates based on input provided by a number of sources, including (1) the Nominating and Corporate
Governance Committee members, (2) our other directors, (3) our shareholders, (4) our Chief Executive Officer or Chairman, and (5) third
parties such as professional search firms. In evaluating potential candidates for director, the Nominating and Corporate Governance
Committee considers the entirety of each candidate’s credentials.
Qualifications for consideration as a director nominee may vary according to the particular areas of expertise being sought as a
complement to the existing composition of the Board of Directors. However, at a minimum, candidates for director must possess:
·
·
·
·
·
high personal and professional ethics and integrity;
the ability to exercise sound judgment;
the ability to make independent analytical inquiries;
a willingness and ability to devote adequate time and resources to diligently perform Board and committee duties; and
the appropriate and relevant business experience and acumen.
In addition to these minimum qualifications, the Nominating and Corporate Governance Committee also takes into account when
considering whether to nominate a potential director candidate the following factors:
· whether the person possesses specific industry expertise and familiarity with general issues affecting our business;
· whether the person’s nomination and election would enable the Board to have a member that qualifies as an “audit
committee financial expert” as such term is defined by the SEC in Item 401 of Regulation S-K;
· whether the person would qualify as an “independent” director under the listing standards of the Nasdaq Stock Market;
·
·
the importance of continuity of the existing composition of the Board of Directors to provide long term stability and
experienced oversight; and
the importance of diversified Board membership, in terms of both the individuals involved and their various experiences
and areas of expertise.
The Nominating and Corporate Governance Committee will consider director candidates recommended by shareholders provided
such recommendations are submitted in accordance with the procedures set forth below. In order to provide for an orderly and informed
review and selection process for director candidates, the Board of Directors has determined that shareholders who wish to recommend
director candidates for consideration by the Nominating and Corporate Governance Committee must comply with the following:
61
·
·
·
The recommendation must be made in writing to the Corporate Secretary at Tonix Pharmaceuticals Holding Corp.;
The recommendation must include the candidate's name, home and business contact information, detailed biographical
data and qualifications, information regarding any relationships between the candidate and the Company within the last
three years and evidence of the recommending person's ownership of the Company’s common stock;
The recommendation shall also contain a statement from the recommending shareholder in support of the candidate;
professional references, particularly within the context of those relevant to board membership, including issues of
character, judgment, diversity, age, independence, expertise, corporate experience, length of service, other commitments
and the like; and personal references; and
· A statement from the shareholder nominee indicating that such nominee wants to serve on the Board and could be
considered "independent" under the Rules and Regulations of the Nasdaq Stock Market and the SEC, as in effect at that
time.
All candidates submitted by shareholders will be evaluated by the Nominating and Corporate Governance Committee according to
the criteria discussed above and in the same manner as all other director candidates.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. A copy of the
Code of Business Conduct and Ethics is incorporated by reference as an exhibit.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and holders of more
than 10% of our common stock to file with the SEC reports regarding their ownership and changes in ownership of our securities. We
believe that, during fiscal 2015, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.
Involvement in Certain Legal Proceedings
Our Directors and Executive Officers have not been involved in any of the following events during the past ten years:
1.
2.
3.
4.
5.
6.
any bankruptcy petition filed by or against such person or any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years prior to that time;
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations
and other minor offenses);
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any
type of business, securities or banking activities or to be associated with any person practicing in banking or securities
activities;
being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the
Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended, or vacated;
being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or
commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law
or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-
regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
62
ITEM 11 – EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for the 2016 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission (SEC) within 120 days of the fiscal year ended December 31, 2015.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 2, 2016:
·
·
·
by each person who is known by us to beneficially own more than 5% of our common stock;
by each of our officers and directors; and
by all of our officers and directors as a group.
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment
power and that person’s address is c/o Tonix Pharmaceuticals Holding Corp., 509 Madison Avenue, Suite 306, New York New York
10022.
