Item
2.01. Completion of Acquisition or Disposition of Assets.
Reverse
Merger Transaction; Acquisition of ZIOPHARM, Inc.
Pursuant
to an Agreement and Plan of Merger dated August 3, 2005 (the “
Merger
Agreement
”),
by
and among EasyWeb, Inc. (now known as ZIOPHARM Oncology,
Inc.)(the “
Company
”),
ZIO
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
the
Company, and ZIOPHARM, Inc., a Delaware corporation whose business is the
development and commercialization of drugs for the treatment of cancer
(“
ZIOPHARM
”),
ZIO
Acquisition Corp. merged with and into ZIOPHARM, with ZIOPHARM remaining
as the
surviving entity and a wholly owned operating subsidiary of the Company.
This
transaction is referred to throughout this report as the “Merger.” The
Merger was effective as of September 13, 2005, upon the filing of a certificate
of merger with the Delaware Secretary of State.
At
the
effective time of the Merger, the legal existence of ZIO Acquisition Corp.
ceased and all of the 13,908,772 shares of ZIOPHARM capital stock that were
outstanding immediately prior to the Merger were cancelled, with one share
of
ZIOPHARM common stock issued to the Company. Simultaneously, the former holders
of ZIOPHARM capital stock received an aggregate of 6,967,941 shares of the
Company’s common stock, representing approximately 97.3% of the Company’s common
stock outstanding after the Merger. In addition, all securities convertible
into
and exercisable for shares of ZIOPHARM capital stock outstanding immediately
prior to the Merger were cancelled, and the holders thereof received similar
securities convertible into an aggregate of 1,366,846 shares of the Company’s
common stock.
Prior
to
the Merger, the Company effected a 1-for-40 share combination (i.e., reverse
stock split) of its capital stock. The share combination was approved by
Company’s stockholders at a special stockholder meeting held on February 28,
2005. As a result of the share combination, the Company had 189,922 shares
of
common stock outstanding immediately prior to the Merger.
The
Merger represents a change in control of the Company inasmuch as greater
than
50% of the issued and outstanding voting stock of Company on a post-Merger
basis
is now held by the former holders of ZIOPHARM capital stock. As of the date
of
this report, there were 7,157,863 shares of Company capital stock outstanding,
all of which is common stock.
The
Merger Agreement was filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on August 9, 2005,
and is incorporated herein by reference. The foregoing description of the
Merger
Agreement and the transactions contemplated thereby do not purport to be
complete and are qualified in their entireties by reference to the Merger
Agreement.
On
September 13, 2005, the Company’s board of directors approved a transaction
pursuant to which ZIOPHARM merged with and into the Company, leaving the
Company
as the surviving corporation. In connection with this merger, the Company
relinquished its corporate name and assumed in its place the name “ZIOPHARM
Oncology, Inc.” The merger and name change became effective on September 14,
2005, upon the filing of a certificate of ownership with the Delaware Secretary
of State.
Unless
otherwise provided in this report, all references in this report to
“we,”“us,”“our company,”“our,” or the “Company” refer to the combined ZIOPHARM
Oncology, Inc. entity.
Description
of Business of ZIOPHARM Oncology, Inc.
General
ZIOPHARM
Oncology, Inc. is a development-stage company that is seeking to develop
and
commercialize a diverse, risk-sensitive portfolio of in-licensed cancer drugs
that address unmet medical needs. The Company’s management and advisors are
focused on licensing proprietary drug candidate families that are related
to
cancer therapeutics on the market where the application of new biological
understanding and the Company’s drug development expertise will lead to a lower
risk for clinical development failure while expediting clinical registration.
The Company expects to commercialize its products on its own in North America
but recognizes that promising clinical trial results in cancers with a high
incidence and prevalence might also be addressed in a commercial partnership
with another company with the requisite financial resources. Currently, the
Company is in U.S. Phase I studies for two product candidates known as ZIO-101
and ZIO-201. The Company currently intends to continue with clinical development
of ZIO-101 for advanced myeloma and ZIO-201 for advanced sarcoma.
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036, with a telephone number of (646) 214-0700. The
Company’s business and development operations are located in Charlestown,
Massachusetts.
Cancer
Overview
Cancer
is
a group of diseases characterized by either the runaway growth of cells or
the
failure of cells to die normally. Often, cancer cells spread to distant parts
of
the body, where they can form new tumors. Cancer can arise in any organ of
the
body and, according to the American Cancer Society, strikes one of every
two
American men and one of every three American women at some point in their
lives.
It
is
reported that there are more than 100 different varieties of cancer divided
into
six major categories. Carcinomas, the most common type of cancer, originate
in
tissues that cover a surface or line a cavity of the body. Sarcomas begin
in
tissue that connects, supports or surrounds other tissues and organs. Lymphomas
are cancers of the lymph system, the circulatory system that bathes and cleanses
the body’s cells. Leukemias involve blood-forming tissues and blood cells. As
their name indicates, brain tumors are cancers that begin in the brain, and
skin
cancers, including dangerous melanomas, originate in the skin. Cancers are
considered metastatic if they spread via the blood or lymphatic system to
other
parts of the body to form secondary tumors.
Cancer
is
caused by a series of mutations, or alterations, in genes that control cells’
ability to grow and divide. Some mutations are inherited; others arise from
environmental factors such as smoking or exposure to chemicals, radiation,
or
viruses that damage cells’ DNA. The mutations cause cells to divide relentlessly
or lose their normal ability to die.
The
cost
of cancer to the healthcare system is significant. The National Institute
of
Health estimates that the overall cost of cancer in 2003 was $189.5 billion.
This cost includes an estimate of $64.2 billion in direct medical expenses,
$16.3 billion in indirect morbidity costs, and $109 billion in indirect
mortality costs.
Cancer
Treatments
Major
treatments for cancer include surgery, radiotherapy, and chemotherapy. There
are
many different drugs that are used to treat cancer, including cytotoxics
or
antineoplastics, hormones, and biologics. There are also many experimental
treatments under investigation including radiation sensitizers, vaccines,
gene
therapy and immunotoxins. The Company believes cancer treatment represents
a
significant unmet medical need.
Radiotherapy.
Also
called radiation therapy, radiotherapy is the treatment of cancer and other
diseases with ionizing radiation. Ionizing radiation deposits energy that
injures or destroys cells in the area being treated - the target tissue
- by
damaging their genetic material, making it impossible for these cells to
continue growing. Although radiation damages both cancer cells and normal
cells,
the latter are able to repair themselves and regain proper function.
Radiotherapy may be used to treat localized solid tumors, such as cancers
of the
skin, tongue, larynx, brain, breast, or uterine cervix. It can also be
used to
treat leukemia and lymphoma.
Scientists
are also looking for ways to increase the effectiveness of radiation therapy.
Two types of investigational drugs are being studied for their effect on
cells
exposed to radiation. Radiosensitizers increase the damage done to tumor
cells
by radiation; and radioprotectors protect normal tissues from the effects
of
radiation.
Cytotoxics.
Cytotoxics
are anticancer drugs that destroy cancer cells by stopping them from
multiplying. Healthy cells can also be harmed with the use of cytotoxics,
especially those that divide quickly. Harm to healthy cells is what causes
side
effects. These cells usually repair themselves after chemotherapy. Chemotherapy
can be used for different purposes which include curing cancer (when the
patient
remains free of evidence of cancer cells), controlling cancer (by preventing
the
cancer from spreading), and to relieving symptoms of cancer (such as pain,
helping patients live more comfortably).
Cytotoxic
agents act primarily on macromolecular synthesis, repair or activity, which
affects the production or function of DNA, RNA or protein. Although there
are
many cytotoxic agents, there is a considerable amount of overlap in their
mechanisms of action. As such, the choice of a particular agent or group
of
agents is generally not a consequence of a prior prediction of antitumor
activity by the drug, but instead the result of empirical clinical
trials.
Supportive
Care.
The
treatment of a cancer may include the use of chemotherapy, radiation therapy,
biologic response modifiers, surgery, or some combination of all of these
or
other therapeutic options. All of these treatment options are directed at
killing or eradicating the cancer that exists in the patient’s body.
Unfortunately, the delivery of many cancer therapies adversely affects the
body’s normal organs. The undesired consequence of harming an organ not involved
with cancer is referred to as a complication of treatment or a side
effect.
Side
effects, or complications, of treatment cause inconvenience, discomfort,
and
occasionally, may even be fatal. Additionally and perhaps more importantly,
side
effects may also prevent doctors from delivering the prescribed dose of therapy
at the specific time and schedule of the treatment plan. Therefore, side
effects
not only cause discomfort, but may also limit a patient’s ability to achieve the
best outcome from treatment by preventing the delivery of therapy at its
optimal
dose and time.
In
addition to anemia, fatigue, hair-loss, reduction in blood platelets and
white
and red blood cells, and bone pain, one of the most common side effects of
chemotherapy is nausea and vomiting. Several drugs have been developed to
help
prevent and control chemotherapy-induced nausea and vomiting, which have
led to
improvements in the management of symptoms associated with this cancer
treatment, allowing for greater accuracy and consistency concerning the
administration of cancer treatment. Nausea and vomiting induced by chemotherapy
are treated by drugs such as 5HT3 receptor antagonists, like ondansetron,
which
is a selective blocking agent of the hormone serotonin.
ZIO-101
General
.
ZIO-101
is an organic arsenic compound covered by an issued U.S. patent and applications
internationally. A form of commercially available inorganic arsenic (arsenic
trioxide (Trisenox®) or ATO) has been approved for the treatment of acute
promyelogenous leukemia (APL), a precancerous condition, and has been studied
for the treatment of various cancers. Nevertheless, ATO has been shown to
be
toxic to the heart and liver, limiting its use as an anti-cancer agent.
Inorganic arsenic has also been shown to cause cancer of the skin and lung
in
humans. The toxicity of arsenic generally is correlated to its accumulation
in
organs and tissues. The Company’s preclinical studies demonstrated that ZIO-101
(and organic arsenic in general) is considerably less toxic than inorganic
arsenic, particularly with regard to heart toxicity.
In
vitro
testing
of ZIO-101 using the National Cancer Institute’s human cancer cell panel
detected activity against lung, colon, brain, melanoma, ovarian and kidney
cancer. Moderate activity was detected against breast and prostate
cancer.
In
addition to solid tumors,
in
vitro
testing
in both the National Cancer Institute’s cancer cell panel and
in
vivo
testing
in a leukemia animal model demonstrated substantial activity against
hematological cancers (cancers of the blood and blood-forming tissues) such
as
leukemia, lymphoma, myelodysplastic syndromes and multiple myeloma. Leukemia
is
a cancer that begins in blood-forming tissue such as the bone marrow and
causes
large numbers of blood cells to be produced and enter the bloodstream. Lymphomas
are cancers that begin in cells of the immune system. Myelodysplastic syndromes,
also called preleukemia or smoldering leukemia, are diseases in which the
bone
marrow does not function normally.
Clinical
Lead Indications: Multiple Myeloma
.
Multiple myeloma, a common hematological malignancy, is among a group of
plasma
cell cancers associated with the overproduction of monoclonal immunoglobulin
(M-protein). Primary treatment for multiple myeloma is systemic chemotherapy.
Approximately 15-20% of patients who have the disease are resistant to
aggressive primary treatment. Even with prompt institution of systemic
treatment, the drug-sensitive phase of the disease usually lasts only two
to
three years for most patients before resistance appears (although in a small
patient population sensitivity to systemic therapy can last for five to ten
years). The median survival of patients with progressive or resistant disease
is
three to four years.
The
standard of care for progressive or resistant multiple myeloma may be in
transition. Recent clinical trials offer evidence supporting the use of
thalidomides and proteosome inhibitors, either alone or in combination with
other agents. Unfortunately, neither treatment is universally effective,
each
can be quite toxic, and all patients who receive them will likely develop
progressive disease. As a result, the Company expects that the medical community
will continue to embrace new agents that provide incremental benefit to patients
without undue toxicity. The Company is hopeful that the novel mechanism of
action of ZIO-101, combined with its anticipated safety profile, will encourage
its use in the treatment of advanced myeloma and possibly a variety of other
tumors. Currently, the Company expects that advanced myeloma will be the
indication for which it is most likely to seek initial regulatory approval
for
ZIO-101.
Clinical
Development Plan for ZIO-101
.
