PART I
ITEM 1. Business
GENERAL
Hemispherx Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”, “Company”, “we or “us”) are a specialty pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases. We have three domestic subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech Corp., all of which are incorporated in Delaware and are dormant. Our foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A. established in Belgium in 1998, which has minimal activity. All significant intercompany balances and transactions have been eliminated in consolidation.
Our current strategic focus is derived from four applications of our two core pharmaceutical technology platforms Ampligen® and Alferon N Injection®. The commercial focus for Ampligen® includes application as a treatment for CFS and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection® is an FDA approved product with an indication for refractory or recurring genital warts. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
We own and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ to produce Alferon® and Ampligen® and are in the final stages of our facility enhancement project which includes the Installation and Operation Qualification phase for Alferon® production. Approximately $7,046,000 has been spent on the project through December 31, 2013, which was financed through a Margin Account with an effective interest rate of approximately 2.50%. The Margin Account was paid off utilizing approximately one half of our marketable securities in October 2013. While facility upgrades are being undertaken for the Alferon® manufacturing process, this project has not impacted our capability to manufacture the Ampligen® drug substance intermediates needed for the final production steps of that product. The production of new Alferon® API inventory will not commence until the capital improvement and validation phases are complete. While the facility is approved by FDA under the Biological License Application (“BLA”) for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced product. Once we begin commercial scale production of Alferon® Active Pharmaceutical Product (“API”), we will need the FDA to reaffirm our BLA status via a pre-approval inspection and also gain their approval to allow commercial sales to resume once we have submitted satisfactory stability and quality release data. We anticipate that it will take approximately eighteen months before we have newly produced Alferon® API ready for submission to the FDA for review and approval. We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group. We cannot provide any guarantee that the facility will necessarily pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex.
On February 1, 2013, we received a Complete Response Letter (“CRL”) from the FDA declining to approve our NDA for Ampligen® for Chronic Fatigue Syndrome ("CFS"). Please see the discussion in "Our Products - Ampligen®" below for more detail.
Our principal executive office is located at One Penn Center, 1617 JFK Boulevard, Philadelphia, Pennsylvania 19103, and our telephone number is 215-988-0080.
AVAILABLE INFORMATION
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act electronically with the Securities and Exchange Commission, or SEC. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day of filing with the SEC on our website on the World Wide Web at http://www.hemispherx.net under the Investor Relations tab for SEC Filings or by contacting the Investor Relations Department by calling (518) 398-6222 or sending an e-mail message to ir@hemispherx.net.
OUR PRODUCTS
Our primary pharmaceutical product platform consists of our experimental compound, Ampligen®, our FDA approved natural interferon product, Alferon N Injection®, and our experimental liquid natural interferon for oral administration, Alferon® LDO (Low Dose Oral).
Ampligen®
Ampligen® is an experimental drug currently undergoing clinical development for the treatment of CFS. As noted above and discussed below, the FDA in its recent CRL declined to approve our NDA for the treatment of CFS with Ampligen®. Over its developmental history, Ampligen® has received various designations, including Orphan Drug Product Designation (FDA), Treatment IND (e.g., treatment investigational new drugs, or “Emergency” or “Compassionate” use authorization) with Cost Recovery Authorization (FDA) and “promising” clinical outcome recognition based on the evaluation of certain summary clinical reports (“AHRQ” or Agency for Healthcare Research and Quality). Ampligen® represents the first drug in the class of large (macromolecular) RNA (nucleic acid) molecules to apply for NDA review. Based on the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that Ampligen® may have broad-spectrum anti-viral and anti-cancer properties.
We believe that nucleic acid compounds represent a potential new class of pharmaceutical products as they are designed to act at the molecular level for treatment of human diseases. There are two forms of nucleic acids, DNA and RNA. DNA is a group of naturally occurring molecules found in chromosomes, the cell's genetic machinery. RNA is a group of naturally occurring informational molecules which orchestrate a cell's behavior which, in turn, regulates the action of groups of cells, including the cells which compromise the body's immune system. RNA directs the production of proteins and regulates certain cell activities including the activation of an otherwise dormant cellular defense against viruses and tumors. Our drug technology utilizes specifically-configured RNA. Our double-stranded RNA drug product, trademarked Ampligen®, is an experimental, unapproved drug, that would be administered intravenously. Ampligen® has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC) and has the chemical designation poly(I) poly(C
12
U).
Clinical trials of Ampligen® already conducted by us include studies of the potential treatment of CFS, Hepatitis B, HIV and cancer patients with renal cell carcinoma and malignant melanoma. All of these potential uses will require additional clinical trials to generate the safety and effectiveness data necessary to support regulatory approval.
In May 1997, the FDA approved an open-label treatment protocol, (“AMP 511”), allowing patient access to Ampligen® for treatment in an open-label safety study under which severely debilitated CFS patients have the opportunity to be on Ampligen® to treat this very serious and chronic condition. The data collected from the AMP 511 protocol through a consortium group with active clinical sites in New York City, NY, Charlotte, NC, Miami, FL, Incline Village, NV and Salt Lake City, UT, provide safety information regarding the use of Ampligen® in patients with CFS. As of December 31, 2013, there were thirty-one patients participating in this open label treatment protocol with twenty taking treatment and eleven on drug holiday. We are establishing an enlarged data base of clinical safety information which we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen® treatment. We believe that continued efforts to understand existing data, and to advance the development of new data and information, will ultimately support our future filings for Ampligen® and/or the design of future clinical studies.
On February 1, 2013, we received a CRL from the FDA declining to approve our New Drug Application (“NDA” for Ampligen® for CFS. In its CRL, the FDA communicated that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analyses. The additional clinical study should address, among other things, Ampligen®'s efficacy in treating CFS patients, be of sufficient size and duration to assess the safety of Ampligen® and be sufficient to determine appropriate dosing. The FDA set forth the reasons for this action and provided recommendations to address certain of the outstanding issues. The FDA stated that the submitted data do not provide substantial evidence of efficacy of Ampligen® for the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data. In addition to the safety and effectiveness issues recommended to be addressed in at least one additional clinical trial, the CRL states that Hemispherx should conduct complete rodent carcinogenicity studies in two species prior to approval and also conduct additional animal toxicology studies providing more comprehensive evaluation of Ampligen® fragments and degradation products. The CRL also requests evaluation of variation between lots of Ampligen® tested in the development process and recommends tighter control of the Ampligen® manufacturing process.
In response to the CRL, we continue to plan to avail ourselves of the opportunity for an “end-of-review” meeting with representatives of the Office of Drug Evaluation II which issued the CRL, in order to clarify and seek to narrow the outstanding issues regarding the further development of Ampligen® for the treatment of CFS.
FDA regulations provide a formal dispute resolution process to obtain review of any FDA decision, including a decision not to approve an NDA, by raising the matter with the supervisor of the FDA office that made the decision. The formal dispute resolution process exists to encourage open, prompt discussion of scientific (including, medical) disputes and procedural (including, administrative) disputes that arise during the drug development, new drug review, and post-marketing oversight processes of the FDA. Depending on the outcome of a number of initiatives in the CFS community, including the FDA’s Patient Focused Drug Development Initiatives, forthcoming drug guidance and other scientific initiatives by the Institute of Medicine, Center for Disease Control and National Institute of Health, we will continue to examine the opportunity for an “end-of-review” meeting. Depending on the results of these initiatives, we may request an "end-of-review" conference with the FDA as a precursor to a possible submission of a formal appeal to the Office of New Drugs within the FDA's Center for Drug Evaluation and Research regarding the FDA's decision. Please see “Risks Associated With Our Business” in Item 1A. Risk Factors below.
Until we undertake the end-of-review conference(s) with the FDA, we are unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon acceptance of the study's design that it would take approximately 18 months to three years to complete a new well-controlled Ampligen® clinical study for resubmission to the FDA. Industry norms suggest that it will require three to six months to initiate the study, one to two years to accrue and test patients, three to six months to close-out the study and file the necessary documents with the FDA. The actual duration to complete the clinical study may be different based on the length of time it takes to design the study and obtain FDA's acceptance of the design, the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations. We anticipate that the time and cost to undertake clinical trial(s), studies and data analysis are beyond our current financial resources without gaining access to additional funding. Please see "Part I; Item 1A, Risk Factors: "We may require additional financing which may not be available. The limitation on the number of shares of common stock available for financing without prior stockholder approval eventually may hinder our ability to raise additional funding".
On July 12, 2012, we filed a new drug application for Ampligen® with the ANMAT (Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica), the agency responsible for the national regulation of drugs, foods and medical technology in Argentina, under the ANMAT’s Orphan Drug regulations. We believe that the approval of Ampligen® as an Orphan Drug may allow reimbursement by the Health Services Authority (SSS), the central health authority in Argentina for patients seeking treatment for CFS.
Alferon N Injection®
Alferon N Injection® is the registered trademark for our injectable formulation of natural alpha interferon, which is approved by the FDA in 1989 for the treatment of certain categories of genital warts. Alferon® is the only natural-source, multi-species alpha interferon currently approved for sale in the U.S. for the intralesional (within lesions) treatment of refractory (resistant to other treatment) or recurring external genital warts in patients 18 years of age or older. Certain types of human papilloma viruses (“HPV”) cause genital warts, a sexually transmitted disease (“STD”). The U.S. Centers for Disease Control and Prevention (“CDC”) estimates that “approximately twenty million Americans are currently infected with HPV with another six million becoming newly infected each year. HPV is so common that at least 50% of sexually active men and women get it at some point in their lives.” Although they do not usually result in death, genital warts recurrence is common, cause significant morbidity and entail substantial health care costs.
Interferons are a group of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human interferon: alpha, beta, gamma and omega. Alferon N Injection® contains a multi-species form of alpha interferon. The world-wide market for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products are approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic engineering, by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved for commercial sale in the U.S. Our natural alpha interferon is produced from human white blood cells.
The potential advantages of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical firms may be based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins containing many molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only a single species. Researchers have reported that the various species of interferons may have differing antiviral activity depending upon the type of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its higher activity in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules). Such glycosylation is not present on the currently U.S. marketed recombinant alpha interferons. We believe
that the absence of glycosylation may be, in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with recombinant alpha interferon. Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon species, the types and relative quantity of these species are different from our natural alpha interferon.
Alferon N Injection® [Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon product. There are essentially no antibodies observed against natural interferon to date and the product has a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have decreased effectiveness after one year, probably due to neutralizing antibody formation. Neutralizing antibody formation has not been reported with the use of Alferon N Injection®.
Commercial sales of Alferon N Injection® were halted in March 2008 when our finished goods inventory expired. The production of Alferon N Injection® from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API and is completed for the related Final Lot Release Test. To formulate, fill, finish and package (“fill and finish”) Alferon N Injection® Drug Product, we require a FDA approved third party Contract Manufacturing Organization (“CMO”). In January 2012, we agreed to a Technology, Transfer, Validation and Commercial Supply Agreement with Althea Technologies, Inc. (“Althea”) of San Diego, CA, regarding the fill and finish process for Alferon N Injection®.
In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon® API, which would need to be released by the FDA before those materials could be used in commercial product. As of December 31, 2012, all of our existing lots of Alferon® Work-In-Process Inventory had completed the fill, finish and packaging process. After conducting all of the appropriate tests on samples of the inventory during 2013, we concluded that we could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection®. Accordingly, these lots will not be submitted to the FDA to request release for commercial sale and their remaining dollar value has been written-off (see "Note 4: Inventory" for greater details).
Commercial sales of Alferon® will not resume until new batches of API can be produced and released by the FDA. We are currently in the Installation and Operation Qualification phase for Alferon® production of the enhancement project. The production of new Alferon® API inventory will not commence until the capital improvement and validation phases are complete. While the facility is approved by FDA under the BLA for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced inventory product. If and when we obtain a reaffirmation of FDA BLA status and have begun production of new Alferon® API, we will need FDA approval as to the quality and stability of the final product to allow commercial sales to resume. We anticipate that it will take until at least the second half of 2014 before we will have newly produced Alferon® API ready for submission to the FDA for review and approval. We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group. We cannot provide any guarantee that the facility will necessarily pass a FDA pre-approval inspection for Alferon® manufacture.
In January 2012, the ANMAT approved the sale and distribution of Alferon N Injection
®
(under the brand name “Naturaferon”) in Argentina. In June 2010, Hemispherx agreed to provide GP Pharm an option to market Alferon N Injection
®
, its FDA-approved natural interferon, in Argentina and other Latin American countries. The receipt of the ANMAT approval for HPV is the first step of a regulatory process towards the commercial sales of Naturaferon. On September 20, 2012, we filed with ANMAT an amended NDA for the use of Alferon N Injection® in patients with chronic hepatitis C who have become refractory to recombinant interferon as a result of the appearance of neutralizing antibodies against recombinant interferon. On February 6, 2013, we received the ANMAT approval for the treatment of refractory Hepatitis C with Naturaferon in Argentina.
Alferon® LDO (Low Dose Oral)
Alferon® LDO [Low Dose Oral Interferon Alfa-n3 (Human Leukocyte Derived)] is an experimental low-dose, oral liquid formulation of Natural Alpha Interferon and like Alferon N Injection®, should not cause antibody formation, which is a problem with recombinant interferon. It is an experimental immunotherapeutic believed to work by stimulating an immune cascade response in the cells of the mouth and throat, enabling it to bolster systemic immune response through the entire body by absorption through the oral mucosa. Oral interferon could be economically feasible for patients and logistically manageable globally for development programs for prevention and, or treatment of pandemic influenza, seasonal influenza and other emerging viruses. Oral administration of Alferon® LDO, with its anticipated affordability, low toxicity, no production of antibodies, and broad range of potential bioactivity, could be a breakthrough treatment or prevention for viral diseases.
Hemispherx currently has an FDA authorized protocol to conduct a Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study of Alferon® LDO for the prophylaxis and treatment of seasonal and
pandemic influenza of more than 200 subjects. Our Phase II study has continued to be delayed as we have redirected many of our resources to complete the upgrades in the New Brunswick facility.
HISTORICAL COSTS RELATED TO OUR PRODUCTS
The following table sets forth the costs related to our major products for each of the prior three years. Our aggregate expenses from the time that we first started developing nucleic acid pharmaceutical technology in the mid 1980’s through March 2003 were substantially related to the development of Ampligen®, and from that date through the current period were substantially related to Ampligen® and Alferon®.
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(dollars in thousands)
Year Ended December 31, 2013
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Costs and Expenses
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|
|
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Ampligen®
NDA
|
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Alferon N
Injection
®
|
|
Alferon®
LDO
|
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Other
|
|
Total
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Production/cost of goods sold
|
$
|
—
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|
|
$
|
1,234
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|
|
$
|
—
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|
|
$
|
—
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|
|
$
|
1,234
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|
|
Research and development
|
4,962
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|
|
—
|
|
|
3,173
|
|
|
225
|
|
|
8,360
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|
|
General and administrative
|
3,994
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|
|
993
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|
|
2,554
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|
|
182
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|
|
7,723
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Total
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$
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8,956
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$
|
2,227
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$
|
5,727
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$
|
407
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$
|
17,317
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(dollars in thousands)
Year Ended December 31, 2012
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Costs and Expenses
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Ampligen®
NDA
|
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Alferon N
Injection
®
|
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Alferon®
LDO
|
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Other
|
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Total
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Production/cost of goods sold
|
$
|
—
|
|
|
$
|
1,989
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|
$
|
—
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|
$
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—
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|
|
$
|
1,989
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|
Research and development
|
6,775
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|
|
—
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|
|
2,245
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|
|
488
|
|
|
9,508
|
|
|
General and administrative
|
5,337
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|
|
1,567
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|
|
1,768
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|
|
384
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|
|
9,056
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Total
|
$
|
12,112
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|
|
$
|
3,556
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|
|
$
|
4,013
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$
|
872
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|
|
$
|
20,553
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(dollars in thousands)
Year Ended December 31, 2011
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Costs and Expenses
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Ampligen®
NDA
|
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Alferon N
Injection
®
|
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Alferon®
LDO
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Other
|
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Total
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Production/cost of goods sold
|
$
|
—
|
|
|
$
|
1,043
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,043
|
|
|
Research and development
|
2,310
|
|
|
—
|
|
|
4,080
|
|
|
332
|
|
|
6,722
|
|
|
General and administrative
|
1,990
|
|
|
899
|
|
|
3,516
|
|
|
286
|
|
|
6,691
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|
|
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|
|
|
|
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Total
|
$
|
4,300
|
|
|
$
|
1,942
|
|
|
$
|
7,596
|
|
|
$
|
618
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|
|
$
|
14,456
|
|
PATENTS AND NON-PATENT EXCLUSIVITY RIGHTS
As of December 31, 2013, we had 25 patents worldwide with 50 additional pending patent applications comprising our intellectual property. Please see “Note 7: Patents, Trademark Rights and Other Intangibles (FASB ASC 350 General Intangibles Other than Goodwill)” under Notes To Consolidated Financial Statements for more information on these patents.
We continually review our patents’ rights to determine whether they have continuing value. Such review includes an analysis of the patent’s ultimate revenue and profitability potential. In addition, Management’s review addresses whether each patent continues to fit into our strategic business plans for Ampligen®, Alferon N Injection® and Alferon® LDO. One U.S. patent
relating to our Alferon® product expired on April 2, 2013 (#5,503,828) (see discussion below on patent #5,503,828), while two other Alferon® patents expire on October 14, 2014 (#5,676,942) and December 22, 2017 (#5,989,441). In 2013, we were granted four new patents, one in Singapore for the use of Ampligen to initiate innate immunity and to treat or prevent viral infections and tumors, and three for the use of Alferon LDO to treat bacterial or protozoan infections in Australia, New Zealand and Singapore. In 2012, we were granted two new patents, one in Australia and the other in New Zealand, both for the use of Ampligen to initiate innate immunity and to treat or prevent viral infections and tumors. In December 2011, we were granted two new United States Patents for the use of Alferon® LDO for the treatment in a number of different human diseases.
Alferon® composition patent #5,503,828, which expired in April 2013, relates to the manufacturing process for Alferon® Active Pharmaceutical Ingredient (“API”), a complex mixture of natural interferon species that is manufactured from human leukocytes obtained from human blood donors. In addition, while it is the current standard by the FDA to treat biological drug products like interferon as “Well Characterized” biologics, a process for which chemical entities can have their identity, purity, impurities, potency, and quality controlled by chemical testing, Alferon®, as a natural interferon, does not lend itself well to such testing. Moreover, FDA continues to require that each lot or Alferon we produce be tested and released by the FDA before it can be distributed for commercial sales. Because of the complexity of the Alferon manufacturing process and these additional regulatory requirements, we believe that potential manufacturers of generic, or so-called “bio-similar,” drug products are focused on developing recombinant interferon products, rather than natural interferon products. For these reasons, we believe the expiration of this Alferon® composition patent in April 2013 should have no or little impact on the Company. Additionally at the completion of the facility enhancement and receipt of the FDA certification for the revised Alferon® manufacturing process and techniques in New Brunswick, NJ, it is our intention to file for additional patent protection.
Alferon® patent #5,676,942 relates to a manufacturing methodology which is no longer in use.
With respect to Ampligen®, the main U.S. CFS treatment patent (#6,130,206) expires October 10, 2017. Our main patents covering HIV treatment (#4,820,696, #5,063,209, and #5,091,374) expired on April 11, 2006, November 5, 2008, and February 25, 2009, respectively. Our U.S. Ampligen® Trademark (#73/617,687) has been renewed through December 6, 2018. New therapeutic use patent applications are pending including new patent applications for composition of alternative matter.
In addition to our patent rights relating to Ampligen®, the FDA has granted “orphan drug status” to the drug for CFS, HIV/AIDS, and renal cell carcinoma and malignant melanoma. Orphan drug status grants us protection against the potential subsequent approval of other sponsors’ versions of the drug for these uses for a period of seven years following FDA approval of Ampligen® for each of these designated uses. The first NDA approval for Ampligen® as a new chemical entity will also qualify for four or five years of non-patent exclusivity during which abbreviated new drug applications seeking approval to market generic versions of the drug cannot be submitted to the FDA. (See “GOVERNMENT REGULATION” below.)
In May 2011, a new United States Patent was granted for the use of Ampligen® as a vaccine adjuvant for use with seasonal influenza vaccine to induce an enhanced immune response against H5N1 avian influenza.
RESEARCH AND DEVELOPMENT (“R&D”)
Our general focus during the past three fiscal years has been on developing drugs for use in treating viral and immune based chronic disorders and diseases such as CFS, HIV, HPV, Cancer and Influenza. Our current R&D projects are targeting treatment therapies for CFS, various cancers (as adjunctive therapy) and other viral diseases such as prevention and treatment of seasonal and pandemic H1N1 or influenza.
The following table summarizes our research and development costs for the years 2013, 2012 and 2011 by project (in thousands):
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2013
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2012
|
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2011
|
|
Ampligen® New Drug Application for the treatment of Chronic Fatigue Syndrome
|
$
|
4,962
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|
|
$
|
6,775
|
|
|
$
|
2,310
|
|
|
Alferon® LDO for influenza
|
3,173
|
|
|
2,245
|
|
|
4,080
|
|
|
Alferon N Injection® for influenza
|
0
|
|
|
0
|
|
|
0
|
|
|
Other projects
|
225
|
|
|
488
|
|
|
332
|
|
|
Total research and development
|
$
|
8,360
|
|
|
$
|
9,508
|
|
|
$
|
6,722
|
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Due to the inherent uncertainty involved in the design and conduct of clinical trials and the applicable regulatory requirements, including the factors discussed above in “OUR PRODUCTS”, we cannot predict what additional studies and/or additional testing or information may be required by the FDA. Accordingly, we are unable to estimate the nature, timing, costs
and necessary efforts to complete these projects nor the anticipated completion dates. In addition, we have no basis for estimating when material net cash inflows may commence. We have yet to generate significant revenues from the sale of these developmental products. As of December 31, 2013, we had approximately $18,194,000 in Cash, Cash Equivalents and Marketable Securities, (inclusive of approximately $17,391,000 in Marketable Securities). Please see ITEM 1A. Risk Factors; “We may require additional financing which may not be available” below.
In its CRL, the FDA communicated that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analysis. Until we undertake the end-of-review conference(s) with the FDA, we are unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon acceptance of the study’s design that it would take approximately 18 months to three years to complete a new well-controlled Ampligen® clinical study for resubmission to the FDA. It can be reasonably anticipated that the time and cost to undertake clinical trial(s), studies and data analysis are beyond our current financial resources without gaining access to additional funding. The actual duration to complete the clinical study may be different based on the length of time it takes to design the study and obtain FDA’s acceptance of the design, the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations. Please see “
We most likely will require additional financing which may not be available. The limitation on the number of shares of common stock available for financing without prior stockholder approval eventually may hinder our ability to raise additional funding.
” in Item 1A. Risk Factors below.
Chronic Fatigue Syndrome ("CFS")
Chronic Fatigue Syndrome (“CFS”), also known as Chronic Immune Dysfunction Syndrome (“CFIDS”) and Myalgic Encephalomyelitis (“ME”) is a serious and debilitating chronic illness and a major public health problem. CFS is recognized by both the government and private sector as a major health problem, including the U.S. National Institutes of Health (“NIH”), FDA and the CDC. The CDC states on its website at
http://www.cdc.gov/cfs/index.html
that “Chronic fatigue syndrome, or CFS, is a devastating and complex disorder characterized by overwhelming fatigue that is not improved by bed rest and that may be worsened by physical or mental activity. People with CFS most often function at a significantly lower level of activity than they were capable of before the onset of illness.”
Many severe CFS patients become completely disabled or totally bedridden and are afflicted with severe pain and mental confusion even at rest. CFS is characterized by incapacitating fatigue with profound exhaustion and extremely poor stamina, sleep difficulties and problems with concentration and short-term memory. It is also accompanied by flu-like symptoms, pain in the joints and muscles, tender lymph nodes, sore throat and new headaches. A distinctive characteristic of the illness is a worsening of symptoms following physical or mental exertion which do not subside with rest.
For their Case Definition, the CDC states that the cause or causes of CFS have not been identified and no specific diagnostic tests are available. Therefore, in order to be diagnosed with chronic fatigue syndrome, a patient must satisfy three criteria:
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The individual has had severe chronic fatigue for six or more consecutive months that is not due to ongoing exertion or other medical conditions associated with fatigue (these other conditions need to be ruled out by a doctor after diagnostic tests have been conducted;
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The fatigue significantly interferes with daily activities and work; and
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The individual concurrently has four or more of the following eight symptoms:
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post-exertion malaise lasting more than twenty-four hour;
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significant impairment of short-term memory or concentration;
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pain in the joints without swelling or redness;
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headaches of a new type, pattern, or severity;
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tender lymph nodes in the neck or armpit; or
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a sore throat that is frequent or recurring.
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These symptoms should have persisted or recurred during six or more consecutive months of illness and they cannot have first appeared before the fatigue.
Because no cause for CFS has been identified, current treatment programs are directed at relieving symptoms, with the goal of the patient regaining some level of function and well-being. Diagnosis of CFS is a time-consuming and challenging process
for which there is no FDA approved diagnostic test or biomarker to clearly identify the disorder. Diagnosis is primarily arrived at by taking a patient's medical history, completing a physical exam and lab tests to rule out other conditions and excluding other illnesses with similar symptoms and comparing a patient's symptoms with the case definition. Overlapping symptoms can occur with several diseases, such as fibromyalgia, Gulf War Illnesses, chronic Lyme disease and multiple chemical sensitivities. Many diseases have similar symptoms including Lupus and Lyme disease which may closely mimic CFS that need to be considered when making a diagnosis to rule them out. If there are no abnormal test results or other physical ailments identified, clinicians can use standardized tests to quantify the level of fatigue and evaluate symptoms. Diagnosis can be complicated by the fact that the symptoms and severity of CFS vary considerably from patient to patient. New diagnostic approaches to possibly accelerate the identification of CFS are being developed.
When she served as director of the CDC, Dr. Julie Gerberding stated that "The CDC considers Chronic Fatigue Syndrome to be a significant public health concern and we are committed to research that will lead to earlier diagnosis and better treatment of the illness." A variety of studies by the CDC and others have shown that between 1 and 4 million Americans suffer from CFS. In June 2012
,
U.S. Senators Robert P. Casey, Richard Blumenthal and Kay R. Hagan sent a letter to Health and Human Services Secretary Kathleen Sebelius requesting the FDA hold a stakeholders meeting on CFS. Senators Casey and Hagan serve on the Committee on Health, Education, Labor & Pensions, which has Congressional oversight responsibility for FDA. The letter stated, “CFS/ME represents a significant unmet medical need, one that confers on patients a lifetime of illness. A stakeholder meeting would be of great benefit, as it would offer an opportunity to examine existing treatment protocols known to FDA, address how risk/benefit determinations should be made in relation to CFS/ME treatments and identify a path forward for regulatory science in this area.”
While CFS strikes people in all age, racial, ethnic, and socioeconomic groups, it is most prevalent amongst women. Research has shown that CFS is about three times as common in women as men, a rate similar to that of many autoimmune diseases, such as multiple sclerosis and lupus. To put this into perspective, CFS is over four times more common than HIV infection in women, and the rate of CFS in women is considerably higher than a woman's lifetime risk of getting lung cancer as published by the CFIDS Association of America.
Other Diseases
In July 2011, we received FDA authorization to proceed with the initiation of a new clinical trial of intranasal Ampligen® to be used in conjunction with commercially approved seasonal influenza vaccine. On April 16, 2012, a clinical trial was initiated in which Ampligen® is being nasally administered in conjunction with FluMist® to healthy human volunteers at the University of Alabama at Birmingham under the auspices of Dr. Paul Goepfert, Associate Professor of Medicine in the Division of Infectious Diseases and Director of the Alabama Vaccine Research Clinic. This study is a first use of Ampligen® with a seasonal vaccine in humans to assess the safety of Ampligen® when nasally delivered as a vaccine adjuvant. Another objective of this study is to determine the extent to which Ampligen® mobilizes potential protections against pandemic influenza by utilization of a seasonal flu vaccine. The study will evaluate the potential immunologic enhancement of Ampligen® by comparing immune parameters in the group receiving Ampligen® plus FluMist® with another group receiving FluMist® plus placebo. We intend to conduct a broad array of immune tests to compare the immune response for both its magnitude and breadth. It is our objective to qualify and enroll 72 patients for this clinical trial. On December 9, 2013, we announced that enrollment in this study was being expanded based on an analysis of safety results to date conducted by both the FDA and a Data Monitoring Committee, the latter group comprised of a team of independent clinical, basic research, and statistical professionals. Enrollment of additional subjects is planned to start in the first quarter of 2014.
In April 2010, we began the process to undertake a clinical placebo-controlled study with Max Neeman International, a leading and large clinical research organization in India. This collaborative clinical research effort is intended to utilize Alferon N Injection® for treatment of seriously ill patients hospitalized with either seasonal influenza or pandemic influenza. The Indian site selection process was initiated and we obtained approval to begin the study from the Indian Drugs Controller General on July 13, 2010. As of June 2012, we had ten operational Clinical Investigative Sites. Thirty patients, of the planned total of sixty, have completed the study. Our study has progressed at a rate slower than originally projected due to difficulties encountered in the process of screening for subjects with influenza, rather than other illnesses with symptoms similar to influenza, along with India experiencing an unusually mild flu season during the enrollment period. Due to the unexpectedly slow enrollment rate for this study, on June 20, 2012, we notified Max Neeman International that this study was suspended, pending an interim analysis of results to date on the thirty completed patients of the planned sixty patient study. Our interim analysis of results had been delayed as we redirected many of our resources to the Ampligen® NDA submission. Due to the inability to confirm influenza infection through lab testing in a significant number of patients, we have elected to discontinue this study.
In June 2011, we entered into a Material Transfer and Research Agreement with the University of Pennsylvania’s School of Medicine to provide Ampligen® for testing as a vaccine adjuvant in a human clinical study in ovarian cancer. This study is a Phase I/II randomized clinical trial for subjects with recurring ovarian, fallopian tube or primary peritoneal cancer to determine the feasibility and safety as well as immunogenicity of a vaccine comprised of autologous oxidized tumor cell lysate (“OC-L”) administered by intradermal/subcutaneous injection in combination with intravenous Ampligen®. The OC-L vaccine is an experimental cancer immunotherapy under development by the University of Pennsylvania. This study represents the first use of Ampligen® as a cancer vaccine adjuvant in a randomized clinical study with and without Ampligen®. As of December 31, 2013, three patients have participated in this study. Further treatment of the existing three patients, as well as new enrollment into this study, are currently suspended pending additional data analyses and non-clinical experimentation by the University of Pennsylvania’s School of Medicine in an attempt to modify the immune response elicited by the vaccine adjuvant combination. The treatment has been generally well-tolerated with no tumor regression seen in the first three patients. It is unlikely we will continue to pursue this study as the principal investigator has left the University of Pennsylvania.
In August 2011, a study utilizing Ampligen® was initiated by investigators from the Tumor Vaccine Group (“TVG”) at the University of Washington in Seattle, WA. As of December 31, 2013, 50 patients have enrolled in this ninety-eight patient Phase I-II Study of HER2 vaccination with Ampligen® as an adjuvant in optimally treated breast cancer patients. Data from these patients is currently being evaluated. The goal of this study is to see how well the combination works in treating patients with Stage II-IV human epidermal growth factor receptor 2 (“HER2”)-positive breast cancer. Vaccines made from synthetic HER2/neu peptides may help the body build an effective immune response to kill tumor cells that express HER-2/neu. The TVG has developed vaccines against several cancer proteins, and in this study, they are researching a new approach in an attempt to make the immune response to the vaccine even better. Compounds that specifically stimulate TLR receptors are promising immune stimulators, and Ampligen® has the potential to provide a profile of immune stimulation that could be clinically beneficial.
On January 7, 2014, we announced publication of an article entitled “Emergence of a novel drug resistant H7N9 influenza virus: Evidence based clinical potential of a natural IFN-αalpha for infection control and treatment” in Expert Review of Anti-infective Therapy early online edition pages 1-5, 2014. H7N9 is a recently identified virus associated with high mortality in humans with the potential to emerge as an agent for a global pandemic. New cases of H7N9 have been very recently reported in China, Hong Kong and Taiwan. In vitro tests reported in the new article demonstrated that both oseltamivir (Tamiflu®) and Alferon N have significant inhibitory effect on a neuraminidase inhibitor sensitive H7N9 influenza virus. In contrast, Alferon N, but not Tamiflu®, had an inhibitory effect on the neuraminidase resistant Shanghai/1/H7N9 virus. The research was conducted under the supervision of Juergen Richt, DVM, PhD, Director of the U.S. Department of Homeland Security Center of Excellence for Emerging and Zoonotic Animal Diseases (CEEZAD), The Regents Distinguished Professor at Kansas State University, and an Eminent Scholar of Kansas Bioscience Association (KBA). Professor Richt is recognized as an expert on zoonotic agents and has published extensively on the monitoring of the mutations and the basic events leading to cross-species transmission and the opportunities to adapt to human hosts, with the potential to cause a pandemic. According to the peer reviewed article “The novel avian H7N9 influenza virus has caused more than 130 human infections with 43 deaths (as of September, 2013) in China. Because of the lack of existing immunity against H7 subtype influenza viruses in the human population and the absence of a licensed commercial vaccine, antiviral drugs are critical tools for the treatment of infection with this novel H7N9. Both M2-ion channel blockers and neuraminidase inhibitors are used as antiviral drugs for influenza infections of humans. The emerging H7N9 viruses are resistant to the M2-ion channel blockers because of a S31N mutation in the M2 protein; additionally, some H7N9 isolates have gained neuraminidase R292K substitution resulting in broad resistance to neuraminidase inhibitors. In this study we report that Alferon N can inhibit wild type and 292K H7N9 virus replication in vitro.
On December 2, 2013, we announced that we are supporting the University of Pittsburgh’s National Institutes of Health funded study (grant 1PO1CA132714) currently underway as part of the University’s Chemokine Modulation Research initiative which includes Ampligen® as an adjuvant. As part of this collaboration, Hemispherx has supplied clinical grade Ampligen® (rintatolimod) to the University. The study, under the leadership of professor of surgery Pawel Kalinski, M.D., Ph.D. and involves the Chemokine Modulatory regimen developed by Dr. Kalinski’s group, has successfully completed the lowest tier of dose escalation in patients with resectable colorectal cancer under the clinical leadership of Dr. Amer Zureikat, an assistant professor of surgery.
Biosecurity / Biodefense
On September 9, 2013, we announced at the Rodman and Renshaw Conference in New York City a major new initiative in the BioSecurity field involving both Alferon N Injection
®
and Ampligen
®
. Our Chief Executive Officer, Dr. William Carter, MD, highlighted the broad anti-viral effect of both agents along with the Company’s strategy to undertake major programs in the biosecurity field, specifically with respect to the potential prevention or treatment of pandemic flu virus, H7N9, MERS (Middle East Respiratory Syndrome) and alpha viruses such as VEE (Venezuelan Equine Encephalomyelitis). With all three classes of viruses, researchers have now confirmed significant bioactivity with Ampligen
®
or Alferon N Injection
®
, or both, in either in vitro
and/or in vivo non-human studies. Alferon N Injection
®
has been found to be highly active against SARS virus (a close relative of MERS) by the Singapore Genome Institute in laboratory studies. Dr. Carter highlighted that the results of the recent Kansas State University experiments, coupled with Dr. Richt’s work on influenza virus reassortment (mixing of genetic material) and other published studies, sets the stage for evaluating the possibility that mutational changes and reassortment could be prevented in animals by the use of type I interferon (á/ß) and/or a type I interferon inducer. Moreover, previous research suggested that Alferon
®
may be active against a range of viruses existing in animal populations even in the low dose oral (LDO) formulation referred to as Alferon
®
LDO.
MANUFACTURING
We own and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ to produce Alferon® and Ampligen® and are in the final stages of our facility enhancement project which includes the Installation and Operation Qualification phase for Alferon® production. Approximately $7,046,000 has been spent on the project through December 31, 2013, which was financed through a Margin Account with an effective interest rate of approximately 2.50%. The Margin Account was paid off utilizing approximately one half of our marketable securities in October 2013. While facility upgrades are being undertaken for the Alferon® manufacturing process, this project has not impacted our capability to manufacture the Ampligen® drug substance intermediates needed for the final production steps of that product. The production of new Alferon® API inventory will not commence until the capital improvement and validation phases are complete. While the facility is approved by FDA under the Biological License Application (“BLA”) for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced product. Once we begin commercial scale production of Alferon® Active Pharmaceutical Product (“API”), we will need the FDA to reaffirm our BLA status via a pre-approval inspection and also gain their approval to allow commercial sales to resume once we have submitted satisfactory stability and quality release data. We anticipate that it will take approximately eighteen months before we will have newly produced Alferon® API ready for submission to the FDA for review and approval. We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group. We cannot provide any guarantee that the facility will necessarily pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex.
An element of the June 8, 2012 meeting with the FDA was the requirement that our New Brunswick manufacturing facility would be ready for the FDA to undertake a cGMP pre-approval inspection related to Ampligen® at the time of submission of our complete response submission. The FDA did not complete the inspection before the February 1, 2013 CRL and, as a result of the CRL, we do not anticipate a pre-approval inspection at this time. We cannot provide any guarantee that the facility will pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are each conducted in separately dedicated areas within the overall New Brunswick manufacturing complex (see “Risks Associated With Our Business” in Item 1A. Risk Factors below for more information).