NAME OF OWNER
Seth Lederman
Bradley Saenger
Bruce Daugherty
Gregory Sullivan
Stuart Davidson
Patrick Grace
Donald Landry
Ernest Mario
Charles Mather IV
John Rhodes
Samuel Saks
Officers and Directors as a Group (11 persons)
Kingdon Capital Management, L.L.C. (15)
Deerfield Special Situations Fund, L.P. (16)
Broadfin Capital, LLC (17)
* Denotes less than 1%
TITLE OF
CLASS
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
NUMBER OF
SHARES OWNED (1)
PERCENTAGE OF
COMMON STOCK (2)
854,268(3)
21,327(4)
237,231(5)
62,940(6)
130,645(7)
46,025(8)
122,990(9)
309,284(10)
52,809(11)
150,431(12)
84,746(13)
2,021,572(14)
1,467,858
1,315,551
1,243,748
4.42%
*
1.25%
*
*
*
*
1.64%
*
*
*
10.18%
7.78%
6.97%
6.59%
(1) Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of March 2, 2016 are deemed outstanding for computing the percentage of the person holding such option or
warrant but are not deemed outstanding for computing the percentage of any other person.
(2) Percentage based upon 18,873,264 shares of common stock issued and outstanding as of March 2, 2016.
(3) Includes 345,546 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days,
184,628 shares of common stock and 54,500 shares of common stock underlying warrants owned by Lederman & Co, 32,457 shares of
common stock and 12,667 shares of common stock underlying warrants owned by L&L, 58,972 shares of common stock and 8,250 shares
of common stock underlying warrants owned by Targent, 29,167 shares of common stock and 4,167 shares of common stock underlying
warrants owned by Leder Labs and 29,167 shares of common stock and 4,167 shares of common stock underlying warrants owned by
Starling. Seth Lederman, as the Managing Member of Lederman & Co and Targent, the Manager of L&L and the Chairman of Leder Labs
and Starling, has investment and voting control over the shares held by these entities.
63
(4) Includes 17,288 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(5) Includes 116,062 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
55,392 shares of common stock underlying warrants.
(6) Includes 39,755 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(7) Includes 38,729 shares of common stock underlying options and restricted stock units which are currently exercisable or vested or
become exercisable within 60 days, 74,536 shares of common stock and 10,834 shares of common stock underlying warrants owned by
Lysander, LLC and 6,546 shares owned by Oystercatcher Trust. Stuart Davidson, as the Member of Lysander, LLC and Trustee of
Oystercatcher Trust, has investment and voting control over the shares held by these entities.
(8) Includes 39,479 shares of common stock underlying options and restricted stock units which are currently exercisable or vested or
become exercisable within 60 days.
(9) Includes 31,979 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
32,457 shares of common stock and 12,667 shares of common stock underlying warrants owned by L&L. Donald Landry, as a Member of
L&L, has investment and voting control over the shares held by this entity.
(10) Includes 31,979 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
10,833 shares of common stock underlying warrants.
(11) Includes 31,979 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
3,000 shares of common stock underlying warrants.
(12) Includes 36,470 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
26,765 shares of common stock underlying warrants.
(13) Includes 37,979 shares of common stock underlying options and restricted stock units which are currently exercisable or vested or
become exercisable within 60 days and 14,217 shares of common stock underlying warrants.
(14) Includes 767,245 shares of common stock underlying options and restricted stock units which are currently exercisable or vested or
become exercisable within 60 days, 184,628 shares of common stock and 54,500 shares of common stock underlying warrants owned by
Lederman & Co, 32,457 shares of common stock and 12,667 shares of common stock underlying warrants owned by L&L, 58,972 shares of
common stock and 8,250 shares of common stock underlying warrants owned by Targent, 29,167 shares of common stock and 4,167 shares
of common stock underlying warrants owned by Leder Labs, 29,167 shares of common stock and 4,167 shares of common stock underlying
warrants owned by Starling, 74,536 shares of common stock and 10,834 shares of common stock underlying warrants owned by Lysander,
LLC, 6,546 shares owned by Oystercatcher Trust and 123,222 shares of common stock underlying warrants owned directly by the
executive officers and directors.
(15) Based upon a Schedule 13G/A filed with the SEC on February 16, 2016. The mailing address for this beneficial owner is 152 West
57th Street, 50th Floor, New York, NY 10019. Mark Kingdon is the managing member and has voting and investment power over the
securities owned by it.
