FORM
10-K
SECURITIES
AND EXCHANGE COMMISSION
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2009
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from ________ to ________
Commission
File No. 1-13441
HEMISPHERX
BIOPHARMA, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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52-0845822
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification
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incorporation
or organization)
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Number)
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1617 JFK Boulevard Philadelphia,
Pennsylvania
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19103
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (215) 988-0080
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $.001 par value
Securities
registered pursuant to Section 12(g) of the Act:
(Title of
Each Class)
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
Indicate
by check mark whether the registrant (1) has filed all reports to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
o
No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "large accelerated filer,” “accelerated filer" and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o
Large accelerated filer
x
Accelerated filer
o
Non-accelerated
filer
o
Smaller
Reporting Company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of Common Stock held by non-affiliates at June 30, 2009,
the last business day of the registrant’s most recently completed second fiscal
quarter was $299,465,873.
The
number of shares of the registrant’s Common Stock outstanding as of March 1,
2010 was 132,840,970.
DOCUMENTS INCORPORATED BY REFERENCE:
Specified portions of the Registrant’s definitive proxy statement to be
filed in connection with solicitation of proxies for its 2010 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form
10-K.
TABLE OF
CONTENTS
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Page
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PART I
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Item
1. Business
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1
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Item
1A. Risk Factors
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17
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Item
1B. Unresolved Staff Comments
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29
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Item
2. Properties
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29
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Item
3. Legal Proceedings
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29
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PART II
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Item
5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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29
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Item
6. Selected Financial Data
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32
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Item
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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33
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Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
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44
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Item
8. Financial Statements and Supplementary Data
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44
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Item
9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
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44
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Item
9A. Controls and Procedures
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44
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Item
9B. Other Information
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45
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PART III
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Item
10. Directors and Executive Officers and Corporate
Governance
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48
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Item
11. Executive Compensation
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52
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Item
12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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52
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Item
13. Certain Relationships and Related Transactions, and Director
Independence
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56
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Item
14. Principal Accountant Fees and Services
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57
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PART IV
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Item
15. Exhibits and Financial Statement Schedules
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58
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SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual
Report on Form 10-K (the “Form 10-K”), including statements under “Item 1.
Business,” “Item 1A. Risk Factors,” “Item 3. Legal Proceedings” and “Item 6.
Management’s Discussion and Analysis of Financial Condition and Result of
Operations,” constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended, and the
Private Securities Litigation Reform Act of 1995 (collectively, the “Reform
Act”). Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such as
“believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. All statements other
than statements of historical fact included in this Form 10-K regarding our
financial position, business strategy and plans or objectives for future
operations are forward-looking statements. Without limiting the broader
description of forward-looking statements above, we specifically note that
statements regarding potential drugs, their potential therapeutic effect, the
possibility of obtaining regulatory approval, our ability to manufacture and
sell any products, market acceptance or our ability to earn a profit from sales
or licenses of any drugs or our ability to discover new drugs in the future are
all forward-looking in nature.
Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Hemispherx Biopharma, Inc. and its subsidiaries (collectively, “Hemispherx”,
“Company”, “we or “us”) to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements and other factors referenced in this Form 10-K. We do not
undertake and specifically decline any obligation to publicly release the
results of any revisions which may be made to any forward-looking statement to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
PART
I
ITEM
1. Business.
GENERAL
We are a
specialty pharmaceutical company based in Philadelphia, Pennsylvania and engaged
in the clinical development of new drug therapies based on natural immune system
enhancing technologies for the treatment of viral and immune based chronic
disorders. We were founded in the early 1970s doing contract research for
the National Institutes of Health. Since that time, we have established a
strong foundation of laboratory, pre-clinical and clinical data with respect to
the development of natural interferon and nucleic acids to enhance the natural
antiviral defense system of the human body and to aid the development of
therapeutic products for the treatment of certain chronic diseases. We
have three domestic subsidiaries BioPro Corp., BioAegean Corp., and Core BioTech
Corp., all of which are incorporated in Delaware and are dormant. Our
foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A. established in
Belgium in 1998, which has no activity. All significant intercompany
balances and transactions have been eliminated in consolidation.
Our
current strategic focus is derived from four applications of our two core
pharmaceutical technology platforms Ampligen® and Alferon N Injection®.
The commercial focus for Ampligen® includes application as a treatment for
Chronic Fatigue Syndrome (“CFS”) and as an influenza vaccine enhancer (adjuvant)
for both therapeutic and preventative vaccine development. Alferon N
Injection® is a Food and Drug Administration (“FDA”) approved product with an
indication for refractory or recurring genital warts. Alferon® LDO (Low
Dose Oral) is a formulation currently under development targeting
influenza.
We own
and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ that was
primarily designed to produce Alferon®. On September 16, 2009, our Board
of Directors approved up to $4.4 million for full engineering studies, capital
improvements, system upgrades and introduction of building management systems to
enhance production of three products: Alferon N Injection®, Alferon® LDO and
Ampligen®. (Please see “Manufacturing” in Item 1. Business for more
information.)
Our
principal executive offices are located at One Penn Center, 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103, and our telephone number is
215-988-0080.
AVAILABLE
INFORMATION
We file
our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 electronically with the Securities and Exchange Commission,
or SEC. The public may read or copy any materials we file with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.
You may
obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K and amendments to those reports on the day
of filing with the SEC on our website on the World Wide Web at
http://www.hemispherx.net or by contacting the Investor Relations Department by
calling (518) 398-6222 or sending an e-mail message to
dwill@willstar.net.
OUR
PRODUCTS
Our primary pharmaceutical product
platform consists of our experimental compound, Ampligen®, our FDA approved
natural interferon product, Alferon N Injection® and Alferon® LDO (low dose
oral), our experimental liquid natural interferon for oral
administration.
Ampligen®
Ampligen®
is an experimental drug currently undergoing clinical development for the
treatment of Myalgic Encephalomyelitis / Chronic Fatigue Syndrome
(“ME/CFS”). Over its developmental history, Ampligen® has received various
designations, including Orphan Drug Product Designation (FDA), Treatment IND
(e.g., treatment investigational new drugs, or “Emergency” or “Compassionate”
use authorization) with Cost Recovery Authorization (FDA) and “promising”
clinical outcome recognition based on the evaluation of certain summary clinical
reports (“AHRQ” or Agency for Healthcare Research and Quality). Ampligen®
represents the first drug in the class of large (macromolecular) RNA (nucleic
acid) molecules to apply for New Drug Application (“NDA”) review. Based on
the results of published, peer reviewed pre-clinical studies and clinical
trials, we believe that Ampligen® may have broad-spectrum anti-viral and
anti-cancer properties. Over 1,000 patients have participated in the
Ampligen® clinical trials representing the administration of more than 90,000
doses of this drug.
Nucleic
acid compounds represent a potential new class of pharmaceutical products that
are designed to act at the molecular level for treatment of human
diseases. There are two forms of nucleic acids, DNA and RNA. DNA is
a group of naturally occurring molecules found in chromosomes, the cell’s
genetic machinery. RNA is a group of naturally occurring informational
molecules which orchestrate a cell’s behavior which, in turn, regulates the
action of groups of cells, including the cells which compromise the body’s
immune system. RNA directs the production of proteins and regulates
certain cell activities including the activation of an otherwise dormant
cellular defense against viruses and tumors. Our drug technology utilizes
specifically-configured RNA. Our double-stranded RNA drug product,
trademarked Ampligen®, an experimental, unapproved drug, is administered
intravenously.
Clinical
trials of Ampligen® already conducted by us include studies of the
potential treatment of ME/CFS, Hepatitis B, HIV and cancer patients with renal
cell carcinoma and malignant melanoma. All of these potential uses will
require additional clinical trials to generate the safety and effectiveness data
necessary to support regulatory approval.
On July
7, 2008, the FDA accepted for review our NDA for Ampligen® to treat CFS,
originally submitted in October 2007. We are seeking marketing approval for the
first-ever treatment for CFS. At present, only supportive, symptom-based care is
available for CFS patients. The NDA for Ampligen®, whose chemical
designation is Poly I: Poly C
12
U, is also
the first ever accepted for review by the FDA for systemic use of a toll-like
receptor therapy to treat any condition. On February 11, 2009, we were
notified by the FDA that the originally scheduled Prescription Drug User Fee Act
(“PDUFA”) date of February 25, 2009 has been extended to May 25, 2009. On
May 22, 2009, we were notified by the FDA that it may require additional time to
take action beyond the scheduled PDUFA action date of May 25, 2009.
Between March 9, 2009 and September 15, 2009, we issued six new reports to the
FDA spanning various subjects including clinical safety assessments, specialized
pre-clinical toxicology reports and abbreviated chemistry and manufacturing
control reports.
On
November 25, 2009, we received a Complete Response Letter (“CRL”) from the FDA
which described specific additional recommendations related to the Ampligen®
NDA. In accordance with its 2008 Complete Response procedure, the FDA
reviewers determined that they could not approve the application in its present
form and provided specific recommendations to address the outstanding
issues.
We are
carefully reviewing the CRL and will seek a meeting with the FDA to discuss its
recommendations upon the compilation of necessary data to be used in our
response. We intend to take the appropriate steps to seek approval and
commercialization of Ampligen®. Most notably, the FDA stated that the two
primary clinical studies submitted with the NDA did not provide credible
evidence of efficacy of Ampligen® and recommended at least one additional
clinical study which shows convincing effect and confirms safety in the target
population. The FDA indicated that the additional study should be of
sufficient size and sufficient duration (six months) and include appropriate
monitoring to rule out the generation of autoimmune disease. In addition,
patients in the study should be on more than one dose regimen, including at
least 300 patients on dose regimens intended for marketing. We are
presently planning a confirmatory clinical study which will utilize the same
primary endpoints as our earlier studies but with an enlarged number of subjects
to potentially achieve a more representative statistical model. Lastly,
additional data including a well-controlled QT interval study (i.e., a
measurement of time between the start of the Q wave and the end of the T wave in
the heart’s electrical cycle) and pharmacokinetic evaluations of dual dosage
regiments were requested. Other items required by the FDA include certain
aspects of Non-Clinical safety assessment and Product Quality. In the
Non-Clinical area, the FDA recommended among other things that we complete
rodent carcinogenicity studies in two species. As part of the NDA
submission, we had requested that these studies be waived, but the waiver has
not been granted as of March 1, 2010.
On
January 14, 2010, we submitted reports of new preclinical data regarding
Ampligen® to the FDA that we believe should be sufficient to address certain
preclinical issues in the FDA’s CRL. The preclinical studies discussed in
these reports were the combined work-product of the staffs at Hemispherx and our
subcontractor, Lovelace Respiratory Research Institute (“LRRI”), Albuquerque,
New Mexico, regarding pharmacokinetic analyses in two lower animal species
(primate and rodent). The new preclinical data showed no evidence of
antibodies against Ampligen® in primates nor evidence of an increase in certain
undesirable cytokines (specific modulators of the immune system) at clinically
used doses of Ampligen® for CFS. Although most other experimental
immunomodulators have been associated with one or more features of aberrant
immune activity, including toll-like receptor activators (of which Ampligen® is
one), this was specifically not seen with Ampligen® in primates.
Under the
Product Quality section of the CRL, the FDA recommended that we submit
additional data and complete various analytical procedures. The collection
of these data and the completion of these procedures is already part of our
ongoing Quality Control, Quality Assurance program for Ampligen® manufacturing
under cGMP (“current Good Manufacturing Practice”) guidelines and our
manufacturing enhancement program.
The FDA
also commented on Ampligen® manufacturing noting the need to resolve outstanding
inspection issues at the facilities producing Ampligen®. These include our
facility located in New Brunswick, NJ and one of our third-party subcontractor
manufacturing facilities, Hollister-Stier Laboratories of Spokane, Washington
(“Hollister-Stier”). On December 11, 2009 via Hollister-Stier, we
submitted comprehensive new data, from the combined work-product of both staffs,
to the District Office (“DO”) of the FDA in Seattle, WA which we believed
demonstrated that certain manufacturing issues noted in the pre-approval
inspections at the facility had been fully addressed. On February 2, 2010,
Hollister-Stier received a favorable response from the FDA’s Seattle DO in which
they noted that certain manufacturing issues noted in the pre-approval
inspection at this facility had been fully addressed and made a recommendation
to the FDA’s Center for Drug Evaluation and Research (“CDER”) for approval of
our subcontractor as a manufacturing site under the Ampligen® NDA. The DO
recommendations are not binding on the FDA and pertain only to the specific
manufacturing issues cited in the Ampligen®
manufacturing
response and to the subcontractor site.
We are
also engaged in ongoing, experimental studies assessing the efficacy of
Ampligen® against influenza viruses. The status of our initiative for
Ampligen® as an adjuvant for preventative vaccine development includes the
pre-clinical studies in seasonal and pandemic influenza for intranasal
administration being conducted by Japan’s National Institute for Infectious
Diseases (“NIID”). A three year program targeting regulatory approval for
pandemic flu and seasonal flu in Japan has been funded by the Japanese Ministry
of Health with the NIID and Biken (operational arm of the non-profit Foundation
for Microbial Disease of Osaka University) in which Ampligen® is used as a
mucosal adjuvant with vaccine. Our arrangement with Biken is part of a
process to develop an effective nasal administered vaccine for Japan utilizing
the resources of the NIID, varied vaccines and Hemispherx supplied
Ampligen®.
A phase
II study for intramuscular administration of Ampligen® for seasonal flu was
conducted in Australia through St. Vincent’s Hospital. We have attempted
in good faith to obtain the clinical data and retrieve the study samples from
St. Vincent’s recently restructured Clinical Trials Centre. As a
prerequisite of payment, we requested the confirmation that samples were
properly maintained utilizing current Good Clinical Practice (“cGCP”) and Good
Laboratory Practice (“cGLP”) for the controlled environment as per our
agreement. On February 5, 2010, our Counsel advised them in correspondence
that, due to the failure to meet the condition precedent to payment, we had no
choice but to declare them in breach of the agreement and our intention to
terminate the relationship between parties. Due to the termination of this
agreement, we are not able to test the samples taken for this study for efficacy
(i.e., the capacity for beneficial change or therapeutic effect from a given
treatment).
A study
was published in the December 20, 2009 issue of “Virology” by a consortium of
researchers at Utah State University and the University of North Carolina,
regarding a newly developed animal model of Severe Acute Respiratory Disease
Syndrome (“SARS”) which, according to the authors, “…largely mimicked human
disease”. SARS emerged in 2002 in the Guangdong province of Southern China
as a new infectious respiratory disease characterized by influenza-like symptoms
with a very high mortality rate. The researchers characterized and adapted
a new strain of the SARS virus (SARS-CoV) to mice that was 100% lethal and was
associated with the overproduction of cytokines and severe lung pathology (Day
CW, et al. Virology, 395:210-222, 2009). Multiple agents with purported
antiviral activity were evaluated for activity in this unique mouse model of the
human disease, including Ampligen®. The researchers found that, unique
among the agents tested, Ampligen®, “…protected against death and gross damage
to the lungs in the presence of lethal SARS-CoV” and was associated with a
reduction in IL-6 concentration in which high levels of the cytokine correlated
with the mortality of SARS-CoV infection. Mortality was high, under the
conditions tested, for all the other antiviral agents examined that have
previously been used extensively in humans with SARS without definitive evidence
of efficacy (Stockman LJ, et al. PLoS Med 3 (9),e 343). To date, there are
no approved agents for treating SARS. Animal experiments do not
necessarily predict safety or efficacy in man. Encouraged by these
results, we are now in preliminary discussions with Chinese clinical research
organizations in an attempt to initiate clinical antiviral programs in
China.
Alferon
N Injection®
Alferon N
Injection® is the registered trademark for our injectable formulation of natural
alpha interferon, which is approved by the FDA for the treatment of certain
categories of genital warts. Alferon® is the only natural-source,
multi-species alpha interferon currently approved for sale in the
U.S.
Interferons
are a group of proteins produced and secreted by cells to combat diseases.
Researchers have identified four major classes of human interferon: alpha, beta,
gamma and omega. Alferon N Injection® contains a multi-species form of
alpha interferon. The worldwide market for injectable alpha
interferon-based products has experienced rapid growth and various alpha
interferon injectable products are approved for many major medical uses
worldwide. Alpha interferons are manufactured commercially in three ways:
by genetic engineering, by cell culture, and from human white blood cells.
All three of these types of alpha interferon are or were approved for commercial
sale in the U.S. Our natural alpha interferon is produced from human white blood
cells.
The
potential advantages of natural alpha interferon over recombinant (synthetic)
interferon produced and marketed by other pharmaceutical firms may be based upon
their respective molecular compositions. Natural alpha interferon is
composed of a family of proteins containing many molecular species of
interferon. In contrast, commercial recombinant alpha interferon products
each contain only a single species. Researchers have reported that the
various species of interferons may have differing antiviral activity depending
upon the type of virus. Natural alpha interferon presents a broad
complement of species, which we believe may account for its higher activity in
laboratory studies. Natural alpha interferon is also glycosylated
(partially covered with sugar molecules). Such glycosylation is not present on
the currently U.S. marketed recombinant alpha interferons. We believe that
the absence of glycosylation may be, in part, responsible for the production of
interferon-neutralizing antibodies seen in patients treated with recombinant
alpha interferon. Although cell culture-derived interferon is also
composed of multiple glycosylated alpha interferon species, the types and
relative quantity of these species are different from our natural alpha
interferon.
Alferon N
Injection® [Interferon alfa-n3 (human leukocyte derived)] is a highly purified,
natural-source, glycosylated, multi-species alpha interferon product.
There are essentially no antibodies observed against natural interferon to date
and the product has a relatively low side-effect profile.
The
recombinant DNA derived alpha interferon are now reported to have decreased
effectiveness after one year, probably due to antibody formation and other
severe toxicities. These detrimental effects have not been reported with
the use of Alferon N Injection®.
The FDA
approved Alferon N Injection® in 1989 for the intralesional (within lesions)
treatment of refractory (resistant to other treatment) or recurring external
genital warts in patients 18 years of age or older. Certain types of human
papillomaviruses (“HPV”) cause genital warts, a sexually transmitted disease
(“STD”). A published report estimates that approximately eight million new
and recurrent cases of genital warts occur annually in the United States
alone.
Commercial
sales of Alferon N Injection® were halted in March 2008 as the current
expiration date of our finished goods inventory expired. We are
undertaking a major capital improvement program to upgrade our manufacturing
capability for Alferon N Injection® at our New Brunswick facility that will
continue throughout 2010. As a result, Alferon N Injection® could be
available for commercial sales in mid to late 2011. (Please see “Alferon®
Low Dose Oral (LDO)” and “Manufacturing” below in Item 1. Business for more
information.)
It is our
belief that the use of Alferon® N in combination with Ampligen® has the
potential to increase the positive therapeutic responses in chronic life
threatening viral diseases. While Alferon N Injection® remains in clinical
development for treating West Nile Virus, the ability to continue this study has
been hampered by the significant reduction in confirmed cases. We also are
planning trials of Alferon N Injection® for seriously ill, hospitalized
influenza patients in Argentina and potentially other countries. (Please
see “Alferon® Low Dose Oral (LDO)” below in Item 1. Business for more
information.)
Alferon® Low Dose Oral
(LDO)
Alferon®
LDO [Low Dose Oral Interferon Alfa-n3 (Human Leukocyte Derived)] is an
experimental low-dose, oral liquid formulation of Natural Alpha Interferon and
like Alferon N Injection® should not cause antibody formation, which is a
problem with recombinant interferon. It is an experimental
immunotherapeutic believed to work by stimulating an immune cascade response in
the cells of the mouth and throat, enabling it to bolster systemic immune
response through the entire body by absorption through the oral mucosa.
Oral interferon could be economically feasible for patients and logistically
manageable in development programs in third-world countries primarily affected
by HIV and other emerging viruses (e.g., SARS, Ebola, bird and swine flu).
Oral administration of Alferon® LDO, with its anticipated affordability, low
toxicity, no production of antibodies, and broad range of potential bioactivity,
could be a breakthrough treatment or prevention for viral diseases.
We have
conducted early stage clinical trials as part of an evaluation of the
experimental bio-therapeutic Alferon® LDO as a potential new experimental
therapy against influenza viruses and other lethal viral diseases, which have
high acute death rates. Clinical trials in human volunteers were designed
to determine whether Alferon®, delivered in this new, experimental oral drug
delivery format, can resuscitate the broad-spectrum antiviral and
immunostimulatory genes. While adequate samples were retrieved from the
clinical trials sites, the next phase of the study was delayed due to funding
considerations and has recently been reinitiated. Potential facilities to
undertake the gene expression analysis phase of the study are currently being
identified with the intention to complete the clinical trial.
Alferon®
LDO is undergoing pre-clinical testing for possible prophylaxis against
influenza. Subject to FDA authorization and/or authorization of regulatory
authorities in other countries, the finished goods inventory of Alferon N
Injection® 5ml vials could be used to produce approximately 11,000,000 sachets
of Alferon® Low Dose Oral (“LDO”) for clinical trials. However, no
assurance can be given that this inventory will be permitted to be used in
future clinical trials or for any other clinical use. While the studies to
date have been encouraging, preliminary testing in the laboratory and animals is
not necessarily predictive of successful results in clinical testing or human
treatment. No assurance can be given that similar results will be observed
in clinical trials. Use of Alferon® as a possible treatment of any flu or
other viral infection requires prior regulatory approval and there can be no
assurance that such approval can be obtained either for clinical trial use or
commercial sale.
In
October 2009, we submitted a protocol to the FDA proposing to conduct a Phase 2,
well-controlled, clinical study using Alferon® LDO for the prophylaxis and
treatment of seasonal and pandemic influenza of more than 200 subjects.
Following a teleconference with the FDA in November 2009, the FDA placed the
proposed study on “Clinical Hold” because the protocol was deemed by the FDA to
deficient in design, and because of the need for additional information to be
submitted in the area of chemistry, manufacturing and controls (“CMC”).
Thereafter in December 2009, we submitted additional information by Amendment
with respect to both the clinical protocol design issues and the CMC
items. In January 2010, the FDA acknowledged that our responses to the
clinical study design issues were acceptable; however, removal of the Clinical
Hold was not warranted because the FDA believed that certain CMC issues had not
been satisfactorily resolved. In this regard, the FDA communicated concern
regarding the extended storage of Alferon® LDO drug product clinical lots which
had been manufactured from an active pharmaceutical ingredient (“API”) of
Alferon N Injection® manufactured in year 2001. While the biological
(antiviral) potency of the product had remained intact, we learned through newly
conducted physico-chemical tests (the “new tests” of temperature, pH, oxidation
and light on the chemical stability of the active API), that certain changes in
the drug over approximately nine storage years (combined storage of Alferon N
Injection® plus storage of certain LDO sachets) had introduced changes in the
drug which might adversely influence the human safety profile. These “new
tests” are part of recent FDA requirements for biological products, such as
interferon, which did not exist at the time of the original FDA approval of
Alferon N Injection® for commercialization and at the time of FDA approval of
the “Establishment License” for Hemispherx’ manufacturing facility. Based
on the recent FDA request, we have now established and implemented the “new
test” procedures. As a result, we have found that certain Alferon N
Injection® lots with extended storage (i.e., approximately eight to nine years)
do appear to demonstrate some altered physico-chemical properties. However
we have also observed that more recent lots, including those manufactured
beginning in the year 2006, are superior with respect to the enhanced scrutiny
of these tests and, in our view, could be considered appropriate for clinical
trials in the Alferon® LDO sachet format. We expect to submit these new
data to the FDA in the Spring of 2010 and believe that the full Clinical Hold
could be thereafter lifted if the FDA concurs that these data address the
outstanding CMC issues cited in the January 2010 FDA
recommendations.
Oragens®
In 1999,
we acquired a series of patents on Oragens®, potentially a set of oral broad
spectrum antivirals and immunological enhancers, through a 10 year licensing
agreement with Temple University in Philadelphia, PA. For a $30,000 annual
minimum royalty payment and costs to maintain the patents, we were granted an
exclusive worldwide license from Temple for the Oragens® products. These
compounds had been evaluated in various academic laboratories for application to
chronic viral and immunological disorders.
In the
2009 review of our patent rights to determine whether they have continuing
value, we undertook an analysis of the Oragen® patents prior to renewing the
licensing agreement with Temple University. This review included a
cost/benefit analysis of the patents’ ultimate revenue and profitability
potential in consideration of their remaining life. In addition,
management studied the rights as to whether each patent continues to fit into
our strategic business plans for Ampligen®, Alferon N Injection® and Alferon®
LDO. As a result of this process, we proposed a patent renewal agreement
that significantly discounted the prior agreement’s annual minimum royalty
payment. In February 2010, it was formally communicated by Temple
University that they had elected not to pursue our proposal to renew the series
of patents on Oragens®. Accordingly as of December 2009, we wrote-off the
remaining value of these patents from Patent and Trademark Rights resulting in a
net expense for Patents Abandoned of $114,000.
PATENTS AND NON-PATENT
EXCLUSIVITY RIGHTS
We have
38 patents worldwide with 46 additional pending patent applications pending
comprising our intellectual property. In 2006, we obtained the global
patent rights for a compound that enhances DNA vaccination by the efficient
intracellular delivery of immunogenic DNA (i.e., DNA that can produce antigenic
proteins that simulate an acute viral infection with a resultant humoral and
cell-mediated immune response). Please see “Note 4: Patents, Trademark
Rights and Other Intangibles” under Notes To Consolidated Financial Statements
for more information on these patents.
We
continually review our patents rights to determine whether they have continuing
value. Such review includes an analysis of the patent’s ultimate revenue
and profitability potential. In addition, management’s review addresses
whether each patent continues to fit into our strategic business plans for
Ampligen®, Alferon N Injection® and Alferon® LDO.
With
respect to Ampligen®, the main U.S. ME/CFS treatment patent (#6130206) expires
October 10, 2017. Our main patents covering HIV treatment (#4820696,
#5063209, and #5091374) expired on April 11, 2006, November 5, 2008, and
February 25, 2009, respectively; Hepatitis treatment coverage is conveyed by
U.S. patent #5593973 which expires on January 14, 2014. Our U.S. Ampligen®
Trademark (#73/617,687) has been renewed through December 6, 2018.
In
addition to our patent rights relating to Ampligen®, the FDA has granted “orphan
drug status” to the drug for ME/CFS, HIV/AIDS, and renal cell carcinoma and
malignant melanoma. Orphan drug status grants us protection against the
potential approval of other sponsors’ versions of the drug for these uses for a
period of seven years following FDA approval of Ampligen® for each of these
designated uses. The first NDA approval for Ampligen® as a new chemical
entity will also qualify for four or five years of non-patent exclusivity during
which abbreviated new drug applications seeking approval to market generic
versions of the drug cannot be submitted to the FDA. See “Government
Regulation” below.
The U.S.
patents relating to our Alferon® products expire April 2, 2013 (5,503,828)
October 14, 2014 (5,676,942) and December 22, 2017 (5,989,441).
RESEARCH AND DEVELOPMENT
(“R&D”)
Our focus
is on developing drugs for use in treating viral and immune based chronic
disorders and diseases such as ME/CFS, HIV, HPV, SARS and West Nile Virus.
Our current R&D projects are only targeting treatment therapies for ME/CFS
and other viral diseases such as prevention and treatment of seasonal and
pandemic H1N1 or Avian influenza.
Myalgic Encephalomyelitis/Chronic
Fatigue Syndrome
("ME/CFS")
Chronic Fatigue Syndrome (“CFS”), also
known as Chronic Immune Dysfunction Syndrome (“CFIDS”) and, Myalgic
Encephalomyelitis (“ME”) is a serious and debilitating chronic illness and a
major public health problem. ME/CFS is recognized by both the government
and private sector as a major health problem, including the National Institutes
of Health, FDA and the U.S. Centers for Disease Control and Prevention
(“CDC”). The CDC listed ME/CFS as a priority disease, causing severe
health and financial problems for patients, their family, and the
community. ME/CFS is endemic in the population, but occasionally seen in
clusters suggesting an infectious basis. A variety of immunological,
endocrine, autonomic nervous system, and metabolic abnormalities have been
documented.
Dr. Julie
Gerberding, former director of the CDC and current president of Merck &
Company’s vaccine division, has stated that "The CDC considers Chronic Fatigue
Syndrome to be a significant public health concern and we are committed to
research that will lead to earlier diagnosis and better treatment of the
illness." A variety of studies by the CDC and others have shown that
between 1 and 4 million Americans suffer from CFS. While those with the
disease are seriously impaired and at least a quarter are unemployed or on
disability because of CFS, only about half have consulted a physician for their
illness. Equally important, about 40% of people in the general population
who report symptoms of ME/CFS have a serious, treatable, previously unrecognized
medical or psychiatric condition (such as diabetes, thyroid disease, substance
abuse). ME/CFS is a serious illness and poses a dilemma for patients,
their families and health care providers.
The CDC
has launched a national public education and awareness campaign on CFS.
The campaign, called "Get Informed. Get Diagnosed. Get Help." is designed to
increase awareness among clinicians and the public because 80 percent of
Americans afflicted with CFS illness may not know they have it. The
campaign provides information regarding the diagnosis and treatment of CFS, and
is designed to raise awareness of the disease among patients and
clinicians. A CDC sponsored website at www.cdc.gov/cfs provides easy to
understand, downloadable educational tools for patients, their families and
health care professionals.
While
ME/CFS strikes people of all age, racial, ethnic, and socioeconomic groups, it
is most prevalent amongst women. Research has shown that ME/CFS is about
three times as common in women as men, a rate similar to that of many autoimmune
diseases, such as multiple sclerosis and lupus. To put this into
perspective, ME/CFS is over four times more common than HIV infection in women,
and the rate of ME/CFS in women is considerably higher than a woman's lifetime
risk of getting lung cancer as published by the CFIDS Association of
America.
Many severe ME/CFS patients become
completely disabled or totally bedridden and are afflicted with severe pain and
mental confusion even at rest. ME/CFS is characterized by incapacitating
fatigue with profound exhaustion and extremely poor stamina, sleep difficulties
and problems with concentration and short-term memory. It is also
accompanied by flu-like symptoms, pain in the joints and muscles, tender lymph
nodes, sore throat and new headaches. A distinctive characteristic of the
illness is a worsening of symptoms following physical or mental exertion which
do not subside with rest.
The case definition for ME/CFS criteria
calls for certain symptoms to be present along with fatigue that interferes with
physical, mental, social and educational activities. Both the fatigue and
symptoms must have occurred for (at least) a six month period. People with
ME/CFS may experience many more than the symptoms named in the case definition,
so knowledgeable physicians will take this fact into consideration when making a
diagnosis (after other possible reasons for symptoms have been ruled
out).
Most ME/CFS patients are treated
symptomatically with traditional treatments geared toward treating symptoms of
the disease, such as improving quality of sleep, reducing pain and treatment of
depression. Clinically, a number of different therapeutic approaches have
been pursued, but with no significant clinical success.
Because
no cause for ME/CFS has been identified, current treatment programs are directed
at relieving symptoms, with the goal of the patient regaining some level of
function and well-being. Diagnosis of ME/CFS is a time-consuming and
challenging process for which there is no FDA approved diagnostic test or
biomarker to clearly identify the disorder. Diagnosis is primarily arrived
at by taking a patient's medical history, completing a physical exam and lab
tests to rule out other conditions excluding other illnesses with similar
symptoms and comparing a patient's symptoms with the case definition.
Overlapping symptoms can occur with several diseases, such as fibromyalgia, Gulf
War Illnesses and multiple chemical sensitivities. Many diseases have
similar symptoms including Lupus and Lyme disease which may closely mimic ME/CFS
that they need to be considered when making a diagnosis to rule them out.
If there are no abnormal test results or other physical ailments identified,
clinicians can use standardized tests to quantify the level of fatigue and
evaluate symptoms. Diagnosis can be complicated by the fact that the
symptoms and severity of CFS vary considerably from patient to patient.
New diagnostic approaches to possibly accelerate the identification of ME/CFS
are being developed (see below in this section regarding the Whittemore Peterson
Institute).
The
leading model of ME/CFS pathogenesis is thought to be rooted in abnormalities in
the immune system and brain (central nervous system), each of which affects and
alters the function of the other. Because some cases of CFS begin with a
flu-like infection, several viruses have been studied as possible causes because
all are relatively common in the general population, including Human Herpesvirus
(“HHV”) 6 and 7, Retroviruses, Epstein-Barr Virus, Enteroviruses, as well as,
Mycoplasmas, etc. The etiology is likely to be related to a collection of
factors, including viral, hormonal, stress, and other triggers for the illness
in genetically, environmentally or otherwise susceptible individuals and
continues to be a subject of discussion.
In the
October 8, 2009 issue of Science Express, a consortium of researchers from the
Whittemore Peterson Institute, the National Cancer Institute and the Cleveland
Clinic report a new retrovirus in the blood cells of 67% of CFS patients and
3.7% in healthy control subjects. The infectious virus was also greater
than 99% identical to that previously detected in prostate cancer.
Patients with CFS are known to display various abnormalities in immune system
functions and experience both higher cancer rates and neurological pathology,
which have been associated with the human retroviruses HIV and HTLV-1.
While an updated agreement is being finalized, we continue to collaborate with
the Whittemore Peterson Institute under the terms of a “Material Transfer And
Research Agreement” that had expired on September 1, 2009, to evaluate the
potential role of Ampligen®, in the clinical treatment of CFS patients who have
a specific deficiency in Natural Killer (“NK”) cell activity.
Immunosuppression is often seen in CFS patients and may be a feature of many
retroviruses in
animal and man. We are presently also collaborating with the Institute with
respect to the potential roles of the novel retrovirus more generally found in
CFS. These studies are taking the form of both retrospective analysis from
stored samples of CFS patients, with and without Ampligen® treatment, along with
prospective clinical studies.
Other Viral Diseases
We are
engaged in ongoing, experimental studies assessing the efficacy of Ampligen®,
Alferon N Injection® and Alferon® LDO against influenza viruses. Ampligen®
as a mucosal adjuvant with vaccine is being studied at Japan’s National
Institute of Infectious Disease (“NIID”) and at Biken (the for profit
operational arm of the Foundation for Microbial Diseases of Osaka
University). We have been focusing our resources on the studies being
undertaken in Japan and the United States along with the design of new Alferon®
LDO studies for both prevention and treatment of seasonal or pandemic
influenza.