The
Company has commenced two phase I clinical trials (hematological and solid
tumor) at the University of Texas M.D. Anderson Cancer Center using ZIO-101
in
refractory disease. Phase I testing is primarily focused on assessing drug
safety; however, one patient in the solid tumor trial has evidenced a response
without toxicity (as reported by the investigator). The starting dose in
both
phase I trials was about 14 times the labeled dose of inorganic arsenic.
The
dose has been escalated to the next level in one trial, and to date has been
well tolerated.
The
goal
of the phase I trials are to determine dose-limiting toxicity and maximum
tolerated dose. In addition, assessments of pharmacokinetic data will be
obtained along with any indication of efficacy. The Company expects to
follow
these phase I trials with a phase I/II trial in advanced myeloma. The Company
currently anticipates reporting some phase I/II trial results in the first
half
of 2006. A second phase II trial in myeloma is under consideration for
initiation in early 2006. It is expected that a pivotal trial in multiple
myeloma would begin in early 2007.
The
solid
tumor trial is seeking to confirm data collected during
pre-clinical studies that indicated activity in a variety of solid
tumors.
We have elected to conduct a separate phase I clinical trial for solid cancers
based on our belief that the maximum tolerated dose of ZIO-101 in patients
with
solid cancers may be substantially higher than patients with blood cancers.
While the current focus for product registration is myeloma, these phase
I study
results will be instructive for further development plans in solid
tumors.
ZIO-201
General
.
ZIO-201, or isophosphoramide mustard (IPM), is a proprietary stabilized
metabolite of ifosfamide that is also related to cyclophosphamide. A patent
application for pharmaceutical composition has been filed. Cyclophosphamide
and
ifosfamide are alkylating agents. Cyclophosphamide is the most widely used
alkylating agent in cancer therapy and is used to treat breast cancer and
non-Hodgkin’s lymphoma. Ifosfamide has been shown to be effective in high dose
by itself, or in combination in treating sarcoma and lymphoma. Although
ifosfamide-based treatment generally represents the standard of care for
sarcoma, it is not licensed for this indication by the U.S. Food and Drug
Administration (FDA).
The
Company’s pre-clinical studies have shown that, in animal and laboratory models,
IPM evidences activity against leukemia and solid tumors. These studies also
indicate that ZIO-201 has a better pharmacokinetic and safety profile than
ifosfamide or cyclophosphamide, offering the possibility of safer and more
efficacious therapy with ZIO-201.
Ifosfamide
is metabolized to IPM. In addition to IPM, another metabolite of ifosfamide
is
acrolein, which is toxic to the kidneys and bladder. The presence of acrolein
can mandate extensive in-hospital hydration and the administration of a
protective agent called Mesna
®
,
which
is inconvenient and expensive. Chloroacetaldehyde is another metabolite of
ifosfamide and is toxic to the central nervous system, causing “fuzzy brain”
syndrome for which there is currently no protective measure. Similar toxicity
concerns pertain to high-dose cyclophosphamide, which is widely used in bone
marrow and blood cell transplantation. Because ZIO-201 is independently
active—without acrolein or chloroacetaldehyde metabolites—the Company believes
that the administration of ZIO-201 may avoid the toxicities of ifosfamide
and cyclophosphamide without compromising efficacy.
In
addition to anticipated lower toxicity, ZIO-201 may have other advantages
over
ifosfamide and cyclophosphamide. ZIO-201 likely cross-links DNA differently
than
ifosfamide or cyclophosphamide metabolites, resulting in a different activity
profile. Moreover, in some instances ZIO-201 appears to show activity in
ifosfamide- and/or cyclophosphamide-resistant cancer cells.
Potential
Lead Indications for ZIO-201: Sarcomas
.
Sarcomas are cancers of the bone, cartilage, fat, muscle, blood vessels,
or
other connective or supportive tissue. Soft tissue sarcomas, the expected
lead
indication for ZIO-201, are relatively rare; there are 6,000 to 8,000 thousand
new cases each year in adults in the United States. On the other hand, in
children, soft tissue sarcomas account for approximately 10% of all childhood
cancers. There are more than 50 histological or tissue types of soft tissue
sarcomas. The prognosis for patients with adult soft tissue sarcomas depends
on
several factors, including the patient’s age, size of the primary tumor,
histological grade, and stage of the tumor. Factors associated with a poorer
prognosis include age greater than 60 years, tumors larger than five
centimeters, and high-grade histology. While small, low-grade tumors are
usually
curable by surgery alone, higher-grade or larger sarcomas are associated
with
higher local treatment failure rates and increased metastatic potential.
Ifosfamide-based chemotherapy is a frequent standard of care for the treatment
of metastatic tumors. It may also used in the adjuvant setting for high-risk
primary tumors.
ZIO-201
may be a useful agent that, either alone or in combination, can deliver
therapeutic activity with fewer to no side effects of the type that have
been
associated with ifosfamide. In the United States, ifosfamide is regularly
included in combination regimens for the treatment of sarcomas, testicular
cancers, head and neck cancer and some types of non-Hodgkin’s lymphomas. The
Company believes that ZIO-201 may be able to replace ifosfamide in any
or all of
these combination protocols.
Clinical
Development Plan for ZIO-201
.
A phase
I clinical trial is being conducted at two centers with the objective of
establishing maximum tolerated dose. The current dose level in this phase
I
trial is believed to be comparable to a relatively high dose of ifosfamide.
The
drug is being administered without Mesna
®
.
Furthermore, one patient has evidence of stable disease. The Company intends
to
initiate a phase I/II trial in advanced sarcoma and expects early results
in the
first half of 2006. The Company is also planning to implement a high
dose
phase I study in sarcoma and is exploring a phase II study in pediatric sarcoma.
These trials would support the design and implementation of a phase III
registration study in early 2007.
Competition
The
development and commercialization for new products to treat cancer is highly
competitive, and there will be considerable competition from major
pharmaceutical, biotechnology, and specialty cancer companies. Many of our
competitors have substantially more resources than the Company, including
both
financial and technical. In addition, many of these companies have more
experience than the Company in preclinical and clinical development,
manufacturing, regulatory, and global commercialization. The Company is also
competing with academic institutions, governmental agencies and private
organizations that are conducting research in the field of cancer. Competition
for highly qualified employees is intense.
There
are
a number of companies developing chemotherapies for cancer and in particular
for
multiple myeloma and sarcoma. Millennium Pharmaceuticals, Inc. and Celgene
Corporation have marketed products to treat multiple myeloma, and many other
product candidates are in clinical trials and preclinical research. There
are a
more limited number of competitors developing new approaches to treat sarcoma,
Ariad Pharmaceuticals principal among them.
License
Agreements and Intellectual Property
The
Company’s goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary technologies,
to preserve our trade secrets, and to operate without infringing the proprietary
rights of other parties, both in the United States and in other countries.
Our
policy is to actively seek the broadest possible intellectual property
protection for our product candidates through a combination of contractual
arrangements and patents, both in the United States and abroad.
Patent
and Technology License Agreement — University of Texas M. D. Anderson Cancer
Center and the Texas A&M University System
.
On
August 24, 2004, the Company entered into a Patent and Technology License
Agreement with The Board of Regents of the University of Texas System, acting
on
behalf of the University of Texas M. D. Anderson Cancer Center and the Texas
A&M University System (collectively, the “Licensors”). Under this agreement,
the Company was granted an exclusive, worldwide license to rights (including
rights to U.S. and foreign patent and patent applications and related
improvements and know-how) for the manufacture and commercialization of two
classes of organic arsenicals (water- and lipid-based) for human and animal
use.
The class of water-based organic arsenicals includes ZIO-101.
In
October 2004, we received a notice of allowance for U.S. Patent Application
No.
10/337969, entitled “S-dimethylarsino-thiosuccinic acid
S-dimethylarsino-2-thiobenzoic acid S-(simethylarsino) glutathione as treatments
for cancer.” The patent was granted on June 28, 2005. The patent application
claims both therapeutic uses and pharmaceutical compositions containing a
novel
class of organic arsenicals, including ZIO-101, for the treatment of cancer.
As
partial consideration for the license rights obtained by the Company, we
paid
the Licensors an upfront, nonrefundable $125,000 fee and issued 250,487 shares
of our common stock to University of Texas M. D. Anderson Cancer Center and
granted it an option to purchase an additional 50,222 shares of our common
stock
for approximately $0.002 per share (such share amounts and option exercise
price
have been adjusted to reflect to the Merger). The option will vest and become
exercisable with respect to 50% of its shares upon completion of the dosing
of
the last patient for both the blood and solid tumor phase I trials for ZIO-101.
Another 25% of the shares subject to the option will vest upon enrollment
of the
first patient in a multi-center pivotal clinical trial (i.e., a human clinical
trial intended to provide the substantial evidence of efficacy necessary
to
support the filing of an approvable New Drug Application ("NDA") ) for ZIO-101,
with the remaining 25% vesting upon the filing of an Investigational New
Drug
(“IND”) for ZIO-101. As additional consideration for the license, the Licensors
are entitled to receive up to an aggregate of $4.85 million in cash payments,
payable in varying amounts, upon the achievement of certain milestones,
including a $100,000 that the Company paid upon the commencement of the phase
I
clinical trial for ZIO-101 in May 2005. The Licensors are entitled to receive
royalty payments from sales of a licensed product (should such a product
be
approved for commercial sale), as well and a portion of any fees that we
may
receive from a sublicensee. Finally, the license agreement provides that
the
Company will enter into two separate sponsored research agreements with the
Licensors, each of which will require that we make annual payments of $100,000
for no less than two years. The Company will have the exclusive right to
all
intellectual property rights resulting from such research pursuant to the
terms
of the agreements.
The
agreement also contains other provisions customary and common in similar
agreements within the industry, such the Company’s right to sublicense our
rights under the agreement. Nevertheless, if the Company sublicenses its
rights
prior to the commencement of a pivotal clinical trial (i.e., a human clinical
trial intended to provide the substantial evidence of efficacy necessary
to
support the filing of an approvable NDA), the Licensors will generally be
entitled to receive a share of the payments it receives in exchange for the
sublicense (subject to certain exceptions).
License
Agreement with DEKK-TEC, Inc
.
On
October 15, 2004, the Company entered into a license agreement with DEKK-TEC,
Inc., pursuant to which the Company was granted an exclusive, worldwide license
to the second of our lead product candidates, ZIO-201.
In
consideration for the Company’s license rights, DEKK-TEC is entitled to
receive cash payments in the aggregate amount of up to $3.90 million,
which
are payable in varying amounts upon the occurrence of certain milestone events.
The majority of these milestone payments will be creditable
against
future royalty payments, as referenced below. We also issued DEKK-TEC an
option
to purchase up to 27,616 shares of our common stock for approximately $0.02
per
share (such share amount and option exercise price have been adjusted to
reflect
to the Merger), which option vested with respect to 6,904 post-Merger shares
upon the execution of the license agreement. The option will vest with respect
to the remaining shares upon certain milestone events culminating with final
FDA
approval of the first NDA submitted by us (or by our sublicensee) for ZIO-201.
Finally, DEKK-TEC also is entitled to receive royalty payments on the sales
of
ZIO-201 should it be approved for commercial sale. The license agreement
also
contains other provisions customary and common in similar agreements within
the
industry.
Option
Agreement with Southern Research Institute (“SRI”)
.
On
December 22, 2004, we entered into an Option Agreement with SRI, pursuant
to
which we were granted an exclusive option to obtain an exclusive license
to
SRI’s interest in certain intellectual property, including exclusive rights
related to certain isophosphoramide mustard analogs. Also on December 22,
2004,
we entered into a Research Agreement with SRI pursuant to which we agreed
to
spend a sum not to exceed $200,000 between the execution of the agreement
and
December 21, 2006, including a $25,000 payment that we made simultaneously
with
the execution of the agreement, to fund research and development work by
SRI in
the field of isophosphoramide mustard analogs. Under the terms of the option
agreement, our exclusive right to exercise the option will expire 60 days
after
the termination or expiration of the SRI’s research and development work in the
field of isophosphoramide mustard analogs, and the delivery of the certain
required reports.
Other
Intellectual Property Rights and Protection
.
The
Company depends upon the skills, knowledge and experience of its scientific
and
technical personnel, as well as those of its advisors, consultants and other
contractors, none of which is patentable. To help protect proprietary know-how,
which is not patentable, and for inventions for which patents may be difficult
to enforce, the Company currently relies, and in the future rely, on trade
secret protection and confidentiality agreements to protect our interests.
