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, 2017
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 ☒
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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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 ☒ 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. ☐
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 ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒
The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2017, based on the closing sales price of the
common stock as quoted on The NASDAQ Global Market was $29,400,244. 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 1, 2018, there were 7,830,790 shares of registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PAGE
3
30
58
58
59
59
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
59
60
61
74
F-1 – F-25
75
75
76
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
76
85
92
94
94
95
98
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 ®*, Protectic™, Angstro-Technology™ 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 has been conditionally accepted by the U.S. Food and Drug Administration (FDA) as the proposed trade name for TNX-102 SL
(cyclobenzaprine HCl sublingual tablets) for posttraumatic stress disorder, or PTSD. TNX-102 SL is an investigational new drug and has
not been approved for any indication.
Business Overview
Tonix is a clinical-stage biopharmaceutical company focused on discovering and developing pharmaceutical products to treat
serious neuropsychiatric conditions and to improve biodefense through the development of potential medical counter-measures. Our most
advanced drug development program is focused on delivering a safe and effective long-term treatment for PTSD. PTSD is 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 PTSD,
other central nervous system disorders and biodefense. In September 2016, we discontinued our fibromyalgia program in order to fully
focus our resources on our PTSD program.
3
In June 2017, the U.S. Food and Drug Administration, or FDA, conditionally accepted the proposed trade name Tonmya for TNX-
102 SL, for the treatment of PTSD. The FDA’s final approval of Tonmya as a name for TNX-102 SL for the treatment of PTSD is subject
to a, New Drug Application, or NDA, approval. A request for review of Tonmya as the proposed name for TNX-102 SL for the
management of fibromyalgia has been withdrawn at the FDA. The U.S. Patent and Trademark Office, or PTO, has granted the federal
registration of the Tonmya mark.
Our lead product candidate, Tonmya, or TNX-102 SL, a proprietary low-dose cyclobenzaprine, or CBP, sublingual tablet,
designed for bedtime administration, is in Phase 3 development as a potential treatment for PTSD. TNX-102 SL is also being developed as
a treatment for agitation in Alzheimer’s disease, or AAD. Our development pipeline includes: TNX-601 (tianeptine oxalate), a separate pre-
Investigational New Drug, or pre-IND, candidate designed for daytime administration as a potential treatment of PTSD and for cognitive
dysfunction associated with steroid use; TNX-801, a potential smallpox-preventing vaccine based on a live synthetic version of horsepox
virus, or HPXV; TNX-301, an IND candidate for the treatment of alcohol use disorder, or AUD; and TNX-701, a biodefense development
program for protection from radiation injury. We hold worldwide development and commercialization rights to all of our product
candidates.
Tonmya – Posttraumatic Stress Disorder
Tonmya is a small, rapidly disintegrating tablet containing CBP for sublingual administration. Tonmya employs a proprietary,
Protectic™ protective eutectic formulation of CBP which enables rapid systemic exposure and increased bioavailability through
transmucosal absorption. We are developing Tonmya for the treatment of PTSD under an effective Investigational New Drug application,
or IND, cleared by the FDA in June 2014. Tonmya for PTSD was designated Breakthrough Therapy by the FDA in December 2016.
An estimated 8.6 million adults in the U.S. suffer from PTSD, a chronic disorder that is characterized by hyperarousal, avoidance,
emotional numbing, 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. Antianxiety drugs, also called
anxiolytics, are not approved for PTSD, but are commonly prescribed despite the recommendations against their use by many experts.
Anxiolytics and sedative-hypnotics are comprised of benzodiazepine and non-benzodiazepine drugs, which carry risks of tolerance and
addiction and are also associated with potential serious side-effects, such as retrograde amnesia.
TNX-102 SL – Agitation in Alzheimer’s Disease
We are developing TNX-102 SL for the treatment of agitation in Alzheimer’s disease and held a pre-IND meeting with the FDA in
November 2017. We expect to file an IND to support a Phase 2 efficacy study in March 2018.
An estimated 5.3 million people in the U.S suffer from Alzheimer’s disease, with more than half that number expected to be
affected by agitation. Behavioral symptoms are a major clinical complication of Alzheimer’s disease. Sleep disturbances and agitation are
common and co-morbid features of Alzheimer’s disease. Agitation in Alzheimer’s disease is associated with significant negative
consequences for both patients as well as their caregivers. Development of agitation, or its worsening, is one of the most common reasons
for patients having to transition to nursing homes and other long-term care settings. Currently, there is no FDA approved treatment for
behavioral symptoms such as agitation and aggression which adversely affect the quality of life of both the patients and caregivers. Off-
label use of atypical anti-psychotic medications for behavioral symptoms in Alzheimer’s disease is a common practice, despite the lack of
evidence for their effectiveness and significant risks associated with their use in this population.
4
Our Strategy
Our objective is to develop and commercialize our product candidates. The principal components of our strategy are to:
● Develop Tonmya for PTSD and TNX-102 SL for Other Indications . We currently are focusing on the development of Tonmya for
PTSD. Our broader development strategy is to leverage the patented formulation to explore the clinical potential of TNX-102 SL in
multiple other central nervous system disorders or neuropsychiatric conditions, including agitation in Alzheimer’s, that are either
underserved by currently approved medications or have no approved treatment which represent large unmet medical needs;
● Maximize the commercial potential of Tonmya . We plan to commercialize Tonmya for PTSD, either on our own or through
collaboration with partners. We believe Tonmya 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 Tonmya;
● 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 cases of Tonmya and 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 Tonmya, 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 Tonmya
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 fibromyalgia, 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 or have no approved treatment
which 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.
Posttraumatic Stress Disorder
PTSD is a chronic condition 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 2012, there were approximately
638,000 veterans receiving treatment for PTSD in the Veterans Health Administration, or VHA. Based on March 2015 VHA data, more
than 19% of military veterans involved in recent conflicts were seen at VHA facilities for potential or provisional PTSD.
5
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 many have significant safety liabilities and
dependence risk.
Agitation in Alzheimer’s Disease
Alzheimer’s is a chronic neurodegenerative disease in which behavioral symptoms are a major clinical complication. Sleep
disturbances and agitation are common and co-morbid features of Alzheimer’s disease. Agitation, which includes emotional lability,
restlessness, irritability, and aggression, is one of the most distressing and debilitating of these behavioral complications of Alzheimer’s
disease. Agitation is likely to affect more than half of the 5.3 million Americans who currently suffer from Alzheimer’s disease, and this
number is expected to nearly triple by 2050. The presence of agitation nearly doubles the cost of caring for patients with Alzheimer’s
disease, and agitation is estimated to account for more than 12 percent of the $256 billion in healthcare and societal cost of associated with
Alzheimer’s disease for the year 2017 in the United States.
Agitation in Alzheimer’s disease is associated with significant negative consequences for both patients as well as their caregivers.
Development of agitation, or its worsening, is one of the most common reasons for patients having to transition to nursing homes and other
long-term care settings. Currently, there is no FDA approved treatment for behavioral symptoms such as agitation and aggression which
affects the quality of life of both the patients and caregivers.
Off-label use of atypical anti-psychotic medications for behavioral symptoms in Alzheimer’s disease is a common practice, despite
the lack of evidence for their effectiveness and significant risks associated with their use in this population.
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 studies to support their NDA filings:
Product Candidate
Tonmya
TNX-102 SL
Indication
Posttraumatic stress disorder
Agitation in Alzheimer’s disease
Stage of Development
Phase 3
Pre-IND
Commercialization Rights
Worldwide
Worldwide
Tonmya
Overview
Tonmya or TNX-102 SL is a proprietary sublingual tablet formulation of CBP that efficiently delivers CBP across the oral
mucosal membrane into the systemic circulation. We are developing Tonmya for PTSD. We own all rights to Tonmya in all geographies,
and we bear no obligations to third-parties for any future development or commercialization. Excipients used in Tonmya are approved for
pharmaceutical use. Some of the excipients were specially selected to promote a local oral environment that facilitates mucosal absorption
of CBP.
6
The current Tonmya sublingual tablets contain 2.8 mg of CBP. For the treatment of PTSD, Tonmya, 5.6 mg (two 2.8 mg tablets)
administered simultaneously at bedtime, is in Phase 3 development. 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.
The active ingredient in Tonmya, is CBP, a serotonin-2A and alpha-1 adrenergic receptor antagonist as well as an inhibitor of
serotonin and norepinephrine reuptake. In addition, Tonmya acts upon other receptors in the central nervous system not targeted by
products approved for PTSD, including the serotonin 2A, alpha-1 adrenergic and histamine H-1 receptors.
CBP is the active ingredient of two products that are approved in the U.S. for the treatment of muscle spasm: FLEXERIL ® (5 mg
and 10 mg oral immediate-release, or IR, tablet) and AMRIX ® (15 mg and 30 mg oral extended-release capsule). The FLEXERIL brand of
CBP IR tablet has been discontinued since May 2013. There are numerous generic versions of CBP IR tablets on the market. CBP-
containing products are approved for short term use (two to three weeks) only as an adjunct to rest and physical therapy for relief of muscle
spasm associated with acute, painful musculoskeletal conditions. 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 IR CBP tablets.
We designed Tonmya to be administered once-daily at bedtime and intended for long-term use. We believe the selected dose of
Tonmya and its pharmacokinetic profile will enable it to achieve a desirable balance of efficacy, safety, and tolerability in PTSD. Our
Phase 1 comparative trials showed that, on a dose-adjusted basis, Tonmya results in faster systemic absorption and significantly higher
plasma levels of CBP in the first hour following sublingual administration relative to oral IR CBP tablets. It also showed that the sublingual
route of administration, which largely bypasses the “first pass” metabolism that swallowed medications undergo, results in a higher plasma
ratio of CBP to its main active metabolite, norcyclobenzaprine. In clinical studies, Tonmya 2.8 mg and Tonmya 5.6 mg were generally
well-tolerated, with no drug-related serious adverse events, or SAEs, reported in these studies. Some subjects experienced transient
numbness of the tongue after Tonmya administration.
We expect that any applications we submit to the FDA for approval of Tonmya for the treatment of PTSD 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) 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 Tonmya for PTSD, for which Tonmya is in Phase 3 development. We believe that
Tonmya and TNX-102 SL have the potential to provide clinical benefit to this and possibly other CNS (central nervous system) indications
that are underserved by currently marketed products or have no approved treatment.
On May 2, 2017, we were issued U.S. patent 9,636,408 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and
Amitriptyline Hydrochloride”, which includes compositions of CBP and methods of manufacturing the eutectic. The Protectic™ protective
eutectic and Angstro-Technology™ formulation claimed in the patent are important elements of our proprietary Tonmya or TNX-102 SL
composition. The patent is expected to provide Tonmya or TNX-102 SL with U.S. market exclusivity until 2034. Eutectic tablets
containing CBP and mannitol eutectic have good pharmaceutical stability and manufacturability. A solid eutectic is a form of matter in
which two solid crystals co-penetrate each other, such that the inter-molecular space between the units of one crystal lattice are occupied by
the other crystal’s lattice. The distance between the molecular units is not changed. A Notice of Allowance signifies that we will be entitled
to receive patent protection until 2034 in the U.S. for the allowed claims when the patent is issued.
On September 13, 2017, we were issued European patent 2,501,234 “Methods and Compositions for Treating Symptoms
Associated with PTSD Using Cyclobenzaprine”. This patent recites the use of CBP for the treatment of PTSD, which covers the use of
Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP. The patent is expected to provide Tonmya with
European market exclusivity until 2030 and may be extended based on the timing of the European marketing authorization of Tonmya for
PTSD.
7
On December 15, 2017 we were issued Japanese Patent No. 6259452, “Compositions and Methods for Transmucosal Absorption,”
by the Japanese Patent Office (JPO) relating to the pharmacokinetic profile of Tonmya, or TNX-102 SL.
On January 23, 2018, we were issued a Notice of Allowance from PTO for U.S. Patent Application 12/948,828, “Methods and
compositions for treating symptoms associated with PTSD using Cyclobenzaprine”. This patent protects the use of Tonmya for the
treatment of PTSD as well as its active ingredient CBP for the treatment of PTSD. A Notice of Allowance signifies that we will be entitled
to receive patent protection until 2030 in the U.S. for the allowed claims when the patent is issued. This method of use patent for Tonmya
extends upon previously granted patents related to the composition of matter (U.S. Patent No. 9,636,408) and the active ingredient in
Tonmya (European Patent No. 2,501,234) as described above.
On March 1, 2018, we received a Notice of Allowance from the JPO for Japanese Patent Application No. 2016-503239 “Eutectic
Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride The allowed claims recite pharmaceutical compositions
comprising the eutectics and methods of manufacturing these eutectic formulations.
PTSD Program
We are developing Tonmya for the treatment of PTSD under an effective IND application. Tonmya for PTSD has been designated
as Breakthrough Therapy by the FDA.
Clinical Development Plan
Phase 2 AtEase Study
In the first quarter of 2015, we commenced a randomized, double-blind, placebo-controlled, 12-week Phase 2 study of Tonmya in
participants with military-related PTSD, which we refer to as the AtEase study. The primary objective of this study was to evaluate the
potential clinical benefit of using Tonmya to treat military-related PTSD at a dose of 2.8 mg or 5.6 mg (2 x 2.8 mg tablets). The primary
efficacy endpoint was the 12-week mean change from baseline in the severity of PTSD symptoms as measured by the Clinician-
Administered PTSD Scale for DSM-5, or CAPS-5, between those treated with Tonmya and those receiving placebo. The CAPS-5 scale is a
standardized structured clinician interview and is considered the gold standard in clinical research and regulatory approval for measuring
the symptom severity of PTSD.
In the AtEase study, participants experienced their index trauma during military service in 2001 or later and had a baseline CAPS-
5 score of 29 or higher, and were randomized in a 2:1:2 ratio to bedtime daily Tonmya 2.8 mg, Tonmya 5.6 mg, or placebo sublingual
tablets for 12 weeks, respectively. The AtEase study was conducted at 24 U.S. centers and enrolled 231 participants in the modified intent-
to-treat population. We reported topline results from the AtEase study in May 2016.
AtEase was adequately designed to evaluate whether a 2.8 mg dose would be efficacious, which would have provided an
opportunity for this study to be used as one of the two pivotal efficacy studies required to support approval of Tonmya for the treatment of
PTSD. Although the 2.8 mg dose trended in the direction of a therapeutic effect, it did not reach statistical significance on the primary
endpoint. The 5.6 mg dose had a therapeutic effect as assessed by the CAPS-5 scale, which was statistically significant by MMRM with MI
analysis (p-value = 0.031), even though this arm of the study, by design, included only approximately half the number of participants of the
2.8 mg and placebo arms. Tonmya demonstrated a dose-effect on multiple efficacy and safety measurements in the AtEase study.
8
In the AtEase study, Tonmya was well tolerated and the participant retention rate was 73% on placebo, 79% on Tonmya 2.8 mg
and 84% on Tonmya 5.6 mg. Four distinct SAEs were reported in the study; three were in the placebo group, and one (proctitis/peri-rectal
abscess) in the Tonmya arm, which was determined to be unrelated to Tonmya. The most common not dose-related adverse events were
mild and transient local administration site conditions and of these oral hypoaesthesia, or numbness, was the most frequent and occurred in
39% of participants treated with the 2.8 mg dose and 36% of the participants treated with the 5.6 mg dose, compared to 2% of the
participants receiving placebo. Oral paresthesia, or tingling, occurred in 16% of participants treated with the 2.8 mg dose and 4% of
participants treated with the 5.6 mg dose, compared to 3% of the participants receiving placebo. Glossodynia, or a burning or stinging
sensation in the mouth, occurred in 3% of participants treated with the 2.8 mg dose and 6% of participants treated with the 5.6 mg dose,
compared to 1% of participants receiving placebo. Systemic adverse events that were potentially dose-related and occurred in greater than
or equal to 5% of participants treated with the 5.6 mg dose or placebo included: somnolence in 16% versus 6% of the participants receiving
placebo; dry mouth in 16% versus 11% of the participants receiving placebo; headache in 12% versus 4% of the participants receiving
placebo; insomnia in 6% versus 9% of the participants receiving placebo; sedation in 12% versus 1% of the participants receiving placebo;
upper respiratory tract infection in 4% versus 5% of the participants receiving placebo; abnormal dreams in 2% versus 5% of the
participants receiving placebo; and weight increase in 2% versus 5% of the participants receiving placebo. For the participants treated with
the 2.8 mg dose, the incidence of the most common systemic adverse events reported above were less frequent than participants treated
with the 5.6 mg dose with the exception of insomnia, which was 8%.
Retrospective analysis of the AtEase study suggested that the subset of participants with CAPS-5 score of 33 or higher at baseline
(80% of AtEase population) was equivalent to the population of PTSD subjects studied in prior FDA registration studies of paroxetine and
sertraline using older versions of the CAPS. The effect size (Cohen’s d) of the PTSD symptom improvement by CAPS-5 in this subset,
comparing Tonmya 5.6 mg with placebo, was larger at 0.53 than the effect size in the full set with CAPS-5 score of 29 or higher at baseline
at 0.36. To confirm this efficacy evidence, our ongoing Phase 3 program enrolls participants with baseline CAPS-5 score of 33 or higher.
The beneficial effects of Tonmya 5.6 mg were preserved in the subgroup with PTSD from combat traumas (85% of AtEase population).
Also, continuing remission (i.e. satisfying remission criterion of CAPS-5 score less than 11 at both week 8 and week 12) was observed in
21% of participants receiving a 5.6 mg dose of Tonmya as compared to 5% of participants in the placebo group (p = 0.02, logistic
regression). The AtEase study supported the hypothesized mechanism of sleep quality improvement, since additional retrospective analyses
showed that in the CAPS-5 score of 33 or higher subset of participants, sleep improvement at week 4, measured by the PROMIS Sleep
Disturbance instrument, predicted treatment response (by improvement in total CAPS-5 score without the sleep item) at week 12 in the
Tonmya 5.6 mg group (p = 0.01, linear regression), whereas these measures were not related in placebo.
Open-label Extension Study for AtEase
Participants who completed the AtEase study were eligible to enroll into a 12-week open-label extension study with Tonmya 2.8
mg. We conducted this open-label extension study to obtain additional safety information from participants in the AtEase Study. The
clinical phase of this open-label extension study is complete. Tonmya 2.8 mg was well tolerated for up to six months of treatment and no
new safety signals were revealed in this open-label extension study.
Ongoing Phase 3 Honor Study
We have commenced the HONOR study, a randomized, double-blind, placebo-controlled Phase 3 study of Tonmya in
approximately 550 participants with military-related PTSD in the first quarter of 2017. This study is an adaptive design study based on the
results of the Phase 2 AtEase study. The study design is very similar to the Phase 2 AtEase study, except there will be one planned interim
analysis, or IA, and the involvement of the independent data monitoring committee, or IDMC, to review unblinded IA results. The IDMC
will make a recommendation to continue as planned, to continue but increase the number of recruited participants or to stop for success. In
addition, only one active dose (5.6 mg administered as 2 x 2.8 mg tablets) is being investigated and the entrance criterion is CAPS-5 ≥ 33 in
this Phase 3 study. The IA will be conducted when approximately 50% (approximately 250 – 300 participants) of the initially planned
participant enrollment is evaluable for efficacy. We received FDA acceptance of the Phase 3 HONOR study design in January of 2017. The
HONOR study is being conducted at approximately 40 U.S. sites. As in the case of the AtEase study, the primary efficacy endpoint of the
HONOR study is the 12-week mean change from baseline in the severity of PTSD symptoms as measured by the CAPS-5 scale between
those treated with Tonmya and those receiving placebo.
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Open-label Extension Study for HONOR
To obtain additional safety information from participants in the HONOR study, participants who completed the HONOR study are
eligible to enroll into a 12-week open-label extension study with Tonmya 5.6 mg. This open-label extension study is ongoing.
Prospective Phase 3 Study
A second, randomized, double-blind placebo-controlled Phase 3 study of Tonmya 5.6 mg (2 x 2.8 mg tablets) in approximately
550 PTSD participants may follow, if necessary. We expect this study to be conducted at approximately 40 U.S. sites. As in the case of the
HONOR and AtEase studies, the primary efficacy endpoint of this second Phase 3 study will be the 12-week mean change from baseline in
the severity of PTSD symptoms as measured by the CAPS-5 scale between those treated with Tonmya and those receiving placebo.
Long-Term Safety Exposure Study for Tonmya
In addition to the ongoing 12-week open-label extension study for HONOR, we plan to conduct the registration-required open-
label extension studies of Tonmya in participants who complete either the 12-week open-label extension study of HONOR study or the
second PTSD Phase 3 study. The goal of the open-label extension studies is to obtain adequate 6- and 12-month safety exposure data from
Tonmya 5.6 mg to support its registration for the treatment of PTSD as it is a chronic psychiatric condition.
Regulatory Update
Subsequent to reporting the Phase 2 AtEase study topline result, we held an End-of-Phase 2/Pre-Phase 3 meeting with the FDA in
August 2016 to discuss the Phase 3 program required to support the registration of Tonmya for the treatment of PTSD and the remaining
data package for the NDA filing. As described below, the first Phase 3 stud, currently ongoing, is in participants with military-related PTSD
and the second Phase 3 study, if needed, will be performed in participants suffering from PTSD.
In December 2016, the FDA granted Breakthrough Therapy designation to Tonmya for the treatment of PTSD. The Breakthrough
Therapy designation request was based on the preliminary clinical evidence of Tonmya 5.6 mg on military-related PTSD in the AtEase
study.
Breakthrough Therapy designation is intended to expedite the development and review of drugs for serious or life-threatening
conditions. The benefits of Breakthrough Therapy designation include the eligibility for priority review of the NDA in about six months
instead of 10 months after submission and rolling submission of completed portions of the NDA, in addition to an organizational
commitment involving FDA’s senior managers contributing significant guidance. The FDA is committing to provide us timely advice and
interactive communications related to the design and efficient execution of our Breakthrough Therapy development program.
In March 2017, we held the Initial Cross-Disciplinary Breakthrough Therapy Type B meeting with the FDA to discuss the
opportunity to accelerate the development and submission of the Tonmya NDA for the treatment of PTSD. Based on our discussions with
the FDA and the FDA official meeting minutes, a single-study NDA approval could be possible based on statistically persuasive topline
data from the ongoing HONOR study. Additionally, due to the lack of evidence of potential abuse in clinical studies of Tonmya, the FDA
agreed that studies in assessing abuse and dependency potential of Tonmya are not required to support the Tonmya NDA filing.
In June 2017, the FDA conditionally accepted the proposed trade name Tonmya for TNX-102 SL for the treatment of PTSD.
On September 7, 2017, we had a Breakthrough Therapy Chemistry, Manufacturing and Controls (“CMC”) guidance meeting with
the FDA regarding the CMC data required to support the Tonmya NDA and commercial product. We received the FDA formal minutes
from that meeting in October 2017 that reflect our readiness to manufacture Tonmya commercial product at production scale if an NDA
can be submitted based on the HONOR study. This is critical to the successful launch of a potentially improved treatment option for PTSD
patients, especially those with military-related PTSD. In principle, our proposed CMC data package to support Tonmya’s NDA approval
and commercial manufacturing plans was acceptable to the FDA.
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Other NDA Requirements
An Agreed Initial Pediatric Study Plan, or Agreed iPSP, is required for the initial NDA submission. We submitted a revised iPSP
in the first quarter of 2017, which incorporated the FDA comments received on our iPSP submitted in the third quarter of 2016. Additional
comments from the FDA were received in second quarter of 2017 on our revised iPSP. We plan to submit an Agreed iPSP in the third
quarter of 2018. A Final Pediatric Study Plan requirement will be determined at the time of the NDA approval.
