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As filed with the Securities and Exchange Commission on August 8, 2017

Registration No. 333-219358

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

OPEXA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Texas   2834   76-0333165

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

2635 Technology Forest Blvd.

The Woodlands, TX 77381

(281) 272-9331

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Neil K. Warma

President, Chief Executive Officer and Acting Chief Financial Officer

Opexa Therapeutics, Inc.

2635 Technology Forest Blvd.

The Woodlands, TX 77381

(281) 272-9331

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Mike Hird

Patty M. DeGaetano

Pillsbury Winthrop Shaw Pittman LLP

12255 El Camino Real, Suite 300

San Diego, California 92130

(619) 234-5000

 

Chris Schelling

President and Chief Executive Officer

Acer Therapeutics Inc.

222 Third Street, Suite 2240

Cambridge, MA 02142

(844) 902-6100

 

David R. Pierson

William R. Kolb

Daniel Clevenger

Foley Hoag LLP

155 Seaport Boulevard

Boston, MA 02210

(617) 832-1209

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 8, 2017

 

LOGO

   LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Shareholders of Opexa Therapeutics, Inc. and the Shareholders of Acer Therapeutics Inc.:

Opexa Therapeutics, Inc., or Opexa, and Acer Therapeutics Inc., or Acer, entered into an Agreement and Plan of Merger and Reorganization on June 30, 2017, or the Merger Agreement, pursuant to which a wholly-owned subsidiary of Opexa will merge with and into Acer, with Acer surviving as a wholly-owned subsidiary of Opexa, which is referred to as the Merger. Acer and Opexa believe that the Merger will result in a late-stage clinical pharmaceutical company focused on the development and commercialization of therapeutics for patients with serious rare diseases with significant unmet medical need.

Immediately prior to the effective time of the Merger, each share of Acer preferred stock will be converted into one share of Acer’s common stock, or Acer common stock, as determined in accordance with the Acer certificate of incorporation then in effect. At the effective time of the Merger, each share of Acer common stock will be converted into the right to receive a number of shares of Opexa common stock referred to in this proxy statement/prospectus/information statement as the Exchange Ratio. It is currently anticipated that, at the closing of the Merger, the Exchange Ratio will be approximately 10.4 pre-split shares of Opexa’s common stock, or Opexa common stock, to each share of Acer Common Stock. Opexa will assume each outstanding and unexercised option to purchase Acer common stock, which will be converted into options to purchase Opexa common stock. Opexa shareholders will continue to own and hold their existing shares of Opexa common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in the attached proxy statement/prospectus/information statement, and these estimates are subject to adjustment.

Immediately after the Merger, (a) current Opexa shareholders are expected to own approximately 11.2% of the combined company, (b) current Acer shareholders are expected to own approximately 63.8% of the combined company (excluding any shares issued to current shareholders in Acer’s concurrent financing), and (c) the investors participating in Acer’s concurrent financing are expected to own approximately 25% of the combined company (excluding any shares previously held by investors in the concurrent financing), each assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment.

Shares of Opexa common stock are currently listed on The NASDAQ Capital Market under the symbol “OPXA.” Acer has filed an initial listing application for the combined company with The NASDAQ Capital Market. After completion of the Merger, Opexa will be renamed “Acer Therapeutics Inc.” and expects to trade on The NASDAQ Capital Market under the symbol “ACER.” On August 7, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Opexa common stock was $0.93 per share.

Opexa is holding a special meeting of shareholders, or the Opexa special meeting, in order to obtain the shareholder approvals necessary to complete the Merger and related matters. At the Opexa special meeting, which will be held at 12255 El Camino Real, Suite 300, San Diego, California 92130, at                     , local time, on                     , 2017, unless postponed or adjourned to a later date, Opexa will ask its shareholders to, among other things:

 

    approve the issuance of shares of Opexa common stock to Acer shareholders pursuant to the terms of the Merger Agreement;

 

    approve the change in control of Opexa resulting from the Merger;


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    approve an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan;

 

    approve an amendment to the certificate of formation of Opexa changing the Opexa corporate name to “Acer Therapeutics Inc.”;

 

    approve an amendment to the certificate of formation of Opexa effecting a reverse stock split of Opexa’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Opexa common stock being combined and reclassified into one share of Opexa common stock;

 

    consider and vote upon an adjournment of the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

    transact such other business as may properly come before the shareholders at the Opexa special meeting or any adjournment or postponement thereof.