We outsource certain components of our research and development, manufacturing, marketing and distribution while maintaining control over the entire process through our quality assurance group and our clinical monitoring group. Accordingly in September 2011 and similar to our prior agreements, we executed an amendment to the Supply Agreement that extended through March 11, 2014 with Jubilant Hollister-Stier Laboratories LLC of Spokane, Washington (“Hollister-Stier”). We are working towards a long-term amendment to the existing Supply Agreement which may contain additional fees as part of entering into the extension. Pursuant to this agreement, Hollister-Stier will formulate, fill, finish and package (“fill and finish”) Ampligen® from the key raw materials that we would supply. Hollister-Stier would have the right of first refusal to manufacture certain Ampligen® related products.
Commercial sales of Alferon N Injection® were halted in March 2008 when our finished goods inventory expired. The production of Alferon N Injection® from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API and is completed for the related Final Lot Release Test. We have manufactured purified drug concentrate utilized in the formulation of Alferon N Injection® in our New Brunswick, New Jersey facility. To formulate, fill, finish and package (“fill and finish”) Alferon N Injection® API that we have already produced, we require an FDA approved third-party CMO. In June 2011, our designated CMO reported to us that they had received an FDA 483 form that identified production issues that needed to be addressed prior to resumption of production. As a result, we evaluated alternative CMOs to undertake the fill and finish process.
In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon® Active Pharmaceutical Ingredient (“API”), which would need to be released by the FDA before those materials could be used in commercial product. After conducting all of the appropriate tests on samples of the inventory during 2013, we concluded that it could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection®. Accordingly, these lots were not submitted to the FDA and their remaining dollar value was written-off in the quarter ended June 30, 2013.
The production of new Alferon® API inventory will not commence until the capital improvement and validation phases are complete. While the facility is approved by FDA under the Biological License Application (“BLA”) for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced product. Once we begin commercial scale production of Alferon® Active Pharmaceutical Product (“API”), we will need the FDA to reaffirm our BLA status via a pre-approval inspection and also gain their approval to allow commercial sales to resume once we have submitted satisfactory stability and quality release data. We anticipate that it will take approximately eighteen months before we will have newly produced Alferon® API ready for submission to the FDA for review and approval.
While at December 31, 2012, the Work-In-Process Inventory had no manufacturing steps to be undertaken at our New Brunswick, NJ facility, it will not be classified as Finished Goods unless and until the FDA confirms that the product can be commercially sold. We are unable to provide any assurances that the FDA will approve the finish product lots produced by Althea. In the absence of FDA approvals for commercial sale of product manufactured from existing Work-In-Process inventory, commercial sales of Alferon® will not resume until new batches of Alferon® API can be produced and formulated in order that finished product can be filled, finished, packaged and released by the FDA for commercial sale (see “Risks Associated With Our Business” in Item 1A. Risk Factors below for more information).
In the absence of FDA approvals for commercial sale of product manufactured from existing Work-In-Process inventory, commercial sales of Alferon® in the United States will not resume until new batches of Alferon® API can be produced and formulated in order that finished product can be filled, finished, packaged and released by the FDA for commercial sale.
MARKETING/DISTRIBUTION
Our marketing strategy for Ampligen® reflects the differing health care systems around the world along with the different marketing and distribution systems that are used to supply pharmaceutical products to those systems. We expect that, subject to receipt of FDA, ANMAT and/or other regulatory approval, Ampligen® may be utilized in four medical arenas: physicians’ offices; clinics; hospitals; and the home treatment setting. In preparation for the FDA’s consideration of our Ampligen® NDA, we undertook early stage development of pre-launch and launch driven marketing plans focusing on audience development, medical support and payor reimbursement initiatives which could facilitate product acceptance and utilization at the time of regulatory approval, if obtained. Similarly, we continued to consider distribution scenarios for the Specialty Pharmacy/Infusion channel which could provide market access, offer 3PL (third party logistics) capabilities and provide the requisite risk management control mechanisms. It is our intent to utilize third party service providers to execute elements of both the marketing/sales and distribution plans. As a possible option, we considered a plan to utilize a small group of Managed Market account managers to introduce the product to payor, employer and government account audiences. We believe that this approach could establish a market presence and facilitate the generation of revenue without incurring the substantial costs associated with a traditional sales force. Furthermore, Management believes that any approach considered should enable us to retain multiple options for future marketing strategies.
In October 2013, we entered into an Adviser’s Agreement for twenty-four months with The Sage Group, Inc. ("Sage"), effective June 15, 2013, which replaced a similar agreement that expired in June 2013. Pursuant to this agreement, Sage is to assist us to identify, qualify, negotiate and close one or more licensing, partnering, alliance or similar transactions pertaining to our products and technology including, but not limited to, any and all uses of Ampligen®, Alferon® and related intellectual property as well as acquisition of companies in whole or in part and the sale or the merger of our Company (“Transactions”). In consideration for services performed or attributed to Sage resulting in Transactions, Sage is entitled to a monthly “Adviser’s Fee” of $20,000, reimbursement of pre-approved expense, a one-time distribution of 250,000 Options that vest proportionately over 12 months with an exercise price of 110% of the closing price of our Stock on the NYSE MKT at the close of the day preceding the execution date of the agreement. The Agreement also allows us at our sole discretion to award a bonus for extraordinary performance or special projects not to exceed $250,000 per year, and provides for a “Success Fee” of five percent (5%) of all consideration that is capped at $5,000,000 per annum for Transactions introduced to us by Sage. A Transaction can occur during the term of the agreement or 18 months thereafter. This Agreement may be terminated by us for cause after we deliver written notice to Sage of a failure to perform and such failure is not cured within 15 days.
In January 2010, we engaged an Argentinean regulatory and business design entity to explore the possibility of initiating clinical trials of Alferon N Injection®, Ampligen® and Alferon® LDO during the influenza season in Argentina. On June 14, 2010, we executed a five year exclusive Sales, Marketing, Distribution and Supply Agreement for Argentina with GP Pharm Latinoamerica (“GP Pharm”), an affiliate company of Spanish GP Pharm SA. Under this Agreement, GP Pharm will be responsible for gaining regulatory approval in Argentina for Ampligen® to treat CFS in Argentina and for commercializing Ampligen® for this indication in Argentina. We granted GP Pharm the right to expand rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving certain performance milestones. We also granted GP Pharm an option to market Alferon N Injection® in Argentina and other Latin America countries. Under these agreements, we will manufacture and supply Ampligen® and Alferon N Injection® to GP Pharm. On November 15, 2010, we amended our June 15, 2010 agreement with GP
Pharm to include Mexico in the Territory under the Sales, Marketing, Distribution and Supply Agreement. Under this Agreement, GP Pharm Mexico will be responsible for seeking regulatory approval in Mexico for Ampligen®, an experimental therapeutic, to treat CFS in Mexico and, if approval is obtained, for commercializing Ampligen® for this indication in Mexico. We have granted GP Pharm the right to expand rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving certain performance milestones.
Also on November 15, 2010, we executed a five year exclusive Alferon N Injection® Sales, Marketing, Distribution and Supply Agreement for Argentina and other Latin American countries with GP Pharm. The ANMAT (Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica) is the agency responsible for the national regulation of drugs, foods and medical technology in Argentina. In December 2010, GP Pharm exercised this right and in July 2011 GP Pharm submitted an application for approval to ANMAT. As a result of the efforts of GP Pharm, in January 2012 the ANMAT approved the sale and distribution of Alferon N Injection® (under the brand name “Naturaferon”) in Argentina. The receipt of the ANMAT approval is the first step of a regulatory process towards the commercial sales of Naturaferon. In February 2013, the ANMAT approved the use of Naturaferon for any patient in Argentina who fails or becomes intolerant to treatment with recombinant interferon (see “MANUFACTURING” above for more information).
On September 6, 2011 we executed an amended agreement with Armada Healthcare, LLC (“Armada”), effective August 15, 2011 through August 14, 2012, to undertake the marketing, education and sales of Alferon N Injection® throughout the United States. On August 14, 2012, the agreement with Armada was extended for one year under the same terms and conditions. Armada will also provide us with start-up and ongoing sales and marketing support. On July 23, 2013, the agreement with Armada was again extended for a one year period through August 14, 2014 under the same terms and conditions.
Also on September 6, 2011, we executed a new agreement with licensed specialty distributor, BioRidge Pharma, LLC ("BioRidge") to warehouse, ship and distribute Alferon N Injection® on an exclusive basis in support of U.S. sales. The term of this Agreement shall begin on the Effective Date and shall expire one (1) year thereafter unless earlier terminated in accordance with this Agreement. On August 14, 2012, the agreement with BioRidge was extended for one year under the same terms and conditions. On July 23, 2013, the agreement with BioRidge was again extended for a one year period through August 14, 2014 under the same terms and conditions.
COMPETITION
RNA based products and toll-like receptors (“TLRs”) have demonstrated great promise in pre-clinical and limited clinical applications resulting in active research and development by large pharmaceutical companies and emerging Biotech firms. As such, our potential competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have.
These companies and their competing products may be more effective and less costly than our products. In addition, conventional drug therapy, surgery and other more familiar treatments will offer competition to our products. Furthermore, our competitors have significantly greater experience than we do in pre-clinical testing and human clinical trials of pharmaceutical products and in obtaining FDA (in the US), European Medicines Agency (“EMA”) and Health Protection Branch ("HPB") (in Canada), and other regulatory approvals of products. Accordingly, our competitors may succeed in obtaining FDA, EMEA and HPB product approvals before we do. If any of our products receive regulatory approvals and we commence commercial sales of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have no experience. Our competitors may possess or obtain patent protection or other intellectual property rights that prevent, limit or otherwise adversely affect our ability to develop or exploit our products.
The major pharmaceutical competitors with biotech capabilities/vaccine franchises include Pfizer, GlaxoSmithKline, Merck & Co., Novartis and AstraZeneca. Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta. When we recommence sales of Alferon N Injection®, it will compete with Intron® A, an injectable from Merck & Co. that attempts to kill virus and prevent reproduction along with topical treatments that are normally applied by a doctor that have a risk of damaging the skin around the wart, such as:
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Aldara®, also known as Imiquimod®, is a cream which is marketed to boost the immune systems in an attempt to rid itself of genital warts;
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Veregen® is a herbal product made from green tea leaves which is self-administered as an ointment and is used to treat external genital warts in adult patients;
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Condylox® Solution (podofilox) and Podofin® (podophyllin resin) are liquids applied externally using a cotton applicator or finger which attempts to destroy genital warts by halting cell growth; and
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Trichloroacetic acid (TCA) or Bichloroacetic acid (BCA) are chemical treatments which attempt to externally burn off genital warts.
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GOVERNMENT REGULATION
Regulation by governmental authorities in the U.S. and foreign countries is and will be a significant factor in the manufacture and marketing of Alferon® products and our ongoing research and product development activities. Ampligen® and other products developed from the ongoing research and product development activities will require regulatory clearances prior to commercialization. In particular, new drug products for humans are subject to rigorous pre-clinical and clinical testing as a condition for clearance by the FDA and by similar authorities in foreign countries. The lengthy process of seeking these approvals, and the ongoing process of compliance with applicable statutes and regulations, has and will continue to require the expenditure of substantial resources. Any failure by us or our collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect the marketing of any products developed by us and our ability to receive product or royalty revenue. We have received Orphan Drug designation for certain therapeutic indications, which we believe might under certain conditions, help to accelerate the process of drug development and commercialization. Alferon N Injection® is only approved for use in intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older. Use of Alferon N Injection® for other applications requires regulatory approval.
We are subject to various federal, state and local laws, regulations and recommendations relating to such matters as safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use of and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research work. Prior to our construction phase, our laboratory and production facility in New Brunswick, New Jersey was approved for the manufacture of Alferon N Injection®. While our facility had been granted approval of its BLA by the FDA for the manufacture of Alferon®, this status will need to be reaffirmed upon the completion of the facility’s enhancements. Upon completion of our enhanced manufacturing process, we believe it will again be able to obtain FDA approval. However, there can be no assurance that this facility, or facilities owned and operated by third parties that are utilized in the manufacture of our products, will obtain and/or continue to maintain FDA approval. For information about the current status of our Ampligen® NDA please see “Our Products; Ampligen®” above.
HUMAN RESOURCES
As of February 1, 2014, we had personnel consisting of 39 full-time employees. Our employees are supported by 21 independent contractors, mostly undertaking regulatory, research and/or medical projects. Consultants are independent contractors that are paid on an hourly basis. 46 of the combined personnel are engaged in our research, development, clinical, and manufacturing effort with 14 performing regulatory, general administration, data processing, including bio-statistics, financial and investor relations functions. We have no union employees.
While we have been successful in attracting skilled and experienced scientific personnel, there can be no assurance that we will be able to attract or retain the necessary qualified employees and/or consultants in the future.
SCIENTIFIC ADVISORY BOARD AND DATA MONITORING COMMITTEE
Although we had a Scientific Advisory Board to conduct periodic meetings as needed, as previously disclosed, no Scientific Advisory Board meetings were held in the last five years. We do meet with experts from time to time in areas of clinical and scientific interest.
In May 2010, we formed a Data Monitoring Committee (“DMC”) that consists of two independent regulatory and medical experts along with a Biostatistics expert. The function of the DMC is to perform independent safety and efficacy analyses on our clinical trials. During 2011, 2012 and 2013, the DMC focused its attention on the clinical trial (AMP-600) in which Ampligen® is being nasally administered in conjunction with FluMist® to healthy human volunteers at the University of Alabama at Birmingham under the auspices of Dr. Paul Goepfert. As of December 31, 2013, twelve subjects have participated in this study. As required by the study’s protocol, the DMC held one meeting and has reviewed the safety data on these subjects and approved the study to proceed at the next higher dosage level.
ITEM 1A: Risk Factors
The following cautionary statements identify important factors that could cause our actual results to differ materially from those projected in the forward-looking statements made in this Form 10-K. Among the key factors that have a direct bearing on our results of operations are:
Risks Associated With Our Business
No assurance of successful product development.
Ampligen® and related products. The development of Ampligen® and our other related products is subject to a number of significant risks. Ampligen® may be found to be ineffective or to have adverse side effects, fail to receive necessary regulatory clearances, be difficult to manufacture on a commercial scale, be uneconomical to market or be precluded from commercialization by proprietary right of third parties. Our investigational products are in various stages of clinical and pre-clinical development and require further clinical studies and appropriate regulatory approval processes before any such products can be marketed. We do not know when, if ever, Ampligen® or our other products will be generally available for commercial sale for any indication. Generally, only a small percentage of potential therapeutic products are eventually approved by the FDA for commercial sale. (Please see the next Risk Factor and Part 1, Item I Business, “Our Products” “Ampligen®” above for more information).
Alferon N Injection®. Although Alferon N Injection® is approved for marketing in the United States for the intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older, to date it has not been approved for other indications. We face many of the risks discussed above, with regard to developing this product for use to treat other ailments. (Please see the next Risk Factor and Part 1, Item I Business, “Our Products” “Alferon N Injection®” above for more information).
Our drug and related technologies are investigational and subject to regulatory approval. If we are unable to obtain regulatory approval in a timely manner, or at all, our operations will be materially harmed and our stock adversely affected.
All of our drugs and associated technologies, other than Alferon N Injection®, are investigational and must receive prior regulatory approval by appropriate regulatory authorities for commercial distribution and sale and are currently legally available only through clinical trials with specified disorders. At present, Alferon N Injection® is only approved for the intralesional treatment of refractory or recurring external genital warts in patients 18 years of age or older. Use of Alferon N Injection® for other indications will require regulatory approval.
Our products, including Ampligen®, are subject to extensive regulation by numerous governmental authorities in the United States (“U.S.”) and other countries, including, but not limited to, the FDA in the U.S., the Health Protection Branch (“HPB”) of Canada, the Agency for the European Medicines Agency (“EMA”) in Europe and the Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (“ANMAT”) in Argentina. Obtaining regulatory approvals is a rigorous and lengthy process and requires the expenditure of substantial resources. In order to obtain final regulatory approval of a new drug, we must demonstrate to the satisfaction of the regulatory agency that the product is safe and effective for its intended uses and that we are capable of manufacturing the product to the applicable regulatory standards. We require regulatory approval in order to market Ampligen® or any other proposed product and receive product revenues or royalties. We cannot assure you that Ampligen® will ultimately be demonstrated to be safe and efficacious. While Ampligen® is authorized for use in clinical trials in the U.S., we cannot assure you that additional clinical trial approvals will be authorized in the United States or in other countries, in a timely fashion or at all, or that we will complete these clinical trials. In addition, although Ampligen® has been authorized by the FDA for treatment use under certain conditions, including provision for cost recovery, there can be no assurance that such authorization will continue in effect.
On February 1, 2013, we received a CRL from the FDA declining to approve our Ampligen® NDA for the treatment of CFS. The FDA communicated that we should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analysis. For more detailed information about the current status of our Ampligen® NDA please see “Our Products; Ampligen®” in Part 1, Item 1. Business above.
The FDA's regulatory review and approval process is extensive, lengthy, expensive and inherently uncertain. To receive approval for a product candidate, we must, among other things, demonstrate to the FDA's satisfaction with substantial evidence from well-controlled pre-clinical and clinical trials that the product candidate is both safe and effective for each indication for which approval is sought. Before we can sell Ampligen® for any use, or Alferon® for any use other than as Alferon N Injection® for treatment of refractory or recurring genital warts, we will need to file the appropriate NDA with the FDA in the U.S. and the appropriate regulatory agency outside of the U.S. where we intend to market and sell such products. At present the only NDA we have filed with the FDA is the NDA for the use of Ampligen® to treat CFS. As discussed in the prior paragraph, the FDA declined to approve this NDA and indicated that we needed to conduct additional work. Therefore, ultimate FDA approval, if any, may be delayed by several years and may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our future applications for approval, which might significantly harm our business and prospects. As a result, we cannot predict if or when we might receive regulatory approval for the use of Ampligen® to treat CFS or for the use of any other products. Even if regulatory approval from
the FDA is received for the use of Ampligen® to treat CFS or eventually, for the use of any other product, any approvals that we obtain could contain significant limitations in the form of narrow indications, patient populations, warnings, precautions or contra-indications or other conditions of use, or the requirement that we implement a risk evaluation and mitigation strategy. In such an event, our ability to generate revenues from such products could be greatly reduced and our business could be harmed.
Even if we believe that data collected from our preclinical studies and clinical trials of our product candidate are promising, these data have not been, and may not be in the future, sufficient to support marketing approval by the FDA, and regulatory interpretation of these data and procedures may continue to be unfavorable.
To the extent that we are required by the FDA pursuant to the Ampligen® NDA to conduct additional studies and take additional actions, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our future applications for approval, which might significantly harm our business and prospects. As a result, we cannot predict when or whether regulatory approval will be obtained for any product candidate we develop.
Obtaining approval of a NDA by the FDA, or a comparable foreign regulatory authority, is inherently uncertain. Even after completing clinical trials and other studies, a product candidate could fail to receive regulatory approval for many reasons, including the following:
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not be able to demonstrate to the satisfaction of the FDA that our product candidate is safe and effective for any indication;
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the FDA may disagree with the design or implementation of our clinical trials or other studies;
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the results of the clinical trials or other studies may not demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;
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the FDA may disagree with our interpretation of data from clinical trials or other studies;
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the data collected from clinical trials and other studies of a product candidate may not be sufficient to support the submission of a NDA;
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the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical and other study data insufficient for approval; and
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the FDA may not approve the proposed manufacturing processes and facilities for a product candidate.
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In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon® API, which would need to be released by the FDA before those materials could be used in commercial product. After conducting all of the appropriate tests on samples of the inventory during 2013, we concluded that we could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection®. Accordingly, these lots will not be submitted to the FDA to request release for commercial sale and their remaining dollar value has been written-off. In the absence of FDA approvals for product manufactured from existing inventory, commercial sales of Alferon® will not resume until new batches of Alferon® inventory and API can be produced, filled and finished, and released by the FDA for commercial sale. (Please see Part I, Item 1 - "Business; Our Products; Alferon N Injection®” above for more information).
Alferon® LDO has been approved for pre-clinical testing for possible use as prophylaxis and treatment against influenza. While the studies to date have been encouraging, preliminary testing in the laboratory and in animal models is not necessarily predictive of successful results in clinical testing or human treatment. No assurance can be given that similar results will be observed in clinical trials. Use of Alferon® as a possible treatment of influenza requires prior regulatory approval. In October 2009, we originally submitted a protocol to the FDA proposing to conduct a Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study of Alferon® LDO for the prophylaxis and treatment of seasonal and pandemic influenza of more than 200 subjects. In December 2010, the FDA authorized this Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study of Alferon® LDO for the prophylaxis and treatment of seasonal and pandemic influenza of more than 200 subjects. Our Phase II study has been delayed. The outcome of this confirmatory study, if and when resumed, will allow us to better evaluate the potential effectiveness of this product and to proceed with this study of seasonal and pandemic influenza. We are unable to provide any assurances that the Phase II Alferon® LDO study for the prophylaxis and treatment of seasonal and pandemic influenza will be undertaken.
If we are unable to gain necessary FDA approvals related to Ampligen® and Alferon® on a timely basis, our operations most likely will be materially and/or adversely affected. Additionally, if we are unable to generate the additional data, successfully complete inspections or obtain approvals as required by the FDA on a timely manner, or at all, or determine that any of our clinical studies are not cost/justified to undertake or if, for that or any other reason, Ampligen®, Alferon® or one of our other products or production processes do not receive necessary regulatory approval in the U.S. or elsewhere:
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our ability to generate revenues to sustain our operations will be substantially impaired, which would increase the likelihood that we would need to obtain additional financing for our other development efforts;
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our reputation among investors might be harmed, which might make it more difficult for us to obtain equity capital on attractive terms or at all; and
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our profitability would be delayed, our business will be materially harmed and our stock price may be adversely affected.
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Biotechnology stock prices, including our stock price, have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval.
We may continue to incur substantial losses and our future profitability is uncertain.
We last reported net profit from 1985 through 1987. Since 1987, with a major emphasis on new drug diagnostic and development, we have incurred substantial operating losses, as we pursued our clinical trial effort to get our experimental drug, Ampligen®, approved. As of December 31, 2013, our accumulated deficit was approximately $(260,319,000). We have not yet generated significant revenues from our products and may incur substantial and increased losses in the future. We cannot assure that we will ever achieve significant revenues from product sales or become profitable. We require, and will continue to require, the commitment of substantial resources to develop our products. We cannot assure that our product development efforts will be successfully completed or that required regulatory approvals will be obtained or that any products will be manufactured and marketed successfully, or be profitable.
We most likely will require additional financing which may not be available. The limitation on the number of shares of common stock available for financing without prior stockholder approval eventually may hinder our ability to raise additional funding.
The development of our products requires the commitment of substantial resources to conduct the time consuming research, preclinical development, and clinical trials that are necessary to bring pharmaceutical products to market. As of December 31, 2013, we had approximately $18,194,000 in cash, cash equivalents and marketable securities (inclusive of approximately $17,391,000 in Marketable Securities). However, if we are unable to commercialize and sell Ampligen® or Alferon® LDO and/or recommence material sales of Alferon N Injection®, our operations, financial position and liquidity may be adversely impacted.
In its CRL, the FDA communicated that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analyses. Until we undertake the end-of-review conference(s) with the FDA, we are unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon acceptance of the study's design that it would take approximately 18 months to three years to complete a new well-controlled Ampligen® clinical study for resubmission to the FDA. It can be reasonably anticipated that the time and cost to undertake clinical trial(s), studies and data analysis are beyond our current financial resources without gaining access to additional funding. The actual duration to complete the clinical study may be different based on the length of time it takes to design the study and obtain FDA's acceptance of the design, the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations.
Given the challenging economic conditions, we continue to review every aspect of our operations for cost and spending reductions to assure our long-term financial stability while maintaining the resources necessary to achieve our primary objectives of obtaining NDA approval of Ampligen® along with the manufacturing, marketing and distribution of our products, including Alferon N Injection®. We may also need additional capital to eventually commercialize and sell Ampligen® or Alferon® LDO and/or recommence and increase sales of Alferon N Injection® or our other products. We anticipate considering multiple options in an attempt to secure funding, including but not limited to such methods as the sales of additional equity, licensing agreements, partnering with other organizations, debt financing or other sources of capital.
In this regard, on July 23, 2012, we entered into a New Equity Distribution Agreement with Maxim (the “New EDA”) pursuant to which we may sell up to $75,000,000 worth of our shares of Common Stock from time to time through Maxim, as sales agent (See Part I; Item 7 - “Management's Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources”). We cannot assure how much funding will be obtained from the New EDA or whether it will be sufficient in conjunction with current financial resources to permit us to take all actions needed to obtain FDA approval for Ampligen® and manufacturing, commercialization, marketing and distribution of our products.
Our ability to raise additional funds from the sale of equity securities may be limited due to limitations on our ability to sell stock for funding purposes. Pursuant to our Amended and Restated Certificate of Incorporation, the purpose for which 75,000,000 of 150,000,000 of our authorized shares (the “Restricted Shares”) may be utilized is limited. Specifically, without
stockholder approval, the Restricted Shares can only be issued where such issuance would be primarily in connection with strategic transactions or other non-fundraising purpose that met certain significant criteria. In this regard, 15,562,503 shares are authorized but unissued and unreserved at December 31, 2013 with an additional 75,000,000 of the Restricted Shares approved by Stockholders for certain generally defined business purposes.
There can be no assurances that we can obtain the requisite stockholder approval to use any additional Restricted Shares for funding purposes or raise adequate funds from other sources. If we are unable to obtain additional funding, through the New Maxim EDA or otherwise, our ability to develop our products, commercially produce inventory or continue our operations may be materially adversely affected.
Our Alferon N Injection® Commercial Sales were halted due to lack of finished goods inventory. If we are unable to gain the necessary FDA approvals related to Alferon®, our operations most likely will be materially and/or adversely affected.
Commercial sales of Alferon N Injection® were halted in March 2008 when our finished goods inventory expired. The production of Alferon N Injection® from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API.
In April 2012, FDA reviewers raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon® API, which would need to be released by the FDA before those materials could be used in commercial product. After conducting all of the appropriate tests on samples of the inventory during 2013, we concluded that we could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection® and their remaining dollar value has been written-off. As we no longer have any existing inventory, commercial sales of Alferon® will not resume until new batches of Alferon® inventory and API can be produced, filled and finished, and released by the FDA for commercial sale.
While our facility is FDA approved under the BLA by the FDA for Alferon®, this status will need to be reaffirmed upon the completion of the facility's upgrades for Alferon®. We cannot provide any guarantee that the facility will necessarily pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex. Please see “
There is no assurance that our manufacturing facility will again be granted a BLA certification by the FDA upon completion of the manufacturing enhancements or return to commercial, large-scale production
” below for more information.
If we are unable to gain the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon® inventory, our operations most likely will be materially and/or adversely affected. For more information on Alferon N Injection® regarding potential commercial sales, please see PART I, Item 1 - "Business; Our Products; Alferon N Injection®”.
In light of these contingencies, there can be no assurances that the approved Alferon N Injection® product will be returned to production on a timely basis, if at all, or that if and when it is again made commercially available, it will return to prior sales levels.
We may not be profitable unless we can protect our patents and/or receive approval for additional pending patents.
We need to preserve and acquire enforceable patents covering the use of Ampligen® for a particular disease in order to obtain exclusive rights for the commercial sale of Ampligen® for such disease. We obtained all rights to Alferon N Injection®, and we plan to preserve and acquire enforceable patents covering its use for existing and potentially new diseases. Our success depends, in large part, on our ability to preserve and obtain patent protection for our products and to obtain and preserve our trade secrets and expertise. Certain of our know-how and technology is not patentable, particularly the procedures for the manufacture of our experimental drug, Ampligen®. We also have been issued patents on the use of Ampligen® in combination with certain other drugs for the treatment of chronic Hepatitis B virus, chronic Hepatitis C virus, and a patent which affords protection on the use of Ampligen® in patients with Chronic Fatigue Syndrome. We have not yet been issued any patents in the United States for the use of Ampligen® as a sole treatment for any of the cancers which we have sought to target.
We continually review our patents’ rights to determine whether they have continuing value. Such review includes an analysis of the patent’s ultimate revenue and profitability potential. In addition, Management’s review addresses whether each patent continues to fit into our strategic business plans for Ampligen®, Alferon N Injection® and Alferon® LDO. One U.S. patent relating to our Alferon® product expired on April 2, 2013 (#5,503,828) (see discussion below on patent #5,503,828), while two other Alferon® patents expire on October 14, 2014 (#5,676,942) and December 22, 2017 (#5,989,441). In 2013, we were granted four new patents, one in Singapore for the use of Ampligen to initiate innate immunity and to treat or prevent viral infections and tumors, and three for the use of Alferon LDO to treat bacterial or protozoan infections in Australia, New Zealand and Singapore. In 2012, we were granted two new patents, one in Australia and the other in New Zealand, both for the use of Ampligen to initiate
innate immunity and to treat or prevent viral infections and tumors. In December 2011, we were granted two new United States Patents for the use of Alferon® LDO for the treatment in a number of different human diseases.
Alferon® composition patent #5,503,828, which expired in April 2013, relates to the manufacturing process for Alferon® Active Pharmaceutical Ingredient (“API”), a complex mixture of natural interferon species that is manufactured from human leukocytes obtained from human blood donors. In addition, while it is the current standard by the FDA to treat biological drug products like interferon as “Well Characterized” biologics, a process for which chemical entities can have their identity, purity, impurities, potency, and quality controlled by chemical testing, Alferon®, as a natural interferon, does not lend itself well to such testing. Moreover, FDA continues to require that each lot or Alferon we produce be tested and released by the FDA before it can be distributed for commercial sales. Because of the complexity of the Alferon manufacturing process and these additional regulatory requirements, we believe that potential manufacturers of generic, or so-called “bio-similar,” drug products are focused on developing recombinant interferon products, rather than natural interferon products. For these reasons, we believe the expiration of this Alferon® composition patent in April 2013 should have no or little impact on the Company. Additionally at the completion of the facility enhancement and receipt of the FDA certification for the revised Alferon® manufacturing process and techniques in New Brunswick, NJ, it is our intention to file for additional patent protection.
Alferon® patent #5,676,942 relates to a manufacturing methodology which is no longer in use.
We cannot assure that our competitors will not seek and obtain patents regarding the use of similar products in combination with various other agents, for a particular target indication prior to our doing so. If we cannot protect our patents covering the use of our products for a particular disease, or obtain additional patents, we may not be able to successfully market our products.
The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves complex legal and factual questions.
To date, no consistent policy has emerged regarding the breadth of protection afforded by pharmaceutical and biotechnology patents. There can be no assurance that new patent applications relating to our products, process or technology will result in patents being issued or that, if issued, such patents will afford meaningful protection against competitors with similar technology. It is generally anticipated that there may be significant litigation in the industry regarding patent and intellectual property rights. Such litigation could require substantial resources from us and we may not have the financial resources necessary to enforce the patent rights that we hold. No assurance can be made that our patents will provide competitive advantages for our products, process and technology or will not be successfully challenged by competitors. No assurance can be given that patents do not exist or could not be filed which would have a materially adverse effect on our ability to develop or market our products or to obtain or maintain any competitive position that we may achieve with respect to our products. Our patents also may not prevent others from developing competitive products or process using related technology.
There can be no assurance that we will be able to obtain necessary licenses if we cannot enforce patent rights we may hold. In addition, the failure of third parties from whom we currently license certain proprietary information or from whom we may be required to obtain such licenses in the future, to adequately enforce their rights to such proprietary information, could adversely affect the value of such licenses to us.
If we cannot enforce the patent rights we currently hold we may be required to obtain licenses from others to develop, manufacture or market our products. There can be no assurance that we would be able to obtain any such licenses on commercially reasonable terms, if at all. We currently license certain proprietary information from third parties, some of which may have been developed with government grants under circumstances where the government maintained certain rights with respect to the proprietary information developed. No assurances can be given that such third parties will adequately enforce any rights they may have or that the rights, if any, retained by the government will not adversely affect the value of our license.
There is no guarantee that our trade secrets will not be disclosed or known by our competitors.
To protect our rights, we require all employees and certain consultants to enter into confidentiality agreements with us. There can be no assurance that these agreements will not be breached, that we would have adequate and enforceable remedies for any breach, or that any trade secrets of ours will not otherwise become known or be independently developed by competitors.
We have limited marketing and sales capability. If we are unable to obtain additional distributors and our current and future distributors do not market our products successfully, we may not generate significant revenues or become profitable.
We have limited marketing and sales capability. We are dependent upon existing and, possibly future, marketing agreements and third party distribution agreements for our products in order to generate significant revenues and become profitable.
As a result, any revenues received by us will be dependent in large part on the efforts of third parties, and there is no assurance that these efforts will be successful.
Our commercialization strategy for Ampligen® for CFS, if and when it is approved for marketing and sale by the FDA, may include licensing/co-marketing agreements utilizing the resources and capacities of a strategic partner(s). We continue to seek world-wide marketing partner(s), with the goal of having a relationship in place before approval is obtained. In parallel to partnering discussions, appropriate pre-marketing activities will be undertaken. It is our current intention to control manufacturing of Ampligen® on a world-wide basis.
Our commercialization strategy for Alferon N Injection® may include the utilization of internal functions and/or licensing/co-marketing agreements that would utilize the resources and capacities of one or more strategic partners. Accordingly, we have engaged Armada Healthcare to undertake the marketing, education and sales of Alferon N Injection® throughout the United States along with GP Pharm for both Ampligen® and Alferon® in Argentina along with other South and Latin American countries.
We cannot assure that our U.S. or foreign marketing strategy will be successful or that we will be able to establish future marketing or third party distribution agreements on terms acceptable to us, or that the cost of establishing these arrangements will not exceed any product revenues. Our inability to establish viable marketing and sales capabilities would most likely have a materially adverse effect on us. There can be no assurances that the approved Alferon N Injection® product will be returned to prior sales levels.
There are no long-term agreements with suppliers of required materials and services for Ampligen® and there are a limited number of raw material suppliers. If we are unable to obtain the required raw materials and/or services, we may not be able to manufacture Ampligen®.
A number of essential raw materials are used in the production of Ampligen® as well as packaging materials utilized in the fill and finish process. We do not have, but continue to work towards having long-term agreements for the supply of such materials, when possible. There can be no assurance we can enter into long-term supply agreements covering essential materials on commercially reasonable terms, if at all.
There are a limited number of suppliers in the United States available to provide the raw and packaging materials for use in manufacturing Ampligen®. At present, we do not have any agreements with third parties for the supply of any of these materials. We have established relevant manufacturing operations within our New Brunswick, New Jersey facility for the production of Ampligen® polymers from raw materials in order to obtain a more consistent manufacturing basis in the quantities necessary for clinical testing. In September 2011 and similar to our prior agreements, Hollister-Stier has agreed to undertake the manufacturing sets to formulate, fill, finish and package Ampligen® from the key polymers that we would supply. Hollister-Stier would have the right of first refusal to manufacture certain Ampligen® related products. For more information on Ampligen®, please see Part I, Item 1 - "Business; Our Products; Ampligen®”.
If we are unable to obtain or manufacture the required materials, and/or procure services needed in the final steps in the manufacturing process, we may be unable to manufacture Ampligen®. The costs and availability of products and materials we need for the production of Ampligen® are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors, changes in technology, ownership of intellectual property, FDA and other governmental regulations. There can be no assurance that we will be able to obtain such products and materials on terms acceptable to us or at all.
There are a limited number of organizations in the United States available to provide the final manufacturing steps of formulation, fill, finish and packing sets for Alferon N Injection® and Ampligen®.
There are a limited number of organizations in the United States available to provide the final steps in the manufacturing for Alferon N Injection® and Ampligen®. To formulate, fill, finish and package our products (“fill and finish”), we require a FDA approved third party CMO.
In January 2012, we agreed to a Technology, Transfer, Validation and Commercial Supply Agreement with Althea Technologies, Inc. regarding the fill and finish process for Alferon N Injection® (please see Part I, Item 1 - “Business; Our Products; Alferon N Injection®”. As we no longer have any existing inventory, commercial sales of Alferon® will not resume until new batches of Alferon® inventory and API can be produced, filled and finished, and released by the FDA for commercial sale.
Pursuant our Supply Agreement with Hollister-Stier, they will formulate, fill, finish and package Ampligen® from the key raw materials that we would supply. We are unable to provide any assurances that the FDA will approve the inventory
manufactured by us or produced by Hollister-Stier. If this finish goods inventory is not granted approval by the FDA, our operations may be materially adversely affected. This Supply Agreement, as amended extends through March 11, 2014.
If we are unable to procure services needed in the final steps in the manufacturing process, we may be unable to manufacture Alferon N Injection® and/or Ampligen®. The costs and availability of products and materials we need for the production of Ampligen® and the commercial production of Alferon N Injection® and other products which we may commercially produce are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors, changes in technology, and FDA and other governmental regulations and there can be no assurance that we will be able to obtain such products and materials on terms acceptable to us or at all. For more information on Ampligen® and Alferon N Injection®, please see Part I, Item 1 - “Business; Our Products; Ampligen® and Alferon N Injection®”.
There is no assurance that our manufacturing facility will again be granted a BLA certification by the FDA upon completion of the manufacturing enhancements or return to commercial, large-scale production.