To
this end, the Company generally requires employees, consultants, advisors
and
other contractors to enter into confidentiality agreements that prohibit
the
disclosure of confidential information and, where applicable, require disclosure
and assignment to us of the ideas, developments, discoveries and inventions
important to our business.
Governmental
Regulation
The
research, development, testing, manufacture, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the United States and other countries.
In the United States, the FDA regulates drugs under the Federal Food, Drug,
and
Cosmetic Act, or the “FDCA,” and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending New Drug
Applications, warning letters, product recalls, product seizures, total or
partial suspension of production or distribution, injunctions, and/or criminal
prosecution.
Drug
Approval Process
.
None of
our drugs may be marketed in the U.S. until the drug has received FDA approval.
The steps required before a drug may be marketed in the U.S.
include:
|
·
|
Preclinical
laboratory tests, animal studies, and formulation
studies;
|
|
·
|
Submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin;
|
|
·
|
Adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the drug for each
indication;
|
|
·
|
Submission
to the FDA of an NDA;
|
|
·
|
Satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with
current
good manufacturing practices, or “cGMPs”;
and
|
|
·
|
FDA
review and approval of the NDA.
|
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues
such
as the conduct of the trials as outlined in the IND. In such a case, the
IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. The Company cannot be sure that submission
of an IND will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to
be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases
may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board
for
each institution where the trials will be conducted. Study subjects must
sign an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people
to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication
of its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that phase
I,
phase II, or phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, a company or the FDA may
suspend clinical trials at any time on various grounds, including a finding
that
the subjects or patients are being exposed to an unacceptable health
risk.
The
FDCA
permits FDA and the IND sponsor to agree in writing on the design and size
of
clinical studies intended to form the primary basis of an effectiveness claim
in
an NDA application. This process is known as Special Protocol Assessment.
These
agreements may not be changed after the clinical studies begin, except in
limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of
the
drug, are submitted to the FDA in the form of an NDA requesting approval
to
market the product for one or more indications. The testing and approval
process
requires substantial time, effort, and financial resources. The agencies
review
the application and may deem it to be inadequate to support the registration,
and companies cannot be sure that any approval will be granted on a timely
basis, if at all. The FDA may also refer the application to the appropriate
advisory committee, typically a panel of clinicians, for review, evaluation
and
a recommendation as to whether the application should be approved. The FDA
is
not bound by the recommendations of the advisory committee.
The
FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. A company cannot be sure that any of its drugs will qualify for
any
of these programs, or that, if a drug does qualify, that the review time
will be
reduced.
Section
505(b)(2) of the FDCA allows the FDA to approve a follow-on drug on the basis
of
data in the scientific literature or a prior FDA approval of an NDA for a
related drug. This procedure potentially makes it easier for generic drug
manufacturers to obtain rapid approval of new forms of drugs based on
proprietary data of the original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters
usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As
a
condition of NDA approval, the FDA may require post-marketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before a
company can market products for additional indications, it must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. A company cannot
be sure
that any additional approval for new indications for any product candidate
will
be approved on a timely basis, or at all.
Post-Approval
Requirements
.
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions
are not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions
to the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The
FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, discovery of problems with a product after approval may result
in
restrictions on a product, manufacturer, or holder of an approved NDA, including
withdrawal of the product from the market.
Employees.
As
of the
date of this current report, the Company had 11 employees, all of which are
full-time employees. The Company intends to hire an additional 3 to 4 employees
prior to the end of 2005.
Description
of Property
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036. The New York office space is subject to a five-year
lease agreement that expires in June 2010. Under the terms of the lease,
the
Company leases approximately 2,580 square feet and is required to make monthly
rental payments of approximately $10,100 until December 31, 2007, with such
payment increasing to approximately $11,000 thereafter through the remainder
of
the term of the lease. The Company’s business and development operations are
located as 197 Eighth Street, Suite 300, Charlestown, Massachusetts 02129.
The
Charlestown office space is subject to a five-year lease agreement that expires
in October 2009. Under the terms of the lease, the Company leases approximately
2,800 square feet and is required to make monthly rental payments that range
from $4,200 during the first year of the lease to $4,900 during the last
year of
the lease. The Company is presently intending to expand its commercial space
in
Charlestown, Massachusetts by approximately 1,000 square feet.
Legal
Proceedings
The
Company is not currently involved in any material legal
proceedings.
Cautionary
Note Regarding Forward-Looking Statements
This
report contains certain statements that are “forward-looking statements” under
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act
of 1934, as amended, and includes, among other things, discussions of our
business strategies, future operations and capital resources. Words such
as, but
not limited to, “may,”“likely,”“anticipate,”“expect” and “believes” indicate
forward-looking statements.
Forward-looking
statements are included in the section of this report entitled “Description of
Business of ZIOPHARM Oncology, Inc.” Although we believe that the expectations
reflected in such forward-looking statements are generally reasonable, we
cannot
assure you that such expectations will ultimately prove to be correct.
Generally, these statements relate to our business plans and strategies,
projected or anticipated benefits or other consequences of market conditions
and
opportunities, business plans or strategies, projections involving anticipated
sales and revenues, expenses, projected future earnings and other aspects
of
operational results. All Phases of our operations are subject to a number
of
uncertainties, risks and other influences, most of which are outside our
control, and any one or combination of which could materially and adversely
affect the results of our operations, and also, could affect whether any
such
forward-looking statements contained herein ultimately prove to be accurate.
Important factors that could cause actual results to differ materially from
our
current expectations are summarized in the section captioned “Risk Factors”
immediately following.
The
purchase of shares of our common stock is very speculative and involves a
very
high degree of risk. An investment in the Company is suitable only for the
persons who can afford the loss of their entire investment. Accordingly,
investors should carefully consider the following risk factors, as well as
other
information set forth herein, in making an investment decision with respect
to
our securities.
We
currently have no product revenues and will need to raise additional capital
to
operate our business
.
To
date, we have generated no product revenues. Until and unless we receive
approval from the U.S. Food and Drug Administration and/or other regulatory
authorities for our product candidates, we cannot sell our drugs and will
not
have product revenues. Currently, our only product candidates are
ZIO-101(organic arsenic) and ZIO-201 (isophosphoramide mustard), and they
are
not approved by the FDA for sale.
We
will
need to seek additional sources of financing which may not be available on
favorable terms, if at all. Currently, we expect that we will have sufficient
cash to fund our operations into the second quarter of 2006. However, changes
may occur that would consume our existing capital prior to that time, including
the progress of our research and development efforts, changes in governmental
regulation and acquisitions of additional product candidates. If we do not
succeed in raising additional funds on acceptable terms, we may be unable
to
complete planned preclinical and clinical trials or obtain approval of any
product candidates from the FDA and other regulatory authorities. In addition,
we could be forced to discontinue product development, reduce or forego sales
and marketing efforts or forego attractive business opportunities. Any
additional sources of financing will likely involve the issuance of our equity
securities, which will have a dilutive effect on our existing
stockholders.
We
are not currently profitable and may never become profitable
.
We have
a history of losses and expect to incur substantial losses and negative
operating cash flow for the foreseeable future, and we may never achieve
or
maintain profitability. Even if we succeed in developing and commercializing
one
or more product candidates, we expect to incur substantial losses for the
foreseeable future and may never become profitable. We expect also to continue
to incur significant operating and capital expenditures and anticipate that
our
expenses will increase substantially in the foreseeable future as
we:
|
·
|
Continue
to undertake preclinical development and clinical trials for product
candidates;
|
|
·
|
Scale
up the formulation and manufacturing of our product candidates;
|
|
·
|
Seek
regulatory approvals for product
candidates;
|
|
·
|
Implement
additional internal systems and infrastructure;
and
|
|
·
|
Hire
additional personnel.
|
We
also
expect to experience negative cash flow for the foreseeable future as we
fund
our operating losses and capital expenditures. This may result in a negative
impact on the value of our Common Stock.
We
have a limited operating history upon which to base an investment
decision
.
Prior
to the Merger, ZIOPHARM was a development-stage company that was incorporated
in
September 2003. To date, we have not demonstrated an ability to perform the
functions necessary for the successful commercialization of any product
candidates. The successful commercialization of any product candidates will
require us to perform a variety of functions, including:
|
·
|
Continuing
to undertake preclinical development and clinical
trials;
|
|
·
|
Participating
in regulatory approval processes;
|
|
·
|
Formulating
and manufacturing products; and
|
|
·
|
Conducting
sales and marketing activities.
|
Our
operations have been limited to organizing and staffing our company, acquiring,
developing and securing our proprietary product candidates, undertaking
preclinical trials and clinical trials of our product candidates ZIO-101
and
ZIO-201, and manufacturing ZIO-101 and ZIO- 201. These operations provide
a
limited basis for you to assess our ability to commercialize our product
candidates and the advisability of investing in our securities.
We
may not obtain the necessary U.S. or worldwide regulatory approvals to
commercialize any product candidate
.
We may
not be able to obtain the approvals necessary to commercialize our product
candidates, ZIO-101 and ZIO-201, or any product candidate that we may acquire
or
develop in the future for commercial sale. We will need FDA approval to
commercialize our product candidates in the U.S. and approvals from regulatory
authorities in foreign jurisdictions equivalent to the FDA to commercialize
our
product candidates in those jurisdictions. In order to obtain FDA approval
of
any product candidate, we must submit to the FDA a New Drug Application,
or
“NDA,” demonstrating that the product candidate is safe for humans and effective
for its intended use. This demonstration requires significant research and
animal tests, which are referred to as pre-clinical studies, as well as human
tests, which are referred to as clinical trials. Satisfaction of the FDA’s
regulatory requirements typically takes many years, depending upon the type,
complexity and novelty of the product candidate, and will require substantial
resources for research, development and testing. We cannot predict whether
our
research, development, and clinical approaches will result in drugs that
the FDA
considers safe for humans and effective for their intended uses. The FDA
has
substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes
in
government regulation, future legislation or administrative action or changes
in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
|
·
|
Delay
commercialization of, and our ability to derive product revenues
from, our
product candidates;
|
|
·
|
Impose
costly procedures on us; and
|
|
·
|
Diminish
any competitive advantages that we may otherwise
enjoy.
|
Even
if
we comply with all FDA requests, the FDA may ultimately reject one or more
of
our NDAs. We cannot be sure that we will ever obtain regulatory clearance
for
our product candidates, ZIO-101 and ZIO-201. Failure to obtain FDA approval
of
our product candidates will severely undermine our business by leaving us
without a saleable product, and therefore without any potential revenue source,
until another product candidate can be developed. There is no guarantee that
we
will ever be able to develop or acquire another product candidate.
In
foreign jurisdictions, we similarly must receive approval from applicable
regulatory authorities before we can commercialize any drugs. Foreign regulatory
approval processes generally include all of the risks associated with the
FDA
approval procedures described above.
Our
product candidates are in early stages of clinical trials, and we cannot
be
certain when we will be able to file an NDA with the FDA
.
Our
product candidates, ZIO-101 and ZIO-201, are in early stages of development
and
require extensive clinical testing. In April 2005 we initiated two ZIO-101
phase
I clinical trials; one in hematological cancers and the other in solid tumors.
A
phase I trial for ZIO-201 in up to 25 patients has been initiated, in which
10
patients already have been treated with ZIO-201. Notwithstanding our current
clinical trial plans for each of our existing product candidates, we may
not be
able to commence additional trials or see results from these trials within
our
anticipated timelines. As such, we cannot predict with any certainty if or
when
we might submit an NDA for regulatory approval of our product candidates
or
whether such an NDA will be accepted.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement
.
Human
clinical trials are very expensive and difficult to design and implement,
in
part because they are subject to rigorous regulatory requirements. The clinical
trial process is also time consuming. We estimate that clinical trials of
our
product candidates will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems
that cause us to abandon or repeat clinical trials. The commencement and
completion of clinical trials may be delayed by several factors,
including:
|
·
|
Unforeseen
safety issues;
|
|
·
|
Determination
of dosing issues;
|
|
·
|
Lack
of effectiveness during clinical
trials;
|
|
·
|
Slower
than expected rates of patient
recruitment;
|
|
·
|
Inability
to monitor patients adequately during or after treatment;
and
|
|
·
|
Inability
or unwillingness of medical investigators to follow our clinical
protocols.
|
We
are
hopeful that we may be able to obtain “Fast Track” status from the FDA for one
or more of our product candidates. Fast Track status means that the FDA will
perform an expedited review of our data upon the completion of clinical trials,
which will thereby decrease the amount of time it will take a product candidate
that has achieved such designation to reach the commercial market. However,
there is no guarantee that any of our product candidates will be granted
Fast
Track status by the FDA or that, even if such product candidate is granted
such
status, the product candidate’s clinical development and regulatory approval
process will not be delayed or will be successful.