Based on 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 Tonmya NDA filing. Due to the
well-established safety profile of CBP at much higher doses than we proposed for PTSD and the long-term safety data (up to 15 months)
on Tonmya 2.8 mg in a prior fibromyalgia program, the FDA has not requested a risk management plan or medication guide for this
product.
Phase 1 Bioequivalence, Bridging PK, Food-Effect and Dose-Proportionality Studies
Completed Bioequivalence Study
We completed a Phase 1 bioequivalence study that compared the pharmacokinetic profiles of a single-dose of Tonmya 2.8 mg
tablets manufactured at two facilities: (i) the facility used to produce Tonmya 2.8 mg tablets for the Phase 2 AtEase study; and (ii) the
facility used to produce Tonmya 2.8.mg tablets for our clinical studies required to support the PTSD NDA submission and the to-be-
marketed product. This bioequivalence study demonstrated that the Tonmya 2.8 mg tablets manufactured at these two facilities were
bioequivalent, supporting the use of the AtEase study to support the Phase 3 studies.
Multi-dose Bridging PK Study
We intend to seek FDA marketing approval for Tonmya or TNX-102 SL pursuant to Section 505(b)(2) of the FDCA using
AMRIX® extended-release or ER capsules (30 mg) as our reference listed drug, or RLD. As agreed upon by the FDA, we have started to
study Tonmya 5.6 mg (2 x 2.8 mg tablets) in comparison to AMRIX 30 mg ER capsules in a randomized, open-label, parallel, multiple-dose
bridging PK study to provide a systemic exposure bridge. If the Tonmya initial dose and at steady state exposures are less than or
comparable to the RLD maximum approved dose (30 mg) and the metabolic profile is similar to AMRIX, the results of this study will
provide the necessary systemic exposure bridge of Tonmya to AMRIX. The approval of Tonmya for PTSD NDA can thus rely on the
safety findings (clinical and nonclinical) of the currently approved CBP drug products.
Food Effect and Dose-proportionality Studies
To support the Tonmya product registration, a randomized, open-label, 2-way crossover, food-effect, comparative bioavailability
study of Tonmya following a single dose in healthy subjects under fasting and fed conditions and a randomized, open-label, 2-way
crossover, dose-proportionality, comparative bioavailability study of a single dose Tonmya 2.8 mg vs 5.6 mg in healthy subjects under
fasting conditions will be completed for the Tonmya NDA submission.
Cyclobenzaprine Hydrochloride Nonclinical Development
The FDA has accepted our proposed nonclinical data package to support our PTSD NDA filing. In October 2016, we completed
the six-month repeated-dose toxicology study of the active ingredient, CBP, 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., if necessary. These chronic toxicity studies were
requested by the FDA to augment the nonclinical information in the AMRIX approved prescribing information, or labeling, which is
necessary to support the Tonmya or TNX-102 SL labeling for long-term use. Due to the lack of evidence of potential abuse in clinical
studies of Tonmya, the FDA agreed that nonclinical study to assess CBP abuse and dependency potential is not required to support the
Tonmya NDA filing.
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Manufacturing
TNX-102 SL drug product for Phase 2 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 the clinical trial materials for Phase 3 clinical and NDA
required Phase 1 studies, 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. FDA has accepted our proposed CMC data package to support Tonmya’s NDA approval and commercial
manufacturing plans, reflecting our readiness to manufacture Tonmya commercial product at production scale.
TNX 102 SL – Agitation in Alzheimer’s Disease
Regulatory Update
On November 6, 2017, we held a pre-IND meeting with the FDA to discuss our proposed development of TNX-102 SL for the
treatment of agitation in Alzheimer’s disease. We received the formal minutes from that meeting in December 2017 that reflect that Tonix
has the data needed to file an IND to support a Phase 2 study which can potentially be one of the pivotal efficacy studies. We plan to submit
the TNX-102 SL IND for agitation in Alzheimer’s disease in March 2018.
Additional Product Candidates
We also have a pipeline of other drug and biologic candidates, including two pre-IND candidates, TNX-601, a daytime treatment
for PTSD and TNX-801, a biologic vaccine product for the prevention of smallpox, as well as an IND candidate, TNX-301, a potential
treatment for AUD.
TNX-601
TNX-601 is a novel oral formulation of tianeptine oxalate in the pre-IND stage of development for the treatment for PTSD.
Currently there is no tianeptine-containing product approved in the U.S., but tianeptine sodium (amorphous) has been marketed in Europe,
Asia, and Latin America for the treatment of depression since 1987. It is effective in various depressive states and also improves
depression-associated anxiety and somatic complaints. We have discovered a novel oxalate salt and polymorph, which we believe may
provide improved stability, consistency, and manufacturability relative to the known forms of tianeptine. Like CBP, tianeptine shares
structural similarities with classic tricyclic antidepressants, but it has unique pharmacological and neurochemical properties. Tianeptine
modulates the glutamatergic system indirectly and reverses the neuroplastic changes that are observed during periods of stress and
corticosteroid use. It is a weak mu-opioid receptor (MOR) agonist, but does not have significant affinity for other known neurotransmitter
receptors. Due to its decades of use in Europe, Asia, and Latin America, tianeptine has an established safety profile. In addition to being
used to treat depression, several published studies support the potential of tianeptine as an effective and safe therapy for patients with PTSD.
Leveraging our development expertise in PTSD, TNX-601 is being developed for daytime usage as a first-line monotherapy for PTSD.
Tianeptine’s reported pro-cognitive and anxiolytic effects as well as its ability to attenuate the neuropathological effects of excessive stress
responses suggest that it may be used to treat PTSD by a different mechanism of action than Tonmya.
We intend to develop TNX-601 under Section 505(b)(1) of the FDCA as a potential treatment for PTSD and cognitive dysfunction
associated with corticosteroid use. Pharmaceutical development work on TNX-601 has been initiated.
TNX-801
TNX-801 is a novel potential smallpox-preventing vaccine based on a live synthetic version of horsepox virus, or HPXV, grown in
cell culture. TNX-801 was synthesized by Professor David Evans and Dr. Ryan Noyce at the University of Alberta, Canada in collaboration
with us. An article describing the work was published (Noyce RS, Lederman S, Evans DH (2018) Construction of an infectious horsepox
virus vaccine from chemically synthesized DNA fragments. PLoS ONE 13(1): e0188453. https://doi.org/10.1371/journal.pone.0188453).
HPXV has protective vaccine activity in mice, using a model of lethal vaccinia infection. Discussions regarding vaccine manufacturing
activities have been initiated to support further nonclinical testing of TNX-801. We are developing TNX-801 as a potential smallpox-
preventing vaccine for widespread immunization and for the U.S. strategic national stockpile. Though it shares structural characteristics
with vaccinia-based vaccines, TNX-801 has unique virulence properties that we believe may suggest lower toxicity and potential safety
advantages over existing vaccinia-based vaccines, which have been associated with adverse side effects such as myopericarditis.
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We intend to meet with the FDA to discuss the most efficient and appropriate investigational plan, e.g., the application of the FDA
Animal Efficacy Rule, or Animal Rule, or conducting active comparator studies using ACAM2000, the current licensed live vaccinia virus
vaccine, to establish the safety and effectiveness evidence to support the licensure TNX-801. In the 1970s, vaccination against smallpox
was discontinued in the U.S.; however, smallpox remains a material threat to national security. We recently filed a patent on the novel virus
vaccine. In addition, 12 years of non-patent-based exclusivity is expected under the Patient Protection and Affordable Care Act, or PPACA.
Following the recent passage of the 21st Century Cures Act, we believe TNX-801 qualifies as a medical countermeasure, and therefore
should be eligible for a Priority Review Voucher upon receiving FDA licensure. However, the Priority Review Voucher program provision
of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to
capitalize on the incentives contained in the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher
Program is extended until such time as TNX-801 is licensed. We are currently working to develop a vaccine that meets cGMP quality to
support an IND study.
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. A pre-IND meeting was held in February 2016 to discuss the clinical development program
of TNX-301 for AUD. At that meeting, the FDA advised us of the nonclinical studies required for this CDP IND application to support the
initiation of the first-in-man study with TNX-301. IND planning activities are underway.
TNX-701
We own rights to intellectual property on a biodefense technology relating to the development of protective agents against
radiation exposure, which we refer to as TNX-701. We have begun nonclinical research and development on TNX-701. We plan to develop
TNX-701 under the Animal Rule, which is applicable when human efficacy studies are not ethical or feasible. We expect significant
reduction in 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 market for therapies to treat PTSD and other CNS conditions is well developed and populated with established drugs marketed
by large and small pharmaceutical, biotechnology and generic drug companies. 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.
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Certain other companies and institutions are known to be developing prescription medications for PTSD, including Bionomics
(BNC-201), Otsuka/Lundbeck (Rexulti® [brexpiprazole]), Uniformed Services University of the Health Sciences (riluzole), the
Multidisciplinary Association of Psychedelic Studies (methylenedioxymethamphetamine [MDMA]). BNC-201 is in Phase 2 for PTSD and
is an allosteric modulator of the alpha 7 nicotinic acetylcholine receptor. Rexulti is in Phase 2 for PTSD and is an atypical antipsychotic.
Riluzole is in a Phase 2 trial for active duty military members and veterans with PTSD and is a blocker of certain sodium channels and a
modulator of the glutamatergic system. MDMA is Phase 3 ready for PTSD and is a DEA schedule 1 hallucinogen that is being studied for
drug-assisted psychotherapy. MDMA was awarded Breakthrough Therapy designation by the FDA in August 2017. Brainsway Ltd., a
medical device company, is currently recruiting patients for a pivotal Phase 3 trial using a deep transcranial magnetic stimulation device for
treatment of PTSD. A number of other companies and institutions have or may be developing prescription medications for PTSD,
including: Aptinyx is developing NYX-783 which is in Phase I and targets the NMDA receptor, Mt. Sinai Hospital and Medical School in
New York City is developing ketamine which is in Phase 2 and targets the NMDA receptor, Azevan Pharmaceuticals is developing
SRX246 which is in Phase 2 and targets the vasopressin V1A receptor, University of California, San Diego (UCSD) is developing losartan
which is in Phase 2 and is an angiotensin receptor blocker (ARB), and Massachusetts General Hospital (MGH) and University of
California, San Francisco (UCSF) are developing oxytocin which is in Phase 2 and targets the oxytocin receptor.
Several companies have clinical candidates for which PTSD is being considered as a secondary indication. Johnson and Johnson is
developing CERC-501 which is in Phase 2 for depression, targeting the kappa opioid receptor, NeuroRx is developing NRX-101 which is in
Phase 2 for bipolar depression and is a combination of ketamine, lurasidone, and d-cycloserine, Roche is developing RG7314 which is in
Phase 2 for Autism, Rodin Therapeutics has a preclinical candidate for Alzheimer’s disease that targets histone deacetylase 2 (HDAC2
gene product), SpringWorks Therapeutics is developing PF-04457845 which is in Phase 2 for osteoarthritis and targets fatty acid amide
hydrolase (FAAH).
In addition, approved 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.
Additionally, a number of companies are developing prescription medicines for agitation in Alzheimer’s, including
Otsuka/Lundbeck (Rexulti® or brexpiprazole), Avanir/Otsuka (deudextromethorphan), Axsome (dextromethorphan/buproprion) and
InterCellular (lumateperone). Rexulti® has completed two pivotal studies in agitation in Alzheimer’s Disease. Deudextromethorphan is in
Phase 3 for the treatment of agitation in patients with dementia of the Alzheimer’s type. Dextromethorphan/buproprion is in Phase 3 for the
treatment of resistant depression and agitation in patients with Alzheimer’s disease. Lumateperone is in Phase 3 for treating behavioral
disturbances associated with dementia.
Although a number of companies are marketing or developing prescription medicines for sleep disorders, including Merck & Co,
Purdue Pharma, Eisai, GlaxoSmithKline, Johnson & Johnson and Sage Therapeutics, none of these sleep disorders drugs are approved for
PTSD or AAD. Merck is marketing Belsomra® (suvorexant), which is a dual orexin receptor anatomist indicated for insomnia. Purdue and
Eisai are developing lemborexant and GlaxoSmithKline is developing SB-649868 which are also dual orexin receptor antagonists. Johnson
& Johnson and Minerva Neurosciences are developing seltorexant which is a selective orexin-2 antagonist. Sage Therapeutics is developing
SAGE-217 which is a neurosteroid derivative that acts as a positive allosteric modulator of synaptic and extrasynaptic GABA receptors and
was recently shown to increase sleep efficiency in a 5-hour phase advance model of insomnia.
Additionally, a number of companies are working on potential vaccines/treatments for smallpox, including Bavarian Nordic, SIGA
Technologies and Chimerix. Bavarian Nordic is developing and has submitted an NDA for Imvamune® (or Modified Virus Ankara or
MVA), which is a non-replicating vaccinia virus vaccine, which has been approved in other countries. SIGA is developing and has
submitted an NDA for Arestvy ®/TPOXX® (tecovirimat), which is an antiviral. Chimerix is developing brincidofovir (CMX001), which is
an antiviral.
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Intellectual Property
We believe that we have an extensive patent portfolio and substantial know-how relating to Tonmya or TNX-102 SL and our other
product candidates. Our patent portfolio, described more fully below, includes claims directed to Tonmya or TNX-102 SL compositions
and methods of use. As of February 1, 2018, the patents we are either the owner of record of or own the contractual right to include eight
issued U.S. patents and 87 issued non-U.S. patents. We are actively pursuing an additional 16 U.S. patent applications, of which three are
provisional and 13 are non-provisional, three international patent applications, and 72 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 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 or methods of making or using that 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 Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act, is a federal law that
encourages new drug research by restoring patent term lost to regulatory delays by permitting a patent term extension of up to five years
beyond the statutory 20-year term of the patent for the approved product or its methods of manufacture or use 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 an 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 five most advanced product candidates as of March 1, 2018
are summarized below.
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TNX-102 SL – Central Nervous System Conditions
Our patent portfolio for TNX-102 SL include patent applications directed to compositions of matter of CBP, formulations
containing CBP, and methods for treating CNS conditions, such as Tonmya for PTSD, and TNX-102 SL for agitation in neurodegenerative
conditions, e.g. agitation in Alzheimer’s disease, utilizing these compositions and formulations.
Certain eutectic compositions were discovered by development partners and are termed the “Eutectic Technology.” The patent
portfolio for Tonmya and TNX-102 SL relating to the Eutectic Technology includes patent applications directed to eutectic compositions
containing CBP, eutectic CBP formulations, methods for treating PTSD 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.
On March 10, 2017, we received a Notice of Allowance from the USPTO for the U.S. Patent Application No. 14/214,433
“Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride,” which includes compositions of CBP and
methods of manufacturing the eutectic. The U.S. eutectic patent was issued on May 2, 2017 as U.S. Patent No. 9,636,408. The patent
claims recite pharmaceutical compositions comprising the eutectic. The patent claims also recite methods of manufacturing the eutectic.
Tablets containing CBP and mannitol eutectic have good pharmaceutical stability and manufacturability. A solid eutectic is a form of
matter in which two solid crystals co-penetrate each other, such that the inter-molecular space between the units of one crystal lattice are
occupied by the other crystal lattice. The distance between the molecular units is not changed.
The unique pharmacokinetic profile of Tonmya and TNX-102 SL, or the PK Technology, was discovered by Tonix and its
development partners. The patent portfolio for Tonmya and TNX-102 SL relating to the PK Technology includes patent applications
directed to compositions of matter of CBP, formulations containing CBP, methods for treating PTSD, agitation in neurodegenerative
conditions, 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.
On September 13, 2017, we were issued European patent 2,501,234 “Methods and Compositions for Treating Symptoms
Associated with PTSD Using Cyclobenzaprine”. This patent recites the use of CBP for the treatment of PTSD, which covers the use of
Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP. The patent is expected to provide Tonmya with
European market exclusivity until 2030 and may be extended based on the timing of the European marketing authorization of Tonmya for
PTSD.
On December 15, 2017 we were issued Japanese Patent No. 6259452, “Compositions and Methods for Transmucosal Absorption,”
by the JPO relating to the pharmacokinetic profile of Tonmya or TNX-102 SL.
On January 17, 2018, we received a Notice of Allowance from the USPTO for the U.S. Patent Application No. 12/948,828
“Methods and Compositions for Treating Symptoms Associated with PTSD Using Cyclobenzaprine”. The allowed claims recite a method
of using Tonmya’s active ingredient cyclobenzaprine to treat PTSD. The patent, when it issues is expected to provide Tonmya with US
market exclusivity until 2030.
On March 1, 2018, we received a Notice of Allowance from the JPO for Japanese Patent Application No. 2016-503239 “Eutectic
Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride The allowed claims recite pharmaceutical compositions
comprising the eutectics and methods of manufacturing these eutectic formulations.
TNX-601 — Posttraumatic Stress Disorder
Our patent portfolio for tianeptine oxalate includes U.S. Patent Application No. 15/856,818 and International Patent application
PCT/IB2017/001709. It includes claims directed to composition, including pharmaceutical compositions, and methods of use.
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TNX-801 — Live HPXV Vaccine for Prevention of Smallpox
We own the rights to develop a potential biodefense technology, TNX-801, a live HPXV that is being developed as a new
smallpox preventing vaccine, we have patent applications directed to synthetic chimeric poxviruses and methods of using these poxviruses
to protect individuals against smallpox. These applications include U.S. non-provisional Patent Application No. 15/802,189 and
International Patent Application No. PCT/US2017/059782. We also own the rights to develop other vaccine candidates against smallpox.
With respect to these vaccine candidates, we own U.S. Patent Application No. 14/207,727 and related intellectual property rights. The
smallpox vaccine technologies relate to proprietary forms of live HPXV and 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.
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.
TNX-701 — Radioprotection Biodefense Technology
We own the rights to develop a potential biodefense technology, which is a potential radioprotective therapy. For protection of our
intellectual property, we have not disclosed the identity of the new development candidate.
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.
Issued Patents
Our current patents owned include:
Sublingual CBP/Amitriptyline
Patent No.
6259452
631144
I590820
Title
Country / Region
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Japan
New Zealand
Taiwan
Expiration
Date
June 14, 2033
June 14, 2033
June 14, 2033
17
CBP - Depression
Patent No.
2012225548
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
Tianeptine - Neurocognitive Dysfunction
Patent No.
9,314,469
2299822
(602009047361.1
in Germany)
Method for Treating Neurocognitive Dysfunction
Method for Treating Neurocognitive Dysfunction
Title
Selegiline / Disulfiram - AUD
Country / Region
Australia
Expiration
Date
March 6, 2032
New Zealand
March 6, 2032
New Zealand
March 6, 2032
Expiration
Date
September 24, 2030
April 30,2029
Country / Region
U.S.A.
Europe – Austria, Belgium,
Switzerland, Germany,
Spain, France, United
Kingdom, Ireland,
Luxembourg, Monaco,
Portugal
Title
Country / Region
Patent No.
8,093,300
8,481,599
2002354017
2463987
1441708
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
532583
Compositions and Methods for Increasing Compliance with Therapies
Using Aldehyde Dehydrogenase Inhibitors and Treating Alcoholism
18
U.S.A.
U.S.A.
Australia
Canada
Austria, Belgium, Denmark,
France, Germany,
Luxembourg, Monaco,
Portugal, Switzerland, U.K.
New Zealand
Expiration
Date
May 23, 2024
Nov. 4, 2022
Nov. 4, 2022
Nov. 4, 2022
Nov. 4, 2022
Nov. 4, 2022
Title
Country / Region
Low Dose CBP
Patent No.
6,395,788
6,541,523
1202722;
ATE299369T1
in Austria;
60021266.1 in
Germany; ES
2245944 T3 in
Spain
1047691
516749
Methods for Treating Sleep Disturbances Using Very Low Doses of
Cyclobenzaprine
Methods for Treating or Preventing Fibromyalgia Using Very Low
Doses of Cyclobenzaprine
Uses Compositions for Treating or Preventing Sleep Disturbances Using
Very Low Doses of Cyclobenzaprine
Uses Compositions for Treating or Preventing Sleep Disturbances Using
Very Low Doses of Cyclobenzaprine
Uses Compositions for Treating or Preventing Sleep Disturbances Using
Very Low Doses of Cyclobenzaprine
U.S.A.
U.S.A.
European Patent Office –
Austria, Belgium,
Switzerland, Germany,
Spain, France, United
Kingdom, Hong Kong,
Ireland, Luxembourg,
Monaco, Portugal
Hong Kong
Expiration
Date
August 11, 2020
August 11, 2020
August 11, 2020
August 11, 2020
New Zealand
August 11, 2020
Expiration
Date
August 11, 2020
Expiration
Date
November 16, 2030
Low Dose CBP - GAD
Patent No.
6,358,944
CBP - PTSD
Patent No.
2501234
Methods and Compositions for Treating Generalized Anxiety Disorder
U.S.A.
Title
Country / Region
Methods and Compositions for Treating Symptoms Associated with
Post-Traumatic Stress Disorder Using Cyclobenzaprine
Title
Country / Region
European Patent Office –
Albania, Austria, Belgium,
Bulgaria, Switzerland,
Cyprus, Czechia, Germany,
Denmark, Estonia, Spain,
Finland, France, United
Kingdom, Greece, Croatia,
Hungary, Ireland, Iceland,
Italy, Lithuania,
Luxembourg, Latvia,
Monaco, Macedonia, Malta,
Netherlands, Norway,
Poland, Portugal, Romania,
Serbia, Sweden, Slovenia,
Slovakia, San Marino,
Turkey
19
CBP Fatigue
Patent No.
9,474,728
Eutectic CBP
Patent No.
631152
Methods and Compositions for Treating Fatigue Associated with
Disordered Sleep Using Very Low Dose Cyclobenzaprine
Title
Country / Region
U.S.A.
Expiration
Date
September 5, 2034
Eutectic Formulations of Cyclobenzaprine Hydrochloride
New Zealand
March 14, 2034
Title
Country / Region
Expiration
Date
9,636,408
Eutectic Formulations of Cyclobenzaprine Hydrochloride
U.S.A.
March 14, 2034
Selegiline / Disulfiram – Cocaine Addiction
Patent No.
631152
Treatment for Cocaine Addiction
Title
Pending Patent Applications
Our current pending patent applications are as follows:
CBP/Amitriptyline Eutectic Formulations
Country / Region
Austria, Belgium, Portugal,
Denmark, Switzerland
Expiration
Date
August 31, 2031
Application No.
15/459,093
Title
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
(Allowed)
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
14/776,624
15/511,287
2014233277
2015317336
BR112015022095-
9
112017005231-8
2,904,812
2,961,822
201480024011.1
201580050140.2
14762323.5
15841528.1
16106690.2
18101200.4
P-00 2015 06570
P00201702438
241353
251218
3392/KOLNP/2015 Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
201717013182
2016-503239
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride
(allowed)
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Country / Region
U.S.A.
U.S.A.
U.S.A.
Australia
Australia
Brazil
Brazil
Canada
Canada
China
China
European Patent Office
European Patent Office
Hong Kong
Hong Kong
Indonesia
Indonesia
Israel
Israel
India
India
Japan
Japan
2017-535609
MX/a/2015/012622 Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride Mexico
MX/a/2017/003644 Eutectic Formulations of Cyclobenzaprine Hydrochloride
Mexico
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride Malaysia
PI 2015703142
Malaysia
Eutectic Formulations of Cyclobenzaprine Hydrochloride
PI 2017700889
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride New Zealand
631152
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride New Zealand
730061
New Zealand
Eutectic Formulations of Cyclobenzaprine Hydrochloride
730379
Eutectic Formulations of Cyclobenzaprine Hydrochloride
Saudi Arabia
517381123
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride Saudi Arabia
515361124
11201701995P
Eutectic Formulations of Cyclobenzaprine Hydrochloride
10201707528W Eutectic Formulations of Cyclobenzaprine Hydrochloride
2015/07443
2017/01637
103109816
2014-000391
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride South Africa
Eutectic Formulations of Cyclobenzaprine Hydrochloride
South Africa
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride Taiwan
Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride Venezuela
Singapore
Singapore
20
Title
Country / Region
Sublingual CBP/Amitriptyline
Application No.