Pursuant
to the current Biken material evaluation agreement which concludes in August
2010 or when the evaluation program is completed, which ever is earlier, Biken
purchases Ampligen® for use in conducting further animal studies of intranasal
prototype vaccines containing antigens from influenza sub-types H1N1, H3N2 and
B. This collaboration may progress to human studies and is supported by
the Japanese Health Ministry.
Investigators
from Japan’s NIID have conducted studies in animals that suggest that Ampligen®
can stimulate a sufficiently broad immune response to provide cross-protection
against a range of virus genetic types, including H5N1 and derivative
clades. Japan’s Council for Science & Technology Policy (“CSTP”), a
cabinet level position, has awarded funds from Japan’s CSTP to advance research
with influenza vaccines utilizing Ampligen. The Principal Investigator,
Dr. Hideki Hasegawa
,
M.D., Ph.D.,
Chief of Laboratory of Mucosal Vaccine Development Virus Research
Center
,
undertook studies
in 2009 and plans to continue these studies throughout 2010 that focus on
mucosal immunity and the inherent advantages of a vigorous immune response to
respiratory pathogens. Dr. Hasegawa has published data that the
formulation of pandemic vaccine mixed with Ampligen® increases immuno-genicity
and may demonstrate cross protection against mutated strains. Initial data
from findings in mice exposed to the most virulent forms of pandemic influenza
(H5N1) suggest that standard human seasonal influenza vaccines given alone, and
having no benefit on H5N1 influenza virus pathology and clinical status, were
nonetheless effective against pandemic virus when combined with Ampligen® when
applied intranasally in very small doses in a prophylactic treatment
setting. Clinical trials emanating from successful primate (monkey)
studies are anticipated to begin in 2010.
Dr.
Hasegawa expanded the data on Ampligen® in an October 23, 2009, issue of
“Vaccine” (Vol. 27, issue 45, pp 6276-6279) to include the conveyance of
cross-protective immunity against various variants of the pandemic influenza
virus. In this article, jointly published by researchers at NIID and Yale
University, it was communicated that Ampligen® may convey two additional
biological properties, in addition to the above referenced cross-protection,
when co-administered intranasally with pandemic flu vaccines: 1) the enhancement
of immunity with higher IgA and IgG levels, which may convey a
survival/therapeutic advantage in animal model systems, and 2) the potential to
widen the therapeutic (preventative) profile (“heterosubtypic immunity”) by
protecting against a phenomenon known as “antigenic drift” in which the pandemic
virus may escape the preventative effect of the vaccine; this phenomenon is
well-established with avian H5N1 virus and mitigated the potential effectiveness
of various influenza vaccines manufactured several years ago in the
U.S.A.
Animal
model experiments do not necessarily predict biological behavior in
man.
We
received notice of an Annual Report (April 2008-March 2009) prepared by a
Director of the NIID to the governing organization of the Japanese Ministry of
Health (“MHLW”) reporting a series of successful preclinical studies in new
pandemic vaccines which rely on Ampligen® (Poly I: Poly C
12
U).
Efficacy in these studies was shown both within the airways themselves as well
as systemically. As a result, the program is expected to be accelerated
from animal studies into human volunteers promptly under supervision of NIID
staff. The project is officially titled “Clinical Application of the
Influenza Virus Vaccine in the Intranasal Dosage Form for Mucosal
Administration”. To date, only very few pharmaceutical companies
world-wide have achieved regulatory authorizations to sell intranasally
administered influenza vaccines versus many companies receiving approval for
intramuscular vaccine delivery routes.
Concurrently,
Biken successfully completed in co-operation with NIID a series of
animal/preclinical tests on new pandemic vaccines with Ampligen® as a mucosal
adjuvant. Biken is expected to undertake studies for regulatory
requirements such as safety, stability and formulation to be shared with
NIID. Successful studies in animal models, including the monkey studies
conducted to date under auspices of the NIID, do not necessarily predict human
safety and efficacy of any investigational product including Ampligen®. To
support preclinical studies, Ampligen® especially formulated for intranasal use
had been manufactured and on August 17, 2009 we shipped Ampligen® to Biken for
use in the preclinical studies they are conducting prior to initiating human
clinical trials.
The
emergence of a new H1N1 Swine Flu strain provides additional significance to the
Japanese studies. The original studies by Dr. Hasegawa and his colleagues
provided the basis for the expanded preclinical trials that demonstrated
cross-clade protection against H5N1 isolates following vaccination with a
seasonal influenza vaccine (J Infect Dis.196:1313-1320, 2007). With this
in mind, Biken is concentrating its efforts to proceed on a regulatory path for
the registration of H5N1 intranasal vaccine combined with Ampligen® in
Japan.
On
January 1, 2010, we entered into an Advisory Agreement with Bio-Starting Latam,
an Argentinean regulatory and business design entity, with the goal to explore
the possibility of initiating clinical trials of Alferon N Infection®, Ampligen®
and Alferon® LDO during the 2010 influenza season in Argentina.
The
clinical trial in Australia utilized Ampligen® administered intramuscularly
(“IM”) in combination with seasonal flu vaccine.
This
open-label study (Phase IIa) utilized Ampligen® (Poly I: Poly C
12
U) as a
potential immune-enhancer in Australia with thirty-eight subjects age 60 or
greater with the standard trivalent seasonal influenza vaccines. We have
attempted in good faith to obtain the clinical data and retrieve the study’s
samples from St. Vincent’s recently restructured Clinical Trials Centre.
As a prerequisite of payment, we requested the confirmation that samples were
properly maintained utilizing current Good Clinical Practice (“cGCP”) and Good
Laboratory Practice (“cGLP”) for the controlled environment as required by our
agreement. In February 2010, our General Counsel advised them in
correspondence that due to the failure to meet the condition precedent for
payment, we had no choice but to declare them in breach of the agreement and our
intention to terminate the relationship between parties. Due to the
termination of this agreement, we are not able to test the samples collected in
this study for efficacy (i.e., the capacity for beneficial change or therapeutic
effect from a given treatment).
A
peer-reviewed article providing study data on Ampligen® was published in a
recent issue of the “American Journal of Obstetrics and Gynecology” (January 15,
2010, vol. 202). The report, whose lead author is Dr. Jonathan S. Berek,
Professor and Chair, Obstetrics and Gynecology, Stanford University School of
Medicine, discussed the value of stimulating a periodic “danger signal” with a
TLR3 agonist such as poly(I)•poly(C
12
U) as part
of immunotherapeutic cancer treatment regimens, and suggested such regimens may
have broad potential application to boost the effects of many immunotherapies of
cancer. The authors concluded that poly(I)•poly(C
12
U) “shows
promise as a potential agent for selective enhancement of effect with currently
available and future cancer immunotherapies”. According to the authors,
“immunotherapy of cancer holds the promise of disease-specific intervention
without the toxicity that is associated with traditional therapeutic
modalities”. This reported study was supported by an Ovarian Cancer
Research Fund COGI Grant, Advanced Immune Therapeutics, Hemispherx Biopharma,
and grants from the National Institute of Health (Grants CA 33399, CA 34233),
the Ruth Kirschstein Award (Grant 5 T32 AI07290, and the Ruth L. Kirschstein
Award (Grant F32 DKO78416).
Collaboration
studies in non-human primates conducted by ViroClinics in the Netherlands
suggest a potential role for Alferon® LDO as another novel therapeutic approach
to viral pandemics. In these studies, Alferon® LDO treatment appeared to
be more effective than published results for a neuraminidase inhibitor
(Relenza®), which is a current standard for care of seasonal flu along with a
similar drug (Tamiflu®). The opportunity for Alferon® LDO is reinforced by
new reports of severe side effects secondary to Tamiflu®, by both the FDA and
Japanese health authorities. Also, Tamiflu® resistant strains of flu virus
are now raising serious concerns on a world-wide basis. We are planning to
expand this Alferon® LDO effort into H1N1 Swine Flu preclinical models in the
United States and preclinical laboratory studies are initially
underway.
MANUFACTURING
We own
and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, NJ that was
primarily designed to produce Alferon®. On September 16, 2009, our Board
of Directors approved up to $4.4 million for engineering studies, capital
improvements, system upgrades and building management systems. In 2008,
production of Alferon N Injection® from our Work-In-Progress Inventory had been
put on hold due to the resources needed to prepare our New Brunswick facility
for the FDA preapproval inspection with respect to our Ampligen®
NDA.
We are
currently undertaking a major capital improvement program to enhance our
manufacturing capability for Alferon N Injection®, Alferon® LDO and
Ampligen®. The planned capital improvements include upgrade to the
ventilation and electrical distribution systems; upgrade of the high pressure
boiler to support process equipment and battery management system; building a
utility mezzanine to support the installation of a new water and waste treatment
process. In addition, we have increased our manufacturing staff with the
addition of Directors for Quality Assurance and Quality Control. As a
result, Alferon N Injection® could be available for commercial sales in mid to
late 2011.
The New
Jersey District Office of the FDA conducted an inspection of the New Brunswick,
New Jersey facility in late January and early February 2009 in connection with
review of the Ampligen® NDA. A one-page Form FDA 483 was issued citing a
need to re-perform four method validations to generate data in the New Brunswick
Laboratories. These validations had been performed at another site also
owned and operated by us prior to transferring the equipment to New
Brunswick. The validations have been completed and the reports were
forward to the FDA in April 2009 for review. As a result, the New Jersey
office of the FDA has indicated that there are no more preapproval review issues
at that time. In addition to having addressed all known FDA Form 483
issues, we reported to the regional office of
the FDA that the New
Brunswick facility is in progress of validating certain manufacturing steps and
compiling data that will be sent to the FDA after NDA approval or as
required.
The FDA, in its November
25, 2009 CRL, noted that its field investigators had conveyed deficiencies to us
at our New Jersey facility that needed to be resolved before the NDA could be
approved. We believe these issues
to be the same as communicated by
the New Jersey District Office of the FDA in a one-page Form FDA 483 issued in
early 2009 that cited a need to reperform four method validations to generate
data in the New Brunswick Laboratories. These validations had been
completed and the reports forward to the FDA on April 28, 2009 for their
review. As a result, the New Jersey office of the FDA indicated that there
are no more preapproval review issues at that time. At our expected
meeting with the FDA to review the CRL, we intend to communicate that it is our
understanding
that
these manufacturing issues had been previously
addressed.
The FDA described specific
recommendations related to the Ampligen® NDA in the
“Product Quality”
section of the CRL which identified additional analytic procedures to be
submitted to the FDA. We believe that these procedures are already part of
our ongoing Quality Control, Quality Assurance program for Ampligen®
manufacturing under current Good Manufacturing Practice (“cGMP”)
requirements. We are currently undertaking the majority of the tests
needed for the validation phase to address the issues identified in the CRL as
part of our originally scheduled post-approval testing prior to any commercial
sales of Ampligen®.
We
outsource certain components of our research and development, manufacturing,
marketing and distribution while maintaining control over the entire process
through our quality assurance group and our clinical monitoring group. We
have a Supply Agreement through March 1, 2011 with Hollister-Stier Laboratories
LLC (“Hollister-Stier”) of Spokane, Washington related to the manufacture of
Ampligen. Pursuant to the agreement, we supply the key raw materials and
Hollister-Stier formulates and bottles Ampligen®. On November 25, 2009, we
received a Complete Response Letter (“CRL”) from the FDA which commented on
Ampligen® manufacturing noting the need to resolve outstanding inspection issues
at the facilities producing Ampligen®. These include our facility located
in New Brunswick, NJ and Hollister-Stier. On December 11, 2009 via
Hollister-Stier, we submitted comprehensive new data to the District Office
(“DO”) of the FDA in Seattle, WA, which we believed demonstrated that certain
manufacturing issues noted in the pre-approval inspections at the facility had
been fully addressed. On February 2, 2010, Hollister-Stier received a
favorable response from the FDA’s Seattle DO in which they noted that certain
manufacturing issues noted in the pre-approval inspection at this facility had
been fully addressed and that they had forwarded a recommendation to the FDA’s
CDER for approval of Hollister-Stier as a manufacturing site under the Ampligen®
NDA. The DO recommendations are not binding on the FDA and pertain only to
the specific manufacturing issues cited in the Ampligen®
manufacturing
response and to the subcontractor site.
We have manufactured
purified drug concentrate utilized in the formulation of Alferon
N
Injection® in our New Brunswick, New Jersey facility. On February 8,
2006, we executed a Manufacturing and Safety Agreement with Hyaluron, Inc. of
Burlington, Massachusetts, for the formulation, packaging and labeling of
Alferon N Injection®. This agreement has been permitted to expire
primarily as a result of our decision to suspend Alferon N Injection® production
in 2008. With manufacturing of Alferon® expected to take place in 2011, we
are seeking new vendors that can provide the needed cGMP formulation, packaging
and labeling services for this product.
MARKETING/DISTRIBUTION
Our
marketing strategy for Ampligen® reflects the differing health care systems
around the world along with the different marketing and distribution systems
that are used to supply pharmaceutical products to those systems. In the
U.S., we expect that, subject to receipt of regulatory approval, Ampligen® may
be utilized in four medical arenas: physicians’ offices, clinics, hospitals and
the home treatment setting. We remain in the process of developing
pre-launch and launch driven marketing plans focusing on those audience
development, medical support and payor reimbursement initiatives which will
facilitate product acceptance and utilization at the time of regulatory
approval. Similarly, we continue to develop distribution scenarios for the
Specialty Pharmacy/Infusion channel which will insure market access, offer 3PL
(third party logistics) capabilities and provide the requisite risk management
control mechanisms. It is our intent to utilize third party service
providers to execute elements of both the marketing/sales and distribution
plans. We currently plan to utilize a small group of Managed Market
account managers to introduce the product to payor, employer and government
account audiences. We believe that this approach will establish a market
presence and facilitate the generation of revenue without incurring the
substantial costs associated with a traditional sales force. Furthermore,
Management believes that the approach will enable us to retain many options for
future marketing strategies.
For
example, our commercialization strategy for Ampligen®-CFS may include
licensing/co-marketing agreements utilizing the resources and capacities of a
strategic partner(s). We are seeking world-wide marketing partner(s), with
the goal of having a relationship in place before approval is obtained. In
parallel to partnering discussions, appropriate pre-marketing activities will be
undertaken. We intend to control manufacturing of Ampligen on a world-wide
basis.
In 1998,
we entered into a strategic alliance with Accredo to develop certain marketing
and distribution capacities for Ampligen® in the United States. Accredo, a
division of MEDCO
,
is
one of the nation's largest Specialty Pharmacy providers. Pursuant to the
agreement, Accredo assumed certain responsibilities for distribution of
Ampligen® for which they received a fee. Through this arrangement, we may
mitigate the necessity of incurring certain up-front costs. Accredo has
also worked with us in connection with the Amp 511 ME/CFS cost recovery
treatment program, Amp 516 ME/CFS Phase III clinical trial and the Amp 719
(combining Ampligen® with other antiviral drugs in HIV-salvage therapy and Amp
720 HIV Phase IIb clinical trials now under way). There can be no
assurances that this alliance will develop a significant commercial position in
any of its targeted chronic disease markets. The agreement had an initial
one year term from February 9, 1998 with successive additional one year terms
unless either party notifies the other not less than 180 days prior to the
anniversary date of its intent to terminate the agreement. Also, the
agreement may be terminated for uncured defaults, or bankruptcy, or insolvency
of either party and will automatically terminate upon our receiving an NDA for
Ampligen® from the FDA, at which time, a new agreement will need to be
negotiated with Accredo or another major drug distributor. This agreement
offers the potential to provide some marketing and distribution capacity in the
United States. There has been no communication or activity under this
agreement for the past few years.
In 2007,
we had executed a marketing strategy for Alferon N Injection® by relaunching the
product via a collaborative marketing initiative between Hemispherx and Armada
Healthcare, a Specialty Pharmacy network encompassing specialty pharmacists,
pharmacies, distributors and targeted physician specialists. This effort
was intended to direct our efforts in the most appropriate and productive market
fully exposing our product in the indicated market. This initiative had a
positive impact on Alferon® revenues in 2007 by focusing on direct, non-personal
selling efforts to targeted physician audiences. It was our intent to
promote Alferon® to those dermatologists, OB GYNs and Family practice/IMs who
are involved in the treatment of patients with refractory or recurring external
genital warts and who currently utilize both injectable interferons as well as
topical therapeutic agents. While this marketing initiative has been put
on hold due to lack of commercially marketable product, the agreement remains in
place and we expect to reactivate Alferon® N production along with its marketing
program in 2011.
COMPETITION
RNA based
products and toll-like receptors (TLRs) have demonstrated great promise in
preclinical and limited clinical applications resulting in active research and
development by large pharmaceutical companies and emerging Biotech firms.
As such, our potential competitors are among the largest pharmaceutical
companies in the world, are well known to the public and the medical community,
and have substantially greater financial resources, product development, and
manufacturing and marketing capabilities than we have.
These
companies and their competing products may be more effective and less costly
than our products. In addition, conventional drug therapy, surgery and
other more familiar treatments will offer competition to our products.
Furthermore, our competitors have significantly greater experience than we do in
pre-clinical testing and human clinical trials of pharmaceutical products and in
obtaining FDA (in the US), Agency for the Evaluation of Medicinal Products
(“EMEA”) (in Europe) and Health Protection Branch ("HPB") (in Canada), and other
regulatory approvals of products. Accordingly, our competitors may succeed
in obtaining FDA, EMEA and HPB product approvals more rapidly than us. If
any of our products receive regulatory approvals and we commence commercial
sales of our products, we will also be competing with respect to manufacturing
efficiency and marketing capabilities, areas in which we have no
experience. Our competitors may possess or obtain patent protection or
other intellectual property rights that prevent, limit or otherwise adversely
affect our ability to develop or exploit our products.
The major
pharmaceutical competitors with biotech capabilities/vaccine franchises include
Pfizer, GSK, Wyeth (now part of Pfizer), Merck, Novartis, Gilead Pharmaceutical,
and Schering-Plough Corp (now part of Merck). Biotech competitors include
Baxter, Fletcher/CSI, AVANT Immunotherapeutics, AVI Biopharma and GENTA.
When we recommence sales of Alferon N Injection®, it will again compete with
products produced by Schering-Plough Corp. and others for treating genital
warts. 3M Pharmaceutical also markets its immune response modifier
product, Aldera®, for the treatment of genital and perianal warts. We
believe the approval and marketing of this product is the main reason that past
sales of Alferon N Injection® have not met our expectations since
acquisition. In November 2006, the botanical drug, Veregen® (marketed by
Bradley Pharmaceuticals) was also approved for the topical treatment of genital
and perianal warts. In addition, because certain competitive products are
not dependent on a source of human blood cells, such products may be able to be
produced in greater volume and at a lower cost than Alferon N Injection®.
Our wholesale price on a per unit basis of Alferon N Injection® is higher than
that of the competitive recombinant alpha and beta interferon
products.
GOVERNMENT
REGULATION
Regulation
by governmental authorities in the U.S. and foreign countries is and will be a
significant factor in the manufacture and marketing of Alferon® N products and
our ongoing research and product development activities. Ampligen® and
other products developed from the ongoing research and product development
activities will require regulatory clearances prior to commercialization.
In particular, new drug products for humans are subject to rigorous preclinical
and clinical testing as a condition for clearance by the FDA and by similar
authorities in foreign countries. The lengthy process of seeking these
approvals, and the ongoing process of compliance with applicable statutes and
regulations, has, and will continue to require the expenditure of substantial
resources. Any failure by us or our collaborators or licensees to obtain,
or any delay in obtaining, regulatory approvals could materially adversely
affect the marketing of any products developed by us and our ability to receive
product or royalty revenue. We have received Orphan Drug designation for
certain therapeutic indications, which might, under certain conditions, help to
accelerate the process of drug development and commercialization. Alferon
N Injection® is only approved for use in intra-lesional treatment of refractory
or recurring external genital warts in patients 18 years of age or older.
Use of Alferon N Injection® for other applications requires regulatory
approval.
We are
subject to various federal, state and local laws, regulations and
recommendations relating to such matters as safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use of and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with our research
work. Our laboratory and production facility in New Brunswick, New Jersey
is approved for the manufacture of Alferon N Injection® and we believe it is in
substantial compliance with all material regulations. However, there can
be no assurance that this facility, or facilities owned and operated by third
parties that are utilized in the manufacture of our products, will be considered
by the FDA to be in substantial compliance at the present time or in the
future.
RESEARCH, CONSULTING,
LICENSING AND SUPPLY AGREEMENTS
Please
see “Note 9: Research, Consulting and Supply Agreements” under Notes to
Consolidated Financial Statements.
HUMAN
RESOURCES
As of
March 1, 2010, we had 44 personnel consisting of 32 full-time employees or
consultants and 12 regulatory/research medical personnel on a part-time
basis. Part-time personnel are paid on a per diem or monthly basis.
25 personnel are engaged in our research, development, clinical, and
manufacturing effort. 19 of our personnel perform regulatory, general
administration, data processing, including bio-statistics, financial and
investor relations functions. We have no union employees and we believe
our relationship with our employees is good.
While we
have been successful in attracting skilled and experienced scientific personnel,
there can be no assurance that we will be able to attract or retain the
necessary qualified employees and/or consultants in the future.
SCIENTIFIC ADVISORY BOARD
AND DATA SAFETY MONITORING BOARD
Our
Scientific Advisory Board presently consists of two individuals who we believe
have particular scientific and medical expertise in Virology, Cancer,
Immunology, Biochemistry and related fields. Dr. James Rahal, Director of
the Infectious Disease Section of New York Hospital Queens, is one of the
nation's foremost experts on the West Nile Virus. Professor Luc Montagnier
of the Institut Pasteur in Paris has devoted his career to the study of viruses
and is perhaps best known for the 2008 receipt of the Nobel Prize in Medicine
related to his discovery of the Human Immunodeficiency Virus (HIV). It is
the role of this Board to advise us about current and long-term scientific
planning including research and development. The Scientific Advisory Board
conducts periodic meetings as needed. No Scientific Advisory Board
meetings were held in 2008 or 2009 primarily due to fewer active scientific
projects. However, individual Scientific Advisory Board Members sometime
consult with and meet informally with our employees or Board Members.
Members of the Scientific Advisory Board are employed by others and may have
commitments to and/or consulting agreements with other entities, including our
potential competitors.
We are in
the process of forming a Data Safety Monitoring Board (“DSMB”) that is projected
to consist of independent regulatory and medical experts and a Biostatistics
expert. The expected function of the DSMB would be to perform independent
safety and efficacy analyses on our clinical trials, including those with
Alferon® LDO.
ITEM
1A. Risk Factors.
The
following cautionary statements identify important factors that could cause our
actual results to differ materially from those projected in the forward-looking
statements made in this Form 10-K. Among the key factors that have a
direct bearing on our results of operations are:
Risks
Associated With Our Business
No
assurance of successful product development.
Ampligen®
and related products. The development of Ampligen®
and
our other related products is subject to a number of significant risks.
Ampligen®
may
be found to be ineffective or to have adverse side effects, fail to receive
necessary regulatory clearances, be difficult to manufacture on a commercial
scale, be uneconomical to market or be precluded from commercialization by
proprietary right of third parties. Our investigational products are in
various stages of clinical and pre-clinical development and require further
clinical studies and appropriate regulatory approval processes before any such
products can be marketed. We do not know when, if ever, Ampligen®
or
our other products will be generally available for commercial sale for any
indication. Generally, only a small percentage of potential therapeutic
products are eventually approved by the FDA for commercial sale. Please
see the next risk factor.
Alferon N
Injection®. Although Alferon N Injection® is approved for marketing in the
United States for the intra-lesional treatment of refractory or recurring
external genital warts in patients 18 years of age or older, to date it has not
been approved for other indications. We face many of the risks discussed
above, with regard to developing this product for use to treat other
ailments.
Our
drug and related technologies are investigational and subject to regulatory
approval. If we are unable to obtain regulatory approval, our operations
will be significantly adversely affected.
All of
our drugs and associated technologies, other than Alferon N Injection®, are
investigational and must receive prior regulatory approval by appropriate
regulatory authorities for commercial distribution and sale and are currently
legally available only through clinical trials with specified disorders.
At present, Alferon N Injection® is only approved for the intra-lesional
treatment of refractory or recurring external genital warts in patients 18 years
of age or older. Use of Alferon N Injection® for other indications will
require regulatory approval.
Our
products, including Ampligen®, are subject to extensive regulation by numerous
governmental authorities in the United States (“U.S.”) and other countries,
including, but not limited to, the FDA in the U.S., the Health Protection Branch
(“HPB”) of Canada, and the Agency for the Evaluation of Medicinal Products
(“EMEA”) in Europe. Obtaining regulatory approvals is a rigorous and
lengthy process and requires the expenditure of substantial resources. In
order to obtain final regulatory approval of a new drug, we must demonstrate to
the satisfaction of the regulatory agency that the product is safe and effective
for its intended uses and that we are capable of manufacturing the product to
the applicable regulatory standards. We require regulatory approval in
order to market Ampligen® or any other proposed product and receive product
revenues or royalties. We cannot assure you that Ampligen® will ultimately
be demonstrated to be safe or efficacious. While Ampligen® is authorized
for use in clinical trials in the U.S. and Europe, we cannot assure you that
additional clinical trial approvals will be authorized in the United States or
in other countries, in a timely fashion or at all, or that we will complete
these clinical trials. In addition, although Ampligen® has been authorized
by the FDA for treatment use under certain conditions, including provision for
cost recovery, there can be no assurance that such authorization will continue
in effect.
On July
7, 2008, the FDA accepted for review our New Drug Application (“NDA”) for
Ampligen® to treat CFS, originally submitted in October 2007.
On
November 25, 2009, we received a Complete Response Letter (“CRL”) from the FDA
which described specific additional recommendations related to the Ampligen®
NDA. In accordance with its 2008 Complete Response procedure, the FDA
reviewers determined that they could not approve the application in its present
form and provided specific recommendations to address the outstanding
issues. We are carefully reviewing the CRL and will seek a meeting with
the FDA to discuss its recommendations. We intend to take the appropriate
steps to seek approval and commercialization of Ampligen®. Most notably,
the FDA stated that the two primary clinical studies submitted with the NDA did
not provide credible evidence of efficacy of Ampligen® and recommended at least
one additional clinical study which shows convincing effect and confirms safety
in the target population. The FDA indicated that the additional study
should be of sufficient size and sufficient duration (6 months) and include
appropriate monitoring to rule out the generation of autoimmune disease.
In addition, patients in the study should be on more than one dose regimen,
including at least 300 patients on dose regimens intended for marketing.
Finally, additional data including a well-controlled QT interval study of the
heart’s electrical cycle and pharmacokinetic evaluations of dual dosage
regiments was requested. Other items required by the FDA include certain
aspects of Non-Clinical safety assessment and product Quality. In the
Non-Clinical area, the FDA recommended among other things that we complete
rodent carcinogenicity studies in two species. As part of the NDA
submission, we had requested that these studies be waived, but the waiver has
not been granted.
If we are
unable to generate the additional data required by the FDA or if, for that or
any other reason, Ampligen® or one of our other products does not receive
regulatory approval in the U.S. or elsewhere, our operations most likely will be
materially adversely affected.
Alferon® LDO is undergoing
pre-clinical testing for possible prophylaxis against influenza. While the
studies to date have been encouraging, preliminary testing in the laboratory and
in animal models is not necessarily predictive of successful results in clinical
testing or human treatment. No assurance can be given that similar results
will be observed in clinical trials. Use of Alferon® as a possible
treatment of any flu requires prior regulatory approval.
In October 2009,
we submitted a protocol to the FDA proposing to conduct a Phase 2,
well-controlled, clinical study for the prophylaxis and treatment of seasonal
and pandemic influenza of more than 200 subjects. Following a
teleconference with the FDA in November 2009, the FDA placed the proposed study
on “Clinical Hold” because the protocol was deemed by the FDA to be deficient in
design and because additional information was required to be submitted in the
area of chemistry, manufacturing and controls (“CMC”). Thereafter in
December 2009, we submitted additional information by Amendment with respect to
both the clinical protocol design issues and the CMC items. In January
2010, the FDA acknowledged that our responses to the clinical issues were
acceptable; however, the Clinical Hold was maintained in effect because the FDA
believed that certain CMC issues had not yet been satisfactorily resolved.
In this regard, the FDA communicated continuing questions regarding the extended
storage of Alferon® LDO drug product clinical lots which had been manufactured
from an active pharmaceutical ingredient (“API”) of Alferon N Injection®
manufactured in year 2001.
Only the FDA can determine
whether a drug is safe, effective or appropriate for clinical testing or
treating a specific application. Therefore, no assurance can be given that
the use of our existing inventory will be permitted for use in future clinical
trials.
We
may continue to incur substantial losses and our future profitability is
uncertain.
We began
operations in 1966 and last reported net profit from 1985 through 1987.
Since 1987, we have incurred substantial operating losses, as we pursued our
clinical trial effort to get our experimental drug, Ampligen®, approved.
As of December 31, 2009, our accumulated deficit was approximately
$(210,847,000). We have not yet generated significant revenues from our
products and may incur substantial and increased losses in the future. We
cannot assure that we will ever achieve significant revenues from product sales
or become profitable. We require, and will continue to require, the
commitment of substantial resources to develop our products. We cannot
assure that our product development efforts will be successfully completed or
that required regulatory approvals will be obtained or that any products will be
manufactured and marketed successfully, or be profitable.
We
may require additional financing which may not be available.
The
development of our products will require the commitment of substantial resources
to conduct the time consuming research, preclinical development, and clinical
trials that are necessary to bring pharmaceutical products to market. As
of December 31, 2009, we had approximately $58,072,000 in Cash and Cash
Equivalents. Given the harsh economic conditions, we continue to review
every aspect of our operations for cost and spending reductions to assure our
long-term financial stability while maintaining the resources necessary to
achieve our primary objectives of obtaining NDA approval of Ampligen® and
securing a strategic partner.
If we are
unable to commercialize and sell Ampligen® or Alferon® LDO and/or recommence and
increase sales of Alferon N Injection® or our other products, we eventually may
need to secure other sources of funding through additional equity or debt
financing or other sources in order to satisfy our working capital needs and/or
complete the necessary clinical trials and the regulatory approval processes on
which the commercialization of our products depends.
Our
ability to raise additional funds from the sale of equity securities is
limited. In this regard, we only have approximately 32,200,000 shares
authorized but unissued and unreserved. At our annual stockholders’
meeting held on June 24, 2009, we sought approval of an amendment to our
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 200,000,000 to 350,000,000. At this meeting, there was
an insufficient number of votes in favor of the proposal and voting on this
proposal had been left open until September 3, 2009. We announced on
September 2, 2009 that insufficient votes were obtained for passage of Proposal
No. 3 contained in the proxy for the 2009 Annual Meeting of Stockholders.
With voting on this proposal as the sole purpose of the adjourned Stockholders'
Meeting scheduled for September, 4, 2009, this meeting was cancelled.
Since the approval was not obtained to increase the number of authorized shares
of Common Stock, the amount of proceeds we may receive from the sale of our
Common Stock is limited.
There can
be no assurances that we will raise adequate funds which may have a material
adverse effect on our ability to develop our products or continue our
operations.
Our Alferon N Injection® Commercial
Sales were halted due to lack of finished goods inventory.
Commercial
sales of Alferon N Injection® were halted in March 2008 as the current
expiration date of our finished goods inventory expired in March 2008. As a
result, we have no product to sell at this time. We are undertaking a
major capital improvement program, that will continue throughout 2010, to
enhance our manufacturing capability to produce the purified drug concentrate
used in the formulation of Alferon N Injection® at our New Brunswick
facility. As a result, Alferon N Injection® could be available for
commercial sales in mid to late 2011. However our agreement with a third
party to formulate, package and label Alferon N Injection® has expired and we
are seeking new vendors to supply this service. Also, each production lot
of Alferon N Injection® is subject to FDA review and approval prior to releasing
the lots to be sold. In light of these contingencies, there can be no
assurances that the approved Alferon N Injection® product will be returned to
production on a timely basis, if at all, or that if and when it is again made
commercially available, it will return to prior sales levels.
Although preliminary in vitro
testing indicates that Ampligen® enhances the effectiveness of different drug
combinations on avian influenza, preliminary testing in the laboratory is not
necessarily predictive of successful results in clinical testing or human
treatment
.
Ampligen®
is currently being tested as a vaccine adjuvant for H5N1, a pathogenic avian
influenza virus (“HPAIV”) in Japan, where the preclinical data has shown
activity in preventing lethal challenge with the original virus used for
vaccination as well as the other related, but not identical, isolates of H5N1
virus (i.e., cross-reactivity). The clinical testing phase of Ampligen® in
Japan is expected to begin in 2010 (see “Item 2: Management's Discussion and
Analysis of Financial Condition and Results of Operations; Overview; General” in
Part I above). No assurance can be given that similar results will be
observed in clinical trials. Use of Ampligen® in the treatment of flu
requires prior regulatory approval. Only the FDA or other corresponding
regulatory agencies world-wide can determine whether a drug is safe, effective
and appropriate for treating a specific application. As discussed above,
obtaining regulatory approvals is a rigorous and lengthy process (see “
Our drugs and related technologies
are investigational and subject to regulatory approval. If we are unable
to obtain regulatory approval, our operations will be significantly adversely
affected
” above).
We
may not be profitable unless we can protect our patents and/or receive approval
for additional pending patents.
We need
to preserve and acquire enforceable patents covering the use of Ampligen® for a
particular disease in order to obtain exclusive rights for the commercial sale
of Ampligen® for such disease. We obtained all rights to Alferon N
Injection®, and we plan to preserve and acquire enforceable patents covering its
use for existing and potentially new diseases. Our success depends, in
large part, on our ability to preserve and obtain patent protection for our
products and to obtain and preserve our trade secrets and expertise.