We are currently in the Installation and Operation Qualification phase for Alferon® production of the enhancement project. The production of new Alferon® API inventory will not commence until the validation phase is completed. While the facility is approved by FDA under the BLA for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced inventory product. If and when we obtain a reaffirmation of FDA BLA status and have begun production of new Alferon® API, we will need FDA approval as to the quality and stability of the final product to allow commercial sales to resume. We anticipate that it will take approximately eighteen months before we will have newly produced Alferon® API ready for submission to the FDA for review and approval. For more information, please see Part I, Item 1 - “Business; Our Products; Alferon N Injection®”. There can be no assurance the BLA status will be recertified by the FDA upon the completion of the enhancement process or that the manufacturing facility will return to commercial, large-scale production for Alferon®. Additionally, there can be no assurance that any given product will be determined to be safe and effective, or capable of being manufactured under applicable quality standards.
Only if and when our BLA status is recertified by the FDA to produce new lots of Alferon® at our enhanced manufacturing facility can batches of Alferon® API be produced, formulated, filled, finished, packaged and then approved for release by the FDA. We are unable to provide any assurances that the FDA will approve our enhanced manufacturing process and/or newly created finish product lots. Without FDA approval, our Alferon N Injection® will not be considered suitable for commercial sales.
In light of these contingencies, there can be no assurances that the approved Alferon N Injection® product will be returned to commercial production or sale on a timely basis, if at all, or that if and when it is again made commercially available, it will return to prior sales levels.
There is no assurance that upon successful manufacture of a drug on a limited scale basis for investigational use will lead to a successful transition to commercial, large-scale production.
Changes in methods of manufacturing, including commercial scale-up, may affect the chemical structure of Ampligen® and other RNA drugs, as well as their safety and efficacy. The transition from limited production of pre-clinical and clinical research quantities to production of commercial quantities of our products will involve distinct management and technical challenges and may require additional management, technical personnel and capital to the extent such manufacturing is not handled by third parties. While we believe that the Company could successfully upgrade our production capability at our New Brunswick, NJ facility in a commercial scale-up of Ampligen®, there can be no assurance that our manufacturing will be successful or that any given product will be determined to be safe and effective, or capable of being manufactured under applicable quality standards, economically, and in commercial quantities, or successfully marketed.
We have limited manufacturing experience for Ampligen® and Alferon®. We may not be profitable unless we can produce Ampligen®, Alferon® or other products in commercial quantities at costs acceptable to us
.
Satisfactory inspection by the FDA of both our Ampligen® and Alferon® manufacturing process is required before commercial sale of project would be allowed. The CRL from the FDA on February 1, 2013, requests evaluation of variation between lots of Ampligen® tested in the development process and recommends tighter control of the Ampligen® manufacturing process. We cannot provide any guarantee that the facility will pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are conducted in separately dedicated areas within the overall New Brunswick manufacturing complex. The failure to obtain FDA approval for either of our manufacturing process areas would most likely have a materially adverse impact upon us.
Ampligen® has been produced to date in limited quantities for use in our clinical trials, and we are dependent upon a qualified third party supplier for the manufacturing, filling, finish and packaging process. The failure to continue these arrangements or to achieve other such arrangements on satisfactory terms could have a material adverse effect on us.
In furtherance of the capital improvement program at our New Brunswick, NJ facility to upgrade our manufacturing capability to produce bulk quantities of Alferon N Injection® API, the validation phase of the Alferon® manufacturing project is currently underway as we undertake the Installation and Operation Qualification phase of the enhancement project. While the facility is approved by FDA under the BLA for Alferon®, this status will need to be reaffirmed upon the completion of the facility's enhancements prior to commercial sale of newly produced inventory product. If and when we obtain a reaffirmation of FDA BLA status and have begun production of new Alferon® API, we will need FDA approval as to the quality and stability of the final product to allow commercial sales to resume. We anticipate that it will take until at least the second half of 2014 before we will have newly produced Alferon® API ready for submission to the FDA for review and approval. In light of these contingencies, there can be no assurances that the approved Alferon N Injection® product will be returned to production on a timely basis, if at all. The failure to obtain FDA approval of any of our manufacturing process would most likely have a materially adverse impact upon us.
Also to be successful, our products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. We believe, but cannot assure, that our enhancements to our manufacturing facilities will be adequate for our future needs for the production of our proposed products for large-scale commercialization. We intend to ramp up our existing facility and/or utilize third party facilities if and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing facilities. We will need to comply with regulatory requirements for such facilities, including those of the FDA pertaining to cGMP requirements or maintaining our BLA status. There can be no assurance that such facilities can be used, built, or acquired on commercially acceptable terms, or that such facilities, if used, built, or acquired, will be adequate for the production of our proposed products for large-scale commercialization or our long-term needs.
We have never produced Ampligen®, Alferon® or any other products in large commercial quantities. We must manufacture our products in compliance with regulatory requirements in large commercial quantities and at acceptable costs in order for us to be profitable. We intend to utilize third party manufacturers and/or facilities if and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing facilities. If we cannot manufacture commercial quantities of Ampligen® and/or Alferon®, or continue to maintain third party agreements for its manufacture at costs acceptable to us, our operations will be significantly affected. If and when the Ampligen® NDA is approved, we may need to find an additional vendor to manufacture the product for commercial sales. Also, each production lot of Alferon N Injection® is subject to FDA review and approval prior to releasing the lots to be sold. This review and approval process could take considerable time, which would delay our having product in inventory to sell, nor can we provide any assurance as to the receipt of FDA approval of our finished inventory product. There can be no assurances that the Ampligen® and/or Alferon® can be commercially produced at costs acceptable to us.
Rapid technological change may render our products obsolete or non-competitive.
The pharmaceutical and biotechnology industries are subject to rapid and substantial technological change. Technological competition from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. Most of these entities have significantly greater research and development capabilities than us, as well as substantial marketing, financial and managerial resources, and represent significant competition for us. There can be no assurance that developments by others will not render our products or technologies obsolete or noncompetitive or that we will be able to keep pace with technological developments.
Our products may be subject to substantial competition.
Ampligen®. Competitors may be developing technologies that are, or in the future may be, the basis for competitive products. Some of these potential products may have an entirely different approach or means of accomplishing similar therapeutic effects to products being developed by us. These competing products may be more effective and less costly than our products. In addition, conventional drug therapy, surgery and other more familiar treatments may offer competition to our products. Furthermore, many of our competitors have significantly greater experience than we do in preclinical testing and human clinical trials of pharmaceutical products and in obtaining FDA, HPB and other regulatory approvals of products. Accordingly, our competitors may succeed in obtaining FDA, HPB or other regulatory product approvals more rapidly than us. There are no drugs approved for commercial sale with respect to treating CFS in the United States. The dominant competitors with drugs to treat disease indications in which we plan to address include Pfizer, GlaxoSmithKline, Merck & Co., Novartis and AstraZeneca. Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta. These potential competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community,
and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have. Although we believe our principal advantage is the unique mechanism of action of Ampligen® on the immune system, we cannot assure that we will be able to compete.
Alferon N Injection®. Our competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community, and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have. Alferon N Injection® currently competes with Merck's injectable recombinant alpha interferon product (INTRON® A) for the treatment of genital warts. In addition, other pharmaceutical firms offer self-administered topical cream, for the treatment of external genital and perianal warts such as Graceway Pharmaceuticals (Aldara®), Watson Pharma (Condylox®) and MediGene (Veregen®). Alferon N Injection® also competes with surgical, chemical, and other methods of treating genital warts. We cannot assess the impact products developed by our competitors, or advances in other methods of the treatment of genital warts, will have on the commercial viability of Alferon N Injection®. If and when we obtain additional approvals of uses of this product, we expect to compete primarily on the basis of product performance. Our competitors have developed or may develop products (containing either alpha or beta interferon or other therapeutic compounds) or other treatment modalities for those uses. There can be no assurance that, if we are able to obtain regulatory approval of Alferon N Injection® for the treatment of new indications, we will be able to achieve any significant penetration into those markets. In addition, because certain competitive products are not dependent on a source of human blood cells, such products may be able to be produced in greater volume and at a lower cost than Alferon N Injection®. Currently, our wholesale price on a per unit basis of Alferon N Injection® is higher than that of the competitive recombinant alpha and beta interferon products. Please see “
We may not be profitable unless we can protect our patents and/or receive approval for additional pending patents"
above for additional information.
General. Other companies may succeed in developing products earlier than we do, obtaining approvals for such products from the FDA more rapidly than we do, or developing products that are more effective than those we may develop. While we will attempt to expand our technological capabilities in order to remain competitive, there can be no assurance that research and development by others or other medical advances will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any therapy we develop.
Possible side effects from the use of Ampligen® or Alferon N Injection® could adversely affect potential revenues and physician/patient acceptability of our product.
Ampligen®. We believe that Ampligen® has been generally well tolerated with a low incidence of clinical toxicity, particularly given the severely debilitating or life threatening diseases that have been treated. A mild flushing reaction has been observed in approximately 15-20% of patients treated in our various studies. This reaction is occasionally accompanied by a rapid heartbeat, a tightness of the chest, urticaria (swelling of the skin), anxiety, shortness of breath, subjective reports of “feeling hot”, sweating and nausea. The reaction is usually infusion-rate related and can generally be controlled by reducing the rate of infusion. Other adverse side effects include liver enzyme level elevations, diarrhea, itching, asthma, low blood pressure, photophobia, rash, visual disturbances, slow or irregular heart rate, decreases in platelets and white blood cell counts, anemia, dizziness, confusion, elevation of kidney function tests, occasional temporary hair loss and various flu-like symptoms, including fever, chills, fatigue, muscular aches, joint pains, headaches, nausea and vomiting. These flu-like side effects typically subside within several months.
The FDA in its February 1, 2013 CRL, set forth the reasons for not approving Ampligen® at this time and provided recommendations to address certain of the outstanding issues. The Agency stated that the submitted data do not provide substantial evidence of efficacy of Ampligen® for the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data.
If approved, one or more of the potential side effects of the drug might deter usage of Ampligen® in certain clinical situations and therefore, could adversely affect potential revenues and physician/patient acceptability of our product.
Alferon N Injection®. At present, Alferon N Injection® is only approved for the intralesional (within the lesion) treatment of refractory or recurring external genital warts in adults. In clinical trials conducted for the treatment of genital warts with Alferon N Injection®, patients did not experience serious side effects; however, there can be no assurance that unexpected or unacceptable side effects will not be found in the future for this use or other potential uses of Alferon N Injection® which could threaten or limit such product's usefulness.
We may be subject to product liability claims from the use of Ampligen®, Alferon N Injection®, or other of our products which could negatively affect our future operations. We have limited product liability insurance.
We maintain Products Liability and Clinical Trial insurance coverage world-wide for Ampligen® and Alferon®. However even with retaining Products Liability and Clinical Trial insurance coverage for Ampligen®, Alferon N Injection® and Alferon® LDO, a claim against the products could have a materially adverse effect on our business and financial condition.
We face an inherent business risk of exposure to product liability claims in the event that the use of Ampligen®, Alferon N Injection® or other of our products results in adverse effects. This liability might result from claims made directly by patients, hospitals, clinics or other consumers, or by pharmaceutical companies or others manufacturing these products on our behalf. Our future operations may be negatively affected from the litigation costs, settlement expenses and lost product sales inherent to these claims. While we will continue to attempt to take appropriate precautions, we cannot assure that we will avoid significant product liability exposure.
The loss of services of key personnel including Dr. William A. Carter could hurt our chances for success.
Our success is dependent on the continued efforts of our staff, especially certain doctors and researchers along with the continued efforts of Dr. William A. Carter because of his position as a pioneer in the field of nucleic acid drugs, his being the co-inventor of Ampligen®, and his knowledge of our overall activities, including patents and clinical trials. The loss of the services of Dr. Carter or other personnel key to our operations could have a material adverse effect on our operations and chances for success. As a cash conservation measure, we have elected to discontinue the Key Man life insurance on the life of Dr. Carter. An employment agreement continues to exist with Dr. Carter that, as amended, runs until December 31, 2016. However, Dr. Carter has the right to terminate his employment upon not less than 30 days prior written notice. The loss of Dr. Carter or other key personnel or the failure to recruit additional personnel as needed could have a materially adverse effect on our ability to achieve our objectives.
Uncertainty of health care reimbursement for our products.
Our ability to successfully commercialize our products will depend, in part, on the extent to which reimbursement for the cost of such products and related treatment will be available from government health administration authorities, private health coverage insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and from time to time legislation is proposed, which, if adopted, could further restrict the prices charged by and/or amounts reimbursable to manufacturers of pharmaceutical products. We cannot predict what, if any, legislation will ultimately be adopted or the impact of such legislation on us. There can be no assurance that third party insurance companies will allow us to charge and receive payments for products sufficient to realize an appropriate return on our investment in product development.
There are risks of liabilities associated with handling and disposing of hazardous materials.
Our business involves the controlled use of hazardous materials, carcinogenic chemicals, flammable solvents and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of such materials comply in all material respects with the standards prescribed by applicable regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident or the failure to comply with applicable regulations, we could be held liable for any damages that result, and any such liability could be significant. We do not maintain insurance coverage against such liabilities.
A Securities Federal Class Action and Four Shareholder Derivative Actions Have Been Filed Against Us and We May Be Subject to Civil Liabilities.
As described below in Item 3. Legal Proceedings, paragraphs (a), (b), (c), (d) and (e), five actions have been filed against Hemispherx and certain of its Officers and Directors: a putative class action alleging violations of the federal securities laws and seeking monetary damages, costs, and attorneys' fees; and four shareholder derivative actions alleging various state law breach of fiduciary duty, waste of corporate assets and unjust enrichment claims along with seeking monetary damages, costs, attorneys' fees, and equitable and injunctive relief. Defending against these suits, even if meritless, can result in substantial costs to us and could divert the attention of our management.
The existence of these proceedings could have a material adverse effect on our ability to access the capital markets to raise additional funds. While Management believes that the lawsuits are without merit, we cannot predict or determine the timing or final outcomes of the lawsuits and are unable to estimate the amount or range of loss that could result from unfavorable outcomes.
Adverse results in some or all of these legal proceedings could be material to our results of operations, financial condition or cash flows.
Risks Associated With an Investment in Our Common Stock:
The market price of our stock may be adversely affected by market volatility.
The market price of our common stock has been and is likely to be volatile. This is especially true given the current significant instability in the financial markets. In addition to general economic, political and market conditions, the price and trading volume of our stock could fluctuate widely in response to many factors, including:
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announcements of the results of clinical trials by us or our competitors;
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announcements of availability or projections of our products for commercial sale;
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announcements of legal actions against us and/or settlements or verdicts adverse to us;
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adverse reactions to products;
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governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency comments regarding the safety or effectiveness of our products, or the adequacy of the procedures, facilities or controls employed in the manufacture of our products;
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changes in U.S. or foreign regulatory policy during the period of product development;
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developments in patent or other proprietary rights, including any third party challenges of our intellectual property rights;
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announcements of technological innovations by us or our competitors;
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announcements of new products or new contracts by us or our competitors;
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actual or anticipated variations in our operating results due to the level of development expenses and other factors;
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changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates;
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conditions and trends in the pharmaceutical and other industries;
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new accounting standards;
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restatement of prior financial results;
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notice of NYSE MKT non-compliance with requirements; and
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occurrence of any of the risks described in these "Risk Factors".
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Our common stock is listed for quotation on the NYSE MKT. For the twelve month period ended December 31, 2013, the trading price of our common stock has ranged from $0.18 to $0.41 per share. We expect the price of our common stock to remain volatile. The average daily trading volume of our common stock varies significantly.
In the past, following periods of volatility in the market price of the securities of companies in our industry, securities class action litigation has often been instituted against companies in our industry. In this regard, please see “
A Securities Federal Class Action and Four Shareholder Derivative Actions Have Been Filed Against Us and We May Be Subject to Civil Liabilities
" above.
Our stock price may be adversely affected if a significant amount of shares are sold in the public market.
In May 2009, we issued an aggregate of 25,543,339 shares and warrants to purchase an additional 14,708,687 shares under a Universal Shelf Registration Statement. 4,895,000 of these warrants have been exercised as of both December 31, 2013 and December 31, 2012. Depending upon market conditions, we anticipate selling 9,813,687 shares pursuant to the conversion of remaining warrants.
Additionally, we registered with the SEC on September 29, 2009, 1,038,527 shares issuable upon exercise of certain other warrants. To the extent the exercise price of our outstanding warrants is less than the market price of the common stock, the holders of the warrants are likely to exercise them and sell the underlying shares of common stock and to the extent that the exercise price of certain of these warrants are adjusted pursuant to anti-dilution protection, the warrants could be exercisable or convertible for even more shares of common stock. We also may issue shares to be used to meet our capital requirements or use shares to compensate employees, consultants and/or Directors. In this regard, we have registered $150,000,000 of securities for public sale pursuant to a universal shelf registration statement and we have been selling shares under this shelf registration statement and the New EDA with Maxim. Through December 31, 2013, we had sold an aggregate of approximately 30,470,000 shares under the New EDA.
Pursuant to the New Maxim EDA, we may sell up to $75,000,000 worth of our shares of Common Stock from time to time through Maxim, as sales agent. While we have no obligation to sell any of the Shares and may at any time suspend offers under the New Maxim EDA or terminate the EDA, the sale of substantial numbers of Shares under the EDA may have an adverse impact on the trading value of the stock.
We are unable to estimate the amount, timing or nature of future sales of outstanding common stock or instruments convertible into or exercisable for our common stock. Sales of substantial amounts of our common stock in the public market, including additional sale of securities pursuant to the New EDA with Maxim or otherwise under the universal shelf registration statement or upon exercise of outstanding options, could cause the market price for our common stock to decrease. Furthermore, a decline in the price of our common stock would likely impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities.
Provisions of our Certificate of Incorporation and Delaware law could defer a change of our Management which could discourage or delay offers to acquire us.
Provisions of our Certificate of Incorporation and Delaware law may make it more difficult for someone to acquire control of us or for our stockholders to remove existing management, and might discourage a third party from offering to acquire us, even if a change in control or in Management would be beneficial to our stockholders. For example, our Certificate of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In this regard, on November 2, 2012, we amended and restated our Stockholder Rights Plan (“Rights Plan”) and, under the Rights Plan, our Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on November 29, 2002. Each Right initially entitles holders to buy one-hundredth unit of preferred stock for $30.00 and may be redeemed prior to November 19, 2017, the expiration date, at $0.001 per Right under certain circumstances. The Rights generally are not transferable apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more of our common stock. At December 31, 2013, for Dr. Carter, our Chief Executive Officer and President, who already beneficially owns approximately 5.28% of our common stock, the Rights Plan’s threshold will be 20%, instead of 15%.
Special Note Regarding Forward Looking Statements
Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Our research in clinical efforts may continue for the next several years and we may continue to incur losses due to clinical costs incurred in the development of Ampligen® for commercial application. Possible losses may fluctuate from quarter to quarter as a result of differences in the timing of significant expenses incurred and receipt of licensing fees and/or cost recovery treatment revenue.
ITEM 1B.
Unresolved Staff Comments.
None.
ITEM 2.
Properties.
We currently lease through June 2018, our headquarters located in Philadelphia, Pennsylvania consisting of a suite of offices of approximately 6,760 square feet.
We also own, occupy and use our New Brunswick, New Jersey laboratory and production facility that we acquired from ISI. These facilities consist of two buildings located on 2.8 acres. One building is a two story facility consisting of a total of 31,300 square feet. This facility contains offices, laboratories and production space. It also contains space designated for research and development, packaging, quality assurance and quality control laboratories. Building Two has 11,670 square feet consisting of offices, laboratories, warehouse space, shipping, receiving and packaging areas. The property has parking space for approximately 100 vehicles.
ITEM 3.
Legal Proceedings.
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(a)
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Stephanie A. Frater v. Hemispherx Biopharma, Inc., William A. Carter, David Strayer and Wayne Pambianchi, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:12-cv-07152-WY.
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(b)
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Mark Zicherman v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Iraj E. Kiani, William M. Mitchell, Richard C. Piani, David Strayer and Charles T. Bernhardt, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:13-cv-00243-WY.
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Michael Desclos v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, March 2013 Term, No. 110.
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Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, April 2013 Term, No. 3458.
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(e)
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Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Richard C. Piani, William M. Mitchell, Iraj E. Kiani and Robert E Peterson, Chancery Court of the State of Delaware , June 18, 2013, Case No. 8657.
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(f)
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Charles T. Bernhardt III v. Hemispherx Biopharma, Inc., Dr. William A. Carter, Thomas K. Equels, Esquire, Dr. Iraj Eqhbal Kiani, Dr. William M. Mitchell and Peter W. Rodino; Court of Common Pleas of Philadelphia County, Philadelphia, PA; Case: February Term, 2014 No. 000784
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On December 21, 2012, a putative Federal Securities Class Action Complaint was filed against the Company and three of its Officers in the United States District Court for the Eastern District of Pennsylvania. This action,
Stephanie A. Frater v. Hemispherx Biopharma, Inc.
,
et al.
, was purportedly brought on behalf of a putative class of Hemispherx investors who purchased the Company's publicly traded securities between March 14, 2012 and December 17, 2012. The Complaint generally asserted that Defendants made material misrepresentations and omissions regarding the status of the Company's New Drug Application for Ampligen®, which had been filed with the United States Food and Drug Administration, in alleged violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On March 14, 2013, the Court appointed Hemispherx Investor Group as Lead Plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. Pursuant to the Court's March 29, 2013 scheduling order, Lead Plaintiff filed a Consolidated Amended Class Action Complaint (“Amended Complaint”) on May 20, 2013, and in its Amended Complaint, dropped Thomas K. Equels and Charles T. Bernhardt as Defendants and added David R. Strayer, M.D. and Wayne Pambianchi as Defendants. The Amended Complaint alleges an expanded Class Period of March 14, 2012 to December 20, 2012, which period encompasses statements made in the Company's 2011 Form 10-K filed on March 14, 2012, and at the FDA Advisory Committee Meeting on December 20, 2012. On July 19, 2013, Defendants filed a motion to dismiss the Amended Complaint. Lead Plaintiff filed its brief in opposition to Defendants' motion to dismiss is September 17, 2013, and Defendants filed their reply brief on October 17, 2013. On January 24, 2014, the court entered an order denying defendents' motion to dismiss the Amended Complaint, and on February, 20, 2014, entered a scheduling order imposing,
inter alia
, a March 31, 2015 deadline for completion of all fact discovery. On February 25, 2014, defendents filed an answer and affirmative defenses to the Amended Compliant. Also on February 25, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery.
On January 15, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the United States District Court for the Eastern District of Pennsylvania. The Complaint
in this action,
Mark Zicherman v. Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On February 22, 2013, the Court entered an order staying this case pending the outcome of Defendants' motion to dismiss the securities class action. On July 3, 2013, Plaintiff filed an Amended Complaint, adding David R. Strayer, M.D., as a Defendant. On July 18, 2013, the Court entered an order staying the case as against Dr. Strayer pending the outcome of Defendants' motion to dismiss the securities class action. On January 24, 2014, the Court denied the defendents' motion to dismiss the securities call action.
On March 4, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. The Complaint in this action,
Michael Desclos v. Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. On April 10, 2013, the Court entered an order staying this case pending the outcome of Defendants' motion to dismiss the securities class action. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action,
Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., et al.,
described below. After the Court in the federal securities class action denied the defendants' motion to dismiss on January 24, 2014, counsel for the parties met and conferred regarding case management, and those discussions are continuing.
On April 23, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. The Complaint in this action,
Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. On May 10, 2013, the Court entered an order staying this case pending the outcome of the ruling on the Federal Securities Class Action Defendant's Motion to dismiss. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action,
Michael Desclos v. Hemispherx Biopharma, Inc., et al.,
described above. After the Court in the federal securities class action denied the defendants' motion to dismiss on January 24, 2014, counsel for the parties met and conferred regarding case management, and those discussions are continuing.
On June 18, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the Court of Chancery of the State of Delaware. The Complaint in this action,
Rena A. Kastis and James E. Conroy v.
Hemispherx Biopharma, Inc., et al.
, alleges breaches of fiduciary duties, waste of corporate assets and unjust enrichment. The Company's Board of Directors has appointed a Special Litigation Committee (“SLC”) to review the allegations set forth in the Complaint. On September 10, 2013, the Court entered a Stipulation and Order staying all proceedings in this action pending the SLC’s review and recommendation concerning the allegations contained in the Complaint. The SLC issue its report and recommendation on December 20, 2013, and concluded that the allegations of this matter were unfounded and recommended that the litigation be dismissed. On January 20, 2014, the SLC moved to dismiss the Complaint. Since the SLC filed its motion to dismiss, plaintiffs have served document requests on the SLC, noticed the depositions of the SLC members, and served a subpoena on the SLC's counsel McCarter & English LLP. The SLC responded to plaintiff's document request on March 6, 2014, and produced responsive documents the same day. McCarter & English's response to plaintiff's subpoena is due by March 20, 2014, and its deposition has been tentatively scheduled for April 15, 2014.
On February 7, 2014, Charles T. Bernhardt III (“Bernhardt”) filed a Complaint in the Philadelphia Court of Common Pleas asserting that under an employment agreement dated December 6, 2011, the Company currently owes Bernhardt certain wages, fringe benefits and severance payments by reason of his recent resignation from employment as Chief Financial Officer from the Company. The claims against the Company include breach of contract, violation of the Pennsylvania Wage Protection Collection Law (“WPCL”) and anticipatory breach of the employment agreement. The suit also asserts claims against Dr. William A. Carter, Thomas K. Equels, Esquire, Dr. Iraj Eqhbal Kiani, Dr. William M. Mitchell and Peter W. Rodino, in their capacity as corporate officers and/or directors of the Company, for violation of the WPCL and for anticipatory breach of the employment agreement. In addition to compensatory damages on all counts, Bernhardt’s claim includes a demand for attorneys’ fees and liquidated damages under the WPCL. On February 27, 2014, the Defendants filed preliminary objections to Bernhardt’s Complaint challenging the legal sufficiency of the Complaint for various reasons including that the Complaint did not properly state claims under the WPCL, nor did it assert a right to severance benefits. The preliminary objections further seek to strike certain improper allegations contained in the Complaint. The Company awaits Bernhardt’s required response thereto.
The Company believes it has meritorious defenses and is vigorously defending against these claims by Bernhardt as unjustifiable. There is currently no projection as to the likely outcome of the case.
The Company intends to vigorously defend these actions. The potential impact of these actions, which seek unspecified damages, equitable relief, attorneys' fees and expenses, is uncertain. There can be no assurance that an adverse result in these proceedings would not have a potentially material adverse effect on the Company's business, results of operations and financial condition.
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(g)
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Hemispherx Biopharma, Inc. v. Johannesburg Consolidated Investments, et al., U.S. District Court for the Southern District of Florida, Case No. 04-10129-CIV.
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Hemispherx and the other parties to the domestication action are seeking to convene an arbitral panel in South Africa to decide the domestication issue in Johannesburg on May 5 through 9, 2014.
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(h)
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MidSouth Capital, Inc. v. Hemispherx Biopharma, Inc.,
Civil Action No. 1:09-CV-03110-CAP.
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After remand to the United States District Court, Northern District of Georgia, a Scheduling Order proposed by the parties was entered by the Court on October 17, 2012. The Company deposed representatives of two more of the investors to preserve their testimony for trial. Neither witness testified that MidSouth's activity significantly influenced the decision to invest. The parties have submitted a proposed pretrial Order. The Company has also filed a Motion to Reopen Discovery for a limited purpose, a Motion in Limine to exclude five categories of evidence and a Request for a Special Setting. The Court held a Pretrial Conference on October 3, 2013. The Court denied the Motion to Reopen Discovery, stated that the case will be number one on a published calendar for trial after the first of the year, and took all other matters under advisement. On March 3, 2014, the jury in the
MidSouth Capital, Inc. v. Hemispherx Biopharma, Inc.
case returned a verdict in favor of the Company and against MidSouth on all claims. We cannot predict whether MidSouth may seek a new trial or appeal from the adverse judgment.
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(i)
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Cato Capital, LLC v. Hemispherx Biopharma, Inc., U.S. District Court for the District of Delaware, Case No. 09-549-GMS.
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The Parties had a Non-Jury trial on March 4, 5 and 6, 2013 before the United States District Court for the District of Delaware. On April 22, 2013 the Parties submitted Proposed Findings of Fact and Conclusions of Law, and on April 26, 2013, submitted hyperlinked copies to the Court pursuant to the Court's Order. In February and March of 2014, the Company’s counsel advised the Court that certain rulings in a similar matter undercut certain factual and legal arguments advanced by the Plaintiff at, and subsequent to the trial. There can be no estimate of when the Court may rule on the case.
As of March 13, 2014, no informed judgment can be made as to the likely outcome and Counsel is unable to provide an estimate of the merits or probability of success of the Cato claims or a range of potential recovery or loss.
In reference to Contingencies identified, there can be no assurance that an adverse result in these proceedings would not have a potentially material adverse effect on our business, results of operations, and financial condition. The Company believes it has meritorious defenses and is vigorously defending against the claims identified. There is currently no projection as to the likely outcome of the cases and the Company has not recorded any gain or loss contingencies as a result of the above matters for the years ended December 31, 2013 and 2012. Also with regards to Contingency (a), (b), (c), (d) and (e), the Company maintains insurance coverage which is expected to respond to certain claims and expenses.
ITEM 4. Mine Safety Disclosures.
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers and Corporate Governance.
The following sets forth biographical information about each of our Directors and Executive Officers as of the date of this report:
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Name
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Age
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Position
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William A. Carter, M.D.
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76
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Chairman of the Board, Chief Executive Officer, President and Chief Scientific Officer
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Thomas K. Equels, Esq.
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61
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Executive Vice Chairman of the Board, Secretary, General Counsel and Chief Financial Officer
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Peter W. Rodino III
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63
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Director
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William M. Mitchell, M.D., Ph.D.
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79
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Director
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Iraj E. Kiani, N.D., Ph.D.
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68
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Lead Independent Director
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David R. Strayer, M.D.
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68
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Chief Medical Officer and Medical Director
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Wayne S. Springate
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42
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Senior Vice President of Operations
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Each Director has been elected to serve until the next annual meeting of stockholders, or until his earlier resignation, removal from office, death or incapacity. Each Executive Officer serves at the discretion of the Board of Directors, subject to rights, if any, under contracts of employment.
We believe our Board Members represent a desirable diversity of backgrounds, skills, education and experiences, and they all share the personal attributes of dedication to be effective directors. In recommending Board candidates, Corporate Governance and Nomination Committee considers a candidate’s: (1) general understanding of elements relevant to the success of a publicly traded company in the current business environment; (2) understanding of our business; and (3) diversity in educational and professional background. The Committee also gives consideration to a candidate’s judgment, competence, dedication and anticipated participation in Board activities along with experience, geographic location and special talents or personal attributes. The following are qualifications, experience and skills for Board members which are important to Hemispherx’ business and its future:
Leadership Experience
: We seek directors who have demonstrated strong leadership qualities. Such leaders bring diverse perspectives and broad business insight to our Company. The relevant leadership experience that we seek includes a past or current leadership role in a large or entrepreneurial company, a senior faculty position at a prominent educational institution or a past elected or appointed senior government position.
Industry or Academic Experience
: We seek directors who have relevant industry experience, both with respect to the disease areas where we are developing new therapies as well as with the economic and competitive dynamics of pharmaceutical markets, including those in which our drugs will be prescribed.
Scientific, Legal or Regulatory Experience
: Given the highly technical and specialized nature of biotechnology, we desire that certain of our directors have advanced degrees, as well as drug development experience. Since we are subject to substantial regulatory oversight, both here and abroad by the FDA and other agencies, we also desire directors who have legal or regulatory experience.
Finance Experience
: We believe that our directors should possess an understanding of finance and related reporting processes, particularly given the complex budgets and long timelines associated with drug development programs.
WILLIAM A. CARTER, M.D.
, the co-inventor of Ampligen®, joined us in 1978, and has served as: (a) our Chief Scientific Officer since May 1989; (b) the Chairman of our Board of Directors since January 1992; (c) our Chief Executive Officer since July 1993; (d) our President from April 1995 to November 2006; and (e) a Director since 1987. From 1987 to 1988, Dr. Carter served as our Chairman. Dr. Carter was a leading innovator in the development of human interferon for a variety of treatment indications including various viral diseases and cancer. Dr. Carter received the first FDA approval to initiate clinical trials on a beta interferon product manufactured in the U.S. under his supervision. From 1985 to October 1988, Dr. Carter served as our Chief Executive Officer and Chief Scientist. He received his M.D. degree from Duke University and underwent his post-doctoral training at the National Institutes of Health and Johns Hopkins University. Dr. Carter also served as Professor of Neoplastic Diseases at Hahnemann Medical University, a position he held from 1980 to 1998. Dr. Carter served as Professor and Director of Clinical Research for Hahnemann Medical University's Institute for Cancer and Blood Diseases, and as a member of the faculty at Johns Hopkins School of Medicine and the State University of New York at Buffalo. Dr. Carter is a Board certified physician and author of more than 200 scientific articles, including the editing of various textbooks on anti-viral and immune therapy.
WILLIAM A. CARTER, M.D.
- Director Qualifications:
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•
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Leadership Experience – Chairman, CEO, President and Chief Scientific Officer of Hemispherx;
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•
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Industry Experience - Knowledge of new and existing technologies, particularly as they relate to anti-viral and immune therapies;
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•
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Scientific, Legal or Regulatory Experience - M.D., co-inventor of Ampligen®, leading innovator in the development of interferon-based drugs and expertise in patent development; and
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•
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Finance Experience – Extensive knowledge of financial markets and successfully completed numerous financing efforts on behalf of Hemispherx.
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THOMAS K. EQUELS, Esq.,
has been a Director since 2008 and serves as our Executive Vice Chairman, Secretary and General Counsel. In addition, since December 2, 2013, when Charles T. Bernhardt resigned (see below for disclosure on Mr. Bernhardt's resignation), Mr. Equels has served as our Chief Financial Officer. Mr. Equels is the President and Managing Director of the Equels Law Firm headquartered in Miami, Florida that focuses on litigation. For over a quarter century, Mr. Equels has represented national and state governments as well as companies in the banking, insurance, aviation, pharmaceutical and construction industries. Mr. Equels received his Juris Doctor degree with high honors from Florida State University. He is a summa cum laude graduate of Troy University and also obtained his Masters' Degree from Troy. He is a member of the Florida Bar Association and the American Bar Association.
THOMAS K. EQUELS, Esq.
- Director Qualifications:
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•
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Leadership Experience – President, Managing Director of Equels Law Firm;
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•
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Industry Experience –legal counsel to Hemispherx; and
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•
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Scientific, Legal or Regulatory Experience - Law degree with over 25 years as a practicing attorney specializing in litigation.
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PETER W. RODINO III
was appointed a Director in July 2013 and presently serves as Chairman and Financial Expert of the Audit Committee, a member of the Compensation Committee and a member of the Governance and Nomination Committee of the Board of Directors. Mr. Rodino's appointment was the result of the resignation of Richard C. Piani due to health reasons. Mr. Rodino has broad legal, financial, and executive experience. In addition to being President of Rodino Consulting LLC and managing partner at several law firms during his many years as a practicing attorney, he served as Chairman and CEO of Crossroads Health Plan, the first major Health Maintenance Organization in New Jersey. He also has had experience as an investment executive in the securities industry and acted as trustee in numerous Chapter 11 complex corporate reorganizations. For the past 17 years, as founder and president of Rodino Consulting, Mr. Rodino has provided business and government relations consulting services to smaller companies with a focus on helping them develop business plans, implement marketing strategies and acquire investment capital. Mr. Rodino holds a B.S. in Business Administration from Georgetown University and a J.D. degree from Seton Hall University.
PETER W. RODINO
III
- Director Qualifications:
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•
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Leadership Experience – Managing partner at several law firms during his many years as a practicing attorney;
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•
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Industry Experience - Chairman and CEO of Crossroads Health Plan, the first major Health Maintenance Organization in New Jersey;
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•
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Scientific, Legal or Regulatory Experience – Investment executive in the securities industry and acted as trustee in numerous Chapter 11 complex corporate reorganizations; and
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•
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Finance Experience – Business and government relations consulting services to smaller companies with a focus on helping them develop business plans, implement marketing strategies and acquire investment capital.
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WILLIAM M. MITCHELL, M.D., Ph.D.,
has been a Director since July 1998. Dr. Mitchell is a Professor of Pathology at Vanderbilt University School of Medicine and is a board certified physician. Dr. Mitchell earned a M.D. from Vanderbilt and a Ph.D. from Johns Hopkins University, where he served as House Officer in Internal Medicine, followed by a Fellowship at its School of Medicine. Dr. Mitchell has published over 200 papers, reviews and abstracts that relate to viruses, anti-viral drugs, immune responses to HIV infection, and other biomedical topics. Dr. Mitchell has worked for and with many professional societies that have included the American Society of Investigative Pathology, the International Society for Antiviral Research, the American Society of Biochemistry and Molecular Biology and the American Society of Microbiology. Dr. Mitchell is a member of the American Medical Association. He has served on numerous government review committees, among them the National Institutes of Health, AIDS and Related Research Review Group. Dr. Mitchell previously served as one of our Directors from 1987 to 1989.
WILLIAM M. MITCHELL, M.D., Ph.D. -
Director Qualifications:
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•
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Leadership Experience – Professor at Vanderbilt University School of Medicine. He is a member of the Board of Directors for Chronix Biomedical and is Chairman of its Medical Advisory Board. Additionally, he has served on multiple governmental review committees of the National Institutes of Health, Centers for Disease Control and Prevention and for the European Union, including key roles as Chairman;
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•
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Academic and Industry Experience – Well published medical researcher with extensive investigative experience on virus and immunology issues relevant to the scientific business of Hemispherx along with being a Director of an entrepreneurial diagnostic company (Chronix Biomedical) that is involved in next generation DNA sequencing for medical diagnostics; and
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•
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Scientific, Legal or Regulatory Experience - M.D., Ph.D. and professor at a top ranked school of medicine, and inventor of record on numerous U.S. and international patents who is experienced in regulatory affairs through filings with the FDA.