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or
if the
FDA finds deficiencies in our IND submission or in the conduct of these trials.
Therefore, we cannot predict with any certainty the schedule for future clinical
trials.
The
results of our clinical trials may not support our product candidate
claims
.
Even if
our clinical trials are completed as planned, we cannot be certain that their
results will support approval of our product candidates. Success in pre-clinical
testing and early clinical trials does not ensure that later clinical trials
will be successful, and we cannot be sure that the results of later clinical
trials will replicate the results of prior clinical trials and pre-clinical
testing. The clinical trial process may fail to demonstrate that our product
candidates are safe for humans and effective for indicated uses. This failure
would cause us to abandon a product candidate and may delay development of
other
product candidates. Any delay in, or termination of, our clinical trials
will
delay the filing of our NDAs with the FDA and, ultimately, our ability to
commercialize our product candidates and generate product revenues. In addition,
our clinical trials involve small patient populations. Because of small sample
size, the results of these clinical trials may not be indicative of future
results.
Physicians
and patients may not accept and use our drugs
.
Even if
the FDA approves our product candidates, physicians and patients may not
accept
and use them. Acceptance and use of our products will depend upon a number
of
factors including:
|
·
|
Perceptions
by members of the health care community, including physicians,
regarding
the safety and effectiveness of our
drugs;
|
|
·
|
Cost-effectiveness
of our products relative to competing
products;
|
|
·
|
Availability
of reimbursement for our products from government or other healthcare
payers; and
|
|
·
|
Effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
|
Because
we expect sales of our current product candidates, if approved, to generate
substantially all of our product revenues for the foreseeable future, the
failure of a drug to find market acceptance would harm our business and could
require us to seek additional financing in order to fund the development
of
future product candidates.
Our
drug-development program materially depends upon third-party researchers
who are
outside our control
.
We
materially rely upon independent investigators and collaborators, such as
universities and medical institutions, to conduct our preclinical and clinical
trials under agreements with us. These collaborators are not our employees
and
we cannot control the amount or timing of resources that they devote to our
programs. These investigators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug development programs, or if their performance is substandard,
the
approval of our FDA applications, if any, and our introduction of new drugs,
if
any, will be delayed. These collaborators may also have relationships with
other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors to our detriment, our competitive position would be
harmed.
We
rely exclusively on third parties to formulate and manufacture our product
candidates
.
We do
not have experience in drug formulation or manufacturing and do not intend
to
establish our own manufacturing facilities. We lack the resources and expertise
to formulate or manufacture our own product candidates. We currently are
contracting for the commercial scale manufacture of our product candidates.
We
intend to contract with one or more manufacturers to manufacture, supply,
store
and distribute drug supplies for our clinical trials. If a product candidate
we
develop or acquire in the future receives FDA approval, we will rely on one
or
more third-party contractors to manufacture our drugs. Our anticipated future
reliance on a limited number of third-party manufacturers exposes us to the
following risks:
|
·
|
We
may be unable to identify manufacturers on acceptable terms or
at all
because the number of potential manufacturers is limited and the
FDA must
approve any replacement contractor. This approval would require
new
testing and compliance inspections. In addition, a new manufacturer
would
have to be educated in, or develop substantially equivalent processes
for,
production of our products after receipt of FDA approval, if
any.
|
|
·
|
Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
|
|
·
|
Our
future contract manufacturers may not perform as agreed or may
not remain
in the contract manufacturing business for the time required to
supply our
clinical trials or to successfully produce, store and distribute
our
products.
|
|
·
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the DEA, and corresponding state agencies to ensure strict
compliance with good manufacturing practices and other government
regulations and corresponding foreign standards. We do not have
control
over third-party manufacturers’ compliance with these regulations and
standards.
|
|
·
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share,
the
intellectual property rights to the
innovation.
|
Each
of
these risks could delay our clinical trials, the approval, if any, of our
product candidates by the FDA or the commercialization of our product candidates
or result in higher costs or deprive us of potential product
revenues.
We
do
not have experience selling, marketing or distributing products and no internal
capability to do so
.
We
currently have no marketing, sales or distribution capabilities. If and when
we
become reasonably certain that we will be able to commercialize our current
or
future products, we anticipate allocating resources to the marketing, sales
and
distribution of our proposed products in North America However, we cannot
assure
that we will be able to market, sell and distribute our products successfully.
Our future success also may depend, in part, on our ability to enter into
and
maintain collaborative relationships for such capabilities, the collaborator’s
strategic interest in the products under development and such collaborator’s
ability to successfully market and sell any such products. Although we intend
to
pursue collaborative arrangements regarding the sale and marketing of our
products, there can be no assurance that we will be able to establish or
maintain our own sales operations or affect collaborative arrangements, or
that
if we are able to do so, our collaborators will have effective sales forces.
There can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties
for
marketing and distribution, any revenues we receive will depend upon the
efforts
of such third parties, and there can be no assurance that such efforts will
be
successful. In addition, there can also be no assurance that we will be able
to
market and sell our products in the United States or overseas.
If
we
cannot compete successfully for market share against other drug companies,
we
may not achieve sufficient product revenues and our business will
suffer
.
The
market for our product candidates, ZIO-101 and ZIO-201, is characterized
by
intense competition and rapid technological advances. If a product candidate
receives FDA approval, it will compete with a number of existing and future
drugs and therapies developed, manufactured and marketed by others. Existing
or
future competing products may provide greater therapeutic convenience or
clinical or other benefits for a specific indication than our products, or
may
offer comparable performance at a lower cost. If our products fail to capture
and maintain market share, we may not achieve sufficient product revenues
and
our business will suffer.
We
will
compete against fully integrated pharmaceutical companies and smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have products already approved or
in
development. In addition, many of these competitors, either alone or together
with their collaborative partners, operate larger research and development
programs or have substantially greater financial resources than we do, as
well
as significantly greater experience in:
|
·
|
Undertaking
pre-clinical testing and human clinical
trials;
|
|
·
|
Obtaining
FDA and other regulatory approvals of
drugs;
|
|
·
|
Formulating
and manufacturing drugs; and
|
|
·
|
Launching,
marketing and selling drugs.
|
If
we
fail to adequately protect or enforce our intellectual property rights or
secure
rights to patents of others, the value of our intellectual property rights
would
diminish
.
Our
success, competitive position and future revenues will depend in part on
our
ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights
of
third parties.
To
date,
we have exclusive rights to certain U.S. and foreign intellectual property.
We
anticipate filing additional patent applications both in the U.S. and in
other
countries, as appropriate. However, we cannot predict:
|
·
|
The
degree and range of protection any patents will afford us against
competitors, including whether third parties will find ways to
invalidate
or otherwise circumvent our
patents;
|
|
·
|
If
and when patents will issue;
|
|
·
|
Whether
or not others will obtain patents claiming aspects similar to those
covered by our patents and patent applications;
or
|
|
·
|
Whether
we will need to initiate litigation or administrative proceedings
which
may be costly whether we win or
lose.
|
Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as our licensors
and contractors. To help protect our proprietary know-how and our inventions
for
which patents may be unobtainable or difficult to obtain, we rely on trade
secret protection and confidentiality agreements. To this end, it is our
policy
generally to require our employees, consultants, advisors and contractors
to
enter into agreements which prohibit the disclosure of confidential information
and, where applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our business. These
agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or
disclosure or the lawful development by others of such information. If any
of
our trade secrets, know-how or other proprietary information is disclosed,
the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would
suffer.
If
we
infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation
.
If our
products, methods, processes or other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have
to:
|
·
|
Obtain
licenses, which may not be available on commercially reasonable
terms, if
at all;
|
|
·
|
Abandon
an infringing drug candidate;
|
|
·
|
Redesign
our products or processes to avoid
infringement;
|
|
·
|
Stop
using the subject matter claimed in the patents held by
others;
|
|
·
|
Defend
litigation or administrative proceedings which may be costly whether
we
win or lose, and which could result in a substantial diversion
of our
valuable management resources.
|
Our
ability to generate product revenues will be diminished if our drugs sell
for
inadequate prices or patients are unable to obtain adequate levels of
reimbursement
.
Our
ability to commercialize our drugs, alone or with collaborators, will depend
in
part on the extent to which reimbursement will be available from:
|
·
|
Government
and health administration
authorities;
|
|
·
|
Private
health maintenance organizations and health insurers;
and
|
|
·
|
Other
healthcare payers.
|
Significant
uncertainty exists as to the reimbursement status of newly approved healthcare
products. Healthcare payers, including Medicare, are challenging the prices
charged for medical products and services. Government and other healthcare
payers increasingly attempt to contain healthcare costs by limiting both
coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available,
and
reimbursement levels may be inadequate, to cover our drugs. If government
and
other healthcare payers do not provide adequate coverage and reimbursement
levels for our products, once approved, market acceptance of such products
could
be reduced.
We
may not be able to successfully manage our growth
.
Our
success will depend upon the expansion of our operations and the effective
management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources.
To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business
may
be harmed.
Our
business will subject us to the risk of liability claims associated with
the use
of hazardous materials and chemicals
.
Our
contract research and development activities may involve the controlled use
of
hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials
comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could have a materially adverse effect on our
business, financial condition and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous or radioactive materials and
waste
products may require our contractors to incur substantial compliance costs
that
could materially adversely affect our business, financial condition and results
of operations.
We
rely on key executive officers and scientific and medical advisors, and their
knowledge of our business and technical expertise would be difficult to
replace
.
We are
highly dependent on our principal scientific, regulatory and medical advisors.
We do not have “key person” life insurance policies on any of our officers. The
loss of the technical knowledge and management and industry expertise of
any of
our key personnel could result in delays in product development, loss of
customers and sales and diversion of management resources, which could adversely
affect our operating results.
If
we
are unable to hire additional qualified personnel, our ability to grow our
business may be harmed
.
We will
need to hire additional qualified personnel with expertise in pre-clinical
testing, clinical research and testing, government regulation, formulation
and
manufacturing, as well as sales and marketing. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other
research institutions. Competition for such individuals is intense, and we
cannot be certain that our search for such personnel will be successful.
Attracting and retaining qualified personnel will be critical to our
success.
We
may incur substantial liabilities and may be required to limit commercialization
of our products in response to product-liability lawsuits
.
The
testing and marketing of medical products entail an inherent risk of product
liability. If we cannot successfully defend ourselves against product-liability
claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient
product-liability insurance at an acceptable cost to protect against potential
product liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with collaborators. We currently
carry clinical trial insurance and product-liability insurance.
There
are certain interlocking relationships among us and certain affiliates of
Paramount, which may present potential conflicts of interest
.
Lindsay
A. Rosenwald, M.D., who may be deemed to beneficially own approximately 20.13%
of our common stock, is Chairman and Chief Executive Officer of Paramount
BioCapital, Inc., an investment banking firm that served as placement agent
in
connection with a private placement of ZIOPHARM’s Series A Convertible Preferred
Stock that terminated in May 2005. Paramount also served as a finder in
connection with the Company’s option agreement with Southern Research Institute.
The Company paid fees and issued securities to Paramount or its designees
in
connection with these transactions and Paramount currently has a right of
first
refusal to act as the placement agent for the private sale of our securities
until May 31, 2008. Dr. Michael Weiser and Timothy McInerney, each of whom
is a
member of the Company’s board of directors, are also full-time
employee
s
of
Paramount. See “Certain Transactions and Relationships - ZIOPHARM Transactions
and Relationship.”
Paramount,
Dr. Rosenwald, Dr. Weiser, and Mr. McInerney are
not obligated pursuant to any agreement or understanding with us to
make
any additional products or technologies available to us, nor can there be
any
assurance that any biomedical or pharmaceutical products or technologies
identified in the future by such parties will be made available to us. In
addition, certain of our current officers and directors, as well as officers
or
directors that may be hereafter appointed, may from time to time serve as
officers or directors of other biopharmaceutical or biotechnology companies.