Certain of our know-how and technology is not patentable, particularly the
procedures for the manufacture of our experimental drug, Ampligen®. We
also have been issued patents on the use of Ampligen® in combination with
certain other drugs for the treatment of chronic Hepatitis B virus, chronic
Hepatitis C virus, and a patent which affords protection on the use of Ampligen®
in patients with Chronic Fatigue Syndrome. We have not yet been issued any
patents in the United States for the use of Ampligen
Ò
as a sole treatment for
any of the cancers which we have sought to target. With regard to Alferon
N Injection®, we have acquired from ISI its patents for natural alpha interferon
produced from human peripheral blood leukocytes and its production process and
we have filed a patent application for the use of Alferon® LDO in treating viral
diseases including avian influenza. We cannot assure that our competitors
will not seek and obtain patents regarding the use of similar products in
combination with various other agents, for a particular target indication prior
to our doing so. If we cannot protect our patents covering the use of our
products for a particular disease, or obtain additional patents, we may not be
able to successfully market our products.
The
patent position of biotechnology and pharmaceutical firms is highly uncertain
and involves complex legal and factual questions.
To date,
no consistent policy has emerged regarding the breadth of protection afforded by
pharmaceutical and biotechnology patents. There can be no assurance that
new patent applications relating to our products or technology will result in
patents being issued or that, if issued, such patents will afford meaningful
protection against competitors with similar technology. It is generally
anticipated that there may be significant litigation in the industry regarding
patent and intellectual property rights. Such litigation could require
substantial resources from us and we may not have the financial resources
necessary to enforce the patent rights that we hold. No assurance can be
made that our patents will provide competitive advantages for our products or
will not be successfully challenged by competitors. No assurance can be
given that patents do not exist or could not be filed which would have a
materially adverse effect on our ability to develop or market our products or to
obtain or maintain any competitive position that we may achieve with respect to
our products. Our patents also may not prevent others from developing
competitive products using related technology.
There
can be no assurance that we will be able to obtain necessary licenses if we
cannot enforce patent rights we may hold. In addition, the failure of
third parties from whom we currently license certain proprietary information or
from whom we may be required to obtain such licenses in the future, to
adequately enforce their rights to such proprietary information, could adversely
affect the value of such licenses to us.
If we
cannot enforce the patent rights we currently hold we may be required to obtain
licenses from others to develop, manufacture or market our products. There
can be no assurance that we would be able to obtain any such licenses on
commercially reasonable terms, if at all. We currently license certain
proprietary information from third parties, some of which may have been
developed with government grants under circumstances where the government
maintained certain rights with respect to the proprietary information
developed. No assurances can be given that such third parties will
adequately enforce any rights they may have or that the rights, if any, retained
by the government will not adversely affect the value of our
license.
There
is no guarantee that our trade secrets will not be disclosed or known by our
competitors.
To
protect our rights, we require certain employees and consultants to enter into
confidentiality agreements with us. There can be no assurance that these
agreements will not be breached, that we would have adequate and enforceable
remedies for any breach, or that any trade secrets of ours will not otherwise
become known or be independently developed by competitors.
We
have limited marketing and sales capability. If we are unable to obtain
additional distributors and our current and future distributors do not market
our products successfully, we may not generate significant revenues or become
profitable.
We have
limited marketing and sales capability. We are dependent upon existing
and, possibly future, marketing agreements and third party distribution
agreements for our products in order to generate significant revenues and become
profitable. As a result, any revenues received by us will be dependent in
large part on the efforts of third parties, and there is no assurance that these
efforts will be successful.
Our
commercialization strategy for Ampligen® for ME/CFS may include
licensing/co-marketing agreements utilizing the resources and capacities of a
strategic partner(s). We continue to seek world-wide marketing partner(s),
with the goal of having a relationship in place before approval is
obtained. In parallel to partnering discussions, appropriate premarketing
activities will be undertaken. We intend to control manufacturing of
Ampligen® on a world-wide basis.
We cannot
assure that our U.S. or foreign marketing strategy will be successful or that we
will be able to establish future marketing or third party distribution
agreements on terms acceptable to us, or that the cost of establishing these
arrangements will not exceed any product revenues. Our inability to
establish viable marketing and sales capabilities would most likely have a
materially adverse effect on us.
There
are no long-term agreements with suppliers of required materials and
services. If we are unable to obtain the required raw materials and/or
services, we may not be able to manufacture Alferon N Injection® and/or
Ampligen®.
A number
of essential materials are used in the production of Alferon N Injection®,
including human white blood cells. We do not have, but are working towards
having long-term agreements for the supply of such materials. There can be
no assurance we can enter into long-term supply agreements covering essential
materials on commercially reasonable terms, if at all.
There are
a limited number of manufacturers in the United States available to provide the
polymers for use in manufacturing Ampligen®. At present, we do not have
any agreements with third parties for the supply of any of these polymers.
We have established relevant manufacturing operations within our New Brunswick,
New Jersey facility for the production of Ampligen® polymers from raw materials
in order to obtain polymers on a more consistent manufacturing
basis.
If we are
unable to obtain or manufacture the required raw materials, we may be unable to
manufacture
Alferon
N Injection® and/or Ampligen®. The costs and availability of products and
materials we need for the production of Ampligen® and the commercial production
of Alferon N Injection® and other products which we may commercially produce are
subject to fluctuation depending on a variety of factors beyond our control,
including competitive factors, changes in technology, and FDA and other
governmental regulations and there can be no assurance that we will be able to
obtain such products and materials on terms acceptable to us or at
all.
There
is no assurance that successful manufacture of a drug on a limited scale basis
for investigational use will lead to a successful transition to commercial,
large-scale production.
Changes
in methods of manufacturing, including commercial scale-up, may affect the
chemical structure of Ampligen® and other RNA drugs, as well as their safety and
efficacy. The transition from limited production of pre-clinical and
clinical research quantities to production of commercial quantities of our
products will involve distinct management and technical challenges and will
require additional management and technical personnel and capital to the extent
such manufacturing is not handled by third parties. There can be no
assurance that our manufacturing will be successful or that any given product
will be determined to be safe and effective, or capable of being manufactured
under applicable quality standards, economically, and in commercial quantities,
or successfully marketed.
We
have limited manufacturing experience.
Ampligen®
has been produced to date in limited quantities for use in our clinical trials,
and we are dependent upon a qualified third party supplier for the manufacturing
and packaging process. The failure to continue these arrangements or to
achieve other such arrangements on satisfactory terms could have a material
adverse affect on us. Also, to be successful, our products must be
manufactured in commercial quantities in compliance with regulatory requirements
and at acceptable costs. To the extent we are involved in the production
process, our current facilities may not be adequate for the production of our
proposed products for large-scale commercialization. We intend to utilize
third party facilities if and when the need arises or, if we are unable to do
so, to build or acquire commercial-scale manufacturing facilities. We will
need to comply with regulatory requirements for such facilities, including those
of the FDA pertaining to current Good Manufacturing Practice (“cGMP”)
requirements. There can be no assurance that such facilities can be used,
built, or acquired on commercially acceptable terms, or that such facilities, if
used, built, or acquired, will be adequate for our long-term needs.
We
may not be profitable unless we can produce Ampligen® or other products in
commercial quantities at costs acceptable to us.
We have
never produced Ampligen® or any other products in large commercial
quantities. We must manufacture our products in compliance with regulatory
requirements in large commercial quantities and at acceptable costs in order for
us to be profitable. We intend to utilize third-party manufacturers and/or
facilities if and when the need arises or, if we are unable to do so, to build
or acquire commercial-scale manufacturing facilities. If we cannot
manufacture commercial quantities of Ampligen® or enter into third party
agreements for its manufacture at costs acceptable to us, our operations will be
significantly affected. Also, each production lot of Alferon N Injection®
is subject to FDA review and approval prior to releasing the lots to be
sold. This review and approval process could take considerable time, which
would delay our having product in inventory to sell.
Rapid
technological change may render our products obsolete or
non-competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial
technological change. Technological competition from pharmaceutical and
biotechnology companies, universities, governmental entities and others
diversifying into the field is intense and is expected to increase. Most
of these entities have significantly greater research and development
capabilities than us, as well as substantial marketing, financial and managerial
resources, and represent significant competition for us. There can be no
assurance that developments by others will not render our products or
technologies obsolete or noncompetitive or that we will be able to keep pace
with technological developments.
Our
products may be subject to substantial competition.
Ampligen®.
Competitors may be developing technologies that are, or in the future may be,
the basis for competitive products. Some of these potential products may
have an entirely different approach or means of accomplishing similar
therapeutic effects to products being developed by us. These competing
products may be more effective and less costly than our products. In
addition, conventional drug therapy, surgery and other more familiar treatments
may offer competition to our products. Furthermore, many of our
competitors have significantly greater experience than us in preclinical testing
and human clinical trials of pharmaceutical products and in obtaining FDA, HPB
and other regulatory approvals of products. Accordingly, our competitors
may succeed in obtaining FDA, HPB or other regulatory product approvals more
rapidly than us. There are no drugs approved for commercial sale with
respect to treating ME/CFS in the United States. The dominant competitors
with drugs to treat disease indications in which we plan to address include
Gilead Sciences, Pfizer, Bristol-Myers Squibb, Abbott Laboratories,
GlaxoSmithKline and Merck. These potential competitors are among the
largest pharmaceutical companies in the world, are well known to the public and
the medical community, and have substantially greater financial resources,
product development, and manufacturing and marketing capabilities than we
have. Although we believe our principal advantage is the unique mechanism
of action of Ampligen® on the immune system, we cannot assure that we will be
able to compete.
ALFERON N
Injection®. Our competitors are among the largest pharmaceutical companies
in the world, are well known to the public and the medical community, and have
substantially greater financial resources, product development, and
manufacturing and marketing capabilities than we have. Alferon N
Injection® currently competes with Schering’s injectable recombinant alpha
interferon product (INTRON® A) for the treatment of genital warts. 3M
Pharmaceuticals also offer competition from its immune-response modifier,
Aldara®, a self-administered topical cream, for the treatment of external
genital and perianal warts. In addition, Medigene AG has FDA approval for
a self-administered ointment, Veregen®, which is indicated for the topical
treatment of external genital and perianal warts. Alferon N Injection®
also competes with surgical, chemical, and other methods of treating genital
warts. We cannot assess the impact products developed by our competitors,
or advances in other methods of the treatment of genital warts, will have on the
commercial viability of Alferon N Injection®. If and when we obtain
additional approvals of uses of this product, we expect to compete primarily on
the basis of product performance. Our competitors have developed or may
develop products (containing either alpha or beta interferon or other
therapeutic compounds) or other treatment modalities for those uses. There
can be no assurance that, if we are able to obtain regulatory approval of
Alferon N Injection® for the treatment of new indications, we will be able to
achieve any significant penetration into those markets. In addition,
because certain competitive products are not dependent on a source of human
blood cells, such products may be able to be produced in greater volume and at a
lower cost than Alferon N Injection®. Currently, our wholesale price on a
per unit basis of Alferon N Injection® is higher than that of the competitive
recombinant alpha and beta interferon products.
General.
Other companies may succeed in developing products earlier than we do, obtaining
approvals for such products from the FDA more rapidly than we do, or developing
products that are more effective than those we may develop. While we will
attempt to expand our technological capabilities in order to remain competitive,
there can be no assurance that research and development by others or other
medical advances will not render our technology or products obsolete or
non-competitive or result in treatments or cures superior to any therapy we
develop.
Possible
side effects from the use of Ampligen® or Alferon N Injection® could adversely
affect potential revenues and physician/patient acceptability of our
product.
Ampligen®.
We believe that Ampligen® has been generally well tolerated with a low incidence
of clinical toxicity, particularly given the severely debilitating or life
threatening diseases that have been treated. A mild flushing reaction has
been observed in approximately 15-20% of patients treated in our various
studies. This reaction is occasionally accompanied by a rapid heart beat,
a tightness of the chest, urticaria (swelling of the skin), anxiety, shortness
of breath, subjective reports of “feeling hot”, sweating and nausea. The
reaction is usually infusion-rate related and can generally be controlled by
reducing the rate of infusion. Other adverse side effects include liver
enzyme level elevations, diarrhea, itching, asthma, low blood pressure,
photophobia, rash, transient visual disturbances, slow or irregular heart rate,
decreases in platelets and white blood cell counts, anemia, dizziness,
confusion, elevation of kidney function tests, occasional temporary hair loss
and various flu-like symptoms, including fever, chills, fatigue, muscular aches,
joint pains, headaches, nausea and vomiting. These flu-like side effects
typically subside within several months. One or more of the potential side
effects might deter usage of Ampligen® in certain clinical situations and
therefore, could adversely affect potential revenues and physician/patient
acceptability of our product.
Alferon N
Injection®. At present, Alferon N Injection® is only approved for the
intra-lesional (within the lesion) treatment of refractory or recurring external
genital warts in adults. In clinical trials conducted for the treatment of
genital warts with Alferon N Injection®, patients did not experience serious
side effects; however, there can be no assurance that unexpected or unacceptable
side effects will not be found in the future for this use or other potential
uses of Alferon N Injection® which could threaten or limit such product’s
usefulness.
We
may be subject to product liability claims from the use of Ampligen®, Alferon N
Injection®, or other of our products which could negatively affect our future
operations. We have discontinued product liability insurance.
We face
an inherent business risk of exposure to product liability claims in the event
that the use of Ampligen® or other of our products results in adverse
effects. This liability might result from claims made directly by
patients, hospitals, clinics or other consumers, or by pharmaceutical companies
or others manufacturing these products on our behalf. Our future
operations may be negatively affected from the litigation costs, settlement
expenses and lost product sales inherent to these claims. While we will
continue to attempt to take appropriate precautions, we cannot assure that we
will avoid significant product liability exposure.
On
November 28, 2008, we suspended product liability insurance for Alferon N
Injection® and Ampligen®. We now require third parties to indemnify us in
conjunction with all overseas emergency sales of Ampligen® and Alferon®
LDO. We concluded that years of successfully addressing the limited number
of product liability claims filed against Ampligen® and Alferon® LDO, combined
with the informed consent and other patient waivers completed as an element of
clinical trials, and the lack of any commercial sales since April 2008, that
temporarily discontinuing the liability insurance was an acceptable risk until
we receive regulatory clearance for Ampligen® or Alferon® LDO or until Alferon N
Injection® again becomes available.
Currently,
without product liability coverage for Ampligen®, Alferon N Injection® and
Alferon® LDO, a claim against the products could have a materially adverse
effect on our business and financial condition.
The
loss of services of key personnel including Dr. William A. Carter could hurt our
chances for success.
Our
success is dependent on the continued efforts of our staff, especially certain
doctors and researchers along with the continued efforts of Dr. William A.
Carter because of his position as a pioneer in the field of nucleic acid drugs,
his being the co-inventor of Ampligen®, and his knowledge of our overall
activities, including patents and clinical trials. The loss of the
services of Dr. Carter or other personnel key to our operations, could have a
material adverse effect on our operations and chances for success. As a
cash conservation measure, we have elected to discontinue the Key Man life
insurance on the life of Dr. Carter. An employment agreement continues to
exist with Dr. Carter that, as amended, runs until December 31, 2010.
However, Dr. Carter has the right to terminate his employment upon not less than
30 days prior written notice. The loss of Dr. Carter or other key
personnel or the failure to recruit additional personnel as needed could have a
materially adverse effect on our ability to achieve our objectives.
Uncertainty
of health care reimbursement for our products.
Our
ability to successfully commercialize our products will depend, in part, on the
extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health coverage insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and from time to time legislation is proposed, which, if adopted,
could further restrict the prices charged by and/or amounts reimbursable to
manufacturers of pharmaceutical products. We cannot predict what, if any,
legislation will ultimately be adopted or the impact of such legislation on
us. There can be no assurance that third party insurance companies will
allow us to charge and receive payments for products sufficient to realize an
appropriate return on our investment in product development.
There
are risks of liabilities associated with handling and disposing of hazardous
materials.
Our
business involves the controlled use of hazardous materials, carcinogenic
chemicals, flammable solvents and various radioactive compounds. Although
we believe that our safety procedures for handling and disposing of such
materials comply in all material respects with the standards prescribed by
applicable regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident or the failure to comply with applicable regulations, we could be held
liable for any damages that result, and any such liability could be
significant. We do not maintain insurance coverage against such
liabilities.
A
Number of Purported Class Action Lawsuits Have Been Filed Against Us and We May
Be Subject to Civil Liabilities.
A number
of purported class action lawsuits have been filed against us alleging
securities fraud. The complaints seek monetary damages, costs, attorneys’ fees,
and other equitable and injunctive relief. Securities class action suits and
derivative suits are often brought against companies following periods of
volatility in the market price of their securities. Defending against these
suits, even if meritless, can result in substantial costs to us and could divert
the attention of our management.
The
existence of these proceedings could have a material adverse effect on our
ability to access the capital markets to raise additional funds. While
management believes that the lawsuits are without merit, we cannot predict or
determine the timing or final outcomes of the lawsuits and are unable to
estimate the amount or range of loss that could result from unfavorable
outcomes. Adverse results in some or all of these legal proceedings could
be material to our results of operations, financial condition or cash
flows.
Risks
Associated With an Investment in Our Common Stock
The
market price of our stock may be adversely affected by market
volatility.
The
market price of our common stock has been and is likely to be volatile.
This is especially true given the current significant instability in the
financial markets. In addition to general economic, political and market
conditions, the price and trading volume of our stock could fluctuate widely in
response to many factors, including:
|
|
·
|
announcements
of the results of clinical trials by us or our
competitors;
|
|
|
·
|
announcement
of legal actions against us and/or settlements or verdicts adverse to
us;
|
|
|
·
|
adverse
reactions to products;
|
|
|
·
|
governmental
approvals, delays in expected governmental approvals or withdrawals
of any prior governmental approvals or public or regulatory agency
comments regarding the safety or effectiveness of our products, or the
adequacy of the procedures, facilities or controls employed in the
manufacture of our products;
|
|
|
·
|
changes
in U.S. or foreign regulatory policy during the period of product
development;
|
|
|
·
|
developments
in patent or other proprietary rights, including any third party
challenges of our intellectual property
rights;
|
|
|
·
|
announcements
of technological innovations by us or our
competitors;
|
|
|
·
|
announcements
of new products or new contracts by us or our
competitors;
|
|
|
·
|
actual
or anticipated variations in our operating results due to the level of
development expenses and other
factors;
|
|
|
·
|
changes
in financial estimates by securities analysts and whether our earnings
meet or exceed the estimates;
|
|
|
·
|
conditions
and trends in the pharmaceutical and other
industries;
|
|
|
·
|
new
accounting standards;
|
|
|
·
|
overall
investment market fluctuation; and
|
|
|
·
|
occurrence
of any of the risks described in these "Risk
Factors".
|
Our
common stock is listed for quotation on the NYSE Amex. For the 12 month
period ended December 31, 2009, the closing price of our common stock has ranged
from $0.32 to $3.75 per share. We expect the price of our common stock to
remain volatile. The average daily trading volume of our common stock
varies significantly.
In the
past, following periods of volatility in the market price of the securities of
companies in our industry, securities class action litigation has often been
instituted against companies in our industry. In this regard, please
see “
A Number of Purported
Class Action Lawsuits Have Been Filed Against Us and We May Be Subject to Civil
Liabilities
” above.
Our
stock price may be adversely affected if a significant amount of shares are sold
in the public market.
In May
2009 we issued an aggregate of 25,543,339 shares and warrants to purchase an
additional 14,708,687 shares under a universal shelf registration
statement. 4,895,000 of these warrants have been exercised as of December
31, 2009. Depending upon market conditions, we anticipate selling
9,813,687 shares pursuant to the conversion of remaining warrants.
In
addition to the foregoing, we registered with the SEC on September 29, 2009,
1,038,527 shares issuable upon exercise of certain other warrants. To the
extent the exercise price of our outstanding warrants is less than the market
price of the common stock, the holders of the warrants are likely to exercise
them and sell the underlying shares of common stock and to the extent that the
exercise price of certain of these warrants are adjusted pursuant to
anti-dilution protection, the warrants could be exercisable or convertible for
even more shares of common stock. We also may issue shares to be used to
meet our capital requirements or use shares to compensate employees, consultants
and/or directors. In this regard we have registered $150,000,000 of
securities for public sale pursuant to a universal shelf registration, none of
which has been designated or issued. We are unable to estimate the amount,
timing or nature of future sales of outstanding common stock or instruments
convertible into or exercisable for our common stock.
Sales of
substantial amounts of our common stock in the public market, including our sale
of securities pursuant to the universal shelf registration statement, could
cause the market price for our common stock to decrease. Furthermore, a
decline in the price of our common stock would likely impede our ability to
raise capital through the issuance of additional shares of common stock or other
equity securities.
Provisions
of our Certificate of Incorporation and Delaware law could defer a change of our
management which could discourage or delay offers to acquire
us.
Provisions
of our Certificate of Incorporation and Delaware law may make it more difficult
for someone to acquire control of us or for our stockholders to remove existing
management, and might discourage a third party from offering to acquire us, even
if a change in control or in Management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to
issue shares of preferred stock without any vote or further action by our
stockholders. Our Board of Directors has the authority to fix and
determine the relative rights and preferences of preferred stock. Our
Board of Directors also has the authority to issue preferred stock without
further stockholder approval. As a result, our Board of Directors could
authorize the issuance of a series of preferred stock that would grant to
holders the preferred right to our assets upon liquidation, the right to receive
dividend payments before dividends are distributed to the holders of common
stock and the right to the redemption of the shares, together with a premium,
prior to the redemption of our common stock. In this regard, in November
2002, we adopted a Stockholder Rights Plan (“Rights Plan”) and, under the Rights
Plan, our Board of Directors declared a dividend distribution of one Right for
each outstanding share of Common Stock to stockholders of record at the close of
business on November 29, 2002. Each Right initially entitles holders to
buy one-hundredth unit of preferred stock for $30.00. The Rights generally
are not transferable apart from the common stock and will not be exercisable
unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock.
However, for Dr. Carter, our Chief Executive Officer, who already beneficially
owns 5.4% of our common stock, the Rights Plan’s threshold will be 20%, instead
of 15%. The Rights Plan will expire on November 19, 2012, and may be
redeemed prior thereto at $.01 per Right under certain
circumstances.
Special
Note Regarding Forward Looking Statements
Because
the risk factors referred to above could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, you should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the
date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Our research in clinical
efforts may continue for the next several years and we may continue to incur
losses due to clinical costs incurred in the development of Ampligen® for
commercial application. Possible losses may fluctuate from quarter to
quarter as a result of differences in the timing of significant expenses
incurred and receipt of licensing fees and/or cost recovery treatment
revenue.
ITEM
1B. Unresolved Staff Comments.
None.
ITEM
2. Properties.
We
currently lease our headquarters located in Philadelphia, Pennsylvania
consisting of a suite of offices of approximately 9,000 square feet. We
also currently own, occupy and use our New Brunswick, New Jersey laboratory and
production facility that we acquired from ISI. These facilities consist of
two buildings located on 2.8 acres. One building is a two story facility
consisting of a total of 31,300 square feet. This facility contains
offices, laboratories, production space and shipping and receiving areas.
It also contains space designated for research and development, our pharmacy,
packaging, quality assurance and quality control laboratories. Building Two has
11,670 square feet consisting of offices, laboratories and warehouse
space. The property has parking space for approximately 100
vehicles.
ITEM
3. Legal Proceedings.
Please
see “Note 14 – Contingencies” under Notes to Consolidated Financial
Statements.
ITEM
4. Removed and Reserved
PART
II
ITEM
5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
In 2009,
we issued shares of common stock consisting of 1) 1,514,272 shares in payment to
vendors and consultants for services rendered; 2) 11,862,866 shares issued
pursuant to the 2008 Purchase Agreement with Fusion; and 3) 426,136 shares to
our Directors pursuant to our Directors’ Compensation Program. In
addition, in February 2009, we issued an aggregate of 980,392 warrants with an
expiration period of ten years and exercise price of $0.51 per share to Dr.
Carter and Mr. Equels, pursuant to the terms of the Standby Financing
Agreement
.
The
foregoing issuances of securities were private transactions and exempt from
registration under section 4(2) of the Securities Act and/or regulation D rule
506 promulgated under the Securities Act.
Since
October 1997 our common stock has been listed and traded on the NYSE Amex under
the symbol HEB. The following table sets forth the high and low list
prices for our Common Stock for the last two fiscal years as reported by the
NYSE Amex. Such prices reflect inter-dealer prices, without retail
mark-up, mark-downs or commissions and may not necessarily represent actual
transactions.
|
COMMON STOCK
|
High
|
Low
|
||||||
|
Time Period:
|
||||||||
|
January
1, 2009 through March 31, 2009
|
0.84 | 0.26 | ||||||
|
April
1, 2009 through June 30, 2009
|
4.54 | 0.44 | ||||||
|
July
1, 2009 through September 30, 2009
|
3.58 | 1.86 | ||||||
|
October
1, 2009 through December 31, 2009
|
2.16 | 0.54 | ||||||
|
January
1, 2008 through March 31, 2008
|
0.89 | 0.59 | ||||||
|
April
1, 2008 through June 30, 2008
|
1.00 | 0.62 | ||||||
|
July
1, 2008 through September 30, 2008
|
1.20 | 0.25 | ||||||
|
October
1, 2008 through December 31, 2008
|
0.70 | 0.25 | ||||||
As of
March 1, 2010, there were approximately 220 holders of record of our Common
Stock. This number was determined from records maintained by our transfer
agent and does not include beneficial owners of our securities whose securities
are held in the names of various dealers and/or clearing agencies.
On March
1, 2010, the last sale price for our common stock on the NYSE Amex was $0.69 per
share.
We have
not paid any cash dividends on our Common Stock in recent years. It is
management's intention not to declare or pay dividends on our Common Stock, but
to retain earnings, if any, for the operation and expansion of our
business.
The
following table gives information about our Common Stock that may be issued upon
the exercise of options, warrants and rights under all of our equity
compensation plans as of December 31, 2009:
|
Plan Category
|
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
|
Weighted-average
Exercise price of
Outstanding
options, warrants
and rights
|
Number of
securities
Remaining
available for
future issuance
under equity
compensation
plans(excluding
securities
reflected in
column (a))
|
|||||||||
|
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity
compensation plans approved by security holders:
|
8,797,912 | $ | 2.60 | 13,755,325 | ||||||||
|
Equity
compensation plans not approved by security holders:
|
11,008,246 | $ | 1.44 | - | ||||||||
|
Total
|
19,806,158 | $ | 1.96 | 13,755,325 | ||||||||
Performance
Graph
Total
Return To Shareholders
(Includes
reinvestment of dividends)
|
ANNUAL
RETURN PERCENTAGE
|
||||||||||||||||||||
|
Years
Ending
|
||||||||||||||||||||
|
Company Name / Index
|
Dec 05
|
Dec 06
|
Dec 07
|
Dec 08
|
Dec 09
|
|||||||||||||||
|
Hemispherx
Biopharma, Inc.
|
14.21 | 1.38 | -65.45 | -52.63 | 55.56 | |||||||||||||||
|
S&P
SmallCap 600 Index
|
7.68 | 15.12 | -0.30 | -31.07 | 25.57 | |||||||||||||||
|
Peer
Group
|
-7.61 | 12.86 | -28.20 | -67.93 | 78.77 | |||||||||||||||
ITEM
6. Selected Financial Data (in thousands except for share and per share
data).
The selected consolidated financial
data set forth below should be read in conjunction with our consolidated
financial statements, and the related notes thereto, and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”,
included in this Annual Report. The statement of operations and balance
sheet data presented below for, and as of the end of, each of the years in the
five year period ended December 31, 2009 are derived from our audited
consolidated financial statements. Historical results are not necessarily
indicative of the results to be expected in the future.
|
Year Ended
December 31
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||
|
Statement
of Operations Data:
Revenues
and License fee Income
|
$ | 1,083 | $ | 933 | $ | 1,059 | $ | 265 | $ | 111 | ||||||||||
|
Total
Costs and Expenses
(1)
|
10,998 | 19,627 | 20,348 | 13,076 | 13,375 | |||||||||||||||
|
Interest
Expense and Financing Costs
(2)
|
3,121 | 1,259 | 396 | - | 241 | |||||||||||||||
|
Net
loss
|
(12,446 | ) | (19,399 | ) | (18,139 | ) | (12,219 | ) | (13,438 | ) | ||||||||||
|
Deemed
Dividend
|
- | - | - | - | - | |||||||||||||||
|
Net
loss applicable to common stockholders
|
(12,446 | ) | (19,399 | ) | (18,139 | ) | (12,219 | ) | (13,438 | ) | ||||||||||
|
Basic
and diluted net loss per share
|
$ | (0.24 | ) | $ | (0.31 | ) | $ | (0.25 | ) | $ | (0.16 | ) | $ | (0.12 | ) | |||||
|
Shares
used in computing basic and diluted net loss per share
|
51,475,192 | 61,815,358 | 71,839,782 | 75,142,075 | 109,514,401 | |||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||
|
Working
Capital
|
$ | 16,353 | $ | 16,559 | $ | 14,412 | $ | 5,646 | $ | 55,789 | ||||||||||
|
Total
Assets
|
24,654 | 31,431 | 23,142 | 13,211 | 64,994 | |||||||||||||||
|
Debt,
net of discount
|
4,171 | 3,871 | - | - | - | |||||||||||||||
|
Stockholders’
Equity
|
18,627 | 24,751 | 20,955 | 11,544 | 62,379 | |||||||||||||||
|
Cash
Flow Data:
|
||||||||||||||||||||
|
Cash
used in operating activities
|
(7,231 | ) | (13,747 | ) | (15,112 | ) | (9,358 | ) | (9,297 | ) | ||||||||||
|
Capital
expenditures
|
$ | (1,002 | ) | $ | (1,351 | ) | $ | (212 | ) | $ | (73 | ) | $ | (332 | ) | |||||
|
(1)
|
General
and Administrative expenses include stock compensation expense of $391,
$2,483, $2,291, $573 and $826 for the years ended December 31, 2005, 2006,
2007, 2008 and 2009, respectively.
|
|
(2)
|
For
information concerning our financing see Note 6 to our consolidated
financial statements for the year ended December 31, 2009 contained
herein.
|
ITEM
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The
following discussion and analysis is related to our financial condition and
results of operations for the three years ended December 31, 2009. This
information should be read in conjunction with Item 5 – “Selected Financial
Data” and our consolidated financial statements and related notes thereto
beginning on F-1 of this Form 10-K.
Statement
of Forward-Looking Information
Certain
statements in the section are “forward-looking statements”. You should
read the information before Item 1B above, “Special Note” Regarding
Forward-Looking Statements” for more information about our presentation of
information.
Background
We are a
specialty pharmaceutical company based in Philadelphia, Pennsylvania and engaged
in the clinical development of new drug therapies based on natural immune system
enhancing technologies for the treatment of viral and immune based chronic
disorders. Our flagship products include Alferon N Injection® and the
experimental therapeutics Ampligen®. Alferon N Injection® is approved for
a category of STD infection, and Ampligen® represents an experimental RNA
nucleic acids being developed for globally important viral diseases and
disorders of the immune system. Hemispherx' platform technology includes
large and small agent components for potential treatment of various severely
debilitating and life threatening diseases. We have 38 patents comprising
our core intellectual property estate, a product (Alferon N Injection®) and cGMP
certified manufacturing facilities for our novel pharmaceutical
products.
We have
reported net income only from 1985 through 1987. Since 1987, we have
incurred, as expected, substantial operating losses due to our conducting
research and development programs.
RESULTS
OF OPERATIONS
Year
ended December 31, 2009 versus December 31, 2008
Net Loss
Our net
loss of approximately $13,438,000 for the year ended December 31, 2009 was 10.0%
higher when compared to the same period in 2008. This $1,219,000 increase
in loss was primarily due to:
|
1)
|
Increased
Research and Development costs in 2009 of approximately $1,195,000 or 21%
as compared to the same period in
2008.
|
|
2)
|
Sales
of Alferon N Injection® for 2008 of approximately $173,000 compared to no
sales recorded in 2009.
|
|
3)
|
Decreased
interest and other income in 2009 of approximately $525,000 or 89% as
compared to the same period in
2008.
|
|
4)
|
Increased
non-cash financing costs of $241,000 in 2009 in the form of Common Stock
Commitment Warrants incurred as a result of the February 2009
implementation of the Standby Financing Agreement. No agreement of
this type was in effect during
2008.
|
|
5)
|
Decreased
Production/Cost of Goods Sold in 2009 of approximately $214,000 or 27% and
decreased General and Administrative expenses of approximately $682,000 or
11% as compared to the same period in 2008.
|
Net loss per share for the year ended
2009 was $(0.12) versus $(0.16) for the same period in 2008.
Revenues
There
were no revenues related to the sale of Alferon N Injection® for the twelve
month period ended 2009 while there were approximately $173,000 of sales for the
same period of 2008. Revenues from our Ampligen® cost recovery treatment
program for the year ended December 31, 2009 were approximately $111,000
compared to revenues of $92,000 for the same period in 2008, an increase of
$19,000 or 21% for approximately the same number of patients participating in
the program. Commercial sales of Alferon N Injection® were halted in March
2008 as the expiration date of our Finished Goods Inventory expired in March
2008. As a result, we have no Alferon N Injection® product to commercially
sell in 2009 and all revenue in 2009 has been generated from Ampligen® cost
recovery clinical treatment programs.
In 2008
and 2009 production of Alferon N Injection® had been put on hold due to the
resources needed to prepare our New Brunswick facility for the FDA preapproval
inspection with respect to our Ampligen® NDA. We now have the financial
resources to commence manufacturing upgrades that will be undertaken throughout
2010. As a result, Alferon N Injection® could be available for commercial
sales in mid to late 2011.
Production/Cost of Goods
Sold
Production/Cost
of Goods Sold was approximately $584,000 and $798,000, respectively, for the
twelve months ended December 31, 2009 and 2008. This represents a decrease
of $214,000 or 27% as compared to the same period in 2008. These expenses
primarily represent the costs to maintain Alferon N Injection® and Ampligen®
inventories including storage, stability testing, transport and reporting costs
including Ampligen® NDA work undertaken in 2008. Additionally, there was a
reduction in Cost of Goods Sold for 2009 due to the lack of Alferon N Injection®
sales.