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IRAJ E. KIANI, N.D., Ph.D
., was appointed to the Board of Directors on May 1, 2002. On July 23, 2013, Dr. Kiani was appointed to be the Board's Lead Director due to the resignation of Mr. Piani due to health reasons. Dr. Kiani is a citizen of the United States and England and resides in Newport Beach, California. Dr. Kiani served in various local government positions including the Mayor and Governor of Yasoug, Capital of Boyerahmand, Iran. In early 1980, Dr. Kiani moved to England, where he established and managed several trading companies over a period of some 20 years. Dr. Kiani is a planning and logistic specialist who is now applying his knowledge and experience to build a worldwide immunology network. Dr. Kiani received his Ph.D. degree from the University of Ferdosi in Iran, and his ND from American University.
IRAJ E. KIANI, N.D., Ph.D
. - Director Qualifications:
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•
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Leadership Experience – former Mayor and Governor of Yasoi in Iran;
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•
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Industry Experience – Broad international network and contacts within the field of immunology;
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•
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Scientific, Legal or Regulatory Experience – N.D. and Ph.D. with trading company management experience; and
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•
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Finance Experience – over 30 years of international business experience.
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DAVID R. STRAYER, M.D.
has acted as our Medical Director since 1986. He has served as Professor of Medicine at the Medical College of Pennsylvania and Hahnemann University. Dr. Strayer is Board Certified in Medical Oncology and Internal Medicine with research interests in the fields of cancer and immune system disorders. He has served as principal investigator in studies funded by the Leukemia Society of America, the American Cancer Society, and the National Institutes of Health. Dr. Strayer attended the School of Medicine at the University of California at Los Angeles where he received his M.D. in 1972.
WAYNE S. SPRINGATE
was promoted to Senior Vice President of Operations on May 1, 2011. Mr. Springate joined Hemispherx in 2002 as Vice President of Business Development when Hemispherx acquired Alferon N Injection® and its New Brunswick, NJ manufacturing facilities. He led the consolidation of our Rockville facility to our New Brunswick location as well as coordinated the relocation of manufacturing polymers from South Africa to our production facility in New Brunswick. He was also responsible for preparing and having a successful Preapproval Inspection by the FDA for our New Brunswick manufacturing plant in connection with the filing of our Ampligen® NDA. Currently he is managing a capital improvement budget to enhance our Alferon® facility in accordance with cGMP. Previously, Mr. Springate served as President for World Fashion Concepts in New York and oversaw operations at several locations throughout the United States and overseas. Mr. Springate assists the CEO in details of operations on a daily basis and is involved in all aspects of manufacturing, warehouse management, distribution and logistics.
On May 23, 2013, Richard C. Piani resigned as a member of our Board of Directors and of Hemispherx Biopharma Europe N.V./S.A. Mr. Piani stated that his resignation was due to health reasons. He had been a Director of the Company since 1995 and our Lead Independent Director since 2005. At the time of Mr. Piani's resignation, he served as the Company’s Chairman of the Audit Committee and as a member of its Compensation Committee and Corporate Governance and Nomination Committee. Mr. Piani is no longer a member of the committees on which he served, effective the date of his resignation. Mr. Piani's resignation did not result from any disagreement with us or Hemispherx Biopharma Europe N.V./S.A.
On August 12, 2013, Robert Dickey, IV resigned as Senior Vice President of Hemispherx effective August 16, 2013. Mr. Dickey stated that his resignation was due to his desire to pursue another career opportunity. Mr. Dickey had served the Company as Senior Vice President since June 2009.
On November 15, 2013, Charles T. Bernhardt resigned as our Chief Financial Officer and Chief Accounting Officer, effective December 27, 2013. Mr. Bernhardt stated that his resignation was due to his desire to pursue other professional opportunities. Mr. Bernhardt had served in these capacities since January 1, 2009.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our Officers and Directors, and persons who own more than ten percent of a registered class of equity securities, to file reports with the Securities and Exchange Commission reflecting their initial position of ownership on Form 3 and changes in ownership on Form 4 or Form 5. Based solely on a review of the copies of such Forms received by us, we found that, during the fiscal year ended December 31, 2013, all of our Officers and Directors had complied with all applicable Section 16(a) filing requirements on a timely basis with regard to transactions occurring in 2013.
Audit Committee and Audit Committee Expert
The Audit Committee of our Board of Directors consists of Peter Rodino III, Committee Chairman, William Mitchell, M.D. and Iraj E. Kiani, N.D., Ph.D. Mr. Rodino, Dr. Mitchell, and Dr. Kiani are all determined by the Board of Directors to be Independent Directors as required under Section 803(2) of the NYSE: MKT Company Guide and Rule 10A-3 under the Exchange Act. The Board has determined that Mr. Rodino qualifies as an “audit committee financial expert” as that term is defined by Section 803B(2) of the NYSE: MKT Company Guide and the rules and regulations of the SEC.
We believe Mr. Rodino, Dr. Mitchell, and Dr. Kiani to be independent of management and free of any relationship that would interfere with their exercise of independent judgment as members of this Committee. The principal functions of the Audit Committee are to (i) assist the Board in fulfilling its oversight responsibility relating to the annual independent audit of our consolidated financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence and performance; (ii) prepare the reports or statements as may be required by NYSE MKT or the securities laws; (iii) assist the Board in fulfilling its oversight responsibility relating to the integrity of our financial statements and financial reporting process and our system of internal accounting and financial controls; (iv) discuss the financial statements and reports with management, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; and (v) review disclosures by our independent registered public accounting firm concerning relationships with us and the performance of our independent accountants. This Committee formally met six times in 2013 with all committee members in attendance for at least 83% of the meetings. Our General Counsel and Chief Financial Officer support the Audit Committee in its work. The full text of the Audit Committee’s Charter, as approved by the Board, is available on our website: www.hemispherx.net in the “Investor Relations” tab under “Corporate Governance”.
In September 2011, the Audit Committee engaged the services of a consultant who meets the SEC criteria of a Financial Expert to enhance the current structure and expertise of the Committee. After an extensive search, the Audit Committee selected Stewart L. Appelrouth, a Florida and North Carolina licensed Certified Public Accountant to directly support the efforts of the Audit Committee on an as-needed basis. Mr. Appelrouth is a Certified Valuation Analyst, Accredited in Business Valuation and a Diplomate of the American Board of Forensic Accounting. Mr. Appelrouth has a Masters’ Degree in Finance from Florida International University and an undergraduate degree in Business Administration from Florida State University. He is one of the founding partners of Appelrouth Farah & Co., which serves Southern Florida as a full service accounting and international business advisory firm specializing in auditing, domestic and international taxation, litigation support, forensic accounting, fraud examination and business valuation. The Firm is affiliated with MGI, a worldwide association of independent auditing and accounting firms.
Disclosure Controls Committee
In August 2011, our Board formed the Disclosure Controls Committee (“DCC”). The DCC reports to the Audit Committee and is responsible for procedures and guidelines on managing disclosure information.
The purpose of the DCC is to make certain that information required to be publicly disclosed is properly accumulated, recorded, summarized and communicated to the Board and management. This process is intended to allow for timely decisions regarding communications and disclosures and to help ensure that we comply with related SEC rules and regulations, Wayne Springate one of our Senior Vice Presidents, is the DCC’s Investor Relations Coordinator and Chairperson. The other members of the DCC are Thomas K. Equels, our General Counsel, William A. Carter, our Chief Scientific Officer, William Mitchell, one of our Independent Directors, and Adam Pascale, our Chief Accounting Officer. Nancy McGrory Richardson, of Providence Management & Communication, serves the DCC as Deputy Investor Relations Coordinator. The full text of the DCC’s Charter, as approved by the Board, is available on our website:
www.hemispherx.net
in the “Investor Relations” tab under “Corporate Governance”.
Code of Ethics
Our Board of Directors adopted a revision to the 2003 Code of Ethics and business conduct for officers, directors, employees, agents and consultants on October 15, 2009. The principal amendments included broadening the Code's application to our agents and consultants, adoption of a regulatory compliance policy and adoption of a policy for protection and use of Company computer technology for business purposes only. On an annual basis, this Code is reviewed and signed by each Officer, Director, employee and strategic consultants with none of the amendments constituting a waiver of provision of the Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer, Controller, or persons performing similar functions.
You may obtain a copy of this Code by visiting our web site at
www.hemispherx.net
(Investor Relations / Corporate Governance) or by written request to our office at 1617 JFK Boulevard, Suite 500, Philadelphia, PA 19103.
ITEM 11. Executive Compensation.
COMPENSATION DISCUSSION AND ANALYSIS
This discussion and analysis describes our executive compensation philosophy, process, plans and practices as they relate to our “Named Executive Officers” (“NEO”) listed below and gives the context for understanding and evaluating the more specific compensation information contained in the narratives, tables and related disclosures that follow:
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•
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Dr. William A. Carter, Chief Executive Officer (“CEO”), President and Chief Scientific Officer (“CSO”);
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•
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Charles T. Bernhardt, our Chief Financial Officer (“CFO”) & Chief Accounting Officer (“CAO”) until December 2013;
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•
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Thomas K. Equels, General Counsel, Chief Financial Officer (“CFO”);
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•
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Wayne Springate, Senior Vice President ("SVP");
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•
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Dr. David Strayer, Chief Medical Officer (“CMO”) and Medical Director; and
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•
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Robert Dickey, IV, Senior Vice President (“SVP”) through August 12, 2013.
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Overview of Our Business Environment
Hemispherx is a specialty pharmaceutical company based in Philadelphia, Pennsylvania and engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases.
Our current strategic focus is derived from four applications of our two core pharmaceutical technology platforms Ampligen® and Alferon N Injection®. The commercial focus for Ampligen® includes application as a treatment for CFS and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection® is a FDA approved product for refractory or recurring genital warts. Alferon® LDO (Low Dose Oral) is a formulation that is currently approved to undertake clinical testing targeting influenza.
Governance of Compensation Committee
The Compensation Committee consists of the following three directors, each of whom is “independent” under applicable NYSE MKT rules, a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act, and an “Outside Director” as defined under the U.S. Treasury regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”): Dr. Iraj E. Kiani, N.D (Chair), Dr. William Mitchell, M.D. and Peter W. Rodino. The Compensation Committee makes recommendations concerning salaries and compensation for senior management and other highly paid professionals or consultants to Hemispherx. The full text of the Compensation Committee’s Charter, as approved by the Board, is available on our website:
www.hemispherx.net
in the “Investor Relations” tab under “Corporate Governance”. This Committee formally met four times in 2013 and all committee members were in attendance for at least 75% of the meetings. Our General Counsel, Chief Financial Officer and Director of Human Resources support the Compensation Committee in its work.
Results of Stockholder Advisory Vote on Executive Compensation
At the October 18, 2013 Annual Meeting of Stockholders, the Stockholders did not approve the annual, non-binding advisory vote on Executive Compensation with 43.78% of the shares cast to affirm the plan.
Our Compensation Committee reviews its executive compensation policies annually and takes into account the results of prior say-on-pay advisory votes. After reviewing the results of the 2011 say-on-pay advisory vote, the Committee had:
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Developed Company-wide goals and objectives with the intent to increase Stockholder value, enhance the “pay for performance” concept, attempted to address the needs of patients and enhance financial factors such as raising capital, reestablishing revenue streams, cost containment and/or improving the results of operations;
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Attempted to reinforce a Pay for Performance environment for the Executive Team with emphasis of sharing the economic goals of the Stockholders;
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Reviewed the Executive Team’s Company-wide goals and individuals specific goals in relation to each job performance for each given year. In its review of each member of the Executive Team, the Committee utilized a weighted-average rating process regarding the goals and responsibilities specific to each individual as well as their contribution in meeting Company’s overall goals;
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Reviewed peer group financial data of comparable publicly-traded companies for 2011 and 2010 with emphasis on a comparison of executive compensation as a factor to various Balance Sheet ratios to determine reasonableness to the respective companies;
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Considered the change in the market value of the Company’s stock during the year in relation to Management’s efforts and ability to impact the results;
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Mandated that the standard terms of future employee options issued by the Company require that such options not vest sooner than one year from the date of issuance and that, to the extent that any such options have not vested on the date of an Executive’s termination, the options will expire;
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Issued new options to employees at the rate of 110% of the Company’s NYSE MKT stock market trading value at the time of award; and
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Adopted a policy to facilitate compliance with Dodd-Frank’s Claw-Back Compensation Recoupment provisions.
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After reviewing the results of the 2013 say-on-pay advisory vote, the Committee has reviewed its executive compensation policies and believes that they are within industry standards for executive compensation.
Process
Our Compensation Committee is responsible for determining the compensation of our NEO included in the “Summary Compensation Table” below. For purposes of determining compensation for our NEO, our Compensation Committee takes into account the recommendation of our Chief Executive Officer. The Compensation Committee is also responsible for overseeing our incentive compensation plans and equity-based plans, under which stock option grants have been made to employees, including the NEO, as well as non-employee Directors and strategic consultants.
The following table summarizes the roles of each of the key participants in the executive compensation decision-making process:
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Compensation Committee
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Fulfills the Board of Directors' responsibilities relating to compensation of Hemispherx’ NEO, other non-officer Executives and non-Executives.
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Oversees implementation and administration of Hemispherx’ compensation and employee benefits programs, including incentive compensation and equity compensation plans.
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Reviews and approves Hemispherx’ goals and objectives and, in light of these, evaluates each NEO's performance and sets their annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.
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Reviews and approves compensation for all other non-officer Executives of Hemispherx including annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.
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In consultation with the CEO and CFO, reviews the talent development process within Hemispherx to ensure it is effectively managed and sufficient to undertake successful succession planning.
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Reviews and approves employment agreements, severance arrangements, issuances of equity compensation and change in control agreements.
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Chairman and CEO
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Presents to the Compensation Committee the overall performance evaluation of, and compensation recommendations for, each of the NEO and other non-officer Executives.
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Chief Financial Officer and Director of Human Resources
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Reports directly or indirectly to the Chief Executive Officer.
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Assists the Compensation Committee with the data for competitive pay and benchmarking purposes.
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Reviews relevant market data and advises the Compensation Committee on interpretation of information, including cost of living statistics, within the framework of Hemispherx.
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Informs the Compensation Committee of regulatory developments and how these may affect Hemispherx’ compensation program.
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Objectives and Philosophy of Executive Compensation
The primary objectives of the Compensation Committee of our Board of Directors with respect to Executive compensation are to attract and retain the most talented and dedicated Executives possible, to tie annual and long-term cash and stock incentives to achievement of measurable performance objectives, and to align Executives' incentives with stockholder value creation. To achieve these objectives, the Compensation Committee expects to implement and maintain compensation plans that tie a substantial portion of Executives' overall compensation to key strategic financial and operational goals such as the establishment and maintenance of key strategic relationships, the development of our products, the identification and advancement of additional products and the performance of our common stock price. The Compensation Committee evaluates individual Executive performance with the goal of setting compensation at levels the Committee believes are comparable with Executives in other companies of similar size and stage of development operating in the biotechnology industry while taking into account our relative performance, our own strategic goals, governmental regulations and the results of Stockholder Advisory Votes regarding executive compensation.
Use of Compensation Data
Our compensation plans are developed by utilizing publicly available compensation data for national and regional companies in the biopharmaceutical industry as well as web sites that specialize in compensation and/or employment data. We believe that the practices of this group of companies and/or data obtained from employment industry organizations, provide us with appropriate compensation benchmarks necessary to review the compensation recommendations by the CEO, CFO and/or Human Resources Department. In 2013 and 2012, the Committee did not engage the services of an independent compensation consultant, but alternatively utilized web-based organizations and data bases such as Salary.com, to help them analyze compensation data and compare our programs with the practices of similar national and/or regional companies represented in the biopharmaceutical industry.
Elements of Executive Compensation
The Compensation Committee has adopted a mix among the compensation elements in order to further our compensation goals. The elements include:
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Base salary (impacted by cost of living adjustments);
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Variable compensation consisting of a cash bonus based upon individual and overall Company performance;
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Performance incentive bonus based on the accomplishment of Company sales milestones or activity;
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Long-term bonus incentive programs consisting of the Employee Bonus Pool Program;
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Stock option grants with exercise prices set in excess of fair market value at the time of grant and, effective December 2011, not vesting sooner than one year from the date of issuance; and
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Adoption of a policy to facilitate compliance with Dodd-Frank’s Claw-Back Compensation Recoupment provisions.
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Executive compensation consists of the following elements:
Base Salary
Base salaries for our Executives are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for similar positions. Generally, we believe that Executive base salaries should be targeted near the median of the range of salaries for executives in similar positions with similar responsibilities at comparable companies, in line with our compensation philosophy. For those NEO with employment agreements, base salary is determined and set forth in the agreement and the Compensation Committee reviews the base salary prior to renewal of such agreement. Base salaries for the other NEO are normally reviewed annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. While this review process would normally occur in the fourth quarter of each year, in recent years this review has occurred when NEO’s employment agreements required restatement, amendment or replacement. However after analysis of overall Company compensation, the Committee authorized a non-discriminatory and universally applied cost of living increase to the base salaries of all full-time employees of record effective December 31, 2013, 2012 and 2011 at the rates of 0.0%, 2.1% and 3.6%, respectively. Additional changes to our NEO’s base salaries could be undertaken in a future determination by the Compensation Committee at its discretion. During 2013 and 2012, none of the employment contracts of NEOs were created, amended or restated. During 2011, employment agreements were amended and restated for the following NEOs: Dr. William Carter, Charles Bernhardt and Thomas Equels. Robert Dickey’s employment agreement was last renewed in September 2010 and Dr. David Strayer does not currently have an employment agreement with the Company.
Annual Bonus
Our compensation program includes eligibility for an annual performance-based cash bonus in the case of all NEO and certain senior, non-officer Executives. The amount of the cash bonus depends on the level of achievement of the stated corporate, department, and individual performance goals, with a target bonus generally set as a percentage of base salary. As provided in their respective employment agreement, during the year ended December 31, 2013, the following NEO were eligible for an annual performance bonus based on their salaries, the amount of which, if any, is determined by the Board of Directors in its sole discretion based on the recommendation of the Compensation Committee:
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Dr. William Carter, Chairman & CEO (bonus opportunity up to 25%);
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Thomas Equels, General Counsel, Litigation Counsel, Secretary and Executive Vice Chairman of the Board (bonus opportunity up to 25%); and
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Charles Bernhardt, Chief Financial Officer and Chief Accounting Officer (bonus opportunity up to 25%); however, on November 15, 2013, Charles T. Bernhardt resigned as our Chief Financial Officer and Chief Accounting Officer, effective December 27, 2013.
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The Compensation Committee utilizes annual incentive bonuses to compensate NEO and certain senior, non-officer executives (the “Executive Team”) for attainment or success towards overall corporate financial and/or operational goals along with achieving individual annual performance objectives. These objectives will vary depending on the individual Executive, but generally relate to strategic factors such as establishment and/or maintenance of key strategic relationships, development of our products, identification, research and/or development of additional products, enhancing financial factors such as raising capital, cost containment and/or improving the results of operations. The Compensation Committee, in light of established individual and Company-wide goals and objectives, evaluated the performance of each NEO, key executive and overall staff in order to determine each respective annual incentive opportunity including an analysis by the Compensation Committee that provides the following information:
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1.
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The Company-wide goals and objectives along with individual performance goals for each NEO used to determine annual bonuses for the fiscal year;
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2.
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How each goal individually or in totality was weighted, if applicable, to the extent that any of the performance goals were quantitatively and/or quantitatively measurable;
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The threshold, target, and maximum levels of achievement of each performance goal, if applicable;
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The intended relationship between the level of achievement of Company-wide performance goals and the amount of bonus to be awarded;
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The intended relationship between the level of achievement of each NEO’s individual performance goals and the amount of bonus to be awarded;
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6.
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The evaluation by the Committee of the level of achievement by each NEO of the Company-wide and individual performance goals applicable to him/her individually;
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7.
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If applicable, whether the Committee reviewed any report(s) from compensation consultant(s) and/or web based organizations and data bases;
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8.
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How this level of achievement translated into the actual bonuses awarded for the 2011 fiscal year;
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9.
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The adequate disclosure of the percentage of base salary awarded in the form of an incentive bonus to each NEO as a result of their or the Company’s performance; and
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10.
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If applicable, how the Company’s compensation policies and practices relate to the Company’s risk management.
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The Compensation Committee also undertook the initial steps to review and reestablish goals and objectives for the Executive Team regarding possible bonuses for the year ending December 31, 2013. On an overall basis, all bonus eligible member of the Executive Team would share the following Company-wide goals:
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A.
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Continued productive interaction with the FDA concerning issues necessary for approval of Ampligen for CFS;
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B.
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Continued progress towards non-USA approval of Ampligen® for Chronic Fatigue Syndrome;
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C.
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An overall strategic plan for Ampligen® and Alferon® to be submitted to the Board;
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D.
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Strategic plans for the marketing and partners for Ampligen® to be submitted to the Board;
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E.
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Continued development of enhancement of vaccines requiring Ampligen®;
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F.
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Success in the protection of Company Intellectual Property;
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G.
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Continued development of Alferon® LDO;
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H.
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Progress in the return to commercialization of Alferon N Injection®;
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I.
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Continued development of Ampligen® and Alferon N Injection® for treatment of influenza;
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J.
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Maintaining the overall financial strength of the Company and operations consistent with the budget;
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K.
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Implementation of research & development partnerships;
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L.
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Implementation of Ampligen® clinical trials in cancer with commercial partner(s);
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M.
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Implementation of Ampligen® clinical trials in cancer with academic partner(s);
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N.
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Increase in clinical trials of Alferon N Injection® and additional indications; and
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O.
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Acquisition of complimentary pharmaceutical technologies and/or drugs/vaccines.
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On an annual basis and at the sole discretion of the Compensation Committee, with input from the CEO or the Executive’s direct supervisor, the Committee evaluates the individual performance of each member of the Executive Team as to his/her achievement and/or contribution towards meeting the overall Company-wide goals along with his/her accomplishments specific to his/her job description. The outcome of the Committee’s analysis is utilized to determine if a bonus is warranted, and if so, the dollar amount or percentage of the Executive Team member’s year-end base pay rate to be awarded.
Prior to year-end or during the first fiscal quarter of the subsequent year, the Compensation Committee would complete their analysis utilizing any internal and external documentation desired, including but not limited to reports from independent analysts and/or corporate benchmarking organizations. Upon analysis completion, the Compensation Committee made formal recommendations to the Board based on their findings with regard to bonuses for the respective year ended. Due to the subjective nature of the Company-wide goals regarding the success and analysis of an Executive in meeting or exceeding elements of his/her specific job duties, the goals were not designed to be weighted in value or quantitative in nature. The bonuses were designed to be awarded based on a subjective cumulate nature of the goals deemed attainable, employee performance and progress towards achievement. The bonus threshold was designed to range from zero percent to twenty-five percent, with a target bonus of approximately twenty or twenty-five percent, calculated from the individual’s year-end base pay rate.
In December 2012 and January 2013, the Compensation Committee reviewed the Executive Team’s Company-wide goals as detailed in the Committee’s prior 2012 Meeting Minutes along with specific goals documented in each individual’s job description. Upon individual review of each member of the Executive Team, the Committee concluded that the Executive Team members had excelled in meeting their goals and responsibilities as documented in each individual’s job description as well as made significant progress in meeting corporate goals with outstanding success. Additionally upon analysis of publicly-traded Peer Group companies, the Committee observed that, for 2011 and 2010, Hemispherx’ Officer Compensation Expense as compared to various Balance Sheet ratios were consistently less than that of the average of the Peer Group. Finally, the Committee considered the change in the market value of the Company’s stock during 2012 and reached a consensus that the impact of the stock’s trading value should be considered to have a neutral effect on employees’ performance evaluation due to their conclusion of the following observations:
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1.
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The overall devaluation in the trading value of U.S. bio-pharmaceutical companies;
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2.
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The market value of the Company’s stock had been volatile during 2012 and traded from a high of $1.10 to a low of $0.19;
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3.
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Confidence that Company’s employees were working diligently in an attempt to return the market value to the stock;
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4.
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Recognition that employees had worked tirelessly over the second half of 2012 related to the Ampligen® NDA and preparedness of the manufacturing facility in New Brunswick; and
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5.
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The recognition that a performance bonus would be desirable to acknowledge the persistence, loyalty, effort and dedication of the Senior Management team.
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The Compensation Committee in light of pre-established individual, along with position appropriate Company-wide goals (A. through O. as disclosed above) and objectives, undertook a weighted-average evaluation of the performance of each key executive in order to determine respective annual incentive opportunities considering base salary and fees, short and long-term incentive opportunity and any special/supplemental benefits or payments. Based upon all of the foregoing, the Committee determined that the following 2012 Performance Bonuses were granted and paid in 2012 to the following NEO at the rate of 25% of their respective 2012 year-end base compensation:
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William Carter (Chairman, CEO, President, Chief Scientific Officer) for $241,906;
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Thomas Equels (Executive Vice Chairman, Secretary & General Counsel) for $129,500;
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Charles Bernhardt (CFO & Chief Accounting Officer) for $58,275 in 2012;
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David Strayer (Chief Medical Officer & Medical Director) for $65,800; and
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Seven non-NEO employees included in 2012 Performance Bonuses for total of $186,170.
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There were no Performance Bonuses granted and/or paid to the NEO's for the year ended 2013.
Employee Appraisal And Merit Bonus Program
For the year ended 2012, the Compensation Committee approved an Employee Appraisal and Merit Bonus Program for those employees not eligible for the key employee annual bonus. This Program incorporates a team concept by conducting appraisals for eligible employees in each department throughout the calendar year and then averaging the total scores per department in order to determine year-end, department-wide merit bonuses. This Program is annually renewed and at the ultimate discretion of the Compensation Committee based on various factors, including the Company’s overall accomplishment of milestones and access to Working Capital.
For the year ended 2013, no bonuses related to this program were granted to employees.
Executive Performance Incentive Bonus
As an element of their current employment contracts, William Carter (Chairman, CEO, President, Chief Scientific Officer) and Thomas Equels (Executive Vice Chairman, Secretary and General Counsel) are eligible for performance incentive bonus based on a percent, 2.5% and 5.0% respectively, of the Gross Proceeds paid to the Company as a result of sales of Alferon N Injection®, Alferon® LDO, Ampligen® or other Company products, or from any joint ventures or corporate partnering arrangements. For bonus purposes, Gross Proceeds is defined as cash amounts paid to the Company by the other parties to the joint venture or corporate partnering arrangement, but shall not include any amounts paid to the Company as reimbursement of expenses incurred; and any amounts paid to the Company in consideration for the Company's assets (i.e., plant, property, equipment, investments, etc.), equity or other securities. After the termination of this Agreement, for any reason, Dr. Carter and Mr. Equels shall be entitled to receive the incentive bonus based upon Gross Proceeds received by the Company during the three year period commencing on the termination of their Agreement with respect to any joint ventures or corporate partnering arrangements entered into by the Company during the term of the Agreement. Furthermore, Dr. Carter and Mr. Equels shall be entitled to a 5% bonus related to any sale of the Company, or any sale of a substantial portion of Company assets not in the ordinary course of its business. The aggregate incentive bonus hereunder as set forth above shall be capped not to exceed $5,000,000 annually.
During 2012, the Compensation Committee and Board of Directors sought out and received an opinion of independent legal counsel regarding the elements of the Executive Performance Incentive Bonus created by the current employment contracts of William Carter and Thomas Equels in relation to the shares of Company stock sold through the Maxim ATM. It was the opinion of independent counsel that Section 3(c)(ii) of Dr. Carter and Mr. Equels respective agreements could reasonably be interpreted to require the Company to pay them a 5% bonus on the net proceeds resulting from the sale of securities of the Maxim ATM Offering as either (a) constitutes any sale of the Company, or (b) is a sale of substantial portion of Company assets not in the ordinary course of its business. On November 26, 2012, all of the members of the Compensation Committee authorized the payment of bonus for the Company stock sold through the Maxim ATM based on the contractual obligation and opinion of independent counsel. For the year ended 2013 and 2012, compensation was granted or paid related to the Executive Performance Incentive Program, as set forth in Section 3(c)(ii) of their respective Employment Agreements, for approximately $12,000 to each Dr. Carter and Mr. Equels in 2013 and $1,159,000 to each Dr. Carter and Mr. Equels in 2012.
Long-Term Bonus Incentive Programs
The Compensation Committee believes that team oriented performance by our NEO, non-officer Executive officers and all employees, consistent with our short and long-term goals, can be achieved through the use of goal or result oriented bonus programs. For the year ending 2013, the Employee Bonus Pool Program continued to exist to provide our employees, including our NEO and certain senior, non-officer Executives, with incentives to help align their financial interests with that of Hemispherx and its stockholders. For the year ending 2013, no compensation was granted or paid in relation to Long-Term Bonus Programs.
Employee Bonus Pool Program
An element of 2009’s Employee Wage Or Hours Reduction Program was the establishment of a Bonus Pool (the “Pool”) in the case of FDA Approval (“Approval”) of Ampligen®. This bonus is to award to each employee of record at January 1, 2009 a pretax sum of 30% in wages, calculated on their base salary per annum compensation at the time of the Approval, and awarded within three months of Approval. Participants who terminate their employment prior to the Approval will not qualify for this bonus. For the year ended 2013, no compensation was granted or paid related to the Employee Bonus Pool Program.
Stock Options
The Compensation Committee believes that long-term performance is achieved through an ownership culture that encourages such performance by our NEO, non-officer Executives and all employees through the use of stock and stock-based awards. Our stock plans have been established to provide our employees, including our NEO and senior non-officer Executives, with incentives to help align their interests with the interests of stockholders. Accordingly, the Compensation Committee believes that the use of stock and stock-based awards offers the best approach to achieving long-term performance goals because:
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Stock options align the interests of Executives and employees with those of the stockholders, support a pay-for-performance culture, foster employee stock ownership, and focus the management team on increasing value for the stockholders;
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Stock options are performance based. All the value received by the recipient of a stock option is based on the growth of the stock price; and
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Stock options help to provide a balance to the overall executive compensation program as base salary and our discretionary annual bonus program focus on short-term compensation.
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We have historically elected, and continue to use, stock options as the primary long-term equity incentive vehicle. We have adopted stock ownership guidelines and our stock compensation plans have provided the principal method, other than through direct investment for our executives to acquire equity in our Company. The Compensation Committee believes that the annual aggregate value of these awards should be set near competitive median levels for comparable companies. However, in the early stage of our business, we provided a greater portion of total compensation to our Executives through our stock compensation plans than through cash-based compensation.
In determining the number of stock options to be granted to NEO, non-officer Executives and employees, we take into account the individual's position, scope of responsibility, ability to affect profits and stockholder value and the individual's historic and recent performance and the value of stock options in relation to other elements of the individual's total compensation.
Our stock plans authorize us to grant options to purchase shares of common stock to our NEO, employees, Directors and consultants. Our Compensation Committee oversees the administration of our stock option plan. The Compensation Committee reviews and recommends approval by our Board of Directors of stock option awards to NEO based upon a review of competitive compensation data, its assessment of individual performance, a review of each Executive's existing long-term incentives and retention considerations. Periodic stock option grants are made at the discretion of the Board of Directors upon recommendation of the Compensation Committee to eligible NEO and employees and, in appropriate circumstances, the Compensation Committee considers the recommendations of the CEO.
As a reinforcement to employees that one of the Company’s priorities continues to be that of increasing shareholder value, the Compensation Committee and Board have historically granted the replacement of expired stock options to all current employees at the same number of shares and exercise price as had been originally issued.
Effective as of December 2011, the Compensation Committee mandated that the standard terms of options to be issued to individuals in their role as Company employees to require that such options not vest sooner than one year from the date of issuance and that, to the extent that any such options have not vested on the date of an Executive’s termination, the options shall be void as to such unvested portion.
The following Options were issued to NEO in their role as employees during 2013:
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On June 6, 2013, we granted options to William A. Carter, Chairman, Chief Executive Officer and Chief Scientific Officer, consistent with his employment agreement, to purchase
500,000
ten
year options to purchase common stock at
$0.31
per share which vest in entirety in
one year
; and
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On June 6, 2013, we granted options to Thomas K. Equels, Executive Vice Chairman, Secretary and General Counsel, consistent with his employment agreement
300,000
ten
year options to purchase common stock at
$0.31
per share which vest in entirety in
one year
, and;
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The following Options were issued to NEOs in their role as employees during 2012:
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On April 13, 2012, we granted 10 year term replacement options to purchase 10,000 shares of our common stock at an exercise price of $4.03 per share that vested immediately to both Dr. William Carter, Chairman, Chief Executive Officer and Chief Scientific Officer, and Dr. David Strayer, Chief Medical Officer and Medical Director, respectively;
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On June 5, 2012, we granted options to purchase 50,000 shares of our common stock at an exercise price of $0.29 per share, or 110% of the closing price of the stock on the NYSE MKT as of June 4, 2012 with total vesting in twelve months, to Robert Dickey, Senior Vice President;
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On June 11, 2012, we granted options to purchase 500,000 shares of our common stock at an exercise price of $0.31 per share, or 110% of the $0.28 closing price of the stock on the NYSE MKT as of June 10, 2012 with total vesting in twelve months, to William A. Carter, Chairman, Chief Executive Officer and Chief Scientific Officer, consistent with his employment agreement; and
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On June 11, 2012, we granted options to purchase 300,000 shares of our common stock at an exercise price of $0.31 per share, or 110% of the $0.28 closing price of the stock on the NYSE MKT as of June 10, 2012 with total vesting
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in twelve months, to Thomas K. Equels, Executive Vice Chairman, Secretary and General Counsel, consistent with his employment agreement.
Claw-Back Compensation Recoupment Provisions
Effective December 2011, all Executive compensation including and without limitation to base salary, bonuses, stock options, and fringe benefits, shall be subject to recoupment from the Employee by the Company pursuant to the Company’s Executive Compensation Recoupment Policies adopted December 1, 2011, as may be amended by the Company’s Board of Directors from time to time to remain in compliance with the claw-back compensation recoupment provisions of the Dodd-Frank Act.
Other Compensation
We provide the following benefits to our NEO generally on the same bases as benefits provided to all full-time employees:
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Health, vision and dental insurance;
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Short and long-term disability insurance; and
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401(k) with Company matching of up to 6% of employee’s contribution or to the extent of IRS regulations, whichever is lower.
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The Compensation Committee believes that these benefits are consistent with those offered by other companies, specifically those provided by our peers. Occasionally, certain Executives separately negotiate other benefits in addition to the benefits described above. The following additional benefits were provided in 2012 NEO as an element of their respective employment:
Dr. William Carter, Chief Executive Officer and Chief Scientific Officer:
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Reimbursement of home office, computer, internet, phone and telefax expenses;
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Health, vision and dental insurance fully paid by the Company; and
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Supplementary life and disability insurance policies.
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Thomas Equels, General Counsel:
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Predetermined allowance for the Company’s utilization of Florida offices of Equels Law Firm;
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Reimbursement of home office, computer, internet, phone and telefax expenses;
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Health, vision and dental insurance fully paid by the Company; and
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Supplementary life and disability insurance policies.
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Charles Bernhardt, Chief Financial Officer and Chief Accounting Officer (On November 15, 2013, Charles T. Bernhardt resigned as our Chief Financial Officer and Chief Accounting Officer, effective December 27, 2013; any severance due Mr. Bernhardt resulting from his resignation is currently in dispute):
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Reimbursement of home office, computer, internet, phone and telefax expenses; and
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Health, vision and dental insurance fully paid by the Company.
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401(k) Plan
In December 1995, we established a defined contribution plan, effective January 1, 1995, entitled the Hemispherx Biopharma employees 401(k) Plan and Trust Agreement. All of our full-time employees are eligible to participate in the 401(k) plan following one year of employment. Subject to certain limitations imposed by Federal Tax laws, participants are eligible to contribute up to 15% of their salary (including bonuses and/or commissions) per annum. Through March 14, 2008, Participants' contributions to the 401(k) plan were matched by Hemispherx at a rate determined annually by the Board of Directors. Each participant immediately vests in his or her deferred salary contributions, while our contributions will vest over one year.
Effective March 15, 2008 and continuing through December 31, 2009, we halted our matching of 401(k) contributions provided to the account for each eligible participant. Effective January 1, 2010, our Compensation Committee reestablished
Hemispherx’ 100% matching of up to 6% of the 401(k) contributions provided to the account for each eligible participant, to the dollar extent permitted by IRS regulations, including without exception each eligible Named Executive Officer.
Key Employee Retention
On December 31, 2008, we entered into a severance/consulting agreement with the former Chief Financial Officer, Robert E. Peterson. This agreement provides a monthly fee of $4,000 plus travel expenses and Options to purchase 20,000 shares of the our common stock at the end of each calendar quarter through December 31, 2011 in return for consulting services. The exercise price of the Options was to be equal to 120% of the closing price of our stock on the NYSE MKT on the last trading day of the calendar quarter for which the Options are being issued.
Additionally, the severance/consulting agreement remains in effect until passage of one of the following events:
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One percent fee to be paid to Mr. Peterson in the event of financial transactions to raise capital for a maximum potential pay-out value of $540,000 (two times the amount of compensation agreed upon with Mr. Peterson by us for calendar year 2008 compensation); or
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On the occurrence of a “Change In Control", the Company shall pay to Peterson three times the amount of compensation paid to Peterson by the Company for calendar year 2008.