As described in the accompanying proxy statement/prospectus/information statement, certain Acer shareholders who in the aggregate own or control a majority of the outstanding shares of Acer common stock on an as-converted to common stock basis, and the executive officer and directors of Opexa, are parties to support agreements with Opexa and Acer, respectively, whereby such parties agreed to vote in favor of certain proposals described in this proxy statement/prospectus/information statement, subject to the terms of the support agreements.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission, or the SEC, and pursuant to the conditions of the Merger Agreement, the Acer shareholders who are party to the support agreements will each execute an action by written consent of the Acer shareholders, referred to herein as the written consent, adopting the Merger Agreement, thereby approving the Merger and related transactions. These shareholders hold a sufficient number of shares of Acer capital stock to adopt the Merger Agreement, and no meeting of Acer shareholders to adopt the Merger Agreement and approve the Merger and related transactions will be held. Nevertheless, all Acer shareholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the Merger and related transactions, by signing and returning to Acer a written consent.

After careful consideration, the Opexa and Acer boards of directors have approved the Merger Agreement and the respective proposals described in this proxy statement/prospectus/information statement, and each of the Opexa and Acer boards of directors has determined that it is advisable to consummate the Merger. Opexa’s board of directors recommends that its shareholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus/information statement, and Acer’s board of directors recommends that its shareholders sign and return the written consent to Acer indicating their approval of the Merger and adoption of the Merger Agreement and related transactions.

More information about Opexa, Acer and the Merger is contained in this proxy statement/prospectus/information statement. Opexa and Acer urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “ RISK FACTORS ” BEGINNING ON PAGE 25.

Opexa and Acer are excited about the opportunities the Merger brings to both Opexa’s shareholders and Acer’s shareholders, and thank you for your consideration and continued support.

 

Neil K. Warma

   Chris Schelling

President, Chief Executive Officer

   President and Chief Executive Officer

and Acting Chief Financial Officer

   Acer Therapeutics Inc.

Opexa Therapeutics, Inc.

  

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus/information statement is dated                     , 2017, and is first being mailed to Opexa shareholders and Acer shareholders on or about                     , 2017.


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OPEXA THERAPEUTICS, INC.

2635 TECHNOLOGY FOREST BLVD.

THE WOODLANDS, TX 77381

(281) 272-9331

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On                     , 2017

 

Time:

  

                , local time

Date:

               , 2017

Place:

  

12255 El Camino Real, Suite 300, San Diego, California 92130

Purposes:

 

  1. To approve the issuance of shares of common stock of Opexa Therapeutics, Inc., or Opexa, to shareholders of Acer Therapeutics Inc., or Acer, pursuant to the terms of the Agreement and Plan of Merger and Reorganization between Opexa, Acer and Opexa Merger Sub, Inc., dated June 30, 2017, a copy of which is attached as Annex A , which is referred to as the Merger Agreement;

 

  2. To approve the change in control of Opexa resulting from the merger contemplated by the Merger Agreement;

 

  3. To approve an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan;

 

  4. To approve an amendment to the certificate of formation of Opexa changing the Opexa corporate name to “Acer Therapeutics Inc.” in the form attached as Annex B ;

 

  5. To approve an amendment to the certificate of formation of Opexa effecting a reverse stock split of Opexa’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Opexa common stock being combined and reclassified into one share of Opexa common stock in the form attached as Annex C ;

 

  6. To consider and vote upon an adjournment of the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

  7. To transact such other business as may properly come before the shareholders at the Opexa special meeting or any adjournment or postponement thereof.

 

Record Date:    Opexa’s board of directors has fixed                     , 2017 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Opexa special meeting and any adjournment or postponement thereof. Only holders of record of shares of Opexa common stock at the close of business on the record date are entitled to notice of, and to vote at, the Opexa special meeting. At the close of business on the record date, Opexa had                  shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Opexa common stock having voting power present in person or represented by proxy at the Opexa special meeting, assuming a quorum is present, is required for approval of Opexa Proposal Nos. 1, 2, 3 and 6. The affirmative vote of the holders of a majority of the outstanding shares of Opexa common stock entitled to vote on the record date for the Opexa special meeting is required for approval of Opexa Proposal Nos. 4 and 5. Each of Opexa Proposal Nos. 1, 2, 3, 4 and 5 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Opexa Proposal Nos. 1, 2, 3, 4 and 5.

Even if you plan to attend the Opexa special meeting in person, Opexa requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Opexa special meeting if you are unable to attend. You may change or revoke your proxy at any time before it is voted at the Opexa special meeting.