13/918,692
P20130102101
2013274003
BR112014031394-
6
2,876,902
201380039522.6
13804115.7
2013/24661
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
Compositions and Methods for Transmucosal Absorption
1515110186.6
Compositions and Methods for Transmucosal Absorption
P-00 2015 00202
236268
Compositions and Methods for Transmucosal Absorption
139/KOLNP/2015 Compositions and Methods for Transmucosal Absorption
2017-192713
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
726488
Compositions and Methods for Transmucosal Absorption
10201605407T
Compositions and Methods for Transmucosal Absorption
106117185
Compositions and Methods for Transmucosal Absorption
2013-000737
Compositions and Methods for Transmucosal Absorption
2015/00288
Analogs of CBP
Application No.
62/532,353
CBP - PTSD
Application No.
12/948,828
13103530.6
Analogs of Cyclobenzaprine
Title
Title
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
Country / Region
U.S.A.
Country / Region
Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress
Disorder Using Cyclobenzaprine (Allowed)
Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress
Disorder Using Cyclobenzaprine
U.S.A.
Hong Kong
CBP - Sleep Disorder
Application No.
15/266,035
Esreboxetine Salts
Methods and Compositions for Treating Fatigue Associated with Disordered Sleep Using
Very Low Dose Cyclobenzaprine
U.S.A.
Title
Country / Region
Application No.
Salts and Polymorphs of Esreboxetine
15/833,973
PCT/US2017/064944 Salts and Polymorphs of Esreboxetine
Title
Esreboxetine - Fibromyalgia
Country / Region
U.S.A
PCT
Application No.
62/430,864
Tianeptine - PTSD
Salts and Polymorphs of Esreboxetine for the treatment of Fibromyalgia
U.S.A.
Title
Country / Region
Application No.
15/856,818
Tianeptine Oxalate Salts and Polymorphs
PCT/IB2017/001709 Tianeptine Oxalate Salts and Polymorphs
Title
Novel Smallpox Vaccines
Application No.
14/207,727
Novel Smallpox Vaccines
Title
21
Country / Region
U.S.A.
PCT
Country / Region
U.S.A.
Synthetic Chimeric Poxviruses
Application No.
15/802,189
P 20170103043
2017/34209
Synthetic Chimeric Poxviruses
Synthetic Chimeric Poxviruses
Synthetic Chimeric Poxviruses
Synthetic Chimeric Poxviruses
106137976
2017-000418
Synthetic Chimeric Poxviruses
PCT/US2017/059782 Synthetic Chimeric Poxviruses
Title
Title
CBP - Depression
Application No.
13/412,571
2016222412
2,829,200
12755254.5
2013-557811
2016-7041
730065
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
(Issued)
Methods and Compositions for Treating Depression Using Cyclobenzaprine
Selegiline / Disulfiram - Cocaine Addiction
Application No.
13/820,338
2809966
2011314358
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
Tianeptine Neurocognitive Dysfunction
Title
Application No.
15/064,196
Title
Method for Treating Neurocognitive Dysfunction
2723688
17176372.5
Method for Treating Neurodegenerative Dysfunction (Allowed)
Method for Treating Neurodegenerative Dysfunction
CBP - Agitation in Neurodegenerative Condition
Country / Region
U.S.A.
Argentina
Gulf Cooperation
Council
Taiwan
Venezuela
PCT
Country / Region
U.S.A.
Australia
Canada
European Patent Office
Japan
Japan
New Zealand
Country / Region
U.S.A.
Canada
Australia
Japan
Republic of Korea
Hong Kong
Country / Region
U.S.A.
Canada
European Patent Office
Application No.
62/597,284
Title
Cyclobenzaprine Treatment for Agitation, Psychosis and Cognitive Decline in Dementia and
Neurodegenerative Conditions
Country / Region
U.S.A.
22
Trademarks and Service Marks
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 December 16, 2014) and TONMYA (Reg. No. 4868328, issued December 8, 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 January 27, 2015), MODALTIN (Serial No. 86/631228, filed May 15, 2015), RAPONTIS (Serial No.
86/631236, filed May 15, 2015), IMADAZIO (Serial No. 86/631242, filed May 15, 2015), PROTECTIC (Serial No. 86/636119, filed May
20, 2015), TONIX PHARMACEUTICALS (Serial No. 86/400401, filed September 19, 2014) and ANGSTRO-TECHNOLOGY (Serial No.
86/713402, filed August 3, 2015).
Research and Development
We have approximately 9 employees dedicated to research and development. Our research and development operations are located
in New York, NY, San Diego, 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 manufacturer organization, or CMOs, for the manufacture of
Tonmya and TNX-102 SL drug substances and drug products for investigational purposes, including nonclinical and clinical testing. For
Tonmya and 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 small molecules drug candidates are synthesized using industry standard processes, and our drug products are
formulated using commercially available pharmaceutical grade excipients.
Our smallpox-preventing vaccine candidate is a biologic and uses live form of HPXV. Both the drug substance (HPVX and the
cell bank) and the drug product (vaccine) will be manufactured by contract cGMP-compliant facilities capable of manufacturing for
nonclinical/clinical testing and licensed product.
Government Regulations
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.
23
The FDA regulates, among other things, the research, manufacture, promotion and distribution of drugs 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:
● 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 License 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.
● 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.
24
● 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. 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.
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.
25
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 Tonmya for 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 an NDA under Section 505(b)(2) for Tonmya for PTSD. The FDA may not agree that this product
candidate is approvable for PTSD as a Section 505(b)(2) NDA. If the FDA determines that a Section 505(b)(2) NDA is not appropriate and
that a full NDA is required for Tonmya, the time and financial resources required to obtain FDA approval for Tonmya could substantially
and materially increase, and Tonmya might be less likely to be approved. If the FDA requires a full NDA for Tonmya, 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 a safety reason, we may not be able to reference such products to support our anticipated Tonmya 505(b)(2) NDA, and we may be
required to follow the requirements of Section 505(b)(1).
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.
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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.
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:
● 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.
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In December 2016, the FDA granted Breakthrough Therapy designation to Tonmya for the treatment of PTSD. The Breakthrough
Therapy designation request was submitted based on the preliminary clinical evidence of Tonmya on military-related PTSD in the AtEase
study.
Breakthrough Therapy designation is intended to expedite the development and review of drugs for serious or life-threatening
conditions. The benefits of Breakthrough Therapy designation include the eligibility for priority review of the NDA in about six months
instead of 10 months after submission and rolling submission of completed portions of the NDA, in addition to an organizational
commitment involving FDA’s senior managers contributing significant guidance. The FDA is committing to provide us timely advice and
interactive communications related to the design and efficient execution of our Breakthrough Therapy development program.
Material Threat Medical Countermeasures
In 2016, the 21st Century Cures Act, or Act, was signed into law to support ongoing biomedical innovation. One part of the Act,
Section 3086, is aimed at “Encouraging Treatments for Agents that Present a National Security Threat.” The Act created a new priority
review voucher program for “material threat medical countermeasures.” The Act defines such countermeasures as drugs or vaccines
intended to treat biological, chemical, radiological, or nuclear agents that present a national security threat or to treat harm from a condition
that may be caused by administering a drug or biological product against such an agent. The Department of Homeland Security has
identified 13 such threats, including anthrax, smallpox, Ebola/Marburg, tularemia, and botulism. A priority review voucher can be applied
to any other product application; it shortens the FDA review timeline for a new application from 10-12 months to 6 months. The recipient
of a priority review voucher may transfer it. We intend to seek a priority review voucher for TNX-801 licensure as a material threat
medical countermeasure. However, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023.
If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century
Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed.
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:
● 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.
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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.
Coverage and Reimbursement
Sales of our product candidates, if approved, will depend, in part, on the extent to which such products will be covered by third-
party payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party
payors are increasingly limiting coverage or reducing reimbursements for medical products and services. In addition, the U.S. government,
state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions
on reimbursement and requirements for substitution of generic products. Third-party payors decide which therapies they will pay for and
establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own
coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided
for any drug candidates that we develop will be made on a payor-by-payor basis. Each payor determines whether or not it will provide
coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The
position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the
therapy and can strongly influence the adoption of such therapy by patients and physicians. Adoption of price controls and cost-
containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our
net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover
our product candidates could reduce physician usage of our product candidates, once approved, and have a material adverse effect on our
sales, results of operations and financial condition.
Other Healthcare Laws
Because of our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and
third-party payors, we will also be subject to healthcare regulation and enforcement by the federal government and the states and foreign
governments in which we will conduct our business, including our clinical research, proposed sales, marketing and educational programs.
Failure to comply with these laws, where applicable, can result in the imposition of significant civil penalties, criminal penalties, or both.
The U.S. laws that may affect our ability to operate, among others, include: the federal Health Insurance Portability and Accountability Act
of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct
of certain electronic healthcare transactions and protects the security and privacy of protected health information; certain state laws
governing the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many
of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; the federal
healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting,
receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the
purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the
Medicare and Medicaid programs; federal false claims laws which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to
healthcare matters; the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies
to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to
physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and
investment interests held by physicians and their immediate family members; and state law equivalents of each of the above federal laws,
such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including
commercial insurers.
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In addition, many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in
scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs.
Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign laws.
The Impact of New Legislation and Amendments to Existing Laws
The FDCA is subject to routine legislative amendments with a broad range of downstream effects. In addition to new legislation,
such as the FDA Reauthorization Act of 2017 or the FDASIA in 2012, Congress introduces amendments to reauthorize drug user fees and
address emerging concerns every five years. We cannot predict the impact of these new legislative acts and their implementing regulations
on our business. The programs established or to be established under the legislation may have adverse effects upon us, including increased
regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. 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. Additionally, the current legislative authority for the Prescription Drug User Fee Act
expired in September 2017. The requirements and changes imposed by the legislation to reauthorize the act 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. It is
impossible to predict whether additional legislative changes will be enacted, or FDA regulations, guidance or interpretations will change, or
what the impact of such changes, if any, may be.
We expect that additional federal and state, as well as foreign, healthcare reform measures will be adopted in the future, any of
which could result in reduced demand for our products or additional pricing pressure.
Employees
As of March 1, 2018, we had 14 full-time employees, of whom five hold M.D. or Ph.D. degrees. We have nine employees
dedicated to research and development. Our research and development operations are located in New York, NY, San Diego, 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
We lease the space for our principal executive offices, which 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.
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We and our 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 our product candidates 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, nonclinical and CMC development, laboratory testing and
clinical studies. 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 studies, and regulatory compliance activities.
We expect to incur substantial additional operating expenses over the next several years as our research, development, preclinical
and nonclinical testing, and clinical study 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;
successfully commercializing our products; establishing a favorable competitive position; and raising sufficient funds to finance our
activities. Many of these factors will depend on circumstances beyond our control. 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 studies of our clinical-stage
product candidate, Tonmya for PTSD. We have not yet obtained regulatory approvals for Tonmya 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, among other things:
● our ability to obtain additional funding to develop our product candidates;
● delays in the commencement, enrollment and timing of clinical studies;
● the success of our clinical studies through all phases of clinical development, including studies of our most advanced product
candidate, Tonmya for PTSD;
● 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 Tonmya for PTSD or any of our other product
candidates in the United States and foreign jurisdictions;
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● 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 REMS, or cause an approved drug to be taken off the
market;
● our ability to establish or maintain collaborations, licensing or other arrangements;
● market acceptance of our product candidates;
● 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; and
● potential product liability claims;
Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operating
performance.
RISKS RELATED TO PRODUCT DEVELOPMENT, REGULATORY APPROVAL, MANUFACTURING AND
COMMERCILAIZATION
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 studies, 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 studies, regulatory clearances and additional investment by us or our collaborators before they can be
commercialized.
Further, 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 studies, 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, Tonmya, in Phase 3 development for the treatment
of 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 Tonmya. 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.
As we have no approved products on the market, we 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.
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We are largely dependent on the success of our clinical-stage product candidate, Tonmya for PTSD, and we cannot be certain that this
product candidate will receive regulatory approval or be successfully commercialized.
Tonmya has not completed the clinical development process; therefore, we have not yet submitted an NDA or foreign equivalent
or received marketing approval for this product candidate anywhere in the world. The clinical development program for Tonmya for 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 studies fail to demonstrate to their satisfaction that this product candidate is 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 study process. Any failure or delay in
completing clinical studies or obtaining regulatory approvals for Tonmya for PTSD in a timely manner would have a material adverse
impact on our business and our stock price.
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 studies 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 pharmaceutical product, we must demonstrate proof of safety and effectiveness
in humans. To meet these requirements, we must conduct “adequate and well controlled” clinical studies. Conducting clinical studies 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 study. Delays associated with products for which we are
directly conducting clinical studies may cause us to incur additional operating expenses. The commencement and rate of completion of
clinical studies 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 studies; slower than expected rates of patient recruitment; failure to recruit a sufficient
number of patients; modification of clinical study protocols; changes in regulatory requirements for clinical studies; the lack of
effectiveness during clinical studies; the emergence of unforeseen safety issues; delays, suspension, or termination of the clinical studies
due to the ITB responsible for overseeing the study at a particular study site; and government or regulatory delays or “clinical holds”
requiring suspension or termination of the studies.
The results from early clinical studies are not necessarily predictive of results obtained in later clinical studies. Accordingly, even if
we obtain positive results from early clinical studies, we may not be able to confirm the results in future clinical studies. For example, in a
Phase 3 trial for a product candidate for fibromyalgia, we were not able replicate the results we received from the Phase 2b trial for this
product candidate, and as a result discontinued this program. Clinical studies may not demonstrate sufficient safety and effectiveness to
obtain the requisite regulatory approvals for product candidates.
Our clinical studies 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.
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The failure of clinical studies 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 studies 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 studies 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. The FDA applies the same standards
for biologics, requiring an IND application, followed by a Biologic License Application, or BLA, prior to licensure. Other products, such as
vaccines, are also regulated under the Public Health Service Act. FDA has conflated the standards for approval of NDAs and BLAs so that
they require the same types of information on safety, effectiveness, and CMCs. 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 studies of each
product candidate, is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to
conduct clinical studies. 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 CMOs 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.
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We do not have, and may never obtain, the regulatory approvals we need to market our product candidates.
Following completion of clinical studies, the results are evaluated and, depending on the outcome, submitted to the FDA in the
form of an NDA or BLA 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 or BLAs: 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 or BLA is approved.
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 or BLA 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.
We have limited experience in completing a Phase 3 clinical study and have never submitted an NDA before, and may be unable to do
so for Tonmya or other product candidates we are developing.
We initiated a Phase 3 study in military-related PTSD in the first quarter of 2017. As this study is intended to provide efficacy and
safety evidence to support marketing approval by the FDA, it is considered a pivotal, confirmatory or registration, study. The conduct of
pivotal clinical studies 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 and clinical testing of drug candidates and the commercialization of drug, we
have conducted only one pivotal clinical study before (the AFFIRM study in fibromyalgia participants), have limited experience in
preparing, submitting and prosecuting regulatory filings, and have not submitted an NDA before. Consequently, we may be unable to
successfully and efficiently execute and complete this planned clinical study in a way that leads to NDA submission and approval of
Tonmya 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 studies would prevent or delay commercialization of Tonmya and other product candidates we are developing.
Our product candidates may cause SAEs 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.
SAEs or undesirable side effects from Tonmya 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 studies, including Tonmya, may
show that our product candidates cause SAEs or undesirable side effects, which could interrupt, delay or halt clinical studies, resulting in
delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
If Tonmya or any of our other product candidates cause SAEs or undesirable side effects or suffer from quality control issues:
● 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;
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● 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 studies;
● 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 participants 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;
● sales of the product may decrease significantly;
● regulatory authorities may require us to take our approved product off the market;
● we may be subject to litigation or product liability claims; and
● our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could
substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues
from the sale of our products.
If a competing drug shows efficacy in military-related PTSD prior to the FDA approval of Tonmya or if Tonmya fails to confirm the
results of the AtEase Phase 2 study in showing activity in military-related PTSD in the Phase 3 HONOR study, then the FDA may
rescind the Breakthrough Therapy designation.
In December 2016, the FDA granted Tonmya for PSTD Breakthrough Therapy designation based on several factors, including that
Tonmya has the potential to be an improvement over existing therapies for military-related PTSD. If another therapy is shown to be
effective in military-related PTSD before FDA approval of Tonmya, then the FDA may rescind the designation. In addition, if Tonmya
fails to confirm the activity from the AtEase study in treating military-related PTSD, then the FDA may rescind the Breakthrough Therapy
designation.
Breakthrough Therapy designation for Tonmya may not lead to faster development or regulatory processes nor does it increase the
likelihood that Tonmya will receive marketing approval for PTSD.
There is no guarantee that the receipt of Breakthrough Therapy designation will result in a faster development, review or approval
process for Tonmya for PTSD or increase the likelihood that Tonmya will be granted marketing approval for PTSD. In some cases, the
development program for the Breakthrough Therapy could be shorter than for other drugs intended to treat the disease being studied.
However, the FDA notes that a compressed drug development program still must generate adequate data to demonstrate that the drug is
safe, effective and meets the statutory standard for approval. Breakthrough Therapy designation does not change the standards for approval.
If a clinical development program granted Breakthrough Therapy designation does not continue to meet the criteria, the FDA may rescind
the designation.
Likewise, any future Breakthrough Therapy designation for any other potential indication of TNX-102 SL neither guarantees a
faster development process, review or approval nor improves the likelihood of the granting of marketing approval by the FDA for any such
potential indication of TNX-102 SL compared to drugs considered for approval under conventional FDA procedures. We may seek a
Breakthrough Therapy designation for other of our product candidates, but the FDA may not grant this status to any of our proposed
product candidates.
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If we are unable to file for approval of Tonmya 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 a pre-IND meeting
with the FDA in October 2012 to discuss the development of Tonmya in PTSD. Following the results of the AtEase Study, we held an End-
of-Phase 2/Pre-Phase 3 meeting with the FDA in August 2016 to discuss our most advanced development program, in which we are
developing Tonmya for the treatment of PTSD. In March 2017, we had our initial Cross-disciplinary Breakthrough Therapy meeting with
the FDA to discuss ways to expedite the development and NDA submission of Tonmya. Although our interactions with the FDA have
encouraged our efforts to continue to develop Tonmya for PTSD, there is no assurance that we will satisfy the FDA’s requirements for
approval in this indication. The timeline for filing and review of our NDA for Tonmya for PTSD is based on our plan to submit this NDA
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.
We may not be able to realize a shortened development timeline for Tonmya for PTSD, and the FDA may not approve our NDA
based on their review of the submitted data. 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 Tonmya, 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 lead product candidate.
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 studies.
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.
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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.
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.
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 Tonmya for
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.
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RISKS RELATED TO OUR FINANCIAL CONDITION AND CAPITAL REQUIREMENTS; COMPETITION
We received a report from our independent registered public accounting firm with an explanatory paragraph for the year ended
December 31, 2017 with respect to our ability to continue as a going concern.
In their report dated March 9, 2018, our independent registered public accounting firm expressed substantial doubt about our
ability to continue as a going concern as we have incurred losses since inception, have a negative cash flow from operations, and require
additional financing to fund future operations. Our ability to continue as a going concern is subject to our ability to obtain necessary
funding from outside sources, including obtaining additional funding from the sale of our securities
We will 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 studies 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 candidate. We will, 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 studies, 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 or complete clinical studies 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.
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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.
The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by
Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On September 28, 2017, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has
committed to purchase up to $15,000,000 of our common stock. Upon the execution of the Purchase Agreement, we issued 73,039 shares
of common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the Purchase Agreement. The
remaining shares of our common stock that may be issued under the Purchase Agreement may be sold by us to Lincoln Park at our
discretion from time to time through March 2020. The purchase price for the shares that we may sell to Lincoln Park under the Purchase
Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may
cause the trading price of our common stock to fall.
We generally have the right to control the timing and amount of any future sales of our shares to Lincoln Park. Additional sales of our
common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. We may ultimately
decide to sell to Lincoln Park all, some, or none of the additional shares of our common stock that may be available for us to sell pursuant to
the Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell
all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in
substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our
common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect sales.
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 drug product candidate, Tonmya, 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 or similar 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.
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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.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY RIGHTS AND REGULATORY EXCLUSIVITY
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.
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 PTO 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.
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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 PTO. 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 PTO 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.
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.
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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.
GENERAL COMPANY-RELATED RISKS
If preclinical and nonclinical testing or clinical studies 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 contract research organizations, or CROs, and outside
consultants, to conduct, supervise or monitor some or all aspects of preclinical and nonclinical testing and clinical studies involving our
product candidates. We have less control over the timing and other aspects of these preclinical and nonclinical testing activities and clinical
studies 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 studies on our anticipated schedule or, for clinical studies, consistent with a clinical study
protocol. Delays in preclinical and nonclinical testing, and clinical studies 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 studies may also
ultimately lead to denial of regulatory approval of a product candidate.
The commencement of clinical studies can be delayed for a variety of reasons, including delays in:
● demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical study;
● reaching agreement on acceptable terms with prospective CROs and study sites;
● developing a stable formulation of a product candidate;
● manufacturing sufficient quantities of a product candidate; and
● obtaining institutional review board, or IRB, approval to conduct a clinical study at a prospective site.
Once a clinical study 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:
● ongoing discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical studies;
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● failure to conduct clinical studies in accordance with regulatory requirements;
● lower than anticipated recruitment or retention rate of patients in clinical studies;
● inspection of the clinical study operations or study sites by the FDA or other regulatory authorities resulting in the imposition
of a clinical hold;
● lack of adequate funding to continue clinical studies;
● negative results of clinical studies;
● investigational drug product out-of-specification; or
● nonclinical or clinical safety observations, including adverse events and SAEs.
If clinical studies 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.
We rely on third parties to conduct, supervise and monitor our clinical studies, and if those third parties perform in an unsatisfactory
manner, it may harm our business.
We rely on CROs and clinical study sites to ensure the proper and timely conduct of our clinical studies. 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 studies 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 cGCP for conducting, recording and reporting the results of clinical
studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical study
participants are protected. The FDA enforces these cGCPs through periodic inspections of study sponsors, principal investigators and
clinical study sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical studies may be
deemed unreliable and the FDA may require us to perform additional clinical studies before approving any marketing applications. Upon
inspection, the FDA may determine that our clinical studies did not comply with cGCPs. In addition, our clinical studies, including our
ongoing Phase 3 HONOR study in military-related PTSD, will require a sufficiently large number of test subjects to evaluate the
effectiveness and safety of Tonmya. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of
participants, our clinical studies may be delayed or we may be required to repeat such clinical studies, 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 studies. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may
also be conducting clinical studies, or other drug development activities which could 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 studies 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 studies. 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.
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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 studies, 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:
● 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;
● 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 and Dr. Gregory M. Sullivan, our Chief Medical 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. Dr. Sullivan has served as our Chief Medical Officer since 2014 and directed the Phase 2 AtEase study and is directing the Phase 3
HONOR study. Loss of the services of Drs. Lederman or Sullivan 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 studies, 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
studies and our products that reach commercialization. Completion of our clinical studies 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 Tonmya. If, for any reason, we become unable to rely on our current sources for the manufacture of our
product candidates, either for clinical studies 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
Tonmya, 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 studies. 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 studies, the approval of any product candidates or the commercialization of
our products.
Such third-party manufacturers must be inspected by FDA for 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 studies, 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.
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Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the Drug Enforcement Administration,
or DEA, 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.
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 studies, 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 may face competition sooner than expected.