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As a result of Financial Transactions completed through the sale of Company stock in the Maxim ATM, Mr. Peterson was due $2,488 and $231,839 in 2013 and 2012, respectively, towards the Peterson One Per Cent Fee, for which $24,850 and $86,956 remained outstanding at December 31, 2013 and 2012, respectively for the agreement to terminate as fulfilled.
Severance
In determining whether to approve and setting the terms of severance arrangements, the Compensation Committee recognizes that Executives, especially highly ranked Executives, often face challenges securing new employment following termination. Upon termination of employment, the following NEO currently are entitled to receive severance payments under their employment and/or engagement agreements:
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William A. Carter, Chairman of the Board, Chief Executive Officer, President and Chief Scientific Officer;
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•
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Thomas K. Equels, Executive Vice Chairman of the Board, Secretary and General Counsel; and
|
|
|
|
|
•
|
Charles T. Bernhardt, Chief Financial Officer and Chief Accounting Officer.
|
The Compensation Committee believes that severance agreements provided to these individuals are generally in line with severance packages offered to executive officers of companies of similar size. Alternately, Dr. David Strayer is currently not covered under an existing severance agreement. Any severance benefits payable to them under similar circumstances would be determined by the Compensation Committee in its discretion. See “Estimated Payments Following Severance — Named Executive Officers”.
Conclusion
Our compensation policies are designed to retain and motivate our Executive Officers, other non-officer Executives and non-Executives and to ultimately reward them for outstanding individual and corporate performance.
__________________________________________________
COMPENSATION COMMITTEE REPORT
The Compensation Committee of our Board of Directors oversees our compensation program on behalf of the Board. In fulfilling its oversight responsibilities, the Committee reviewed and discussed with Management the Executive Compensation Discussion and Analysis set forth in this Form 10-K for the fiscal year ended December 31, 2013.
In reliance on the review and discussions referred to above, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and Hemispherx’ Proxy Statement to be filed in connection with Hemispherx’ 2014 Annual Meeting of Stockholders.
COMPENSATION COMMITTEE
Dr. Iraj E. Kiani, Committee Chairman
Dr. William M. Mitchell
Mr. Peter W. Rodino
The foregoing Compensation Committee report shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, and shall not otherwise be deemed filed under these acts, except to the extent we incorporate by reference into such filings.
Compliance With Internal Revenue Code Section 162(m) and 409A & 409(b)
One of the factors the Compensation Committee considers in connection with compensation matters is the anticipated tax treatment to Hemispherx and to the Executives of the compensation arrangements. The deductibility of certain types of compensation depends upon the timing of an executive’s vesting in, or exercise of, previously granted rights. Moreover, interpretation of, and changes in, the tax laws and other factors beyond the Compensation Committee’s control also affect the deductibility of compensation. Accordingly, the Compensation Committee will not necessarily limit executive compensation to that deductible under Section 162(m) or 409A & 409(b) of the Code. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent consistent with its other compensation objectives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Compensation Committee of the Board of Directors, consisting of Dr. Iraj E. Kiani, the Committee Chair, Dr. William M. Mitchell and Peter W. Rodino are all independent directors. There are no interlocking relationships.
EXECUTIVE COMPENSATION
The following table provides information on the compensation during the fiscal years ended December 31, 2013, 2012 and 2011 of our Chief Executive Officer, Chief Financial Officers, three other most highly compensated Executive Officers constituting the Company’s Named Executive Officers, based on the year ended 2013 for each fiscal year.
Summary Compensation Table
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Name & Principal
Position
|
|
Year
|
|
Salary /
Fees (3)
|
|
Bonus
|
|
Stock
Awards
(15)
|
|
Option
Awards
(3) (15)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Change
in
Pension
Valued
and
NQDC
Earnings
($)
|
|
All Other
Compensation
|
|
Total
(3)
|
|
William A. Carter
|
|
2013
|
|
$
|
1,180,155
|
|
|
$
|
12,444
|
|
|
$
|
0
|
|
|
$
|
125,699
|
|
(1)
|
$
|
0
|
|
|
—
|
|
|
$
|
147,662
|
|
(16)
|
$
|
1,465,960
|
|
|
CEO, President & CSO (1) (3)
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2012
|
|
$
|
1,143,692
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|
|
$
|
1,401,099
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(4)(8)
|
$
|
0
|
|
|
$
|
133,627
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|
(1)(5)
|
$
|
0
|
|
|
—
|
|
|
$
|
148,938
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|
(16)
|
$
|
2,827,356
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2011
|
|
$
|
1,007,714
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|
|
$
|
233,500
|
|
(9)
|
$
|
0
|
|
|
$
|
143,749
|
|
(1)
|
$
|
0
|
|
|
—
|
|
|
$
|
132,052
|
|
(16)
|
$
|
1,517,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Thomas K. Equels
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2013
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|
$
|
721,088
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|
$
|
12,444
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|
|
$
|
0
|
|
|
$
|
86,826
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|
(2)
|
$
|
0
|
|
|
—
|
|
|
$
|
95,250
|
|
(17)
|
$
|
915,608
|
|
|
General Counsel (2) (3)
|
|
2012
|
|
$
|
694,068
|
|
|
$
|
1,288,693
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|
(4)(8)
|
$
|
0
|
|
|
$
|
87,246
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|
(2)
|
$
|
0
|
|
|
—
|
|
|
$
|
101,450
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|
(17)
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$
|
2,171,457
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|
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|
2011
|
|
$
|
572,957
|
|
|
$
|
125,000
|
|
(9)
|
$
|
0
|
|
|
$
|
91,504
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|
(2)
|
$
|
0
|
|
|
—
|
|
|
$
|
48,813
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|
(17)
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$
|
838,274
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Charles Bernhardt(6)
|
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2013
|
|
$
|
246,535
|
|
|
$
|
—
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
41,645
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|
(18)
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$
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288,180
|
|
|
CFO & CAO (6)
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2012
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$
|
233,100
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|
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$
|
58,275
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(8)
|
$
|
0
|
|
|
—
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
41,959
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|
(18)
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$
|
333,334
|
|
|
|
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2011
|
|
$
|
208,389
|
|
|
$
|
81,250
|
|
(9)(12)
|
$
|
0
|
|
|
$
|
14,291
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|
(6)
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$
|
0
|
|
|
—
|
|
|
$
|
25,935
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(18)
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$
|
329,865
|
|
|
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|
|
|
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|
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|
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Robert Dickey (7)
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2013
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$
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204,087
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$
|
0
|
|
|
$
|
0
|
|
|
$
|
—
|
|
(7)
|
$
|
0
|
|
|
—
|
|
|
$
|
8,224
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|
(19)
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$
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212,311
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|
|
Sr. Vice President
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2012
|
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$
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313,390
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|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
9,987
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|
(7)
|
$
|
0
|
|
|
—
|
|
|
$
|
10,429
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|
(19)
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$
|
333,806
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|
|
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2011
|
|
$
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302,500
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|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
7,797
|
|
(19)
|
$
|
310,297
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|
|
|
|
|
|
|
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|
|
|
|
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|
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David Strayer
|
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2013
|
|
$
|
265,493
|
|
|
$
|
—
|
|
|
$
|
0
|
|
|
$
|
—
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
25,602
|
|
(20)
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$
|
291,095
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CMO & Medical Director
|
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2012
|
|
$
|
260,032
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|
|
$
|
65,008
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|
(8)
|
$
|
0
|
|
|
$
|
1,534
|
|
(5)
|
$
|
0
|
|
|
—
|
|
|
$
|
10,030
|
|
(20)
|
$
|
336,604
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|
|
|
|
2011
|
|
$
|
251,000
|
|
|
$
|
51,199
|
|
(9)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
—
|
|
|
$
|
13,098
|
|
(20)
|
$
|
315,297
|
|
Notes:
|
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|
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(1)
|
Dr. Carter renewed his Employment Agreements on June 11, 2010, which was amended on July 15, 2010, then amended and restated on December 6, 2011, that granted him the annual Option to purchase 500,000 shares of Hemispherx common stock as an element of his Employment Agreement.
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(2)
|
Mr. Equels transitioned from the role of external to internal General Counsel and Litigation Counsel effective June 1, 2010 with an Employment Agreement of June 11, 2010, which was amended on July 15, 2010, then amended and
|
restated December 6, 2011, that granted him the annual Option to purchase 300,000 shares of Hemispherx common stock as an element of his Employment Agreement.
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|
|
(3)
|
For Named Executive Officers, who are also Directors that receive compensation for their services as a Director, the Salary/Fees and Option Awards columns include compensation that was received by them for their role as a member of the Board of Directors. As is required by Regulation S-K, Item 402(c), compensation for services as a Director have been reported within the “Summary Compensation Table” (above) for fiscal years of 2012, 2011 and 2010 as well as reported separately in the “Compensation of Directors” section (see below) for calendar year 2012.
|
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|
|
(4)
|
On November 26, 2012, the Compensation Committee authorized the payment of a bonus of 5% on the net dollar proceeds resulting from the sale of Company stock sold through the Maxim ATM to Dr. Carter and Mr. Equels based on the contractual obligation and opinion of independent legal counsel, as set forth in Section 3(c)(ii) of their respective Employment Agreements. Amounts include for 2012, compensation was granted or paid to each Dr. Carter and Mr. Equels, respectively, pursuant to this bonus.
|
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|
(5)
|
On April 13, 2012, the Compensation Committee granted 10 year term replacement options to purchase 10,000 shares of our common stock at an exercise price of $4.03 per share that vested immediately to both Dr. Carter and Dr. Strayer.
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|
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(6)
|
Mr. Bernhardt became Chief Financial Officer effective January 1, 2009. He entered into an Employment Agreement on December 6, 2010, that was amended and restated on December 6, 2011, that granted the Option to purchase 100,000 shares of Hemispherx common stock in 2010 and 2011 as an element of each of his Employment Agreement. On November 15, 2013, Charles T. Bernhardt resigned as Chief Financial Officer and Chief Accounting Officer effective December 27, 2013. A severance package of $237,995 for one year's salary and $25,228 for benefits was accrued at December 31, 2013; however, these amounts were not included within the above table as they are currently in dispute.
|
|
|
|
|
(7)
|
Mr. Dickey entered into an Employment Agreement with Hemispherx effective June 11, 2009 that was amended and restated on February 1, 2010 and then again effective September 1, 2010. On June 5, 2012, the Compensation Committee granted him an Option to purchase 50,000 shares of our common stock at the exercise price of $0.26 per share that will vest one year after issuance. On August 12, 2013, Robert Dickey, IV resigned as Senior Vice President of Hemispherx effective August 16, 2013.
|
|
|
|
|
(8)
|
On January 10, 2013, our Compensation Committee of the Board of Directors awarded bonuses to certain NEO and senior, non-officer Executives in recognition for their achievement towards of 2012 Company-wide and individual goals.
|
|
|
|
|
(9)
|
December 19, 2011, our Compensation Committee of the Board of Directors awarded bonuses to certain NEO and senior, non-officer Executives in recognition for their achievement towards of 2011 Company-wide and individual goals.
|
|
|
|
|
(10)
|
On December 22, 2010, our Compensation Committee of the Board of Directors awarded bonuses to certain NEO and senior, non-officer Executives in recognition for their achievement towards of 2010 Company-wide and individual goals.
|
|
|
|
|
(11)
|
On December 6, 2010, our Compensation Committee of the Board of Directors awarded an extraordinary bonus of $150,000 to Mr. Equels related to his service as external legal counsel from 2008 through May 2010.
|
|
|
|
|
(12)
|
On March 3, 2011, our Compensation Committee of the Board of Directors awarded an extraordinary bonus of $25,000 to Mr. Bernhardt related to his effort in financial reporting.
|
|
|
|
|
(13)
|
Hemispherx’ “Employee Wage Or Hours Reduction Program” allowed an individual to elect a 50% reduction in salary/fees which would allow them to be eligible for an incentive award of three times the value of stock-based on the average NYSE MKT closing value of the stock during the respective months of January through May, 2009. The value was obtained using the Black-Scholes pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(14)
|
On December 22, 2010, the Compensation Committee granted 10 year term replacement options to purchase 73,728 shares of our common stock at an exercise price of $2.71 per share that vested immediately to both Dr. Carter.
|
|
|
|
|
(15)
|
The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R). See Note 2(j) Stock-Based Compensation in the financial statements.
|
|
|
|
|
(16)
|
Dr. Carter’s All Other Compensation Consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Life and Disability Insurance
|
$
|
84,709
|
|
|
$
|
79,322
|
|
|
$
|
86,386
|
|
|
Healthcare Insurance
|
17,653
|
|
|
24,616
|
|
|
16,696
|
|
|
Company Car Expenses / Car Allowance
|
30,000
|
|
|
30,000
|
|
|
11,535
|
|
|
Outside Office Expenses
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
401(k) matching funds
|
15,300
|
|
|
15,000
|
|
|
17,435
|
|
|
|
$
|
147,662
|
|
|
$
|
148,938
|
|
|
$
|
132,052
|
|
|
|
|
|
(17)
|
Mr. Equels’ All Other Compensation consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Life and Disability Insurance
|
$
|
19,420
|
|
|
$
|
27,350
|
|
|
$
|
24,170
|
|
|
Healthcare Insurance
|
42,530
|
|
|
41,100
|
|
|
11,623
|
|
|
Car Expenses / Allowance
|
18,000
|
|
|
18,000
|
|
|
-0-
|
|
|
Outside Office Expenses
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
401(k) matching funds
|
15,300
|
|
|
15,000
|
|
|
13,020
|
|
|
|
$
|
95,250
|
|
|
$
|
101,450
|
|
|
$
|
48,813
|
|
|
|
|
|
(18)
|
Mr. Bernhardt’s All Other Compensation consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Life and Disability Insurance
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
Healthcare Insurance(includes severence benefits)
|
26,345
|
|
|
25,228
|
|
|
9,074
|
|
|
Outside Office Expenses
|
—
|
|
|
1,731
|
|
|
-0-
|
|
|
401(k) matching funds
|
15,300
|
|
|
15,000
|
|
|
16,861
|
|
|
|
$
|
41,645
|
|
|
$
|
41,959
|
|
|
$
|
25,935
|
|
|
|
|
|
(19)
|
Mr. Dickey’s All Other Compensation consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Life and Disability Insurance
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
Healthcare Insurance
|
8,224
|
|
|
10,429
|
|
|
7,797
|
|
|
401(k) matching funds
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
$
|
8,224
|
|
|
$
|
10,429
|
|
|
$
|
7,797
|
|
|
|
|
|
(20)
|
Dr. Strayer’s All Other Compensation consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Life and Disability Insurance
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
Healthcare Insurance
|
10,302
|
|
|
10,030
|
|
|
3,598
|
|
|
401(k) matching funds
|
15,300
|
|
|
-0-
|
|
|
9,500
|
|
|
|
$
|
25,602
|
|
|
$
|
10,030
|
|
|
$
|
13,098
|
|
Grants Of Plan Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name (4)(5)
|
|
Grant Date
(2)
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
|
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards
|
|
All
Other
Stock
Awards: Number
of
Shares
of Stock
or Units
(#)
|
|
All Other
Option
Awards:
Number of Securities
of
Underlying
Options
(#)(2)
|
|
Exercise
or Base
Price of
Option
Awards
($/Sh)
|
|
Grant Date
Fair Value
of Stock
and
Option
Awards
($)
|
|
|
|
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
|
|
|
|
|
|
|
|
William A. Carter,
|
|
|
|
—
|
|
|
200,078
|
|
|
250,097
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Chief Executive Officer
|
|
6/6/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,777
|
|
(3)
|
|
|
|
|
|
|
500,000
|
|
|
0.31
|
|
|
97,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas K. Equels,
|
|
|
|
—
|
|
|
108,264
|
|
|
135,331
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
General Counsel
|
|
6/6/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,777
|
|
(3)
|
|
|
|
|
|
|
500,000
|
|
|
0.31
|
|
|
58,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer,
|
|
|
|
—
|
|
|
53,099
|
|
|
66,373
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Medical Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
|
(1)
|
For 2013, the Compensation Committee continued its practice of not establishing or estimating possible future payouts to the NEO under a Cash Bonus Plan. All Bonuses are at the discretion of the Compensation Committee. Utilizing existing Employment Agreements as a benchmark and the respective employees’ Base Salary at January 1, 2014, the “Target” was estimated at 20% of the Base Salary and “Maximum” was estimated at 25% of Base Salary. There were no Non-Equity Incentive Plan Awards granted and/or paid to the NEO's for the year ending 2013.
|
|
|
|
|
(2)
|
Consists of stock options granted during 2013 under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the NYSE MKT closing market price of our common stock on the date of grant. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(3)
|
Consists of stock options contractually required per the NEO’s respective Employment Agreement to be granted during 2013 under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the NYSE MKT closing market price of our common stock on the date of grant. For the purpose of this schedule, a NYSE MKT closing price at December 31, 2013 of $0.27 was assumed with an estimated exercise price of $0.30. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(4)
|
On November 15, 2013, Charles T. Bernhardt resigned as our Chief Financial Officer and Chief Accounting Officer, effective December 27, 2013.
|
|
|
|
|
(5)
|
On August 12, 2013, Robert Dickey, IV resigned as Senior Vice President of Hemispherx effective August 16, 2013.
|
Outstanding Equity Awards At Fiscal Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock
That Have
Not
Vested (#)
|
|
Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested (#)
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights that
Have Not
Vested (#)
|
|
William
|
|
1,450,000
|
|
|
0
|
|
|
0
|
|
|
2.20
|
|
|
9/17/2018
|
|
|
|
|
|
|
|
|
|
Carter,
|
|
1,000,000
|
|
|
0
|
|
|
0
|
|
|
2.00
|
|
|
9/9/2017
|
|
|
|
|
|
|
|
|
|
Chief
|
|
190,000
|
|
|
0
|
|
|
0
|
|
|
4.00
|
|
|
2/18/2018
|
|
|
|
|
|
|
|
|
|
Executive
|
|
73,728
|
|
|
0
|
|
|
0
|
|
|
2.71
|
|
|
12/12/2020
|
|
|
|
|
|
|
|
|
|
Officer
|
|
10,000
|
|
|
0
|
|
|
0
|
|
|
4.03
|
|
|
4/13/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,000
|
|
|
0
|
|
|
0
|
|
|
2.60
|
|
|
9/7/2014
|
|
|
|
|
|
|
|
|
|
|
|
153,000
|
|
|
0
|
|
|
0
|
|
|
2.60
|
|
|
12/7/2014
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
0
|
|
|
0
|
|
|
1.75
|
|
|
4/26/2015
|
|
|
|
|
|
|
|
|
|
|
|
465,000
|
|
|
0
|
|
|
0
|
|
|
1.86
|
|
|
6/30/2015
|
|
|
|
|
|
|
|
|
|
|
|
70,000
|
|
|
0
|
|
|
0
|
|
|
2.87
|
|
|
12/9/2015
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
0
|
|
|
0
|
|
|
2.38
|
|
|
1/1/2016
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
0
|
|
|
0
|
|
|
2.61
|
|
|
12/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
376,650
|
|
|
0
|
|
|
0
|
|
|
3.78
|
|
|
2/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
1,400,000
|
|
|
0
|
|
|
0
|
|
|
3.50
|
|
|
9/30/2017
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
0
|
|
|
0
|
|
|
0.66
|
|
|
6/11/2020
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
0
|
|
|
0
|
|
|
0.41
|
|
|
7/15/2021
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
0
|
|
|
0
|
|
|
0.29
|
|
|
6/6/2022
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
0
|
|
|
0
|
|
|
0.31
|
|
|
6/11/2022
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
500,000
|
|
|
0
|
|
|
0.31
|
|
|
6/6/2023
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
150,000
|
|
|
0
|
|
|
0.25
|
|
|
8/2/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
|
|
300,000
|
|
|
0
|
|
|
0
|
|
|
0.66
|
|
|
6/11/2020
|
|
|
|
|
|
|
|
|
|
Equels,
|
|
300,000
|
|
|
0
|
|
|
0
|
|
|
0.41
|
|
|
6/24/2021
|
|
|
|
|
|
|
|
|
|
General
|
|
100,000
|
|
|
0
|
|
|
0
|
|
|
0.29
|
|
|
6/6/2022
|
|
|
|
|
|
|
|
|
|
Counsel
|
|
300,000
|
|
|
0
|
|
|
0
|
|
|
0.31
|
|
|
6/11/2022
|
|
|
|
|
|
|
|
|
|
Counsel
|
|
0
|
|
|
300,000
|
|
|
0
|
|
|
0.31
|
|
|
6/6/2013
|
|
|
|
|
|
|
|
|
|
Counsel
|
|
0
|
|
|
150,000
|
|
|
0
|
|
|
0.25
|
|
|
8/2/2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernhardt
|
|
100,000
|
|
|
0
|
|
|
0
|
|
|
0.55
|
|
|
12/6/2020
|
|
|
|
|
|
|
|
|
|
Chief
|
|
100,000
|
|
|
0
|
|
|
0
|
|
|
0.31
|
|
|
12/22/2021
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
|
|
150,000
|
|
|
0
|
|
|
0
|
|
|
2.81
|
|
|
6/11/2019
|
|
|
|
|
|
|
|
|
|
Dickey
|
|
50,000
|
|
|
0
|
|
|
0
|
|
|
0.29
|
|
|
6/6/2022
|
|
|
|
|
|
|
|
|
|
Sr. Vice
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
|
|
50,000
|
|
|
0
|
|
|
0
|
|
|
2.00
|
|
|
9/9/2017
|
|
|
|
|
|
|
|
|
|
Stayer,
|
|
50,000
|
|
|
0
|
|
|
0
|
|
|
4.00
|
|
|
2/28/2018
|
|
|
|
|
|
|
|
|
|
Medical
|
|
10,000
|
|
|
0
|
|
|
0
|
|
|
4.03
|
|
|
4/13/2022
|
|
|
|
|
|
|
|
|
|
Director
|
|
20,000
|
|
|
0
|
|
|
0
|
|
|
2.37
|
|
|
1/23/2017
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
0
|
|
|
0
|
|
|
1.90
|
|
|
12/7/2014
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
0
|
|
|
0
|
|
|
2.61
|
|
|
12/8/2015
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
0
|
|
|
0
|
|
|
2.20
|
|
|
11/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
0
|
|
|
0
|
|
|
1.30
|
|
|
12/6/2017
|
|
|
|
|
|
|
|
|
Option Exercises And Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name and Principal Position
|
|
Number of Shares
Acquired on Exercise (#)
|
|
Value Realized on
Exercise ($)
|
|
Number of Shares
Acquired on Vesting (#)
|
|
Value
Realized
on Vesting ($)
|
|
William A. Carter,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas K. Equels,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles T. Bernhardt,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Dickey,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Senior Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer,
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Medical Director
|
|
|
|
|
|
|
|
|
Payments on Disability
At December 31, 2013, we had employment agreements with Dr. Carter and Mr. Equels which entitled them Base Salary and applicable benefits otherwise due and payable through the last day of the month in which disability occurs and for an additional twelve month period. Each current NEO has the same short and long-term disability coverage which is available to all eligible employees. The coverage for short-term disability provides up to six months of full salary continuation up to 60% of weekly pay, less other income, with a $1,500 weekly maximum limit. The coverage for group long-term disability provides coverage at the exhaustion of short-term disability benefits of full salary continuation up to 60% of monthly pay, less other income, with a $10,000 monthly maximum limit. The maximum benefit period for the group long-term disability coverage is 60 months for those age 60 and younger at the time of the claim with the coverage period proportionately reduced with the advanced age of the eligible employee to a minimum coverage period of 12 months for those of 69 years old and older as of the date of the claim. In June 2010 through 2013 pursuant to their respective employment agreements and payable by us, Dr. Carter is entitled to receive total disability coverage of $500,000 and Mr. Equels is entitled to receive total disability coverage of $400,000.
Payments on Death
At December 31, 2013, we had employment agreements with Dr. Carter and Mr. Equels which entitled them Base Salary and applicable benefits otherwise due and payable through the last day of the month in which death occurs and for an additional twelve month period. Each NEO has coverage of group life insurance, along with accidental death and dismemberment benefits, consistent to the dollar value available to all eligible employees. The benefit is equal to two times current salary or wage with a maximum limit of $300,000, plus any supplemental life insurance elected and paid for by the NEO. In June 2010 and through 2013 pursuant to their respective employment agreements and payable by us, Dr. Carter is entitled to receive total death benefit coverage of $6,000,000 and Mr. Equels is entitled to receive total death benefit coverage of $3,000,000.
Estimated Payments Following Severance — Named Executive Officers
At December 31, 2013, we had employment agreements with Dr. Carter and Mr. Equels which entitled them to severance benefits on certain types of employment terminations not related to a change in control. Dr. Strayer is not covered by an employment agreement and therefore would only receive severance as determined by the Compensation Committee in its discretion. On November 15, 2013, Charles T. Bernhardt resigned as our Chief Financial Officer and Chief Accounting Officer effective December 27, 2013. On August 12, 2013, Robert Dickey, IV resigned as Senior Vice President of Hemispherx effective August 16, 2013. Due to the resignations of both Mr. Bernhardt and Mr. Dickey, we elected not to disclose any estimated payments following severance for these individuals. In addition, any amount due Mr. Bernhardt following his
resignation is currently in dispute - See "Part 1; Item 3. Legal Proceedings". Mr. Dickey did not have provisions within his agreement regarding severance.
The dollar amounts below assume that the termination occurred on January 1, 2014. The actual dollar amounts to be paid can only be determined at the time of the NEO’s separation from Hemispherx based on their prevailing compensation and employment agreements along with any determination by the Compensation Committee in its discretion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Event
|
Cash
Severance
($)
|
|
Value of Stock
Awards That
Will Become
Vested (1) ($)
|
|
Continuation of
Medical Benefits
(2) ($)
|
|
Additional
Life
Insurance
(3) ($)
|
|
Total
($)
|
|
William A. Carter
|
|
Involuntary (no cause)
|
2,674,318
|
|
|
443,030
|
|
|
46,932
|
|
|
260,154
|
|
|
3,424,434
|
|
|
Chief Executive Officer
|
|
Termination (for cause)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Death or disability
|
1,000,388
|
|
|
110,758
|
|
|
15,644
|
|
|
86,718
|
|
|
1,213,508
|
|
|
|
|
Termination by employee or retirement
|
1,000,388
|
|
|
110,758
|
|
|
15,644
|
|
|
86,718
|
|
|
1,213,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas K. Equels
|
|
Involuntary (no cause)
|
1,623,966
|
|
|
277,225
|
|
|
119,481
|
|
|
66,369
|
|
|
2,087,041
|
|
|
General Counsel
|
|
Termination (for cause)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Death or disability
|
541,322
|
|
|
69,306
|
|
|
39,827
|
|
|
22,123
|
|
|
672,578
|
|
|
|
|
Termination by employee or retirement
|
541,322
|
|
|
69,306
|
|
|
39,827
|
|
|
22,123
|
|
|
672,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer
|
|
Involuntary (no cause)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Medical Director
|
|
Termination (for cause)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Death or disability
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Termination by employee or retirement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Notes:
|
|
|
|
(1)
|
Consists of stock options contractually required per the employee’s respective Employment Agreement to be granted during each calendar year of the term under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the closing market price of the our common stock on the date of grant. For the purpose of this schedule, a NYSE MKT closing price at December 31, 2013 of $0.27 was utilized with an estimated exercise price of $0.30. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(2)
|
This amount reflects the current premium incremental cost to the Company for continuation of elected benefits to the extent required under an applicable agreement.
|
|
|
|
|
(3)
|
The life insurance benefit represents life insurance paid for by the Company including the standard coverage offer to all full-time employees.
|
Payments On Termination in Connection With a Change in Control Named Executive Officers
At December 31, 2013, we had employment agreements with Dr. Carter and Mr. Equels which entitled them to severance benefits on certain types of employment terminations related to a change in control thereby the term of their respective agreements would automatically be extended for three additional years. Dr. Strayer is not covered by an employment agreement and therefore would only receive severance from a change in control as determined by the Compensation Committee in its discretion. Any specific benefits for these two NEO would be determined by the Compensation Committee in its discretion.
The dollar amounts in the chart below assume that change in control termination occurred on January 1, 2014, based on the employment agreements that existed at that time. The actual dollar amounts to be paid can only be determined at the time of the NEO’s separation from Hemispherx based on their prevailing compensation and employment agreements along with any determination by the Compensation Committee in its discretion.
Estimated Benefits on Termination Following a Change in Control — December 31, 2013
The following table shows potential payments to the NEO if their employment terminates following a change in control under contracts, agreements, plans or arrangements at December 31, 2013. The amounts assume a January 1, 2014 termination date regarding base pay and use of the opening price of $0.27 on the NYSE MKT for our common stock at that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Aggregate
Severance Pay
($)
|
|
PVSU
Acceleration
(2) ($)
|
|
Early
Vesting
of
Restricted
Stock (4) (5)
($)
|
|
Early
Vesting
of Stock
Options
and SARs
(3) ($)
|
|
Acceleration
and
Vesting of
Supplemental
Award (5) ($)
|
|
Welfare
Benefits
Continuation
(6) (7) ($)
|
|
Outplacement
Assistance
($)
|
|
Parachute
Tax
Gross-up
Payment
($)
|
|
Total
($)
|
|
William A. Carter
|
|
4,694,944
|
|
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
886,060
|
|
(4)
|
704,172
|
|
(1)
|
—
|
|
|
—
|
|
|
6,285,176
|
|
|
Thomas K. Equels
|
|
3,247,933
|
|
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
554,450
|
|
(4)
|
461,700
|
|
(1)
|
—
|
|
|
—
|
|
|
4,264,083
|
|
|
David Strayer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Notes:
|
|
|
|
(1)
|
This amount represents the base salary or benefits for remaining term of the NEO’s employment agreement plus a three year extension in the term upon the occurrence of a termination from a change in control. The existing employment agreements with Dr. Carter and Mr. Equels have a term through December 31, 2016.
|
|
|
|
|
(2)
|
This amount represents the payout of all outstanding performance-vesting share units (“PVSU”) awarded on a change in control at the target payout level with each award then pro-rated based on the time elapsed for the applicable three-year performance period.
|
|
|
|
|
(3)
|
This amount is the intrinsic value [fair market value on January 1, 2014 ($0.27 per share) minus the per share exercise price of 110%] of all unvested stock options for each NEO, including Stock Appreciation Rights (“SAR”). Any option with an exercise price of greater than fair market value was assumed to be cancelled for no consideration and, therefore, had no intrinsic value.
|
|
|
|
|
(4)
|
This amount represents the options to be issued annually for the remaining term of the NEO’s employment agreement plus a three year extension in the occurrence of termination from a change in control. The calculation was based on a NYSE MKT closing price for December 31, 2013 of $0.27 with an estimated exercise price of $0.30 (110% prior NYSE MKT closing value). The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(5)
|
Any purchase rights represented by the Option not then vested shall, upon a change in control, shall become vested.
|
|
|
|
|
(6)
|
This amount represents the employer-paid portion of the premiums for medical, dental, vision, life and disability insurance coverage utilizing the costs as of January 1, 2014.
|
|
|
|
|
(7)
|
This amount also includes the estimated cost of Company’s 100% match 401(k) contributions up to 6% of Base Pay to a maximum of $15,000 per year.
|
Definition of “Change in Control”
.For each agreement, a “Change in Control” is defined generally as any such event that requires a report to the SEC, but includes any of the following:
|
|
|
|
•
|
Any person or entity other than Hemispherx, any of our current Directors or Officers or a Trustee or fiduciary holding our securities, becomes the beneficial owner of more than 50% of the combined voting power of our outstanding securities;
|
|
|
|
|
•
|
An acquisition, sale, merger or other transaction that results in a change in ownership of more than 50% of the combined voting power of our stock or the sale/transfer of more than 75% of our assets;
|
|
|
|
|
•
|
A change in the majority of our Board of Directors over a two-year period that is not approved by at least two-thirds of the Directors then in office who were Directors at the beginning of the period; or
|
|
|
|
|
•
|
Execution of an agreement with Hemispherx, which if consummated, would result in any of the above events.
|
Definition of “Constructive Termination”.
A “Constructive Termination” generally includes any of the following actions taken by Hemispherx without the Executive’s written consent following a change in control:
|
|
|
|
•
|
Significantly reducing or diminishing the nature or scope of the executive’s authority or duties;
|
|
|
|
|
•
|
Materially reducing the executive’s annual salary or incentive compensation opportunities;
|
|
|
|
|
•
|
Changing the executive’s office location so that he must commute more than 50 miles, as compared to his commute as of the date of the agreement;
|
|
|
|
|
•
|
Failing to provide substantially similar fringe benefits, or substitute benefits that were substantially similar taken as a whole, to the benefits provided as of the date of the agreement; or
|
|
|
|
|
•
|
Failing to obtain a satisfactory agreement from any successor to Hemispherx to assume and agree to perform the obligations under the agreement.
|
However, no constructive termination occurs if the executive:
|
|
|
|
•
|
Fails to give us written notice of his intention to claim constructive termination and the basis for that claim at least 10 days in advance of the effective date of the executive’s resignation; or
|
|
|
|
|
•
|
We cure the circumstances giving rise to the constructive termination before the effective date of the executive’s resignation.
|
Available Information
Our Internet website is www.hemispherx.net and you may find our SEC filings in the “Investor Relations” under “SEC Filings”. We provide access to our filings with the SEC, free of charge through www.sec.gov, as soon as reasonably practicable after filing with the SEC. Our Internet website and the information contained on that website, or accessible from our website, is not intended to be incorporated into this Annual Report on Form 10-K or any other filings we make with the SEC.
Post-Employment Compensation
We have agreements with the following NEOs who have benefits upon termination as a condition of their respective employment agreements: Dr. William Carter, our Chairman, Chief Executive Officer, President and Chief Scientific Officer; and Thomas K. Equels, our Executive Vice Chairman, Secretary and General Counsel.
The following is a description of post-employment compensation payable to the respective NEO. If a NEO does not have a specific benefit, they will not be mentioned in the subsection. In such event, the NEO does not have any such benefits upon termination unless otherwise required by law.
Termination For Cause
All of our NEO can be terminated for cause. For Dr. Carter and Mr. Equels, “Cause” means willful engaging in illegal conduct, gross misconduct or gross violation of the Company’s Code of Ethics and Business Conduct for Officers which is demonstrably and materially injurious to the Company. For purposes of their respective agreements, no act, or failure to act, on employee's part shall be deemed "willful" unless done intentionally by employee and not in good faith and without reasonable belief that employee's action or omission was in the best interest of the Company. Notwithstanding the foregoing, employee shall not be deemed to have been terminated for Cause unless and until the Company delivers to the employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Directors of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to employee and an opportunity for Employee, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, employee was guilty of conduct set forth above and specifying the particulars thereof in detail. In the event that their employment is terminated for Cause, the Company shall pay them, at the time of such termination, only the compensation and benefits otherwise due and payable to them through the last day of their actual employment by the Company.
Termination Without Cause
Dr. Carter and Mr. Equels are each entitled to the compensation and benefits otherwise due and payable to them through the last day of the then current term of their respective agreements
.
In the event that they are terminated at any time without "Cause" the Company shall pay to them, at the time of such termination, the compensation and benefits otherwise due and payable through the last day of the then current term of their Agreement. However, benefit distributions that are made due to a “separation from service” occurring while they are a Named Executive Officer shall not be made during the first six months following separation from service. Rather, any distribution which would otherwise be paid to them during such period shall be accumulated and paid to them in a lump sum on the first day of the seventh month following the “separation from service”. All subsequent distributions shall be paid in the manner specified.
Death or Disability
Dr. Carter and Mr. Equels can be terminated for death or disability. For each, “Disability” means their inability to effectively carry out substantially all of their duties under their agreement by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted for a continuous period of not less than 12 months. In the event their employment is terminated due to his death or disability, the Company will pay to each (or their respective estate as the case may be), at the time of such termination, the Base Salary and applicable benefits otherwise due and payable through the last day of the month in which such termination occurs and for an additional 12 month period.
Termination by Officer and Employee
All NEO employment agreements have the right to terminate their respective agreement upon thirty (30) days or less of prior written notice of termination. In such event, Dr. Carter and Mr. Equels are specifically entitled to fees due to them through the last day of the month in which such termination occurs and for 12 months thereafter. All others NEO are entitled to the fees due to them through the last day of the month in which such termination occurs.
Change in Control
As an element of their employment agreements, Dr. Carter and Mr. Equels are entitled to benefits upon a Change in Control or Constructive Termination that include that any unvested Options immediately vest and the term of their respective employment agreements automatically extend for an additional three years. In the event of a Change in Control, the Company is responsible for the base salary or benefits for remaining term of the NEO’s employment agreement plus an automatic three year extension in the term of the agreement. The existing employment agreements with Dr. Carter and Mr. Equels have a term through December 31, 2016.
Compensation of Directors
Our Compensation, Audit and Corporate Governance and Nomination Committees, consist of Dr. Iraj E. Kiani, Compensation Committee Chair, Dr. William M. Mitchell, Corporate Governance and Nomination Committee Chair, and Peter W. Rodino, Audit Committee Chair, all of whom are independent Board of Director members.
Hemispherx reimburses Directors for travel expenses incurred in connection with attending board, committee, stockholder and special meetings along with other Company business-related expenses. Hemispherx does not provide retirement benefits or other perquisites to non-employee Directors under any current program.