(16) Based upon a Schedule 13G/A filed with the SEC on February 16, 2016. The mailing address for this beneficial owner is 780 Third
Avenue, 37th Floor, New York, New York 10017. Deerfield Mgmt, L.P. is the general partner of Deerfield Special Situations Fund, L.P.
Deerfield Management Company, L.P. is the investment manager of Deerfield Special Situations Fund, L.P. Mr. James E. Flynn is the sole
member of the general partner of Deerfield Mgmt, L.P. and Deerfield Management Company, L.P. Each of Deerfield Mgmt, L.P., Deerfield
Management Company, L.P. and Mr. Flynn may be deemed to beneficially own the securities held by Deerfield Special Situations Fund,
L.P.
(17) Based upon a Schedule 13G/A filed with the SEC on February 12, 2016. The mailing address for this beneficial owner is 300 Park
Avenue, 25th Floor, New York, New York 10022. Kevin Kotler is the managing member and has voting and investment power over the
securities owned by it.
64
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the
identification, review, consideration and oversight of “related-party transactions.” For purposes of our policy only, a “related-party
transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we
and any “related party” are participants involving an amount that exceeds $120,000.
Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-
person transactions under this policy. A related party is any executive officer, director or a holder of more than five percent of our common
stock, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-party transaction, our Chief Compliance Officer must
present information regarding the proposed related-party transaction to our Nominating and Corporate Governance Committee for review.
The presentation must include a description of, among other things, the material facts, the direct and indirect interests of the related parties,
the benefits of the transaction to us and whether any alternative transactions are available. To identify related-party transactions in advance,
we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-party
transactions, our Nominating and Corporate Governance Committee will take into account the relevant available facts and circumstances
including, but not limited to:
• whether the transaction was undertaken in the ordinary course of our business;
• whether the related party transaction was initiated by us or the related party;
• whether the transaction with the related party is proposed to be, or was, entered into on terms no less favorable to us than terms
•
•
•
•
that could have been reached with an unrelated third party;
the purpose of, and the potential benefits to us from the related party transaction;
the approximate dollar value of the amount involved in the related party transaction, particularly as it relates to the related
party;
the related party’s interest in the related party transaction, and
any other information regarding the related party transaction or the related party that would be material to investors in light of
the circumstances of the particular transaction.
The Nominating and Corporate Governance Committee shall then make a recommendation to the board of directors, who will
determine whether or not to approve of the related party transaction, and if so, upon what terms and conditions. In the event a director has
an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval.
Other than as disclosed below, during the last two fiscal years, there have been no related party transactions.
We previously entered into an agreement with Lederman & Co, a company under the control of Dr. Seth Lederman, our Chief
Executive Officer and Chairman of the Board of Directors. Effective October 15, 2013, Lederman & Co received $0.3 million per annum
for its consulting services. On February 11, 2014, the agreement with Lederman & Co was terminated, and we simultaneously entered into
an employment agreement with Dr. Lederman.
On July 31 and August 1, 2013, we sold three promissory notes in the aggregate principal face amount of $0.3 million to two
related parties in exchange for $0.3 million. The notes were payable on demand at any time after one year from issuance and bear no
interest, and were included in current liabilities on the consolidated balance sheet at December 31, 2013. On July 31, 2014 and August 1,
2014, we repaid $0.2 million and $0.1 million, respectively.
On March 18, 2014, Tonix Barbados entered into the Starling Agreement with Starling and the Leder Agreement with Leder. Seth
Lederman, the Company’s Chairman and Chief Executive Officer, is the Chairman, CEO and majority owner (through majority-owned
entities) of Starling and Leder. Pursuant to the Starling Agreement, Tonix Barbados acquired from Starling rights to a United States patent
application for radio- and chemo-protective agents and related intellectual property rights, in exchange for $0.1 million and 25,000 shares
of our common stock. Pursuant to the Leder Agreement, Tonix Barbados acquired from Leder rights to a United States patent application
for novel smallpox vaccines and related intellectual property rights, in exchange for $0.1 million and 25,000 shares of our common stock.