Research and Development
Costs
Overall
Research and Development costs for the year ended December 31, 2009 were
approximately $6,995,000 as compared to $5,800,000 for the same period a year
ago reflecting an increase of $1,195,000 or 21%. 2009’s Research and
Development costs include the write-off of approximately $214,000 for patents
that Management either has not renewed the rights to or deemed no longer of
value and/or material to future operations. Additionally, Research and
Development costs increased approximately $254,000 due to Research and Clinical
employees participating in the Employee Wage Or Hour Reduction Program (see
“Liquidity and Capital Resources” below for details), approximately $386,000 to
evaluate and begin to ready the New Brunswick Plant for production and a net
increase of $341,000 in comparing 2009 to 2008 expenses related to the efforts
of employees in responding to the FDA and 2009 issued bonus awards.
During
2008 and 2009, we spent considerable time and effort preparing for the
preapproval inspection by the FDA of manufacturing of Ampligen® product and its
raw materials, polynucleotides Poly I and Poly C
12
U. A
satisfactory recommendation from the FDA Office of Compliance based upon an
acceptable preapproval inspection is required prior to approval of the
product. The preapproval inspection determines compliance with current
Good Manufacturing Practices (“cGMP”) as well as a product specific evaluation
concerning the manufacturing process of product. The inspection includes
many aspects of the cGMP requirements, such as manufacturing process validation,
equipment qualification, analytical method validation, facility cleaning,
quality systems, documentation system and part 11 compliance. In its
November 25, 2009 CRL, the FDA described specific additional recommendations
related to the Ampligen® NDA. The FDA reviewers determined that they could
not approve the application in its present form and provided specific
recommendations to address the outstanding issues.
On September 19, 2008, we
executed an agreement with Lovelace Respiratory Research Institute (“Lovelace”)
in Albuquerque, New Mexico to perform certain animal toxicity studies in support
of our
Ampligen® NDA. These
studies were requested by the FDA and have been done in collaboration with the
resources of the New Brunswick facility.
On January 14, 2010, we
submitted reports of new preclinical data regarding Ampligen® for potential
treatment of CFS to the FDA which we believe to be sufficient to address certain
preclinical issues referenced in the CRL. The new preclinical data showed
no evidence of antibodies against Ampligen® in primates and no evidence of an
increase in certain undesirable cytokines (specific modulators of the immune
system) at clinically used doses of Ampligen® for CFS. Although most other
experimental immunomodulators have been associated with one or more features of
aberrant immune activity, including toll-like receptor activators (of which
Ampligen® is one), this was specifically not seen with Ampligen® in
primates.
We are
engaged in ongoing, experimental studies assessing the efficacy of Ampligen®,
Alferon N Injection® and Alferon® LDO against influenza viruses. As a
result, we have been focusing our resources on the studies being undertaken in
Japan and United States as well as the design of new Alferon® LDO studies for
both prevention and treatment of seasonal or pandemic
influenza.
General and Administrative
Expenses
General and Administrative (“G&A”)
expenses for the year ended December 31, 2009 and 2008 were approximately
$5,796,000 and $6,478,000, respectively, reflecting a decrease of $682,000 or
11%. This decrease relates primarily to the effect of the cash
conservation and cost reduction program implemented in January 2009.
Accordingly, areas of expenses were reduced including legal fees of
approximately $440,000, stock compensation of approximately $220,000, accounting
and related fees of approximately $214,000, a reduction in personnel costs of
approximately $259,000 along with reduced expenses of approximately $433,000
related to discontinuation of sales of Alferon®. These cost savings were
somewhat offset by an increase of approximately $130,000 of incremental non-cash
labor expenses resulting from G&A employees participating in the Employee
Wage Or Hour Reduction Program along with an increase of approximately $328,000
in financial consulting, security filings and transfer fees, approximately
$44,000 in costs related to the second round of stockholder voting and
approximately $387,000 in professional advisor fees.
Interest and Other
Income
Interest and other income decreased
approximately $525,000 or 89% during the twelve months ended December 30, 2009
as compared to the same period in 2008 due to reduction of Cash available to
invest during the first five months of 2009 at lower interest rates. While
we received an infusion of cash from the two Rodman deals in May 2009, along
with the receipt of additional cash from Fusion Capital in the third quarter of
2009, historically low interest rates existed for conservative investments
throughout 2009.
Interest Expense and
Financing Costs
We had no
interest expense for 2009 or 2008. In February 2009, we entered into a
Standby Financing Agreement that produced finance costs of $241,000 in Common
Stock Commitment Warrants for the twelve months ended December 31, 2009 for
which no agreement of this type existed during the prior period in 2008.
For detailed information on this agreement, please see “Standby Financing
Agreement” below.
Year
ended December 31, 2007 versus December 31, 2008
Net loss
Our net
loss of approximately $12,219,000 for the year ended December 31, 2008 was 33%
lower when compared to the same period in 2007. This $5,920,000 reduction
in loss was primarily due to:
|
1)
|
Decreased
research and development expenses in 2008 of approximately $4,644,000 as
compared to the same period in
2007.
|
|
2)
|
Alferon
N Injection® had no sales of Alferon N Injection® for the last nine months
of 2008. Sales of Alferon N Injection® for the twelve months ended
December 31, 2008 and 2007 amounted to approximately $173,000 and
$925,000, respectively for a reduction of $752,000 or
81%.
|
|
3)
|
Decreased
general and administrative expenses of approximately $2,496,000 during the
twelve months ended December 31, 2008 versus the same period a
year.
|
|
4)
|
Decreased
interest and other income of $608,000 or 51% for the twelve months ended
December 31, 2008 as compared to the same period in
2007.
|
|
5)
|
Decreased
Production/Cost of Goods Sold in 2008 of $132,000 being applied to
Inventory due to the halting of Alferon® N
production.
|
|
6)
|
In
September 2007, an increase of $346,000 in other income occurred due to
the reversal of accrued liquidated damages in 2006 with respect to our
debentures.
|
Net loss per share was $(0.16) for the
12 month period 2008 versus $(0.25) for the same period in
2007.
Revenues
Revenues for the year ended December
31, 2008 were $265,000 as compared to revenues of $1,059,000 for the same period
in 2007. Ampligen® sold under the cost recovery clinical program was down
$42,000 and Alferon N Injection® sales were down $752,000 or 81% as compared to
the prior period.
Ampligen®
sold under the cost recovery clinical program is a product of physicians and
ME/CFS patients applying to us to enroll in the program. This program has
been in effect for several years and is offered as a treatment option to
patients severely affected by CFS. As the name “cost recovery” implies, we
have no gain or profit on these sales. The benefits to us include 1)
physicians and patients becoming familiar with Ampligen®; and 2) collection of
clinical data relating to the patients’ treatment and results. Revenues
from our Ampligen® cost recovery program were down 32% as fewer patients are
participating in the program. Our clinical staff has not encouraged cost
recovery clinical enrollments in order that our internal resources could address
the Ampligen® NDA and related documents preparatory to filing for a full
commercial license.
The
primary reason for the 81% drop in the sales Alferon® for the twelve months
ended December 31, 2008 is that commercial sales of Alferon N Injection® were
halted in March 2008 as the expiration date of our finished good inventory
expired in March 2008. As a result, we had no product to sell for the last
nine months of 2008.
Production costs/cost of
goods sold
Production/cost
of goods sold was approximately $930,000 and $798,000, respectively, for the
twelve months ended December 31, 2007 and 2008. This represented a
decrease of approximately $132,000 or 14% as compared to the same period in
2007. These costs primarily represent: 1) costs of goods sold of
approximately $381,000 and $-0-, respectively, for the twelve months ended
December 31, 2007 and 2008; and 2) Costs to maintain Alferon N Injection®
Inventory including storage, stability testing and reporting costs incurred in
our attempt to have the FDA extend the commercial sales life of our Alferon N
Injection® Finished Goods. The primary reason for the decrease in cost of
goods sold can be attributed to the lack of Alferon N Injection® sales since
April 1, 2008 and its impact on costs of goods sold.
Research and Development
Costs
Overall
research and development costs for the twelve months ended December 31, 2008
were $5,800,000 as compared to $10,444,000 for the same period a year ago
reflecting a decrease of $4,644,000 or 44%. This decrease was primarily
due to reduced outside consulting fees and other costs related to the
preparation and filing of our NDA for Ampligen®.
In 2008,
we spent considerable time and effort preparing for the preapproval inspection
by the FDA for manufacturing of Ampligen® product and its raw materials,
polynucleotides Poly I and Poly C
12
U. A
satisfactory recommendation from the FDA Office of Compliance based upon an
acceptable preapproval inspection is required prior to approval of the
product. The preapproval inspection determines compliance with current
Good Manufacturing Practices (“cGMP”) as well as a product specific evaluation
concerning the manufacturing process of product. The inspection includes
many aspects of the cGMP requirements, such as manufacturing process validation,
equipment qualification, analytical method validation, facility cleaning,
quality systems, documentation system and part 11 compliance.
General and Administrative
Expenses
General
and Administrative (“G&A”) expenses for the twelve months ended December 31,
2007 and 2008 were approximately $8,974,000 and $6,478,000, respectively,
reflecting a decrease of $2,496,000 or 28% primarily due to reductions in the
cost of non-cash stock compensation of $1,718,000, director fees for $137,000,
impairment charges of $526,000, accounting fees of $34,000 and various other
general administrative expenses that were partially offset by an increase of
legal fees for $635,000 resulting from litigation to settle existing
suits.
In 2007,
we incurred impairment charges amounting to $526,000 as compared to no such
charges in the current year. The primary reason for these charges stemmed
from the $228,000 write-down of a water purification system that was determined
to be unnecessary at our New Jersey facility due to a change in manufacturing
plans. Additionally in 2007, we wrote down the value of our intangible
asset associated with the repurchase of a 6% Royalty on Alferon N Injection®
sales by $298,000. We determined in 2007 that we did not have sufficient
inventory on hand to realize the full economic benefit of this asset; therefore,
it was written down to its net realizable value.
Reversal of Previously
Accrued Interest Expense
In
September 2007, an increase of $346,000 in other income occurred due to the
reversal of accrued liquidated damages in 2006 with respect to our debentures
holders. These damages related to certain debenture covenants were settled
without charge in the maturation and pay down of the debenture holder’s
outstanding loan balance in 2007.
Interest and Other
Income
Interest
and other income for the year ended December 31, 2007 and 2008 was $1,200,000
and $592,000, respectively, representing a decrease of $608,000 or 51%. The
decrease in interest and other income during the current period was mainly due
to a reduction in funds available for Short-Term Investments compounded by the
lower interest rates.
Interest Expense and
Financing Costs
We had no
interest expense or non-cash financing costs for the twelve months ended
December 31, 2008 as compared to $396,000 for the same period a year
prior. The expenses reflected for the year ended 2007 reflect financing
costs and interest charges related to our convertible debentures which matured
in June 2007 when all outstanding loan balances were paid.
Liquidity
and Capital Resources
Cash used
in operating activities for the year ended December 31, 2009 was $9,297,000
compared to $9,358,000 for the same period in 2008, a reduction of
$61,000. The cash used in operating activities was essentially flat and
did not change significantly. We had proceeds from financing activities of
approximately $61,824,000 compared to $270,000 during the twelve months ended
December 31, 2009 and 2008, respectively. As of December 31, 2009, we had
approximately $58,072,000 in Cash and Cash Equivalents or an increase of
approximately $51,953,000 from December 31, 2008.
In an
effort to conserve our cash, the Employee Wage Or Hours Reduction Program (the
“Program”) was ratified by our Board effective January 1, 2009. In a
mandatory program that was estimated to be in effect for up to six months,
compensation of all active full-time employees as of January 1, 2009
(“Participants”) were reduced through a reduction in their wages for which they
would be eligible to receive shares of our common stock (“Stock”) six months
after the shares were earned. While all employees were also offered the
option to reduce their work hours with a proportional decease in wages, of which
none elected this alternative.
On a
semi-monthly basis, Participants received rights to Stock (“Incentive Rights”)
that could not be traded. Six months after the date the Incentive Rights
were awarded, we established a process to have Incentive Rights converted into
Stock and issued to each Participant on a monthly basis. We established
and maintain a record for the number of Incentive Rights awarded to each
Participant. At the end of each semi-monthly period, we determined the
number of Incentive Rights by converting the proportionate incentive award to
the value of the Stock by utilizing the closing price of the Stock on the NYSE
Amex based on the average daily closing price for the period.
The Plan
was administered for full-time employees as follows:
|
o
|
Employees
earning $90,000 or less per year elected a wage reduction of 10% per annum
and received an incentive of two times the value in
Stock;
|
|
o
|
Employees
earning $90,001 to $200,000 per year elected a wage reduction of 25% per
annum received an incentive of two times the value in
Stock;
|
|
o
|
Employees
earning over $200,000 per year elected a wage reduction of 50% per annum
and received an incentive of three times the value in
Stock;
|
|
o
|
Any
employee could have elected a 50% per annum wage reduction which would
allow them to be eligible for an incentive award of three times the value
of Stock.
|
We worked
with Wachovia Securities, LLC to establish a trading account for each
Participant. Incentive Rights constitute income to the Participants and be
subject to payroll taxes upon Stock issuance. We will bear all expenses
related to selling the Stock at Wachovia Securities (i.e.; broker fees,
transaction costs, commissions, etc.) for payroll withholding tax
purposes. Thereafter, for each Participant that remains an active employee
during the period, we will continue to bear such costs from their Wachovia
Securities’ accounts for the maintenance of these account and all expenses
related to selling our Stock. Participants leaving us or voluntarily
separating from the Plan will receive the Stock earned upon the six month
conversion of their Incentive Rights. The Plan benefits for individuals
that are no longer Participants will become fixed and we will not continue to
bear such costs from the designated brokerage firm for the maintenance of an
account nor any expenses related to selling our stock except for the initial
costs associated to the selling of stock for payroll withholding tax
purposes.
The
Program was suspended as of May 31, 2009 with employees returning back to their
rate of pay from January 1, 2009. At the passage of six months for each of
their months of participation, non-affiliate employees have been issued shares
for the months ended July 31, August 31, September 30, October 30 and November
30, 2009. Individuals defined by Rule 144 in the Securities Act of 1933 as
an “affiliate” have yet to receive their distribution of stock from the
Program
.
In
addition, certain vendors and service providers have agreed to accept shares of
our Common Stock as partial payment of their bills. We issued 1,514,272
and 3,017,276 shares of common stock for services rendered in 2009 and 2008,
respectively.
We have
been using the proceeds from our financings with the assistance of
Rodman & Renshaw, LLC
(“Rodman”)
as placement agent and from
Fusion Capital Fund II,
LLC (“Fusion Capital”)
equity financing to fund operating expense and
infrastructure growth including preparation for manufacturing, regulatory
compliance and market development costs related to the FDA approval process for
Ampligen®. We were able to raise in the aggregate of approximately
$33,712,000 in equity financing pursuant to the two Rodman financings in May
2009 and an aggregate of approximately $28,111,700 in equity financing pursuant
to the Fusion Capital Agreement. For more details on the Rodman and Fusion
Capital financings, please see “Equity Financing” below.
Because
of our long-term capital requirements, we may seek to access the public equity
market whenever conditions are favorable, even if we do not have an immediate
need for additional capital at that time. We are unable to estimate the
amount, timing or nature of future sales of outstanding common stock or
instruments convertible into or exercisable for our common stock. Any
additional funding may result in significant dilution and could involve the
issuance of securities with rights, which are senior to those of existing
stockholders. We may also need additional funding earlier than
anticipated, and our cash requirements, in general, may vary materially from
those now planned, for reasons including, but not limited to, changes in our
research and development programs, clinical trials, competitive and
technological advances, the regulatory processes, including the commercializing
of Ampligen® products.
Notwithstanding
our cost and spending reduction activities, we may need to raise additional
funds through additional equity or debt financing or from other sources in order
to complete the necessary clinical trials and the regulatory approval processes
including the commercializing of Ampligen® products. There can be no
assurances that we will raise adequate funds from these or other sources,
especially considering current adverse market conditions, which may have a
material adverse effect on our ability to develop our products. Any
additional funding may result in significant dilution and could involve the
issuance of securities with rights, which are senior to those of existing
stockholders. We may also need additional funding earlier than
anticipated, and our cash requirements, in general, may vary materially from
those now planned, for reasons including, but not limited to, changes in our
research and development programs, clinical trials, competitive and
technological advances, the regulatory process, and higher than anticipated
expenses and lower than anticipated revenues from certain of our clinical trials
for which cost recovery from participants has been approved.
Standby Financing
Agreement
In
February 2009, we entered into a Standby Financing Agreement pursuant to which
certain individuals (“Individuals”), consisting of Dr. William Carter and Thomas
Equels, agreed to loan us up to an aggregate of $1,000,000 in funds should we be
unable to obtain additional financing, if needed. Under the Standby
Financing Agreement, we would use our best efforts in 2009 to obtain one or more
additional financing agreements on such terms as our Board deems to be
reasonable and appropriate in order to maintain our operations. If at any
time after December 1, 2009 and prior to June 30, 2010 a majority of our
independent Directors deems that in the event a financing of at least $2.5
Million has not been obtained and additional funds are needed to maintain our
operations, we would send written notice to each of the Individuals informing
them of the total amount of additional funds required and the specific amount
that would be required from each Individual. Such funding as prescribed by
the agreement was obtained in May 2009.
For
agreeing to be obligated to loan us money, each Individual received 10 year
warrants (the “Commitment Warrants”) to purchase our common stock at the rate of
$50,000 worth in warrants per $100,000 committed. The exercise price of
these warrants is $0.51 (125% of the market closing price of our Common Stock on
the date that Agreement was executed). These warrants vested
immediately.
Equity
Financing
On May 8,
2009, we entered into a letter agreement (the “Engagement Letter”) with Rodman
& Renshaw, LLC (“Rodman”) as placement agent, relating to a proposed
offering of our securities. The proceeds from the May 10 and 18, 2009
equity transactions are net of all related offering costs, including the fair
value of warrants issued.
On May 10, 2009, we entered into
Securities Purchase Agreements with two institutional investors.
Pursuant to the Securities Purchase Agreements, we issued to these
investors in the aggregate: (a) 13,636,363 shares of our common stock; (b)
Series I warrants to purchase an additional 6,136,363 shares of common stock at
an exercise price of $1.65 per share (“Series I Warrants”); and (c) Series II
warrants to purchase up to 3,000,000 shares of common stock at an exercise price
of $1.10 per share (“Series II Warrants”, and together with the Series I
Warrants, the “Warrants”). The Series I Warrants could be exercised at any
time on or after the six month anniversary of the May 18, 2009 closing date of
the offering and for a five year period thereafter. The Series II Warrants
could be exercised at any time on or after the May 18, 2009 date of delivery of
the Series II Warrants and for a period of 45 days thereafter. As of
December 31, 2009, all Series II Warrants were exercised and none of the Series
I Warrants have been exercised.
Rodman, as placement agent for the May
10, 2009 Securities Purchase Agreements, acted on a best efforts basis for the
offering and received a placement fee equal to $825,000 as well as Series I
Warrants to purchase 750,000 shares of our common stock equal at an exercise
price of $1.38 per share. The Series I Warrants can be exercised at any
time on or after the six month anniversary of the May 18, 2009 closing date of
the offering and for a five year period thereafter. Rodman also was
entitled to a fee equal to 5.5% of the Series II Warrants that were
exercised. As of December 31, 2009, Rodman received $165,000 in fees with
regard to the exercise of the Series II Warrants.
On May 18, 2009, we entered into
Securities Purchase Agreements with two institutional investors. Pursuant
to the Securities Purchase Agreements, we issued to these investors in the
aggregate: (a) 11,906,976 shares of common stock; and (b) warrants to purchase
an additional 4,167,440 shares of common stock at an exercise price $1.31 per
share (“Warrants”). The Warrants could be exercised at any time on or
after their May 21, 2009 date of issuance and for a five year period
thereafter. As of December 31, 2009, 1,895,000 of these Warrants had been
exercised.
Rodman, as placement agent for the May
18, 2009 Securities Purchase Agreements, acted on a best efforts basis for the
offering and received a placement fee equal to $797,500 as well as Warrants to
purchase 654,884 shares of common stock at an exercise price of $1.34375 per
share. The Warrants could be exercised at any time on or after the six
month anniversary of the May 21, 2009 closing date of the offering and for a
five year period thereafter.
Refer to
Note 17 -“Fair Value” under Notes to Consolidated Financial Statements for
further explanation of the warrants in these agreements. The warrants include a
cash settlement feature if certain conditions are met.
On July 2, 2008, we entered into a $30
million Common Stock Purchase Agreement (the "Purchase Agreement") with Fusion
Capital Fund II, LLC (“Fusion Capital”), an Illinois limited liability
company. Concurrently with entering into the Purchase Agreement, we
entered into a registration rights agreement with Fusion Capital. Under
the registration rights agreement, we filed a registration statement related to
the transaction with the U.S. Securities & Exchange Commission (“SEC”)
covering the shares that have been issued or may be issued to Fusion Capital
under the common stock purchase agreement. That registration statement was
declared effective by the SEC on August 12, 2008. As reported in the
registration statement related to the transaction, we had the right over a 25
month period from August 2008 to sell our shares of common stock to Fusion
Capital from time to time in amounts between $120,000 and $1 million depending
on certain conditions as set forth in the agreement, up to a maximum of $30
million. The purchase price of the shares related to the $30.0 million of
future funding was based on the prevailing market prices of our shares at the
time of sales as computed under the Purchase Agreement without any fixed
discount, and we had control of the timing and amount of any sales of shares to
Fusion Capital. However, Fusion Capital could not purchase any shares of
our common stock pursuant to the Purchase Agreement if the price of our common
stock had three trading days with an average value below $0.40 over the prior
twelve trading days. There were no negative covenants, restrictions on
future funding, penalties or liquidated damages in the agreement. In
consideration for entering into the Purchase Agreement, we issued to Fusion
Capital 650,000 shares as a commitment fee. Also, we were to issue to
Fusion Capital up to an additional 650,000 shares as a commitment fee pro rata
as we receive up to the $30.0 million of future funding. As of September
1, 2009, Fusion Capital had purchased the maximum number of shares that were
registered under the Registration Statement, an aggregate of 20,000,000 shares
for $28,111,695 and received 1,259,086 commitment shares, thereby in effect
exhausting the Purchasing Agreement.
Under the rules of the NYSE Amex, we
could issue no more than 14,823,651 shares (19.99% of our outstanding shares as
of July 2, 2008, the date of the purchase agreement) without first obtaining the
approval of stockholders. That approval was obtained on November 11,
2008. As of December 31, 2008, we had executed transactions pursuant the
Fusion Capital Stock Purchase Agreement valued at $270,000 and 1,211,122 shares,
which included 650,000 shares as the initial fee for the financing.
In April 2006 we entered into a prior
common stock purchase agreement with Fusion Capital, pursuant to which we sold
an aggregate of 10,682,032 shares for total gross proceeds of approximately
$19,739,000 through November, 2007. No purchases were made by Fusion
Capital in 2008 or 2009 under this agreement, which expired on July 31,
2008.
The proceeds from our financing has
been used to fund infrastructure growth including manufacturing, regulatory
compliance and market development.
Because
of our long-term capital requirements, we may seek to access the public equity
market whenever conditions are favorable, even if we do not have an immediate
need for additional capital at that time. In this regard we also have
previously registered $150,000,000 worth of our securities in a universal shelf
registration statement, none of which has been designated or issued. We
are unable to estimate the amount, timing or nature of future sales of
outstanding common stock or instruments convertible into or exercisable for our
common stock. Any additional funding may result in significant dilution
and could involve the issuance of securities with rights, which are senior to
those of existing stockholders. We may also need additional funding
earlier than anticipated, and our cash requirements, in general, may vary
materially from those now planned, for reasons including, but not limited to,
changes in our research and development programs, clinical trials, competitive
and technological advances, the regulatory processes, including the
commercializing of Ampligen® products.
There can be no assurances that we will
raise adequate funds from these or other sources, which may have a material
adverse effect on our ability to develop our products. Also, we have the
ability to curtail discretionary spending, including some research and
development activities, if required to conserve cash.
|
(dollars in thousands)
|
||||||||||||||||
|
Obligations Expiring by Period
|
||||||||||||||||
|
Contractual Cash
Obligations
|
||||||||||||||||
|
Total
|
2010
|
2011
|
2012
|
|||||||||||||
|
Operating
Leases
|
$ | 58 | $ | 58 | $ | -0- | $ | -0- | ||||||||
|
Total
|
$ | 58 | $ | 58 | $ | -0- | $ | -0- | ||||||||
New Accounting
Pronouncements
Refer to
“Note 2(i) – Recent Accounting Standards and Pronouncements” under Notes to
Consolidated Financial Statements.
Disclosure
About Off-Balance Sheet Arrangements
None.
Critical
Accounting Policies
Financial
Reporting Release No. 60 requires all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our significant accounting policies are described in the Notes to
Consolidated Financial Statements. The significant accounting policies that we
believe are most critical to aid in fully understanding our reported financial
results are the following:
Revenue
Revenue
from the sale of Ampligen® under cost recovery clinical treatment protocols
approved by the FDA is recognized when the treatment is provided to the
patient.
Revenues
from the sale of product are recognized when the product is shipped, as title is
transferred to the customer. We have no other obligation associated with our
products once shipment has occurred.
Inventories
We use
the lower of first-in, first-out (“FIFO”) cost or market method of accounting
for inventory.
Patents and
Trademarks
Patents
and trademarks are stated at cost (primarily legal fees) and are amortized using
the straight-line method over the estimated useful life of 17 years. We
review our patents and trademark rights periodically to determine whether they
have continuing value. Such review includes an analysis of the patent and
trademark’s ultimate revenue and profitability potential. In addition,
management’s review addresses whether each patent continues to fit into our
strategic business plans.
Stock Based
Compensation
Under
FASB ASC 718-Compensation-Stock Compensation (“ASC 718”) share-based
compensation cost is measured at the grant date, based on the estimated fair
value of the award, and is recognized as expense over the requisite service
period. We adopted the provisions of ASC-718, using a modified prospective
application. Under this method, compensation cost is recognized for all
share-based payments granted, modified or settled after the date of adoption, as
well as for any unvested awards that were granted prior to the date of
adoption.
The fair value of each option award is
estimated on the date of grant using a Black-Scholes option valuation
model. Expected volatility is based on the historical volatility of the
price of our common stock. The risk-free interest rate is based on U.S.
Treasury issues with a term equal to the expected life of the option. We
use uses historical data to estimate expected dividend yield, expected life and
forfeiture rates.
Concentration of Credit
Risk
Our
policy is to limit the amount of credit exposure to any one financial
institution and place investments with financial institutions evaluated as being
credit worthy, or in short-term money markets, which are exposed to minimal
interest rate and credit risks. At and since December 31, 2009, we have
had bank deposits and overnight repurchase agreements that exceed federally
insured limits.
Concentration
of credit risk, with respect to receivables, is limited through our credit
evaluation process. We do not require collateral on our receivables.
Our receivables historically consisted principally of amounts due from wholesale
drug companies. At December 31, 2009 there were no receivables and those
at December 31, 2008 were fully reserved as doubtful accounts.
Sales to
three large wholesalers represented approximately 77% of our total sales for the
year ended December 31, 2008. There were no sales for year ended December
31,2009.
Item
7A. Quantitative And Qualitative Disclosures About Market
Risk.
We had
approximately $58,072,000 in cash and cash equivalents at December 31,
2009. To the extent that our cash and cash equivalents exceed our near
term funding needs, we intend to invest the excess cash in money market accounts
or three to eighteen month financial instruments. We employ established
conservative policies and procedures to manage any risks with respect to
investment exposure.
ITEM
8. Financial Statements and Supplementary Data.
The
consolidated balance sheets as of December 31, 2008 and 2009, and our
consolidated statements of operations, changes in stockholders' equity and
comprehensive loss and cash flows for each of the years in the three year period
ended December 31, 2009, together with the report of McGladrey & Pullen,
LLP, independent registered public accountants, is included at the end of this
report. Reference is made to the "Index to Financial Statements and
Financial Statement Schedule" on page F-1.
ITEM
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
ITEM
9A. Controls and Procedures.
Effectiveness of Control
Procedures
As of
December 31, 2009, the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of our
Management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) promulgated
under the Securities Act of 1934, as amended, as of December 31, 2008. Our
disclosure controls and procedures are intended to ensure that the
information we are required to disclose in the reports that we file or submit
under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized
and reported within the time periods specified in the Securities Exchange
Commission’s rules and forms and (ii) accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer,
as the principal executive and financial officers, respectively, to allow final
decisions regarding required disclosures. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that the controls
and procedures were effective as of December 31, 2009 to ensure that material
information was accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Our management has
concluded that the financial statements included in this Form 10-K present
fairly, in all material respects our financial position, results of operations
and cash flows for the periods presented in conformity with accounting
principles generally accepted in the United States of America.
Changes in Internal
Cont
rol over
Financial Reporting
We made
no changes in our internal control over financial reporting during the last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Management’s Report on
Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Rules 13a-15(f) or
15d-15(f), under the Exchange Act. Internal control over financial
reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officers and affected by our Board of
Directors, management and other personnel, and to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii)provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on its financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2009. In making this assessment, management used the
criteria set forth in the framework established by the Committee of Sponsoring
Organizations of the Treadway Commission Internal Control—Integrated Framework,
(COSO). Based on this assessment, management has not identified any
material weaknesses as of December 31, 2009. A material weakness is a
control deficiency, or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected.
Management
has concluded that we did maintain effective internal control over financial
reporting as of December 31, 2009, based on the criteria set forth in “Internal
Control—Integrated Framework” issued by the COSO.
Our
internal control over financial reporting as of December 31, 2009 has been
audited by McGladrey and Pullen, LLP, an independent registered public
accounting firm, as stated in their report which appears herein.
ITEM
9B. Other Information.
None.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Hemispherx
Biopharma, Inc.
We have
audited Hemispherx Biopharma, Inc.’s internal control over financial reporting
as of December 31, 2009, based on criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Hemispherx Biopharma, Inc.’s management
is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company's internal control over financial reporting
based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (a)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(b) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (c) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Hemispherx Biopharma, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009
based on criteria established in
Internal
Control—Integrated
Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the December 31, 2009 consolidated financial
statements of Hemispherx Biopharma, Inc. and our report dated March 12,
2010 expressed an unqualified opinion.
/s/
McGladrey & Pullen, LLP
Blue
Bell, Pennsylvania
March
12, 2010
PART
III
Item
10. Directors and Executive Officers and Corporate
Governance.
The
following sets forth biographical information about each of our directors and
executive officers as of the date of this report:
|
Name
|
Age
|
Position
|
||
|
William
A. Carter, M.D.
|
72
|
Chairman,
Chief Executive Officer
|
||
|
Charles
T. Bernhardt, CPA
|
48
|
Chief
Financial Officer
|
||
|
David
R. Strayer, M.D.
|
64
|
Medical
Director, Regulatory Affairs
|
||
|
Robert
Dickey IV
|
54
|
Senior
Vice President
|
||
|
Carol
A. Smith, Ph.D.
|
58
|
Vice
President of Manufacturing Quality and Process
Development
|
||
|
Richard
C. Piani
|
81
|
Director
|
||
|
Thomas
K. Equels
|
57
|
Director,
Secretary and General Counsel
|
||
|
Katalin
Ferencz-Biro, Ph.D.
|
63
|
Senior
Vice President of Regulatory Affairs
|
||
|
William
M. Mitchell, M.D.
|
75
|
Director
|
||
|
Iraj
Eqhbal Kiani, N.D.
|
64
|
Director
|
||
|
Wayne
Springate
|
39
|
Vice
President of Operations
|
||
|
Russel
Lander, Ph.D.
|
|
59
|
|
Vice
President of Quality
Assurance
|
Each
director has been elected to serve until the next annual meeting of
stockholders, or until his earlier resignation, removal from office, death or
incapacity. Each executive officer serves at the discretion of the
Board of Directors, subject to rights, if any, under contracts of
employment.
WILLIAM A. CARTER, M.D.
, the
co-inventor of Ampligen®, joined us in 1978, and has served as: (a) our Chief
Scientific Officer since May 1989; (b) the Chairman of our Board of Directors
since January 1992; (c) our Chief Executive Officer since July 1993; (d) our
President since April, 1995; and (e) a director since 1987. From 1987
to 1988, Dr. Carter served as our Chairman. Dr. Carter was a leading
innovator in the development of human interferon for a variety of treatment
indications including various viral diseases and cancer. Dr. Carter received the
first FDA approval to initiate clinical trials on a beta interferon product
manufactured in the U.S. under his supervision. From 1985 to October
1988, Dr. Carter served as our Chief Executive Officer and Chief
Scientist. He received his M.D. degree from Duke University and
underwent his post-doctoral training at the National Institutes of Health and
Johns Hopkins University. Dr. Carter also served as Professor of Neoplastic
Diseases at Hahnemann Medical University, a position he held from 1980 to
1998. Dr. Carter served as Director of Clinical Research for
Hahnemann Medical University's Institute for Cancer and Blood Diseases, and as a
professor at Johns Hopkins School of Medicine and the State University of New
York at Buffalo. Dr. Carter is a Board certified physician and author
of more than 200 scientific articles, including the editing of various textbooks
on anti-viral and immune therapy.
CHARLES T. BERNHARDT
is a
Certified Public Accountant who has served as our Chief Financial Officer and
Chief Accounting Officer since January 1, 2009. He attained an
undergraduate in Accountancy from Villanova University and received a Masters’
Degree in Business Administration from West Chester University of
Pennsylvania. Mr. Bernhardt was formally the Director of Accounting
for Healthcare Division of Thomson Reuters, where he was responsible for their
accounting operations including the Physicians’ Desk Reference business and
shared financial services for the Healthcare and Scientific Divisions from 2006
to 2008. He was also the Regional Controller for Comcast Cable during
1999 to 2002, Director of Finance for TelAmerica Media for 2003 to 2006 and
earlier in his career a member of the Internal Audit management teams American
Stores Corporation and ICI Americas/Zeneca (currently AstraZeneca
Pharmaceuticals). In 1986, he became a C.P.A. licensed in
Pennsylvania and New Jersey while with public accounting’s “Big Four” firm of
KPMG.
DAVID R. STRAYER, M.D.
has
acted as our Medical Director since 1986. He has served as Professor
of Medicine at the Medical College of Pennsylvania and Hahnemann
University. Dr. Strayer is Board Certified in Medical Oncology and
Internal Medicine with research interests in the fields of cancer and immune
system disorders. He has served as principal investigator in studies
funded by the Leukemia Society of America, the American Cancer Society, and the
National Institutes of Health. Dr. Strayer attended the School of
Medicine at the University of California at Los Angeles where he received his
M.D. in 1972.