We intend to seek data exclusivity or market exclusivity for our product candidates provided under the FDCA and similar laws in
other countries. We believe that TNX-801 could qualify for 12 years of data exclusivity under the Biologics Price Competition and
Innovation Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and Affordable Care Act. Under the BPCIA, an
application for a biosimilar product or BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years,
after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway
for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority
for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its
similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented by the FDA.
While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect
on the future commercial prospects for any of our product candidates that are biologics. There is also a risk that President Trump’s
administration could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar
competition sooner than anticipated after the expiration of our patent protection. Although there is no current discussion of repeal or
modification of the BPCIA, the future remains uncertain. Moreover, the extent to which a biosimilar, once approved, will be substituted for
any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend
on a number of marketplace and regulatory factors that are still developing.
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Our product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be
eligible for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity
within the U.S. to the first applicant to gain approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved
any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance.
During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA,
submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or
non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing
NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the
FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This
three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from
approving ANDAs for drugs containing the original active agent.
Even if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the
BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or
full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to
demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could result in a shorter
exclusivity period for our product candidates, which could have a material adverse effect on our business.
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.
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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.
Our relationships with customers, physicians, and third-party payors will be subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and
regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the
recommendation and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements
with healthcare professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and
state fraud and abuse laws and other health care laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and
criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations. These laws will
impact, among other things, our clinical research, proposed sales, marketing and educational programs. In addition, we may be subject to
patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will
affect our operations include, but are not limited to:
• the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in
cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal
healthcare program, such as the Medicare and Medicaid programs;
• federal civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws
which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for
payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to
avoid, decrease or conceal an obligation to pay money to the federal government;
• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that
prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any
healthcare benefit program, regardless of the payor (e.g., public or private);
• HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its
implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security,
Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other
Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and
transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as
health plans, health care clearinghouses and health care providers, and their respective business associates;
• federal transparency laws, including the federal Physician Payments Sunshine Act, which is part of PPACA, that require certain
manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services,
or CMS, information related to: (i) payments or other “transfers of value’’ made to physicians and teaching hospitals; and
(ii) ownership and investment interests held by physicians and their immediate family members;
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• state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information
related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state
laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws
and regulations, or that otherwise restrict payments that may be made to healthcare providers; and
• state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from
each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that
some of our business activities could be subject to challenge under one or more of such laws.
It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal
and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare
programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity
agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our
operations.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by
the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business
arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action
against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert
our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain
robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the
possibility that a healthcare company may run afoul of one or more of the requirements.
Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it
difficult for us to sell profitably, if approved.
Market acceptance and sales of any drug candidates that we commercialize, if approved, will depend in part on the extent to which
reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration
authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and
establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own
coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided
for any drug candidates that we develop will be made on a payor-by-payor basis. One payor’s determination to provide coverage for a drug
does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s
decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines
whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its
formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a
patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients
who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse
all or part of the associated healthcare costs. Patients are unlikely to use our drugs unless coverage is provided and reimbursement is
adequate to cover a significant portion of the cost of our drugs.
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A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs
by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will
be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate
coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and
adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our
current and any future drug candidates that we develop.
Healthcare legislative reform measures may have a negative impact on our business and results of operations.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes
and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug candidates, restrict or
regulate post-approval activities, and affect our ability to profitably sell any drug candidates for which we obtain marketing approval.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare
systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the
pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In
March 2010, the PPACA was passed, which substantially changed the way healthcare is financed by both the government and private
insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addresses a new methodology by
which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled,
implanted or injected; (ii) increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and
extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) establishes annual fees and taxes on
manufacturers of certain branded prescription drugs; (iv) expands the availability of lower pricing under the 340B drug pricing program by
adding new entities to the program; and (v) establishes a new Medicare Part D coverage gap discount program, in which manufacturers
must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Some of the provisions of
the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In
January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the
implementation of legislation that would repeal portions of the PPACA. The Budget Resolution is not a law, however, it is widely viewed
as the first step toward the passage of legislation that would repeal certain aspects of the PPACA. Further, on January 20, 2017, President
Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant
exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states,
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The PPACA remains subject to
legislative efforts to repeal, modify or delay the implementation of the law. Recent efforts to repeal, modify or delay implementation of the
ACA have resulted in some level of success. If the PPACA is repealed or further modified, or if implementation of certain aspects of the
PPACA are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating
results or financial condition. We are unable to predict the full impact of any repeal, modification or delay in the implementation of the
PPACA on us at this time. Due to the substantial regulatory changes that will need to be implemented by CMS and others, and the
numerous processes required to implement these reforms, we cannot predict which healthcare initiatives will be implemented at the federal
or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on our
business.
Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance
initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will be fully implemented
in 2019. At this time, it is unclear how the introduction of the Medicare quality payment program will impact overall physician
reimbursement. Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for
their marketed products, which have resulted in several Congressional inquiries and proposed bills designed to, among other things, bring
more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drug products.
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We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from
Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost
containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or
commercialize our drugs.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the
amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our
drug candidates or additional pricing pressures.
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 Tonmya 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:
● 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;
● 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 study 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 study 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 study
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 study, property, workers’ compensation, products liability and directors’ and
officers’ insurance, along with an umbrella policy, which collectively costs approximately $600,000 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.
53
We may be unsuccessful in obtaining a priority review voucher for material threat medical countermeasures.
In 2016, the 21st Century Cures Act, or the Act, was signed into law to support ongoing biomedical innovation. One part of the
Act, Section 3086, is aimed at “Encouraging Treatments for Agents that Present a National Security Threat.” The Act created a new priority
review voucher program for “material threat medical countermeasures.” The Act defines such countermeasures as drugs or vaccines
intended to treat biological, chemical, radiological, or nuclear agents that present a national security threat or to treat harm from a condition
that may be caused by administering a drug or biological product against such an agent. The Department of Homeland Security has
identified 13 such threats, including anthrax, smallpox, Ebola/Marburg, tularemia, and botulism. A priority review voucher can be applied
to any other product; it shortens the FDA review timeline for a new application from 10-12 months to 6 months. The recipient of a priority
review voucher may transfer it.
We intend to seek a priority review voucher for TNX-801 as a material threat medical countermeasure. However, the structure of
voucher programs limits the number of medical countermeasures eligible for a priority review voucher. Further, the medical
countermeasure must qualify for priority review in order to be eligible and may not include any commercially approved indication.
Moreover, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not
receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the
provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed. As such, the market for
the TNX-801 will be limited if we are successful in obtaining a priority review voucher, assuming that the Priority Review Voucher
Program is in effect at the time TNX-801 is available for licensing.
There may not be market interest in TNX-801.
The government is the only market for most medical countermeasures. This is because unlike other drugs and vaccines, these
products are not sold to doctors, hospitals, or pharmacies. The BioShield Special Reserve Fund, or SRF, has been the sole medical
countermeasures market for the last decade; a 10 year advance appropriation of $5.6 billion was available to procure successful candidate
medical countermeasures. The SRF expired in 2013 and all funds were used to add 12 new medical countermeasures to the national
stockpile. Congress reauthorized the SRF but adequate funding has not yet followed; the SRF is now appropriated annually and has not
kept pace with the need for purchasing products ready for stockpiling. Further, similar products are being developed by other companies,
such as Bavarian Nordic, which is developing Modified Virus Ankara, or MVA, which may compete with TNX-801. As such, even if
TNX-801 were to receive FDA licensure, the commercial success of TNX-801 remains uncertain.
If technology developed for the purposes of developing new medicines or vaccines can be applied to the creation or development of
biological weapons, then our technology may be considered “dual use” technology and be subject to limitations on public disclosure or
export.
Together with the University of Alberta, we are consulting with government authorities before publishing work that describes the
synthesis of poxviruses, including TNX-801. Our research collaboration is dedicated not only to creating tools that better protect public
health but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied. “Dual use research” is
research conducted for legitimate purposes that generates knowledge, information, technologies, and/or products that can be reasonably
anticipated to provide knowledge, information, products, or technologies that could be directly misapplied to pose a significant threat to
public health, agricultural crops, or national security. Because variola, the agent that causes smallpox, is a pox virus, the technology we
created could be considered dual use and could be subject to export control, for example under the Wassenaar Arrangement. Further, if
federal authorities determine that our research is subject to institutional oversight, we will need to implement a risk-management plan
developed in collaboration with the institutional review entity. Failure to comply with the plan may result in suspension, limitation, or
termination of federal funding or loss of future federal funding opportunities for any of our or the University of Alberta’s research.
54
We face risks in connection with existing and future collaborations with respect to the development, manufacture, and
commercialization of our product candidates.
We face a number of risks in connection with our current collaborations, including the University of Alberta. Our collaboration
agreements are subject to termination under various circumstances. Our collaborators may change the focus of their development and
commercialization efforts or may have insufficient resources to effectively assist in the development of our products. Any future
collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in
collaboration with third parties. Further, disagreements with collaborators, including disagreements over proprietary rights, contract
interpretation, or the preferred course of development, might cause delays, might result in litigation or arbitration, or might result in
termination of the research, development or commercialization of our products. Any such disagreements would divert management
attention and resources and be time-consuming and costly.
We face risks in connection with the production and storage of the TNX-801 vaccine.
The TNX-801 vaccine candidate is a live form of HPXV. We have initiated vaccine-manufacturing activities to support further
nonclinical testing of TNX-801. While it is potentially safer and possibly better tolerated than existing smallpox-preventing vaccines, the
production and storage of the synthesized HPXV virus stock may carry risk of infection and harm to individuals. HPXV, an equine disease
caused by a virus and characterized by eruptions in the mouth and on the skin, is believed to be eradicated. No true HPXV outbreaks have
been reported since 1976, at which time the United States Department of Agriculture obtained the viral sample used for the sequence
published in 2006 that allowed the synthesis of TNX-801.
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:
● announcements of technological innovations or new products by us or our competitors;
● announcement of FDA approval, disapproval or delay of approval of our product candidates or other product-related actions;
● developments involving our discovery efforts and clinical studies;
● developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or
other litigation against us or our potential licensees;
55
● 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.
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.
56
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. 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 1, 2018, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and
their respective affiliates, beneficially own approximately 20.33% 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.
Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to provisions under our
corporate charter and bylaws, as well as Nevada law.
Provisions in our articles of incorporation, our bylaws, and under Nevada law could make it more difficult for other companies to
acquire us, even if doing so would benefit our stockholders. Our articles of incorporation and bylaws contain the following provisions,
among others, which may inhibit an acquisition of our company by a third party:
● advance notification procedures for matters to be brought before stockholder meetings
57
● a limitation on who may call stockholder meetings
● a limitation on the removal of directors
● the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without a stockholder vote
We are also subject to provisions of Nevada law that prohibit us from engaging in any business combination with any “interested
stockholder,” meaning generally that a stockholder who beneficially owns 10 percent or more of our stock cannot acquire us for a period of
time after the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by
our board of directors and stockholders.
ITEM 1B – UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments at December 31, 2017.
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, we executed a letter of credit, which has a remaining balance of $89,040 as of December 31, 2017, and we deposited
such amount 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. During December 2016, in an effort to reduce operating costs, we exited this facility and terminated this lease. The total
costs associated with exiting this facility were $0.1 million.
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. During August 2017, in an effort to reduce operating
costs, we terminated this lease and exited the premises in November 2017.
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 on an annual renewal basis. 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.
On August 22, 2017, we entered into a lease for approximately 450 square feet of office space in Dublin, Ireland, whereby we
agreed to lease premises, commencing November 20, 2017 and expiring on November 30, 2018. In connection therewith, we paid a
security deposit of $7,067.
Future minimum lease payments are as follows (in thousands):
Year Ending December 31,
2018
2019
58
$
$
458
181
639
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, operating results or cash flows.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
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 is listed on The NASDAQ Global Market 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, after giving
effect to the 1-for-10 reverse stock split, which was effected on March 17, 2017.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2017
High
Low
9.40 $
5.81 $
4.77 $
4.99 $
3.30
3.80
2.85
3.31
Fiscal Year 2016
High
Low
79.54 $
37.70 $
28.00 $
8.50 $
22.00
18.40
6.90
3.52
$
$
$
$
$
$
$
$
On March 7, 2018, the closing sale price of our common stock, as reported by The NASDAQ Stock Market, was $3.59 per share.
On March 7, 2018, there were 106 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.
59
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, 2017.
Number of Shares
of Common Stock
to be Issued
upon Exercise
of Outstanding
Options
(a)
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)
401,724 $
—
401,724 $
39.81
—
39.81
1,185,702
—
1,185,702
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by
stockholders
Total
Recent Sales of Unregistered Securities
None.
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.
ITEM 6 – SELECTED FINANCIAL DATA
Not required under Regulation S-K for “smaller reporting companies.”
60
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 and should be read together with the “Risk Factors” section of this Annual
Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in
or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in
this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.”.
Business Overview
Tonix is a clinical-stage biopharmaceutical company focused on discovering and developing pharmaceutical products to treat
serious neuropsychiatric conditions and to improve biodefense through the development of potential medical counter-measures. Our most
advanced drug development program is focused on delivering a safe and effective long-term treatment for posttraumatic stress disorder, or
PTSD. PTSD is 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 PTSD, other central nervous system disorders and biodefense.
In June 2017, the U.S. Food and Drug Administration, or FDA, conditionally accepted the proposed trade name Tonmya for TNX-
102 SL for the treatment of PTSD. The FDA’s final approval of Tonmya as a name for TNX-102 SL for the treatment of PTSD is subject to
an New Drug Application, or NDA, approval. A request for review of Tonmya as the proposed name for TNX-102 SL for the management
of fibromyalgia has been withdrawn at the FDA. The U.S. Patent and Trademark Office, or PTO, has granted the federal registration of the
Tonmya mark.
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Our lead product candidate, Tonmya or TNX-102 SL, a proprietary low-dose cyclobenzaprine, or CBP, sublingual tablet,
designed for bedtime administration, is in Phase 3 development as a potential treatment for PTSD. TNX-102 SL is also being developed as
a treatment for agitation in Alzheimer’s disease, or AAD. The FDA has designated Tonmya a Breakthrough Therapy for the treatment of
PTSD.
Our therapeutic strategy in PTSD is supported by results from a randomized, double-blind, placebo-controlled, 12-week Phase 2
study of Tonmya in participants with military-related PTSD, which we refer to as the AtEase study. We reported topline results from the
AtEase study in May 2016. In the AtEase study, participants experienced their index trauma during military service in 2001 or later and had
a baseline Clinician-Administered PTSD Scale for DSM-5, or CAPS-5, score of 29 or higher and were randomized in a 2:1:2 ratio to
Tonmya 2.8 mg, Tonmya 5.6 mg (2 x 2.8 mg tablets), or placebo sublingual tablets at bedtime daily for 12 weeks, respectively. This study
was conducted at 24 U.S. centers and enrolled 231 participants in the modified intent-to-treat population. The primary objective of the
AtEase study was to evaluate the efficacy and safety of Tonmya in the treatment of military-related PTSD. The primary efficacy endpoint
was the 12-week mean change from baseline in the severity of PTSD symptoms as measured by CAPS-5 between those treated with
Tonmya and those receiving placebo. The CAPS-5 scale is a standardized structured clinician interview and is considered the gold standard
in clinical research and regulatory approval for measuring the symptom severity of PTSD.
AtEase was adequately designed to evaluate whether a 2.8 mg dose would be efficacious, which would have provided an
opportunity for this study to be used as one of the two pivotal efficacy studies required to support approval of Tonmya for the treatment of
PTSD. Although the 2.8 mg dose trended in the direction of a therapeutic effect, it did not reach statistical significance on the primary
endpoint. The 5.6 mg dose had a therapeutic effect as assessed by the CAPS-5 scale, which was statistically significant by MMRM with MI
analysis (p-value = 0.031), even though this arm of the study, by design, included only approximately half the number of participants of the
2.8 mg and placebo arms. Tonmya demonstrated a dose-effect on multiple efficacy and safety measurements in the AtEase study.
In the AtEase study, Tonmya was well tolerated and the participant retention rate was 73% on placebo, 79% on Tonmya 2.8 mg
and 84% on Tonmya 5.6 mg. Four distinct SAEs were reported in the study; three were in the placebo group, and one (proctitis/peri-rectal
abscess,) in the Tonmya arm, which was determined to be unrelated to Tonmya. The most common not dose-related adverse events were
mild and transient local administration site conditions and of these oral hypoaesthesia, or numbness, was the most frequent and occurred in
39% of participants treated with the 2.8 mg dose and 36% of the participants treated with the 5.6 mg dose, compared to 2% of the
participants receiving placebo. Oral paresthesia, or tingling, occurred in 16% of participants treated with the 2.8 mg dose and 4% of
participants treated with the 5.6 mg dose, compared to 3% of the participants receiving placebo. Glossodynia, or a burning or stinging
sensation in the mouth, occurred in 3% of participants treated with the 2.8 mg dose and 6% of participants treated with the 5.6 mg dose,
compared to 1% of participants receiving placebo.
Systemic adverse events that were potentially dose-related and occurred in greater than or equal to 5% of participants treated with
the 5.6 mg dose or placebo included: somnolence in 16% versus 6% of the participants receiving placebo; dry mouth in 16% versus 11% of
the participants receiving placebo; headache in 12% versus 4% of the participants receiving placebo; insomnia in 6% versus 9% of the
participants receiving placebo; sedation in 12% versus 1% of the participants receiving placebo; upper respiratory tract infection in 4%
versus 5% of the participants receiving placebo; abnormal dreams in 2% versus 5% of the participants receiving placebo; and weight
increase in 2% versus 5% of the participants receiving placebo. For the participants treated with the 2.8 mg dose, the incidence of the most
common systemic adverse events reported above were less frequent than participants treated with the 5.6 mg dose with the exception of
insomnia, which was 8%.
Retrospective analysis of the AtEase study suggested that the subset of participants with CAPS-5 score of 33 or higher at baseline
(80% of AtEase population) was equivalent to the population of PTSD subjects studied in prior FDA registration studies of paroxetine and
sertraline using older versions of the CAPS. The effect size (Cohen’s d) of the PTSD symptom improvement by CAPS-5 in this subset,
comparing Tonmya 5.6 mg with placebo, was larger at 0.53 than the effect size in the full set with CAPS-5 score of 29 or higher at
baseline, 0.36. To confirm this efficacy evidence, our ongoing Phase 3 program is enrolling participants with baseline CAPS-5 score of 33
or higher. The beneficial effects of Tonmya 5.6 mg were preserved in the subgroup with PTSD from combat traumas (85% of AtEase
population). Also, continuing remission (i.e. satisfying remission criterion of a CAPS-5 score less than 11 at both week 8 and week 12) was
observed in 21% of participants in the Tonmya 5.6 mg group as compared to 5.2% of participants in the placebo group (p = 0.02, logistic
regression). The AtEase study supported the hypothesized mechanism of sleep quality improvement, since additional retrospective analyses
showed that in the subset of participants with CAPS-5 score of 33 or higher, sleep improvement at week 4, measured by the PROMIS
Sleep Disturbance instrument, predicted treatment response (by improvement in total CAPS-5 score without the sleep item) at week 12 in
the Tonmya 5.6 mg group (p = 0.01, linear regression).
62
On December 16, 2016, the FDA designated Tonmya a Breakthrough Therapy for the treatment of PTSD based on data derived
from a population with military-related PTSD in the AtEase study.
We received FDA agreement of the first Phase 3 study design in January 2017. We commenced the HONOR study, a randomized,
double-blind placebo-controlled Phase 3 study of Tonmya in approximately 550 participants with military-related PTSD in the first quarter
of 2017. This study is an adaptive design study based on the results of the Phase 2 AtEase study. The study design is very similar to the
Phase 2 AtEase study, except there will be one unblinded interim analysis, or IA, and the involvement of the independent data monitoring
committee, or IDMC, to review unblinded IA results. The IDMC will make a recommendation to continue as planned, to continue but
increase the number of recruited participants or to stop for success. In addition, only one active dose (5.6 mg administered as 2 x 2.8 mg
tablets) is investigated and the entrance criterion is CAPS-5 ≥ 33 in this Phase 3 study. The IA will be conducted when approximately 50%
of the initially planned participants (approximately 275 participants) are randomized. The HONOR study is being conducted at
approximately 40 U.S. sites. As in the case of the AtEase study, the primary efficacy endpoint of the HONOR study is the 12-week mean
change from baseline in the severity of PTSD symptoms as measured by the CAPS-5 scale between those treated with Tonmya 5.6 mg and
those receiving placebo.
At the Initial Cross-disciplinary Breakthrough Therapy meeting on March 9, 2017, the FDA confirmed that a single-study NDA
approval is possible if the topline data of the Phase 3 HONOR study is statistically persuasive and no additional abuse and dependency
study is necessary to support the NDA filing.
On May 2, 2017, we were issued U.S. patent 9,636,408 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and
Amitriptyline Hydrochloride”, which includes compositions of cyclobenzaprine HCl and methods of manufacturing the eutectic. The
Protectic™ protective eutectic and Angstro-Technology™ formulation claimed in the patent are important elements of our proprietary
Tonmya composition. The patent is expected to provide Tonmya with U.S. market exclusivity until 2034.
On September 7, 2017, we had a Breakthrough Therapy Chemistry, Manufacturing and Controls (“CMC”) guidance meeting with
the FDA regarding the CMC data required to support the Tonmya NDA and commercial product. We received the FDA formal minutes
from that meeting in October 2017 that reflect our readiness to manufacture Tonmya commercial product at production scale if a single-
study NDA can be submitted based on the HONOR study. This is critical to the successful launch of a potentially improved treatment
option for PTSD patients, especially those with military-related PTSD. In principle, our proposed CMC data package to support Tonmya’s
NDA approval and commercial manufacturing plans was acceptable to the FDA.
On September 13, 2017, we were issued European patent 2,501,234 “Methods and Compositions for Treating Symptoms
Associated with PTSD Using Cyclobenzaprine”. This patent recites the use of CBP for the treatment of PTSD, which covers the use of
Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP. The patent is expected to provide Tonmya with
European market exclusivity until 2030 and may be extended based on the timing of the European marketing authorization of Tonmya for
PTSD.
On November 6, 2017, we held a pre-IND meeting with the FDA to discuss our proposed development of TNX-102 SL for the
treatment of Agitation in Alzheimer’s Disease. We received the formal minutes from that meeting in December 2017 that reflect that Tonix
has the data needed to file an IND to support a potentially pivotal efficacy study. We plan to submit the TNX-102 SL IND for agitation in
Alzheimer’s disease by the end of March 2018.
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On December 15, 2017 we were issued Japanese Patent No. 6259452, “Compositions and Methods for Transmucosal Absorption,”
by the Japanese Patent Office (JPO) relating to the pharmacokinetic profile of Tonmya, or TNX-102 SL.
On January 23, 2018, we were issued a Notice of Allowance from PTO for U.S. Patent Application 12/948,828, “Methods and
compositions for treating symptoms associated with PTSD using Cyclobenzaprine”. This patent protects the use of Tonmya for the
treatment of PTSD as well as its active ingredient CBP for the treatment of PTSD. A Notice of Allowance signifies that we will be entitled
to receive patent protection until 2030 in the U.S. for the allowed claims when the patent is issued. This method of use patent for Tonmya
extends upon previously granted patents related to the composition of matter (U.S. Patent No. 9,636,408) and the active ingredient in
Tonmya (European Patent No. 2,501,234) as described above.
On March 1, 2018, we received a Notice of Allowance from the JPO for Japanese Patent Application No. 2016-503239 “Eutectic
Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride The allowed claims recite pharmaceutical compositions
comprising the eutectics and methods of manufacturing these eutectic formulations.