65
On February 3, 2015, we entered into an underwriting agreement for an offering of common stock with a group of underwriters,
including Janney Montgomery Scott LLC. Charles Mather, one of our directors, was a Managing Director of Janney until February 2015.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for the 2016 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission (SEC) within 120 days of the fiscal year ended December 31, 2015.
66
PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
List of Documents Filed as a Part of This Report:
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated balance sheets as of December 31, 2015 and 2014
Consolidated statements of operations for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of comprehensive loss for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of stockholders’ equity for the years ended December 31, 2015, 2014 and 2013
Consolidated statements of cash flows for the years ended December 31, 2015, 2014 and 2013
Notes to consolidated financial statements
(b)
Index to Financial Statement Schedules:
F-1
F-2
F-3
F-4
F-5
F-6
F-8
F-9
All schedules have been omitted because the required information is included in the consolidated financial statements or the notes
thereto, or is not applicable or required.
(c)
Index to Exhibits
The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The
Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed pursuant to
Item 15.
Exhibit No.
Description
3.01
Articles of Incorporation, filed as an exhibit to the Registration Statement on Form S-1, filed with the Securities and
Exchange Commission (the “Commission”) on April 9, 2008 and incorporated herein by reference.
3.02
Articles of Merger between Tamandare Explorations Inc. and Tonix Pharmaceuticals Holding Corp., effective October 11,
2011, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on October 17, 2011 and
incorporated herein by reference.
3.03
Amended and Restated Bylaws, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on June
19, 2014 and incorporated herein by reference.
10.01
Lease Agreement, dated as of September 28, 2010, by and between 509 Madison Avenue Associates, L.P. and Tonix
Pharmaceuticals, Inc., filed as an exhibit to the amended Current Report on Form 8-K/A, filed with the Commission on
February 3, 2012 and incorporated herein by reference.
10.02
Form of Class A Warrant, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on January 23,
2012 and incorporated herein by reference.
10.03
Form of Class A Warrant, dated December 4, 2012, filed as an exhibit to the Current Report on Form 8-K filed with the
Commission on December 5, 2012 and incorporated herein by reference.
10.04
Form of Class A Warrant, dated December 21, 2012, filed as an exhibit to the Current Report on Form 8-K filed with the
Commission on December 27, 2012 and incorporated herein by reference.
10.05
Employment Agreement, between Tonix Pharmaceuticals Holding Corp. and Seth Lederman, dated February 11, 2014, filed
as an exhibit to the Current Report on Form 8-K filed with the Commission on February 14, 2014 and incorporated herein
by reference.*
67
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
Letter of Termination, between Tonix Pharmaceuticals Holding Corp. and Lederman & Co., LLC, dated February 11, 2014,
filed as an exhibit to the Current Report on Form 8-K filed with the Commission on February 14, 2014 and incorporated
herein by reference.
Employment Agreement, between Tonix Pharmaceuticals Holding Corp. and Bruce Daugherty, dated March 14, 2014, filed
as an exhibit to the Current Report on Form 8-K filed with the Commission on March 19, 2014 and incorporated herein by
reference.*
Employment Agreement, between Tonix Pharmaceuticals Holding Corp. and Leland Gershell, dated March 19, 2014, filed
as an exhibit to the Current Report on Form 8-K filed with the Commission on March 19, 2014 and incorporated herein by
reference.*
Employment Agreement, between Tonix Pharmaceuticals Holding Corp. and Donald Kellerman, dated April 1, 2014, filed
as an exhibit to the Current Report on Form 8-K filed with the Commission on April 1, 2014 and incorporated herein by
reference.*
Employment Agreement, between Tonix Pharmaceuticals Holding Corp. and Gregory Sullivan, dated June 3, 2014, filed as
an exhibit to the Current Report on Form 8-K filed with the Commission on June 3, 2014 and incorporated herein by
reference.*
Form of Subscription Agreement, dated July 11, 2014 between Tonix Pharmaceuticals Holding Corp. and the investors
named therein, filed as an exhibit to the Current Report on Form 8-K filed with the Commission on July 11, 2014 and
incorporated herein by reference.
Placement Agent Agreement, dated July 11, 2014 between Tonix Pharmaceuticals Holding Corp. and Roth Capital Partners,
LLC, filed as an exhibit to the Current Report on Form 8-K filed with the Commission on July 11, 2014 and incorporated
herein by reference.