There can be no assurance that such other companies will not have interests
in
conflict with our own.
Because
we became public by means of a reverse merger, we may not be able to attract
the
attention of major brokerage firms
.
Additional
risks may exist as a result of our becoming a public reporting company through
a
“reverse merger.” Security analysts of major brokerage firms may not provide
coverage of the Company. B
ecause
we
became public through a reverse merger,
there is
no incentive to brokerage firms to recommend the
purchase
of our
common stock. No assurance can be given that brokerage firms will want to
provide analyst coverage of our Company in the future.
We
are subject to Sarbanes-Oxley and the reporting requirements of federal
securities laws, which can be expensive
.
As a
public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
as
well as the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and other federal securities laws. The costs of
compliance with the Sarbanes-Oxley Act and of preparing and filing annual
and
quarterly reports, proxy statements and other information with the SEC, and
furnishing audited reports to stockholders, will cause our expenses to be
higher
than they would be if ZIOPHARM had remained privately held and did not
consummate the Merger.
Our
common stock trades only in an illiquid trading market
.
Trading
of our common stock is conducted on the over-the-counter bulletin board.
This
has an adverse effect on the liquidity of our common stock, not only in terms
of
the number of shares that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts’
and the media’s coverage of our Company and its common stock. This may result in
lower prices for our common stock than might otherwise be obtained and could
also result in a larger spread between the bid and asked prices for our common
stock.
There
is not now, and there may not ever be an active market for shares of our
common
stock
.
In
general, there has been very little trading activity in shares of the Company’s
common stock. The small trading volume will likely make it difficult for
our
stockholders to sell their shares as and when they choose. Furthermore, small
trading volumes generally depress market prices. As a result, you may not
always
be able to resell shares of our common stock publicly at the time and prices
that you feel are fair or appropriate.
Because
it is a “penny stock,” you may have difficulty selling shares of our common
stock
.
Our
common stock is a “penny stock” and is therefore subject to the requirements of
Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk- disclosure document prepared by the Securities
and
Exchange Commission. Under applicable regulations, our common stock will
generally remain a “penny stock” until and for such time as its per-share price
is $5.00 or more (as determined in accordance with SEC regulations), or until
we
meet certain net asset or revenue thresholds. These thresholds include the
possession of net tangible assets (i.e., total assets less intangible assets
and
liabilities) in excess of $2,000,000 in the event we have been operating
for at
least three years or $5,000,000 in the event we have been operating for fewer
than three years, and the recognition of average revenues equal to at least
$6,000,000 for each of the last three years. We do not anticipate meeting
any of
the foregoing thresholds in the foreseeable future.
The
penny
stock rules severely limit the liquidity of securities in the secondary market,
and many brokers choose not to participate in penny-stock transactions. As
a
result, there is generally less trading in penny stocks. If you become a
holder
of our common stock, you may not always be able to resell shares of our common
stock publicly at the time and prices that you feel are fair or
appropriate.
We
have never paid dividends and do not intend to do so for the foreseeable
future
.
We have
never paid dividends on our capital stock and we do not anticipate that we
will
pay any dividends for the foreseeable future. Accordingly, any return on
an
investment in our Company will be realized, if at all, only when you sell
shares
of our common stock.
Management’s
Discussion and Analysis or Plan of Operation
ZIOPHARM
Oncology Inc. (the “Company”) is a development-stage company that is seeking to
develop and commercialize a diverse, risk-sensitive portfolio of in-licensed
cancer drugs that address unmet medical needs. The Company’s management and
advisors are focused on licensing proprietary drug candidate families that
are
related to cancer therapeutics on the market where the application of new
biological understanding and the Company’s drug development expertise will lead
to a lower risk for clinical development failure while expediting clinical
registration. The Company expects to commercialize its products on its own
in
North America but recognizes that promising clinical trial results in cancers
with a high incidence and prevalence might also be addressed in a commercial
partnership with another company with the requisite financial resources.
Currently, the Company is in U.S. phase I studies for two product candidates
known as ZIO-101 and ZIO-201. The Company currently intends to continue with
clinical development of ZIO-101 for advanced multiple myeloma and ZIO-201
for
advanced sarcoma.
The
Company’s corporate office is located at 1180 Avenue of the Americas, 19th
Floor, New York, NY 10036 with a telephone number of (646) 214-0700. The
Company’s business and development operations are located in Charlestown,
Massachusetts.
Plan
of Operation
Our
plan
of operation for the twelve month period commencing on September 13, 2005,
the
date of this report, is to continue implementing our business strategy,
including the clinical development of our two lead product candidates, ZIO-101
and ZIO-201. We also intend to expand our drug candidate portfolio by seeking
additional drug candidates through in-licensing arrangements. We expect our
principal expenditures during the next 12 months to include:
|
|
·
|
Fees
and milestone payments required under the license agreements
relating to
our existing product candidates;
|
|
|
·
|
Clinical
trial expenses, including the costs incurred with respect to the
conduct
of clinical trials in the United States for ZIO-101 and ZIO-201
and
preclinical costs associated with back-up candidates ZIO-102 and
ZIO-202;
|
|
|
·
|
Costs
related to the scale-up and manufacture of ZIO-101 and ZIO-201;
|
|
|
·
|
Rent
for our facilities; and
|
|
|
·
|
General
corporate and working capital, including general and administrative
expenses.
|
As
part
of our plan for additional employees, we anticipate hiring at least 3 to
4
additional full-time employees in medical, regulatory and administrative
support. In addition, we intend to use senior advisors, consultants, clinical
research organizations and third parties to perform certain aspects of product
development, manufacturing, clinical and preclinical development, and regulatory
and quality assurance functions.
At
our
current and desired pace of clinical development of our two product candidates,
over the next 12 months we expect to spend approximately $4.6 million on
clinical trials (including milestone payments that we expect to be triggered
under the license agreements relating to our product candidates), approximately
$3.7 million on manufacturing costs, $215,000 on facilities rent,
and
approximately $6.8 million on general corporate and working capital.
We
believe we currently have sufficient capital to fund development and
commercialization activities of ZIO-101 and ZIO-201 into the second quarter
of
2006. Because our business does not generate any cash flow, however, we will
need to raise additional capital to continue development of the product
candidates beyond that time. We expect to raise such additional capital by
either borrowing money or by selling shares of our capital stock. To the
extent
additional capital is not available when we need it, we may be forced to
abandon
our development and commercialization efforts, which would have a material
adverse effect on the prospects of our business. Further, our assumptions
relating the expected costs of development and commercialization and timeframe
for completion are dependent on numerous factors other than available financing,
including significant unforeseen delays in the clinical trial and regulatory
approval process, which could be extremely costly. In addition, our estimates
assume that we will be able to enroll a sufficient number of patients in
each
clinical trial.
Product
Candidate Development and Clinical Trials
ZIO-101,
organic arsenic, is being developed presently to treat advanced myeloma.
As
follow-on to the ongoing phase I trials, a phase I/II trial in advanced multiple
myeloma is in the advanced planning stage. With the completion of this trial
in
2006, the Company expects to initiate a registration trial in advanced multiple
myeloma. The Company will continue to explore the use of ZIO-101 in solid
tumors
as well as a phase II trial in advanced multiple myeloma using a different
dosing regimen. Preclinical development will continue with a back-up compound
designated as ZIO-102. Additional compounds are being synthesized under our
agreement with the University of Texas M.D. Anderson Cancer Center and the
Texas
A&M University System. Technology transfer and scale-up for the commercial
manufacture of the active pharmaceutical ingredient, its lyophilization,
and
final product specification will continue through the period leading to the
expected registration trial in early 2007.
ZIO-201,
stabilized isophosphoramide mustard, is being developed presently to treat
advanced sarcoma. As follow-on to the ongoing phase I trial, a phase I/II
trial
or a phase II trial in advanced sarcoma is in the advanced planning stage.
With
the completion of this trial in 2006, the Company expects to initiate a
registration trial in advanced sarcoma in early 2007. The Company will explore
the potential to test ZIO-201 in pediatric sarcoma in a phase II trial.
Preclinical development will continue with back-up analogues, one of which
we
would expect to be designated ZIO-202. Technology transfer and scale-up for
the
commercial manufacture of the active pharmaceutical ingredient, its
lyophilization, and final product specification will continue through the
period
leading to the expected registration trial in early 2007.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Security
Ownership of Certain Beneficial Owners and Management
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of the Company’s outstanding common stock as of September 13, 2005
(after giving effect to the Merger) by (i) each person known by the Company
to
be the beneficial owner of more than 5% of the Company’s outstanding common
stock, (ii) each director of the Company, (iii) each of the Company’s named
executive officers (as defined in Item 402(a)(3) of Regulation S-B under
the
Securities Act of 1933), and (iv) all executive officers and directors as
a
group. Except as indicated in the footnotes below, the security and stockholders
listed below possess sole voting and investment power with respect to their
shares. Except as otherwise indicated, the address of the security
and
stockholders listed below is 1180 Avenue of the Americas, 19
th
Floor,
New York, NY 10036.
|
Name
and Address of Beneficial Owner
|
|
Shares
of
Common
Stock
Beneficially
Owned (#)
(1)
|
|
Percentage
of
Common
Stock
Beneficially
Owned (%)
|
|
Dr.
Jonathan Lewis
(2)
|
|
136,868
|
|
1.88%
|
|
Richard
Bagley
(3)
|
|
80,428
|
|
1.11%
|
|
Robert
Peter Gale
(4)
|
|
8,371
|
|
*
|
|
Murray
Brennan
|
|
0
|
|
*
|
|
James
Cannon
|
|
0
|
|
*
|
|
Hon.
Wyche Fowler
|
|
0
|
|
*
|
|
Gary
Fragin
|
|
0
|
|
*
|
|
Timothy
McInerney
(5)
|
|
79,972
|
|
1.11%
|
|
Michael
Weiser
(6)
|
|
119,011
|
|
1.65%
|
|
All
executive officers and directors
as
a group
(7)
|
|
424,650
|
|
5.71%
|
|
Mibars,
LLC
365
West End Avenue
New
York, NY 10024
|
|
1,214,456
|
|
16.97%
|
|
Lindsay
A. Rosenwald
(8)
787
Seventh Avenue, 48th Floor
New
York, NY 10019
|
|
1,498,087
(8)
|
|
20.13%
|
|
Atlas
Equity I, Ltd.
181
W. Madison, Suite 3600
Chicago,
IL 60602
|
|
695,797
|
|
9.72%
|
|
Lester
E. Lipschutz
1650
Arch Street, 22
nd
Floor
Philadelphia,
PA 19103
|
|
463,864
(9)
|
|
6.48%
|
|
|
|
|
|
|
*
Less than 1%
|
|
|
|
|
|
(1)
|
Beneficial
ownership is determined in accordance with SEC rules, beneficial
ownership
includes any shares as to which the security or stockholder has
sole or
shared voting power or investment power, and also any shares which
the
security or stockholder has the right to acquire within 60 days
of the
date hereof, whether through the exercise or conversion of any
stock
option, convertible security, warrant or other right. The indication
herein that shares are beneficially owned is not an admission on
the part
of the security or stockholder that he, she or it is a direct or
indirect
beneficial owner of those shares.
|
|
(2)
|
Includes
136,868 shares issuable upon the exercise of stock options that
are
currently exercisable or will become exercisable within the next
60
days.
|
|
(3)
|
Includes
80,428 shares issuable upon the exercise of stock options that
are
currently exercisable or will become exercisable within the next
60
days.
|
|
(4)
|
Includes
8,371 shares issuable upon the exercise of stock options that are
currently exercisable or will become exercisable within the next
60
days.
|
|
(5)
|
Includes
20,767 shares issuable upon the exercise of warrants that are currently
exercisable or will become exercisable within the next 60
days.
|
|
(6)
|
Includes
35,566 shares issuable upon the exercise of warrants that are currently
exercisable or will become exercisable within the next 60
days.
|
|
(7)
|
Includes
282,000 shares issuable upon the exercise of convertible securities
that
are currently exercisable or will become exercisable within the
next 60
days.
|
|
(8)
|
Excludes
463,864 shares held by certain trusts for the benefit of Dr. Rosenwald
and
his family for which Dr. Rosenwald disclaims beneficial ownership.