We also have a pipeline of other drug and biologic candidates, including two pre-IND candidates, TNX-601 (tianeptine oxalate)
for PTSD and TNX-801, a potential smallpox-preventing vaccine, an IND candidate, TNX-301, a potential treatment for AUD, and TNX-
701, a biodefense development program for protection from radiation injury. We hold worldwide development and commercialization
rights to all of our product candidates.
TNX-601 is a novel oral formulation of tianeptine oxalate in the pre-IND stage of development for the daytime treatment for
PTSD. We have discovered a novel salt and polymorph, which we believe may provide improved stability, consistency, and
manufacturability relative to the known forms of tianeptine. Leveraging our development expertise in PTSD, TNX-601 is being developed
as a first-line monotherapy for PTSD for daytime use. Tianeptine’s reported pro-cognitive and anxiolytic effects as well as its ability to
attenuate the neuropathological effects of excessive stress responses suggest that it may be used to treat PTSD by a different mechanism of
action than Tonmya. On April 19, 2016, we were issued U.S. patent 9,314,469 B2 “Method for treating neurocognitive dysfunction” which
includes using tianeptine for cognitive dysfunction associated with corticosteroid use. We intend to develop TNX-601 under Section 505(b)
(1) of the FDCA as a potential daytime treatment for PTSD and cognitive dysfunction associated with corticosteroid use. Pharmaceutical
development work on TNX-601 has been initiated.
TNX-801 is a novel potential smallpox-preventing vaccine based on a live synthetic version of HPXV grown in cell culture.
Professor David Evans and Dr. Ryan Noyce at the University of Alberta, Canada in collaboration with us, synthesized the HPVX, which
demonstrated protective vaccine activity in mice, using a model of lethal vaccinia infection (Noyce RS, et. al. 2018 PLoS ONE 13(1)). We
are developing TNX-801 as a potential smallpox-preventing vaccine for widespread immunization and for the U.S. strategic national
stockpile. Though it shares structural characteristics with vaccinia-based vaccines, TNX-801 has unique virulence properties that we
believe may suggest lower toxicity and potential safety advantages over existing vaccinia-based vaccines, which have been associated with
adverse side effects such as myopericarditis. We intend to meet with the FDA to discuss the most efficient and appropriate investigational
plan, e.g., the application of the Animal Rule, or conducting active comparator study using ACAM2000, to establish the safety and
effectiveness evidence to support the licensure TNX-801. In the 1970s, vaccination against smallpox was discontinued in the U.S.;
however, smallpox remains a material threat to national security. We recently filed a patent on the novel virus vaccine. In addition, 12 years
of non-patent-based exclusivity is provided under the Patient Protection and Affordable Care Act, or PPACA. It is unknown if a
replacement for the repeal of the Affordable Care Act, if enacted, would contain the 12-year exclusivity provision. Following the recent
passage of the 21st Century Cures Act, we believe TNX-801 qualifies as a medical countermeasure, and therefore should be eligible for a
Priority Review Voucher upon FDA approval. However, the Priority Review Voucher program provision of the 21st Century Cures Act is
set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in
the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801
is licensed. We are currently working to develop a vaccine that meets cGMP quality to support an IND study.
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. A pre-IND meeting was held in February 2016 to discuss the clinical development program of TNX-301 for AUD. At that
meeting, the FDA advised us the nonclinical studies required for this CDP IND application to support the initiation of the first-in-man study
with TNX-301. IND planning activities are underway.
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In addition, we own rights to intellectual property on a biodefense technology relating to the development of protective agents
against radiation exposure, which we refer to as TNX-701. We have begun nonclinical research and development on TNX-701. We plan to
develop TNX-701 under the Animal Rule. We expect significant reduction in 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 Tonmya for PTSD, but we also expend effort on our
other pipeline programs, including TNX-601, TNX-801 and 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 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, contracts or other
agreements. 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 participant recruitment, lack of funding 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.
Results of Operations
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, 2017 Compared to Fiscal year Ended December 31, 2016
Research and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2017 were
$13.3 million, a decrease of $15.2 million, or 53%, from $28.5 million for the fiscal year ended December 31, 2016. This decrease is
predominately due to the discontinuation of development work related to the episodic tension-type headache and fibromyalgia programs. In
2017, we incurred $7.9 million, $0.3 million and $1.3 million in clinical, non-clinical, and manufacturing, respectively, as compared to
$16.4 million, $1.4 million and $3.3 million in 2016, respectively. Costs related to product development decreased to $0 for the fiscal year
ended December 31, 2017 from $0.3 million for the fiscal year ended December 31, 2016, a decrease of $0.3 million, or 100%. The
decrease is primarily due to the reduction in active clinical trials.
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Compensation-related expenses decreased to $2.1 million for the fiscal year ended December 31, 2017, from $4.5 million for the
fiscal year ended December 31, 2016, a decrease of $2.4 million, or 53%. Cash compensation-related expenses were $1.7 million for the
fiscal year ended December 31, 2017, a decrease of $1.9 million, or 53%, from $3.6 million for the fiscal year ended December 31, 2016.
The decrease was primarily a result of personnel decreases during 2016. We incurred $0.4 million in stock-based compensation in
connection with the vesting of stock options in 2017, which were previously issued to officers and consultants, as compared to $0.9 million
in stock-based compensation in 2016. Regulatory and legal costs decreased to $0.9 million for the fiscal year ended December 31, 2017,
from $1.3 million for the fiscal year ended December 31, 2016, a decrease of $0.4 million, or 31%. The decrease in regulatory and legal
costs is primarily due to the reduction in active trials.
Travel, meals and entertainment costs increased to $0.6 million for the fiscal year ended December 31, 2017, from $0.5 million for
the fiscal year ended December 31, 2016, an increase of $0.1 million, or 20%. Travel, meals and entertainment costs include travel related
to clinical development, including investigator meetings and medical-related conferences. Such activities increased in 2017 as compared to
2016 related to recruitment for the ongoing Honor study. Other research and development costs were $0.2 million for the fiscal year ended
December 31, 2017, after offsetting an insurance refund received of $0.2 million, from $0.8 million for the fiscal year ended December 31,
2016, a decrease of $0.6 million, or 75%. The decrease is primarily a result of lower insurance expense as a result of having fewer active
trials, as well as lower rent and office-related expenses due to the closure of our San Jose facility. 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, 2017 were
$8.0 million, a decrease of $2.4 million, or 23%, from $10.4 million incurred in the fiscal year ended December 31, 2016. This decrease is
primarily due to a reduction in personnel and professional services.
Compensation-related expenses decreased to $3.3 million for the fiscal year ended December 31, 2017, from $5.2 million for the
fiscal year ended December 31, 2016, a decrease of $1.9 million, or 37%. We incurred $1.4 million in stock-based compensation in
connection with the employee stock purchase plan and the vesting of restricted stock units and stock options in 2017, which were
previously issued to board members, officers, employees and a consultant, as compared to $2.3 million in stock-based compensation in
2016. Cash compensation-related expenses were $1.9 million for the fiscal year ended December 31, 2017, a decrease of $1.0 million, or
34%, from $2.9 million for the fiscal year ended December 31, 2016. The decrease was primarily a result of personnel decreases during
2017 and 2016.
Professional services for the fiscal year ended December 31, 2017 totaled $3.0 million, a decrease of $0.2 million, or 6%, over the
$3.2 million incurred for the fiscal year ended December 31, 2016. Of professional services, legal fees totaled $1.1 million for the fiscal
year ended December 31, 2017, an increase of $0.1 million, or 10%, from $1.0 million incurred for the fiscal year ended December 31,
2016. The increase was mainly due to SEC filings during 2017. Audit and accounting fees incurred in the fiscal years ended December 31,
2017 and 2016 both amounted to $0.6 million. Investor and public relations fees totaled $0.5 million for the fiscal year ended December 31,
2017, a decrease of $0.5 million, or 50%, from $1.0 million incurred in the fiscal year ended December 31, 2016. The decrease is primarily
due to a reduction in external investor and public relations activities as most of these roles were moved internally. Other consulting fees and
other professional fees totaled $0.8 million for the fiscal year ended December 31, 2017, an increase of $0.2 million, or 33%, from $0.6
million incurred in the fiscal year ended December 31, 2016. Other professional fees include human resources, finance and corporate
consultants. The increase in primarily driven by additional spend on corporate consultants.
Travel, meals and entertainment costs for the fiscal year ended December 31, 2017 were $0.3 million, a decrease of $0.2 million,
or 40%, from $0.5 million incurred in the fiscal year ended December 31, 2016. Travel, meals and entertainment costs include travel related
to business development and investor relations activities, which were significantly reduced from 2016. Office and other administrative
expenses for the fiscal year ended December 31, 2017 were $1.4 million, a decrease of $0.1 million, or 7%, from $1.5 million incurred in
the fiscal year ended December 31, 2016. Office and other administrative expenses include rent, depreciation, insurance, business taxes,
dues and subscriptions and other office related expenses, which were reduced from 2016 due to less personnel.
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Net Loss. As a result of the foregoing, the net loss for the year ended December 31, 2017 was $21.1 million, compared to a net
loss of $38.8 million for the year ended December 31, 2016.
Liquidity and Capital Resources
As of December 31, 2017, we had working capital of $24.3 million, comprised primarily of cash and cash equivalents of $25.5
million and prepaid expenses and other of $0.9 million, offset by $1.3 million of accounts payable and $0.8 million of accrued expenses. A
significant portion of the accounts payable and accrued expenses are due to work performed in relation to our phase 3 clinical trial of
Tonmya in PTSD. For the years ended December 31, 2017 and 2016, we used approximately $19.1 million and $37.3 million of cash in
operating activities, respectively, which represents cash outlays for research and development and general and administrative expenses in
such periods. The decrease in cash outlays principally resulted from a reduction in clinical, non-clinical, manufacturing and regulatory cost
activities. For the year ended December 31, 2017, net proceeds from financing activities were $18.5 million, predominately from the sale of
our common stock and warrants. In the comparable 2016 period, approximately $20.5 million was raised through the sale of shares of
common stock.
Cash provided by investing activities for the year ended December 31, 2017 and 2016 was approximately $7.2 million and $16.5
million, respectively, both predominately related to the maturity of marketable securities.
We believe that our cash resources will be sufficient to meet our projected operating requirements through the end of 2018, but we
not have enough resources to meet our operating requirements for the one-year period from the date of filing of this Form 10-K.
We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed
more rapidly than currently expected due to changes we may make in our research and development spending plans. These factors raise
substantial doubt about our ability to continue as a going concern for the one year period from the date of filing of this Form 10-K. We
have the ability to obtain additional funding through public or private financing or collaborative arrangements with strategic partners to
increase the funds available to fund operations. Without additional funds, we may be forced to delay, scale back or eliminate some of our
research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds
to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be
adversely affected.
Lincoln Park Transaction
On September 28, 2017, we entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement
(the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the Purchase
Agreement, Lincoln Park has agreed to purchase from us up to $15,000,000 of our common stock (subject to certain limitations) from time
to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, we filed with the SEC a
registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the
Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement and the Registration Rights
Agreement, we issued 73,039 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our
common stock under the Purchase Agreement. The commitment shares were valued at $300,000, recorded as an addition to equity for the
issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase Agreement.
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Regular Purchases
Under the Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 30,000 shares of
our common stock on any such business day (a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to
up to 40,000 shares, provided that the closing sale price is not below $5.00 on the purchase date, (ii) the Regular Purchase may be
increased to up to 50,000 shares, provided that the closing sale price is not below $6.00 on the purchase date, (iii) the Regular Purchase
may be increased to up to 60,000 shares, provided that the closing sale price is not below $7.50 on the purchase date, (iv) the Regular
Purchase may be increased to up to 70,000 shares, provided that the closing sale price is not below $10.00 on the purchase date, and (v) we
may direct Lincoln Park to purchase shares in a Regular Purchase only if at least one business day has passed since the most recent Regular
Purchase, as applicable, was completed. In each case, the maximum amount of any single Regular Purchase may not exceed $1,000,000 per
purchase.
Accelerated Purchases
In addition to Regular Purchases described above, we may also direct Lincoln Park, on any business day on which we have
properly submitted a Regular Purchase notice and the closing sale price of our common stock is not below $3.00 (subject to adjustment for
any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the
Purchase Agreement), to purchase an additional amount of our common stock on the next business day (an “Accelerated Purchase”), not to
exceed the lesser of:
● 30% of the aggregate shares of our common stock traded during normal trading hours on the purchase date; and
● Three (3) times the number of purchase shares purchased pursuant to the corresponding Regular Purchase.
Initial Purchase
In addition to the Regular Purchases described above, we had the option, on the first day that we were able to begin selling shares
to Lincoln Park under the Purchase Agreement, to direct Lincoln Park to purchase up to 300,000 shares (the “Initial Purchase”), provided,
however, that Lincoln Park’s committed obligation under the Initial Purchase could not exceed $1,000,000. Lincoln Park made an initial
purchase of 218,340 shares.
Additional Purchases
In addition to the Regular Purchases, Accelerated Purchases and the Initial Purchase described above, from time to time we may
also direct Lincoln Park, on any business day that the closing price of ours common stock is not below $3.00, to purchase additional
amounts of its common stock (an “Additional Purchase”), provided, however, that (i) we may direct Lincoln Park to purchase shares in an
Additional Purchase only if at least 15 business days have passed since the most recent Additional Purchase, as applicable, was completed,
(ii) we may direct Lincoln Park to purchase shares in an Additional Purchase only if at least 30 business days have passed since the Initial
Purchase, if exercised, was completed, (iii) Lincoln Park’s committed obligation under any single Additional Purchase shall not exceed
$500,000, and (iv) Lincoln Park’s committed obligation under all Additional Purchases shall not exceed $2,000,000 in the aggregate.
Through March 1, 2018, we have sold an aggregate of 248,340 shares of common stock, including the initial purchase, under the
Purchase Agreement, for gross proceeds of approximately $1.1 million, at an average selling price of $4.56 per share.
April 2017 Financing
On March 30, 2017, we entered into an underwriting agreement with Aegis Capital Corp., as representative of the several
underwriters (collectively, the “2017 Underwriters”), relating to the issuance and sale of 1,800,000 shares of our common stock, in an
underwritten public offering (the “April 2017 Financing”). The public offering price for each share of common stock was $4.45. We
granted the 2017 Underwriters an option to purchase up to an additional 270,000 shares of common stock to cover over-allotments, if any.
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The April 2017 Financing closed on April 4, 2017. The 2017 Underwriters purchased the shares at a seven percent discount to the
public offering price, for an aggregate discount of $0.6 million (or $0.31 per share). We incurred offering expenses of approximately $0.2
million. We received net proceeds of approximately $7.2 million. On April 13, 2017, the 2017 Underwriters fully exercised the over-
allotment option and purchased 270,000 shares of common stock for net proceeds of approximately $1.1 million, net of an aggregate
discount of $0.1 million (or $0.31 per share).
At-the-Market Offering
On April 28, 2016, we entered into a sales agreement (the “2016 Sales Agreement”) with Cowen and Company, LLC (“Cowen”),
as sales agent, pursuant to which we could have, from time to time, issued and sold common stock with an aggregate value of up to $15.0
million in at-the-market (“ATM”) sales. On the same day, we filed a prospectus supplement under our existing shelf registration relating to
the 2016 Sales Agreement. Cowen acted as sole sales agent for any sales made under the 2016 Sales Agreement for a 3% commission on
gross proceeds. Our common stock was sold at prevailing market prices at the time of the sale, and, as a result, prices varied. During the
year ended December 31, 2016, we sold 500,889 shares of common stock using the ATM, resulting in net proceeds of $5.4 million, net of
expenses of approximately $0.2 million of Cowen’s commission. During the year ended December 31, 2017, we sold an aggregate of
1,486,474 shares of common stock using the ATM, resulting in net proceeds of $9.1 million, net of expenses of approximately $0.3 million
of Cowen’s commission. With these sales, we sold all $15 million of shares under the 2016 Sales Agreement, and the 2016 Sales
Agreement was terminated.
On August 1, 2017, we entered into a new sales agreement (the “2017 Sales Agreement”) with Cowen, as sales agent, pursuant to
which we could, from time to time, issue and sell common stock with an aggregate value of up to $9.0 million in ATM sales. No shares of
common stock have been sold under the 2017 Sales Agreement. On September 15, 2017, we withdrew the shelf registration statement on
Form S-3 filed on August 11, 2017. We will not make sales under the 2017 Sales Agreement until a new shelf registration statement on
Form S-3 is filed and declared effective.
October 2016 Financing
On October 26, 2016, we entered into an underwriting agreement with Dawson James Securities, Inc. (“Dawson”) relating to the
issuance and sale of an aggregate of 950,000 units (“Unit”, and collectively, the “Units”) at a public offering price of $5.50 per Unit in an
underwritten public offering (the “October 2016 Financing”). Each Unit consisted of one share of our common stock, par value $0.001 per
share, and a warrant to purchase one-half share of common stock. Because we are prohibited from issuing fractional shares, the warrants
can only be exercised in lots of two, which means that each holder must exercise two warrants to receive one share of common stock, or an
aggregate of 475,000 shares of common stock. The warrants have an initial exercise price of $6.30 per share and have a term of five years.
The exercise price and number of shares of common stock issuable upon exercise of the warrants will be subject to adjustment in the event
of any stock split, reverse stock split, stock dividend, recapitalization, reorganization or similar transaction, as described in the warrants.
We also granted Dawson a 45-day option to purchase up to 142,500 additional shares of common stock and/or warrants to
purchase up to 71,250 shares of common stock, to cover over-allotments, if any.
The October 2016 Financing closed on October 31, 2016. Dawson purchased the Units at an eight-percent discount to the public
offering price, for an aggregate discount of approximately $0.4 million (or $0.40 per Unit). Dawson also received warrants to purchase up
to an aggregate of 47,361 shares of common stock, or approximately five percent of the total number of shares included in the Units. We
received net proceeds from the October 2016 Financing of approximately $4.6 million, after deducting the underwriting discount and other
offering expenses of approximately $0.6 million. Additionally, Dawson fully exercised the over-allotment option related to the warrants
and purchased additional warrants to acquire 71,250 shares of common stock for net proceeds of approximately $700.
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June 2016 Financing
On June 15, 2016, we entered into an underwriting agreement with Roth Capital Partners, LLC and National Securities
Corporation (collectively, the “Underwriters”), relating to the issuance and sale of 500,000 shares of our common stock, in an underwritten
public offering (the “June 2016 Financing”). The public offering price for each share of common stock was $20.00. We granted the
Underwriters a 45-day option to purchase up to an additional 75,000 shares of common stock to cover over-allotments, if any.
The June 2016 Financing closed on June 21, 2016. The Underwriters purchased the shares at a seven percent discount to the
public offering price, for an aggregate discount of $0.7 million (or $1.40 per share). We also paid offering expenses of approximately $0.2
million. We received net proceeds of approximately $9.1 million. On July 12, 2016, the Underwriters fully exercised the over-allotment
option and purchased 75,000 shares of common stock for net proceeds of approximately $1.4 million, net of an aggregate discount of $0.1
million (or $1.40 per share).
Future Liquidity Requirements
We expect to incur losses 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 decrease in the near
term, as we have taken certain measures to reduce costs in order to preserve cash to fund our activities through at least the end of the
ongoing Phase 3 HONOR study in military-related PTSD. Our existing cash is sufficient to fund our operating expenses and planned
clinical trial through the end of 2018, but we do not have enough resources to meet our operating requirements for the one-year period from
the date of filing of this Form 10-K.
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 will 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.
Stock Compensation
Stock Options
We have issued awards under our 2012 Incentive Stock Option Plan, 2014 Stock Incentive Plan and 2016 Stock Incentive Plan
(collectively, the “Prior Plans”). No future awards are issuable under these Prior Plans.
On June 16, 2017, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2017 Stock Incentive Plan (the “2017
Plan” and together with the Prior Plans, the “Plans”). As a result of adoption of the 2017 Plan by the stockholders, no further grants may be
made under the Prior Plans. Under the terms of the 2017 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted
stock, (3) SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2017 Plan provides for the issuance of up to
1,280,000 shares of common stock, which amount will be (a) reduced by awards granted under the Prior Plans after March 31, 2017, and
(b) increased to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in
the 2017 Plan).
70
In terms of calculating how many shares are reduced or increased based on activity under the Prior Plans after March 31, 2017, the
calculation shall be based on one share for every one share that was subject to an option or SAR and 1.15 shares for every one share that
was subject to an award other than an option or SAR. With respect to awards intended to qualify as performance-based compensation under
Section 162(m) of the Code, the 2017 Plan provides that, subject to adjustment as provided in the plan, no participant may, in any 12-month
period (i) be granted options or SARs with respect to more than 750,000 shares of our common stock, (ii) earn more than 500,000 shares of
our common stock under restricted stock awards, restricted stock unit awards, performance awards and/or other stock-based awards, or (iii)
earn more than $5,000,000 under an award; provided, however, that each of these limitations shall be multiplied by two (2) with respect to
awards granted to a participant during the first calendar year in which the participant commences employment with us or any of our
subsidiaries. The Board of Directors determines the exercise price, vesting and expiration period of the grants under the 2017 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 2017 Plan may not be more than five years and expiration period not more than ten
years. We reserved 1,280,000 shares of our common stock for future issuance under the terms of the 2017 Plan. As of December 31, 2017,
1,185,702 shares were available for future grants under the 2017 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. Most 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. In addition, we also issue performance-based options to executive officers, which options vest when
the target parameters are met, subject to a one-year minimum service period prior to vesting. Stock-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 $2.92 in 2017 and $46.58 in 2016.
Stock-based compensation expense relating to options granted of $1.7 million and $2.9 million was recognized for the years ended
December 31, 2017 and 2016, respectively.
As of December 31, 2017, we had approximately $0.8 million of total unrecognized compensation cost related to non-vested
awards granted under the Plans, which we expect to recognize over a weighted average period of 1.01 years.
Employee Stock Purchase Plan
On June 9, 2014, our Stockholder’s 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 30,000 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. As of
December 31, 2017, there were 1,689 shares available for future issuance under the 2014 ESPP.
71
The 2014 ESPP is considered a compensatory plan with the related compensation cost written off over the six month offering
period. The compensation expense related to the 2014 ESPP for the year ended December 31, 2017 and 2016 was $36,000 and $69,000,
respectively. In July 2017, 17,760 shares that were purchased as of June 30, 2017, were issued under the 2014 ESPP, and approximately
$64,000 of employee payroll deductions accumulated at June 30, 2017, related to acquiring such shares, was transferred from accrued
expenses to additional paid in capital. In January 2017, 2,496 shares that were purchased as of December 31, 2016, were issued under the
2014 ESPP, and approximately $10,000 of employee payroll deductions accumulated at December 31, 2016, related to acquiring such
shares, was transferred from accrued expenses to additional paid in capital. No employee deductions were withheld for the period
beginning July 1, 2017.
Restricted Stock Units
In February 2017, 5,625 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash,
with a one-year vesting from the grant date and a fair value of $38.10 at the date of grant, and 5,625 shares of our common stock were
issued pursuant to such RSU’s during the year ended December 31, 2017.
In May 2017, 5,625 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash, with
a one-year vesting from the grant date and a fair value of $22.90 at the date of grant, and 4,875 shares of our common stock were issued
pursuant to such RSU’s during the year ended December 31, 2017.
Stock-based compensation expense related to RSU grants was $0.1 million and $0.3 million for the year ended December 31,
2017 and 2016, respectively.
Commitments
Research and development contracts
We have entered into contracts with various contract research organizations with outstanding commitments aggregating
approximately $11.2 million at December 31, 2017 for future work to be performed.
Operating leases
Future minimum lease payments under operating leases for office space were as follows (in thousands):
Year Ending December 31,
2018
2019
Critical Accounting Policies and Estimates
$
$
458
181
639
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 expense the 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.