ROBERT DICKEY IV
has served
as
Senior Vice
President since June
2009
.
He has
approximately 15 years of previous experience in biotech management as a CFO,
COO and CEO following a career as an investment banker. His
experience spans startups to revenue stage companies involved in cancer and CNS
drug development, transplantation and computational drug design. Mr.
Dickey has specific expertise in fund raising, business development, project
management, restructuring and international operations. Previously he
spent 18 years as an investment banker, 14 of those at Lehman Brothers, with his
background evenly split between M&A and capital markets transactions across
a variety of industries. He has an undergraduate degree from
Princeton University and an MBA from The Wharton School, University of
Pennsylvania.
CAROL A. SMITH, Ph.D.
is Vice
President of Manufacturing Quality and Process Development who has served as our
Director of Manufacturing and Process Development from 1995 to 2003, as Director
of Operations from 1993 to 1995 and as the Manager of Quality Control from 1991
to 1993, with responsibility for the manufacture, quality control, process
development, technology transfer to contract manufacturers and the chemistry of
Ampligen®. Dr. Smith was Scientist/Quality Assurance Officer for
Virotech International, Inc. from 1989 to 1991 and Director of the Reverse
Transcriptase and Interferon Laboratories and a Clinical Monitor for Life
Sciences, Inc. from 1983 to 1989. She received her Ph.D. in Medical
Sciences with a concentration on Virology from the University of South Florida,
College of Medicine in 1980 and was an NIH post-doctoral fellow in the
Department of Microbiology and Virology at the Pennsylvania State University
College of Medicine from 1980 to 1983.
RICHARD C. PIANI
has been a
director since 1995. Mr. Piani has been employed as a principal
delegate for Industry to the City of Science and Industry, Paris, France, a
billion dollar scientific and educational complex. Mr. Piani provided consulting
to us in 1993, with respect to general business strategies for our European
operations and markets. Mr. Piani served as Chairman of Industrielle
du Batiment-Morin, a building materials corporation, from 1986 to
1993. Previously Mr. Piani was a Professor of International Strategy
at Paris Dauphine University from 1984 to 1993. From 1979 to 1985,
Mr. Piani served as Group Director in Charge of International and Commercial
Affairs for Rhone-Poulenc and from 1973 to 1979 he was Chairman and Chief
Executive Officer of Societe "La Cellophane", the French company which invented
cellophane and several other worldwide products. Mr. Piani has a Law
degree from Faculte de Droit, Paris Sorbonne and a Business Administration
degree from Ecole des Hautes Etudes Commerciales, Paris.
THOMAS K. EQUELS
has been a
director since 2008 and presently serves as our secretary, general counsel and
litigation counsel. Mr. Equels is the President and Managing Director
of the Equels Law Firm based in Miami Florida that focuses on
litigation. For over a quarter century, Mr. Equels has represented
national and state governments as well as companies in the banking, insurance,
aviation, pharmaceutical and construction industries. Mr. Equels
received his Juris Doctor degree with high honors from Florida State
University. He is a summa cum laude graduate of Troy University and
also obtained his Masters Degree from Troy. He is a member of the
Florida Bar Association, the American Bar Association and the Academy of Florida
Trial Lawyers.
WILLIAM M. MITCHELL, M.D., Ph.D.
has been a director since July 1998. Dr. Mitchell is a
Professor of Pathology at Vanderbilt University School of
Medicine. Dr. Mitchell earned a M.D. from Vanderbilt and a Ph.D. from
Johns Hopkins University, where he served as an Intern in Internal Medicine,
followed by a Fellowship at its School of Medicine. Dr. Mitchell has
published over 200 papers, reviews and abstracts dealing with viruses,
anti-viral drugs and immune responses to HIV infection. Dr. Mitchell
has worked for and with many professional societies, including the International
Society for Antiviral Research, the American Society of Biochemistry and
Molecular Biology, the American Society of Microbiology and government review
committees, among them the National Institutes of Health, AIDS and Related
Research Review Group. Dr. Mitchell previously served as one of our
directors from 1987 to 1989.
IRAJ EQHBAL KIANI, N.D.,
Ph.D
., was appointed to the Board of Directors on May 1,
2002. Dr. Kiani is a citizen of the United States and England that
resides in Newport, California. Dr. Kiani served in various local
government positions including the Mayor and Governor of Yasoi, Capital of
Boyerahmand, Iran. In 1970, Dr. Kiani moved to England, where he
established and managed several trading companies over a period of some 20
years. Dr. Kiani is a planning and logistic specialist who is now applying his
knowledge and experience to build a worldwide immunology network, which will use
our proprietary technology. Dr. Kiani received his Ph.D. degree from the
University of Ferdosi in Iran, ND from American University.
WAYNE S. SPRINGATE
is Vice
President of Operations and joined Hemispherx in 2002 as Vice President of
Business Development. Mr. Springate came on board when Hemispherx
acquired Alferon N Injection® and its New Brunswick, NJ manufacturing
facilities. He led the consolidation of our Rockville facility to our
New Brunswick location as well as coordinated the relocation of manufacturing
polymers from South Africa to our production facility in New
Brunswick. He was also responsible for preparing and having a
successful Preapproval Inspection by the FDA for our New Brunswick manufacturing
plant in connection with the filing of our Ampligen® NDA. Currently
he is managing a $4.4 million capital improvement budget to enhance our Alferon®
facility in accordance with current Good Manufacturing Practice (“cGMP”).
Previously, Mr.
Springate served as President for World Fashion Concepts in New York and oversaw
operations at several locations throughout the United States and
overseas. Mr. Springate assisted the CEO in details of operations on
a daily basis and was involved in all aspects of manufacturing, warehouse
management, distribution and logistics.
KATALIN FERENCZ-BIRO, Ph.D.
has served as Senior Vice President of Regulatory Affairs and Quality Assurance
Departments since January 2007. She served as the Director of
Regulatory Affairs and Quality Assurance from 2006 to 2007. Previously from 1987
to 2003, she served Interferon Sciences Inc, in various positions including
Senior Director of Regulatory Affairs, Quality Control and Quality Assurance
Departments, and official FDA contact for our FDA approved product, Alferon N
Injection®. Dr. Ferencz-Biro received her Ph.D. in Chemistry/
Biochemistry in 1972 from the University of Eötvös Lóránd, Budapest, Hungary,
and her M.S., in Chemistry and Biology in 1971 from University of Eötvös Lóránd,
Budapest, Hungary. She was a postdoctoral fellow from 1981-1984 in
Rutgers University, Center for Alcohol Studies, Piscataway, New
Jersey. She is an author and co-author of several scientific
publications, patents and presentations on the field of
biochemistry. Currently she is a member of Regulatory Affairs
Professionals Society.
RUSSEL J. LANDER, Ph.D
. is
Vice President Quality Assurance. Dr. Lander joined Hemispherx in
2005, assuming responsibility for CMC writing for the NDA filing of
Ampligen®. He subsequently served at the New Brunswick site as
Director of Quality Control and provided guidance to the efforts to improve and
validate the manufacturing process for the synthesis of Ampligen® polynucleotide
raw materials, Poly I and Poly C
12
U. He
is currently directing research and development activities in New
Brunswick. Dr. Lander was formerly employed at Merck and Co., Inc. in the
process development groups for drug development (1977-1991) and vaccines
(1991-2005). Dr. Lander received his Ph.D. in
Chemical/Biochemical Engineering from the University of Pennsylvania. He has
authored numerous scientific publications and invention disclosures.
Ransom W.
Etheridge, who has been associated with us for nearly 20 years, left our
employment when his agreement expired on December 31, 2009. Mr.
Etheridge first contributed to the Company in 1980 when he provided consulting
services and participated in negotiations with respect to our initial private
placement. Over time, his roles included service as our Secretary and
General Counsel as well as being on our Board of Directors from October 1997
through November 2008.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires our officers and directors, and persons who
own more than ten percent of a registered class of equity securities, to file
reports with the Securities and Exchange Commission reflecting their initial
position of ownership on Form 3 and changes in ownership on Form 4 or Form 5.
Based solely on a review of the copies of such Forms received by us, we found
that, during the fiscal year ended December 31, 2008, certain of our officers
and directors had not complied with all applicable Section 16(a) filing
requirements on a timely basis with regard to transactions occurring in
2009. Specifically, Dr. Carter, Dr. Strayer and Mr. Bernhardt each
filed four form 4 late concerning their receipt of five sets of Incentive Rights
through the “Employee Wage Or Hours Reduction Program” and Mr. Springate filed a
form 4 late related to his receipt of five sets of Incentive Rights through the
“Employee Wage Or Hours Reduction Program”; Mr. Bernhardt, Mr. Dickey and Mr.
Springate each filed late an initial Form 3; Mr. Equels filed three form 4 late
concerning five transactions; Dr. Kiani, Dr. Mitchell and Mr. Piani each have
two form 4 filed late regarding two transactions.
Audit Committee and Audit
Committee Expert
The Audit
Committee of our Board of Directors consists of Richard Piani, Committee
Chairman, William Mitchell, M.D. and Iraj Eqbal Kiani, N.D. Mr.
Piani, Dr. Mitchell, and Mr. Kiani are all determined by the Board of Directors
to be independent directors as required under Section 121B(2)(a) of the NYSE
Amex Company Guide. We do not have a financial expert as defined in
the SEC rules on the committee in the true sense of the
description. However, Mr. Piani has 40 years experience in business
and has served in senior level and leadership positions for international
businesses. His working experience includes reviewing and analyzing
financial statements and dealing with financial institutions. We
believe Mr. Piani, Dr. Mitchell, and Dr. Kiani to be independent of management
and free of any relationship that would interfere with their exercise of
independent judgment as members of this committee. The principal
functions of the Audit Committee are to (i) assist the Board in fulfilling its
oversight responsibility relating to the annual independent audit of our
consolidated financial statements and internal control over financial reporting,
the engagement of the independent registered public accounting firm and the
evaluation of the independent registered public accounting firm’s
qualifications, independence and performance, (ii) prepare the reports or
statements as may be required by NYSE Amex or the securities laws, (iii) assist
the Board in fulfilling its oversight responsibility relating to the integrity
of our financial statements and financial reporting process and our system of
internal accounting and financial controls, (iv) discuss the financial
statements and reports with management, including any significant adjustments,
management judgments and estimates, new accounting policies and disagreements
with management, and (v) review disclosures by our independent registered public
accounting firm concerning relationships with us and the performance of our
independent accountants.
Code of
Ethics
Our Board
of Directors adopted a revision to the Code of Ethics and business conduct for
officers, directors, employees, agents and consultants on October 15,
2009. The principal amendments included broadening the Code's application
to our agents and consultants, adoption of a regulatory compliance policy and
adoption of a policy for protection and use of Company computer technology for
business purposes only. This Code has been presented, reviewed and signed
by each officer, director and employee and strategic consultants with none of
the amendments constituting a waiver of provision of the Code of Ethics on
behalf of the our Chief Executive Officer, Chief Financial Officer, Controller,
or persons performing similar functions.
You may
obtain a copy of this code by visiting our web site at www.hemispherx.net
(Investor Relations / Corporate Governance) or by written request to our office
at 1617 JFK Boulevard, Suite 660, Philadelphia, PA 19103.
Item
11. Executive Compensation.
Information
concerning the compensation of directors and executive officers will be provided
under the headings “Directors’ Compensation”, “Compensation Discussion and
Analysis” and “Executive Compensation” in the Proxy Statement for our 2010
annual meeting of stockholders. This document will be filed with the
Securities and Exchange Commission no later than 120 days after the end of our
fiscal year and the information under those headings is hereby incorporated by
reference.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
The
following table sets forth as of March 1, 2010, the number and percentage of
outstanding shares of common stock beneficially owned by:
|
|
·
|
Each
person, individually or as a group, known to us to be deemed the
beneficial owners of five percent or more of our issued and outstanding
common stock;
|
|
|
·
|
each
of our directors and the Named Executives;
and
|
|
|
·
|
all
of our officers and directors as a
group.
|
As of
March 1, 2010, there were no other persons, individually or as a group, known to
us to be deemed the beneficial owners of five percent or more of our issued and
outstanding common stock. “Incentive Rights” are rights to receive common
stock issuable upon exercise under our “Employee Wage Or Hours Reduction
Program” that was in effect from January 1, 2009 to May 31, 2009 (see “
Liquidity and Capital
Resources
” in Part II, Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations).
|
Name and Address of
Beneficial Owner
|
Shares Beneficially
Owned
|
% Of Shares
Beneficially Owned
|
||||||
|
William
A. Carter, M.D.
|
7,565,360 | (1)(2) | 5.4 | % | ||||
|
Richard
C. Piani
|
||||||||
|
97
Rue Jeans-Jaures
|
757,420 | (3) | * | |||||
|
Levaillois-Perret
|
||||||||
|
France
92300
|
||||||||
|
Charles
T. Bernhardt CPA
|
265,214 | (4) | * | |||||
|
Thomas
K. Equels
|
1,428,622 | (5) | 1.1 | % | ||||
|
William
M. Mitchell, M.D.
|
||||||||
|
Vanderbilt
University
|
||||||||
|
Department
of Pathology
|
616,025 | (6) | * | |||||
|
Medical
Center North
|
||||||||
|
21
st
and Garland
|
||||||||
|
Nashville,
TN 37232
|
||||||||
|
Iraj
Eqhbal Kiani, N.D., Ph.D.
|
||||||||
|
Orange
County Immune Institute
|
||||||||
|
18800
Delaware Street
|
323,271 | (7) | * | |||||
|
Huntingdon
Beach, CA 92648
|
||||||||
|
David
R. Strayer, M.D.
|
471,832 | (8) | * | |||||
|
Wayne
Springate
|
235,525 | (9) | * | |||||
|
Robert
Dickey, IV
|
152,500 | (10) | * | |||||
|
Russel
Lander, Ph.D.
|
168,073 | (11) | * | |||||
|
Katalin
Ferencz-Biro, Ph.D.
|
15,000 | (12) | * | |||||
|
Carol
A. Smith, Ph.D.
|
87,999 | (13) | * | |||||
|
All
directors and executive officers as a group (12 persons)
|
12,086,841 | 9.1 | % | |||||
*
Ownership of less than 1%
|
(1)
|
Dr.
Carter is our Chairman and Chief Executive Officer. He owns 487,960
shares of common stock and beneficially owns 7,075,256 shares issuable or
issued upon exercise of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
|||||||||
|
Options
|
|||||||||||||
|
1990
|
08/08/91
|
$ | 2.71 | 73,728 |
12/31/10
|
||||||||
|
1990
|
12/03/01
|
$ | 4.03 | 10,000 |
01/03/11
|
||||||||
|
2004
|
09/08/04
|
$ | 2.60 | 167,000 |
09/07/14
|
||||||||
|
2004
|
12/07/04
|
$ | 2.60 | 153,000 |
12/07/14
|
||||||||
|
2004
|
04/26/05
|
$ | 1.75 | 100,000 |
04/26/15
|
||||||||
|
2004
|
07/01/05
|
$ | 1.86 | 465,000 |
06/30/15
|
||||||||
|
2004
|
12/09/05
|
$ | 2.61 | 10,000 |
12/08/15
|
||||||||
|
2004
|
12/09/05
|
$ | 2.87 | 70,000 |
12/09/15
|
||||||||
|
2004
|
01/01/06
|
$ | 2.38 | 300,000 |
01/01/16
|
||||||||
|
2004
|
02/22/06
|
$ | 3.78 | 376,650 |
02/22/16
|
||||||||
|
2004
|
09/10/07
|
$ | 2.00 | 1,000,000 |
09/09/17
|
||||||||
|
2004
|
10/01/07
|
$ | 3.50 | 1,400,000 |
09/30/17
|
||||||||
|
2004
|
02/18/08
|
$ | 4.00 | 190,000 |
02/18/18
|
||||||||
|
2007
|
09/17/08
|
$ | 2.20 | 1,450,000 |
09/17/18
|
||||||||
|
Total
Options
|
5,765,378 | ||||||||||||
|
Warrants
|
|||||||||||||
|
Total
Warrants
|
2009
|
02/1/09
|
$ | 0.51 | 491,196 |
02/01/19
|
|||||||
|
Incentive Rights
|
|||||||||||||
|
Date
|
Number
|
||||||||||||
|
Plan
|
Issued
|
Of Shares
|
|||||||||||
|
2007
|
01/31/09
|
206,646 | |||||||||||
|
2007
|
02/28/09
|
199,263 | |||||||||||
|
2007
|
03/31/09
|
192,870 | |||||||||||
|
2007
|
04/30/09
|
154,527 | |||||||||||
|
2007
|
05/31/09
|
65,376 | |||||||||||
|
Total
Incentive Rights
|
818,682 | ||||||||||||
|
(2)
|
Dr.
Kovari is the spouse of Dr. Carter and accordingly all shares owned by
each are deemed to be beneficially owned by the other. She
beneficially owns 2,144 shares issuable upon exercise
of:
|
|
Date
|
Number
|
||||||||||||
|
Incentive Rights
|
Plan
|
Issued
|
Of Shares
|
||||||||||
|
2007
|
01/31/09
|
536 | |||||||||||
|
2007
|
02/28/09
|
494 | |||||||||||
|
2007
|
03/31/09
|
510 | |||||||||||
|
2007
|
04/30/09
|
408 | |||||||||||
|
2007
|
05/31/09
|
196 | |||||||||||
|
Total
Incentive Rights
|
2,144 | ||||||||||||
|
(3)
|
Mr.
Piani is a member of our Board of Directors who owns 432,812 shares of
common stock and beneficially owns 324,608 shares issuable upon exercise
of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
2004
|
09/08/04
|
$ | 2.60 | 54,608 |
09/07/14
|
||||||||
|
2004
|
04/26/05
|
$ | 1.75 | 100,000 |
04/26/15
|
||||||||
|
2004
|
02/24/06
|
$ | 3.86 | 50,000 |
02/24/16
|
||||||||
|
2004
|
09/10/07
|
$ | 2.00 | 100,000 |
09/09/17
|
||||||||
|
2004
|
02/18/08
|
$ | 4.00 | 20,000 |
02/18/18
|
||||||||
|
Total
Options
|
324,608 | ||||||||||||
|
(4)
|
Charles
T. Bernhardt is our Chief Financial Officer and owns 67,079 shares of
common stock along with the following rights to received 198,135 shares
issuable upon exercise of:
|
|
Date
|
Number
|
||||||||||||
|
Incentive Rights
|
Plan
|
Issued
|
Of Shares
|
||||||||||
|
2007
|
01/31/09
|
49,569 | |||||||||||
|
2007
|
02/28/09
|
45,642 | |||||||||||
|
2007
|
03/31/09
|
47,118 | |||||||||||
|
2007
|
04/30/09
|
37,791 | |||||||||||
|
2007
|
05/31/09
|
18,015 | |||||||||||
|
Total
Incentive Rights
|
198,135 | ||||||||||||
|
(5)
|
Mr.
Equels is a member of our Board of Directors, Secretary and General
Counsel who owns 937,426 shares of common stock and beneficially owns
491,196 shares issuable or issued upon exercise of
:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Warrants
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
Total
Warrants
|
2009
|
02/1/09
|
$ | 0.51 | 491,196 |
02/01/19
|
|||||||
|
(6)
|
Dr.
Mitchell is a member of our Board of Directors that owns 304,025 shares of
common stock and beneficially owns 312,000 shares issuable upon exercise
of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
2004
|
09/08/04
|
$ | 2.60 | 50,000 |
09/07/14
|
||||||||
|
2004
|
04/26/05
|
$ | 1.75 | 100,000 |
04/26/15
|
||||||||
|
2004
|
02/24/06
|
$ | 3.86 | 50,000 |
02/24/16
|
||||||||
|
2004
|
09/10/07
|
$ | 2.00 | 100,000 |
09/09/17
|
||||||||
|
2004
|
09/17/08
|
$ | 6.00 | 12,000 |
09/17/18
|
||||||||
|
Total
Options
|
312,000 | ||||||||||||
|
(7)
|
Dr.
Kiani is a member of our Board of Directors who owns 246,271 shares of
common stock and beneficially owns 77,000 shares issuable upon exercise
of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
2004
|
04/26/05
|
$ | 1.75 | 15,000 |
04/26/15
|
||||||||
|
2004
|
06/02/05
|
$ | 1.63 | 12,000 |
06/30/15
|
||||||||
|
2004
|
02/24/06
|
$ | 3.86 | 50,000 |
02/24/16
|
||||||||
|
Total
Options
|
77,000 | ||||||||||||
|
(8)
|
Dr.
Strayer is our Medical Director that has ownership of 51,246 shares of
common stock and beneficially owns 420,586 shares issuable upon exercise
of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
|||||||||
|
Options
|
|||||||||||||
|
1990
|
12/03/01
|
$ | 4.03 | 10,000 |
01/03/11
|
||||||||
|
2004
|
12/07/04
|
$ | 1.90 | 10,000 |
12/07/14
|
||||||||
|
2004
|
12/09/05
|
$ | 2.61 | 10,000 |
12/08/15
|
||||||||
|
2004
|
11/20/06
|
$ | 2.20 | 15,000 |
11/20/16
|
||||||||
|
2004
|
01/23/07
|
$ | 2.37 | 20,000 |
01/23/17
|
||||||||
|
2004
|
09/10/07
|
$ | 2.00 | 50,000 |
09/09/17
|
||||||||
|
2004
|
12/06/07
|
$ | 1.30 | 25,000 |
12/06/17
|
||||||||
|
2004
|
02/18/08
|
$ | 4.00 | 50,000 |
09/18/18
|
||||||||
|
Total
Options
|
190,000 | ||||||||||||
|
Incentive Rights
|
|||||||||||||
|
2007
|
01/31/09
|
58,089 | |||||||||||
|
2007
|
02/28/09
|
54,453 | |||||||||||
|
2007
|
03/31/09
|
54,015 | |||||||||||
|
2007
|
04/30/09
|
43,962 | |||||||||||
|
2007
|
05/31/09
|
20,067 | |||||||||||
|
Total
Incentive Rights
|
230,586 | ||||||||||||
|
(9)
|
Mr.
Springate is our Vice President of Operations who owns 877 shares of
common stock and beneficially owns 234,648 shares issuable upon exercise
of
:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
|||||||||
|
Options
|
|||||||||||||
|
2004
|
12/07/04
|
$ | 1.90 | 1,812 |
12/07/14
|
||||||||
|
2004
|
12/09/05
|
$ | 2.61 | 2,088 |
12/08/15
|
||||||||
|
2004
|
11/20/06
|
$ | 2.20 | 5,000 |
11/20/16
|
||||||||
|
2004
|
05/01/07
|
$ | 1.78 | 20,000 |
09/09/17
|
||||||||
|
2004
|
12/06/07
|
$ | 1.30 | 20,000 |
12/06/17
|
||||||||
|
Total
Options
|
48,900 | ||||||||||||
|
Incentive Rights
|
|||||||||||||
|
2007
|
01/31/09
|
46,473 | |||||||||||
|
2007
|
02/28/09
|
42,789 | |||||||||||
|
2007
|
03/31/09
|
44,172 | |||||||||||
|
2007
|
04/30/09
|
35,427 | |||||||||||
|
2007
|
05/31/09
|
16,887 | |||||||||||
|
Total
Incentive Rights
|
185,748 | ||||||||||||
|
(10)
|
Mr.
Dickey is our Senior Vice President and owns 2,500 shares of common stock
and beneficially owns 150,000 shares issuable upon exercise of
:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
Total
Options
|
2009
|
07/01/09
|
$ | 2.81 | 150,000 |
07/01/19
|
|||||||
|
(11)
|
Dr.
Lander is our Vice President of Quality Assurance who owns 153,073 shares
of common stock and beneficially owns 15,000 shares issuable upon exercise
of
:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
Total
Options
|
2004
|
12/06/07
|
$ | 1.30 | 15,000 |
12/06/17
|
|||||||
|
(12)
|
Dr.
Ferencz-Biro is our Senior Vice President of Regulatory Affairs who
beneficially owns 15,000 shares issuable upon exercise of
:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
Total
Options
|
2004
|
12/06/07
|
$ | 1.30 | 15,000 |
12/06/17
|
|||||||
|
(13)
|
Dr.
Smith is our Vice President of Manufacturing Quality and Process
Development who owns 23,708 shares of common stock and beneficially owns
64,291 shares issuable upon exercise
of:
|
|
Date
|
Exercise
|
Number
|
Expiration
|
||||||||||
|
Options
|
Plan
|
Issued
|
Price
|
Of Shares
|
Date
|
||||||||
|
1990
|
11/20/96
|
$ | 2.20 | 7,500 |
11/20/16
|
||||||||
|
2004
|
01/22/97
|
$ | 2.37 | 6,791 |
01/22/17
|
||||||||
|
2004
|
01/03/01
|
$ | 4.03 | 10,000 |
01/03/11
|
||||||||
|
2004
|
12/07/04
|
$ | 1.90 | 10,000 |
12/07/14
|
||||||||
|
2004
|
12/08/05
|
$ | 2.61 | 10,000 |
12/08/15
|
||||||||
|
2004
|
09/10/07
|
$ | 2.00 | 20,000 |
09/09/17
|
||||||||
|
Total
Options
|
64,291 | ||||||||||||
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
We have
employment agreements with certain of our executive officers and have granted
such officers and directors options and warrants to purchase our common stock,
as discussed under the headings, “Item 10. Executive Compensation,” and “Item
11. Security Ownership of Certain Beneficial Owners and Management,” as noted
above.
Ransom W. Etheridge was our General
Counsel through December 31, 2009. Currently he is an attorney in private
practice who renders corporate legal services to us from time to time. As
General Counsel, he received fees totaling approximately $144,469 and $105,400
in 2009 and 2008, respectively. In addition, Mr. Etheridge served on the
Board of Directors until November 2008 for which he received Director’s Fees of
cash and stock valued at $150,000 for the time served in 2008.
We used the property acquired in late
2004 by Retreat House, LLC an entity in which the children of William A. Carter
have a beneficial interest. We paid Retreat House, LLC $82,400 and $41,200
in 2009 and 2008, respectively, for the use of the property at various
times.
Tom
Equels was elected to the Board of Directors at the Annual Stockholders Meeting
on November 17, 2008. Mr. Equels has provided legal services to us for
several years. In 2009 and 2008, we paid Mr. Equels’ law firm $386,809 and
$395,000, respectfully, for services rendered. Mr. Equels received
$150,000 and $37,500 in cash and stock for his Board fees in each 2009 and 2008,
respectively.
For her
part-time services to us as Assistant Medical Director Kati Kovari, M.D. was
paid $13,000 and $13,000 in 2009 and 2008, respectively. Dr. Kovari is the
spouse of W. A. Carter, our CEO. From January 1 through May 31, 2009, Dr.
Kovari’s compensation as an employee was changed pursuant to our “Employee Wage
Or Hours Reduction Program” pursuant to which she elected to receive 50% of her
wages in Incentive Rights on a three-to-one conversion basis.
ITEM
14. Principal Accountant Fees and Services.
All audit and professional services are
approved in advance by the Audit Committee to assure such services do not impair
the auditor’s independence from us. The total fees by McGladrey &
Pullen, LLP (“McGladrey”) for 2009 and 2008 were $322,000 and $315,000,
respectively. The following table shows the aggregate fees for
professional services rendered during the year ended December 31, 2009 and
2008.
|
Amount ($)
|
||||||||
|
Description of Fees
|
2009
|
2008
|
||||||
|
Audit
Fees
|
$ | 322,000 | $ | 315,000 | ||||
|
Audit-Related
Fees
|
-0- | -0- | ||||||
|
Tax
Fees
|
-0- | -0- | ||||||
|
All
Other Fees
|
-0- | -0- | ||||||
|
Total
|
$ | 322,000 | $ | 315,000 | ||||
Audit
Fees
Represents fees for professional
services provided for the audit of our annual financial statements, audit of the
effectiveness of internal control over financial reporting, services that are
performed to comply with generally accepted auditing standards, and review of
our financial statements included in our quarterly reports and services in
connection with statutory and regulatory filings.
Audit-Related
Fees
Represents the fees for assurance and
related services that were reasonably related to the performance of the audit or
review of our financial statements.
The Audit Committee has determined that
McGladrey’s rendering of these audit-related services was compatible with
maintaining auditor’s independence. The Board of Directors considered
McGladrey to be well qualified to serve as our independent public accountants.
The committee also pre-approved the charges for services performed in 2009 and
2008.
The Audit Committee pre-approves all
auditing services and the terms thereof (which may include providing comfort
letters in connection with securities underwriting) and non-audit services
(other than non-audit services prohibited under Section 10A(g) of the Exchange
Act or the applicable rules of the SEC or the Public Company Accounting
Oversight Board) to be provided to us by the independent auditor; provided,
however, the pre-approval requirement is waived with respect to the provisions
of non-audit services for us if the “de minimus” provisions of Section 10A
(i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve
non-audit services may be delegated to one or more members of the Audit
Committee, who shall present all decisions to pre-approve an activity to the
full Audit Committee at its first meeting following such decision.
PART
IV
ITEM
15. Exhibits and Financial Statement Schedules.
|
(a)
|
Financial
Statements and Schedules - See index to financial statements on page F-1
of this Annual Report.
|
All other
schedules called for under regulation S-X are not submitted because they are not
applicable or not required, or because the required information is included in
the financial statements or notes thereto.
|
(b)
|
Exhibits
- See exhibit index below.
|
Except as
disclosed in the footnotes, the following exhibits were filed with the
Securities and Exchange Commission as exhibits to our Form S-1 Registration
Statement (No. 33-93314) or amendments thereto and are hereby incorporated by
reference:
|
4.13
|
Amendment
Agreement, effective October 6, 2005, by and among the Company and
debenture holders.(11)
|
|
|
4.14
|
Form
of Series A amended 7% Convertible Debenture of the Company (amending
Debenture due October 31, 2005).(11)
|
|
|
4.15
|
Form
of Series B amended 7% Convertible Debenture of the Company (amending
Debenture issued on January 26, 2004 and due January 31,
2006).(11)
|
|
|
4.16
|
Form
of Series C amended 7% Convertible Debenture of the Company (amending
Debenture issued on July 13, 2004 and due January 31,
2006).(11)
|
|
|
4.17
|
Form
of Warrant issued effective October 6, 2005 for Common Stock of the
Company.(11)
|
|
|
4.18
|
Form
of Commitment Warrant issued in February 2009 under the Standby Financing
Agreement.*
|
|
|
4.19
|
Form
of Indenture filed with Universal shelf registration statement.
(18)
|
|
|
4.20
|
Form
of Series I common stock purchase warrant pursuant to May 10, 2009
Securities Purchase Agreement. (23)
|
|
|
4.21
|
Form
of Series II common stock purchase warrant pursuant to May 10, 2009
Securities Purchase Agreement. (23)
|
|
|
4.22
|
Form
of common stock purchase warrant pursuant to May 18, 2009 Securities
Purchase Agreement. (24)
|
|
|
10.1
|
1990
Stock Option Plan.
|
|
|
10.2
|
1992
Stock Option Plan.
|
|
|
10.3
|
1993
Employee Stock Purchase Plan.
|
|
|
10.4
|
Form
of Confidentiality, Invention and Non-Compete
Agreement.
|
|
|
10.5
|
Form
of Clinical Research Agreement.
|
|
|
10.6
|
Form
of Collaboration Agreement.
|
|
|
10.7
|
Amended
and Restated Employment Agreement by and between the Company and Dr.
William A. Carter, dated as of July 1, 1993. (7)
|
|
|
10.8
|
Employment
Agreement by and between the Registrant and Robert E. Peterson, dated
April 1, 2001.
|
|
|
10.9
|
License
Agreement by and between the Company and The Johns Hopkins University,
dated December 31, 1980.
|
|
|
10.10
|
Technology
Transfer, Patent License and Supply Agreement by and between the Company,
Pharmacia LKB Biotechnology Inc., Pharmacia P-L Biochemicals Inc. and E.I.
du Pont de Nemours and Company, dated November 24,
1987.
|
|
|
10.11
|
Pharmaceutical
Use Agreement, by and between the Company and Temple University, dated
August 3, 1988.
|
|
|
10.12
|
Assignment
and Research Support Agreement by and between the Company, Hahnemann
University and Dr. David Strayer, Dr. lsadore Brodsky and Dr. David
Gillespie, dated June 30, 1989.
|
|
|
10.13
|
Lease
Agreement between the Company and Red Gate Limited Partnership, dated
November 1, 1989, relating to the Company's Rockville, Maryland
facility.
|
|
|
10.14
|
Agreement
between the Company and Bioclones (Proprietary)
Limited.
|
|
|
10.15
|
Amendment,
dated August 3, 1995, to Agreement between the Company and Bioclones
(Proprietary) Limited (contained in Exhibit 10.14).
|
|
|
10.16
|
Licensing
Agreement with Core BioTech Corp.
|
|
|
10.17
|
Licensing
Agreement with BioPro Corp.
|
|
|
10.18
|
Licensing
Agreement with BioAegean Corp.
|
|
|
10.19
|
Agreement
with Esteve.
|
|
|
10.20
|
Agreement
with Accredo (formerly Gentiva) Health Services.
|
|
|
10.21
|
Agreement
with Biovail Corporation International.
|
|
|
10.22
|
Forbearance
Agreement dated March 11, 2003, by and between ISI, the American National
Red Cross and the Company.(1)
|
|
|
10.23
|
Forbearance
Agreement dated March 11, 2003, by and between ISI, GP Strategies
Corporation and the Company.(1)
|
|
|
10.24
|
Securities
Purchase Agreement, dated March 12, 2003, by and among the Company and the
Buyers named therein.(1)
|
|
|
10.25
|
Registration
Rights Agreement, dated March 12, 2003, by and among the Company and the
Buyers named therein.(1)
|
|
|
10.26
|
Securities
Purchase Agreement, dated July 10, 2003, by and among the Company and the
Buyers named therein.(4)
|
|
|
10.27
|
Registration
Rights Agreement, dated July 10, 2003, by and among the Company and the
Buyers named
therein.(4)
|
|
10.28
|
Securities
Purchase Agreement, dated October 29, 2003, by and among the Company and
the Buyers named therein.(5)
|
|
|
10.29
|
Registration
Rights Agreement, dated October 29, 2003, by and among the Company and the
Buyers named therein.(5)
|
|
|
10.30
|
Securities
Purchase Agreement, dated January 26, 2004, by and among the Company and
the Buyers named therein.(6)
|
|
|
10.31
|
Registration
Rights Agreement, dated January 26, 2004, by and among the Company and the
Buyers named therein.(6)
|
|
|
10.32
|
Memorandum
of Understanding with Fujisawa. (8)
|
|
|
10.33
|
Securities
Purchase Agreement, dated July 30, 2004, by and among the Company and the
Purchasers named therein.(9)
|
|
|
10.34
|
Registration
Rights Agreement, dated July 30, 2004, by and among the Company and the
Purchasers named therein. (9)
|
|
|
10.35
|
Agreement
for services of R. Douglas Hulse, (12)
|
|
|
10.36
|
Amended
and Restated Employment Agreement of Dr. William A. Carter.