Commencing as of January 1, 2013, a 2.1% cost of living increase was granted to Board member Directors' fee compensation, increasing 2012's annual retainer from $176,068 to $179,766 for 2013. Directors' fees will continue to be paid quarterly in cash at the end of each calendar quarter. There was no cost of living increase for 2014.
In 2012, it was identified that one of our non-employee Directors, Dr. Iraj E. Kiani, had not been compensated for his service to the Company from his joining of the Board of Directors on May, 1, 2002 through December 31, 2004. Through July 24, 2012, the Board of Directors has researched this issue, taking into account payments made to other non-employee Directors during that time. As a result, the Company has dispensed the following to Dr. Kiani regarding his previously unpaid services:
|
|
|
|
•
|
$28,667 for 2002, proportionate to his seven months of service;
|
|
|
|
|
•
|
16,270 shares in Restricted Company Common Stock as partial payment, based on the June 6, 2012 NYSE MKT closing price of $0.26 per share as compensation for the $100,000 worth of stock that had been previously distributed to other non-employee Directors for services provided in 2003 and 2004, during which time, the stock traded from $1.83 to $3.47 per share; and
|
|
|
|
|
•
|
368,345 shares of Restricted Company Common Stock as balance due for services provided in 2003 and 2004 that had previously been paid in stock to non-employee Directors, during which time the stock traded from $1.83 to $3.47 per share, based on the June 6, 2012, NYSE MKT closing price of $0.26 per share.
|
All Directors have been granted options to purchase common stock under our Stock Option Plans and/or Warrants to purchase common stock. We believe such compensation and payments are necessary in order for us to attract and retain qualified outside directors. To the extent that share compensation would exceed 1,000,000 shares in the aggregate for the ten year period commencing January 1, 2003, as previously approved by Resolution of the Board of September 9, 2003, shares for share compensation were issued under the our 2007 and 2009 Equity Incentive Plans.
In recognition of that the Board members’ commitment of time and effort has increased over time for the benefit of the Company as the demand for specific expertise has grown and corporate governance issues require greater attention in a highly regulated environment, each Director was granted an Option to purchase 100,000 shares of Company common stock. The respective Options were granted with an exercise price equal to 110% of the final closing price of the Company’s common stock on the NYSE MKT LLC as of June 5, 2012 ($0.26), will vest one year after issuance, contain a cashless exercise provision, have a ten year term and were issued from the Company’s 2009 Equity Incentive Plan.
Director Compensation - 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Title of
Director
|
|
Fees
Earned
or Paid
in Cash
($)
|
|
Stock
Award
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
|
|
All Other Compensation As
Director
($)
|
|
Total
($)
|
|
W. Carter, Chairman
|
|
179,766
|
|
(4)
|
—
|
|
|
28,515
|
|
(1)(4)
|
—
|
|
|
—
|
|
|
—
|
|
|
208,281
|
|
|
T. Equels, Executive Vice Chairman & Secretary
|
|
179,766
|
|
(4)
|
—
|
|
|
28,515
|
|
(1)(4)
|
—
|
|
|
—
|
|
|
—
|
|
|
208,281
|
|
|
W. Mitchell, Director (4)
|
|
179,766
|
|
|
—
|
|
|
28,515
|
|
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
208,281
|
|
|
R. Piani, Director (2)
|
|
71,036
|
|
|
—
|
|
|
—
|
|
—
|
—
|
|
|
—
|
|
|
—
|
|
|
71,036
|
|
|
Peter W. Rodino (3) (5)
|
|
79,251
|
|
|
—
|
|
|
28,515
|
|
(1)
|
|
|
|
|
|
|
107,766
|
|
|
I. Kiani, Director (3)
|
|
179,766
|
|
|
—
|
|
|
28,515
|
|
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
208,281
|
|
Notes:
|
|
|
|
(1)
|
Ten year Option to purchase 150,000 shares at $0.25 per share. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
|
|
(2)
|
On May 23, 2013, Richard C. Piani resigned as a member of our Board of Directors and of Hemispherx Biopharma Europe N.V./S.A. Mr. Piani stated that his resignation was due to health reasons.
|
|
|
|
|
(3)
|
Independent Director of the Company.
|
|
|
|
|
(4)
|
Only includes compensation received in the role as member of the Board of Directors and does not include compensation received in the capacity of a Named Executive Officer. As is required by Regulation S-K, Item 402(c), compensation as a Director has also been reported within the “Summary Compensation Table” regarding Named Executive Officer Compensation during fiscal years of 2012, 2011 and 2010 (see above).
|
|
|
|
|
(5)
|
Mr. Rodino was appointed a Director in July 2013 and presently serves as Chairman and Financial Expert of the Audit Committee, a member of the Compensation Committee and a member of the Governance and Nomination Committee of the Board of Directors.
|
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth as of March 1, 2014, the number and percentage of outstanding shares of common stock beneficially owned by:
|
|
|
|
•
|
Each person, individually or as a group, known to us to be deemed the beneficial owners of five percent or more of our issued and outstanding common stock;
|
|
|
|
|
•
|
Each of our Directors and the Named Executives Officers; and
|
|
|
|
|
•
|
All of our officers and directors as a group.
|
|
|
|
|
|
|
|
|
|
|
|
Name and Address of
Beneficial Owner
|
|
Shares Beneficially Owned
|
|
% Of Shares
Beneficially Owned
|
|
William A. Carter, M.D.
|
|
9,358,174
|
|
(1)(2)
|
4.98
|
%
|
|
Thomas K. Equels
|
|
2,946,640
|
|
(3)
|
1.63
|
%
|
|
Peter W. Rodino III
17400 Sterling Lake Drive
Fort Myers, FL 33967
|
|
150,000
|
|
(4)
|
*
|
|
|
William M. Mitchell, M.D.
Vanderbilt University
Department of Pathology
Medical Center North
21
st
and Garland
Nashville, TN 37232
|
|
866,025
|
|
(5)(6)
|
*
|
|
|
Iraj E. Kiani, N.D., Ph.D.
Orange County Immune Institute
18800 Delaware Street
Huntingdon Beach, CA 92648
|
|
957,886
|
|
(7)
|
*
|
|
|
Wayne S. Springate
783 Jersey Ave.
New Brunswick, NJ 08901
|
|
342,421
|
|
(8)
|
*
|
|
|
David R. Strayer, M.D.
|
|
477,681
|
|
(9)
|
*
|
|
|
All directors and executive officers as a group (7 persons)
|
|
15,098,827
|
|
|
7.89
|
%
|
* Ownership of less than 1%
|
|
|
|
(1)
|
Dr. Carter is our Chairman, Chief Executive Officer and Chief Scientific Officer. He beneficially owns 850,585 shares of common stock and beneficially owns 8,506,574 shares issuable or issued upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2004
|
|
4/13/2012
|
|
$
|
4.03
|
|
|
10,000
|
|
|
4/13/2022
|
|
|
|
|
2009
|
|
12/22/2010
|
|
$
|
2.71
|
|
|
73,728
|
|
|
12/22/2020
|
|
|
|
|
2004
|
|
9/8/2004
|
|
$
|
2.60
|
|
|
167,000
|
|
|
9/7/2014
|
|
|
|
|
2004
|
|
12/7/2004
|
|
$
|
2.60
|
|
|
153,000
|
|
|
12/7/2014
|
|
|
|
|
2004
|
|
4/26/2005
|
|
$
|
1.75
|
|
|
100,000
|
|
|
4/26/2015
|
|
|
|
|
2004
|
|
7/1/2005
|
|
$
|
1.86
|
|
|
465,000
|
|
|
6/30/2015
|
|
|
|
|
2004
|
|
12/9/2005
|
|
$
|
2.61
|
|
|
10,000
|
|
|
12/8/2015
|
|
|
|
|
2004
|
|
12/9/2005
|
|
$
|
2.87
|
|
|
70,000
|
|
|
12/9/2015
|
|
|
|
|
2004
|
|
1/1/2006
|
|
$
|
2.38
|
|
|
300,000
|
|
|
1/1/2016
|
|
|
|
|
2004
|
|
2/22/2006
|
|
$
|
3.78
|
|
|
376,650
|
|
|
2/22/2016
|
|
|
|
|
2004
|
|
9/10/2007
|
|
$
|
2.00
|
|
|
1,000,000
|
|
|
9/9/2017
|
|
|
|
|
2004
|
|
10/1/2007
|
|
$
|
3.50
|
|
|
1,400,000
|
|
|
9/30/2017
|
|
|
|
|
2004
|
|
2/18/2008
|
|
$
|
4.00
|
|
|
190,000
|
|
|
2/18/2018
|
|
|
|
|
2007
|
|
9/17/2008
|
|
$
|
2.20
|
|
|
1,450,000
|
|
|
9/17/2018
|
|
|
|
|
2009
|
|
6/11/2010
|
|
$
|
0.66
|
|
|
500,000
|
|
|
6/11/2020
|
|
|
|
|
2009
|
|
7/15/2011
|
|
$
|
0.41
|
|
|
500,000
|
|
|
7/15/2021
|
|
|
|
|
2009
|
|
6/5/2012
|
|
$
|
0.29
|
|
|
100,000
|
|
|
6/6/2022
|
|
|
|
|
2009
|
|
6/11/2012
|
|
$
|
0.31
|
|
|
500,000
|
|
|
6/11/2022
|
|
|
|
|
2009
|
|
6/6/2013
|
|
$
|
0.31
|
|
|
500,000
|
|
|
6/6/2013
|
|
|
|
|
2009
|
|
8/2/2013
|
|
$
|
0.25
|
|
|
150,000
|
|
|
8/2/2013
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
8,015,378
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants
|
|
2009
|
|
2/1/2009
|
|
$
|
0.51
|
|
|
491,196
|
|
|
2/1/2019
|
|
|
|
|
(2)
|
Katalin Kovari, M.D, is the spouse of Dr. Carter and accordingly all shares owned by each are deemed to be beneficially owned by the other. Dr. Kovari owns 1,015 shares of common stock.
|
|
|
|
|
(3)
|
Mr. Equels is Executive Vice Chairman of our Board of Directors, Secretary and General Counsel who beneficially owns 1,005,444 shares of common stock and beneficially owns 1,941,196 shares issuable or issued upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2009
|
|
6/11/2010
|
|
$
|
0.66
|
|
|
300,000
|
|
|
6/11/2020
|
|
|
|
|
2009
|
|
6/24/2011
|
|
$
|
0.41
|
|
|
300,000
|
|
|
6/24/2021
|
|
|
|
|
2009
|
|
6/5/2012
|
|
$
|
0.29
|
|
|
100,000
|
|
|
6/6/2022
|
|
|
|
|
2009
|
|
6/11/2012
|
|
$
|
0.31
|
|
|
300,000
|
|
|
6/11/2022
|
|
|
|
|
2009
|
|
6/6/2013
|
|
$
|
0.31
|
|
|
300,000
|
|
|
6/6/2013
|
|
|
|
|
2009
|
|
8/2/2013
|
|
$
|
0.25
|
|
|
150,000
|
|
|
8/2/2013
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
1,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
Total Warrants
|
|
2009
|
|
2/1/2009
|
|
$
|
0.51
|
|
|
491,196
|
|
|
2/1/2019
|
|
|
|
|
(4)
|
Mr. Rodino is a member of our Board of Directors who beneficially owns 150,000 shares issuable upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2009
|
|
8/2/2013
|
|
$
|
0.25
|
|
|
150,000
|
|
|
8/2/2013
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
(5)
|
Dr. Mitchell is a member of our Board of Directors who owns 104,364 shares of common stock and beneficially owns 562,000 shares issuable upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2004
|
|
9/8/2004
|
|
$
|
2.60
|
|
|
50,000
|
|
|
9/7/2014
|
|
|
|
|
2004
|
|
4/26/2005
|
|
$
|
1.75
|
|
|
100,000
|
|
|
4/26/2015
|
|
|
|
|
2004
|
|
2/24/2006
|
|
$
|
3.86
|
|
|
50,000
|
|
|
2/24/2016
|
|
|
|
|
2004
|
|
9/10/2007
|
|
$
|
2.00
|
|
|
100,000
|
|
|
9/9/2017
|
|
|
|
|
2004
|
|
9/17/2008
|
|
$
|
6.00
|
|
|
12,000
|
|
|
9/17/2018
|
|
|
|
|
2009
|
|
6/5/2012
|
|
$
|
0.29
|
|
|
100,000
|
|
|
6/6/2022
|
|
|
|
|
2009
|
|
8/2/2013
|
|
$
|
0.25
|
|
|
150,000
|
|
|
8/2/2013
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
562,000
|
|
|
|
|
|
|
|
(6)
|
Dr. Mitchell beneficially owns 199,661 shares of common stock of which 150,487 shares are held by Shirley Mitchell (Spouse) and 49,174 shares are held by the Aesclepius Irrevocable Trust (Shirley Mitchell Trustee).
|
|
|
|
|
(7)
|
Dr. Kiani is a member of our Board of Directors who owns 630,886 shares of common stock and beneficially owns 327,000 shares issuable upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2004
|
|
4/26/2005
|
|
$
|
1.75
|
|
|
15,000
|
|
|
4/26/2015
|
|
|
|
|
2004
|
|
6/2/2005
|
|
$
|
1.63
|
|
|
12,000
|
|
|
6/30/2015
|
|
|
|
|
2004
|
|
2/24/2006
|
|
$
|
3.86
|
|
|
50,000
|
|
|
2/24/2016
|
|
|
|
|
2009
|
|
6/5/2012
|
|
$
|
0.29
|
|
|
100,000
|
|
|
6/6/2022
|
|
|
|
|
2009
|
|
8/2/2013
|
|
$
|
0.25
|
|
|
150,000
|
|
|
8/2/2013
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
327,000
|
|
|
|
|
|
|
|
(8)
|
Mr. Springate is our Senior Vice President of Operations and owns 103,521 shares of common stock and beneficially owns 238,900 shares issuable upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Price
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2004
|
|
12/7/2004
|
|
$
|
1.90
|
|
|
1,812
|
|
|
12/7/2014
|
|
|
|
|
2004
|
|
12/9/2005
|
|
$
|
2.61
|
|
|
2,088
|
|
|
12/9/2015
|
|
|
|
|
2004
|
|
11/20/2006
|
|
$
|
2.20
|
|
|
5,000
|
|
|
11/20/2016
|
|
|
|
|
2004
|
|
5/1/2007
|
|
$
|
1.78
|
|
|
20,000
|
|
|
5/1/2017
|
|
|
|
|
2004
|
|
12/6/2007
|
|
$
|
1.30
|
|
|
20,000
|
|
|
12/6/2017
|
|
|
|
|
2009
|
|
5/31/2011
|
|
$
|
0.55
|
|
|
90,000
|
|
|
5/31/2021
|
|
|
|
|
2009
|
|
6/5/2012
|
|
$
|
0.29
|
|
|
50,000
|
|
|
6/5/2022
|
|
|
|
|
2009
|
|
5/9/2013
|
|
$
|
0.24
|
|
|
50,000
|
|
|
5/9/2023
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
238,900
|
|
|
|
|
|
|
|
(9)
|
Dr. Strayer is our Medical Director that has ownership of 287,681 shares of common stock and beneficially owns 190,000 shares issuable upon exercise of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Plan
|
|
Date
Issued
|
|
Exercise
Issued
|
|
Number
Of Shares
|
|
Expiration
Date
|
|
|
|
|
|
|
2004
|
|
12/7/2004
|
|
$
|
1.90
|
|
|
10,000
|
|
|
12/7/2014
|
|
|
|
|
2004
|
|
12/9/2005
|
|
$
|
2.61
|
|
|
10,000
|
|
|
12/8/2015
|
|
|
|
|
2009
|
|
4/13/2012
|
|
$
|
4.03
|
|
|
10,000
|
|
|
4/13/2022
|
|
|
|
|
2004
|
|
11/20/2006
|
|
$
|
2.20
|
|
|
15,000
|
|
|
11/20/2016
|
|
|
|
|
2004
|
|
1/23/2007
|
|
$
|
2.37
|
|
|
20,000
|
|
|
1/23/2017
|
|
|
|
|
2004
|
|
9/10/2007
|
|
$
|
2.00
|
|
|
50,000
|
|
|
9/9/2017
|
|
|
|
|
2004
|
|
12/6/2007
|
|
$
|
1.30
|
|
|
25,000
|
|
|
12/6/2017
|
|
|
|
|
2004
|
|
2/18/2008
|
|
$
|
4.00
|
|
|
50,000
|
|
|
9/18/2018
|
|
|
Total Options
|
|
|
|
|
|
|
|
|
190,000
|
|
|
|
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
Review, Approval or Ratification of Transactions with Related Persons
Our policy is to require that any transaction with a related party required to be reported under applicable SEC rules, other than compensation related matters and waivers of our code of business conduct and ethics, be reviewed and approved or ratified by a majority of independent, disinterested Directors. We have adopted procedures in which the Audit Committee shall conduct an appropriate review of all related party transactions for potential conflict of interest situations on an annual and case-by-case basis with the approval of this Committee required for all such transactions.
We have employment agreements with certain of our executive officers and have granted such Officers and Directors options and warrants to purchase our common stock, as discussed under the headings, “ITEM 11. Executive Compensation”, and “ITEM 12. Security Ownership of Certain Beneficial Owners and Management”, as noted above.
The Company used at various times the property owned by Retreat House, LLC, for off-site meetings and lodging. The property was owned individually by Dr. William A. Carter, Hemispherx’ Chief Executive Officer, through April 28, 2010, at which time it was transferred to Retreat House, LLC, a Virginia limited liability company that is owned by three of the children of William A. Carter and a Senior Primary Revocable Trust in which William A. Carter is the Trustee. Dr. Carter also is the Manager of Retreat House, LLC. We paid Retreat House, LLC approximately $0, $0 and $137,000 for the use of the property, off-site meetings and lodging at various times in 2013, 2012 and 2011, respectively. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert consultant, we were unable to gain assurance that the fees charged for conference and lodging by the Retreat House, LLC were reasonable when compared to commercially available alternatives in the same geographic market. As a result and effective November 15, 2011, Dr. Carter agreed to designate the property owned by Retreat House, LLC as both his home office and as a meeting place for a variety of Company business and social activities at no additional expense to the Company for the use of the property or lodging and agreed not to bill, either personally or through Retreat House LLC, or any other entity, for use of the Retreat House. Additionally, Dr. Carter shall be responsible for paying for all secretarial and receptionist services related to his work conducted in Florida and provide said services at no further expense to the Company. In return as reflected in his Amended Employment Contract, Dr. Carter was granted an increase in his base salary compensation and the Company shall supply the equipment necessary for full telephone, telefax, computer and internet access.
In December 2011, Kyle Carter was hired as a Data Control Clerk at the annual salary of $37,950. Mr. Carter is the Son of Dr. William A. Carter, our CEO. From December 2011 through June 2012, we employed Kyle Carter and paid approximately $8,000 and $3,000 in 2012 and 2011, respectively.
In June 2012, William Kramer was hired as a Clinical Research Associate at the annual salary of $68,284. Mr. Kramer is the Son-In-Law of Dr. William A. Carter, our CEO, and was paid approximately $38,000 in 2012 in salary. Additionally in 2012 on an as-needed basis, the Company utilized the services of Kramer Environmental Management, Inc. to develop standard operating procedures, compliance assessments, testing and obtain permits related to environmental issues. William Kramer is also the President of Kramer Environmental Management, Inc. and this organization was paid approximately $0, $20,000 and $0 by us during 2013, 2012 and 2011, respectively.
Katalin Kovari, M.D. was paid approximately $26,000, $25,000 and $28,000 in 2013, 2012 and 2011, respectively, for her part-time services to the Company as Assistant Medical Director. Dr. Kovari is the spouse of Dr. William A. Carter, our CEO.
Since October 2011, Peter Kovari was utilized as a part-time independent contractor for Hemispherx Biopharma Europe to undertake projects as a Clinical Programmer related to coordinating, programming, analyzing and evaluating clinical data for the Company at the rate of $20 per hour and was paid by us approximately $22,000, $12,000 and $6,000 in 2013, 2012 and 2011, respectively. Mr. Kovari is the nephew of Dr. Katalin Kovari, our Assistant Medical Director and spouse of Dr. William A. Carter, our CEO.
Thomas Equels was elected to the Board of Directors at the Annual Stockholders Meeting on November 17, 2008 and join the Company as an Officer effective June 1, 2010. Mr. Equels has provided external legal services to us for several years through May 31, 2010 and his firm continues to support the Company. For 2013, 2012 and 2011, we paid Equels Law Firm approximately $181,000, $147,000 and $159,000, respectfully, for services rendered. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, it was deemed that the hourly rates charged by Equels Law were reasonable when compared to the fee structure of a possible arms-length transaction from comparable firms in practice in the same market and of the similar size. The hourly rate fees from Equels Law Firm to us have remained the same for 2011, 2012 and 2013. Additionally beginning December 2012 with the approval of the Audit Committee, the Company began renting an office at Equels Law Firm for $3,000 per month for dedication to and utilization by Hemispherx personnel. For 2013, 2012 and 2011, we paid Equels Law Firm $36,000, $3,000 and $-0-, respectfully, for office rent based on a proration of the Firm’s current leasing fee less the cost for common area.
Richard C. Piani has been a Director since 1995 and our Lead director since April, 2005. For the benefit of our foreign subsidiary, Hemispherx Biopharma Europe N.V./S.A., the Company subleases a 2,000 square foot, fully furnished and equipped office with part-time administrative assistance located at 97 Rue Jean Jaures, Levallois, Perret, France (a suburb of Paris). The landlord for this sub-lease is Synholon Corporation, of which the son of Richard Piani is affiliated. For our convenience and benefit, we pay $4,000 each month to Mr. Piani to reimburse him for his direct rental of this office facility. For 2013, 2012 and 2011, we reimbursed Mr. Piani approximately $12,000, $48,000, and $48,000, respectively, for the rental of this office. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, it was deemed that the rental fee charged to the Company was reasonable as compared to a possible arms-length transaction with comparable office facilities in the same geographic vicinity for similar commercial space of comparable quality and size in the same market. The office rental fee of $4,000 per month to us has remained constant since 2010. On May 23, 2013, Mr. Piani resigned as a member of the Board of Directors for health reasons. In order to continue to access Mr. Piani’s extensive knowledge and expertise, we engaged Mr. Piani as a consultant. The agreement with Mr. Piani is month-to-month with either party having the right to terminate with thirty days’ notice and is at a rate of $3,000 per month. We terminated this agreement effective December 31, 2013.
ITEM 14. Principal Accountant Fees and Services.
All audit and professional services are approved in advance by the Audit Committee to assure such services do not impair the auditor’s independence from us. The total fees by McGladrey LLP (“McGladrey”) for 2013 and 2012 were $265,800 and $312,223, respectively. The following table shows the aggregate fees for professional services rendered during the year ended December 31, 2013 and 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount ($)
|
|
|
2013
|
|
2012
|
|
Description of Fees:
|
|
|
|
|
|
|
Audit Fees
|
$
|
252,800
|
|
|
$
|
280,350
|
|
|
Audit-Related Fees
|
13,000
|
|
|
31,873
|
|
|
Tax Fees
|
—
|
|
|
—
|
|
|
All Other Fees
|
—
|
|
|
—
|
|
|
Total
|
$
|
265,800
|
|
|
$
|
312,223
|
|
Audit Fees
Represents fees for professional services provided for the audit of our annual financial statements, audit of the effectiveness of internal control over financial reporting, services that are performed to comply with generally accepted auditing standards, and review of our financial statements included in our quarterly reports and services in connection with statutory and regulatory filings.
Audit-Related Fees
Represents the fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements. Audit-related fees include professional services related to the Company’s filing of SEC Form S-3 and S-8 (i.e., stock shelf offering procedures).
The Audit Committee has determined that McGladrey’s rendering of these audit-related services and all other fees were compatible with maintaining auditor’s independence. The Board of Directors considered McGladrey to be well qualified to serve as our independent public accountants. The Committee also pre-approved the charges for services performed in 2013 and 2012.
The Audit Committee pre-approves all auditing and accounting services and the terms thereof (which may include providing comfort letters in connection with securities underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services may be delegated to one or more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee at its first meeting following such decision.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hemispherx Biopharma, Inc. (“Company”) is a specialty pharmaceutical engaged in the clinical development of new drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. The Company was founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, the Company has established a strong foundation of laboratory, pre-clinical, and clinical data with respect to the development of natural interferon nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products for the treatment of certain chronic diseases.
The Company's current strategic focus is derived from
four
applications of its
two
core pharmaceutical technology platforms Ampligen® and Alferon N Injection®. The commercial focus for Ampligen® includes application as a treatment for Chronic Fatigue Syndrome ("CFS") and as an influenza vaccine enhancer (adjuvant) for both therapeutic and preventative vaccine development. Alferon N Injection® is an FDA approved product with an indication for refractory or recurring genital warts. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
The consolidated financial statements include the financial statements of Hemispherx Biopharma, Inc. and its wholly-owned subsidiaries. The Company has three domestic subsidiaries BioPro Corp., BioAegean Corp. and Core BioTech Corp., all of which are incorporated in Delaware and are dormant. The Company’s foreign subsidiary, Hemispherx Biopharma Europe N.V./S.A., was established in Belgium in 1998, and has minimal activity. All significant intercompany balances and transactions have been eliminated in consolidatio
n.
Certain items in these financial statements have been reclassified to conform to the current period presentation.
|
|
|
|
(2)
|
Summary of Significant Accounting Policies
|
(a) Cash and Cash Equivalents
Cash and Cash Equivalents consist of cash and money market accounts and total
$803,000
and
$2,212,000
at December 31, 2013 and 2012, respectively.
(b) Marketable Securities
The Company’s securities are classified as available for sale and are stated at fair value. Unrealized gains and losses on securities available for sale are excluded from results of operations and are reported as other comprehensive income (loss) on the Statement of Comprehensive Loss, net of taxes. Securities classified as available for sale include securities that may be sold in response to changes in interest rates, changes in prepayment risks or for portfolio management purposes. The cost of securities sold is determined on a specific identification basis. Gains and losses on sales of securities are recognized in the statements of comprehensive loss on date of sale.
(c) Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
December 31,
|
|
|
2013
|
|
2012
|
|
Land, buildings and improvements
|
$
|
4,209
|
|
|
$
|
4,209
|
|
|
Furniture, fixtures, and equipment
|
5,093
|
|
|
4,662
|
|
|
Leasehold improvements
|
85
|
|
|
85
|
|
|
Total property and equipment
|
9,387
|
|
|
8,956
|
|
|
Less: accumulated depreciation and amortization
|
(4,334
|
)
|
|
(3,664
|
)
|
|
Property and equipment, net
|
$
|
5,053
|
|
|
$
|
5,292
|
|
Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets, ranging from
five
to
thirty-nine
years.
Construction in progress consists of funds used for the construction and installation of property and equipment within the Company’s New Brunswick, NJ facility. As of December 31, 2013, construction in progress was
$7,046,000
as compared to
$6,580,000
at December 31, 2012. The Company capitalized
$143,000
and
$85,000
of interest charges in 2013 and 2012, respectively, related to the construction in progress.
(d) Patent and Trademark Rights
Patents and trademarks are stated at cost (primarily legal fees) and are amortized using the straight line method over the established useful life of
17 years
. The Company reviews its patents and trademark rights periodically to determine whether they have continuing value or their value has become impaired. Such review includes an analysis of the patent and trademark's ultimate revenue and profitability potential. Management's review addresses whether each patent continues to fit into the Company's strategic business plans.
(e) Revenue
Revenue from the sale of Ampligen® under a cost recovery, open-label treatment protocols approved by the FDA is recognized when the treatment is provided to the patient.
Revenues from the sale of Alferon N Injection® are recognized when the product is shipped and title is transferred to the customer. The Company has no other obligation associated with its products once shipment has been shipped to the customer.
(f) Accounting for Income Taxes
Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The Company applies the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-10 Uncertainty in Income Taxes. There has been no material change to the Company’s tax position as they have not paid any corporate income taxes due to operating losses. All tax benefits will likely not be recognized due to the substantial net operating loss carryforwards which will most likely not be realized prior to expiration. With no tax due for the foreseeable future, the Company has determined that a policy to determine the accounting for interest or penalties related to the payment of tax is not necessary at this time.
(g) Comprehensive loss
Comprehensive loss consists of net loss, net unrealized gains (losses) on securities and premium amortization and related losses and is presented in the consolidated statements of comprehensive loss.
(h) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. Accounts requiring the use of significant estimates include valuation allowances for inventory, determination of other-than-temporary impairment on securities, valuation of deferred taxes, patent and trademark valuations, stock options calculations, building valuation, fair value of warrants and contingency accruals.
(i) Recent Accounting Standards and Pronouncements
The FASB issued Accounting Standards Updates (“ASU”) 2012-1 through 2014-05. These updates did not have a significant impact on the financial statements.
(j) Stock-Based Compensation
The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires recognition of compensation expense related to stock-based compensation awards over the period during which an employee is required to provide service for the award. Compensation expense is equal to the fair value of the award, net of estimated forfeitures.
(k) Accounts Receivable
Concentration of credit risk, with respect to accounts receivable, is limited due to the Company’s credit evaluation process. The Company does not require collateral on its receivables. The Company did
not
have any receivables as of December 31, 2013 and 2012.
(l) Common Stock Per Share Calculation
Basic and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding during the period. Equivalent common shares, consisting of stock options and warrants related to
87,498,004
,
34,701,415
and
54,242,702
shares, are excluded from the calculation of diluted net loss per share for the years ended December 31, 2013, 2012 and 2011, respectively, since their effect is antidilutive.
(m) Reclassifications
Certain amounts in the consolidated financial statements for the years ended December 31, 2012 and 2011 have been reclassified to conform to the classifications used to prepare the consolidated financial statements for the year ended December 31, 2013. These reclassifications had no material impact on the Company's consolidated financial position, results of operations or cash flows as previously reported.
The Company uses the lower of first-in, first-out (“FIFO”) cost or market method of accounting for inventory.
|
|
|
|
|
|
|
|
|
|
|
|
Inventories consist of the following:
|
(in thousands)
|
|
|
2013
|
|
2012
|
|
Inventory work-in-process, January 1
|
$
|
453
|
|
|
$
|
897
|
|
|
Production
|
—
|
|
|
579
|
|
|
Spoilage
|
(453
|
)
|
|
(1,023
|
)
|
|
Inventory work-in-process, December 31
|
$
|
—
|
|
|
$
|
453
|
|
As of December 31, 2012, all of the Company's lots of Alferon® Work-In-Process Inventory had completed the fill, finish and packaging process. The inventory was not classified as finished goods until stability and release testing were concluded and it is confirmed by the U.S. Food and Drug Administration ("FDA") that the product could be commercially sold as is.
In April 2012, FDA reviewers raised certain questions about the status of the Company's existing lots of older Work-In-Process Alferon® materials and Alferon® Active Pharmaceutical Ingredient (“API”), which would need to be released by the FDA before those materials could be used in commercial product. After conducting all of the appropriate tests on samples of the inventory during 2013, the Company concluded that it could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection®. Accordingly, these lots were not submitted to the FDA to request release for commercial sale and their remaining dollar value was written-off in 2013.
|
|
|
|
(4)
|
Options and Equity Warrants
|
The Equity Plan effective
May 1, 2004
, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of
8,000,000
shares of common stock is reserved for potential issuance pursuant to awards under the Equity Plan of 2004. Unless sooner terminated, the Equity Plan of 2004 will continue in effect for a period of
10 years
from its effective date.
The Equity Incentive Plan of 2007, effective
June 20, 2007
, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of
9,000,000
shares of common stock is
reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2007. Unless sooner terminated, the Equity Incentive Plan of 2007 will continue in effect for a period of
10 years
from its effective date.
The Equity Incentive Plan of 2009, effective
June 24, 2009
, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of
15,000,000
shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2009. Unless sooner terminated, the Equity Incentive Plan of 2009 will continue in effect for a period of
10 years
from its effective date.
The Equity Plan of 2004 and the Equity Incentive Plans of 2007 and 2009 are administered by the Board of Directors. The Plans provide for awards to be made to such Officers, other key employees, non-employee Directors, consultants and advisors of the Company and its subsidiaries as the Board may select.
Stock options awarded under the Plans may be exercisable at such times (not later than
10 years
after the date of grant) and at such exercise prices (not less than fair market value at the date of grant) as the Board may determine. The Board may provide for options to become immediately exercisable upon a "change in control”, which is defined in the Plans to occur upon any of the following events: (a) the acquisition by any person or group, as beneficial owner, of
20%
or more of the outstanding shares or the voting power of the outstanding securities of the Company; (b) either a majority of the Directors of the Company at the annual stockholders meeting has been nominated other than by or at the direction of the incumbent Directors of the Board, or the incumbent Directors cease to constitute a majority of the Company’s Board; (c) the Company’s stockholders approve a merger or other business combination pursuant to which the outstanding common stock of the Company no longer represents more than
50%
of the combined entity after the transaction; (d) the Company’s stockholders approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of the Company’s assets; or (e) any other event or circumstance determined by the Company’s Board to affect control of the Company and designated by resolution of the Board as a change in control.
The fair value of each option and equity warrant award is estimated on the date of grant using a
Black-Scholes-Merton
pricing option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the options and equity warrants was estimated based on historical option and equity warrant holders' behavior and represents the period of time that options and equity warrants are expected to be outstanding. The fair values of the options and equity warrants granted, were estimated based on the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
Risk-free interest rate
|
0.14%-1.40%
|
|
0.61%- 0.86%
|
|
0.83%- 2.24%
|
|
Expected dividend yield
|
0
|
|
0
|
|
0
|
|
Expected life
|
1-5 years
|
|
5 years
|
|
5 years
|
|
Expected volatility
|
89.727%-118.22%
|
|
108.76%-112.35%
|
|
104.29%-105.91%
|
|
Weighted average grant date fair value for options and equity warrants issued
|
$0.14 per option/warrant for 4,120,000 options/equity warrants
|
|
$0.23 per option/warrant for 1,499,000 options/equity warrants
|
|
$0.26 per option/warrant for 1,310,000 options/equity warrants
|
For stock options or equity warrants granted to employees and non-employees, the Company measures fair value of the equity instruments utilizing the Black-Scholes-Merton pricing method. The Company amortizes such cost over the related period of service.
The exercise price of all stock options and equity warrants granted was equal to or greater than the fair market value of the underlying common stock on the date of the grant.
Stock option activity during the years ended December 31, 2011, 2012 and 2013 is as follows:
Stock option activity for employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding January 1, 2011
|
7,222,480
|
|
|
$
|
2.35
|
|
|
6.21
|
|
—
|
|
|
Granted
|
1,030,000
|
|
|
0.41
|
|
|
9.51
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
|
Outstanding December 31, 2011
|
8,252,480
|
|
|
$
|
2.11
|
|
|
5.75
|
|
—
|
|
|
Granted
|
1,199,000
|
|
|
0.45
|
|
|
9.51
|
|
—
|
|
|
Forfeited
|
(10,000
|
)
|
|
1.30
|
|
|
5.50
|
|
—
|
|
|
Outstanding December 31, 2012
|
9,441,480
|
|
|
$
|
1.90
|
|
|
5.35
|
|
—
|
|
|
Granted
|
1,170,000
|
|
|
0.36
|
|
|
9.49
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
|
Outstanding December 31, 2013
|
10,611,480
|
|
|
$
|
1.73
|
|
|
4.92
|
|
—
|
|
|
Vested and expected to vest at December 31, 2013
|
10,086,480
|
|
|
$
|
1.79
|
|
|
4.55
|
|
—
|
|
|
Exercisable at December 31, 2013
|
10,086,480
|
|
|
$
|
1.79
|
|
|
4.55
|
|
—
|
|
The weighted-average grant-date fair value of employee options granted during the year 2013 was
$222,000
for
1,170,000
options at
$0.19
per option, the year 2012 was
$284,000
for
1,199,000
options at
$0.24
per option and during the year 2011 was
$293,000
for
1,030,000
options at
$0.28
per option.
Unvested stock option activity for employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Average
Remaining
Contracted
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding January 1, 2011
|
50,555
|
|
|
$
|
1.33
|
|
|
7.60
|
|
—
|
|
|
Granted
|
140,000
|
|
|
0.33
|
|
|
9.93
|
|
—
|
|
|
Vested
|
(42,222
|
)
|
|
0.95
|
|
|
7.38
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
|
Outstanding December 31, 2011
|
148,333
|
|
|
$
|
0.49
|
|
|
9.52
|
|
—
|
|
|
Granted
|
509,708
|
|
|
0.43
|
|
|
9.52
|
|
—
|
|
|
Vested
|
(131,668
|
)
|
|
0.36
|
|
|
9.04
|
|
—
|
|
|
Forfeited
|
(10,000
|
)
|
|
1.30
|
|
|
5.50
|
|
—
|
|
|
Outstanding December 31, 2012
|
516,373
|
|
|
$
|
0.45
|
|
|
9.43
|
|
—
|
|
|
Granted
|
595,000
|
|
|
0.24
|
|
|
9.20
|
|
—
|
|
|
Vested
|
(586,373
|
)
|
|
0.38
|
|
|
9.26
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
|
Outstanding December 31, 2013
|
525,000
|
|
|
$
|
0.29
|
|
|
8.38
|
|
—
|
|
The weighted-average grant-date fair value of employee unvested stock options granted during the year 2013 was
$100,000
for
595,000
options at
$0.24
per option, during the year 2012 was
$120,558
for
509,708
options at
$0.24
per option and during the year 2011 was
$24,000
for
140,000
options at
$0.17
per option.