72
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 participant 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 condensed
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 recognized 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.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly
changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax system to
a territorial system, a change in the treatment of operating loss carryforwards as well as other changes. As a result of enactment of the
legislation, the Company anticipates a one-time change to its deferred tax assets and related valuation allowance. As the Company has a
full valuation allowance such change is not expected to impact the Company’s results of operations or financial position. All impacts of the
Tax Act have been measured in the Company’s income tax provision.
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.
73
In November 2016, FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” to provide guidance on
the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in
presentation. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and
early adoption is permitted. Adoption requires a retrospective approach. During the fourth quarter of 2017, we adopted this guidance and
have reclassified certain balances on the consolidated cash flow statement in accordance with this adoption.
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements
or liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material variable
interest in an unconsolidated entity.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required under Regulation S-K for “smaller reporting companies.”
74
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, 2017 and 2016
Consolidated statements of operations for the years ended December 31, 2017 and 2016
Consolidated statements of comprehensive loss for the years ended December 31, 2017 and 2016
Consolidated statements of stockholders’ equity for the years ended December 31, 2017 and 2016
Consolidated statements of cash flows for the years ended December 31, 2017 and 2016
Notes to consolidated financial statements
F-1
F-2
F-3
F-4
F-5
F-6 – F-7
F-8
F-9 – F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Tonix Pharmaceuticals Holding Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp. and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, stockholders’
equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December
31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company has continuing losses and negative cash flows from operating
activities which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2010.
EISNERAMPER LLP
New York, New York
March 9, 2018
F-2
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2017 AND 2016
(In Thousands, Except Par Value and Share Amounts)
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
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Total current liabilities
Deferred rent payable
Total liabilities
Commitments (See Note 9)
2017
2016
$
25,496 $
—
947
26,443
18,941
7,180
1,019
27,140
91
89
120
11
150
89
120
11
$
26,754 $
27,510
$
1,296 $
830
2,126
12
872
1,244
2,116
33
2,138
2,149
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; 7,830,040 and 3,919,181 shares issued
and outstanding as of December 31, 2017 and 2016, respectively, 2,496 shares to be issued as of
December 31, 2016
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
—
—
8
186,983
(162,363)
(12)
4
166,604
(141,240)
(7)
24,616
25,361
Total liabilities and stockholders’ equity
$
26,754 $
27,510
See the accompanying notes to the consolidated financial statements
F-3
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and 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,
2017
2016
$
$
$
13,342 $
7,949
21,291
28,533
10,436
38,969
(21,291)
(38,969)
168
127
(21,123) $
(38,842)
(3.17) $
(15.41)
Weighted average common shares outstanding, basic and diluted
6,665,091
2,521,016
See the accompanying notes to the consolidated financial statements
F-4
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Thousands)
Net loss
Other comprehensive loss:
Foreign currency translation loss
Unrealized gain on available for sale securities
Total other comprehensive (loss) gain
Comprehensive loss
Year ended December 31,
2017
2016
$
(21,123) $
(38,842)
(5)
—
(5)
(17)
27
10
$
(21,128) $
(38,832)
See the accompanying notes to the consolidated financial statements
F-5
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands, Except Share and Per Share Amounts)
Balance, December 31, 2015
Employee stock purchase plan
Issuance of common stock related to restricted
1,884,237 $
4,855
Common stock
Shares
Amount
Accumulated
Other
Additional
Paid in Comprehensive Accumulated
Capital
2 $ 142,675 $
167
Deficit
(102,398) $
—
Gain (loss)
(17) $
—
—
Total
40,262
167
stock units
4,200
—
—
—
—
—
Issuance of common stock in May and June 2016
($24.00 per share), September 2016 ($7.40 per
share), and October 2016 ($6.50 per share) net of
transaction expenses of $280
Issuance of common stock in June 2016 ($20.00 per
500,889
—
5,377
share), net of transaction expenses of $916
500,000
1
9,083
Issuance of common stock in July 2016 ($20.00 per
share, net of transaction expenses of $105
75,000
—
1,395
Issuance of common stock in October 2016 ($5.50
per share, net of transaction costs of $585)
950,000
Stock-based compensation
Foreign currency translation loss
Unrealized gain on available for sale securities
Net loss
—
—
—
1
—
—
—
4,641
3,266
—
—
—
—
—
—
—
(17)
27
—
—
5,377
—
9,084
—
1,395
—
—
—
(38,842)
4,642
3,266
(17)
27
(38,842)
Balance, December 31, 2016
3,919,181 $
4 $ 166,604 $
(7) $
(141,240) $
25,361
See the accompanying notes to the consolidated financial statements
F-6
Balance, December 31, 2016
Employee stock purchase plan
Issuance of common stock related to restricted
3,919,181 $
20,256
Common stock
Shares
Amount
Accumulated
Other
Additional
Paid in Comprehensive Accumulated
Capital
4 $ 166,604 $
74
Deficit
(141,240) $
—
Gain (loss)
(7) $
—
—
Total
25,361
74
stock units
10,500
—
—
—
—
—
Issuance of common stock in February 2017 ($5.09
per share), March 2017 ($4.50 per share) and
April 2017 ($6.55 per share), net of transaction
expenses of $280
Issuance of common stock in April 2017 ($4.45 per
1,486,474
2
9,060
share, net of transaction expenses of $888
2,070,000
2
8,323
Issuance of commitment shares in September 2017
($4.11 per share)
73,039
Issuance of common stock in exchange for exercise
of warrants in April 2017 ($6.30 per share)
2,250
Issuance of common stock in October 2017 ($4.56
per share, net of transaction expenses of $15)
Stock-based compensation
Foreign currency translation loss
Unrealized gain on available for sale securities
Net loss
Balance, December 31, 2017
248,340
—
—
—
—
7,830,040 $
—
—
—
14
1,118
1,790
—
—
—
—
—
—
—
8 $ 186,983 $
—
—
—
—
—
—
(5)
—
—
(12) $
—
9,062
—
8,325
—
—
—
14
—
—
—
—
(21,123)
(162,363) $
1,118
1,790
(5)
—
(21,123)
24,616
See the accompanying notes to the consolidated financial statements
F-7
TONIX PHARMACEUTICALS HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Stock-based compensation
Loss on disposal of property and equipment
Changes in operating assets and liabilities:
Prepaid expenses
Accounts payable
Accrued expenses and deferred rent
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and fixtures
Maturities of marketable securities
Net cash provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants
Proceeds, net of expenses of $1,183 and $1,866, from sale of common stock
Net cash provided by financing activities
Effect of currency rate change on cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of the year
Year ended December
31,
2017
2016
$
(21,123) $ (38,842)
70
1,790
—
206
3,266
133
72
424
(361)
(19,128)
2,370
(2,185)
(2,261)
(37,313)
(5)
7,174
7,169
(66)
16,615
16,549
14
18,505
18,519
—
20,498
20,498
(5)
(11)
6,555
19,030
(277)
19,307
Cash, cash equivalents and restricted cash, end of year
$
25,585 $
19,030
Supplemental disclosures of cash flow information:
Non cash financing activities:
Issuance of common stock under employee stock purchase plan
$
74 $
167
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 biopharmaceutical company focused on discovering and developing pharmaceutical products to treat serious neuropsychiatric
conditions and to improve biodefense through the development of potential medical counter-measures. All drug product candidates are still
in development.
The consolidated financial statements include the accounts of Tonix Pharmaceuticals Holding Corp. and its wholly owned
subsidiaries, Tonix Sub, Krele LLC, Tonix Pharmaceuticals (Canada), Inc., Tonix Medicines, Inc., Tonix Pharma Holdings Limited and
Tonix Pharma Limited (collectively hereafter referred to as the “Company” or “Tonix”).
Going concern
The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going
concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business.
The Company has suffered recurring losses from operations and negative cash flows from operating activities. At December 31, 2017, the
Company had working capital of approximately $24.3 million, after raising approximately $18.5 million of net proceeds from sales of
common stock during the year ended December 31, 2017. At December 31, 2017, the Company had an accumulated deficit of $162.4
million. The Company held cash and cash equivalents of $25.5 million as of December 31, 2017. The Company believes that these
resources, will be sufficient to meet its projected operating requirements through the end of 2018 but it does not have enough resources to
meet its operating requirements for the one-year period from the date of filing of the 10-K. These factors raise substantial doubt about the
Company’s ability to continue as a going concern.
The Company continues to face significant challenges and uncertainties and, as a result, the Company’s available capital resources
may be consumed more rapidly than currently expected due to changes the Company may make in its research and development spending
plans. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company has the
ability to obtain additional funding through public or private financing or collaborative arrangements with strategic partners to increase the
funds available to fund operations. However, the Company may not be able to raise capital with terms acceptable to the company. Without
additional funds, the Company may be forced to delay, scale back or eliminate some of its research and development activities, or other
operations and potentially delay product development in an effort to provide sufficient funds to continue its operations. If any of these
events occurs, the Company’s ability to achieve its development and commercialization goals would be adversely affected.
F-9
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (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.
In November 2016, FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” to provide guidance on
the presentation of restricted cash or restricted cash equivalents in the statement of cash flows, thereby reducing the diversity in
presentation. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and
early adoption is permitted. Adoption requires a retrospective approach. During the fourth quarter of 2017, the Company adopted this
guidance and have reclassified certain balances on the consolidated cash flow statement in accordance with this adoption.
Risks and uncertainties
The Company’s primary efforts are devoted to conducting research and development of innovative pharmaceutical and biological
products to address public health challenges. 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 its products are approved for sale, 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 approved or commercially viable.
Use of estimates
The preparation of financial statements in accordance with GAAP 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 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.
F-10
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash equivalents and restricted cash
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, 2017 and 2016, cash equivalents, which consisted of money
market funds, amounted to $17.3 million and $10 million, respectively. Restricted cash at December 31, 2017 and 2016 of approximately
$89,000, collateralizes a letter of credit issued in connection with the lease of office space in New York City (see Note 9).
Marketable securities
Marketable securities consisted primarily of certificates of deposit and corporate, U.S. agency, and U.S. treasury bonds with
maturities greater than three months at the time of purchase. These securities, which were classified as available for sale, were 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 were classified as current irrespective of their maturities.
Amortization of premiums is included in interest income. For the years ended December 31, 2017 and 2016, the amortization of bond
premiums totaled $6,000 and $73,000, respectively. As of December 31, 2016, amortized cost basis of the securities approximated their fair
value. The values of these securities may fluctuate as a result of changes in market interest rates and credit risk. Marketable securities with
a principal balance aggregating $7.2 million and $16.6 matured during the years ended December 31, 2017 and 2016, respectively. There
were no marketable securities at December 31, 2017.
Marketable securities owned at December 31, 2017 and 2016, all of which have maturities of 1 year or less as of such date, were
as follows (in thousands):
U.S. Treasury bond
U.S agency bonds
Certificates of deposit
Total
Intangible asset with indefinite lives
1 Year or Less
December 31,
2017
December 31,
2016
$
$
— $
—
—
— $
2,752
1,254
3,174
7,180
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 tested for impairment annually or whenever events
or changes in circumstances indicate that its carrying amount may be less than fair value. As of December 31, 2017, and 2016, the
Company believed that no impairment existed.
F-11
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and development costs
The Company outsources certain of its research and development efforts and expenses these costs as incurred, including the cost of
manufacturing products 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 has been expensed as research and development costs, as such property related
to particular research and development projects and had no alternative future uses.
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, 2017 and 2016 was $64,000 and $133,000, respectively. During December 2016, in an effort to
reduce operating costs, the Company exited the San Jose, CA facility. This resulted in the disposal of property and equipment in the
amount of $133,000. All remaining 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 a 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, 2017, the Company has not recorded any unrecognized tax benefits.
F-12
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 condensed 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 income (loss) on the consolidated balance sheets.
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.
The following table summarizes the changes in accumulated other comprehensive income by component (in thousands):
Balance at December 31, 2015
Other Comprehensive (Loss) Gain
Balance at December 31, 2016
Other Comprehensive Loss
Balance at December 31, 2017
F-13
Foreign
Currency
Translation
Adjustment
Unrealized
Gains (Losses)
on available
for sale
securities
10
(17)
(7)
(5)
(12)
(27)
27
—
—
—
Total
(17)
10
(7)
(5)
(12)
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1-for-10 reverse stock split, which was effected on March 17, 2017 (see Note 6).
As of December 31, 2017, and 2016, there were outstanding warrants to purchase an aggregate of 686,673 and 766,533 shares,
respectively, of the Company’s common stock (see Note 8). The Company has issued to employees, directors and consultants, options to
acquire shares of the Company’s common stock, of which 401,724 and 217,426 were outstanding at December 31, 2017 and 2016,
respectively. In addition, at December 31, 2017 and 2016, there were outstanding 0 and 11,250, respectively, unvested RSUs. In computing
diluted net loss per share for the years ended December 31, 2017 and 2016, no effect has been given to such options, warrants and RSUs as
their effect would be anti-dilutive.
NOTE 3 – 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-14
December 31,
2017
2016
(in thousands)
311 $
23
334
(243)
91 $
494 $
453
947 $
519 $
65
246
830 $
306
23
329
(179)
150
392
627
1,019
504
484
256
1,244
$
$
$
$
$
$
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – 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.
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,
2017 (in thousands):
Description
Assets:
Cash equivalents
Marketable securities – available
for sale
Total assets
December 31,
2017
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
$
$
17,349 $
17,349 $
—
—
17,349 $
17,349 $
—
—
—
The following table summarizes the Company’s financial assets measured at fair value on a recurring basis as of December 31,
2016 (in thousands):
December 31,
2016
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Description
Assets:
Cash equivalents
Marketable securities – available for
sale
$
10,006 $
10,006 $
7,180
5,926
Total assets
$
17,186 $
15,932 $
—
1,254
1,254
Management believes that the carrying value of the Company’s financial instruments, including cash, cash equivalents and
accounts payable approximate fair value due to the short-term nature of those investments.
F-15
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance
sheets that sum to the total of the same amounts shown in the consolidated statement of cash flow:
Cash and cash equivalents
Restricted cash included in Other assets
Total
NOTE 5 – SALE OF COMMON STOCK
Lincoln Park transaction
December 31,
2017
2016
(in thousands)
$
$
25,496 $
89
25,585 $
18,941
89
19,030
On September 28, 2017, the Company entered into a purchase agreement (the “Purchase Agreement”) and a registration rights
agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the
Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $15,000,000 of its common stock (subject to certain
limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Registration Rights Agreement, the
Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be
issued to Lincoln Park under the Purchase Agreement.
Pursuant to the terms of the Purchase Agreement, at the time the Company signed the Purchase Agreement and the Registration
Rights Agreement, the Company issued 73,039 shares of common stock to Lincoln Park as consideration for its commitment to purchase
shares of its common stock under the Purchase Agreement. The commitment shares were valued at $300,000, recorded as an addition to
equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase
Agreement.
As of December 31, 2017, the Company has sold an aggregate of 248,340 shares of common stock under the Purchase Agreement,
for gross proceeds of approximately $1.1 million, at an average selling price of $4.56 per share.
April 2017 financing
In April 2017 pursuant to an underwritten public offering, the Company sold 2,070,000 shares of common stock at $4.45 per share
yielding net proceeds of approximately $8.3 million, net of expenses of $0.9 million.
At-the-market offering
During the year ended December 31, 2017, the Company sold an aggregate of 1,486,474 shares of common stock using the at the
market (“ATM”), resulting in net proceeds of $9.1 million, net of expenses of approximately $0.3 million of Cowen’s commission. With
these sales, the Company sold all $15 million of shares under the 2016 Sales Agreement, and the 2016 Sales Agreement was terminated.
F-16
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2016, the Company sold 500,889 shares of common stock using the ATM, resulting in net
proceeds of $5.4 million, net of expenses of approximately $0.2 million of Cowen’s commission.
June 2016 public offering
In June 2016 pursuant to an underwritten public offering, the Company sold 500,000 shares of common stock at $20.00 per share
yielding net proceeds of approximately $9.1 million, net of expenses of $0.9 million.
In July 2016, the Company sold 75,000 shares of common stock at $20.00 per share yielding net proceeds of approximately $1.4
million, net of expenses of $0.1 million, when the above underwriters fully exercised the over- allotment option.
October 2016 public offering
In October 2016 pursuant to an underwritten public offering, the Company sold 950,000 shares of common stock at $5.50 per
share yielding net proceeds of approximately $4.6 million, net of expenses of $0.6 million. The underwriter also received warrants to
purchase up to an aggregate of 47,361 shares of common stock. Additional warrants to acquire 71,250 shares of common stock for net
proceeds of approximately $700 were received when the above underwriters fully exercised the over- allotment option.
NOTE 6 – STOCKHOLDERS’ EQUITY
On March 13, 2017, the Company filed a Certificate of Change with the Nevada Secretary of State, which was effective March 17,
2017. Pursuant to the Certificate of Change, the Company effected a 1-for-10 reverse stock split of its issued and outstanding shares of
common stock, $0.001 par value, whereby 41,010,720 outstanding shares of the Company’s common stock were exchanged for 4,101,072
shares of the Company’s common stock. In connection with the reverse stock split, the Company issued an additional 1,034 shares of the
Company’s common stock due to rounding. Furthermore, pursuant to the Certificate of Change, the number of authorized shares of
common stock was reduced from 150 million to 15 million. 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. On June 16, 2017, the Company filed a
Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary of State increasing its authorized shares of common
stock to 150 million.
NOTE 7 – STOCK-BASED COMPENSATION
2016 stock incentive plan
On May 11, 2016, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2016 Stock Incentive Plan
(the “2016 Plan” and together with the 2012 Incentive Stock Option Plan and the 2014 Stock Incentive Plan, the “Prior Plans”). Under the
terms of the 2016 Plan, the Company could have issued (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) SARs, (4)
RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2016 Plan provided for the issuance of up to 278,500 shares of
common stock. With the adoption of the 2017 Plan (as defined below), no further grants may be made under the 2016 Plan.
2017 stock incentive plan
On June 16, 2017, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2017 Stock Incentive Plan
(the “2017 Plan” and together with the Prior Plans, the “Plans”). As a result of adoption of the 2017 Plan by the stockholders, no further
grants may be made under the Prior Plans.
F-17
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the 2017 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3)
SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2017 Plan provides for the issuance of up to 1,280,000
shares of common stock, which amount was (a) reduced by awards granted under the Prior Plans after March 31, 2017, and (b) will be
increased to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in the
2017 Plan). In terms of calculating how many shares are reduced or increased based on activity under the Prior Plans after March 31, 2017,
the calculation shall be based on one share for every one share that was subject to an option or SAR and 1.15 shares for every one share that
was subject to an award other than an option or SAR. With respect to awards intended to qualify as performance-based compensation under
Section 162(m) of the Code, the 2017 Plan provides that, subject to adjustment as provided in the plan, no participant may, in any 12-month
period (i) be granted options or SARs with respect to more than 750,000 shares of the Company’s common stock, (ii) earn more than
500,000 shares of the Company’s common stock under restricted stock awards, restricted stock unit awards, performance awards and/or
other stock-based awards, or (iii) earn more than $5,000,000 under an award; provided, however, that each of these limitations shall be
multiplied by two (2) with respect to awards granted to a participant during the first calendar year in which the participant commences
employment with the Company or any of its subsidiaries. The Board of Directors determines the exercise price, vesting and expiration
period of the grants under the 2017 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 2017 Plan may not be more than five years and
expiration period not more than ten years. The Company reserved 1,280,000 shares of its common stock for future issuance under the
terms of the 2017 Plan. As of December 31, 2017, 1,185,702 shares were available for future grants under the 2017 Plan.
General
A summary of the stock option activity and related information for the Plans for the years ended December 31, 2017, and 2016 is
as follows:
Outstanding at January 1, 2016
Grants
Exercised
Forfeitures or expirations
Outstanding at January 1, 2017
Grants
Exercised
Forfeitures or expirations
Weighted-
Average
Remaining
Contractual Term
Weighted-
Average
Exercise Price
106.38
46.58
Shares
165,664 $
69,800 $
—
(18,038)
217,426 $
260,000 $
—
(75,702)
57.00
91.33
4.63
67.04
39.81
39.81
98.25
Aggregate
Intrinsic
Value
1,125,299
—
—
—
—
—
—
8.35 $
7.82 $
$
8.35 $
8.35 $
6.60 $
Outstanding at December 31, 2017
Vested and expected to vest at December 31, 2017
Exercisable at December 31, 2017
401,724 $
401,724 $
134,207 $
The aggregate intrinsic value in the preceding table 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.
F-18
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 below, 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. Most 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. In addition, the Company also issues performance-based options to executive officers, which options vest when the target
parameters are met, subject to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is
amortized over the applicable vesting period using the straight-line method.
The assumptions used in the valuation of stock options granted during the years ended December 31, 2017 and 2016 were as
follows:
Risk-free interest rate
Expected term of option
Expected stock price volatility
2017
2016
1.75% to 2.33%
5.0 to 7.91 years
76.28% to 77.59% 73.46% to 81.59%
0.85% to 2.25%
6.0 to 9.06 years
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.
Stock-based compensation expense relating to options granted of $1.7 million and $2.9 million was recognized for the years ended
December 31, 2017 and 2016, respectively.
As of December 31, 2017, the Company had approximately $0.8 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 1.01 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 30,000 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, 2017, there were 1,689 shares available for future issuance
under the 2014 ESPP.
F-19
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 2014 ESPP is considered a compensatory plan with the related compensation cost written off over the six-month offering
period. The compensation expense related to the 2014 ESPP for the years ended December 31, 2017 and 2016 was $36,000 and $69,000,
respectively. In July 2017, 17,760 shares that were purchased as of June 30, 2017, were issued under the 2014 ESPP, and approximately
$64,000 of employee payroll deductions accumulated at June 30, 2017, related to acquiring such shares, was transferred from accrued
expenses to additional paid in capital. No employee deductions were withheld for the period beginning July 1, 2017.
In January 2017, 2,496 shares that were purchased as of December 31, 2016, were issued under the 2014 ESPP, and approximately
$10,000 of employee payroll deductions accumulated at December 31, 2016, related to acquiring such shares, was transferred from accrued
expenses to additional paid in capital.
Restricted stock units
In February 2017, 5,625 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash,
with a one year vesting from the grant date and a fair value of $38.10 at the date of grant, and 5,625 shares of the Company’s common
stock were issued pursuant to such RSU’s during the year ended December 31, 2017.
In May 2017, 5,625 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash, with
a one year vesting from the grant date and a fair value of $22.90 at the date of grant, and 4,875 shares of the Company’s common stock
were issued pursuant to such RSU’s during the year ended December 31, 2017.
The following table summarizes the RSU activity for the years ended December 31, 2017 and 2016:
Unvested restricted stock units as of January 1, 2016
Granted
Forfeited
Vested
Unvested restricted stock units as of January 1, 2017
Granted
Forfeited
Vested
Unvested restricted stock units as of December 31, 2017
4,200
11,250
—
(4,200)
11,250
—
—
(11,250)
—
Stock-based compensation expense related to RSU grants was $0.1 million and $0.3 million for the year ended December 31,
2017 and 2016, respectively.
F-20
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – 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, 2017:
Exercise
Price
Number
Outstanding
544,000
47,361
91,898
1,080
2,334
686,673
6.30
6.90
42.50
120.00
250.00
$
$
$
$
$
Expiration
Date
October 2021
October 2021
August 2018
February 2018
January 2019 to February 2019
During the year ended December 31, 2017, 2,250 warrants with an exercise price of $6.30 were exercised. During the year ended
December 31, 2017, 33,089 and 44,521 warrants with exercise prices of $250.00 and $120.00, respectively, expired.