(10)
|
|
|
10.37
|
Engagement
Agreement with Dr. William A. Carter. (10)
|
|
|
10.38
|
Amended
and restated employment agreement of Dr. William A. Carter
(12)
|
|
|
10.39
|
Amended
and restated engagement agreement with Dr. William A. Carter
(12)
|
|
|
10.40
|
Amended
and restated engagement agreement with Robert E. Peterson
(12)
|
|
|
10.41
|
Engagement
Agreement with Ransom W. Etheridge (12)
|
|
|
10.42
|
Change
in control agreement with Dr. William A. Carter (12)
|
|
|
10.43
|
Change
in control agreement with Dr. William A. Carter (12)
|
|
|
10.44
|
Change
in control agreement with Robert E. Peterson (12)
|
|
|
10.45
|
Change
in control agreement with Ransom Etheridge (12)
|
|
|
10.46
|
Supply
Agreement with Hollister-Stier Laboratories LLC
|
|
|
10.47
|
Manufacturing
and Safety Agreement with Hyaluron, Inc.
|
|
|
10.48
|
Common
Stock Purchase Agreement, dated July 8, 2005, by and among the Company and
Fusion Capital Fund II, LLC.(13)
|
|
|
10.49
|
Registration
Rights Agreement, dated July 8, 2005, by and among the Company and Fusion
Capital Fund II, LLC.(13)
|
|
|
10.48
|
Common
Stock Purchase Agreement, dated April 12, 2006, by and among the Company
and Fusion Capital Fund II, LLC.(14)
|
|
|
10.49
|
Registration
Rights Agreement, dated April 12, 2006, by and among the Company and
Fusion Capital Fund II, LLC.(14)
|
|
|
10.50
|
Supply
Agreement with Hollister-Stier Laboratories LLC. (15)
|
|
|
10.51
|
Manufacturing
and Safety Agreement with Hyaluron, Inc. (15)
|
|
|
10.52
|
April
19, 2006 Amendment to Common Stock Purchase Agreement by
and
|
|
|
among
the Company and Fusion Capital Fund II, LLC.(15)
|
||
|
10.53
|
July
21, 2006 Letter Amendment to Common Stock Purchase Agreement
by
|
|
|
and
among the Company and Fusion Capital Fund II, LLC.(15)
|
||
|
10.54
|
Royalty
Purchase Agreement with Stem Cell Innovations, Inc.
(15)
|
|
|
10.55
|
Biken
Activating Agreement. (16)
|
|
|
10.56
|
Biken
Material Evaluation Agreement. (16)
|
|
|
10.57
|
Common
Stock Purchase Agreement, dated July 2, 2008, by and among the Company and
Fusion Capital.(19)
|
|
|
10.58
|
Registration
Rights Agreement, dated July 2, 2008, by and among the Company and Fusion
Capital.(19)
|
|
|
10.59
|
Amendment
to Common Stock Purchase Agreement, dated July 23, 2008, by and among the
Company and Fusion Capital.(20)
|
|
|
10.60
|
Employee
Wage Or Hours Reduction Program.(22)
|
|
|
10.61
|
Standby
Financing Agreement.(22)
|
|
|
10.62
|
Engagement
Agreement with Charles T. Bernhardt, CPA.(22)
|
|
|
10.63
|
Goal
Achievement Incentive Award Program. (21)
|
|
|
10.64
|
Form
of Securities Purchase Agreement entered into on May 10, 2009.
(23)
|
|
|
10.65
|
Form
of Securities Purchase Agreement entered into on May 18, 2009.
(24)
|
|
|
10.66
|
Engagement
Agreement with Robert Dickey IV, dated June 11, 2009. *
|
|
|
10.67
|
Engagement
Agreement with Robert Dickey IV, dated February 1, 2010.
*
|
|
|
10.68
|
Amendment
to Supply Agreement with Hollister-Stier Laboratories LLC dated February
25, 2010. *
|
|
|
10.69
|
August
2009 Material Evaluation Agreement with Biken. *
|
|
|
21
|
Subsidiaries
of the Registrant.
|
|
|
23.1
|
McGladrey
& Pullen, LLP consent.*
|
|
|
31.1
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
Company's Chief Executive
Officer.*
|
|
31.2
|
Certification
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 from the
Company's Chief Financial Officer.*
|
|
|
32.1
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
Company's Chief Executive Officer.*
|
|
|
32.2
|
|
Certification
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 from the
Company's Chief Financial
Officer.*
|
* Filed herewith
(1)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated March 12, 2003 and is
hereby incorporated by reference.
(2)
Filed with the Securities and Exchange Commission on November 20, 2002 as
an exhibit to the Company’s Registration Statement on Form 8-A (No. 0-27072) and
is hereby incorporated by reference.
(3)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated June 27, 2003 and is
hereby incorporated by reference.
(4)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated July 14, 2003 and is
hereby incorporated by reference.
(5)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated October 30, 2003 and is
hereby incorporated by reference.
(6)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated January 27, 2004 and is
hereby incorporated by reference.
(7)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s quarterly report on Form 10-Q (No. 1-13441) for the period ended
September 30, 2001 and is hereby incorporated by reference.
(8)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Form S-1 Registration Statement (No. 333-113796) and is hereby
incorporated by reference.
(9)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated August 6, 2004 and is
hereby incorporated by reference.
(10)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated September 15, 2004 and
is hereby incorporated by reference.
(11)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K/A-1 (No. 1-13441) filed on October 28, 2005
and is hereby incorporated by reference.
(12)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s annual report on Form 10-K (No. 1-13441) for the year ended December
31, 2004 and is hereby incorporated by reference.
(13)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated September 15, 2005 and
is hereby incorporated by reference.
(14)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated April 12, 2006 and is
hereby incorporated by reference.
(15)
Filed with the Securities and Exchange Commission on July 31, 2006 as an
exhibit to the Company’s Form S-1 Registration Statement (No. 333-136187) and is
hereby incorporated by reference.
(16)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated December 13, 2007 and
is hereby incorporated by reference.
(17)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) filed October 22, 2008 and is
hereby incorporated by reference.
(18)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Form S-3 Registration Statement (No. 333-151696) and is hereby
incorporated by reference.
(19)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) filed July 8, 2008 and is
hereby incorporated by reference.
(20)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s quarterly report on Form 10-Q (No. 1-13441) for the period ended June
30, 2008 and is hereby incorporated by reference.
(21)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) filed November 28, 2008 and
is hereby incorporated by reference.
(22)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s annual report on Form 10-K (No. 1-13441) for the year ended December
31, 2008 and is hereby incorporated by reference.
(23)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s quarterly report on Form 10-Q (No. 1-13441) for the period ended March
31, 2009 and is hereby incorporated by reference.
(24)
Filed with the Securities and Exchange Commission as an exhibit to the
Company’s Current Report on Form 8-K (No. 1-13441) dated May 18, 2009 and is
hereby incorporated by reference.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
HEMISPHERx
BIOPHARMA, INC.
|
|
|
By:
|
/s/ William A. Carter
|
|
William
A. Carter, M.D.
|
|
|
Chief
Executive Officer
|
|
March
11
, 2010
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange of 1934,
as amended, this report has been signed below by the following persons on behalf
of this Registrant and in the capacities and on the dates
indicated.
|
/s/ William A. Carter
|
Chairman
of the Board, Chief
|
March
11
, 2010
|
||
|
William
A. Carter, M.D.
|
Executive
Officer and
Director
|
|||
|
/s/ Richard Piani
|
Director
|
March
11
, 2010
|
||
|
Richard
Piani
|
||||
|
/s/ Charles T. Bernhardt
|
Chief
Financial Officer and
|
March
11
, 2010
|
||
|
Charles
T. Bernhardt CPA
|
Chief
Accounting Officer
|
|||
|
/s/ Thomas K. Equels
|
Director,
Secretary and
|
March
11
, 2010
|
||
|
Thomas
Equels
|
General
Counsel
|
|||
|
/s/ William Mitchell
|
Director
|
March
11
, 2010
|
||
|
William
Mitchell, M.D., Ph.D.
|
||||
|
/s/ Iraj E. Kiani
|
Director
|
March
11
, 2010
|
||
|
Iraj
E. Kiani, N.D., Ph.D.
|
|
|
HEMISPHERx
BIOPHARMA, INC AND SUBSIDIARIES
Index
to Consolidated Financial Statements
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets at December 31, 2008 and 2009
|
F-3
|
|
|
Consolidated
Statements of Operations for each of the years in the three-year period
ended December 31, 2009
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive Loss for
each of the years in the three-year period ended December 31,
2009
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for each of the years in the three-year period
ended December 31, 2009
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
|
Schedule
II – Valuation and qualifying Accounts for each of the years in the three
year period ended December 31, 2009
|
F-35
|
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Hemispherx
Biopharma, Inc.
We have
audited the accompanying consolidated balance sheets of Hemispherx Biopharma,
Inc. and Subsidiaries as of December 31, 2008 and 2009 and the related
consolidated statements of operations, stockholders’ equity and comprehensive
loss and cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule of Hemispherx
Biopharma, Inc. listed in Item 14(a). These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hemispherx Biopharma, Inc.
and Subsidiaries as of December 31, 2008 and 2009, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
for each of the three years in the period ended December 31, 2009, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Hemispherx Biopharma, Inc. and Subsidiaries’
internal control over financial reporting as of December 31, 2009, based on
criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March
12
, 2010, expressed an unqualified opinion on the
effectiveness of Hemispherx Biopharma, Inc.’s internal control over financial
reporting.
/s/
McGladrey & Pullen, LLP
Blue
Bell, Pennsylvania
March
12
, 2010
HEMISPHERx
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
December
31, 2008 and 2009
(in
thousands, except for share and per share amounts)
|
2008
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents (Notes 2 & 16)
|
$ | 6,119 | $ | 58,072 | ||||
|
Inventories
(Note 3)
|
864 | - | ||||||
|
Prepaid
expenses and other current assets
|
330 | 332 | ||||||
|
Total
current assets
|
7,313 | 58,404 | ||||||
|
Property
and equipment, net (Note 2)
|
4,877 | 4,704 | ||||||
|
Patent
and trademark rights, net (Notes 2 & 4)
|
969 | 830 | ||||||
|
Investment
|
35 | 35 | ||||||
|
Construction
in progress (Note 2)
|
- | 135 | ||||||
|
Other
assets(Note 3)
|
17 | 886 | ||||||
|
Total
assets
|
$ | 13,211 | $ | 64,994 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 791 | $ | 1,294 | ||||
|
Accrued
expenses (Notes 2 & 5)
|
876 | 1,321 | ||||||
|
Total
current liabilities
|
1,667 | 2,615 | ||||||
|
Commitments
and contingencies
(Notes
10, 12, 13 & 14)
|
||||||||
|
Stockholders’
equity (Note 7):
|
||||||||
|
Preferred
stock, par value $0.01 per share, authorized 5,000,000; issued and
outstanding; none
|
- | - | ||||||
|
Common
stock, par value $0.001 per share, authorized 200,000,000 shares; issued
and outstanding 78,750,995 and 132,787,447, respectively
|
79 | 133 | ||||||
|
Additional
paid-in capital
|
208,874 | 273,093 | ||||||
|
Accumulated
deficit
|
(197,409 | ) | (210,847 | ) | ||||
|
Total
stockholders’ equity
|
11,544 | 62,379 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 13,211 | $ | 64,994 | ||||
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
(in thousands, except
share and per share data)
|
Years ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Revenues:
|
||||||||||||
|
Sales
of product, net
|
$ | 925 | $ | 173 | $ | - | ||||||
|
Clinical
treatment programs
|
134 | 92 | 111 | |||||||||
|
Total
Revenues
|
1,059 | 265 | 111 | |||||||||
|
Costs
and Expenses:
|
||||||||||||
|
Production/cost
of goods sold
|
930 | 798 | 584 | |||||||||
|
Research
and development
|
10,444 | 5,800 | 6,995 | |||||||||
|
General
and administrative
|
8,974 | 6,478 | 5,796 | |||||||||
|
Total
Costs and Expenses:
|
20,348 | 13,076 | 13,375 | |||||||||
|
Operating
loss
|
(19,289 | ) | (12,811 | ) | (13,264 | ) | ||||||
|
Reversal
of previously accrued interest expense
|
346 | - | - | |||||||||
|
Interest
and other income
|
1,200 | 592 | 67 | |||||||||
|
Interest
expense
|
(116 | ) | - | - | ||||||||
|
Financing
costs (Note 7)
|
(280 | ) | - | (241 | ) | |||||||
|
Net
loss
|
$ | (18,139 | ) | $ | (12,219 | ) | $ | (13,438 | ) | |||
|
Basic
and diluted loss per share
|
$ | (.25 | ) | $ | (.16 | ) | $ | (.12 | ) | |||
|
Weighted
average shares outstanding Basic and Diluted
|
71,839,782 | 75,142,075 | 109,514,401 | |||||||||
See
accompanying notes to consolidated financial statements.
HEMISPHERx
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive
Loss
(in
thousands except share data)
|
Common
Stock
Share
s
|
Common
Stock
.001
Par Value
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Total
Stockholders
Equity
|
|||||||||||||||||||
|
Balance
December 31, 2006
|
66,816,764 | $ | 67 | $ | 191,689 | $ | 46 | $ | (167,051 | ) | $ | 24,751 | ||||||||||||
|
Shares
issued for:
|
||||||||||||||||||||||||
|
Interest
on convertible debt
|
116,745 | - | 193 | - | - | 193 | ||||||||||||||||||
|
Private
placement, net of issuance costs
|
6,651,502 | 7 | 11,613 | - | - | 11,620 | ||||||||||||||||||
|
Stock
issued for settlement of accounts payable
|
175,435 | - | 292 | - | - | 292 | ||||||||||||||||||
|
Stock
based compensation
|
- | - | 2,291 | - | - | 2,291 | ||||||||||||||||||
|
Net
comprehensive loss
|
- | - | - | (53 | ) | (18,139 | ) | (18,192 | ) | |||||||||||||||
|
Balance
December 31, 2007
|
73,760,446 | 74 | 206,078 | (7 | ) | (185,190 | ) | 20,955 | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Shares
issued for:
|
||||||||||||||||||||||||
|
Private
placement, net of issuance costs
|
1,211,122 | 1 | 269 | - | - | 270 | ||||||||||||||||||
|
Settlement
of accounts payable
|
3,779,427 | 4 | 1,954 | - | - | 1,958 | ||||||||||||||||||
|
Stock
based compensation
|
- | - | 573 | - | - | 573 | ||||||||||||||||||
|
Net
comprehensive loss
|
- | - | - | 7 | (12,219 | ) | (12,212 | ) | ||||||||||||||||
|
Balance
December 31, 2008
|
78,750,995 | 79 | 208,874 | - | (197,409 | ) | 11,544 | |||||||||||||||||
|
Shares
issued for:
|
||||||||||||||||||||||||
|
Warrants
exercised
|
5,589,790 | 6 | 6,133 | - | - | 6,139 | ||||||||||||||||||
|
Options
exercised
|
293,831 | - | 130 | - | - | 130 | ||||||||||||||||||
|
Private
placement, net of issuance costs
|
45,591,304 | 46 | 55,524 | - | - | 55,570 | ||||||||||||||||||
|
Settlement
of accounts payable
|
1,925,408 | 2 | 1,365 | - | - | 1,367 | ||||||||||||||||||
|
Stock
based compensation
|
636,119 | - | 826 | - | - | 826 | ||||||||||||||||||
|
Standby
Finance- finance costs
|
- | - | 241 | - | - | 241 | ||||||||||||||||||
|
Net
comprehensive loss
|
- | - | - | - | (13,438 | ) | (13,438 | ) | ||||||||||||||||
|
Balance
December 31, 2009
|
132,787,447 | $ | 133 | $ | 273,093 | $ | - | $ | (210,847 | ) | $ | 62,379 | ||||||||||||
See
accompanying notes to consolidated financial statements
HEMISPHERx
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(in
thousands)
|
Years ended December 31
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
loss
|
$ | (18,139 | ) | $ | (12,219 | ) | $ | (13,438 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
of property and equipment
|
266 | 342 | 359 | |||||||||
|
Amortization
of patent, trademark rights, and royalty interest
|
170 | 374 | 381 | |||||||||
|
Finance
costs amortization and for Standby financing
|
281 | - | 241 | |||||||||
|
Stock
option and warrant compensation and service expense
|
2,291 | 573 | 826 | |||||||||
|
Gain
on disposal of equipment
|
- | - | (83 | ) | ||||||||
|
Impairment
losses
|
526 | - | - | |||||||||
|
Inventory
reserve
|
109 | (65 | ) | - | ||||||||
|
Interest
on convertible debt
|
181 | - | - | |||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Inventory
|
337 | (288 | ) | - | ||||||||
|
Accounts
and other receivables
|
(148 | ) | 77 | - | ||||||||
|
Assets
held for sale
|
(678 | ) | 450 | - | ||||||||
|
Prepaid
expenses and other current assets
|
22 | (184 | ) | 93 | ||||||||
|
Other
assets
|
- | - | (5 | ) | ||||||||
|
Accounts
payable
|
(138 | ) | 1,702 | 1,884 | ||||||||
|
Accrued
expenses
|
(192 | ) | (120 | ) | 45 | |||||||
|
Net
cash used in operating activities
|
(15,112 | ) | (9,358 | ) | (9,297 | ) | ||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Purchases
of property and equipment and construction in progress,net
|
(212 | ) | (73 | ) | (332 | ) | ||||||
|
Additions
to patent and trademark rights
|
(211 | ) | (142 | ) | (242 | ) | ||||||
|
Maturities
of short term investments
|
21,132 | 3,951 | - | |||||||||
|
Purchase
of short term investments
|
(6,754 | ) | - | - | ||||||||
|
Net
cash (used in) provided by investing activities
|
$ | 3,955 | $ | 3,736 | $ | (574 | ) | |||||
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Continued)
(in thousands
)
|
Years ended December 31,
|
||||||||||||
|
2007
|
2008
|
2009
|
||||||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from issuance of common stock, net
|
$ | 11,620 | $ | 270 | $ | 55,570 | ||||||
|
Payment
of long-term debt
|
(4,102 | ) | - | - | ||||||||
|
Collection
of advance receivable
|
1,464 | - | - | |||||||||
|
Proceeds
from exercise of stock Warrants and options
|
- | - | 6,254 | |||||||||
|
Net
cash provided by financing activities
|
8,892 | 270 | 61,824 | |||||||||
|
Net
(decrease) increase in cash and cash equivalents
|
7,825 | (5,352 | ) | 51,953 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
3,646 | 1,471 | 6,119 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 11,471 | $ | 6,119 | $ | 58,072 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Issuance
of common stock for accounts payable and accrued expenses
|
$ | 292 | $ | 1,958 | $ | 1,382 | ||||||
|
Issuance
of common stock for debt conversion, interest payments and debt
payments
|
$ | 181 | - | - | ||||||||
|
Unrealized
gains/(losses) on investments
|
$ | (53 | ) | $ | 7 | $ | - | |||||
See
accompanying notes to consolidated financial statements.
HEMISPHERX
BIOPHARMA, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Business
The
Company is a specialty pharmaceutical engaged in the clinical development of new
drug therapies based on natural immune system enhancing technologies for the
treatment of viral and immune based chronic disorders. The Company
was founded in the early 1970s doing contract research for the National
Institutes of Health. Since that time, the Company has established a
strong foundation of laboratory, pre-clinical, and clinical data with respect to
the development of nucleic acids to enhance the natural antiviral defense system
of the human body and to aid the development of therapeutic products for the
treatment of certain chronic diseases.
The
consolidated financial statements include the financial statements of Hemispherx
Biopharma, Inc. and its wholly-owned subsidiaries. The Company has
three domestic subsidiaries BioPro Corp., BioAegean Corp. and Core BioTech
Corp., all of which are incorporated in Delaware and are dormant. The
Company’s foreign subsidiary of Hemispherx Biopharma Europe N.V./S.A. was
established in Belgium in 1998, and has no activity. All significant
intercompany balances and transactions have been eliminated in
consolidation.
On July
7, 2008, the U.S. Food and Drug Administration (FDA) accepted for review the
Company’s New Drug Application (NDA) for Ampligen®, an experimental therapeutic
to treat Chronic Fatigue Syndrome (CFS), originally submitted in October
2007. The Company is seeking marketing approval for the first-ever
treatment for CFS.
On
November 25, 2009, the Company was notified in a Complete Response Letter
(“CLR”) from the FDA that described specific additional recommendations related
to the Ampligen® NDA. In accordance with its 2008 "Complete Response"
procedure, the FDA reviewers determined that they could not approve the
application in its present form and provided specific recommendations to address
the outstanding issues. The Company is carefully reviewing the CRL
and will seek a meeting with the FDA to discuss its recommendations upon the
compilation of necessary data to be used in their response.
(2)
Summary of Significant Accounting Policies
(a) Cash
and Cash Equivalents
Cash and Cash Equivalents consist of
cash and money market with fair value of $6,119,000 and $58,072,000 at December
31, 2008 and 2009, respectively.
(b)
Assets held for sale (FASB ASC 360-45-9 Long Lived Assets Classified as Held for
Sale)
Assets
held for sale consisted of equipment purchases related to the purified water
system that was to be installed at the Company’s manufacturing facility in New
Brunswick, NJ. The Company reevaluated their manufacturing needs to
determine the cost/benefit for installing the purified water system as compared
to selling this asset. As a result of this process, in 2007 the
Company reclassed the Equipment of $678,000 to Assets Held for Sale and then
recorded an impairment charge of $228,000 to bring the cost down to its net
realizable value of $450,000 as per FASB ASC 360-45-9. In December
2008, the asset was sold for $450,000 without the need to recognize gain or loss
on sale.
|
(c)
Property and Equipment
|
(in
thousands)
|
|||||||
|
December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Land,
buildings and improvements
|
$ | 4,094 | $ | 4,139 | ||||
|
Furniture,
fixtures, and equipment
|
2,495 | 2,629 | ||||||
|
Leasehold
improvements
|
85 | 85 | ||||||
|
Total
property and equipment
|
6,674 | 6,853 | ||||||
|
Less
accumulated depreciation and amortization
|
1,797 | 2,149 | ||||||
|
Property
and equipment, net
|
$ | 4,877 | $ | 4,704 | ||||
Property and equipment is recorded at
cost. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the respective assets,
ranging from five to thirty-nine years.
Construction in progress consists of
funds used for the construction and installation of property and equipment
within the Company’s New Jersey facility. As of December 31, 2009,
construction in progress was $135,000 as compared to $-0- for year-end 2008 when
all construction was on hold.
(d)
Patent and Trademark Rights
Patents and trademarks are stated at
cost (primarily legal fees) and are amortized using the straight line method
over the established useful life of 17 years. The Company reviews its
patents and trademark rights periodically to determine whether they have
continuing value. Such review includes an analysis of the patent and
trademark's ultimate revenue and profitability potential. Management's review
addresses whether each patent continues to fit into the Company's strategic
business plans.
(e)
Revenue
Revenue from the sale of Ampligen®
under cost recovery clinical treatment protocols approved by the FDA is
recognized when the treatment is provided to the patient.
Revenues from the sale of Alferon N
Injection® are recognized when the product is shipped, as title is transferred
to the customer. The Company has no other obligation associated with
its products once shipment has occurred.
Commercial
sales of Alferon N Injection® were halted in March 2008 as the current
expiration date of our finished goods inventory expired in March
2008. The Company is undertaking a major capital improvement program
to enhance their manufacturing capability for Alferon N Injection® at the New
Brunswick facility that will continue throughout 2010. As a result,
Alferon N Injection® could be available for commercial sales in mid to late
2011.
Basic and
diluted net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Equivalent
common shares, consisting of stock options and warrants including the Company’s
convertible debentures, amounted to 16,686,281, 29,335,536 and 21,241,453
shares, are excluded from the calculation of diluted net loss per share for the
years ended December 31, 2007, 2008 and 2009, respectively, since their effect
is antidilutive.
(f)
Accounting for Income taxes (FASB ASC 740 Income Taxes)
The
Company adopted the provisions of FASB ASC 740-10 Uncertainty in Income
Taxes. As a result of the implementation, there has been no material
change to the Company’s tax position as they have not paid any corporate income
taxes due to operating losses. All tax benefits will likely not be
recognized due to the substantial net operating loss carryforwards which will
most likely not be realized prior to expiration. With no tax due for
the foreseeable future, the Company has determined that a policy to determine
the accounting for interest or penalties related to the payment of tax is not
necessary at this time.
Deferred income tax assets and
liabilities are determined based on differences between the financial statement
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws in effect when the differences are expected to
reverse. The measurement of deferred income tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits, which are not expected
to be realized. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in the period that such tax
rate changes are enacted.
(g)
Comprehensive loss
Comprehensive loss consists of net loss
and net unrealized gains (losses) on securities and is presented in the
consolidated statements of changes in stockholders’ equity and comprehensive
loss.
(h) Use
of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the reporting period. Actual results could differ
from those estimates.
(i)
Recent Accounting Standards and Pronouncements:
In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 168 (“SFAS 168”),
the Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
. SFAS 168 names the FASB
Accounting Standards
Codification
(“ASC”) as the source of authoritative accounting and
reporting standards in the United States, in addition to guidance issued by the
SEC. The ASC is a restructuring of accounting and reporting standards
designed to simplify user access to all authoritative U.S. Generally Accepted
Accounting Principals (“GAAP”) by providing the authoritative literature in a
topically organized structure. The ASC reduces the U.S. GAAP
hierarchy to two levels, one that is authoritative and one that is
not. The ASC is not intended to change U.S. GAAP or any requirements
of the SEC. The ASC became authoritative upon its release on July 1,
2009 and is effective for interim and annual periods ending after September 15,
2009.
The
Codification supersedes all existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification are nonauthoritative. Following
Statement 168, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB
will issue Accounting Standards Updates, which will serve only to: (a) update
the Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the change(s) in the
Codification.
The FASB
has published FASB Accounting Standards Update 2009-01 through
2009-17.
The
adoption of SFAS 168 and published FASB Accounting Standards Update 2009-01
through 2009-17 have no material effect on the Company’s financial statements
for the year-ended December 31, 2009.
(j)
Equity Based Compensation
The
Equity Plan effective May 1, 2004, authorizes the grant of non-qualified and
incentive stock options, stock appreciation rights, restricted stock and other
stock awards. A maximum of 8,000,000 shares of common stock is
reserved for potential issuance pursuant to awards under the Equity Plan of
2004. Unless sooner terminated, the Equity Plan of 2004 will continue
in effect for a period of 10 years from its effective date.
The
Equity Incentive Plan of 2007, effective June 20, 2007, authorizes the grant of
non-qualified and incentive stock options, stock appreciation rights, restricted
stock and other stock awards. A maximum of 8,000,000 shares of common
stock is reserved for potential issuance pursuant to awards under the Equity
Incentive Plan of 2007. Unless sooner terminated, the Equity
Incentive Plan of 2007 will continue in effect for a period of 10 years from its
effective date.
The
Equity Incentive Plan of 2009, effective June 24, 2009, authorizes the grant of
non-qualified and incentive stock options, stock appreciation rights, restricted
stock and other stock awards. A maximum of 15,000,000 shares of
common stock is reserved for potential issuance pursuant to awards under the
Equity Incentive Plan of 2009. Unless sooner terminated, the Equity
Incentive Plan of 2007 will continue in effect for a period of 10 years from its
effective date.
The Equity Plan of 2004 and the Equity
Incentive Plans of 2007 and 2009 are administered by the Board of
Directors. The Plans provide for awards to be made to such officers,
other key employees, non-employee directors, consultants and advisors of the
Company and its subsidiaries as the Board may select.
Stock options awarded under the Plans
may be exercisable at such times (not later than 10 years after the date of
grant) and at such exercise prices (not less than fair market value at the date
of grant) as the Board may determine. The Board may provide for
options to become immediately exercisable upon a "change in control," which is
defined in the Plans to occur upon any of the following events: (a) the
acquisition by any person or group, as beneficial owner, of 20% or more of the
outstanding shares or the voting power of the outstanding securities of the
Company; (b) either a majority of the directors of the Company at the annual
stockholders meeting has been nominated other than by or at the direction of the
incumbent directors of the Board, or the incumbent directors cease to constitute
a majority of the Company’s Board; (c) the Company’s stockholders approve a
merger or other business combination pursuant to which the outstanding common
stock of the Company no longer represents more than 50% of the combined entity
after the transaction; (d) the Company’s stockholders approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of the Company’s assets; or (e) any other event or circumstance determined
by the Company’s Board to affect control of the Company and designated by
resolution of the Board as a change of control.
The fair value of each option award is
estimated on the date of grant using a Black-Scholes option valuation
model. Expected volatility is based on the historical volatility of
the price of the Company’s stock. The risk-free interest rate is
based on U.S. Treasury issues with a term equal to the expected life of the
option. The Company uses historical data to estimate expected
dividend yield, expected life and forfeiture rates. The fair values
of the options granted, were estimated based on the following weighted average
assumptions:
|
December 31,
|
|||||||||
|
2007
|
2008
|
2009
|
|||||||
|
Risk-free
interest rate
|
3.39
- 4.77%
|
2.52
– 3.74%
|
1.76
- 2.69%
|
||||||
|
Expected
dividend yield
|
-
|
-
|
-
|
||||||
|
Expected
lives
|
5
yrs.
|
2.5
- 5 yrs.
|
2 -
5 yrs.
|
||||||
|
Expected
volatility
|
70.01
– 77.52%
|
73.84
– 79.2%
|
86.78
- 137.47%
|
||||||
|
Weighted
average fair value of options and warrants issued in the years 2007, 2008
and 2009 respectively
|
$2,216,091
|
$473,954
|
$536,378
|
||||||
For stock warrants or options granted
to non-employees, the Company measures fair value of the equity instruments
utilizing the Black-Scholes method if that value is more reliably measurable
than the fair value of the consideration or service received. The
Company amortizes such cost over the related period of service.
The exercise price of all stock
warrants granted was equal to or greater than the fair market value of the
underlying common stock as defined by APB 25 on the date of the
grant.
Stock
option activity during the years ended December 31, 2007, 2008 and 2009 is as
follows:
Stock
option activity for employees:
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
January 1, 2007
|
2,001,969 | 2.51 | 8.01 | - | ||||||||||||
|
Options
granted
|
2,624,120 | 2.77 | 9.05 | - | ||||||||||||
|
Options
forfeited
|
- | - | - | - | ||||||||||||
|
Outstanding
December 31, 2007
|
4,626,089 | $ | 2.66 | 8.25 | - | |||||||||||
|
Options
Granted
|
1,655,000 | 2.42 | 9.69 | - | ||||||||||||
|
Options
Forfeited
|
(22,481 | ) | 2.13 | - | - | |||||||||||
|
Outstanding
December 31, 2008
|
6,258,608 | $ | 2.60 | 7.92 | - | |||||||||||
|
Options
granted
|
- | - | - | - | ||||||||||||
|
Options
forfeited
|
(29,856 | ) | 2.24 | 5.75 | - | |||||||||||
|
Outstanding
December 31,2009
|
6,228,752 | $ | 2.60 | 6.95 | - | |||||||||||
|
Exercisable
December 31, 2009
|
6,190,419 | $ | 2.60 | 6.96 | - | |||||||||||
The
weighted-average grant-date fair value of employee options granted during the
year 2009 was $-0-.
Unvested
stock option activity for employees:
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Average
Remaining
Contracted
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
January 1, 2007
|
113,986 | 2.26 | 9.05 | - | ||||||||||||
|
Options
granted
|
130,000 | 1.34 | 10.00 | - | ||||||||||||
|
Options
vested
|
(77,223 | ) | (6.86 | ) | 8.29 | - | ||||||||||
|
Outstanding
December 31, 2007
|
166,673 | $ | 1.59 | 7.18 | - | |||||||||||
|
Options
granted
|
-0- | -0- | -0- | - | ||||||||||||
|
Options
vested
|
(73,420 | ) | 1.68 | 8.58 | - | |||||||||||
|
Options
forfeited
|
(16,399 | ) | 2.00 | 6.18 | - | |||||||||||
|
Outstanding
December 31, 2008
|
76,944 | $ | 1.41 | 3.89 | - | |||||||||||
|
Options
granted
|
- | - | - | - | ||||||||||||
|
Options
vested
|
(38,611 | ) | 1.28 | 7.92 | - | |||||||||||
|
Options
forfeited
|
- | - | - | - | ||||||||||||
|
Outstanding
December 31,2009
|
38,333 | $ | 1.54 | 8.00 | - | |||||||||||
Stock
option activity for non-employees during the year:
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
January 1, 2007
|
1,326,732 | $ | 2.63 | 8.18 | - | |||||||||||
|
Options
granted
|
608,750 | 1.99 | 9.94 | - | ||||||||||||
|
Options
forfeited
|
-0- | -0- | -0- | - | ||||||||||||
|
Outstanding
December 31, 2007
|
1,935,482 | 2.43 | 8.05 | - | ||||||||||||
|
Options
granted
|
482,000 | 2.02 | 6.72 | - | ||||||||||||
|
Options
forfeited
|
-0- | -0- | -0- | - | ||||||||||||
|
Outstanding
December 31, 2008
|
2,417,482 | $ | 2.35 | 6.98 | - | |||||||||||
|
Options
granted
|
361,250 | 2.12 | 7.00 | - | ||||||||||||
|
Options
exercised
|
(293,831 | ) | 1.56 | 7.93 | - | |||||||||||
|
Options
forfeited
|
(251,469 | ) | 2.14 | 7.43 | - | |||||||||||
|
Outstanding
December 31,2009
|
2,233,432 | $ | 2.44 | 5.73 | - | |||||||||||
|
Exercisable
December 31, 2009
|
2,093,848 | $ | 2.42 | 6.05 | - | |||||||||||
The
weighted-average grant-date fair value of non-employee options granted during
the year 2009 was $1.27.