Includes 221,011 shares issuable upon the exercise of warrants
granted to
Dr. Rosenwald and 62,621 shares issuable upon the exercise of warrants
granted to Paramount BioCapital Investments, LLC, of which Dr.
Rosenwald
is the managing member, both such warrants are currently exercisable
or
will become exercisable within the next 60 days. Also includes
737,777
shares that Dr. Rosenwald has the right to acquire from existing
stockholders under certain circumstances pursuant to the terms
of pledge
agreements between Dr. Rosenwald and such
stockholders.
|
|
(9)
|
Includes
463,864 shares held by separate trusts for the benefit of Dr. Rosenwald
or
his family with respect to which Mr. Lipschutz is either trustee
or
investment manager and has investment and voting power. Dr. Rosenwald
disclaims beneficial ownership of these shares.
|
Management
and Certain Security Holders
At
the
effective time of the Merger, the Company’s board of directors was reconstituted
by the appointment of Jonathan Lewis, Richard Bagley, Murray Brennan, James
Cannon, Senator Wyche Fowler, Jr., Gary S. Fragin, Timothy McInerney and
Michael
Weiser as directors (all of whom were directors of ZIOPHARM immediately prior
to
the Merger), and the resignations of David C. Olson and David Floor from
their
roles as directors of the Company. The Company’s executive management team was
also reconstituted and David C. Olson resigned from his positions as the
Company’s President, Treasurer and Secretary.
The
following table sets forth the name and position of each of the Company’s
directors and executive officers after the Merger.
|
Name
|
|
Age
|
|
Positions
|
|
Jonathan
Lewis, M.D., Ph.D.
|
|
47
|
|
Director
& Chief Executive Officer
|
|
Richard
Bagley
|
|
62
|
|
Director,
President, Chief Operating Officer & Treasurer
|
|
Robert
Peter Gale, M.D., Ph.D, DSc.
|
|
59
|
|
Chief
Scientific Officer, Head of Research
|
|
Murray
Brennan, M.D.
|
|
65
|
|
Director
|
|
James
Cannon
|
|
67
|
|
Director
|
|
Senator
Wyche Fowler, Jr., JD.
|
|
64
|
|
Director
|
|
Gary
S. Fragin
|
|
59
|
|
Director
|
|
Timothy
McInerney
|
|
44
|
|
Director
|
|
Michael
Weiser, M.D., Ph.D.
|
|
43
|
|
Director
|
The
biographies of the directors and executive officers listed above are set
forth
below, all of whom began serving the Company in their respective positions
as of
the effective time of the Merger:
Jonathan
Lewis
,
47, is
our Chief Executive Officer and a director, and has served as Chief Executive
Officer and a director of ZIOPHARM since January 2004. From July 1994 until
June
2001, Dr. Lewis served as Professor of Surgery and Medicine at Memorial
Sloan-Kettering Cancer Center and he served as Chief Medical Officer and
Chairman of the Medical Board at Antigenics, Inc. from June 2000 until November
2003. He serves as a director on the Board of POPPA (the Police Organization
Providing Peer Assistance) of the New York Police Department
(NYPD).
Richard
Bagley
,
62,
serves as our President, Chief Operating Officer and Treasurer and a director
of
the Company, and has served
ZIOPHARM
in those capacities since July 2004. Prior to that, he served as a consultant
to
ZIOPHARM while serving as a senior advisor to The University of Texas M.D.
Anderson Cancer Center. Mr. Bagley served in several capacities at Squibb
Corporation from 1985-1990, including as President of E. R. Squibb & Sons,
U.S. in 1988 and 1989. He served as Director, Chief Executive Officer and
President of ImmuLogic Pharmaceutical Corporation from 1990 to 1994, as
Director, Chief Executive Officer and Chairman of ProScript, Inc. from 1994
to
1998, as Director, President and Chief Executive Officer of AltaRex Corp.
from
1998 to May 2003, and thereafter as a part time consultant and advisor in
life
sciences until joining ZIOPHARM full time. Mr. Bagley initiated a career
in
pharmaceuticals in 1968 with Smith Kline and French Laboratories, leaving
in
1985 after serving as President of the consumer products division
.
Robert
Peter Gale
,
59, is
our Chief Scientific Officer and Head of Research and has served ZIOPHARM
in
that capacity since January 2004. Dr. Gale is also on the medical staff of
UCLA
School of Medicine in the Department of Medicine, Division of Hematology
and
Oncology and is Visiting Professor of Hematology at Imperial College of Science,
Technology and Medicine, Hammersmith Hospital, London. Dr. Gale served as
Senior
Vice President for Medical Affairs at Antigenics, Inc. from April 2001 until
May
2002 and as a consultant to that company from May 2002 through May
2004
.
Murray
Brennan
,
65, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Dr. Brennan has been Chairman of Memorial
Sloan-Kettering Cancer Center’s Department of Surgery since 1985, and is a
former
Vice
President of the American College of Surgeons, a position he held from 2004
to
2005. Dr. Brennan is also a member of the National Academy of
Sciences.
He
served as director of the American Board of Surgery from 1984 to 1990,
Chairman
of the American College of Surgeons’ Commission on Cancer from 1992 to 1994,
President of the Society of Surgical Oncology from 1995 to 1996, and President
of the American Surgical Association from 2002 to 2003.
James
Cannon
,
67, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Mr. Cannon is
Vice
Chairman, Chief Financial Officer and a member of the board of directors
of BBDO
Worldwide. Mr.
Cannon
joined BBDO in 1967, was appointed Chief Financial Officer of the agency
in
1984, and was elected to its board of directors in 1985. In 1986,
Mr.
Cannon
was appointed
Comptroller
and a
member of the board of directors of Omnicom, a company affiliated with BBDO
Worldwide, and served in those capacities through May 2002. In 1987, Mr.
Cannon
also served as Director of Financial Operations of the Omnicom Group from
1987
to 1989, when he rejoined BBDO Worldwide as
Executive
Vice President and Chief Financial Officer. Mr. Cannon was appointed Vice
Chairman of BBDO Worldwide in 1990.
Senator
Wyche Fowler, Jr.
,
64, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Senator Fowler has been engaged in an
international business and law practice since May 2001, and has served as
chairman of the board of the Middle East Institute, a non-profit foundation
in
Washington, DC, since September 2001. Senator Fowler served as U.S. Senator
from
Georgia from January 1987 to January 1993, and had previously served in the
U.S.
House of Representatives from 1977 until his senatorial election. During
his
time in the U.S. Senate, Senator Fowler served as a member of the Senate
Appropriations, Budget, Energy and Agriculture Committees. While in the U.S.
House of Representatives, he was a member of the House Ways and Means and
Foreign Affairs Committees, as well as the Select Committee on Intelligence.
President Clinton appointed Senator Fowler as Ambassador to the Kingdom of
Saudi
Arabia in 1996, where he served through 2001. Senator Fowler is a member
of the
board of directors of Brandywine Realty Trust, a real estate investment trust
traded on the New York Stock Exchange
.
Gary
S. Fragin
,
59, is
a director of the Company and has served as a member of ZIOPHARM’s board of
directors since December 22, 2004. Mr. Fragin is currently managing partner
of
Osborn Partners, LP and managing partner of Fragin Asset Management, LP,
positions. Mr. Fragin was the
General
Partner and Chief Administrative/Operating Officer of Steinhardt Organization,
prior to which he was a partner,
Director
of
Trading
and
member of the Management Committee and Executive Committee at Oppenheimer
and
Co.
Timothy
McInerney
,
44, is
a director of the Company and has served on ZIOPHARM’s board of directors since
July 20, 2005. Since 1992, Mr. McInerney has been a Managing Director of
Paramount BioCapital, Inc. where he oversees the overall distribution of
Paramount’s private equity product. Prior to 1992, Mr. McInerney was a research
analyst focusing on the biotechnology industry at Ladenburg, Thalman & Co.
Prior to that, Mr. McInerney held equity sales positions at Bear, Stearns
&
Co. and Shearson Lehman Brothers, Inc. Mr. McInerney also has worked in sales
and marketing for Bristol-Myers Squibb
.
Michael
Weiser
,
43, is
a director of the Company and has served on ZIOPHARM’s board of directors since
ZIOPHARM’s inception. Dr. Weiser is the Director of Research of Paramount
BioCapital. In addition to serving on the boards of directors of several
privately-held companies, Dr. Weiser currently serves on the board of directors
of Manhattan Pharmaceuticals, Inc., VioQuest Pharmaceuticals, Inc., Hana
BioSciences, Inc. and Chelsea Therapeutics, Inc., all publicly-traded
biotechnology companies
.
Audit
Committee
Immediately
following the Merger, the Company formed an audit committee of the board
of
directors. The current members of the audit committee are Mr. James Cannon,
who
serves as the committee’s Chairman, and Messrs. Fragin and Bagley. The audit
committee assists the board of directors in fulfilling its responsibilities
of
ensuring that management is maintaining an adequate system of internal controls
such that there is reasonable assurance that assets are safeguarded and that
financial reports are properly prepared; that there is consistent application
of
generally accepted accounting principles; and that there is compliance with
management’s policies and procedures. In performing these functions, the audit
committee will meet periodically with the independent auditors and management
to
review their work and confirm that they are properly discharging their
respective responsibilities. In addition, the audit committee recommends
the
independent auditors for appointment by the board of directors. Prior to
the
Merger, the Company did not have an audit committee. Two members of the audit
committee, Messrs. Cannon and Fragin, are independent, as independence is
defined in Rule 4200(a)(15) of the Nasdaq listing standards and Rule 10A-3
under
the Securities Exchange Act of 1934.
The
board
of directors has determined that each of the audit committee members is able
to
read and understand fundamental financial statements. In addition, the board
of
directors has determined that at least one member of the audit committee,
Mr.
James Cannon, is an “audit committee financial expert” as that term is defined
in Item 401(e)(2) of Regulation S-B promulgated under the Securities and
Exchange Act of 1934. Mr. Cannon’s relevant experience includes his current
service as the Chief Financial Officer of BBDO Worldwide, a position he has
held
for the past 20 years, and his past service as director of financial operations
of the Omnicom Group.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the cash and non-cash compensation awarded to
or
earned by (i) each individual serving as chief executive officer of ZIOPHARM
during the fiscal year ended December 31, 2004; and (ii) each other individual
that served as an executive officer of ZIOPHARM at the conclusion of the
fiscal
year ended December 31, 2004 and who received in excess of $100,000 in the
form
of salary and bonus during such fiscal year (collectively, the “named
executives”).
|
|
Annual
Compensation
|
Long-Term
Compensation
Awards
|
|
Name
and Principal Position
|
Yea
r
|
Salary
($)
|
Bonus
($)
|
Other
Annual
Compensation
($)
|
Securities
Underlying
Options
(#)
|
|
Dr.
Jonathan Lewis,
|
2004
|
344,167
|
500,000
|
9,099
|
268,653
|
|
Chief
Executive Officer
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Bagley,
|
2004
|
43,750
|
75,000
|
4,057
|
150,668
|
|
President,
Chief Operating
|
|
|
|
|
|
|
Officer
and Treasurer
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Robert Peter
Gale,
|
2004
|
239,583
|
150,000
|
2,543
|
25,110
|
|
Chief
Scientific Officer,
|
|
|
|
|
|
|
Head
of Research
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Dr.
Lewis became the Chief Executive Officer of the Company effective
as of
the Merger. Dr. Lewis received a sign-on bonus of $250,000 paid
on
February 23, 2004 and a guaranteed bonus of $250,000 that was paid
on
April 22, 2005.
|
|
(2)
|
Mr.
Bagley became the President, Chief Operating Officer and Treasurer
of the
Company effective as of the Merger. Mr. Bagley received a sign-on
bonus of
$50,000 on July 15, 2004 and was due $25,000, a portion of his
guaranteed
bonus, as of December 31, 2004.
|
|
(3)
|
Mr.
Gale became the Company’s Chief Scientific Officer, Head of Research
effective as of the Merger. Mr. Gale received a guaranteed bonus
of
$150,000 on April 16, 2005.
|
Stock
Options
Upon
the
Merger, the Company assumed ZIOPHARM’s 2003 Stock Option Plan as the Company’s
Stock Option Plan. This plan has 1,252,436 shares authorized for issuance,
of which 847,469 shares are subject to options currently outstanding. Prior
to the Merger, the Company had an Incentive Stock Option Plan of EasyWeb,
Inc.
under which 175,000 shares of common stock were reserved for issuance. That
stock option plan was terminated effective as of the Merger.