Stock option activity for non-employees during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding January 1, 2011
|
2,848,432
|
|
|
$
|
2.03
|
|
|
5.80
|
|
|
—
|
|
|
Granted
|
280,000
|
|
|
0.27
|
|
|
9.88
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2011
|
3,128,432
|
|
|
$
|
1.87
|
|
|
5.25
|
|
|
—
|
|
|
Granted
|
300,000
|
|
|
0.29
|
|
|
9.50
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2012
|
3,428,432
|
|
|
$
|
1.73
|
|
|
4.71
|
|
|
—
|
|
|
Granted
|
850,000
|
|
|
0.56
|
|
|
9.53
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(150,000
|
)
|
|
2.00
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2013
|
4,128,432
|
|
|
$
|
1.48
|
|
|
5.01
|
|
|
—
|
|
|
Vested and expected to vest at December 31, 2013
|
3,657,599
|
|
|
$
|
1.86
|
|
|
4.53
|
|
|
—
|
|
|
Exercisable at December 31, 2013
|
3,657,599
|
|
|
$
|
1.86
|
|
|
4.53
|
|
|
—
|
|
The weighted-average grant-date fair value of non-employee options granted during the year 2013 was
$131,000
for
850,000
options at
$0.15
per option, during the year 2012 was
$59,922
for
300,000
options at
$0.20
per option and during the year 2011 was
$51,000
for
280,000
options at
$0.18
per option.
Unvested stock option activity for non-employees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding January 1, 2011
|
102,084
|
|
|
$
|
2.63
|
|
|
3.54
|
|
|
—
|
|
|
Granted
|
200,000
|
|
|
0.21
|
|
|
10.00
|
|
|
—
|
|
|
Vested
|
(45,834
|
)
|
|
2.81
|
|
|
1.50
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2011
|
256,250
|
|
|
$
|
0.71
|
|
|
8.50
|
|
|
—
|
|
|
Granted
|
300,000
|
|
|
0.29
|
|
|
9.50
|
|
|
—
|
|
|
Vested
|
(345,828
|
)
|
|
0.53
|
|
|
7.95
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2012
|
210,422
|
|
|
$
|
0.40
|
|
|
9.68
|
|
|
—
|
|
|
Granted
|
470,833
|
|
|
0.25
|
|
|
9.61
|
|
|
—
|
|
|
Vested
|
(210,422
|
)
|
|
0.40
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding December 31, 2013
|
470,833
|
|
|
$
|
0.25
|
|
|
9.61
|
|
|
—
|
|
The impact on the Company’s results of operations of recording stock-based compensation for the year ended December 31, 2013 was to increase general and administrative expenses by approximately
$376,000
and had no effect on earnings per share, for the year ended December 31, 2012 was to increase general and administrative expenses by approximately
$356,000
and had no effect on earnings per share, and for year ended December 31, 2011 was to increase general and administrative expenses by approximately
$377,000
and had no effect on earnings per share.
As of December 31, 2013 and 2012, there was
$177,000
and
$232,000
, respectively, of unrecognized stock-based compensation cost related to options granted under the Equity Incentive Plans. Stock-based compensation related to options granted under the Equity Incentive Plans will be recorded over the vesting period which is typically
one year
or upon reaching agreed upon company and/or individual performance milestones being met which is indefinite.
(5) Marketable Securities - Unrestricted
Marketable securities consist of fixed income securities with remaining maturities of greater than three months at the date of purchase, debt securities and equity securities. For the twelve months ended December 31, 2013 and 2012, it was determined that some of the Marketable Securities had other than temporary impairments of approximately
$800,000
and
$9,000
, respectively. At December 31, 2013, all securities were classified as available for sale investments and were measured as Level 1 instruments of the fair value measurements standard. At December 31, 2012, all of these securities were classified as available for sale investments and were measured as Level 1 instruments of the fair value measurements standard (see Note 19: Fair Value).
Securities classified as available for sale consisted of:
December 31, 2013
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-Term
Investments
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
17,504
|
|
|
$
|
116
|
|
|
$
|
(229
|
)
|
|
$
|
17,391
|
|
|
$
|
17,391
|
|
|
$
|
—
|
|
|
Totals
|
|
$
|
17,504
|
|
|
$
|
116
|
|
|
$
|
(229
|
)
|
|
$
|
17,391
|
|
|
$
|
17,391
|
|
|
$
|
—
|
|
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-Term
Investments
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
27,230
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
27,241
|
|
|
$
|
27,241
|
|
|
$
|
—
|
|
|
Totals
|
|
$
|
27,230
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
27,241
|
|
|
$
|
27,241
|
|
|
$
|
—
|
|
Unrealized losses on investments
Investments with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:
December 31, 2013
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Totals
|
|
Securities
|
|
Number
In Loss
Position
|
|
Fair
Values
|
|
Unrealized
Losses
|
|
Fair
Values
|
|
Unrealized
Losses
|
|
Total
Fair
Value
|
|
Total
Unrealized
Losses
|
|
Mutual Funds
|
|
1
|
|
|
$
|
12,460
|
|
|
$
|
(229
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,460
|
|
|
$
|
(229
|
)
|
|
Totals
|
|
1
|
|
|
$
|
12,460
|
|
|
$
|
(229
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,460
|
|
|
$
|
(229
|
)
|
December 31, 2012
There were no unrealized losses on investments with continuous unrealized losses for less than 12 months and 12 months or greater as of December 31, 2012.
|
|
|
|
(6)
|
Marketable Securities - Restricted
|
A Margin Account was established on
July 26, 2011
for which the Company needs to pledge, restrict from sale and segregate marketable securities at an approximate ratio range of two to one, based on the diversity of securities pledged as collateral, for those funds withdrawn and outstanding (see Note 20: Margin Account Loan).
There were no restricted marketable securities as of December 31, 2013 as all amounts borrowed under the Margin Account were repaid in 2013 (see Note 20: Margin Account Loan).
As of December 31, 2012, restricted marketable securities consisted of corporate bonds with remaining maturities of greater than three months at the date of purchase, debt securities and mutual funds. As of December 31, 2012, it was determined that
none
of the Marketable Securities had other-than-temporary impairments. At December 31, 2012, all restricted securities were classified as restricted from sale investments and
$13,499,000
were measured as level 1 instruments and
$1,001,000
were measured as level 2 instruments of the fair value measurements standard (see Note 19: Fair Value).
Securities classified as restricted from sale consisted of:
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Amortized
Cost
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Short-Term
Investments
|
|
Long Term
Investments
|
|
Corporate Bonds
|
|
$
|
3,503
|
|
|
$
|
1
|
|
|
$
|
0
|
|
|
$
|
3,504
|
|
|
$
|
3,504
|
|
|
$
|
0
|
|
|
Mutual Funds
|
|
11,049
|
|
|
0
|
|
|
(53
|
)
|
|
10,996
|
|
|
10,996
|
|
|
0
|
|
|
Totals
|
|
$
|
14,552
|
|
|
$
|
1
|
|
|
$
|
(53
|
)
|
|
$
|
14,500
|
|
|
$
|
14,500
|
|
|
$
|
0
|
|
Unrealized losses on investments restricted from sale
There were no unrealized losses on investments restricted from sale as of December 31, 2013 as all amounts borrowed under the Margin Account were repaid in 2013. Investments restricted from sale with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:
December 31, 2012
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Totals
|
|
Securities
|
|
Number
In Loss
Position
|
|
Fair
Values
|
|
Unrealized
Losses
|
|
Fair
Values
|
|
Unrealized
Losses
|
|
Total
Fair
Value
|
|
Total
Unrealized
Losses
|
|
Mutual Funds
|
|
1
|
|
|
$
|
10,996
|
|
|
$
|
(54
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,996
|
|
|
$
|
(54
|
)
|
|
Totals
|
|
1
|
|
|
$
|
10,996
|
|
|
$
|
(54
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,996
|
|
|
$
|
(54
|
)
|
Unrealized losses from domestic and international equities, including mutual funds, are due to market price movements.
|
|
|
|
(7)
|
Patents, Trademark Rights and Other Intangibles (FASB ASC 350-30 General Intangibles Other than Goodwill)
|
During the years ended December 31, 2013, 2012 and 2011, the Company decided not to pursue certain patents in various countries for strategic reasons and recorded abandonment charges of
$176,000
,
$25,000
and
$147,000
, respectively, which are included in research and development. Amortization expense was
$20,000
,
$15,000
and
$17,000
in 2013, 2012 and 2011, respectively. The total cost of the patents was
$1,193,000
and
$1,131,000
as of December 31, 2013 and 2012, respectively. The accumulated amortization as of December 31, 2013 and 2012 is
$113,000
and
$97,000
, respectively. In 2013, additions to patent costs were
$242,000
and adjustments for fully amortized and abandoned patents had costs of
$180,000
and accumulated amortization of
$4,000
. In 2012, additions to patent costs were
$211,000
and adjustments for fully amortized and abandoned patents had costs of
$47,000
and accumulated amortization of
$22,000
.
Amortization of patents and trademarks for each of the next five years is as follows: 2014 -
$20,000
; 2015 -
$20,000
; 2016 -
$20,000
; 2017 -
$20,000
and 2018 -
$20,000
. No amortization expense is recognized related to patents that are pending.
Accrued expenses at December 31, 2013 and 2012 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
December 31,
|
|
|
2013
|
|
2012
|
|
Compensation
|
$
|
378
|
|
|
$
|
2,131
|
|
|
Professional fees
|
270
|
|
|
466
|
|
|
Accrued Alferon production costs
|
51
|
|
|
70
|
|
|
Other expenses
|
529
|
|
|
615
|
|
|
Due for returned product
|
—
|
|
|
113
|
|
|
|
$
|
1,228
|
|
|
$
|
3,395
|
|
(a) Preferred Stock
The Company is authorized to issue
5,000,000
shares of
$0.01
par value preferred stock with such designations, rights and preferences as may be determined by the Board of Directors. There were no Preferred Shares issued and outstanding at December 31, 2013 and 2012.
(b) Common Stock
The Company’s stockholders approved an amendment to the Company’s corporate Charter at the Annual Shareholder Meeting held in Philadelphia, PA that concluded on December 8, 2011. This amendment increased the Company’s authorized shares from
200,000,000
to
350,000,000
with specific limitations and restrictions on the usage of
75,000,000
of the
150,000,000
newly authorized shares.
As of December 31, 2013 and 2012,
168,660,370
shares and
166,490,190
shares were outstanding, respectively.
(c) Equity Financings
Pursuant to a
May 28, 2010
Equity Distribution Agreement (the “Old EDA”) with Maxim Group LLC (“Maxim”), the Company established an At-The-Market (“ATM”) Equity Program pursuant to which the Company could sell up to
32,000,000
shares of their Common Stock from time to time through Maxim as their sales agent (the “Agent”). Under the Old EDA, the Agent was entitled to a commission at a fixed commission rate of
4.0%
of the gross sales price per Share sold, up to aggregate gross proceeds of
$10,000,000
, and, thereafter, at a fixed commission rate of
3.0%
of the gross sales price per Share sold. The Company had
no
obligation to sell any shares under this program, and could at any time terminate the Agreement. For the years ended December 31, 2012 and 2011, the Company sold
no
shares through this Old EDA and received
no
net cash proceeds. All sales related to the Old EDA took place in 2010, in which the Company had sold an aggregate of
520,000
shares through the ATM that resulted in net cash proceeds of approximately
$293,000
and commissions paid to Maxim of approximately
$12,000
. In
June 2012
, the Old EDA with Maxim expired.
On
July 23, 2012
, the Company entered into a new Equity Distribution Agreement (the “New EDA”) with Maxim pursuant to which the Company may sell up to
$75,000,000
worth of its shares of Common Stock from time to time through Maxim, as sales agent. Under the New EDA, Maxim is entitled to a fixed commission rate of
4.0%
of the gross sales price of Shares sold under the EDA, up to aggregate gross proceeds of
$10,000,000
, and thereafter, at a fixed commission rate of
3.0%
of the gross sales price of Shares sold under the EDA. Sales of the Shares, if any, may be made in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on the NYSE MKT, at market prices or as otherwise agreed with Maxim. The Company has
no
obligation to sell any of the Shares and may at any time suspend offers under the New EDA or terminate the New EDA. The Shares are being sold pursuant to the Company’s Universal Shelf Registration Statement on Form S-3, declared effective by the Securities and Exchange Commission on July 2, 2012. On September 14, 2012, the Company filed a Prospectus Supplement with the Securities and Exchange Commission related to increasing the offering from
12,000,000
to
20,000,000
shares under the New ATM. On October 5, 2012, the Company filed an updated Prospectus Supplement to revise the New EDA for an aggregate of
40,000,000
shares to be allocated for public sale under the Prospectus Supplement pursuant to the ATM. On December 23, 2013, the Company filed an updated Prospectus Supplement with the Securities and Exchange Commission to revise the new EDA for an aggregate of
90,000,000
shares to be allocated for public sale under the Prospectus Supplement pursuant to the ATM. As of December 31, 2013, the Company had sold an aggregate of approximately
30,470,000
shares that resulted in net cash proceeds of approximately
$23,003,000
after direct expenses along with commissions paid to Maxim for approximately
$828,000
.
The Company plans to use the net proceeds from the offering as follows: (1) Costs to upgrade the Alferon N Injection® manufacturing facility and to prepare for the FDA pre-approval inspections of the Ampligen® facility, (2) Potential new preclinical or clinical studies in order to gain commercial approval for Ampligen® and broader approvals for Alferon® and Alferon LDO®, (3) Working capital to build and maintain sufficient inventory by procuring raw materials, supplies and other items for the New Brunswick manufacturing facility, as well as to remunerate outside contractors for necessary services, such as, final filling and finishing operations in order to meet any anticipated demand from normal operations as well as through the possible pursuit of other disease areas and/or geographic regions that may present themselves, (4) Pursuit of potential partnering opportunities for Ampligen®, (5) Potential establishment of sales and marketing capabilities, as well as consideration towards the expansion of the Company’s manufacturing capacity.
(d) Common Stock Options and Warrants
(i) Stock Options
The 1990 Stock Option Plan provides for the grant of options to purchase up to
460,798
shares of the Company's Common Stock to employees, Directors, and Officers of the Company and to consultants, advisors, and other persons whose contributions are important to the success of the Company. The recipients of options granted under the 1990 Stock Option Plan, the number of shares to be converted by each option, and the exercise price, vesting terms, if any, duration and other terms of each option shall be determined by the Company's Board of Directors or, if delegated by the Board, its Compensation Committee.
no
option is exercisable more than
10 years and one month
from the date as of which an option agreement is executed. These shares become vested through various periods not to exceed
four years
from the date of grant. The option price represents the fair market value of each underlying share of Common Stock at the date of grant, based upon the public trading price. This plan is
no
longer in effect and
no
further options will be issued from this plan.
Information regarding the options approved by the Board of Directors under the 1990 Stock Option Plan is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2012
|
|
2013
|
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, beginning of year
|
262,000
|
|
|
2.75-4.03
|
|
|
$
|
3.05
|
|
|
262,000
|
|
|
2.75-4.03
|
|
|
$
|
3.05
|
|
|
200,000
|
|
|
2.75
|
|
|
$
|
2.75
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
(62,000
|
)
|
|
4.03
|
|
|
4.03
|
|
|
(200,000
|
)
|
|
2.75
|
|
|
2.75
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding, end of year
|
262,000
|
|
|
2.75-4.03
|
|
|
$
|
3.05
|
|
|
200,000
|
|
|
$
|
2.75
|
|
|
$
|
2.75
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Exercisable
|
262,000
|
|
|
2.75-4.03
|
|
|
$
|
3.05
|
|
|
200,000
|
|
|
$
|
2.75
|
|
|
$
|
2.75
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Weighted average remaining contractual life (years)
|
2.86 years
|
|
|
|
|
|
|
|
|
0.83 years
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
Exercised in current and prior years
|
(27,215
|
)
|
|
|
|
|
|
|
|
(27,215
|
)
|
|
|
|
|
|
|
|
(27,215
|
)
|
|
|
|
|
|
|
|
Available for future grants
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
The Equity Plan effective
May 1, 2004
, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of
8,000,000
shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan. Unless sooner terminated, the Equity Incentive Plan will continue in effect for a period of
10 years
from its effective date.
The Equity Plan is administered by the Board of Directors. The Equity Incentive Plan provides for awards to be made to such Officers, other key employees, non-employee directors, consultants and advisors of the Company and its subsidiaries as the Board may select.
Information regarding the options approved by the Board of Directors under the Equity Plan is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2012
|
|
December 31, 2013
|
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding beginning at year
|
6,640,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,640,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,630,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,000
|
)
|
|
1.30
|
|
|
1.30
|
|
|
(150,000
|
)
|
|
2.00
|
|
|
2.00
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding end of year
|
6,640,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,630,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,480,934
|
|
|
1.30-6.00
|
|
|
2.68
|
|
|
Exercisable
|
6,625,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,630,934
|
|
|
1.30-6.00
|
|
|
2.66
|
|
|
6,480,934
|
|
|
1.30-6.00
|
|
|
2.68
|
|
|
Weighted average remaining contractual life (years)
|
4-5 years
|
|
|
|
|
|
|
|
|
3-4 years
|
|
|
|
|
|
|
|
|
2-3 years
|
|
|
|
|
|
|
|
|
Available for future grants
|
10,019
|
|
|
|
|
|
|
|
|
10,019
|
|
|
|
|
|
|
|
|
170,019
|
|
|
|
|
|
|
|
On
June 20, 2007
, the Stockholders approved the 2007 Equity Incentive Plan at our Annual Shareholder Meeting. This plan, effective June 1, 2007, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other awards. A maximum of
9,000,000
shares of common stock is reserved for potential issuance pursuant to awards under this plan. Unless sooner terminated, this plan will continue in effect for a period of
10 years
from its effective date. As of year-end, option awards under this plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2012
|
|
December 31, 2013
|
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding beginning at year
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding end of year
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
Exercisable
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
1,550,000
|
|
|
0.72-3.05
|
|
|
2.17
|
|
|
Remaining contractual life
|
6.81 years
|
|
|
|
|
|
|
|
|
5.81 years
|
|
|
|
|
|
|
|
|
4.81 years
|
|
|
|
|
|
|
|
|
Available for future grants
|
19,626
|
|
|
|
|
|
|
|
|
19,626
|
|
|
|
|
|
|
|
|
19,626
|
|
|
|
|
|
|
|
On
June 24, 2009
, the Stockholders approved the 2009 Equity Incentive Plan at our Annual Shareholder Meeting. This plan, effective September 15, 2009, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other awards. A maximum of
15,000,000
shares of common stock is reserved for potential issuance pursuant to awards under this plan. Unless sooner terminated, this plan will continue in effect for a period of
10 years
from its effective date. As of year-end, option awards under this plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2012
|
|
December 31, 2013
|
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Option
Price
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding beginning at year
|
1,879,978
|
|
|
0.52-2.81
|
|
|
0.92
|
|
|
3,189,978
|
|
|
0.21-2.81
|
|
|
0.70
|
|
|
4,688,978
|
|
|
0.21-4.03
|
|
|
0.61
|
|
|
Granted
|
1,310,000
|
|
|
0.21-0.55
|
|
|
0.38
|
|
|
1,499,000
|
|
|
0.29-4.03
|
|
|
0.42
|
|
|
2,020,000
|
|
|
0.22-2.00
|
|
|
0.40
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding end of year
|
3,189,978
|
|
|
0.21-2.81
|
|
|
0.70
|
|
|
4,688,978
|
|
|
0.21-4.03
|
|
|
0.61
|
|
|
6,708,978
|
|
|
0.21-4.03
|
|
|
0.55
|
|
|
Exercisable at end of year
|
2,856,645
|
|
|
0.21-2.81
|
|
|
1.57
|
|
|
3,962,183
|
|
|
0.21-4.03
|
|
|
0.61
|
|
|
5,713,145
|
|
|
0.21-4.03
|
|
|
0.55
|
|
|
Remaining contractual life
|
6.81 years
|
|
|
|
|
|
|
|
|
7.67 years
|
|
|
|
|
|
|
|
|
8.21 years
|
|
|
|
|
|
|
|
|
Available for future grants
|
9,765,847
|
|
|
|
|
|
|
|
|
6,907,247
|
|
|
|
|
|
|
|
|
3,090,478
|
|
|
|
|
|
|
|
(ii) Stock Warrants
Stock warrants are issued as needed by the Board of Directors and have
no
formal plan.
The fair value of each warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the warrants was estimated based on historical option holder’s behavior and represents the period of time that options are expected to be outstanding. The fair values of the warrants granted in 2013, were estimated based on the following weighted average assumptions:
|
|
|
|
|
|
|
December 31, 2013
|
|
Risk-free interest rate
|
0.14%-1.40%
|
|
Expected dividend yield
|
—
|
|
Expected life
|
2.5 years
|
|
Expected volatility
|
89.73%-118.22%
|
|
Weighted average grant date fair value of warrants issued
|
$0.11 for 2,100,000 warrants
|
Information regarding warrants outstanding and exercisable into shares of common stock is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2012
|
|
December 31, 2013
|
|
|
Shares
|
|
Warrant
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Warrant
Price
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Warrant
Price
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding beginning at year
|
10,983,246
|
|
|
0.51-3.60
|
|
|
$
|
1.61
|
|
|
10,978,246
|
|
|
0.51-1.65
|
|
|
$
|
1.55
|
|
|
11,128,246
|
|
|
0.51-2.00
|
|
|
$
|
1.44
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
150,000
|
|
|
0.89-2.00
|
|
|
$
|
1.30
|
|
|
2,100,000
|
|
|
0.25-0.50
|
|
|
$
|
0.33
|
|
|
Forfeited
|
(5,000
|
)
|
|
3.60
|
|
|
$
|
3.60
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Outstanding end of year
|
10,978,246
|
|
|
0.51 –1.65
|
|
|
$
|
1.55
|
|
|
11,128,246
|
|
|
0.51 –2.00
|
|
|
$
|
1.44
|
|
|
13,228,246
|
|
|
0.25-2.00
|
|
|
$
|
1.26
|
|
|
Exercisable
|
10,978,246
|
|
|
0.51-1.65
|
|
|
$
|
1.55
|
|
|
11,128,246
|
|
|
0.51-2.00
|
|
|
$
|
1.44
|
|
|
11,328,246
|
|
|
0.50-2.00
|
|
|
$
|
1.42
|
|
|
Weighted average remaining contractual life
|
2.9 years
|
|
|
|
|
|
|
|
|
2.0 years
|
|
|
|
|
|
|
|
|
1.5 years
|
|
|
|
|
|
|
|
|
Years exercisable
|
2012-2019
|
|
|
|
|
|
|
|
|
2013-2022
|
|
|
|
|
|
|
|
|
2014-2023
|
|
|
|
|
|
|
|
Stock warrants are issued at the discretion of the Board. In 2013, warrants to purchase
2,100,000
shares were issued to independent contractors or consultants for services.
Certain of the stock warrants outstanding are subject to adjustments for stock splits and dividends.
No
warrants were exercised during 2011, 2012 or 2013.
(e) Rights Offering
On
November 19, 2002
, the Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock to stockholders of record at the close of business on November 29, 2002 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred Stock, par value
$0.01
per share (the "Series A Preferred Stock") at a Purchase Price of
$30.00
per Unit, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Continental Stock Transfer & Trust Company, as Rights Agent.
On
November 2, 2012
, the Company executed an Amended and Restated Rights Agreement amending and restating the November 19, 2002 Rights Agreement between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (as amended, the “Amended Rights Agreement”). The Amended Rights Agreement extends the term of the Rights Plan to November 18, 2017 and amends certain other provisions, as described in the Company’s Amended Registration Statement on Form 8-A/A, filed on November 2, 2012 (the “Amended Form 8-A”). The Amended Rights Plan entitles holders to buy one-hundredth unit of preferred stock for
$30.00
and may be redeemed prior to
November 19, 2017
, the expiration date, at
$0.001
per Right under certain circumstances. The Rights generally are not transferable apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership of
15%
or more of our common stock. However, for Dr. Carter, our Chief Executive Officer, who already beneficially owns approximately
4.99%
of our common stock, the Rights Plan’s threshold will be
20%
, instead of
15%
.
|
|
|
|
(1
|
0) Segment and Related Information
|
The Company operates in
one
segment, which performs research and development activities related to Ampligen® and other drugs under development, and sales and marketing of Alferon®. The Company’s revenues for the three year period ended December 31, 2013, were earned in the United States.
The Company employs an insignificant amount of net property and equipment in its foreign operations, which has minimal activity.
|
|
|
|
(11)
|
Research, Consulting and Supply Agreements
|
Since October 2005, the Company has engaged the Sage Group, Inc. (“Sage”), a health care, technology oriented, strategy and transaction advisory firm, to assist the Company in obtaining a strategic alliance in Japan for the use of Ampligen® in treating Chronic Fatigue Syndrome (“CFS”). On December 14, 2011, the Company agreed to a Second Amended Adviser’s Agreement
for
twenty-four
months with Sage, effective June 15, 2011, that amends and supersedes all other agreements and arrangements between the parties. Further, this Agreement may be terminated by the Company for cause after the Company delivers written notice to Adviser of a failure to perform and such failure is not cured within fifteen (
15
) days. Sage will assist the Company to identify, qualify, negotiate and close one or more licensing, partnering, alliance or similar transactions pertaining to the Company’s products and technology including, but not limited to, any and all uses of Ampligen®, Alferon® and related intellectual property as well as acquisition of companies in whole or in part and the sale or the merger of Company (“Transactions”). In consideration for services performed or attributed to Sage resulting in Transactions, Sage is entitled to a monthly “Adviser’s Fee” of
$20,000
, a one-time distribution of
200,000
Options that vest proportionately over
18 months
with an exercise price of
110%
of the closing price of the Company Stock on the NYSE Amex on the closing price of the day preceding the execution date of the agreement plus preapproved expenses along with the potential for a “Success Fee” of five percent
(5)%
of all consideration that is capped at
$5,000,000
per annum for Transactions introduced to the Company by Sage. However, it is the intention of the parties that Sage be an active participant in all material Transactions of the Company. A Transaction can occur during the Term of the agreement or
18 months
thereafter. The Company incurred approximately
$337,000
,
$545,000
and
$314,000
in fees to Sage for the years ended December 31, 2013, 2012 and 2011, respectively, pursuant to this and earlier agreements. R. Douglas Hulse, the Company’s former President and Chief Operating Officer, is a member and an Executive Director of Sage.
On October 2, 2011, the Company finalized their Fourth Amendment to a Supply Agreement, effective through March 11, 2014, with Jubilant Hollister-Stier Laboratories LLC of Spokane, Washington (“Hollister-Stier”), pursuant to which Hollister-Stier would formulate and package Ampligen® from the key raw materials that Hemispherx would supply to them. The Company is working towards a long-term amendment to the existing Supply Agreement which may contain additional fees as part of entering into the extension. The Company incurred
no
fees for the years ended December 31, 2013, 2012 and 2011, respectively, pursuant to this agreement.
On September 6, 2011, the Company executed an amended agreement with Armada Healthcare, LLC (“Armada”) to undertake the marketing, education and sales of Alferon N Injection® throughout the United States. This agreement also provides start-up along with ongoing sales and marketing support to the Company. On August 14, 2012, it was mutually agreed upon to extend this agreement for
one year
subject to the same terms and conditions. On July 23, 2013, the agreement with Armada was again extended for a
one year
period through August 14, 2014 under the same terms and conditions. The Company incurred
no
fees for the years ended December 31, 2013, 2012 and 2011, pursuant to original and amended agreements.
On September 6, 2011, the Company executed a new agreement with specialty distributor, BioRidge Pharma, LLC (”BioRidge”) to warehouse, ship, and distribute Alferon N Injection
®
on an exclusive basis in support of U.S. sales. On August 14, 2012, it was mutually agreed upon to extend this agreement for
one year
subject to the same terms and conditions. On July 23, 2013, the agreement with BioRidge was again extended for a
one year
period through August 14, 2014 under the same terms and conditions. The Company incurred approximately fees of
$21,000
,
$21,000
and
$5,250
for the years ended December 31, 2013, 2012 and 2011, respectively, pursuant to the agreement.
The Company has entered into agreements for consulting services, which are performed at medical research institutions and by medical and clinical research individuals. The Company's obligation to fund these agreements can be terminated after the initial funding period, which generally ranges from
one
to
three years
or on an as-needed monthly basis. During the years ending December 31, 2013, 2012 and 2011, the Company incurred approximately
$1,769,000
,
$1,561,000
and
$1,580,000
, respectively, of consulting service fees under these agreements. These costs are charged to research and development expense as incurred.
The Company has a defined contribution plan, entitled the Hemispherx Biopharma Employees 401(k) Plan and Trust Agreement (the “401(k) Plan”). Full time employees of the Company are eligible to participate in the 401(k) Plan following
one year
of employment. Subject to certain limitations imposed by federal tax laws, participants are eligible to contribute up to
15%
of their salary (including bonuses and/or commissions) per annum. Participants' contributions to the 401(k) Plan may be matched by the Company at a rate determined annually by the Board of Directors.
Each participant immediately vests in his or her deferred salary contributions, while Company contributions will vest over
one year
. The
6%
Company matching contribution was effective as of January 1, 2010. For 2013, 2012 and 2011, the Company contributions towards the 401(k) Plan were
$171,000
,
$138,000
and
$148,000
respectively.
|
|
|
|
(13)
|
Royalties, License and Employment Agreements
|
The Company had contractual agreements with the same
five
Officers in 2013, 2012 and 2011. The aggregate annual base compensation for these Officers under their respective contractual agreements for 2013, 2012 and 2011 was
$2,788,000
,
$2,578,000
and
$2,299,000
respectively. The 2013 officers compensation includes
$238,000
of severance salary to the former CFO due to his resignation effective December 27, 2013. In addition, certain of these Officers were entitled to receive performance bonuses of up to
25%
or
20%
of their respective annual base salary, at the sole discretion of the Compensation Committee of the Board of Directors. In 2013, 2012 and 2011, Executive Officers’ bonuses of
$0
,
$478,000
and
$486,000
respectively were granted. Additionally, on November 26, 2012, the Company’s Compensation Committee authorized bonuses per Section 3(c)(ii) of their respective Employment Agreements to Dr. Carter and Mr. Equels based on the contractual obligation and opinion of independent legal counsel of approximately
$12,000
and
$1,159,000
in 2013 and 2012, respectively, to each Dr. Carter and Mr. Equels.
In 2013, equity was granted as a form of compensation to these Officers:
|
|
|
|
•
|
Senior Vice President of Operations was granted
50,000
ten
year options to purchase common stock at
$0.24
per share which vest in entirety in
one year
; and
|
|
|
|
|
•
|
Chief Executive Officer was granted
500,000
ten
year options to purchase common stock at
$0.31
per share which vest in entirety in
one year
; and
|
|
|
|
|
•
|
Chief Executive Officer was granted
150,000
ten
year options to purchase common stock at
$0.25
per share which vest in entirety in
one year
; and
|
|
|
|
|
•
|
General Counsel was granted
300,000
ten
year options to purchase common stock at
$0.31
per share which vest in entirety in
one year
, and;
|
|
|
|
|
•
|
General Counsel was granted
150,000
ten
year options to purchase common stock at
$0.25
per share which vest in entirety in
one year
.
|
In 2012, equity was granted as a form of compensation to these Officers:
|
|
|
|
•
|
Chief Executive Officer was granted
100,000
ten
year options to purchase common stock at
$0.29
per share which vest in entirety in
one year
;
|
|
|
|
|
•
|
Chief Executive Officer was granted
500,000
ten
year options to purchase common stock at
$0.31
per share which vested immediately;
|
|
|
|
|
•
|
Chief Executive Officer was granted
10,000
ten
year options, as replacement for similar options that had expired, to purchase common stock at
$4.03
per share which vested immediately;
|
|
|
|
|
•
|
General Counsel was granted
100,000
ten
year options to purchase common stock at
$0.29
per share which vest in entirety in
one year
;
|
|
|
|
|
•
|
General Counsel was granted
300,000
ten
year options to purchase common stock at
$0.31
per share;
|
|
|
|
|
•
|
Chief Medical Officer was granted
10,000
ten
year options, as replacement for similar options that had expired, to purchase common stock at
$4.03
per share which vested immediately;
|
|
|
|
|
•
|
Senior Vice President of Operations was granted
50,000
ten
year options to purchase common stock at
$0.29
per share which vest in entirety in
one year
;
|
|
|
|
|
•
|
Senior Vice President was granted
50,000
ten
year options to purchase common stock at
$0.29
per share which vest in entirety in
one year
; and
|
|
|
|
|
•
|
Vice President of Quality Control was granted
30,000
ten
year options to purchase common stock at
$0.85
per share which vest in entirety in
one year
.
|
In 2011, equity was granted as a form of compensation to these Officers:
|
|
|
|
•
|
Chief Executive Officer was granted
500,000
ten
year options to purchase common stock at
$0.41
per share which vested immediately;
|
|
|
|
|
•
|
General Counsel was granted
300,000
ten
year options to purchase common stock at
$0.41
per share;
|
|
|
|
|
•
|
Chief Financial Officer was granted
100,000
ten
year options to purchase common stock at
$0.31
per share which vests in entirety in
one year
;
|
|
|
|
|
•
|
Senior Vice President of Operations was granted
90,000
ten
year options to purchase common stock at
$0.55
per share; and
|
|
|
|
|
•
|
Vice President of Quality Control was granted
40,000
ten
year options to purchase common stock at
$0.37
per share which vest over
one year
.
|
The Company recorded stock compensation expense of
$219,000
,
$262,000
and
$271,000
, respectively, during the years ended December 31, 2013, 2012 and 2011 respectively with regard to these issuances.
An agreement was made and entered into as of the 31st day of December, 2008 with Robert E. Peterson. Mr. Peterson was previously engaged by the Company as its Chief Financial Officer pursuant to an Amended And Restated Engagement Agreement (“Engagement Agreement”) made as of March 11, 2005.
|
|
|
|
•
|
For a period of
thirty-six
(36) months following the Effective Date of December 31, 2008, shall engage Peterson as a part time advisor to the Company’s Chief Executive Officer and shall pay to Peterson for such services (“Advisory Services”) the sum of four thousand dollars
($4,000)
per month, payable monthly with the first monthly payment being due and payable
one month
after the Effective Date. These payments and services concluded on December 31, 2011;
|
|
|
|
|
•
|
On the occurrence of a “Change In Control, the Company shall pay to Peterson three times the amount of compensation paid to Peterson by the Company for calendar year 2008. A “Change In Control” shall be deemed to have occurred as set forth the Engagement Agreement Regarding Change In Control made as of March 11, 2005 between the Company and Peterson, with the definition of “Change In Control” as therein set forth;
|
|
|
|
|
•
|
Peterson is to receive Options to purchase
20,000
shares of the Company’s common stock at the end of each calendar quarter following the Effective Date. Peterson may terminate the Advisory Services at any time. The issuance of Options concluded on December 31, 2011;
|
|
|
|
|
•
|
Upon executing a “Financial Transaction”, the Company shall pay to Peterson
one
(1) percent (the “Peterson One Per Cent Fee”) of the cash to be received by the Company from each Financial Transaction. Provided, however, the Peterson One Per Cent Fee shall in no event exceed in the aggregate two times the amount of compensation paid to Peterson by the Company for calendar year 2008. A “Financial Transaction” shall be any agreements entered into by the Company in which the Company is to receive cash from such third parties. A Financial Transaction does not include agreements whereby the Company receives cash as a result of (i) the Company only being reimbursed for expenses, not including expenses for prior research conducted by the Company, incurred by the Company, (ii) an agreement in which the only economic benefit to the Company is a loan or loans to the Company, (iii) any transactions with Fusion pursuant to the July 2, 2008, Common Stock Purchase Agreement between the Company and Fusion; and
|
|
|
|
|
•
|
This Agreement shall terminate upon Peterson having received full payment for a change in control or upon receiving the maximum one percent fee. The Agreement provides for a “gross-up” payment to make Peterson whole for any Federal taxes imposed as a result of change of control or one percent payments to him.
|
As a result of Financial Transactions completed through the sale of Company Stock, in accordance with the Peterson One Per Cent Fee, and his monthly consulting fee, Mr. Peterson was due
$2,489
, $
$231,839
and
$48,000
for 2013, 2012 and 2011.
The Company has a non-cancelable escalating operating lease as amended, for the space in which its principal office is located. The term of the lease for the Philadelphia, Pennsylvania offices is currently through July 1, 2018. Approximate future minimum payments under these operating lease obligations are as follows
|
|
|
|
|
|
|
|
For The Years Ending
|
(In Thousands)
|
|
December 31,
|
|
|
2014
|
$
|
151
|
|
|
2015
|
154
|
|
|
2016
|
157
|
|
|
2017
|
161
|
|
|
2018
|
68
|
|
|
Thereafter
|
—
|
|
|
|
$
|
691
|
|
|
|
|
Rent expense charged to operations for the years ended December 31, 2013, 2012 and 2011 amounted to approximately
$183,000
$210,000
and
$215,000
respectively.
(15)
Income Taxes (FASB ASC 740 Income Taxes) And Subsequent Event
The Company applies the provisions of FASB ASC 740-10 Uncertainty in Income Taxes. As a result of the implementation, there has been no material change to the Company’s tax position as they have not paid any corporate income taxes due to operating losses. All tax benefits will likely not be recognized due to the substantial net operating loss carryforwards which will most likely not be realized prior to expiration.