Unvested
stock option activity for non-employees:
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
January 1, 2007
|
37,100 | $ | 2.28 | 9.81 | - | |||||||||||
|
Options
granted
|
25,000 | $ | 1.30 | 10.00 | - | |||||||||||
|
Options
vested
|
(22,100 | ) | (2.30 | ) | 8.23 | - | ||||||||||
|
Outstanding
December 31, 2007
|
40,000 | $ | 1.50 | 9.30 | - | |||||||||||
|
Options
granted
|
- | - | - | - | ||||||||||||
|
Options
vested
|
(13,333 | ) | (1.64 | ) | 6.91 | - | ||||||||||
|
Outstanding
December 31, 2008
|
26,667 | $ | 1.43 | 9.00 | - | |||||||||||
|
Options
granted
|
131,250 | 2.81 | 3.42 | - | ||||||||||||
|
Options
vested
|
(18,333 | ) | 1.79 | 7.45 | - | |||||||||||
|
Outstanding
December 31,2009
|
139.584 | $ | 2.68 | 3.76 | - | |||||||||||
The
impact on the Company’s results of operations of recording stock-based
compensation for the year ended December 31, 2009 was to increase general and
administrative expenses by approximately $353,000 and reduce earnings per share
by $.01 per basic and diluted share.
As of
December 31, 2009, there was $230,000 of unrecognized stock-based compensation
cost related to options granted under the Equity Incentive Plans.
(k) Accounts
Receivable
Concentration of credit risk, with
respect to accounts receivable, is limited due to the Company’s credit
evaluation process. The Company does not require collateral on its
receivables. The Company did not have any receivables as of December
31, 2008 and 2009.
(3)
Inventories and Other assets
The Company uses the lower of first-in,
first-out (“FIFO”) cost or market method of accounting for
inventory.
|
Inventories consist of the following:
|
(in thousands)
|
|||||||
|
December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Raw
materials and work in process
|
$ | 864 | $ | - | ||||
|
Finished
goods, net of reserves of $286,000 and $282,000 at December 31, 2008 and
2009
|
- | - | ||||||
| $ | 864 | $ | - | |||||
The
production of Alferon N Injection® from our Work-In-Progress Inventory, which
has an approximate expiration date of 2012, has remained on hold for conversion
due to the dedication of resources to prepare the New Brunswick facility for the
FDA preapproval inspection with respect to Ampligen® NDA. Since
adequate financial resources were obtained to commence upgrades to the Ampligen®
and Alferon® manufacturing process, the project has commenced and will be
undertaken throughout 2010. As a result, conversion of Alferon N
Injection® Work-In-Progress inventory is projected to begin in late 2010 or
early 2011 to allow for the creation of new Finished Goods available for
commercial sales in mid to late 2011. As a result of delaying the
conversion of Work-In-Progress until potentially 2011, in 2009 the Company has
reclassed the $864,000 value of inventory to “Other assets”.
|
Other
assets consist of the following:
|
(in
thousands)
|
|||||||
|
December
31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Inventory
work in process
|
$ | - | $ | 864 | ||||
|
Security
deposit
|
17 | 15 | ||||||
|
Internet
Domain Names
|
- | 7 | ||||||
| $ | 17 | $ | 886 | |||||
Alferon®
LDO is undergoing pre-clinical testing for possible prophylaxis against
influenza. The Company’s testing of the product supports their belief
that a significant portion of this product is not impaired and could be safely
utilized in clinical trails. Subject to FDA authorization and/or
authorization of regulatory authorities in other countries, the finished goods
inventory of Alferon N Injection® 5ml vials may be used to produce approximately
11,000,000 sachets of Alferon® Low Dose Oral (“LDO”) for clinical
trials. However, no assurance can be given that this inventory will
be permitted for use in future clinical trials or for any other clinical
use. While the studies to date on Alferon ® LDO have been
encouraging, preliminary testing in the laboratory and in animals is not
necessarily predictive of successful results in clinical testing or human
treatment. No assurance can be given that similar results will be
observed in clinical trials. Use of Alferon® LDO as a possible
prevention or treatment of any flu requires prior regulatory
approval. Only the FDA can determine whether a drug is safe,
effective or appropriate for use in clinical testing or for treating a specific
application.
In
October 2009, the Company submitted a protocol to the FDA proposing to conduct a
Phase 2, well-controlled, clinical study for the prophylaxis and treatment of
seasonal and pandemic influenza of more than 200 subjects. Following
a teleconference with the FDA in November 2009, the FDA placed the proposed
study on “Clinical Hold” because the protocol was deemed by the FDA to be
deficient in design and because additional information was required to be
submitted in the area of chemistry, manufacturing and controls
(“CMC”). Thereafter in December 2009, the Company submitted
additional information by Amendment with respect to both the clinical protocol
design issues and the CMC items. In January 2010, the FDA
acknowledged that our responses to the clinical issues were acceptable; however,
the Clinical Hold remained in effect because the FDA believed that certain CMC
issues had not yet been satisfactorily resolved. In this regard, the
FDA communicated concern regarding the extended storage of Alferon® LDO drug
product clinical lots which had been manufactured from an active pharmaceutical
ingredient (“API”) of Alferon N Injection® manufactured in the year
2001. While the biological (antiviral) potency of the product had
remained intact, the Company learned through newly conducted physico-chemical
tests (the “new tests” of temperature, pH, oxidation and light on the chemical
stability of an active API), that certain changes in the drug over approximately
nine storage years (combined storage of Alferon N Injection® plus storage of
certain LDO sachets) had introduced changes in the drug which might adversely
influence the human safety profile. The “new tests” are part of
recent FDA requirements for biological products, such as interferon, which did
not exist at the time of the original FDA approval of Alferon N Injection® for
commercialization and at the time of FDA approval of the “Establishment License”
for Hemispherx’ manufacturing facility. Based on the recent FDA
request, the Company has now established and implemented the “new test”
procedures. As a result, the Company has found that certain Alferon N
Injection® lots with extended storage (i.e., approximately eight to nine years)
do appear to demonstrate some altered physico-chemical
properties. However the Company has also observed in more recent
lots, including those manufactured beginning in the year 2006, are superior with
respect to the enhanced scrutiny of these tests and, in the Company’s view, may
be considered appropriate for clinical trials in the Alferon® LDO sachet
format. The Company expects to submit these new data to the FDA in
the Spring of 2010 and believes that the Clinical Hold could be thereafter
lifted if the FDA agrees that these data address the outstanding CMC issues
cited in the January 2010 FDA recommendations.
(4)
Patents, Trademark Rights and Other Intangibles (FASB ASC 350-30 General
Intangibles Other than Goodwill)
Patents
are stated at cost and amortized over the established useful life of 17 years
for patents or over the period which the asset is expected to directly or
indirectly contribute to the Company’s cash flow.
The
Company records the acquisition of patents as an intangible asset to be
amortized over the remaining life of the patent under guidance set forth in FASB
ASC 350-30.
On July
26, 2006, the Company executed an agreement with Stem Cell Innovations, Inc.
(formerly Interferon Sciences, Inc.) whereby it acquired the royalty interest
previously granted Interferon Sciences with respect to the Company’s sale of
products containing alpha interferon in exchange for 250,000 shares of common
stock. The Company registered these shares on behalf of Stem Cell
Innovations for public resale. The Company recorded this transaction
on its balance sheet as an intangible asset under guidance provided by FASB ASC
350-30. The total consideration paid to Stem Cell under the agreement
amounted to $620. The intangible asset was amortized over the period
which the asset is expected to contribute directly or indirectly to the
Company’s cash flow. In 2007, the Company recorded an impairment
charge of $298,000 as the Company determined that sufficient inventory is not on
hand to realize the full economic benefit; therefore, the asset was written down
to its estimated net realizable value. The balance of this intangible
asset, as of December 31, 2008 and 2009, was $-0-. The balance was
written-off in 2008 as we had no more Alferon® to sell.
During
the years ended December 31, 2007, 2008 and 2009, the Company decided not to
pursue certain patents in various countries for strategic reasons and recorded
abandonment charges of $7,000, $4,000 and $228,000 respectively, which are
included in research and development. Amortization expense was
$103,000, $122,000 and $153,000 in 2007, 2008 and 2009,
respectively. The total cost of the patents was $2,760,000 and
$1,814,000 as of December 31, 2008 and 2009, respectively. The
accumulated amortization as of December 31, 2008 and 2009 is $1,791,000 and
$984,000, respectively.
As of
December 31, 2009, the weighted average remaining life of the patents and
trademarks was 5.4 years. Amortization of patents and trademarks for
each of the next five years is as follows: 2010 - $153,000, 2011 -
$153,000, 2012 - $153,000, 2013 - $153,000 and 2014 – $153,000.
(5)
Accrued Expenses
Accrued
expenses at December 31, 2008 and 2009 consists of the following:
(6)
Debenture Financing
In June
2007, the Company retired all remaining debt related to its convertible
debentures issued in October 2003, January 2004 and July 2004. Of the
outstanding debt of approximately $4,102,000, only $2,638,000 was required to be
paid in new funds to retire the debentures, with the balance being covered by
the Company’s advance receivable held as collateral by one of the debenture
holders.
October
2003 Debentures
Interest
expense for the years ended December 31, 2007, 2008 and 2009, with regard to the
October 2003 Debentures was approximately $72,000, $-0- and $-0-,
respectively.
January
2004 Debentures
Interest
expense for the years ended December 31, 2007, 2008 and 2009, with regard to the
January 2004 Debentures was approximately $9,000, $-0- and $-0-,
respectively.
July
2004 Debentures
The Company recorded financing costs
for the years ended December 31, 2007, 2008 and 2009, with regard to the July
2004 Debentures of $231,000, $-0- and $-0-, respectively. Interest
expense for the year ended December 31, 2007, 2008 and 2009, with regard to the
July 2004 Debentures was approximately $35,000, $-0- and $-0-,
respectively.
(7)
Stockholders'
Equity
(a)
Preferred Stock
The Company is authorized to issue
5,000,000 shares of $.01 par value preferred stock with such designations,
rights and preferences as may be determined by the board of directors. There
were no preferred shares issued and outstanding at December 31, 2008 and
2009.
(b)
Common Stock
The Company’s stockholders approved an
amendment to the Company’s corporate charter at the Annual Shareholder meeting
held in Philadelphia, PA on September 20, 2006. This amendment
increased the Company’s authorized shares from 100,000,000 to
200,000,000.
As of December 31, 2008 and 2009,
78,750,995 and 132,787,447 shares, were outstanding,
respectively.
(c)
Equity Financings
On April 12, 2006, the Company entered
into a Common Stock Purchase Agreement (“Purchase Agreement”) with Fusion
Capital Fund II, LLC (“Fusion Capital”) an Illinois limited liability
company. Pursuant to the terms of the Purchase Agreement, Fusion
Capital had agreed to purchase from the Company up to $50,000,000 of common
stock over a period of approximately twenty-five (25)
months. Pursuant to the terms of the Registration Rights Agreement,
dated as of April 12, 2006, the Company registered 12,386,723 shares issuable to
or issued to Fusion under the Purchase Agreement. Once the
Registration Statement was declared effective, each trading day during the term
of the Purchase Agreement the Company had the right to sell to Fusion Capital up
to $100,000 of the Company’s common stock on such date or the arithmetic average
of the three lowest closing trade prices of the common stock during the
immediately proceeding 12 trading day period. At the Company’s option
under certain conditions, Fusion Capital was required to purchase greater
amounts of common stock during a given period. In connection with
entering into the Purchase Agreement, the Company issued to Fusion Capital as
commitment shares 321,751 shares of common stock and the Company was obligated
to issue an additional 321,751 commitment shares. These additional
commitment shares were issued in an amount equal to the product of (x) 321,751
and (y) the Purchase Amount Fraction. The “Purchase Amount Fraction”
means a fraction, the numerator of which is the purchase price at which the
shares were being purchased by Fusion and the denominator of which is
$50,000,000.
The purchase price was be adjusted for
any reorganization, recapitalization, non-cash dividend, stock split, or other
similar transaction. Fusion Capital could not purchase shares of the Company’s
common stock under the common stock purchase agreement if it, together with its
affiliates, would beneficially own more than 9.9% of the common stock
outstanding at the time of the purchase by Fusion Capital. Fusion
Capital had the right at any time to sell any shares purchased under the 2006
Purchase Agreement which would allow it to avoid the 9.9%
limitation. Due to NYSE Amex guidelines, without prior stockholder
approval, we did not have the right or the obligation under the Agreement to
sell shares to Fusion Capital in excess of 12,386,723 shares (i.e. 19.99% of the
61,964,598 outstanding shares of our common stock on April 12, 2006, the date of
the 2006 Purchase Agreement) inclusive of commitment shares issued to Fusion
Capital under the Agreement. In addition, Fusion Capital could not purchase more
than 27,386,723 shares, inclusive of the commitment shares under the
Agreement. On September 20, 2006 stockholders voted to allow the sale
of up to 27,386,723 shares pursuant to the terms of the Fusion
agreement.
As of December 31, 2007, Fusion Capital
had purchased from the Company 10,682,032 shares for aggregate gross proceeds of
approximately $19,739,000. In addition, the Company issued to Fusion
Capital 127,065 shares towards the remaining commitment fee. No
purchases were made by Fusion in 2008 or 2009 under this agreement, which
expired July 31, 2008.
On July 2, 2008, the Company entered
into a $30 million Common Stock Purchase Agreement (the "Purchase Agreement")
with Fusion Capital. Concurrently with entering into the Purchase
Agreement, we entered into a registration rights agreement with Fusion
Capital. Under the registration rights agreement, we filed a
registration statement related to the transaction with the U.S. Securities &
Exchange Commission (“SEC”) covering the shares that have been issued or may be
issued to Fusion Capital under the common stock purchase
agreement. That registration statement was declared effective by the
SEC on August 12, 2008. As reported in the registration statement
related to the transaction, we had the right over a 25 month period from August
2008 to sell our shares of common stock to Fusion Capital from time to time in
amounts between $120,000 and $1 million depending on certain conditions as set
forth in the agreement, up to a maximum of $30 million. The purchase
price of the shares related to the $30.0 million of future funding was based on
the prevailing market prices of the Company’s shares at the time of sales as
computed under the Purchase Agreement without any fixed discount, and the
Company had control of the timing and amount of any sales of shares to Fusion
Capital. However, Fusion Capital could not purchase any shares of our
common stock pursuant to the Purchase Agreement if the price of our common stock
had three trading days with an average value below $0.40 over the prior twelve
trading days. There were no negative covenants, restrictions on
future funding, penalties or liquidated damages in the agreement. In
consideration for entering into the Purchase Agreement, we issued to Fusion
Capital 650,000 shares as a commitment fee. Also, we were to issue to
Fusion Capital up to an additional 650,000 shares as a commitment fee pro rata
as we receive up to the $30.0 million of future funding. As of
September 1, 2009, Fusion Capital had purchased the maximum number of shares
that were registered under the Registration Statement, an aggregate of
20,000,000 shares for $28,111,695 and received 1,259,086 commitment shares.
On May 8,
2009, the Company entered into a letter agreement (the “Engagement Letter”) with
Rodman & Renshaw, LLC (“Rodman”) as placement agent, relating to a proposed
offering of the our securities. The proceeds from the May 10 and 18,
2009 equity transactions are net of all related offering costs, including the
fair value of warrants issued.
On May 10, 2009, the Company entered
into Securities Purchase Agreements with two institutional
investors. Pursuant to the Securities Purchase Agreements, the
Company issued to these investors in the aggregate: (a) 13,636,363 shares of our
common stock; (b) Series I warrants to purchase an additional 6,136,363 shares
of common stock at an exercise price of $1.65 per share (“Series I Warrants”);
and (c) Series II warrants to purchase up to 3,000,000 shares of common stock at
an exercise price of $1.10 per share (“Series II Warrants”, and together with
the Series I Warrants, the “Warrants”). The warrants include a cash
settlement feature if certain conditions are met. The Series I Warrants could be
exercised at any time on or after the six month anniversary of the May 18, 2009
closing date of the offering and for a five year period
thereafter. The Series II Warrants could be exercised at any time on
or after the May 18, 2009 date of delivery of the Series II Warrants and for a
period of 45 days thereafter. As of December 31, 2009, all Series II
Warrants were exercised and none of the Series I Warrants have been
exercised.
Rodman, as placement agent for the May
10, 2009 Securities Purchase Agreements, acted on a best efforts basis for the
offering and received a placement fee equal to $825,000 as well as Series I
Warrants to purchase 750,000 shares of our common stock equal at an exercise
price of $1.38 per share. The Series I Warrants can be exercised at
any time on or after the six month anniversary of the May 18, 2009 closing date
of the offering and for a five year period thereafter. Rodman also
was entitled to a fee equal to 5.5% of the Series II Warrants that were
exercised. As of December 31, 2009, Rodman received $165,000 in fees
with regard to the exercise of the Series II Warrants.
On May 18, 2009, the Company entered
into Securities Purchase Agreements with two institutional
investors. Pursuant to the Securities Purchase Agreements, The
Company issued to these investors in the aggregate: (a) 11,906,976 shares of
common stock; and (b) warrants to purchase an additional 4,167,440 shares of
common stock at an exercise price $1.31 per share (“Warrants”). The warrants
include a cash settlement feature if certain conditions are met. The Warrants
could be exercised at any time on or after their May 21, 2009 date of issuance
and for a five year period thereafter. As of December 31, 2009,
1,895,000 of these Warrants had been exercised.
Rodman, as placement agent for the May
18, 2009 Securities Purchase Agreements, acted on a best efforts basis for the
offering and received a placement fee equal to $797,500 as well as Warrants to
purchase 654,884 shares of common stock at an exercise price of $1.34375 per
share. The Warrants could be exercised at any time on or after the
six month anniversary of the May 21, 2009 closing date of the offering and for a
five year period thereafter.
The proceeds from this financing have
been used to fund infrastructure growth including manufacturing, regulatory
compliance and market development.
(d)
Common Stock Options and Warrants
(i)
Stock Options
The 1990 Stock Option Plan provides for
the grant of options to purchase up to 460,798 shares of the Company's Common
Stock to employees, directors, and officers of the Company and to consultants,
advisors, and other persons whose contributions are important to the success of
the Company. The recipients of options granted under the 1990 Stock
Option Plan, the number of shares to be converted by each option, and the
exercise price, vesting terms, if any, duration and other terms of each option
shall be determined by the Company's Board of Directors or, if delegated by the
Board, its Compensation Committee. No option is exercisable more than
10 years and one month from the date as of which an option agreement is
executed. These shares become vested through various periods not to
exceed four years from the date of grant. The option price represents the fair
market value of each underlying share of Common Stock at the date of grant,
based upon the public trading price. This plan is no longer in effect
and no further options will be issued from this plan.
Information regarding the options
approved by the Board of Directors under the 1990 Stock Option Plan is
summarized below:
|
2007
|
2008
|
2009
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||||
|
Outstanding,
beginning of year
|
400,702 | $ | 2.71-4.03 | $ | 3.08 | 345,728 | $ | 2.71-4.03 | $ | 3.01 | 345,728 | $ | 2.71-4.03 | $ | 3.01 | |||||||||||||||||||||
|
Granted
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Canceled
|
(54,974 | ) | $ | 3.50-4.03 | $ | 3.53 | - | - | - | (10,000 | ) | $ | 4.03 | $ | 4.03 | |||||||||||||||||||||
|
Exercised
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Outstanding,
end of year
|
345,728 | $ | 2.71-4.03 | $ | 3.01 | 345,728 | $ | 2.71-4.03 | $ | 3.01 | 335,728 | $ | 2.71-4.03 | $ | 2.98 | |||||||||||||||||||||
|
Exercisable
|
345,728 | $ | 2.71-4.03 | $ | 3.01 | 345,728 | $ | 2.71-4.03 | $ | 3.01 | 335,728 | $ | 2.71-4.03 | $ | 2.98 | |||||||||||||||||||||
|
Weighted average
remaining contractual life (years)
|
5.86
yrs.
|
- | - |
4.86
yrs.
|
- | - |
3.86
yrs.
|
- | - | |||||||||||||||||||||||||||
|
Exercised
in current and prior years
|
(27,215 | ) | - | - | (27,215 | ) | - | - | (27,215 | ) | - | - | ||||||||||||||||||||||||
|
Available
for future grants
|
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
In December 1992, the Board of
Directors approved the 1992 Stock Option Plan (the 1992 Stock Option Plan) which
provides for the grant of options to purchase up to 92,160 shares of the
Company's Common Stock to employees, Directors, and Officers of the Company and
to consultants, advisors, and other persons whose contributions are important to
the success of the Company. The recipients of the options granted
under the 1992 Stock Option Plan, the number of shares to be covered by each
option, and the exercise price, vesting terms, if any, duration and other terms
of each option shall be determined by the Company's Board of
Directors. No option is exercisable more than 10 years and one month
from the date as of which an option agreement is executed. To date, no options
have been granted under the 1992 Stock Option Plan.
The Company's 1993 Employee Stock
Purchase Plan (the 1993 Purchase Plan) was approved by the Board of Directors in
July 1993. The outline of the 1993 Purchase Plan provides for the issuance,
subject to adjustment for capital changes, of an aggregate of 138,240 shares of
Common Stock to employees.
The 1993 Purchase Plan is administered
by the Compensation Committee of the Board of Directors. Under the
1993 Purchase Plan, Company employees are eligible to participate in semi-annual
plan offerings in which payroll deductions may be used to purchase shares of
Common Stock. The purchase price for such shares is equal to the
lower of 85% of the fair market value of such shares on the date of grant or 85%
of the fair market value of such shares on the date such right is
exercised. There have been no offerings under the 1993 Purchase Plan
to date and no shares of Common Stock have been issued thereunder.
The Equity Plan effective May 1, 2004,
authorizes the grant of non-qualified and incentive stock options, stock
appreciation rights, restricted stock and other stock awards. A
maximum of 8,000,000 shares of common stock is reserved for potential issuance
pursuant to awards under the Equity Incentive Plan. Unless sooner
terminated, the Equity Incentive Plan will continue in effect for a period of 10
years from its effective date.
The Equity Plan is administered by the
Board of Directors. The Equity Incentive Plan provides for awards to
be made to such Officers, other key employees, non-employee directors,
consultants and advisors of the Company and its subsidiaries as the Board may
select.
Stock options awarded under the Equity
Plan may be exercisable at such times (not later than 10 years after the date of
grant) and at such exercise prices (not less than fair market value at the date
of grant) as the Board may determine. The Board may provide for
options to become immediately exercisable upon a "change in control," which is
defined in the Equity Incentive Plan to occur upon any of the following events:
(a) the acquisition by any person or group, as beneficial owner, of 20% or more
of the outstanding shares or the voting power of the outstanding securities of
the Company; (b) either a majority of the directors of the Company at the annual
stockholders meeting has been nominated other than by or at the direction of the
incumbent directors of the Board, or the incumbent directors cease to constitute
a majority of the Company’s Board; (c) the Company’s stockholders approve a
merger or other business combination pursuant to which the outstanding common
stock of the Company no longer represents more than 50% of the combined entity
after the transaction; (d) the Company’s shareholders approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of the Company’s assets; or (e) any other event or circumstance determined
by the Company’s Board to affect control of the Company and designated by
resolution of the Board as a change of control.
Information regarding the options
approved by the Board of Directors under the Equity Plan is summarized
below:
|
2007
|
2008
|
2009
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||||
|
Outstanding
beginning at year
|
3,328,701 | $ | 1.63-3.86 | $ | 2.56 | 6,556,476 | $ | 1.30-3.86 | $ | 2.59 | 7,226,090 | $ | 0.68-6.00 | $ | 2.59 | |||||||||||||||||||||
|
Granted
|
3,232,870 | $ | 1.30-3.86 | $ | 2.62 | 687,000 | $ | 0.68-6.00 | $ | 2.61 | - | - | - | |||||||||||||||||||||||
|
Canceled
|
(5,095 | ) | $ | 1.90– 2.61 | $ | 2.40 | (17,386 | ) | $ | 1.30– 2.61 | $ | 2.00 | (281,325 | ) | $ | 0.68– 2.20 | $ | 1.86 | ||||||||||||||||||
|
Exercised
|
- | - | - | - | - | - | (293,831 | ) | $ | 0.68-2.20 | $ | 1.56 | ||||||||||||||||||||||||
|
Outstanding
end of year
|
6,556,476 | $ | 1.30-3.86 | $ | 2.59 | 7,226,090 | $ | 0.68-6.00 | $ | 2.59 | 6,650,934 | $ | 1.30-6.00 | $ | 2.66 | |||||||||||||||||||||
|
Exercisable
|
6,354,808 | $ | 1.75-3.86 | $ | 2.63 | 7,122,479 | $ | 0.68-6.00 | $ | 2.61 | 6,604,267 | $ | 1.30-6.00 | $ | 2.66 | |||||||||||||||||||||
|
Weighted average
remaining contractual life (years)
|
8-9
yrs.
|
- | - |
7-8
yrs.
|
- | - |
6-7
yrs.
|
- | - | |||||||||||||||||||||||||||
|
Available
for future grants
|
1,443,524 | - | - | 18,081 | - | - | 5.575 | - | - | |||||||||||||||||||||||||||
On June 20, 2007, our Stockholders
approved the 2007 Equity Incentive Plan at our Annual Shareholder
Meeting. This plan, effective June 1, 2007 authorizes the grant of
non-qualified and incentive stock options, stock appreciation rights, restricted
stock and other awards. A maximum of 9,000,000 shares of common stock
is reserved for potential issuance pursuant to awards under this
plan. Unless sooner terminated, this plan will continue in effect for
a period of 10 years from its effective date. As of year-end, option awards
under this plan were:
|
December 31, 2008
|
December 31, 2009
|
|||||||||||||||||||||||
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||||
|
Outstanding
beginning at year
|
- | - | - | 1,450,000 | $ | 2.20 | $ | 2.20 | ||||||||||||||||
|
Granted
|
1,450,000 | $ | 2.20 | $ | 2.20 | 80,000 | $ | 0.72-3.05 | $ | 1.96 | ||||||||||||||
|
Canceled
|
- | - | - | - | - | - | ||||||||||||||||||
|
Exercised
|
- | - | - | - | - | - | ||||||||||||||||||
|
Outstanding
end of year
|
1,450,000 | $ | 2.20 | $ | 2.20 | 1,530,000 | $ | 0.72-3.05 | $ | 2.19 | ||||||||||||||
|
Exercisable
|
1,450,000 | $ | 2.20 | $ | 2.20 | 1,530,000 | $ | 0.72-3.05 | $ | 2.19 | ||||||||||||||
|
Remaining
contractual life
|
9
years
|
8.1
years
|
||||||||||||||||||||||
|
Available
for future grants
|
3,914,813 | 107,225 | ||||||||||||||||||||||
On June 24, 2009, our Stockholders
approved the 2009 Equity Incentive Plan at our Annual Shareholder
Meeting. This plan, effective September 15, 2009, authorizes the
grant of non-qualified and incentive stock options, stock appreciation rights,
restricted stock and other awards. A maximum of 15,000,000 shares of
common stock is reserved for potential issuance pursuant to awards under this
plan. Unless sooner terminated, this plan will continue in effect for
a period of 10 years from its effective date. As of year-end, option awards
under this plan were:
|
December 31, 2009
|
||||||||||||
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
||||||||||
|
Granted,
outstanding and Exercisable at end of year
|
281,250 | $ | 1.42-2.81 | $ | 2.16 | |||||||
|
Remaining
contractual life
|
9.5
years
|
|||||||||||
|
Available
for future grants
|
13,642,525 | |||||||||||
(ii)
Stock Warrants
Information
regarding warrants outstanding and exercisable into shares of common stock is
summarized below:
|
2007
|
2008
|
2009
|
||||||||||||||||||||||||||||||||||
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
Shares
|
Option
Price
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||||
|
Outstanding
beginning of year
|
10,262,771 | $ | 1.55-6.00 | $ | 2.89 | 7,262,771 | $ | 1.32-6.00 | $ | 2.96 | 5,266,187 | $ | 0.35-4.25 | $ | 3.13 | |||||||||||||||||||||
|
Granted
|
20,000 | $ | 1.32-2.20 | $ | 1.71 | 20,000 | $ | 0.35-0.80 | $ | 0.68 | 15,821,080 | $ | 0.51-1.65 | $ | 1.44 | |||||||||||||||||||||
|
Canceled
|
(3,020,000 | ) | $ | 2.00-4.00 | $ | 2.64 | (2,016,584 | ) | $ | 2.20-6.00 | $ | 2.53 | (3,347,777 | ) | $ | 2.08-4.25 | $ | 3.37 | ||||||||||||||||||
|
Exercised
|
- | - | - | - | - | - | (6,731,244 | ) | $ | 0.35-3.33 | 1.56 | |||||||||||||||||||||||||
|
Outstanding
end of year
|
7,262,771 | $ | 1.32-6.00 | $ | 2.96 | 5,266,187 | $ | 0.35-4.25 | $ | 3.13 | 11,008,246 | $ | $0.51-3.60 | $ | 1.44 | |||||||||||||||||||||
|
Exercisable
|
7,262,771 | $ | 1.32-6.00 | $ | 2.96 | 5,266,187 | $ | 0.35-4.25 | $ | 3.13 | 11,008,246 | $ | $0.51-3.60 | $ | 1.44 | |||||||||||||||||||||
|
Weighted average
remaining contractual life (years)
|
1.99
yrs.
|
- | - |
1
yr.
|
- | - |
4.5
yr.
|
- | - | |||||||||||||||||||||||||||
|
Years
exercisable
|
2008-2017 | - | - | 2009-2018 | - | - | 2010-2019 | - | - | |||||||||||||||||||||||||||
Certain of the stock warrants
outstanding are subject to adjustments for stock splits and
dividends.
Net proceeds received from the exercise
of stock warrants were $6,138,677 for 2009. No warrants were
exercised during 2007 and 2008.
(e)
Rights Offering
On November 19, 2002, the Board of
Directors of the Company declared a dividend distribution of one Right for each
outstanding share of Common Stock to stockholders of record at the close of
business on November 29, 2002 (the "Record Date"). Each Right
entitles the registered holder to purchase from the Company a unit consisting of
one one-hundredth of a share (a "Unit") of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") at a
Purchase Price of $30.00 per Unit, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Continental Stock Transfer &
Trust Company, as Rights Agent.
Initially, the Rights are attached to
all Common Stock certificates representing shares then outstanding, and no
separate Rights Certificates will be distributed. Subject to certain
exceptions specified in the Rights Agreement, the Rights will separate from the
Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
15% or more (or 20% or more for William A. Carter, M.D.) of the outstanding
shares of Common Stock (the "Stock Acquisition Date"), other than as a result of
repurchases of stock by the Company or certain inadvertent actions by
institutional or certain other stockholders or (ii) 10 business days (or such
later date as the Board shall determine) following the commencement of a tender
offer or exchange offer that would result in a person or group becoming an
Acquiring Person. Until the Distribution Date, (i) the Rights will be evidenced
by the Common Stock certificates and will be transferred with and only with such
Common Stock certificates, (ii) new Common Stock certificates issued after the
Record Date will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for Common
Stock outstanding will also constitute the transfer of the Rights associated
with the Common Stock represented by such certificate. Pursuant to
the Rights Agreement, the Company reserves the right to require prior to the
occurrence of a triggering event that, upon any exercise of Rights, a number of
Rights be exercised so that only whole shares of Preferred Stock will be
issued.
(8)
Segment and Related
Information
The Company operates in one segment,
which performs research and development activities related to Ampligen® and
other drugs under development, and sales and marketing of
Alferon®. The Company’s revenues for the three year period ended
December 31, 2009, were earned in the United States.
The Company employs an insignificant
amount of net property and equipment in its foreign operations.
(9)
Research, Consulting and Supply
Agreements
In 1998,
the Company entered into a strategic alliance with Accredo to develop certain
marketing and distribution capacities for Ampligen® in the United
States. Accredo, a division of MEDCO
,
is one of the nation's
largest Specialty Pharmacies. Pursuant to the agreement, Accredo
assumed certain responsibilities for distribution of Ampligen® for which they
received a fee. Through this arrangement, the Company may mitigate
the necessity of incurring certain up-front costs. Accredo has also
worked with the Company in connection with the Amp 511 ME/CFS cost recovery
treatment program, Amp 516 ME/CFS Phase III clinical trial and the Amp 719
(combining Ampligen® with other antiviral drugs in HIV-salvage therapy and Amp
720 HIV Phase IIb clinical trials now under way). There can be no
assurances that this alliance will develop a significant commercial position in
any of its targeted chronic disease markets. The agreement had an
initial one year term from February 9, 1998 with successive additional one year
terms unless either party notifies the other not less than 180 days prior to the
anniversary date of its intent to terminate the agreement. Also, the
agreement may be terminated for uncured defaults, or bankruptcy, or insolvency
of either party and will automatically terminate upon the Company’s receiving an
NDA approval for Ampligen® from the FDA, at which time, a new agreement will
need to be negotiated with Accredo or another major drug
distributor. There were no initial fees. There has been no
communication or activity under this agreement for the past few years. There is
no contractual obligation under this agreement at December 31,
2009.
Pursuant
to the current Biken material evaluation agreement which concludes in August
2010 or when the evaluation program is completed, which ever is earlier,
Biken(the for profit operational arm of the Foundation for Microbial Diseases of
Osaka University) purchases Ampligen® for use in conducting further animal
studies of intranasal prototype vaccines containing antigens from influenza
sub-types H1N1, H3N2 and B. The collaboration, by Hideki Hasegawa, M.D., Ph.D.,
Chief
of the
Laboratory of Mucosal
Vaccine Development Virus Research Center at the
Japan’s National Institute
of Infectious Diseases (“NIID”)
,
is assessing the
Company’s experimental therapeutic Ampligen® as a vaccine
adjuvant. The Company sold approximately $1,000, $74,000 and $45,000
in specially formulated Ampligen® to Biken for the years ended December 31,
2007, 2008 and 2009 respectively. There is no contractual obligation under this
agreement at December 31, 2009.