Option
Grants in Last Fiscal Year
The
following table sets forth the information concerning individual grants of
stock
options to the named executives made during the fiscal year ended December
31,
2004 by ZIOPHARM. All share numbers and dollar amounts are set forth on a
post-Merger basis.
|
Name
|
|
Number
of Securities Underlying
Options
Granted
(#)
|
|
Percent
of Total Options
Granted
to Employees In
Fiscal
Year
|
|
Exercise
of
Base
Price
($/share)
|
|
Expiration
Date(s)
|
|
|
Dr.
Jonathan Lewis
(1)
|
|
|
25,674
|
|
|
5.2
|
%
|
$
|
0.08
|
|
|
1/8/14
|
|
|
Dr.
Jonathan Lewis
(1)
|
|
|
242,979
|
|
|
48.9
|
%
|
$
|
0.08
|
|
|
1/27/14
|
|
|
Richard
Bagley
(2)
|
|
|
150,668
|
|
|
30.4
|
%
|
$
|
1.70
|
|
|
7/1/14
|
|
|
Dr.
Robert Peter Gale
|
|
|
2,567
|
|
|
0.5
|
%
|
$
|
0.44
|
|
|
1/15/14
|
|
|
Dr.
Robert Peter Gale
|
|
|
22,543
|
|
|
4.5
|
%
|
$
|
0.44
|
|
|
1/27/14
|
|
|
(1)
|
The
number of securities underlying options is subject to an anti-dilution
provision pursuant to which Dr. Lewis is entitled to purchase no
less than
5% of the Company’s common stock until such time as the Company has raised
$25 million in financing.
|
|
(2)
|
The
number of securities underlying options is subject to an anti-dilution
provision pursuant to which Mr. Bagley is entitled to purchase
no less
than 3% of the Company’s common stock until such time as the Company has
raised $25 million in financing.
|
Aggregated
Option Exercises and Fiscal Year-End Option Values
The
following table sets forth the total amount of shares acquired by the named
executives upon exercises of stock options during fiscal year 2004, the
aggregate dollar value realized upon such exercise, the total number of
securities underlying unexercised options held at the conclusion of fiscal
year
2004 (separately identifying then-exercisable and unexercisable options),
and
the aggregate dollar value of in-the-money, unexercised options held at the
conclusion of fiscal year 2004 (separately identifying then-exercisable and
unexercisable options). All share numbers and dollar amounts are set forth
on a
post-Merger basis.
|
Name
|
|
Shares
Acquired
on
Exercise (#)
|
|
Value
Realized ($)
|
|
Number
of
Unexercised
Securities
Underlying
Options
at FY-
End
(#)
Exercisable
/
Unexercisable
|
|
Value
of
Unexercised
In-
the-Money
Options
at FY
-
End
($)
Exercisable
/
Unexercisable
(1)
|
|
|
Dr.
Jonathan Lewis
|
|
|
0
|
|
|
0
|
|
|
0
/
268,653
|
(1)
|
|
0
/
558,798
|
|
|
Richard
Bagley
|
|
|
0
|
|
|
0
|
|
|
0
/
150,668
|
(2)
|
|
0
/
69,307
|
|
|
Dr.
Robert Peter Gale
|
|
|
0
|
|
|
0
|
|
|
0
/
25,110
|
(3)
|
|
0
/
43,189
|
|
|
(1)
|
Value
of unexercised in-the-money options on December 31, 2004 is based
on a
value of ZIOPHARM, Inc. stock equal to $2.16 per share, as determined
by
the ZIOPHARM, Inc. Board of Directors at such time. As of December
31,
2004, no trades of the Company’s common stock had been conducted on the
Over-the-Counter Bulletin Board.
|
Employment
and Change-in-Control Agreements
On
December 9, 2004, the Company entered into an employment agreement with David
C.
Olson. Under the terms of the agreement, we agreed to pay Mr. Olson a one-time
fee of $100,000 if and when we completed a merger, acquisition, or related
transaction. In connection with the Merger, Mr. Olson agreed to reduce this
amount to the extent that the unconsolidated liabilities of the Company
immediately following the Merger exceeded $425,000. On December 10, 2004,
the
Company entered into a management consulting services agreement with David
Floor. Under the terms of the agreement, we agreed to pay Mr. Floor a one-time
fee of $10,000 plus expenses, upon the closing of any transaction leaving
the
Company with a positive business direction and available finances. In connection
with the Merger, we paid Messrs. Olson and Floor $57,500 and $100,000,
respectively, under the terms of their agreements with us. Each such agreement
was terminated in its entirety in connection with the Merger.
On
January 8, 2004, the Company entered into a three-year employment agreement
with
Dr. Jonathan Lewis. Under the agreement, Dr. Lewis receives an annual base
salary of $350,000 and a guaranteed annual bonus of $250,000. In addition,
Dr.
Lewis is eligible to receive an annual discretionary bonus of up to 100%
of his
base salary, as determined by the Company’s board of directors. The Company also
paid Dr. Lewis a one-time bonus of $250,000 upon execution of his employment
agreement. Depending upon the events surrounding a possible termination of
Dr.
Lewis’ employment, he may continue to receive his base salary and, in certain
circumstances, his guaranteed bonus for one year following such termination.
In
addition, the vesting of Dr. Lewis’ stock options may accelerate in whole or in
part upon such termination. Dr. Lewis has agreed not to compete with ZIOPHARM
during the term of the employment agreement and for a one-year period
thereafter, provided that we continue to pay his base salary and guaranteed
bonus for that one-year period.
Pursuant
to the terms of his employment agreement, the Company has granted Dr. Lewis
options to purchase up to 410,603 shares of common stock at $0.08 per share
(adjusted to give effect to the Merger). The options vest in three equal
annual
installments, the first of which vested on January 8, 2005, with the remaining
installments vesting on January 8, 2006 and January 8, 2007. The option is
subject to anti-dilution protection from the issuance of equity securities
in
financing transactions to the extent that Dr. Lewis will maintain potential
equity ownership of at least 5% of the Company until such time as the Company
has received $25 million in gross proceeds from such transactions. The options
are governed by the Company’s 2003 Stock Option Plan.
On
July
21, 2004, the Company entered into a three-year employment agreement with
Mr.
Richard Bagley. Under the agreement, Mr. Bagley receives an annual base salary
of $250,000 and a guaranteed annual bonus of $50,000. In addition, Mr. Bagley
is
eligible to receive an annual discretionary bonus, as determined by the
Company’s board of directors. The Company also paid Mr. Bagley a one-time bonus
of $50,000 upon execution of his employment agreement. Depending upon the
events
surrounding a possible termination of Mr. Bagley’s employment, he may continue
to receive his base salary and, in certain circumstances, his guaranteed
bonus
for one year following such termination. In addition, the vesting of Mr.
Bagley’s stock options may accelerate in whole or in part upon such termination.
Mr. Bagley has agreed not to compete with the Company during the term of
the
employment agreement and for a one-year period thereafter, provided that
we
continue to pay his base salary for that one-year period.
Pursuant
to the terms of his employment agreement, the Company granted Mr. Bagley
options
to purchase up to 241,282 shares common stock at $1.70 per share (adjusted
to
give effect to the Merger). The options vest in three equal annual installments,
the first of which vested on July 1, 2005, with the remaining installments
vesting on July 1, 2006 and July 1, 2007. The option is subject to certain
anti-dilution protections from the issuance of equity securities in financing
transactions so that Mr. Bagley will maintain potential equity ownership
of at
least 3% of the Company until such time as the Company has received $25 million
in gross proceeds from such transactions. The options are governed by the
Company’s 2003 Stock Option Plan.
On
January 14, 2004, the Company entered into a three-year employment agreement
with Dr. Robert Peter Gale. Under the agreement, Dr. Gale receives an annual
base salary of $250,000 and a guaranteed annual bonus of $150,000. In addition,
Dr. Gale is eligible to receive an annual discretionary bonus, as determined
by
the Company’s board of directors. Depending upon the events surrounding a
termination of Dr. Gale’s employment, he may continue to receive his base salary
and, in certain circumstances, his guaranteed bonus for one year following
such
termination. In addition, the vesting of Dr. Gale’s stock options may accelerate
in whole or in part upon such termination. Dr. Gale has agreed not to compete
with the Company during the term of the employment agreement and for one-year
following the expiration of his employment agreement.
Pursuant
to the terms of his employment agreement, the Company granted Dr. Gale options
to purchase up to 25,110 shares of common stock at $0.44 per share, respectively
(adjusted to give effect to the Merger). The options vest in three equal
annual
installments, the first of which vested on January 15, 2005, with the remaining
installments vesting on January 15, 2006 and January 15, 2007. The options
are
governed by the Company’s 2003 Stock Option Plan.
Compensation
of Directors
Prior
to
the Merger, our directors received no compensation pursuant to any standard
arrangement for their services as directors. Nevertheless, during the year
ended
December 31, 2004, we issued Mr. David Floor 5,000 shares of our common stock
(adjusted to reflect to the 1-for-40 share combination effected immediately
prior to the Merger) in exchange for directors fees.
Effective
as of the Merger, the Company’s Board of Directors schedules monthly telephonic
board meetings and quarterly in-person meetings held at the Company’s principal
corporate office. Each director receives quarterly compensation of $3,000
in
arrears. The non-management members of the Board also receive stock options
as
granted from time to time and as recommended by the compensation committee.
Certain Transactions and Relationships
Pre-Merger
Company Transactions and Relationships
Because
of their management positions, organizational efforts and/or percentage share
ownership in EasyWeb, Messrs. Olson and Zappa may be deemed to be “promoters” of
the Company, as those terms are defined in the Securities Act of 1933 and
the
applicable Rules and Regulations under the Securities Act of 1933. Because
of
the above-described relationships, transactions between and among EasyWeb
and
Messrs. Olson and Zappa, such as the sale of our common stock to each of
them as
described herein, should not be considered to have occurred at
arm's-length.
Common
Stock Transactions
.
During
July 2005, the Company sold 333,333 shares of its common stock to David Floor
for $10,000, or $.03 per share.
In
August
and December 2004, David Olson loaned us a total of $1,300 for working capital.
During May 2005, Mr. Olson advanced us an additional $788. The loans carried
no
interest rate and were due on demand. On June 28, 2005, we issued Mr. Olson
69,600 shares of common stock as full repayment of the amounts stated above.
The
shares were valued at $.03 per share, or $2,088, based on contemporaneous
common
stock sales to unrelated third parties.
On
May
13, 2004, the Company issued 400,000 shares of common stock to Summit Financial
Relations, Inc. (“Summit”) valued at $10,000, at $.025 per share as repayment
for expenses paid on behalf of the Company. The shares were valued based
on
contemporaneous sales to unrelated third party investors. David Olson, our
President, Treasurer and one of our directors is also Summit’s President,
director and sole stockholder. The shares were issued pursuant to the exemption
from the registration requirements of the Securities Act provided by Section
4(2) of the Act for transactions by an issuer not involving a public offering.
During
May 2004, the Company issued 200,000 shares of common stock to Thomas Olson,
the
brother of David Olson, in exchange for corporate governance services. The
shares were valued based on contemporaneous sales to unrelated third party
investors, at $.025 per share. The Company recorded stock-based compensation
of
$5,000 related to the transaction. The shares were issued pursuant to the
exemption from the registration requirements of the Securities Act provided
by
Section 4(2) of the Act for transactions by an issuer not involving a public
offering.
During
May 2004, the Company issued 200,000 shares of common stock to David Floor
in
exchange for director fees. The shares were valued based on contemporaneous
sales to unrelated third party investors, at $.025 per share. The Company
recorded stock-based compensation of $5,000 related to the transaction. The
shares were issued pursuant to the exemption from the registration requirements
of the Securities Act provided by Section 4(2) of the Act for transactions
by an
issuer not involving a public offering.
At
December 31, 2004, the Company owed Summit $12,268 for professional fees
and
other administrative expenses paid on our behalf. David Olson, our President,
Treasurer and one of our directors, is also Summit’s President, director and
sole shareholder. During the six months ended June 30, 2005, Summit paid
an
additional $1,007 in expenses on our behalf. On February 4, 2005, the Company
repaid Summit $7,000 and on June 28, 2005 the Company issued Summit 209,180
shares of common stock as full repayment of all amounts stated above. The
shares
issued to Summit were valued at $.03 per share, or $6,275, based on
contemporaneous common stock sales to unrelated third parties.