In January 2012, the Company effectively sold
$16,000,000
of its New Jersey state Net Operating Loss carry-forwards (for the years 2009 and 2010) for approximately
$1,328,000
as compared to February 2011, when the Company effectively sold
$28,000,000
of its New Jersey state Net Operating Loss carry-forwards (for the years 2003 through 2008) for approximately
$2,272,000
.
As of December 31, 2012, the Company has approximately
$119,000,000
of federal net operating loss carryforwards (expiring in the years 2013 through 2032) available to offset future federal taxable income. The Company also has approximately
$36,000,000
of Pennsylvania state net operating loss carryforwards (expiring in the years
2018
through
2032
) and approximately
$17,000,000
of New Jersey state net operating loss carryforwards (expiring in the years
2030
through
2032
) available to offset future state taxable income. In
January 2013
, the Company effectively sold
$8,500,000
of its New Jersey state net operating loss carryforwards for the years 2010 and 2011 for approximately
$686,000
.
As of December 31, 2013, the Company has approximately
$134,000,000
of federal net operating loss carryforwards (expiring in the years 2018 through 2033) available to offset future federal taxable income. The Company also has approximately
$37,000,000
of Pennsylvania state net operating loss carryforwards (expiring in the years 2019 through 2033) and approximately
$25,000,000
of New Jersey state net operating loss carryforwards (expiring in the years 2019 and 2020) available to offset future state taxable income. In February 2014, the Company effectively sold
$13,900,000
of its New Jersey state net operating loss carryforward for the year 2012 for approximately
$1,126,000
.
The utilization of certain state net operating loss carryforwards may be subject to annual limitations. With no tax due for the foreseeable future, the Company has determined that a policy to determine the accounting for interest or penalties related to the payment of tax is not necessary at this time.
Under the Tax Reform Act of 1986, the utilization of a corporation's net operating loss carryforward is limited following a greater than
50%
change in ownership. Due to the Company's prior and current equity transactions, the Company's net operating loss carryforwards may be subject to an annual limitation generally determined by multiplying the value of the Company on the date of the ownership change by the federal long-term tax exempt rate. Any unused annual limitation may be carried forward to future years for the balance of the net operating loss carryforward period.
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts used for income tax purposes. In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company's ability to realize the benefit of the deferred tax asset, the deferred tax assets are fully offset by a valuation allowance at December 31, 2013 and 2012.
The components of the net deferred tax asset of December 31, 2013 and 2012 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
December 31,
|
|
|
2013
|
|
2012
|
|
Net operating losses
|
$
|
45,578
|
|
|
$
|
40,442
|
|
|
Amortization & depreciation
|
76
|
|
|
(1,503
|
)
|
|
Research and development costs
|
2,842
|
|
|
3,233
|
|
|
Stock compensation
|
128
|
|
|
121
|
|
|
Inventory reserve
|
—
|
|
|
348
|
|
|
Total
|
48,624
|
|
|
42,641
|
|
|
Less: Valuation allowance
|
(48,624
|
)
|
|
(42,641
|
)
|
|
Balance
|
—
|
|
|
—
|
|
(16)
Contingencies
|
|
|
|
(a)
|
Stephanie A. Frater v. Hemispherx Biopharma, Inc., William A. Carter, David Strayer and Wayne Pambianchi, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:12-cv-07152-WY.
|
|
|
|
|
(b)
|
Mark Zicherman v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Iraj E. Kiani, William M. Mitchell, Richard C. Piani, David Strayer and Charles T. Bernhardt, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:13-cv-00243-WY.
|
|
|
|
|
(c)
|
Michael Desclos v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, March 2013 Term, No. 110.
|
|
|
|
|
(d)
|
Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, April 2013 Term, No. 3458.
|
|
|
|
|
(e)
|
Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Richard C. Piani, William M. Mitchell, Iraj E. Kiani and Robert E Peterson, Chancery Court of the State of Delaware , June 18, 2013, Case No. 8657.
|
On December 21, 2012, a putative Federal Securities Class Action Complaint was filed against the Company and
three
of its Officers in the United States District Court for the Eastern District of Pennsylvania. This action,
Stephanie A. Frater v. Hemispherx Biopharma, Inc.
,
et al.
, was purportedly brought on behalf of a putative class of Hemispherx investors who purchased the Company's publicly traded securities between March 14, 2012 and December 17, 2012. The Complaint generally asserted that Defendants made material misrepresentations and omissions regarding the status of the Company's New Drug Application for Ampligen®, which had been filed with the United States Food and Drug Administration, in alleged violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. On March 14, 2013, the Court appointed Hemispherx Investor Group as Lead Plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4. Pursuant to the Court's March 29, 2013 scheduling order, Lead Plaintiff filed a Consolidated Amended Class Action Complaint (“Amended Complaint”) on May 20, 2013, and in its Amended Complaint, dropped Thomas K. Equels and Charles T. Bernhardt as Defendants and added David R. Strayer, M.D. and Wayne Pambianchi as Defendants. The Amended Complaint alleges an expanded Class Period of March 14, 2012 to December 20, 2012, which period encompasses statements made in the Company's 2011 Form 10-K filed on March 14, 2012, and at the FDA Advisory Committee Meeting on December 20, 2012. On July 19, 2013, Defendants filed a motion to dismiss the Amended Complaint. Lead Plaintiff filed its brief in opposition to Defendants' motion to dismiss is September 17, 2013, and Defendants filed their reply brief on October 17, 2013. On January 24, 2014, the court entered an order denying defendents' motion to dismiss the Amended Complaint, and on February, 20, 2014, entered a scheduling order imposing,
inter alia
, a March 31, 2015 deadline for completion of all fact discovery. On February 25, 2014, defendents filed an answer and affirmative defenses to the Amended Compliant. Also on February 25, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery.
On January 15, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the United States District Court for the Eastern District of Pennsylvania. The Complaint in this action,
Mark Zicherman v. Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary
duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On February 22, 2013, the Court entered an order staying this case pending the outcome of Defendants' motion to dismiss the securities class action. On July 3, 2013, Plaintiff filed an Amended Complaint, adding David R. Strayer, M.D., as a Defendant. On July 18, 2013, the Court entered an order staying the case as against Dr. Strayer pending the outcome of Defendants' motion to dismiss the securities class action.
On March 4, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. The Complaint in this action,
Michael Desclos v. Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment. On April 10, 2013, the Court entered an order staying this case pending the outcome of Defendants' motion to dismiss the securities class action. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action,
Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., et al.,
described below. After the Court in the federal securities class action denied the defendants' motion to dismiss on January 24, 2014, counsel for the parties met and conferred regarding case management, and those discussions are continuing.
On April 23, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. The Complaint in this action,
Richard J. Sussman and Douglas T. Lowe v.
Hemispherx Biopharma, Inc., et al.
, alleges violations of state law, including breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. On May 10, 2013, the Court entered an order staying this case pending the outcome of the ruling on the Federal Securities Class Action Defendant's Motion to dismiss. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action,
Michael Desclos v. Hemispherx Biopharma, Inc., et al.,
described above. After the Court in the federal securities class action denied the defendants' motion to dismiss on January 24, 2014, counsel for the parties met and conferred regarding case management, and those discussions are continuing.
On June 18, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the Court of Chancery of the State of Delaware. The Complaint in this action,
Rena A. Kastis and James E. Conroy v.
Hemispherx Biopharma, Inc., et al.
, alleges breaches of fiduciary duties, waste of corporate assets and unjust enrichment. The Company's Board of Directors has appointed a Special Litigation Committee (“SLC”) to review the allegations set forth in the Complaint. On September 10, 2013, the Court entered a Stipulation and Order staying all proceedings in this action pending the SLC’s review and recommendation concerning the allegations contained in the Complaint. The SLC issue its report and recommendation on December 20, 2013, and concluded that the allegations of this matter were unfounded and recommended that the litigation be dismissed. On January 20, 2014, the SLC moved to dismiss the Complaint. Since the SLC filed its motion to dismiss, plaintiffs have served document requests on the SLC, noticed the depositions of the SLC members, and served a subpoena on the SLC's counsel McCarter & English LLP. The SLC responded to plaintiff's document request on March 6, 2014, and produced responsive documents the same day. McCarter & English's response to plaintiff's subpoena is due by March 20, 2014, and its deposition has been tentatively scheduled for April 15, 2014.
The Company intends to vigorously defend these actions. The potential impact of these actions, which seek unspecified damages, equitable relief, attorneys' fees and expenses, is uncertain. There can be no assurance that an adverse result in these proceedings would not have a potentially material adverse effect on the Company's business, results of operations and financial condition.
|
|
|
|
(d)
|
Hemispherx Biopharma, Inc. v. Johannesburg Consolidated Investments, et al.,U.S. District Court for the Southern District of Florida, Case No. 4-10129-CIV.
|
In December 2004, the Company filed a multi-count complaint in U.S, Federal Court (Southern District of Florida) which was granted by the Court in August 2010 whereby Hemispherx was awarded
$188 million
, plus interest against Johannesburg Consolidated Investments (“JCI”) and former JCI officers R.B. Kebble and H.C. Buitendag. The Company is attempting to domesticate the Final Judgment in South Africa and is being assisted by the South African law firm of Webber Wentzel. The action to domesticate has been filed in South Africa. No gain has been recorded for this judgment as it is too early in these proceedings to predict an outcome. As required by South African law, on October 11, 2011, Hemispherx has posted security bond of
$66,873
related to the JCI proceedings and a second bond of
$25,200
was posted in July 2012 related our proceedings against the Estate of Kebble. Hemispherx and the other parties to the domestication action are seeking to convene an arbitral panel in South Africa to decide the domestication issue in Johannesburg on May 5 through 9, 2014.
|
|
|
|
(e)
|
MidSouth Capital, Inc. v. Hemispherx Biopharma, Inc.,
Civil Action No. 1:9-CV-3110-CAP.
|
On June 4, 2009, the Company filed suit in the United States District Court for the Southern District of Florida against MidSouth Capital, Inc. (“MidSouth”) and its principals (Adam Cabibi and Robert Rosenstein) seeking monetary and injunctive relief against MidSouth's tortious interference with certain financing transactions in which the Company was engaged. The case was transferred to the Northern District of Georgia, and Holland & Knight was engaged as local counsel for the Company on November 13, 2009. On November 19, 2009, MidSouth answered the Company's Complaint and filed a Counterclaim against the Company and The Sage Group, Inc. (“Sage”) seeking to recover between
$3,900,000
and
$4,800,000
for fees allegedly owed to it as a result of the same financing transactions, plus attorneys' fees and punitive damages, under various contractual, quasi contractual, and tort theories. On January 12, 2010, the Company and Sage filed a Motion for Judgment on the Pleadings as to all parts of MidSouth's Counterclaim. By Order dated March 31, 2010, the Court granted the Motion with respect to MidSouth's contract claim but denied it with respect to MidSouth's other claims.
The parties conducted Discovery and subsequently, all parties filed Motions for Summary Judgment. By Order dated March 9, 2011, the Court granted the Company's Motion on all the remaining counts of MidSouth's counterclaim, granted Sage's Motion with respect to MidSouth's claims against Sage, and granted MidSouth's Motion with respect to the Company's original Complaint against MidSouth. Costs were taxed in the Trial Court in favor of the Company and against MidSouth in the amount of
$8,631.82
, and in favor of MidSouth and against the Company in the amount of
$7,916.90
.
In April 2011, MidSouth filed a Notice of Appeal from the Order disposing of its claims against the Company and Sage, and the Company filed a Notice of Cross Appeal from the Order granting the Defendants' Motion for Summary Judgment on the original Complaint. MidSouth’s appeal was assigned Case No. 11-11618-E and the Company’s Cross-Appeal was assigned Case No. 11-11650-E. Mediation ordered by the Court of Appeals was unsuccessful. Oral arguments on consolidated appeals took place before the Eleventh Circuit Court of Appeals on February 1, 2012.
In early April 2012, the Company received notice that Robert Rosenstein, a principal of MidSouth, filed a petition under Chapter 7 of the Bankruptcy Code in the Northern District of Georgia. The Company elected not to contest the dischargability of its claim against Mr. Rosenstein.
On August 14, 2012, the panel to which the Appeal and Cross-Appeal had been assigned issued an opinion affirming in part and reversing in part the decisions of the Trial Court. The Court of Appeals affirmed both the Trial Judge’s grant of Summary Judgment in favor of the Company and Sage on MidSouth’s fraud Counterclaim and the grant of Summary Judgment in favor of MidSouth, Cabibi, and Rosenstein on the Company’s tortious interference claims. The Court of Appeals reversed the Trial Court’s Order dismissing MidSouth’s Counterclaim for breach of contract and the Order granting Summary Judgment in favor of the Company on MidSouth’s Counterclaims based on promissory estoppel, quantum meruit, and unjust enrichment.
After remand to the United States District Court, Northern District of Georgia, a Scheduling Order proposed by the parties was entered by the Court on October 17, 2012. The Company deposed representatives of
two
more of the investors to preserve their testimony for trial. Neither witness testified that MidSouth's activity significantly influenced the decision to invest. The parties have submitted a proposed pretrial Order. The Company has also filed a Motion to Reopen Discovery for a limited purpose, a Motion in Limine to exclude
five
categories of evidence and a Request for a Special Setting. The Court held a Pretrial Conference on October 3, 2013. The Court denied the Motion to Reopen Discovery, stated that the case will be number one on a published calendar for trial after the first of the year, and took all other matters under advisement. The Company will vigorously defend the remaining claims. No specific date has been set for trial.
As of November 1, 2013, no informed judgment can be made as to the likely outcome and Counsel is unable to provide a precise estimate of the merits or probability of success of the MidSouth claims. The maximum amount sought by MidSouth is
$4,800,000
, but Counsel believes the realistic exposure is substantially less than that. On March 3, 2014, the jury in the
MidSouth Capital, Inc. v. Hemispherx Biopharma, Inc.
case returned a verdict in favor of the Company and against MidSouth on all claims. We cannot predict whether MidSouth may seek a new trial or appeal from the adverse judgment.
|
|
|
|
(f)
|
Cato Capital, LLC v. Hemispherx Biopharma, Inc., U.S. District Court for the District of Delaware, Case No. 9-549-GMS.
|
On July 31, 2009, Cato Capital LLC (“Cato”) filed suit asserting that under a November 2008 agreement, the Company owes Cato a placement fee for certain investment transactions. The Complaint sought damages in the amount of
$5,000,000
plus attorneys’ fees. The Company filed an Answer on August 20, 2009. On October 13, 2009, Cato filed a Motion seeking leave to file an Amended Complaint which proposed that Cato be permitted to add The Sage Group as an additional defendant and to bring additional causes of action against the Company arising from the defenses contained in the Answer, and increase the total amount sought to
$9,830,000
, plus attorneys’ fees and punitive damages. On September 14, 2010, the Court granted Cato’s Motion for Leave to file an Amended Complaint, but specifically indicated that the Company could file a Motion to Dismiss, raising the
arguments that the Company had previously made in response to Cato’s Motion for Leave to file an Amended Complaint. On September 16, 2010, Cato filed its Amended Complaint, and on September 30, 2010, the Company filed a Motion to dismiss all the counts of the Amended Complaint against the Company other than the breach of contract count. In addition, pursuant to an indemnification responsibility, the Company has also retained counsel to undertake the defense of the Sage Group, and a motion to dismiss was filed on behalf of the Sage Group seeking to dismiss all claims against the Sage Group. On July 28, 2011, the Court denied the Company’s motion to dismiss and the motion to dismiss of the Sage Group. On August 11, 2011, the Court entered a Scheduling Order that set Discovery, Motion and other applicable dates, including a trial date. On August 30, 2011, the Company and the Sage Group filed an Answer with Affirmative Defenses to the Plaintiff’s Amended Complaint. On October 24, 2011, Cato filed a Motion for a Partial Summary Judgment, seeking a determination that
two
of the Company’s affirmative defenses to Cato’s breach of contract cause of action should be stricken. On November 10, 2011, the Company filed a response controverting Cato’s Motion on factual and legal basis. Also on November 10, 2011, the Company filed its own Motion for Partial Summary Judgment, seeking dismissal of Cato’s claim for breach of contract. In accordance with a Scheduling Order set by the Court, the parties concluded fact and expert discovery on April 16, 2012. On April 30, 2012 the Company filed Motions for Summary Judgment seeking dismissal of all counts. The Sage Group also filed a Motion for Summary Judgment seeking dismissal of all counts asserted against Sage.
In accordance with a Scheduling Order set by the Court, the parties concluded Fact and Expert Discovery on April 16, 2012. On April 30, 2012, the Company filed Motions for Summary Judgment seeking dismissal of all counts. The Sage Group (“Sage”) also filed a Motion for Summary Judgment seeking dismissal of all counts asserted against Sage. On September 10, September 12, and September 13, 2012, the Court entered Orders denying all pending Motions by all parties.
The Parties had a Non-Jury trial on March 4, 5 and 6, 2013 before the United States District Court for the District of Delaware. On April 22, 2013 the Parties submitted Proposed Findings of Fact and Conclusions of Law, and on April 26, 2013, submitted hyperlinked copies to the Court pursuant to the Court's Order.
In February and March of 2014, the Company’s counsel advised the Court that certain rulings in a similar matter undercut certain factual and legal arguments advanced by the Plaintiff at, and subsequent to the trial.
There can be no estimate of when the Court may rule on the case.
As of March 13, 2014, no informed judgment can be made as to the likely outcome and Counsel is unable to provide an estimate of the merits or probability of success of the Cato claims or a range of potential recovery or loss.
In reference to Contingencies identified above, there can be no assurance that an adverse result in these proceedings would not have a potentially material adverse effect on our business, results of operations, and financial condition. The Company believes it has meritorious defenses and is vigorously defending against the claims identified in Contingency (a), (b), (c), (e) and (f). There is currently no projection as to the likely outcome of the cases and the Company has not recorded any gain or loss contingencies as a result of the above matters for the years ended December 31, 2013 or 2012. Also with regards to Contingency (a), (b) and (c), the Company maintains a Directors and Officers Insurance Policy that provides coverage for claims and retention of legal counsel.
(17)
Certain Relationships and Related Transactions
The Company has employment agreements with certain of their Executive Officers and has granted such officers and directors options and warrants to purchase their common stock. Please see details of these Employment Agreements in Note 13 - Royalties, License and Employment Agreements.
The Company used at various times the property owned by Retreat House, LLC, for off-site meetings and lodging. The property was owned individually by Dr. William A. Carter, Hemispherx’ Chief Executive Officer, through April 28, 2010, at which time it was transferred to Retreat House, LLC, a Virginia limited liability company that is owned by
three
of the children of William A. Carter and a Senior Primary Revocable Trust in which William A. Carter is the Trustee. Dr. Carter also is the Manager of Retreat House, LLC. The Company paid Retreat House, LLC approximately
$-0-
,
$0
and
$137,000
for the use of the property, off-site meetings and lodging at various times in 2013, 2012 and 2011, respectively. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, the Company was unable to gain assurance that the fees charged for conference and lodging by the Retreat House, LLC were reasonable when compared to commercially available alternatives in the same geographic market. As a result and effective November 15, 2011, Dr. Carter agreed to designate the property owned by Retreat House, LLC as both his home office and as a meeting place for a variety of Company business and social activities at no additional expense to the Company for the use of the property or lodging and agreed not to bill, either personally or through Retreat House LLC, or any other entity, for use of the Retreat House. Additionally, Dr. Carter shall be responsible for paying for all secretarial and receptionist services related to his work conducted in Florida and provide said services at no further expense to the Company. In return as
reflected in his Amended Employment Contract, Dr. Carter was granted an increase in his base salary compensation and the Company shall supply the equipment necessary for full telephone, telefax, computer and internet access. For his Board fees, Dr. Carter received approximately
$180,000
,
$176,000
and
$170,000
for 2013, 2012 and 2011, respectively.
From December 2011 through June 2012, the Company employed Kyle Carter as a Data Control Clerk. Kyle Carter is the Son of Dr. William A. Carter, and was paid approximately
$8,000
and
$-3,000-
2012 and 2011, respectively.
In June 2012, William Kramer was hired as a Clinical Research Associate. Mr. Kramer is the Son-In-Law of Dr. William A. Carter, and was paid approximately
$70,000
,
$-38,000-
and
$-0-
in 2013, 2012 and 2011, respectively. Additionally on an as-needed basis, the Company utilized the services of Kramer Environmental Management, Inc. to develop standard operating procedures, compliance assessments, testing and obtain permits related to environmental issues. William Kramer is also the President of Kramer Environmental Management, Inc. and the organization was paid approximately
$0
,
$-20,000-
and
$-0-
in 2013, 2012 and 2011, respectively.
Katalin Kovari, M.D. was paid approximately
$26,000
,
$25,000
and
$28,000
in 2013, 2012 and 2011, respectively for her part-time services to the Company as Assistant Medical Director. Dr. Kovari is the spouse of William A. Carter, CEO.
Since October 2011, Peter Kovari was utilized as a part-time independent contractor for Hemispherx Biopharma Europe to undertake projects as a Clinical Programmer. Mr. Kovari is the nephew of Dr. Katalin Kovari and was paid approximately
$22,000
,
$12,000
and
$-6,000-
in 2013, 2012 and 2011, respectively.
Thomas Equels was elected to the Board of Directors at the Annual Stockholders Meeting on November 17, 2008 and joined the Company as General Counsel effective June 1, 2010. Mr. Equels had provided external legal services for several years through May 31, 2010 and Equels Law Firm continues to support the Company. In 2013, 2012 and 2011, the Company paid Equels Law Firm approximately
$181,000
,
$147,000
and
$159,000
, respectively, for services rendered. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, it was deemed that the hourly rates charged by Equels Law to the Company were reasonable when compared to the fee structure of a possible arms-length transaction from comparable firms in practice in the same market and of the similar size. The hourly rate fees from Equels Law Firm remained the same for 2011, 2012 and 2013. For his Board fees, Mr. Equels received approximately
$180,000
,
$176,000
and
$170,000
for 2013, 2012 and 2011, respectively. Additionally beginning December 2012 with the approval of the Audit Committee, the Company began renting an office at Equels Law Firm for
$3,000
per month for dedication to and utilization by Hemispherx personnel. For 2013, 2012 and 2011, the Company paid Equels Law Firm
$36,000
,
$3,000
and
$0
, respectfully, for office rent based on a proration of the Firm’s current leasing fee less the cost for common area.
On a quarterly basis, the Company reimbursed the former Director Richard Piani for his rental of a
2,000
square foot, fully furnished and equipped office with part-time administrative assistance located at 97 Rue Jean Jaures, Levallois, Perret, France used exclusively for Hemispherx Europe N.V./S.A. In 2013, 2012 and 2011, the Company paid reimbursements to Mr. Piani for approximately
$12,000
,
$48,000
and
$48,000
, respectfully, for the sublease. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, it was deemed that the rental fee charged to the Company was reasonable as compared to a possible arms-length transaction with comparable office facilities in the same geographic vicinity for similar commercial space of comparable quality and size in the same market. The office rental fee of
$4,000
per month has remained constant since 2010. For his Board fees, Mr. Piani received approximately
$71,000
,
$176,000
and
$170,000
for 2013, 2012 and 2011, respectively. On May 23, 2013, Mr. Piani resigned as a member of the Board of Directors for health reasons. In order to continue to access Mr. Piani’s extensive knowledge and expertise, the Company engaged Mr. Piani as a consultant. The agreement with Mr. Piani is month-to-month with either party having the right to terminate with
thirty
days’ notice and is at a rate of
$3,000
per month.
$9,000
was paid to Mr. Piani in 2013 under this agreement. This agreement was terminated effective December 31, 2013.
(18) Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents, investments and accounts receivable. The Company places its cash with high-quality financial institutions and, at times, such amounts in non-interest bearing accounts may be in excess of Federal Deposit Insurance Corporation insurance limits. There were no credit based sales for 2013, 2012 or 2011.
(19)
Fair Value
The Company is required under GAAP to disclose information about the fair value of all the Company’s financial instruments, whether or not these instruments are measured at fair value on the Company’s consolidated balance sheet.
The Company estimates that the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate their carrying values due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement feature in the unlikely occurrence of a Fundamental Transaction. The fair value recalculation of the Liability resulting from the issuance of the Warrants ("Call") and existence of the Fundamental Transaction ("Put") related to the May 2009 issuance, are calculated using a Monte Carlo Simulation. While the Monte Carlo Simulation is one of a number of possible pricing models, the Company has determined it to be industry accepted and fairly presented the Fair Value of the Warrants. As an additional factor to determine the Fair Value of the Put's Liability, the occurrence probability of a Fundamental Transaction event was factored into the valuation.
The Company recomputes the fair value of the Warrants at the end of each quarterly reporting period. Such value computation includes subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers input based on such assumptions, the resulting fair value could be materially different.
The Company utilized the following assumptions to estimate the fair value of the May 10, 2009, May 18, 2009 and May 21, 2009 warrants:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
2011
|
|
Underlying price per share
|
$0.19-$0.27
|
|
$0.25-$0.80
|
|
$0.20-$0.46
|
|
Exercise price per share
|
$1.31-$1.65
|
|
$1.31-$1.65
|
|
$1.31-$1.65
|
|
Risk-free interest rate
|
0.06%-0.23%
|
|
0.19%-0.44%
|
|
0.29%-1.58%
|
|
Expected holding period
|
0.38-1.64 years
|
|
1.38-2.63 years
|
|
2.38-3.63 years
|
|
Expected volatility
|
69.74%-113.56%
|
|
69.21%-110.27%
|
|
74.55%-120.55%
|
|
Expected dividend yield
|
None
|
|
None
|
|
None
|
The significant assumptions using the Monte Carlo Simulation approach for valuation of the Warrants are:
(i)
Risk-Free Interest Rate
. The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods commensurate with the remaining expected holding periods of the warrants.
(ii)
Expected Holding Period
. The expected holding period represents the period of time that the Warrants are expected to be outstanding until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the expected holding period.
(iii)
Expected Volatility
. Expected stock volatility is based on daily observations of the Company’s historical stock values for a period commensurate with the remaining expected holding period on the last day of the period for which the computation is made.
(iv)
Expected Dividend Yield
. Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining expected holding period. As the Company has never issued dividends, the expected dividend yield is
$-0-
and this assumption will be continued in future calculations unless the Company changes its dividend policy.
(v)
Expected Probability of a Fundamental Transaction.
The possibility of the occurrence of a Fundamental Transaction triggering a Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction 1) is an all cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded on a national securities exchange. The Company believes such an occurrence is highly unlikely because:
|
|
|
|
a.
|
The Company only has one product that is FDA approved for which will not be available for commercial sales until approximately
eighteen months
;
|
|
|
|
|
b.
|
The Company may have to perform additional clinical trials for FDA approval of its flagship product;
|
|
|
|
|
c.
|
Industry and market conditions continue to include a global market recession, adding risk to any transaction;
|
|
|
|
|
d.
|
Available capital for a potential buyer in a cash transaction continues to be limited;
|
|
|
|
|
e.
|
The nature of a life sciences company is heavily dependent on future funding and high fixed costs, including Research & Development;
|
|
|
|
|
f.
|
The Company has minimal revenues streams which are insufficient to meet the funding needs for the cost of operations or construction at their manufacturing facility; and
|
|
|
|
|
g.
|
The Company's Rights Agreement and Executive Agreements make it less attractive to a potential buyer.
|
With the above factors utilized in analysis of the likelihood of the Put's potential Liability, the Company estimated the range of probabilities related to a Put right being triggered as:
|
|
|
|
|
|
|
|
Range of Probability
|
|
Probability
|
|
Low
|
|
0.5
|
%
|
|
Medium
|
|
1.0
|
%
|
|
High
|
|
5.0
|
%
|
The Monte Carlo Simulation has incorporated a
5.0%
probability of a Fundamental Transaction to date for the life of the securities.
(vi)
Expected Timing of Announcement of a Fundamental Transaction.
As the Company has no specific expectation of a Fundamental Transaction, for reasons elucidated above, the Company utilized a discrete uniform probability distribution over the Expected Holding Period to model in the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
(vii)
Expected
100
Day Volatility at Announcement of a Fundamental Transaction
. An estimate of future volatility is necessary as there is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical stock values for the
100
days immediately prior to the Warrants’ grant dates, with a floor of
100%
, were utilized as a proxy for the future volatility.
(viii)
Expected Risk-Free Interest Rate at Announcement of a Fundamental Transaction
. The Company utilized a risk-free interest rate corresponding to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of a Fundamental Transaction and the Warrant expiration date for each simulation.
(ix) Expected Time Between Announcement and Consummation of a Fundamental Transaction.
The expected time between the announcement and the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed by acquirers, and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.
While the assumptions remain consistent from period to period (e.g., utilizing historical stock prices), the numbers input change from period to period (e.g., the actual historical prices input for the relevant period). The carrying amount and estimated fair value of the above warrants were approximately
$14,000
,
$295,000
and
$380,000
at December 31, 2013, 2012 and 2011, respectively.
The Company applies FASB ASC 820 (formerly Statement No. 157
Fair Value Measurements
) that defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The guidance does not impose any new requirements around which assets and liabilities are to be measured at fair value, and instead applies to asset and liability balances required or permitted to be measured at fair value under existing accounting pronouncements. The Company measures its warrant liability for those warrants with a cash settlement feature at fair value.
FASB ASC 820-10-35-37 (formerly SFAS No. 157) establishes a valuation hierarchy based on the transparency of inputs used in the valuation of an asset or liability. Classification is based on the lowest level of inputs that is significant to the fair value measurement. The valuation hierarchy contains three levels:
|
|
|
|
•
|
Level 1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market.
|
|
|
|
|
•
|
Level 2 – Observable inputs other than Level 1 prices such as quote prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market.
|
|
|
|
|
•
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. As of December 31, 2013, 2012 and 2011, the Company has classified the warrants with cash settlement features as Level 3. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed above, the Company utilized the Monte Carlo Simulation Model in valuing these warrants.
|
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
As of December 31, 2013
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
$
|
17,391
|
|
|
$
|
17,391
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
(14
|
)
|
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
Total
|
$
|
17,377
|
|
|
$
|
17,391
|
|
|
$
|
—
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
$
|
27,241
|
|
|
$
|
27,241
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Marketable Securities - restricted
|
14,500
|
|
|
13,499
|
|
|
1,001
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
(295
|
)
|
|
—
|
|
|
—
|
|
|
(295
|
)
|
|
Total
|
$
|
41,446
|
|
|
$
|
40,740
|
|
|
$
|
1,001
|
|
|
$
|
(295
|
)
|
The changes in Level 3 Liabilities measured at fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
|
Balance at January 1
|
$
|
295
|
|
|
$
|
380
|
|
|
$
|
2,805
|
|
|
Fair value adjustment at March 31
|
(89
|
)
|
|
151
|
|
|
(301
|
)
|
|
Balance March 31
|
206
|
|
|
531
|
|
|
2,504
|
|
|
Fair value adjustment at June 30
|
(102
|
)
|
|
(387
|
)
|
|
(643
|
)
|
|
Balance at June 30,
|
104
|
|
|
144
|
|
|
1,861
|
|
|
Fair value adjustment at September 30
|
(38
|
)
|
|
1,968
|
|
|
(614
|
)
|
|
Balance at September 30
|
66
|
|
|
2,112
|
|
|
1,247
|
|
|
Fair value adjustment at December 31
|
(52
|
)
|
|
(1,817
|
)
|
|
(867
|
)
|
|
Balance at December 31
|
$
|
14
|
|
|
$
|
295
|
|
|
$
|
380
|
|
(20)
Margin Account Loan
A “Margin Account” loan was established with Wells Fargo Advisors for which the proceeds of this flexible form of indebtedness effectively serves the Company as a line of credit to finance the capital improvement project underway at the New Brunswick, New Jersey Manufacturing facility. In order to maintain this Margin Account, established on
July 26, 2011
, the Company pledged, restricted from sale and segregated to a dedicated Margin Account its marketable securities at an approximate ratio of
two
to
one
of security collateral to debt undertaken. With the exception of collateral requirements, the Company maintained all the rights and benefits of ownership including receipt of interest, dividends or proceeds from the securities. While this Margin Account had
no
material establishment or maintenance fees, it carried an effective interest rate of approximately
2.50%
per annum applied against the “Margin Debit Balance” (i.e., those funds withdrawn and outstanding), based on the prevailing “Wells Fargo Base Rate” less
2.75%
. As of December 31, 2012, the principal loan balance of the Margin Account was approximately
$7,051,000
, for which approximately
$14,500,000
in Marketable Securities that are restricted with them dedicated collateral for the indebtedness. In October 2013, the Company liquidated approximately one-half of its Marketable Securities - Restricted (see “Note 6: Marketable Securities - Restricted”) in order to pay-off in its entirety the approximately
$7,051,000
of principal balance of the Margin Account Loan. As a result, the Margin Account Loan was eliminated and the remaining dollar value of the Marketable Securities - Restricted was reclassified to Unrestricted. The finance charges were approximately
$143,000
and
$85,000
for the years ended December 31, 2013 and 2012, respectively.
(21) Subsequent Events
The Company evaluated subsequent events through the date on which these financial statements were issued, and other than the sale of New Jersey state net operating losses for approximately
$1,126,000
as disclosed in
Note 15 Income Taxes (FASB ASC 740 Income Taxes) And Subsequent Event
and the Company's transactions related to the ATM noted below, determined that
no
subsequent event constituted a matter that required disclosure or adjustment to the financial statements for the year ended December 31, 2013.
For the period January 1, 2014 through March 1, 2014, the Company has sold approximately
10,654,356
shares pursuant to the ATM that has resulted in net cash proceeds of approximately
$4,788,000
after commissions paid to Maxim for approximately
$148,000
.
On February 7, 2014, Charles T. Bernhardt III (“Bernhardt”) filed a Complaint in the Philadelphia Court of Common Pleas asserting that under an employment agreement dated December 6, 2011, the Company currently owes Bernhardt certain wages, fringe benefits and severance payments by reason of his recent resignation from employment as Chief Financial Officer from the Company. The claims against the Company include breach of contract, violation of the Pennsylvania Wage Protection Collection Law (“WPCL”) and anticipatory breach of the employment agreement. The suit also asserts claims against Dr. William A. Carter, Thomas K. Equels, Esquire, Dr. Iraj Eqhbal Kiani, Dr. William M. Mitchell and Peter W. Rodino, in their capacity as corporate officers and/or directors of the Company, for violation of the WPCL and for anticipatory breach of the employment agreement. In addition to compensatory damages on all counts, Bernhardt’s claim includes a demand for attorneys’ fees and liquidated damages under the WPCL. On February 27, 2014, the Defendants filed preliminary objections to Bernhardt’s Complaint challenging the legal sufficiency of the Complaint for various reasons including that the Complaint did not properly state claims under the WPCL, nor did it assert a right to severance benefits. The preliminary objections further seek to strike certain improper allegations contained in the Complaint. The Company awaits Bernhardt’s required response thereto.
The Company believes it has meritorious defenses and is vigorously defending against these claims by Bernhardt as unjustifiable. There is currently no projection as to the likely outcome of the case.
On March 3, 2014, the jury in the
MidSouth Capital, Inc. v. Hemispherx Biopharma, Inc.
case returned a verdict in favor of the Company and against MidSouth on all claims. We cannot predict whether MidSouth may seek a new trial or appeal from the adverse judgment.
(22)
Quarterly Results of Operation (unaudited)
The following is a summary of the unaudited quarterly results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
(in thousands except per share data)
|
|
|
March 31,
2013
|
|
June 30,
2013
|
|
September 30,
2013
|
|
December 31,
2013
|
|
Total
|
|
Revenues
|
$
|
42
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
36
|
|
|
$
|
150
|
|
|
Costs and expenses
|
(4,604
|
)
|
|
(4,770
|
)
|
|
(4,495
|
)
|
|
(3,448
|
)
|
|
(17,317
|
)
|
|
Interest & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense)
|
176
|
|
|
349
|
|
|
85
|
|
|
165
|
|
|
775
|
|
|
Other than temporary impairment loss on marketable securities
|
—
|
|
|
—
|
|
|
(800
|
)
|
|
—
|
|
|
(800
|
)
|
|
Sales of tax NOL
|
686
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
686
|
|
|
Redeemable warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation adjustment
|
89
|
|
|
102
|
|
|
38
|
|
|
52
|
|
|
281
|
|
|
Net loss
|
$
|
(3,611
|
)
|
|
$
|
(4,283
|
)
|
|
$
|
(5,136
|
)
|
|
$
|
(3,195
|
)
|
|
$
|
(16,225
|
)
|
|
Basic and diluted loss per share
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
(in thousands except per share data)
|
|
|
March 31,
2012
|
|
June 30,
2012
|
|
September 30,
2012
|
|
December 31,
2012
|
|
Total
|
|
Revenues
|
$
|
72
|
|
|
$
|
49
|
|
|
$
|
39
|
|
|
$
|
53
|
|
|
$
|
213
|
|
|
Costs and expenses
|
(3,819
|
)
|
|
(3,682
|
)
|
|
(5,004
|
)
|
|
(8,048
|
)
|
|
(20,553
|
)
|
|
Interest & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (expense)
|
262
|
|
|
246
|
|
|
346
|
|
|
719
|
|
|
1,573
|
|
|
Sales of tax NOL
|
1,328
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,328
|
|
|
Redeemable warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
valuation adjustment
|
(151
|
)
|
|
387
|
|
|
(1,968
|
)
|
|
1,817
|
|
|
85
|
|
|
Net loss
|
$
|
(2,308
|
)
|
|
$
|
(3,000
|
)
|
|
$
|
(6,587
|
)
|
|
$
|
(5,459
|
)
|
|
$
|
(17,354
|
)
|
|
Basic and diluted loss per share
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.12
|
)
|