In connection with an October 2016 financing, the Company issued to the underwriter warrants to purchase up to an aggregate of
47,361 shares of the Company’s common stock. The warrants are exercisable at $6.90 per share, expire five years from the date of issuance
and have a fair value of $2.65. The Company measures the fair value 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 issued to Dawson were as follows:
Risk-free interest rate
Life of warrant
Expected stock price volatility
Expected dividend yield
1.30%
5 years
78.04%
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 life of the
warrants 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 volatility data because its equity shares have been publicly traded for only a limited period
of time.
F-21
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – COMMITMENTS
Operating leases
As of December 31, 2017, future minimum lease payments for office space are as follows (in thousands):
Year Ending December 31,
2018
2019
$
$
458
181
639
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, 2017
and 2016, rent expense was $0.6 million and $0.7 million, respectively, and as of December 31, 2017 and 2016, deferred rent payable was
$32,000 and $44,000, respectively, including the current portion, which at December 31, 2017 and 2016, was $20,000 and $11,000,
respectively, which is included in accrued expenses in 2017 and 2016. In December 2016, the Company terminated the lease of the San
Jose office. The costs related to the termination of the lease totaled $72,000 and are included in general and administrative expenses in the
accompanied consolidated statement of operations for the year ended December 31, 2016.
Research and development agreements
The Company has contracts with various contract research organizations for which there are outstanding commitments
aggregating approximately $11.2 million at December 31, 2017 for future work to be performed.
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 three percent of his or her eligible compensation, and the Company is also
required to make a contribution equal to three percent of each participant’s salary, on an annual basis, subject to limitations under the Code.
For the years ended December 31, 2017 and 2016, the Company charged operations $0.1 million and $0.3 million, respectively, for
contributions under the 401(k) Plan.
NOTE 10 – INCOME TAXES
Components of the net loss consist of the following (in thousands):
Foreign
Domestic
Other
F-22
Year ended December 31,
2017
(20,490) $
(633)
(21,123) $
2016
(34,124)
(4,718)
(38,842)
$
$
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2017, the foreign losses were primarily comprised of $18.9 million related to the Bermudan operations of Tonix Holding
Pharma Limited, which included a licensing fee of $2.0 million charged by Tonix Sub pursuant to a licensing agreement with Tonix Sub. In
2016, the foreign losses are comprised of $32.4 million related to the Bermudan operations of Tonix Holding Pharma Limited, which
included a licensing fee of $2.0 million charged by Tonix Sub pursuant to a licensing agreement with Tonix Sub.
The operations and management of Tonix Holding Pharma Limited are located in Bermuda, and accordingly, are not subject to
income taxes in Ireland, which is its country of incorporation. The operations of Tonix Holding Pharma Limited 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
Return to provision true-ups
Tax rate change
Attribute reduction from control Change
Forfeiture of stock options
Other
Income Tax Provision
Year Ended
December 31,
2017
2016
(34.0)%
0.0%
0.1%
(65.3)%
32.1%
(2.6)%
22.8%
43.8%
4.8%
(1.7)%
0.0%
(35.0)%
0.0%
0.1%
7.5%
30.9%
(3.7)%
0.0%
0.2%
0.0%
0.0%
0.0%
Deferred tax assets and related valuation allowance as of December 31, 2017 and 2016 were as follows (in thousands):
Deferred tax assets:
Research and development credit carryforward
Net operating loss carryforward
Stock-based compensation
Other
Total deferred assets
Valuation allowance
Net deferred tax assets
December 31,
2017
2016
$
— $
724
2,424
176
3,324
1,610
11,038
4,379
180
17,207
(3,324)
(17,207)
$
— $
—
The Company has incurred research and development (“R&D”) expenses, a portion of which qualifies for tax credits. The
Company conducted an R&D credit study to quantify the amount of credits and has claimed an R&D credit on its 2014, 2015, and 2016 tax
returns. A portion of these R&D credit carryforwards are subject to annual limitations in their use in accordance with Internal Revenue
Code (“IRC”) section 383. The R&D credit carryforwards at December 31, 2017 have been reduced to zero to reflect IRC section 383
ownership changes through December 31, 2017 and the resulting inability to utilize a portion of the R&D credit prior to its expiration.
F-23
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2017, the Company had available unused net operating loss (“NOL”) carryforwards of approximately $0.3
million that expire between 2030 and 2036 for federal tax purposes. The Company also has approximately $0.0 million of NOL
carryforwards for New York State and $0.1 million for New York City purposes expiring between 2035 and 2036. Additionally, the
Company has $4.2 million of Ireland NOL carryforwards that do not expire and $0.1 million of Quebec NOL which expires between 2035
and 2037. A portion of the federal, New York State, and New York City NOL carryforwards are subject to annual limitations in their use in
accordance with IRC section 382. The NOL carryforwards at December 31, 2017 have been reduced to reflect IRC section 382 ownership
changes through December 31, 2017 and the resultant inability due to annual limitations, to utilize a portion of the NOL prior to its
expiration.
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, 2017. 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 (decrease)/increase in the
valuation allowance for the years ended December 31, 2017 and 2016 were ($13.9) million, and $1.8 million respectively.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. However, as
of December 31, 2016 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, 2017, the Company’s tax returns remain open and subject to examination by the tax
authorities for the tax years 2014 and after.
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act includes significant
changes to the U.S. corporate income tax system including: a federal corporate rate reduction from 35% to 21%; limitations on the
deductibility of interest expense; creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax; and the transition of U.S.
international taxation from a worldwide tax system to a modified territorial tax system. The change to a modified territorial tax system
resulted in a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the “Transition Tax”),
with future distributions not subject to U.S. federal income tax when repatriated. A majority of the provisions in the Tax Act are effective
January 1, 2018.
The Company has reflected the impact of the changes to the U.S. corporate tax rates. The adjustment of the tax rates reduced the
gross deferred tax asset by $4.8 million with a corresponding $4.8 million adjustment to the valuation allowance. This has no impact to the
net tax expense. In connection with the Company’s analysis of the impact of the Transition Tax, the Company determined that the foreign
subsidiaries are in a net accumulated deficit so the Company has recorded no tax expense for the period ending December 31, 2017. All
impacts of the Tax Act have been measured in the Company’s income tax provision.
F-24
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – SUBSEQUENT EVENTS
On February 13, 2018, the Company granted options to purchase an aggregate of 534,008 shares of the Company’s common stock
to employees with an exercise price of $3.40, with a term 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 293,626 shares of the Company’s common stock to employees with
an exercise price of $4.25, with a term of ten years, vesting 1/3 on the first anniversary and 1/36th each month thereafter for 24 months.
On February 13, 2018, the Company granted options to purchase an aggregate of 7,000 shares of the Company’s common stock to
a director with an exercise price of $3.40, with a term of ten years, vesting on the date of the Corporation’s 2018 annual meeting of
shareholders.
F-25
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, 2017
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.
75
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, 2017, our internal control over
financial reporting was effective.
This annual report does not include an attestation report by EisnerAmper LLP, our independent registered public accounting firm
regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject to attestation
by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this annual report.
ITEM 9B – OTHER INFORMATION
None.
PART III
The Board of Directors elects our executive officers annually. A majority vote of the directors who are in office is required to fill
vacancies. Each director shall be elected for the term of one year and until his successor is elected and qualified or until his earlier
resignation or removal. Our directors and executive officers are as follows:
NAME
AGE
CURRENT POSITION
Seth Lederman
Margaret Smith Bell
Stuart Davidson*
Patrick Grace
David Grange
Donald W. Landry
Ernest Mario
Charles E. Mather IV
John Rhodes
Samuel Saks
Jessica Morris
Bradley Saenger
Gregory Sullivan
60
58
60
62
70
63
79
57
61
63
40
44
52
President, CEO and Chairman of the Board of Directors
Director
Former Director
Director
Director
Director
Director
Director
Lead Director
Director
Chief Operating Officer
Chief Financial Officer and Treasurer
Chief Medical Officer and Secretary
*Mr. Davidson retired from the Board on February 12, 2018.
76
The following information with respect to the principal occupation or employment of each nominee for director, the principal
business of the corporation or other organization in which such occupation or employment is carried on, and such nominee’s business
experience during the past five years, as well as the specific experiences, qualifications, attributes and skills that have led the Board to
determine that such Board members should serve on our Board, has been furnished to the Company by the respective director nominees:
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’s eutectic composition; Tonmya’s pharmacokinetic profile and
related therapeutic properties, and Tonmya for posttraumatic stress disorder (PTSD). Since 1996, Dr. Lederman served as an Associate
Professor at Columbia University, and retired on April 13, 2017. 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. In 2015, Dr. Lederman 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’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.
Margaret Smith Bell became a Director in September 2017. Ms. Bell has been retired for the last five years. Previously, Ms. Bell
was a Vice President at Standard Life Investments where she was a portfolio manager and health care equity analyst. Ms. Bell was also a
Managing Director at Putnam Investments, and served as a senior health care analyst and a portfolio manager of the Putnam Health
Sciences Trust. Ms. Bell was an analyst and vice president at State Street Research and a research analyst at Alex. Brown & Sons, Inc. Ms.
Bell is a past member of the Board of Overseers at Beth Israel Deaconess Medical Center. Ms. Bell holds a B.A. from Wesleyan University
and an M.B.A. from the Wharton School at the University of Pennsylvania. Ms. Bell’s extensive healthcare and investment banking
experience were instrumental in her selection as a member of the Board.
Stuart Davidson became a Director in October 2011 and retired from the Board in February 2018. 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.
Patrick Grace became a Director in October 2011. Between June 2007 and October 2011, Mr. Grace served as a director of Tonix
Sub. Since January 2017, Mr. Grace has been the President and CEO of Grace Institute Foundation. From 1996 to September 2016, he
served as Chairman of the Grace Institute, New York, New York (workforce development for women). 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 was President of
MLP Capital, Inc., an investment holding company, from 1996 to 2016. 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 2000 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.
77
General David Grange (retired) became a director in February 2018. Gen. Grange has been Chief Executive Officer of Pharm-
Olam International, Ltd. (“Pharm-Olam”), a contract research organization, since April 2017. Prior to joining Pharm-Olam, Gen. Grange
was President and founder of Osprey Global Solutions, LLC (“OGS”), a Service Disabled Veterans Organization, from 2009 to 2017. Prior
to founding OGS, Gen. Grange held various positions with Pharmaceutical Product Development, Inc. (PPDI), a contract research
organization, from 2003 to 2009, including as a member of the Board of Directors and Chief Executive Officer. Prior to PPDI he served in
the McCormick Tribune Foundation for 10 years most recently as Chief Executive Officer and President, where he also oversaw the
support of Veteran Programs. Gen. Grange served 30 years in the U.S. Army as a Ranger, Green Beret, Aviator, Infantryman and a member
of special operating units. At the Pentagon, he was Director of Army Current Operations, Readiness, and Mobilization. Gen. Grange
commanded the Ranger Regiment and the First Infantry Division (the Big Red One). Gen. Grange holds a master’s degree in Public
Service from Western Kentucky University. Gen. Grange’s extensive experience in the pharmaceutical industry and service with the U.S.
military was instrumental in his selection as a member of our Board.
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 1985 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 Medical Center since 2008. Since November 2015, 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.
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 Soleno Therapeutics, Inc. (formerly
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 Soleno Therapeutics, 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 Soleno Therapeutics, Inc. (since 2007), Celgene Corp. (since 2007), Chimerix, Inc. (since February 2013) and Eyenovia, Inc.
(since 2014). Dr. Mario is also Chairman of Chimerix. Dr. Mario served as a director of Boston Scientific Corp. (2001 – 2016), Kindred
Biosciences, Inc. (2013 – 2016), VIVUS Inc. (2012 – 2013), XenoPort Inc. (2012 – 2015), and Maxygen Inc. (2001 – 2013). He 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 and served as its co-head of
Capital Markets since March 2017. 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. From July 2015 until August 2017, Mr. Mather 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.
78
John Rhodes became a Director in October 2011 and Lead Director in February 2014. Mr. Rhodes has served as Chair of the New
York State Public Service Commission and Chief Executive Officer of the Department of Public Services since June 2017. Mr. Rhodes
served as President and CEO of the New York State Energy Research and Development Authority between September 2013 and June
2017. 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.
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), Bullet Biotechnology, Inc. (2012 – 2017), NuMedii (since 2013) and
PDL BioPharma, Inc. (since September 2015). Dr. Saks served as a director of Depomed, Inc. (2012 – 2017), Auspex Pharmaceuticals, Inc.
(2009 – 2015), Trubion Pharmaceuticals, Inc. (2005 – 2010), Corixa Corporation, Cougar Biotechnology, Inc., Coulter Pharmaceuticals,
Inc., Ilypsa, Inc. and Sirna Therapeutics Inc. (formerly, Ribozyme Pharmaceuticals, Inc.). 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.
Jessica Morris is our Chief Operations Officer and has worked for the Company since April 2013, first as a consultant (April 2013
– September 2013), then as SVP of Finance (September 2013 – October 2015), followed by Chief Administrative Officer (October 2015 –
January 2016), Acting Chief Financial Officer (January 2016 – February 2016), and Executive Vice President, Operations (February 2016
– January 2018). Prior to joining the Company, Ms. Morris was a Vice President in investment management at Zhong Rong Group.
Previously, Ms. Morris was a Senior Associate in the Sponsor Finance Group at American Capital, a Vice President of the mezzanine debt
fund at Calvert Street Capital Partners, an Associate in the commercial finance department of Silicon Valley Bank, and a Financial Analyst
in the investment banking group at Deutsche Bank. Ms. Morris earned a B.S. in Commerce and a B.A. in Music from the University of
Virginia, where she was an Echols Scholar.
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.
79
Gregory Sullivan, MD became our Chief Medical Officer on June 3, 2014 and our Secretary in March 2017. Prior to becoming our
Chief Medical Officer, 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 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.
Directors serve until the next annual meeting of shareholders or until their successors are elected and qualified. Officers serve at
the discretion of the Board.
Board Independence
The Board has determined that (i) Seth Lederman has a relationship which, in the opinion of the Board, 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) Margaret Smith Bell, Patrick Grace, David Grange, 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. Prior to his resignation in February 2018, the Board found that Mr. Davidson was also an independent director.
Board Leadership Structure
Our CEO also serves as the chairman of the Board. An independent director serves as the Board’s lead director. This structure
allows one person to speak for and lead both the Company and the Board, while also providing for effective independent board oversight
through an independent lead director. Having Dr. Lederman, our CEO, serve as Chairman creates clear and unambiguous authority, which
is essential to effective management. Our Board and management can respond more effectively to a clearer line of authority. By designating
our CEO as its Chairman, our Board also sends as an important signal to our employees and shareholders about who is accountable.
Further, since Dr. Lederman is the founder of our Company and is an inventor on key patents and patent applications underlying our
programs, we believe that Dr. Lederman is best-positioned to set our Board’s agenda and provide leadership.
We have established the position of lead director, which is filled by Mr. Rhodes. The lead director has the following
responsibilities, as detailed in the Lead Director charter, adopted by the Board (and also performs any other functions the Board may
request):
•
•
Board leadership — provides leadership to the Board in any situation where the chairman’s role may be, or may
be perceived to be, in conflict, and also chairs meetings when the chairman is absent;
Leadership of independent director meetings — leads independent director meetings, which take place without any
management directors or Tonix employees present;
• Additional meetings — calls additional independent director meetings as needed;
• Chairman-independent director liaison — regularly meets with the chairman and serves as liaison between the chairman
and the independent directors;
80
•
•
Stockholder communications — makes himself available for direct communication with our stockholders;
Board agenda, schedule & information — works with the chairman regarding meeting agendas, meeting schedules and
information sent to directors for Board meetings, including the quality, quantity, appropriateness and timeliness of such
information; and
• Advisors and consultants — recommends to the Board the retention of outside advisors and consultants who report
directly to the Board on Board-wide issues.
Board Role in Risk Oversight
Risk is an integral part of the Board and Board committee deliberations throughout the year. While the Board has the ultimate
oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In
particular, the Audit Committee focuses on financial risk, including internal controls, and receives financial risk assessment reports from
management. Risks related to the compensation programs are reviewed by the Compensation Committee. The Board is advised by these
committees of significant risks and management’s response through periodic updates.
Stockholder Communications with the Board
The Company’s stockholders may communicate with the Board, including non-executive directors or officers, by sending written
communications addressed to such person or persons in care of Tonix Pharmaceuticals Holding Corp., Attention: Secretary, 509 Madison
Avenue, Suite 306, New York, New York 10022. All communications will be compiled by the Secretary and submitted to the addressee. If
the Board modifies this process, the revised process will be posted on the Company’s website.
Meetings and Committees of the Board
During the fiscal year ended December 31, 2017, the Board held five meetings, the Audit Committee held three meetings, the
Compensation Committee held five 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 has standing Audit, Compensation, and Nominating and Corporate Governance Committees. Information concerning
the membership and function of each committee is as follows:
Name
Seth Lederman
Margaret Smith Bell
Patrick Grace
David Grange
Donald W. Landry
Ernest Mario
Charles E. Mather IV
John Rhodes
Samuel Saks
* Member of Committee
** Chairman of Committee
Board Committee Membership
Audit
Committee
Compensation
Committee
Nominating and
Corporate
Governance Committee
*
**
*
*
*
*
**
**
*
*
81
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 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, 2017.
Compensation Committee
Our Compensation Committee consists of Margaret Smith Bell, Ernest Mario and Samuel Saks, with Mr. Mario elected as
Chairman of the Committee. Our Board has determined that all of the members are “independent” under the current listing standards of the
NASDAQ Stock Market. Our Board 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, 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 and periodically evaluating and administering the terms and administration of our incentive plans and benefit
programs. In addition, our Compensation Committee reviews and makes recommendations to the Board regarding incentive compensation
plans that require shareholder approval, director compensation, the Company’s compensation discussion and analysis (“CD&A”) and the
related executive compensation information for inclusion in the Company’s 10-K and proxy statement, and employment and severance
agreements relating to the chief executive officer.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Patrick Grace, David Grange, Charles Mather and John
Rhodes, with Mr. Rhodes elected as Chairman of the Committee. The Board 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.
82
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. 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 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 has determined that shareholders who wish to recommend director
candidates for consideration by the Nominating and Corporate Governance Committee must comply with the following:
● 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
83
● 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.
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 2017, our directors, executive officers and 10% stockholders complied with all Section 16(a) filing requirements.
Due to administrative errors, each of Drs. Landry, Mario and Saks, and Messrs. Grace, Mathers and Rhodes failed to timely file a Form 4
with respect to two transactions, pertaining to the vesting of restricted stock units, during the most recent fiscal year. This error was
corrected in later filings. Also due to an administrative error, Dr. Mario failed to timely file Form 4s with respect to 4 additional
transactions, a series of sales of common stock, during December 2017. This error was corrected in a later filing.
Involvement in Certain Legal Proceedings
Except as disclosed below, our directors and executive officers have not been involved in any of the following events during the
past ten years:
1. 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;
2. any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
3. 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;
4. 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;
5. 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
6. 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.
84
In January 2013, the Chief Operating Officer filed for bankruptcy protection under Chapter 7 of Title 11 under the United States
Code in the U. S. Bankruptcy Court in New York, New York. The petition was discharged in April 2013.
ITEM 11 - EXECUTIVE COMPENSATION
Compensation Philosophy and Practices
We believe that the performance of our executive officers significantly impacts our ability to achieve our corporate goals. We,
therefore, place considerable importance on the design and administration of our executive officer compensation program. This program is
intended to enhance stockholder value by attracting, motivating and retaining qualified individuals to perform at the highest levels and to
contribute to our growth and success. Our executive officer compensation program is designed to provide compensation opportunities that
are tied to individual and corporate performance.
Our compensation packages are also designed to be competitive in our industry. The Compensation Committee from time-to-time
consults with compensation consultants, legal counsel and other advisors in designing our compensation program, including in evaluating
the competitiveness of individual compensation packages and in relation to our corporate goals.
Our overall compensation philosophy has been to pay our executive officers an annual base salary and to provide opportunities,
through cash and equity incentives, to provide higher compensation if certain key performance goals are satisfied. We believe that many of
our key practices and programs demonstrate good governance. The main principles of our fiscal year 2017 compensation strategy included
the following:
● An emphasis on pay for performance. A significant portion of our executive officers’ total compensation is variable and
at risk and tied directly to measurable performance, which aligns the interests of our executives with those of our
stockholders;
● Performance results are linked to Company and individual performance. When looking at performance over the year,
we equally weigh individual performance as well as that of the Company as a whole. Target annual compensation is
positioned to allow for above-median compensation to be earned through an executive officer’s and the Company’s
extraordinary performance;
● Equity as a key component to align the interests of our executives with those of our stockholders. Our Compensation
Committee continues to believe that keeping executives interests aligned with those of our stockholders is critical to
driving toward achievement of long-term goals of both our stockholders and the Company; and
● Peer group positioning. While the Compensation Committee considers the level of compensation paid by the companies
in our peer group as a reference point that provides a framework for its compensation decisions, in order to maintain
competitiveness and flexibility, the Compensation Committee does not target compensation at a particular level relative
to the peer group; nor does the Compensation Committee employ a formal benchmarking strategy or rely upon specific
peer–derived targets.
In 2017, we also continued practices that demonstrate good governance and careful stewardship of corporate assets, including:
● Limited personal benefits. Our executive officers are eligible for the same benefits as our non-executive salaried
employees, and they do not receive any additional perquisites.
85
● No retirement benefits. We do not provide our executive officers with a traditional retirement plan, or with any
supplemental deferred compensation or retirement benefits.
● No tax gross-ups. We do not provide our executive officers with any tax gross-ups.
● No single-trigger cash change in control benefits. We do not provide cash benefits to our executives upon a change in
control, absent an actual termination of employment.
At our annual meeting in May 2016, we conducted our tri-annual advisory vote on executive compensation, commonly referred to
as a “say-on-pay” vote. At that time, approximately 95% of the votes affirmatively cast on the advisory say-on-pay proposal were voted in
favor of the compensation of our named executive officers. The Compensation Committee understood this level of approval to indicate
strong stockholder support for our executive compensation policies and programs generally, and as a result, our Compensation Committee
made no fundamental changes to our executive compensation programs. We will hold our next say-on-pay vote at the 2019 annual
meeting. Our Compensation Committee and our Board will consider shareholder feedback through the say-on-pay vote and remains
committed to engaging with shareholders and are open to feedback from shareholders.
Summary Compensation Table
The following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief
Executive Officer, the two next most highly paid executive officers, and one former executive officer for fiscal years 2017 and 2016.
Name & Principal
Position
Seth Lederman
Chief Executive Officer
Salary
($)
Bonus
($)
Year
2017 472,500 —
2016 472,500 —
Non-Equity
Incentive Plan
Compensation
($)
Stock
Awards
($)
Option
Awards
($) (1)
— 103,344
— 292,763
Change in
Pension Value
and
Non-Qualified
Deferred
Compensation
Earnings ($)
—
—
—
—
All Other
Compensation
($)
Gregory Sullivan
Chief Medical Officer
2017 335,000 —
2016 335,000 —
— 48,443
— 79,844
Bradley Saenger
Chief Financial Officer
2017 335,000 —
2016 301,361 —
— 30,680
— 71,760
Leland Gershell (2)
Former
Chief Financial Officer
2017
— —
—
—
2016
33,056
—
—
—
—
—
—
—
—
—
—
—
—
—
21,000(3)
21,000
—
392,000(4)
425,056
(1) Represents the aggregate grant date fair value of options granted in accordance with Financial Accounting Standards Board, or
FASB, Accounting Standards Codification, or ASC, Topic 718, “Stock Compensation.” For the relevant assumptions used in
determining these amounts, refer to Note 7 to our audited financial statements.
(2) Dr. Gershell resigned effective January 8, 2016.
(3) Represents consulting fees.
(4) Represents severance payment and consulting fees.
86
Total ($)
575,844
765,263
383,443
414,844
365,680
373,121
—
—
—
—
—
—
Grants of Plan-Based Awards in Fiscal 2017
The following table provides information with regard to each grant of plan-based award made to a named executive officer under
any plan during the fiscal year ended December 31, 2017.