Lease Amendment and Expansion Agreement, dated February 11, 2014, by and between 509 Madison Avenue Associates,
L.P. and Tonix Pharmaceuticals, Inc., filed as an exhibit to the Annual Report on Form 10-K filed with the Commission on
February 27, 2015 and incorporated herein by reference.
14.01
Code of Business Conduct and Ethics for Employees, Executive Officers and Directors, filed as an exhibit to the Current
Report on Form 8-K, filed with the Commission on February 16, 2016 and incorporated herein by reference.
21.01
23.01
31.01
List of Subsidiaries, filed herewith.
Consent of Independent Registered Public Accounting Firm, filed herewith.
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.02
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.01
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following materials from Tonix Pharmaceuticals Holding Corp.’s Annual Report on Form 10-K for the year ended
December 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets,
(ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the
Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to
Consolidated Financial Statements.
68
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Date: March 3, 2016
Date March 3, 2016
TONIX PHARMACEUTICALS HOLDING CORP.
By:
By:
/s/ SETH LEDERMAN
Seth Lederman
Chief Executive Officer (Principal Executive
Officer)
/s/ BRADLEY SAENGER
Bradley Saenger
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Name
/s/ SETH LEDERMAN
Seth Lederman
/s/ STUART DAVIDSON
Stuart Davidson
/s/ PATRICK GRACE
Patrick Grace
/s/ DONALD W. LANDRY
Donald W. Landry
/s/ ERNEST MARIO
Ernest Mario
/s/ CHARLES MATHER IV
Charles Mather IV
/s/ JOHN RHODES
John Rhodes
/s/ SAMUEL SAKS
Samuel Saks
Position
Director
Director
Director
Director
Director
Director
Director
Director
69
Date
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
March 3, 2016
Exhibit 21.01
SUBSIDIARIES OF THE COMPANY
Subsidiary Name
State/ Jurisdiction of Incorporation/Formation
Tonix Pharmaceuticals, Inc.
Krele, LLC
Tonix Pharmaceuticals (Canada), Inc.
Tonix Pharma Holdings Limited
Tonix Pharma Limited
Tonix Medicines, Inc.
Delaware
Delaware
New Brunswick, Canada
Ireland
Ireland
Delaware
Exhibit 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements [Form S-3 No. 333-192541 and Form S-8 No. 333-202006] of
Tonix Pharmaceuticals Holding Corp. of our report dated March 3, 2016, with respect to the consolidated financial statements of Tonix
Pharmaceuticals Holding Corp. and our report dated March 3, 2016 with respect to the effectiveness of Tonix Pharmaceutical Holding
Corp.'s internal control over financial reporting included in this Annual Report on Form 10-K for the year ended December 31, 2015.
/s/ EisnerAmper LLP
New York, New York
March 3, 2016
Exhibit 31.01
I, Seth Lederman, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Tonix Pharmaceuticals Holding Corp.;
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 reasonable 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 controls over financial reporting.
Date: March 3, 2016
/s/ SETH LEDERMAN
Seth Lederman
Chief Executive Officer
Exhibit 31.02
I, Bradley Saenger, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K of Tonix Pharmaceuticals Holding Corp.;
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 reasonable 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 controls over financial reporting.
Date: March 3, 2016
/s/ BRADLEY SAENGER
Bradley Saenger
Chief Financial Officer
Exhibit 32.01
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Seth Lederman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Annual Report of Tonix Pharmaceuticals Holding Corp. on Form 10-K for the fiscal year ended December 31, 2015 fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this Annual
Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Tonix Pharmaceuticals
Holding Corp.
Date: March 3, 2016
By:
Name:
Title:
/s/ SETH LEDERMAN
Seth Lederman
Chief Executive Officer
I, Bradley Saenger, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Annual Report of Tonix Pharmaceuticals Holding Corp. on Form 10-K for the fiscal year ended December 31, 2015 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this
Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Tonix
Pharmaceuticals Holding Corp.
Date: March 3, 2016
By:
Name:
Title:
/s/ BRADLEY SAENGER
Bradley Saenger
Chief Financial Officer