Since
October 2005, the Company has engaged the Sage Group, Inc. (“Sage”), a health
care, technology oriented, strategy and transaction advisory firm, to assist the
Company in obtaining a strategic alliance in Japan for the use of Ampligen® in
treating Chronic Fatigue Syndrome (“CFS”). In May 2009, the Company
agreed to a proposed engagement extension of eighteen months with Sage to assist
the Company to identify, qualify, negotiate and close one or more licensing,
partnering, alliance transactions pertaining to the Company’s products and
technology including utilization of Ampligen® to treat CFS. The
Company incurred approximately $25,000, $167,000 and $507,000 in fees to Sage
for the years ended December 31, 2007, 2008 and 2009 respectively, pursuant to
this and earlier agreements. R. Douglas Hulse, the Company’s former
President and Chief Operating Officer, is a member and an executive director of
Sage.
The
Company has a Supply Agreement through March 1, 2011 with Hollister-Stier
Laboratories LLC of Spokane, Washington (“Hollister-Stier”), for the
manufacturing of Ampligen®. Pursuant to the agreement the Company
supplies the key raw materials and Hollister-Stier formulates and packages the
Ampligen®. The Company incurred approximately $475,000, $-0- and
$225,000 in fees for the years ended December 31, 2007, 2008 and 2009,
respectively, pursuant to this agreement.
On June
6, 2008, the Company engaged the services of Warren C. Bogard, Jr, Ph.D. as a
consultant for Business and Product. Dr. Bogard has agreed to spend
at least 70% of his time working on product and business development
matters. His compensation includes $5,000 per work week and 100,000
stock options with a five year term exercisable at $.68 per
share. Dr. Bogard is a participant in the Goal Achievement Incentive
Award Program and consistent with the Company’s “Employee Wage Or Hours
Reduction Program”, he elected to receive 50% of his fee in Incentive Rights on
a three-to-one conversion basis for the period of January 1 to May 31,
2009. His agreement expired May 31, 2009 and has been extended by
informal mutual consent with his rate of compensation increased 10% effective
January 1, 2010.
On November 18, 2008, the
Company announced it has entered into a contract with Lovelace Respiratory
Research Institute (“LRRI”), Albuquerque, N.M. LRRI is the nation's
largest independent, not-for-profit organization conducting basic and applied
research on the causes and treatment of respiratory illness and
disease. LRRI had agreed to undertake preclinical studies of new
pharmaceuticals that include Ampligen® for a total fee of $1,001,516 which was
paid in full with 1,824,256 shares of Company Restricted Stock on
October
3, 2008 at the value of $0.55 per share. On January 14, 2010, the
Company announced that reports of preclinical studies from the combined staffs
of Hemispherx and LRRI had been completed and submitted to the FDA that showed
no evidence of antibodies against Ampligen® in lower animal species (primate and
rodent) and no evidence of an increase in certain undesirable cytokines
(specific modulators of the immune system) at clinically used doses of Ampligen®
for CFS. The Company’s Management believes that these data address
certain preclinical issues referenced in the Complete Response Letter received
from the FDA on November 25, 2009 and has concluded the contractual services
with LRRI
.
There is no
contractual obligation under this agreement at December 31,
2009.
The Company has entered into agreements
for consulting services, which are performed at medical research institutions
and by medical and clinical research individuals. The Company's
obligation to fund these agreements can be terminated after the initial funding
period, which generally ranges from one to three years or on an as-needed
monthly basis. During the years ending December 31, 2007, 2008 and 2009, the
Company incurred approximately $842,000, $704,000 and $801,000 respectively, of
consulting service fees under these agreements. These costs are charged to
research and development expense as incurred.
(10)
401(k) Plan
The Company has a defined contribution
plan, entitled the Hemispherx Biopharma Employees 401(K) Plan and Trust
Agreement (the “401(k) Plan”). Full time employees of the Company are
eligible to participate in the 401(K) Plan following one year of
employment. Subject to certain limitations imposed by federal tax
laws, participants are eligible to contribute up to 15% of their salary
(including bonuses and/or commissions) per annum. Participants' contributions to
the 401(K) Plan may be matched by the Company at a rate determined annually by
the Board of Directors.
Each participant immediately vests in
his or her deferred salary contributions, while Company contributions will vest
over one year. In 2007, 2008 and 2009 the Company provided matching
contributions to each employee for up to 6% of annual pay aggregating $130,000,
$21,000 and $-0-, respectively. The 6% Company matching contribution
was terminated as of March 15, 2008 and was reinstated effective January 1,
2010.
(11)
Royalties, License and Employment
Agreements
In 1999,
the Company acquired a series of patents on Oragens®, potentially a set of oral
broad spectrum antivirals and immunological enhancers, through a 10 year
licensing agreement with Temple University in Philadelphia, PA. For a
$30,000 annual minimum royalty payment and costs to maintain the patents, the
Company was granted an exclusive worldwide license from Temple for the Oragen®
products. In March 2009, the Company undertook an analysis of the
Oragen® patents prior to renewing the licensing agreement with Temple University
and proposed a patent renewal agreement that significantly discounted the prior
agreement’s annual minimum royalty payment. On February 2, 2010, it
was formally communicated by Temple University that they had elected not to
pursue our proposal to renew the series of patents on
Oragens®. Accordingly as of December 2009, the Company wrote-off the
remaining value of these patents from Other Assets resulting in a net expense
for Patents Abandoned of $114,000.
The Company had contractual agreements
with three officers in 2007 and 2008 with two officers in 2009. The
aggregate annual base compensation for these officers under their respective
contractual agreements for 2007, 2008 and 2009 were $1,276,000, $1,290,000 and
$928,000 respectively. In addition, certain officers were entitled to
receive performance bonuses of up to 25% of the annual base salary at the sole
discretion of the Compensation Committee of the Board of
directors. In 2007, 2008 and 2009, officers’ bonus of $319,000, $-0-
and $526,772 respectively were granted. The Chief Executive Officer’s
employment agreement (see below) provided for bonuses based on gross proceeds
received by the Company from any joint venture or corporate partnering
agreement. In 2007, the Chief Executive Officer was granted 2,400,000 options to
purchase common stock at $1.24-$1.60 per share, the Chief Financial Officer was
granted 213,050 options to purchase common stock at $1.30-$2.00 per share and
the Chief Operating Officer was granted 50,000 options to purchase common stock
at $1.88 per share. In 2008, the Chief Executive Officer was granted
1,640,000 to purchase common stock at $2.20 to $4.00 per share. The
Company recorded stock compensation expense of $1,883,000, $317,000 and $-0-
respectively, during the years ended December 31, 2007, 2008 and 2009 with
regard to these issuances.
Dr.
Carter’s employment as the Company’s Chief Executive Officer and Chief
Scientific Officer expires December 31, 2010 unless sooner terminated for cause
or disability. The agreement automatically renews for successive one
year periods after the initial termination date unless the Company or Dr. Carter
give written notice otherwise at least ninety days prior to the termination date
or any renewal period. Dr. Carter has the right to terminate the
agreement on 30 days’ prior written notice. The base salary is
subject to adjustments and the average increase or decrease in the Consumer
Price Index for the prior year. In addition, Dr. Carter could receive
an annual performance bonus of up to 25% of his base salary, at the sole
discretion of the Compensation Committee of the board of directors, based on his
performance or the Company’s operating results. Dr. Carter will not
participate in any discussions concerning the determination of his annual
bonus. Dr. Carter is also entitled to an incentive bonus of 0.5% of
the gross proceeds received from any joint venture or corporate partnering
arrangement. Dr. Carter’s agreement also provides that he be paid a
base salary and benefits through the last day of the then term of the agreement
if he is terminated without “cause”, as that term is defined in
agreement. In addition, should Dr. Carter terminate the agreement or
the agreement be terminated due to his death or disability, the agreement
provides that Dr Carter be paid a base salary and benefits through the last day
of the month in which the termination occurred and for an additional twelve
month period. From January 1 through May 31, 2009, Dr. Carter’s
compensation as an employee was changed pursuant to our “Employee Wage Or Hours
Reduction Program” consistent with an employee earning over $200,000 per annum
to receive 50% of his wages in Incentive Rights on a three-to-one conversion
basis.
The
Company’s engagement of Dr. Carter as a consultant related to patent
development, as one of the Company’s directors and as chairman of the Executive
Committee of the Company’s board expires December 31, 2010 unless sooner
terminated for cause or disability. The agreement automatically
renews for successive one year periods after the initial termination date or any
renewal period. Dr. Carter has the right to terminate the agreement
on 30 days’ prior written notice. The base fee is subject to annual
adjustments equal to the percentage increase or decrease of annual dollar value
of directors’ fees provided to the Company’s directors during the prior
year. The annual fee is further subject to adjustment based on the
average increase or decrease in the Consumer Price Index for the prior
year. In addition, Dr. Carter could receive an annual performance
bonus of up to 25% of his base fee, at the sole direction of the Compensation
Committee of the board of directors, based on his performance. Dr.
Carter will not participate in any discussions concerning the determination of
this annual bonus. Dr. Carter’s agreement also provides that he be
paid his base fee through the last day of the then term of the agreement if he
is terminated without “cause”, as that term is defined in the agreement. In
addition, should Dr. Carter terminate the agreement or the agreement be
terminated due to his death or disability, the agreement provides that Dr.
Carter be paid fees due him through the last day of the month in which the
termination occurred and for an additional twelve month period. From
January 1 through May 31, 2009, Dr. Carter’s compensation as a consultant was
changed pursuant to our “Employee Wage Or Hours Reduction Program” consistent
with an employee earning over $200,000 per annum to receive 50% of his fee in
Incentive Rights on a three-to-one conversion basis.
On
December 1, 2008, an Engagement Agreement with Charles T. Bernhardt, CPA as
Chief Financial Officer was finalized and effective January 1,
2009. The agreement calls for an initial salary of $160,000 per annum
and eligibility for the Goal Achievement Incentive Program. The
agreement is based on an employment “at will” basis in which either party may
cancel upon two weeks written notice. Consistent with the Company’s
“Employee Wage Or Hours Reduction Program”, Mr. Bernhardt had elected to receive
50% of his wages in Incentive Rights on a three-to-one conversion basis for the
period of January 1 to May 31, 2009.
On June 11, 2009, the
Company entered into an
Employment Agreement with
Robert Dickey IV as Senior Vice President.
On February 1,
2010, that agreement was superseded with another agreement. Pursuant
to the February 1, 2010 agreement, Mr. Dickey serves as Senior Vice President
until September 1, 2010, unless otherwise extended by mutual written agreement
of the parties or terminated earlier. Mr. Dickey devotes his
full-time to the business of the Company. He receives an annual
salary of $302,500, less applicable withholding and taxes, through September 1,
2010, payable in accordance with Company's standard payroll
policy. The agreement terminates upon Mr. Dickey’s death and any and
all compensation then due him shall be paid to his estate. In the
event Mr. Dickey is unable to perform his duties due to disability, for a period
in excess of sixty days, or for a total sixty days consecutive or not within the
term of this agreement, the Company shall be permitted to terminate the
agreement without further liability to Mr. Dickey.
On
January 1, 2007, the Company entered into an employment agreement with Wayne
Springate that provides for his services as Vice President of operations until
April 30, 2008 unless sooner terminated for cause, disability or
death. The agreement automatically renews for successive one year
periods after the initial termination date unless we or Mr. Springate give
written notice otherwise at least sixty days prior to the termination date or
any renewal period. Additionally, Mr. Springate has the right to
terminate the agreement on 30 days’ prior written notice. The initial
annual fee for services is $150,000 and is annually subject to adjustment based
on the average increase or decrease in the Consumer Price Index for the prior
year. In addition, Mr. Springate could receive an annual performance
bonus of up to 20% of his base salary, at the sole discretion of the
Compensation Committee of the Board of directors, based on his performance and
eligible to be paid within 60 days of the close of the calendar
year. Mr. Springate’s agreement also provides that he be paid a base
salary and benefits through the last day of the current term of the agreement if
he is terminated without “cause”, as that term is defined in
agreement. In addition, should Mr. Springate terminate the agreement
due to his death or disability, the agreement provides that he will be paid a
base salary and benefits through the last day of the month in which the
termination occurred. In the event that the Company terminates the
agreement for “cause”, as the term is defined in the agreement, Mr. Springate
would only be paid a base salary and benefits through the date of
termination. From January 1 through May 31, 2009, Mr. Springate’s
compensation as an employee was changed pursuant to our “Employee Wage Or Hours
Reduction Program” consistent with an employee earning over $200,000 per annum
to receive 50% of his wages in Incentive Rights on a three-to-one conversion
basis.
An
agreement was made and entered into as of the 31st day of December, 2008 with
Robert E. Peterson. Mr. Peterson was previously engaged by the
Company as it’s Chief Financial Officer pursuant to an Amended And Restated
Engagement Agreement (“Engagement Agreement”) made as of March 11,
2005. Mr. Peterson, at his election, terminated the Engagement
Agreement as of December 31, 2008 in accord with the provisions of this
agreement. This Engagement Agreement provided pursuant to subsection
6(c) or due to Peterson’s death or disability, the Company shall pay to
Peterson, at the time of such termination his annual compensation for an
additional twelve month period. Whereas the Company wished to modify
its obligation to pay to Mr. Peterson at the termination of the Engagement
Agreement the fees due to him for the additional twelve month period and Mr.
Peterson was willing to agree to modification of the Company’s obligation to pay
to him at the termination of the Engagement Agreement the fees due to him, the
Company and Mr. Peterson agreed to the follows:
|
|
o
|
Peterson
waived his right to receive payment for the additional twelve month period
as provided for in the Engagement
Agreement;
|
|
|
o
|
On
the occurrence of a “Change In Control, the Company shall pay to Peterson
three times the amount of compensation paid to Peterson by the Company for
calendar year 2008. A “Change In Control” shall be deemed to
have occurred as set forth the Engagement Agreement Regarding Change In
Control made as of March 11, 2005 between the Company and Peterson, with
the definition of “Change In Control” as therein set
forth;
|
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|
o
|
Upon
executing a “Financial Transaction”, the Company shall pay to Peterson one
(1) percent (the “Peterson One Per Cent Fee”) of the cash to be received
by the Company from each Financial Transaction. Provided,
however, the Peterson One Per Cent Fee shall in no event exceed in the
aggregate two times the amount of compensation paid to Peterson by the
Company for calendar year 2008. A “Financial Transaction” shall
be any agreements entered into by the Company in which the Company is to
receive cash from such third parties. A Financial Transaction
does not include agreements whereby the Company receives cash as a result
of (i) the Company only being reimbursed for expenses, not including
expenses for prior research conducted by the Company, incurred by the
Company, (ii) an agreement in which the only economic benefit to the
Company is a loan or loans to the Company, (iii) any transactions with
Fusion pursuant to the July 2, 2008, Common Stock Purchase Agreement
between the Company and Fusion;
|
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o
|
For
a period of thirty six (36) months following the Effective Date of
December 31, 2008, subject to earlier termination by Peterson in his sole
discretion, the Company shall engage Peterson as a part time advisor to
the Company’s Chief Executive Officer and shall pay to Peterson for such
services (“Advisory Services”) the sum of four thousand dollars ($4,000)
per month, payable monthly with the first monthly payment being due and
payable one month after the Effective
Date;
|
|
|
o
|
Peterson
is to receive Options to purchase 20,000 shares of the Company’s common
stock at the end of each calendar quarter following the Effective
Date. Peterson may terminate the Advisory Services at any
time;
|
|
|
o
|
This
Agreement shall terminate upon Peterson having received full payment for a
change in control or upon receiving the maximum one percent
fee. The Agreement provides for a “gross-up” payment to make
Peterson whole for any Federal taxes imposed as a result of change of
control or one percent payments to
him.
|
The
Company’s agreement with Ransom Etheridge regarding his role as General Counsel
expired on December 31, 2009 and was not renewed pursuant to the terms of the
agreement. From January 1 through May 31, 2009, Mr. Ethridge’s
compensation as a consultant was changed pursuant to our “Employee Wage Or Hours
Reduction Program” consistent with an employee earning over $200,000 per annum
to receive 50% of his wages in Incentive Rights on a three-to-one conversion
basis.
The Board of Directors, deeming it
essential to the best interests of the Company’s shareholders to foster the
continuous engagement of key management personnel and recognizing that, as is
the case with many publicly held corporations, a change of control might occur
and that such possibility, and the uncertainty and questions which it might
raise among management, might result in the departure or distraction of
management personnel to the detriment of the Company and the Company’s
shareholders, determined to reinforce and encourage the continued attention and
dedication of members of the Company’s management to their engagement without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company with William A. Carter, the
Company’s Chief Executive Officer and Chief Scientific Officer.
The
agreement regarding change in control for William A. Carter became effective
March 11, 2005, continued through December 31, 2008 and then extend
automatically to the third anniversary thereof unless the Company gave notice to
the other party prior to the date of such extension that the agreement term will
not be extended. Notwithstanding the foregoing, if a change in
control occurs during the term of the agreements, the term of the agreements
will continue through the second anniversary of the date on which the change in
control occurred. The agreement entitles William A. Carter to change
of control benefits, as defined in the agreements and summarized below, upon
their respective termination of employment/engagement with the Company during a
potential change in control, as defined in the agreements or after a change in
control, as defined in the agreements, when their respective terminations are
caused (1) by the Company for any reason other than permanent disability or
cause, as defined in the agreement (2) by William A. Carter for good reason as
defined in the agreement or, (3) by William A. Carter for any reason during the
30 day period commencing on the first date which is six months after the date of
the change in control.
The
agreement also provides that Dr. Carter is entitled to:
|
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o
|
A
lump sum cash payment of three times his base salary and annual bonus
amounts;
|
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o
|
A
“gross-up” payment to make him whole for any federal excise tax imposed on
change of control or severance payments received by
him;
|
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o
|
Outplacement
benefits;
|
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o
|
Continued
insurance coverage through the third anniversary of his termination;
and
|
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o
|
Retirement
benefits computed as if he had continued to work for the above period.
|
In order to facilitate the Company’s
need to obtain financing and prior to the Company’s shareholders approving an
amendment to the Company’s corporate charter to merge the number of authorized
shares, Dr. Carter, the Company’s Chief Executive Officer, agreed to waive his
right to exercise certain warrants and options unless and until the Company’s
shareholders approved an increase in the Company’s authorized shares of Common
Stock.
(12)
Leases
The Company has a non-cancelable
operating lease for the space in which its principal office is
located.
Rent expense charged to operations for
the years ended December 31, 2007, 2008 and 2009 amounted to approximately
$231,000, $239,000 and $214,000 respectively. The term of the lease
for the Philadelphia, Pennsylvania offices is through April 30,
2010.
(13)
Income Taxes (FASB ASC 740 Income
Taxes)
The
Company adopted the provisions of FASB ASC 740-10 Uncertainty in Income
Taxes. As a result of the implementation, there has been no material
change to the Company’s tax position as they have not paid any corporate income
taxes due to operating losses. All tax benefits will likely not be
recognized due to the substantial net operating loss carryforwards which will
most likely not be realized prior to expiration.
As of December 31, 2009, the Company
has approximately $93,000,000 of federal net operating loss carryforwards
(expiring in the years 2010 through 2029) available to offset future federal
taxable income. The Company also has approximately $38,000,000 of
Pennsylvania state net operating loss carryforwards (expiring in the years 2018
through 2029) and approximately $35,000,000 of New Jersey state net operating
loss carry forwards (expiring in the years 2010 through 2016) available to
offset future state taxable income. The utilization of certain state
net operating loss carryforwards may be subject to annual
limitations. With no tax due for the foreseeable future, the Company
has determined that a policy to determine the accounting for interest or
penalties related to the payment of tax is not necessary at this
time.
Under the Tax Reform Act of 1986, the
utilization of a corporation's net operating loss carryforward is limited
following a greater than 50% change in ownership. Due to the
Company's prior and current equity transactions, the Company's net operating
loss carryforwards may be subject to an annual limitation generally determined
by multiplying the value of the Company on the date of the ownership change by
the federal long-term tax exempt rate. Any unused annual limitation
may be carried forward to future years for the balance of the net operating loss
carryforward period.
Deferred income taxes reflect the net
tax effects of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the carrying amounts used for
income tax purposes. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which temporary differences representing
net future deductible amounts become deductible. Due to the
uncertainty of the Company's ability to realize the benefit of the deferred tax
asset, the deferred tax assets are fully offset by a valuation allowance at
December 31, 2008 and 2009.
The components of the net deferred
tax asset of December 31, 2008 and 2009 consists of the following:
|
(000’s
omitted)
|
||||||||
|
Deferred
tax assets:
|
2008
|
2009
|
||||||
|
Net
operating losses
|
$ | 29,655 | $ | 31,664 | ||||
|
Stock
based compensation
|
191 | 281 | ||||||
|
Accrued
expenses and other
|
22 | - | ||||||
|
Amortization
& depreciation
|
(1,088 | ) | (1,018 | ) | ||||
|
Research
and development costs
|
1,945 | 1,924 | ||||||
|
Total
|
30,725 | 32,851 | ||||||
|
Less:
Valuation Allowance
|
(30,725 | ) | (32,851 | ) | ||||
|
Balance
|
$ | -0- | $ | -0- | ||||
(14)
Contingencies
|
(a)
|
Hemispherx
Biopharma, Inc. v. Johannesburg Consolidated Investments, et al.,U.S.
District Court for the Southern District of Florida, Case No.
04-10129-CIV.
|
In
December, 2004, we filed a multi-count complaint in federal court (Southern
District of Florida) for fraud and injunctive relief against Bioclones, Dr.
Donniger, Bart Goemare, JCI, Brett Kebble and H.C. Buidentag. However, a
motion to dismiss the complaint, in part on grounds that the matter must be
arbitrated in South Africa, was granted by the court. We appealed this
decision to the 11
th
Circuit
Court of Appeals. In July 2008, while the appeal was pending, we settled
our disputes with both Bioclones and Cyril Donninger and dismissed them from the
lawsuit. In 2005 Buitendag and Kebble were indicted for using JCI to
perpetrate the largest financial fraud in South African history. The
appeals court allowed the fraud action to go forward. In 2008, the Company filed
a second amended complaint for fraud against JCI, Goemare, the Estate of Kebble
and Buidentag, the only remaining defendants. In 2009, we settled our
disputes with Goemare and dismissed him from the lawsuit. In
February of 2010, the Court began considering the remaining defendants’(JCI,
estate of Kebble, and Buidentag) motion to dismiss the complaint. The
Company intends to continue vigorously prosecuting this case.
|
(b)
|
Hemispherx
Biopharma, Inc. v. Lovells LP et al. Federal District Court for the
Eastern District of
Pennsylvania.
|
In
December 2008, Lovells LP filed a complaint against the Company in the Federal
District Court for the Eastern District of Pennsylvania seeking 151,330 pounds
sterling for legal fees allegedly due to Lovells LP by the Company. In
June 2009, the parties settled for $164,000 that was to be paid by way of
unsecured monthly installments through January, 2010. As a result of the
settlement, the Company has recorded a contingency for outstanding legal fees of
$129,000 for the period ended December 31, 2009, and has paid the balance in
full during January 2010.
|
(c)
|
Hemispherx
Biopharma, Inc. v. MidSouth Capital, Inc., Adam Cabibi, And Robert L.
Rosenstein v. Hemispherx Biopharma, Inc. and The Sage Group,
Inc.,
Civil Action
No. 1:09-CV-03110-CAP.
|
On June
4, 2009, the Company filed suit in the United States District Court for the
Southern District of Florida against MidSouth Capital, Inc. and its principals
seeking monetary and injunctive relief against MidSouth's tortuous interference
with certain financing transactions in which the Company was
engaged. The case was transferred to the Northern District of
Georgia, and Holland & Knight LLP was engaged as counsel by the Company on
November 13, 2009 to serve as local counsel. On November 19, 2009,
MidSouth answered the Company's Complaint and filed a Counterclaim against the
Company and The Sage Group, Inc., seeking to recover between $3,900,000 and
$4,800,000 for fees allegedly owed to it as a result of the same financing
transactions, plus attorneys' fees and punitive damages. On January
12, 2010, the Company filed a Motion for Judgment on the Pleadings, which is
pending before the Court. The Company is vigorously defending the
Counterclaim and prosecuting its own claims.
|
(d)
|
Cato
Capital, LLC v. Hemispherx Biopharma, Inc., U.S. District Court for the
District of Delaware, Case No.
09-549-GMS.
|
On July
31, 2009, Cato Capital LLC (“Cato”) filed suit asserting that under a November
2008 agreement, Hemispherx owes Cato a placement fee for certain investment
transactions. The Complaint seeks damages in the amount of $5,000,000
plus attorneys fees. The Company filed its Answer on August 20,
2009. On October 13, 2009, Cato filed a Motion seeking leave to file
an Amended Complaint which proposes that Cato be permitted to add The Sage Group
as an additional defendant and to bring additional causes of action against
Hemispherx arising from the defenses contained in the Company’s Answer and
increase the total amount sought to $9,830,000, plus attorneys’ fees and
punitive damages. Hemispherx filed a timely response objecting to the
Motion. Disposition of this Motion is pending before the
Court. The Company is vigorously defending against this
claim.
|
(e)
|
In
re Hemispherx Biopharma, Inc. Litigation, U. S. District Court for the
Eastern District of Pennsylvania, Civil Action No.
09-5262.
|
Between
November 10, 2009 and December 29, 2009, five putative class actions were filed
against the Company and its Chief Executive Officer generally asserting that
defendants misrepresented the status of the Company’s New Drug Application for
Ampligen®. Each action was purportedly brought on behalf of investors
who purchased the Company’s publicly traded securities. The suits
were consolidated by the Court as the “Securities Class Action
Lawsuit.”
Also in
December of 2009 and January of 2010, three Shareholder Derivative Complaints
were filed against the Company and some of its Officers and
Directors. Those suits also allege that the defendants caused the
Company to misrepresent the status of its
New Drug Application
(“NDA”) for
Ampligen®. As of this date, no defendant had been
served with a complaint in the derivative suits. On February 12,
2010, the Court consolidated the Class Action Lawsuit with the derivative suits
for purposes of discovery.
The
Company intends to vigorously defend the securities suit and the derivative
actions. Due to the preliminary state of the proceedings, the potential impact
of these actions, which seek unspecified damages, attorneys’ fees and expenses
are uncertain.
|
(f)
|
Summation.
|
In
reference to Contingencies identified above as (c)
(d)
and (e), there can be no assurance that an adverse result in these proceedings
would not have a potentially material adverse effect on the Company’s business,
results of operations, and financial condition. With regards to
Contingency (e), the Company maintains a Directors and Officers (“D&O”)
Insurance Policy that provides coverage for claims and retention of legal
counsel.
The Company has not recorded any loss
contingencies as a result of the above matters for the years ended December 31,
2007, 2008 and 2009.
|
(15)
|
Certain Relationships and
Related Transactions
|
The
Company has employment agreements with certain of their executive officers and
has granted such officers and directors options and warrants to purchase their
common stock. Please see details of these employment agreements in
Note 11 - Royalties, License and Employment Agreements.
The
Company used at various times the property owned by Retreat House, LLC, an
entity in which the children of William A. Carter have a beneficial interest.
The Company paid Retreat House, LLC $153,000, $41,200 and $82,400 for the use of
the property at various times in 2007, 2008 and 2009, respectively.
Ransom W. Etheridge, the Company’s
General Counsel through December 2009 as well as former Secretary and Director,
is an attorney in private practice, who renders corporate legal services, for
which he has received fees totaling approximately $105,400 and $144,000 in 2008
and 2009, respectively. In addition, Mr. Etheridge served on the
Board of Directors until November 2008 for which he received Director’s Fees of
cash and stock. He was paid $150,000 in cash and stock in 2008 and in
2007 for his services as a Director.
Tom
Equels was elected to the Board of Directors at the Annual Stockholders Meeting
on November 17, 2008. Mr. Equels has provided legal services to the
Company for several years. In 2008 and 2009, the Company paid Mr.
Equel’s law firm $395,000 and $387,000, respectfully, for services
rendered. Mr. Equel’s received $37,500 in stock for his Board fees in
2008 and $150,000 in cash and stock in 2009, respectively.
Kati
Kovari, M.D. was paid $13,000 in 2008 and 2009 for her part-time services to the
Company as Assistant Medical Director. Dr. Kovari is the spouse of
William A. Carter, CEO.
|
(16)
|
Concentrations of Credit
Risk
|
Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
principally of cash, cash equivalents, investments and accounts
receivable. The Company places its cash with high-quality financial
institutions. At times, such amount may be in excess of Federal
Deposit Insurance Corporation insurance limits of $250,000.
Sales to three large wholesalers
represented approximately 68% and 77% of the Company’s total sales for the years
ended December 31, 2007 and 2008, respectively. There were no sales
in 2009.
|
(17)
|
Fair
Value
|
The
Company is required under GAAP to disclose information about the fair value of
all the Company’s financial instruments, whether or not these instruments are
measured at fair value on the Company’s consolidated balance sheet.
The
Company estimates that the fair values of cash and cash equivalents, other
assets, accounts payable and accrued expenses approximate their carrying values
due to the short-term maturities of these items. The Company also has
certain warrants with a cash settlement feature (in the event of a change in
control to a non-public company) that are carried at fair
value. Management estimates the fair value using a model which
determines the probability that the cash settlement feature conditions will
arise. The carrying amount and estimated fair value of the above
warrants was zero at December 31, 2009. There were no other financial
instruments at December 31, 2009 or 2008.
On
January 1, 2008, the Company adopted new accounting guidance (codified at FASB
ASC 820 and formerly Statement No. 157
Fair Value Measurements
) that
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. The guidance does not impose any new requirements
around which assets and liabilities are to be measured at fair value, and
instead applies to asset and liability balances required or permitted to be
measured at fair value under existing accounting pronouncements. The
Company measures its warrant liability for those warrants with a cash settlement
feature at fair value. As of December 31, 2009, the Company had no
derivative assets or liabilities.
FASB ASC
820-10-35-37 (formerly SFAS No. 157) establishes a valuation hierarchy based on
the transparency of inputs used in the valuation of an asset or
liability. Classification is based on the lowest level of inputs that
is significant to the fair value measurement. The valuation hierarchy
contains three levels:
|
|
·
|
Level
1 – Quoted prices are available in active markets for identical assets or
liabilities at the reporting date.
|
|
|
·
|
Level
2 – Observable inputs other than Level 1 prices such as quote prices for
similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
|
|
|
·
|
Level
3 – Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models, discounted
cash flow methodologies, or other valuation techniques, as well as
instruments for which the determination of fair value requires significant
management judgment or estimation. As of December 31, 2009, the
Company has classified the warrants with cash settlement features as Level
3. Management evaluates a variety of inputs and then estimates
fair value based on those inputs. The primary inputs evaluated
by management to determine the likelihood of a change in control to a
non-public company (thereby triggering the cash settlement feature) were
the Company’s FDA approval status including the additional requirements
including required cash outflows prior to resubmission to the FDA
(observable), the industry and market conditions (unobservable),
litigation matters against the Company (observable) and statistics
regarding the number of company’s going private
(observable).
|
The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis by level within the hierarchy as of December, 31,
2009:
|
Total
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||||
|
Liabilities
|
||||||||||||||||
|
Warrants
|
$ | $ | $ | $ | ||||||||||||
There
were no changes in the fair value for the Level 3 item during the year
ended
December 31, 2009.
(18)
Quarterly Results of Operation
(unaudited)
The
following is a summary of the unaudited quarterly results of operations:
|
2008
|
||||||||||||||||||||
|
(in thousands except per share data)
|
||||||||||||||||||||
|
March 31,
2008
|
June 30,
2008
|
September 30,
2008
|
December 31,
2008
|
Total
|
||||||||||||||||
|
Revenues
|
$ | 208 | $ | 15 | $ | 17 | $ | 25 | $ | 265 | ||||||||||
|
Costs
and expenses
|
3,453 | 3,145 | 3,468 | 3,010 | 13,076 | |||||||||||||||
|
Net
loss
|
$ | (3,165 | ) | $ | (2,802 | ) | $ | (3,415 | ) | $ | (2,837 | ) | $ | (12,219 | ) | |||||
|
Basic
and diluted
loss
per share
|
$ | (.04 | ) | $ | (.04 | ) | $ | (.05 | ) | $ | (.03 | ) | $ | (.16 | ) | |||||
|
2009
|
||||||||||||||||||||
|
(in thousands except per share data)
|
||||||||||||||||||||
|
March 31,
2009
|
June 30,
2009
|
September 30,
2009
|
December 31,
2009
|
Total
|
||||||||||||||||
|
Revenues
|
$ | 29 | $ | 17 | $ | 25 | $ | 40 | $ | 111 | ||||||||||
|
Costs
and expenses
|
(2,882 | ) | (3,996 | ) | (2,483 | ) | (4,014 | ) | (13,375 | ) | ||||||||||
|
Net
loss
|
$ | (3,087 | ) | $ | (3,870 | ) | $ | (2,435 | ) | $ | (4,046 | ) | $ | (13,438 | ) | |||||
|
Basic
and diluted
loss
per share
|
$ | (.04 | ) | $ | (.04 | ) | $ | (.02 | ) | $ | (.02 | ) | $ | (.12 | ) | |||||
Hemispherx
Biopharma, Inc.
Schedule
II -Valuation and Qualifying Accounts
(dollars
in thousands)
|
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
||||||||||||
|
Description
|
Balance at
beginning
of
period
|
Charge to
expense
|
Write-
offs
|
Balance at
end of
period
|
||||||||||||
|
Year
Ended December 31, 2007
Reserve
for inventory
|
$ | 241 | $ | 109 | $ | - | $ | 350 | ||||||||
|
Year
Ended December 31, 2008
Reserve
for inventory
|
$ | 350 | $ | - | $ | (64 | ) | $ | 286 | |||||||
|
Year
Ended December 31, 2009
Reserve
for inventory
|
$ | 286 | $ | $ | (4 | ) | $ | 282 | ||||||||
F-35