Name
Seth Lederman
Bradley Saenger
Gregory Sullivan
Grant Date
3/1/2017
3/1/2017
3/1/2017
3/1/2017
3/1/2017
3/1/2017
All Other Option Awards:
Number of Securities
Underlying Options (#)
Exercise or Base Price of
Option Awards ($/Share)
Grant Date Fair Value of
Stock and Option Awards
($) (1)
16,000 $
16,000 $
4,750 $
4,750 $
7,500 $
7,500 $
5.50 $
5.50 $
5.50 $
5.50 $
5.50 $
5.50 $
3.36
3.10
3.36
3.10
3.36
3.10
(1) Represents the aggregate grant date fair value of options granted in accordance with FASB ASC Topic 718.
Outstanding Equity Awards at December 31, 2017
The following table presents information regarding outstanding equity awards held by our named executive officers as of
December 31, 2017.
Name
Seth Lederman
Bradley Saenger
Gregory Sullivan
Number of
Securities
underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price ($/Sh)
Option Expiration Date
3,500
6,750
7,100
10,000
10,000
17,850
715
6,727
—
—
1,100
1,100
1,248
920
—
1,058
—
2,650
2,650
2,512
1,840
—
—
$
—
$
—
$
—
$
—
—
$
1,050(1) $
—
$
4,273(2) $
11,000(3) $
16,000(5) $
—
$
$
—
52(1) $
580(2) $
6,000(3) $
942(4) $
4,750(5) $
$
—
—
$
138(1) $
1,160(2) $
3,000(3) $
7,500(5) $
87
300.00
102.00
158.80
98.70
66.80
59.50
59.50
50.30
50.30
5.50
98.70
66.80
59.50
50.30
24.20
24.20
5.50
98.70
66.80
59.50
50.30
50.30
5.50
5/9/2022
2/12/2023
2/11/2024
6/17/2024
10/29/2024
2/25/2025
2/25/2025
2/9/2026
2/9/2026
3/1/2027
6/17/2024
10/29/2024
2/25/2025
2/9/2026
5/27/2026
5/27/2026
3/1/2027
6/17/2024
10/29/2024
2/25/2025
2/9/2026
2/9/2026
3/1/2027
(1) The shares subject to this stock option vested as to 1/3 of the shares on February 25, 2016, with the remaining shares vesting on an equal
monthly basis over the following 24 months.
(2) The shares subject to this stock option vested as to 1/3 of the shares on February 9, 2017, with the remaining shares vesting on an equal
monthly basis over the following 24 months.
(3) The shares subject to this stock option vest 1/3rd upon the date(s) that certain stock price goals are achieved. The stock price goals are
such date(s) when the Company’s common stock has an average closing sales price equal to or exceeding each of $60.00, $70.00 and
$80.00 per share for 20 consecutive trading days, subject to a one year minimum service period prior to vesting.
(4) The shares subject to this stock option vested as to 1/3 of the shares on May 27, 2017, with the remaining shares vesting on an equal
monthly basis over the following 24 months.
(5) The shares subject to this stock option vested as to 1/3 of the shares on March 1, 2018, with the remaining shares vesting on an equal
monthly basis over the following 24 months.
Option Exercises and Stock Vested
No options were exercised by any of the named executive officers and no named executive officers held restricted stock units
during the fiscal year ended December 31, 2017.
Equity Compensation Plan Information
The following table provides certain information with respect to our equity compensation plans in effect as of December 31, 2017.
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column A)(2)
(C)
1,187,391
—
1,187,391
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants and
rights
(A)
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(B)
401,724 $
— $
401,724
39.81
—
39.81
Plan Category
Equity compensation plans approved by security holders(1)
Equity compensation plans not approved by security holders
Total
(1) Consists of the 2012 Plan, the 2014 Plan, the 2016 Plan, the 2017 Plan and the 2014 employee stock purchase plan (“ESPP”).
(2) Consists of shares available for future issuance under the 2017 Plan and our ESPP. As of December 31, 2017, 1,185,702 shares of
common stock were available for issuance under the 2017 Plan and 1,689 shares of common stock were available for issuance under the
ESPP.
88
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
Employment Agreement with Seth Lederman
On February 11, 2014, the Company entered into an employment agreement (the “Lederman Agreement”) with Dr. Seth
Lederman (“Lederman”) to continue to serve as our President, Chief Executive Officer and Chairman of the Board.
The base salary for Lederman under the Lederman Agreement was $425,000 per annum. The Lederman Agreement has an initial
term of one year and automatically renew 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.
Pursuant to the Lederman Agreement, if the Company terminates Lederman’s employment without Cause (as defined in the
Lederman Agreement) or Lederman resigns for Good Reason (as defined in the Lederman Agreement), Lederman is entitled to the
following payments and benefits: (1) his fully earned but unpaid base salary through the date of termination at the rate then in effect, plus
all other benefits, if any, under any group retirement plan, nonqualified deferred compensation plan, equity award plan or agreement, health
benefits plan or other group benefit plan to which Lederman may be entitled to under the terms of such plans or agreements; (2) a lump
sum cash payment in an amount equal to 12 months of his base salary as in effect immediately prior to the date of termination;
(3) continuation of health benefits for Lederman and his eligible dependents for a period of 12 months following the date of termination;
and (4) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards as to the number of stock awards
that would have vested over the 12-month period following termination had Lederman remained continuously employed by the Company
during such period.
Pursuant to the Lederman Agreement, if Lederman’s employment is terminated as a result of death or permanent disability,
Lederman or his estate, as applicable, is entitled to the following payments and benefits: (1) his fully earned but unpaid base salary through
the date of termination at the rate then in effect; (2) a lump sum cash payment in an amount equal to six months of his base salary as in
effect immediately prior to the date of termination; and (3) the automatic acceleration of the vesting and exercisability of outstanding
unvested stock awards.
If Lederman is terminated without Cause or resigns for Good Reason during the period commencing 90 days prior to a Change in
Control (as defined below) or 12 months following a Change in Control, Lederman shall be entitled to receive, in lieu of the severance
benefits described above, the following payments and benefits: (1) a lump sum cash payment in an amount equal to 36 months of his base
salary as in effect immediately prior to the date of termination, except that, if and while Lederman is still entitled to the Sale Bonus (as
defined below), it will only be 18 months; (2) continuation of health benefits for Lederman and his eligible dependents for a period of
24 months following the date of termination, except that, if and while Lederman is still entitled to the Sale Bonus it will only be 12 months;
and (3) the automatic acceleration of the vesting and exercisability of outstanding unvested stock awards.
If during the term of the Lederman Agreement or within 120 days after Lederman is terminated without Cause or resigns for Good
Reason, following a Change in Control, the Company consummates a Change in Control transaction in which the Enterprise Value (as
defined below) equals or exceeds $50 million, Lederman shall be entitled to receive a lump sum payment equal to 4.4% of the Enterprise
Value (the “Sale Bonus”). The Sale Bonus provision of the Lederman Agreement will terminate upon the Company granting Lederman
long-term incentive compensation mutually agreed to by the Board and Lederman.
89
For purposes of the Lederman Agreement, “Cause” generally means (1) commission of an act of fraud, embezzlement or
dishonesty or some other illegal act that has a demonstrable material adverse impact on the Company or any successor or affiliate of the
Company, (2) conviction of, or entry into a plea of “guilty” or “no contest” to, a felony, (3) unauthorized use or disclosure of the
Company’s confidential information or trade secrets or any successor or affiliate of the Company that has, or may reasonably be expected
to have, a material adverse impact on any such entity; (4) gross negligence, failure to follow a material, lawful and reasonable request of the
Board or material violation of any duty of loyalty to the Company or any successor or affiliate of the Company, or any other demonstrable
material willful misconduct by Lederman, (5) ongoing and repeated failure or refusal to perform or neglect of his duties as required by his
employment agreement, which failure, refusal or neglect continues for 30 days following Lederman’s receipt of written notice from the
Board stating with specificity the nature of such failure, refusal or neglect, provided that such failure to perform is not as a result of illness,
injury or medical incapacity, or (6) material breach of any Company policy or any material provision of the Lederman Agreement.
For purposes of the Lederman Agreement, “Good Reason” generally means (1) a material diminution in Lederman’s title,
authority, duties or responsibilities, (2) a material diminution in Lederman’s base compensation, unless such a reduction is imposed across-
the-board to the Company’s senior management, and such reduction is not greater than 15%, (3) a material change in the geographic
location at which Lederman must perform his duties, (4) any other action or inaction that constitutes a material breach by the Company or
any successor or affiliate of the Company’s obligations to Lederman under the Lederman Agreement, or (5) the Company elects not to
renew the Lederman Agreement for another term.
For purposes of the Lederman Agreement, “Change in Control” generally means:
● A transaction or series of transactions (other than public offerings) that results in any person or entity or related group of
persons or entities (other than the Company, its subsidiaries, an employee benefit plan maintained by the Company or
any of its subsidiaries or a person or entity that, prior to such transaction, directly or indirectly controls, is controlled by,
or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 40% of the total combined voting power of the Company’s securities outstanding
immediately after such acquisition;
● (1) a merger, consolidation, reorganization, or business combination or (2) the sale, exchange or transfer of all or
substantially all of the Company’s assets in any single transaction or series of transactions or (3) the acquisition of assets
or stock of another entity, in each case other than a transaction:
○ which results in the Company’s voting securities outstanding immediately before the transaction continuing to
represent, directly or indirectly, at least 60% of the combined voting power of the successor entity’s outstanding
voting securities immediately after the transaction, and
○ after which no person or group beneficially owns voting securities representing 40% or more of the combined
voting power of the Company or its successor; provided, however, that no person or group is treated as beneficially
owning 40% or more of combined voting power of the Company or its successor solely as a result of the voting
power held in the Company prior to the consummation of the transaction.
For purposes of the Lederman Agreement, “Enterprise Value” generally means (1) in a Change in Control in which consideration
is received by the Company, the total cash and non-cash consideration, including debt assumed, received by the Company, net of any fees
and expenses in connection with the transaction and (2) in a Change in Control in which consideration is payable to the stockholders of the
Company, the total cash and non-cash consideration, including debt assumed, payable to the Company’s stockholders net of any fees and
expenses in connection with the transaction. Enterprise Value also includes any cash or non-cash consideration payable to the Company or
to the Company’s stockholders on a contingent, earnout or deferred basis.
Employment Agreement with Gregory Sullivan
On June 3, 2014, the Company entered into an employment agreement (the “Sullivan Agreement”) with Dr. Gregory Sullivan
(“Sullivan”) to serve as our Chief Medical Officer. The base salary for Sullivan under the Sullivan Agreement was $225,000 per
annum. The Sullivan Agreement had 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.
90
Pursuant to the Sullivan Agreement, if the Company terminates Sullivan’s employment without Cause (as defined below) or
Executive resigns for Good Reason (as defined below), Sullivan is entitled to the following payments and benefits: (1) his fully earned but
unpaid base salary through the date of termination at the rate then in effect, plus all other benefits, if any, under any group retirement plan,
nonqualified deferred compensation plan, equity award plan or agreement, health benefits plan or other group benefit plan to which
Sullivan may be entitled to under the terms of such plans or agreements; (2) a lump sum cash payment in an amount equal to 12 months of
his base salary as in effect immediately prior to the date of termination; (3) continuation of health benefits for Sullivan and his eligible
dependents for a period of 12 months following the date of termination; and (4) the automatic acceleration of the vesting and exercisability
of outstanding unvested stock awards as to the number of stock awards that would have vested over the 12-month period following
termination had Sullivan remained continuously employed by the Company during such period.
Pursuant to the Sullivan Agreement, if Sullivan’s employment is terminated as a result of death or permanent disability, Sullivan
or his estate, as applicable, is entitled to his fully earned but unpaid base salary through the end of the month in which termination occurs at
the rate then in effect.
For purposes of the Sullivan Agreement, “Cause” generally means (1) commission of an act of fraud, embezzlement or dishonesty
or some other illegal act that has a demonstrable material adverse impact on the Company or any successor or affiliate of the Company,
(2) conviction of, or entry into a plea of “guilty” or “no contest” to, a felony, (3) unauthorized use or disclosure of the Company’s
confidential information or trade secrets or any successor or affiliate of the Company that has, or may reasonably be expected to have, a
material adverse impact on any such entity, (4) gross negligence, failure to follow a material, lawful and reasonable request of the Company
or material violation of any duty of loyalty to the Company or any successor or affiliate of the Company, or any other demonstrable
material misconduct by Sullivan, (5) ongoing and repeated failure or refusal to perform or neglect of his duties as required by his
employment agreement, which failure, refusal or neglect continues for 30 days following Sullivan’s receipt of written notice from the
Company stating with specificity the nature of such failure, refusal or neglect, or (6) material breach of any Company policy or any
material provision of the Sullivan Agreement.
For purposes of the Sullivan Agreement, “Good Reason” generally means (1) a material diminution in Executive’s title, authority,
duties or responsibilities, (2) a material diminution in the executive officer’s base compensation, unless such a reduction is imposed across-
the-board to the Company’s senior management and such reduction is not greater than 15%, (3) a material change in the geographic location
at which the executive officer must perform his duties, (4) any other action or inaction that constitutes a material breach by the Company or
any successor or affiliate of the Company’s obligations to Sullivan under the Agreement, or (5) the Company elects not to renew
the Agreement for another term.
Directors Compensation Table
The following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2017
for services to our Company.
Margaret Smith Bell
Stuart Davidson
Patrick Grace
Donald Landry
Ernest Mario
Charles Mather IV
John Rhodes (2)
Samuel Saks
Total:
Name
Stock
Awards ($)
$
$
$
$
$
$
$
$
$
91
Option
Awards ($)(1) Total ($)
55,560 $
54,518 $
54,518 $
54,518 $
54,518 $
54,518 $
81,778 $
54,518 $
464,446 $
55,560
54,518
54,518
54,518
54,518
54,518
81,778
54,518
464,446
— $
— $
— $
— $
— $
— $
— $
— $
— $
(1) Represents the aggregate grant date fair value of stock options granted in accordance with FASB ASC Topic 718. For the relevant
assumptions used in determining these amounts, refer to Note 7 to our audited financial statements. These amounts do not necessarily
correspond to the actual value that may be recognized from the stock option grant.
(2) Mr. Rhodes received additional stock options for serving as lead director.
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 1, 2018:
● 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
Jessica Morris
Bradley Saenger
Gregory Sullivan
Margaret Smith Bell
Patrick Grace
David Grange
Donald Landry
Ernest Mario
Charles Mather IV
John Rhodes
Samuel Saks
Officers and Directors as a Group (12 persons)
Baker Brothers Advisors LP (14)
Rosalind Advisors, Inc. (15)
* 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)
188,678 (3)
11,181 (4)
10,355 (5)
22,425 (6)
—
7,005 (7)
—
13,310 (8)
42,600 (9)
7,383 (10)
23,322 (11)
11,294 (12)
334,307 (13)
699,500
594,077 (16)
PERCENTAGE OF
COMMON STOCK (2)
2.39%
*
*
*
*
*
*
*
*
*
*
*
4.20%
8.93%
7.55%
(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 1, 2018 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 7,830,790 shares of common stock issued and outstanding as of March 1, 2018.
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(3) Includes 70,694 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days,
1,677 shares of common stock underlying warrants, 18,463 shares of common stock owned by Lederman & Co, 3,246 shares of common
stock owned by L&L, 5,898 shares of common stock owned by Targent, 2,917 shares of common stock owned by Leder Laboratories, Inc.
(Leder Labs), 2,917 shares of common stock owned by Starling, 22,700 shares owned through a 401(k) account, 45,900 shares owned
through an IRA account and 3,100 shares owned by Dr. Lederman’s spouse. 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.
(4) Includes 9,618 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days, and
225 shares of common stock underlying warrants.
(5) Includes 7,576 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(6) Includes 12,826 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(7) Includes 4,250 shares of common stock underlying options and restricted stock units which are currently exercisable or vested or
become exercisable within 60 days.
(8) Includes 4,100 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days, 3,246
shares of common stock owned by L&L. Donald Landry, as a Member of L&L, has investment and voting control over the shares held by
this entity.
(9) Includes 4,100 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days, 5,000
shares of common stock underlying warrants and 33,500 shares owned by Ernest and Mildred Mario Revocable Trust. Ernest Mario, as a
Trustee of Ernest and Mildred Mario Revocable Trust, has investment and voting control over the shares held by this entity.
(10) Includes 4,100 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days.
(11) Includes 4,925 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
2,427 shares of common stock underlying warrants.
(12) Includes 4,100 shares of common stock underlying options which are currently exercisable or become exercisable within 60 days and
589 shares of common stock underlying warrants.
(13) Includes 126,289 shares of common stock underlying options which are currently exercisable or vested or become exercisable within
60 days, 18,463 shares of common stock owned by Lederman & Co, 3,246 shares of common stock owned by L&L, 5,898 shares of
common stock owned by Targent, 2,917 shares of common stock owned by Leder Labs, 2,917 shares of common stock owned by Starling,
22,700 shares owned through a 401(k) account of Dr. Lederman, 45,900 shares owned through an IRA account of Dr. Lederman, 3,100
shares owned by Dr. Lederman’s spouse, 5,000 shares of common stock underlying warrants and 33,500 shares owned by Ernest and
Mildred Mario Revocable Trust and 4,918 shares of common stock underlying warrants owned directly by the executive officers and
directors.
(14) Based upon a Schedule 13F filed with the SEC on February 14, 2018. The mailing address for this beneficial owner is 860 Washington
Street, 3rd Floor, New York, NY 10014.
(15) Based upon a Schedule 13G filed with the SEC on February 14, 2018. The mailing address for this beneficial owner is 175 Bloor
Street East, Suite 1316, North Tower, Toronto, Ontario, M4W 3R8 Canada. Steven Salamon is the portfolio manager of this entity and may
be deemed to beneficially own the securities held by this entity.
(16) Includes 40,169 shares of common stock underlying warrants.
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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, 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.
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed by our independent registered public accounting firm, for professional services rendered for the audit of
our annual financial statements for the years ended December 31, 2017 and 2016, including review of our interim financial statements as
well as registration statement filings with the SEC and comfort letters issued to underwriters were $386,790 and $346,138, respectively.
94
Audit-Related Fees
We did not incur fees to our independent registered public accounting firm for audit related fees during the fiscal years ended
December 31, 2017 and 2016.
Tax and Other Fees
We incurred fees to our independent auditors for tax services during the fiscal years ended December 31, 2017 and 2016, of
$12,000 and $9,400, respectively, related to a net operating loss study.
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, 2017 and 2016
Consolidated statements of operations for the years ended December 31, 2017 and 2016
Consolidated statements of comprehensive loss for the years ended December 31, 2017 and 2016
Consolidated statements of stockholders’ equity for the years ended December 31, 2017 and 2016
Consolidated statements of cash flows for the years ended December 31, 2017 and 2016
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.
95
3.03
Third Amended and Restated Bylaws, filed as an exhibit to the Current Report on Form 8-K, filed with the Commission on
June 3, 2016 and incorporated herein by reference.
3.04
Certificate of Change of Tonix Pharmaceuticals Holding Corp., dated March 13, 2017 and effective March 17, 2017, filed as
an exhibit to the Current Report on Form 8-K, filed with the Commission on March 16, 2017 and incorporated herein by
reference.
3.05
Certificate of Amendment to Articles of Incorporation, effective June 16, 2017, filed as an exhibit to the Current report on
Form 8-K, filed with the Commission on June 16, 2017 and incorporated herein by reference.
10.01
10.02
10.03
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.
Tonix Pharmaceuticals Holding Corp. 2012 Amended and Restated Incentive Stock Option Plan, incorporated herein by
reference to Appendix B to our Definitive Proxy Statement on Schedule 14A (File No. 000-54879), filed with the
Commission on April 3, 2013.
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.
10.04
Tonix Pharmaceuticals Holding Corp. 2014 Stock Incentive Plan, incorporated herein by reference to Annex A to our
Definitive Proxy Statement on Schedule 14A (File No. 001-36019), filed with the Commission on May 2, 2014.
10.05
10.06
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.
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.
10.07
Tonix Pharmaceuticals Holding Corp. 2016 Stock Incentive Plan, incorporated herein by reference to Annex A to our
Definitive Proxy Statement on Schedule 14A (File No. 001-36019), filed with the Commission on March 25, 2016.
10.08
Tonix Pharmaceuticals Holding Corp. 2017 Stock Incentive Plan, incorporated herein by reference to Appendix A to our
Definitive Proxy Statement on Schedule 14A (File No. 001-36019), filed with the Commission on May 2, 2017.
10.09
10.10
Sales Agreement, dated August 1, 2017, by and between Tonix Pharmaceuticals Holding Corp. and Cowen and Company,
LLC, filed as an exhibit to the Current Report on Form 8-K filed with the Commission on August 1, 2017 and incorporated
herein by reference.
Registration Rights Agreement, dated September 28, 2017, between Tonix Pharmaceuticals Holding Corp. and Lincoln Park
Capital Fund, LLC, filed as an exhibit to the Current Report on Form 8-K filed with the Commission on September 29, 2017
and incorporated herein by reference.
96
10.11
Purchase Agreement, dated September 28, 2017, between Tonix Pharmaceuticals Holding Corp. and Lincoln Park Capital
Fund, LLC, filed as an exhibit to the Current Report on Form 8-K filed with the Commission on September 29, 2017 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 List of Subsidiaries.
23.01 Consent of Independent Registered Public Accounting Firm, filed herewith.
31.01 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, 2017, 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.
97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 9, 2018
Date: March 9, 2018
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)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Seth
Lederman and Bradley Saenger, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him or her in any and
all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Position
Date
/s/ SETH LEDERMAN
Chief Executive Officer, President and Director (Principal
March 9, 2018
Seth Lederman
Executive Officer)
/s/ BRADLEY SAENGER
Chief Financial Officer (Principal Financial Officer and
March 9, 2018
Principal Accounting Officer)
Bradley Saenger
/s/ MARGARET SMITH BELL
Margaret Smith Bell
/s/ DAVID GRANGE
David Grange
/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
Director
Director
Director
Director
Director
Director
Director
Director
98
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9, 2018
March 9,2018
March 9, 2018
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 21.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Tonix Pharmaceuticals Holding Corp. on Form S-1 (No.
333-220749), Form S-3 (No. 333-197824) and Form S-8 (Nos. 333-219928, 333-212300 and 333-202006) of our report dated March 9,
2018, on our audit of the consolidated financial statements as of December 31, 2017 and 2016 and for each of the years then ended, which
report is included in this Annual Report on Form 10-K to be filed on or about March 9, 2018. Our report includes an explanatory paragraph
about the existence of substantial doubt concerning the Company's ability to continue as a going concern.
Exhibit 23.01
/s/ EisnerAmper LLP
EisnerAmper LLP
New York, New York
March 9, 2018
I, Seth Lederman, certify that:
1.
I have reviewed this annual report on Form 10-K of Tonix Pharmaceuticals Holding Corp.;
CERTIFICATION
Exhibit 31.01
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 9, 2018
/s/ SETH LEDERMAN
Seth Lederman
Chief Executive Officer
I, Bradley Saenger, certify that:
1.
I have reviewed this annual report on Form 10-K of Tonix Pharmaceuticals Holding Corp.;
CERTIFICATION
Exhibit 31.02
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 9, 2018
/s/ BRADLEY SAENGER
Bradley Saenger
Chief Financial Officer
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
Exhibit 32.01
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, 2017 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 9, 2018
/s/ SETH LEDERMAN
By:
Name: Seth Lederman
Title:
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, 2017 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 9, 2018
/s/ BRADLEY SAENGER
By:
Name: Bradley Saenger
Title:
Chief Financial Officer