During
January 2002, we sold 33,333 and 16,667 shares of our common stock to David
Olson and Barbara Petrinsky, respectively, at $.03 per share (gross proceeds
totaling $1,500). At the time of issuance, both Mr. Olson and Ms. Petrinsky
were
officers of EasyWeb. In addition to the 50,000 shares sold to Mr. Olson and
Ms.
Petrinsky, we sold 500,000 shares of our common stock to unrelated third
parties
for gross proceeds totaling $15,000, or $.03 per share. The shares were issued
pursuant to the exemption from the registration requirements of the Securities
Act provided by Section 4(2) of the Act for transactions by an issuer not
involving a public offering.
Office
Space and Administrative Support
.
Summit
has contributed the use of office space and administrative support (including
reception, secretarial and bookkeeping services) to us for the years ended
December 31, 2004 and 2003. David Olson, our President, Treasurer and one
of our
directors, is also the President, director and sole stockholder of
Summit.
The
office space and administrative support contributed by Summit has a fair
market
value of approximately $500 and $1,000 per month, respectively. We have
recognized expenses for rent and administrative support based on fair market
value. Any period in which the amount paid to Summit for office space and
administrative support was below the fair market value, the remaining balance
was considered contributed by Summit and recorded as a credit to additional
paid-in capital in our financial statements. During the years ended December
31,
2004 and 2003, we did not pay Summit for office space and we paid Summit
$173
and $510, respectively, for administrative support. Accordingly, Summit
contributed the remaining fair values for the use of the office space and
administrative support. Contributed office space totaled $6,000 and $6,000,
and
contributed administrative support totaled $11,827 and $11,490 for the years
ended December 31, 2004 and 2003, respectively.
Related
Party Liabilities
.
In
August
and December 2004, Mr. Olson loaned us a total of $1,300 for working capital.
The loans carried no interest rate and were due on demand.
At
December 31, 2003, the Company owed Summit $18,111 for professional fees
and
other administrative expenses it paid on our behalf. During the year ended
December 31, 2004, Summit paid expenses totaling $4,187 on our behalf. A
portion
of the May 13, 2004 issuance of 400,000 restricted common described above
under
“Certain Relationships and Related Transactions
-
Common
Stock Transactions
”
was
used to repay Summit for these fees. As of December 31, 2004, we owed Summit
$12,298.
We
owed
Barbara Petrinsky, our former Secretary and Treasurer, $10,000 for the work
she
performed over the previous five years to keep our books and records, assist
in
all of our filings with regulatory authorities, states and the Internal Revenue
Service, among others.
All
of
the above referenced liabilities were satisfied in their entirety immediately
follwing the Merger.
Consulting
Agreement with Summit Financial
.
On
December 10, 2004, we entered into a consulting services fee agreement whereby
Summit provides certain services to us including, but not limited to
consultation related to mergers and acquisitions, reorganizations and
divestitures. Pursuant to the agreement, Summit has lent us funds and helped
us
raise funds at no extra cost. Under the terms of the agreement, we agreed
to pay
Summit a one-time fee of $120,000 on the date of closing of any transaction
that
leaves us with a positive business directive and available finances,
non-detrimental to our survival. In connection with the Merger, Summit agreed
to
reduce this amount to the extent that the unconsolidated liabilities of the
Company immediately following the Merger exceeded $425,000. Upon the Merger,
the
Company paid $106,697.90 to Summit and terminated the agreement in its entirety.
Under
the
terms of the Merger Agreement, the consolidated EasyWeb entity will pay our
identified liabilities that are then due. A portion of such liabilities will
be
payable to David Olson under his employment agreement and to Summit under
its
consulting services fee agreement. However, Mr. Olson and Summit have agreed
to
reduce the amount of the payments to which they are otherwise entitled to
the
extent that our unconsolidated liabilities immediately following the Merger
exceed $425,000.
ZIOPHARM
Transactions and Relationships
In
connection with a private placement of its Series A Convertible Preferred
Stock
that terminated in May 2005, ZIOPHARM and Paramount BioCapital, Inc.
(“Paramount”) entered into an introduction agreement in January 2005. Upon the
Merger, we succeeded to ZIOPHARM’s rights and obligation under such agreement.
Pursuant to the introduction agreement, ZIOPHARM agreed to compensate Paramount
or its designees for their services through the payment of (a) cash commissions
equal to 7% of the gross proceeds from the offering, and (b) warrants to
acquire
an aggregate of 837,956 share of ZIOPHARM’s Series A Convertible Preferred Stock
a per share exercise price of $2.38. Upon the Merger, this warrant was exchanged
for a warrant to purchase an aggregate of 419,772 shares of our common stock
at
a per share exercise price of $4.75. Cash commissions will also be payable
by us
if we sell additional of our securities, prior to May 31, 2006, to investors
introduced to ZIOPHARM by the Paramount. Pursuant to the introduction agreement,
Paramount has the right of first refusal to act as the placement agent for
the
private sale of our securities until May 31, 2008.
In
connection with ZIOPHARM’s December 22, 2004 Option Agreement with Southern
Research Institute (“SRI”), ZIOPHARM entered into an Finders Agreement dated
December 23, 2004 with Paramount, pursuant to which ZIOPHARM agreed to
compensate Paramount for services in connection with the ZIOPHARM’s introduction
to SRI through the payment of (a) a cash fee of $60,000 and (b) a warrant
to
purchase 125,000 shares of ZIOPHARM’s common stock at a price of $2.38 per
share. Upon the Merger, this warrant was exchanged for a warrant to purchase
an
aggregate of 62,621 shares of our common stock at a per share exercise price
of
$4.75.
Lindsay
A. Rosenwald, M.D., who may be deemed to beneficially own approximately 20.13%
of our common stock, is Chairman and Chief Executive Officer of Paramount
and
its affiliates. Dr. Michael Weiser and Timothy McInerney, each of whom is
a
member of ZIOPHARM’s Board of Directors, are also full-time
employees
of
Paramount.
Description
of Securities
Our
authorized capital stock consists of 280,000,000 shares of common
stock, $.001 value per share. All shares of common stock have equal
voting
rights and are entitled to one vote per share on all matters to be voted
upon by
our stockholders. The shares of common stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully-paid and
non-assessable shares. Cumulative voting in the election of directors is
not
permitted. In the event of our liquidation, each holder of our common stock
is
entitled to receive a proportionate share of our assets available for
distribution to stockholders after the payment of liabilities. All shares
of our
common stock issued and outstanding are fully-paid and
non-assessable.
Holders
of our common stock are entitled to share
pro
rata
in
dividends and distributions with respect to the common stock when, as and
if
declared by our board of directors out of funds legally available therefor.
We
have not paid any dividends on our common stock and intend to retain earnings,
if any, to finance the development and expansion of our business. Future
dividend policy is subject to the discretion of our board of directors and
will
depend upon a number of factors, including future earnings, capital requirements
and our financial condition.
The
transfer agent and registrar for our common stock is American Stock Transfer
and
Trust, 6201 15th Avenue, Brooklyn, New York, 11219. As of the date of this
report, we had 7,157,863 shares of common stock outstanding held by 305 holders
of record. Our common stock is listed for trading on the over-the-counter
bulletin board under the symbol “ESWB.OB.” Nevertheless, there has been no
established public trading market for the common stock since our inception.
As a
result changing our corporate name to ZIOPHARM Oncology, Inc., we expect
that
our ticker symbol will change to be consistent with our new corporate
name.
Recent
Sales of Unregistered Securities
The
following summarizes all sales of unregistered securities by ZIOPHARM since
inception in September 2003.
On
September 25, 2003, in connection with ZIOPHARM’s incorporation, ZIOPHARM issued
500,000 shares of common stock for aggregate consideration of $500,000.
On
October 7, 2003, ZIOPHARM issued 12,500 shares of common stock to a consultant
in exchange for certain consulting services. On March 14, 2004, ZIOPHARM
issued
an additional 4,500,000 shares of common stock in exchange for aggregate
consideration of $4,500,000. On August 31, 2004, ZIOPHARM issued 500,000
shares
of common stock to the University of Texas M.D. Anderson Cancer Center
pursuant
to the terms of the license agreement dated August 24, 2004.
In
connection with ZIOPHARM’s license agreements with the University of Texas M. D.
Anderson Cancer Center and DEKK-TEC, Inc., ZIOPHARM issued warrants to
such
parties to acquire an aggregate of 155,375 shares of common stock.
In
connection with ZIOPHARM’s December 22, 2004 Option Agreement with SRI, ZIOPHARM
issued a warrant to purchase 125,000 shares of common stock to Paramount.
In
connection with an offering of Series A Convertible Preferred Stock of
ZIOPHARM
that was completed on May 30, 2005, ZIOPHARM issued an aggregate of 8,379,564
shares of such Series A Convertible Preferred Stock in exchange for a purchase
price per share equal to $2.16. ZIOPHARM issued to the placement agents
in
connection with the offering warrants to purchase up to an aggregate of
837,956
share of ZIOPHARM’s Series A Convertible Preferred Stock.
Since
ZIOPHARM’s inception to the Merger, ZIOPHARM issued to directors, officers,
employees and consultants options to purchase an aggregate of 1,626,797
shares
of common stock at exercise prices ranging from $0.04 to $2.16 per share
with a
weighted average exercise price of $0.77 per share. The issuances of these
options were deemed to be exempt from registration under the Securities
Act by
virtue of Rule 701 promulgated under Section 3(b) of the Securities Act
as
transactions pursuant to compensation benefits plans and contracts relating
to
compensation.
Except
as
noted above, the sales of the securities identified above were made pursuant
to
privately negotiated transactions that did not involve a public offering
of
securities and, accordingly, ZIOPHARM believes that these transactions
were
exempt from the registration requirements of the Securities Act pursuant
to
Section 4(2) thereof and rules promulgated thereunder. Each of the
above-referenced investors in ZIOPHARM’s stock represented to ZIOPHARM in
connection with their investment that they were “accredited investors” (as
defined by Rule 501 under the Securities Act) and were acquiring the shares
for
investment and not distribution, that they could bear the risks of the
investment and could hold the securities for an indefinite period of time.
The
investors received written disclosures that the securities had not been
registered under the Securities Act and that any resale must be made pursuant
to
a registration or an available exemption from such registration. All of
the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.
The
following summarizes the sales of unregistered securities by EasyWeb, Inc.
(now
known as ZIOPHARM, Oncology, Inc.) during the three years prior to and
including
the closing of the Merger.
In
connection with the Merger, EasyWeb, Inc. issued an aggregate of 6,967,941
shares of its common stock to the former holders of ZIOPHARM capital stock,
and
other securities having the right to purchase approximately an additional
1,366,846 shares of EasyWeb’s common stock, all of which were unregistered. For
these issuances, EasyWeb relied on the exemption from federal registration
under
Section 4(2) of the Securities Act of 1933. EasyWeb relied on this exemption
based on the fact that there were approximately only 230 (excludes options
and
warrants) stockholders of ZIOPHARM who were recipients of such unregistered
shares in connection with the Merger, all of whom, either alone or through
a
purchaser representative, had knowledge and experience in financial and
business
matters such that each was capable of evaluating the risks of the investment,
and had access to information regarding ZIOPHARM, EasyWeb and the Merger
transaction.
For
other
sales of unregistered securities made by EasyWeb during the three-year
period
prior to the Merger, please refer to EasyWeb’s quarterly reports on Form 10-QSB
filed on November 13, 2002, May 13, 2003, August 14, 2003, October 30,
2003, May
10, 2004, August 23, 2004, November 15, 2004, May 13, 2005, and August
15, 2005
(amended); and EasyWeb’s registration statement on Form 10-SB/A filed on
December 28, 2001.
Indemnification
of Directors and Officers
Pursuant
to our articles of incorporation and bylaws, we may indemnify an officer
or
director who is made a party to any proceeding, because of his position as
such,
to the fullest extent authorized by Delaware General Corporation Law, as
the
same exists or may hereafter be amended. In certain cases, we may advance
expenses incurred in defending any such proceeding.
To
the
extent that indemnification for liabilities arising under the Securities
Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of
the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred
or
paid by a director, officer or controlling person of our company in the
successful defense of any action, suit or proceeding) is asserted by any
of our
directors, officers or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter
has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of that issue.