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OPEXA’S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO OPEXA AND ITS SHAREHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. OPEXA’S BOARD OF DIRECTORS RECOMMENDS THAT OPEXA SHAREHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of Opexa’s Board of Directors,

Neil K. Warma

President, Chief Executive Officer

and Acting Financial Officer

The Woodlands, Texas

                    , 2017


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about Opexa that is not included in or delivered with this document. You may obtain this information without charge through the SEC website ( www.sec.gov ) or upon your written or oral request by contacting the chief executive officer of Opexa Therapeutics, Inc., 2635 Technology Forest Blvd., The Woodlands, TX 77381 or by calling (281) 272-9331.

To ensure timely delivery of these documents, any request should be made no later than                     , 2017 to receive them before the special meeting.

For additional details about where you can find information about Opexa, please see the section titled “ Where You Can Find More Information ” in this proxy statement/prospectus/information statement.


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QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     8  

The Companies

     8  

The Merger

     9  

Reasons for the Merger

     9  

Interests of Certain Directors, Officers and Affiliates of Opexa and Acer

     11  

Management Following the Merger

     12  

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

     12  

Regulatory Approvals

     15  

Material U.S. Federal Income Tax Consequences of the Merger

     16  

NASDAQ Stock Market Listing

     16  

Anticipated Accounting Treatment

     16  

Appraisal Rights and Dissenters’ Rights

     16  

Comparison of Shareholder Rights

     16  

Risk Factors

     17  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA

     18  

Selected Historical Consolidated Financial Data of Opexa

     18  

Selected Historical Consolidated Financial Data of Acer

     20  

Selected Unaudited Pro Forma Condensed Combined Financial Data of Opexa and Acer

     21  

Comparative Historical and Unaudited Pro Forma Per Share Data

     22  

MARKET PRICE AND DIVIDEND INFORMATION

     23  

RISK FACTORS

     25  

Risks Related to the Merger

     25  

Risks Related to Opexa

     28  

Risks Related to Opexa’s Business

     28  

Risks Related to Opexa’s Intellectual Property

     39  

Risks Related to Opexa’s Industry

     42  

Risks Related to Opexa’s Securities

     46  

Risks Related to Acer

     51  

Risks Related to the Combined Company

     91  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     97  

THE SPECIAL MEETING OF OPEXA SHAREHOLDERS

     99  

Date, Time and Place

     99  

 

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Purposes of the Opexa Special Meeting

     99  

Recommendation of Opexa’s Board of Directors

     99  

Record Date and Voting Power

     100  

Voting and Revocation of Proxies

     100  

Required Vote

     101  

Solicitation of Proxies

     102  

Other Matters

     102  

THE MERGER

     103  

Background of the Merger

     103  

Opexa Reasons for the Merger

     116  

Acer Reasons for the Merger

     118  

Interests of the Opexa Directors and Executive Officer in the Merger

     120  

Interests of Acer Directors and Executive Officers in the Merger

     121  

Form of the Merger

     124  

Merger Consideration and Exchange Ratio

     124  

Stock Options and Warrants

     126  

Effective Time of the Merger

     126  

Regulatory Approvals

     126  

Tax Treatment of the Merger

     127  

Material U.S. Federal Income Tax Consequences of the Merger

     127  

Anticipated Accounting Treatment

     130  

NASDAQ Stock Market Listing

     130  

Appraisal Rights and Dissenters’ Rights

     131  

THE MERGER AGREEMENT

     134  

Structure

     134  

Completion and Effectiveness of the Merger

     134  

Merger Consideration and Exchange Ratio

     134  

Determination of Opexa’s Net Cash

     136  

Opexa Common Stock

     137  

Procedures for Exchanging Acer Stock Certificates

     137  

Fractional Shares

     137  

Representations and Warranties

     138  

Covenants; Conduct of Business Pending the Merger

     141  

Non-Solicitation

     143  

Disclosure Documents

     145  

 

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Meeting of Opexa Shareholders and Written Consent of Acer Shareholders

     146  

Regulatory Approvals

     146  

Acer Stock Options

     146  

Indemnification and Insurance for Officers and Directors

     146  

Additional Agreements

     147  

NASDAQ Stock Market Listing

     147  

Conditions to the Completion of the Merger

     148  

Termination of the Merger Agreement and Termination Fee

     150  

Amendment

     151  

Expenses

     151  

Directors and Officers of Opexa Following the Merger

     151  

Amendments to the Certificate of Formation of Opexa

     151  

Special Meeting of Opexa Shareholders

     152  

Acer Written Consent

     152  

AGREEMENTS RELATED TO THE MERGER

     153  

Subscription Agreement

     153  

Support Agreements

     154  

MATTERS BEING SUBMITTED TO A VOTE OF OPEXA SHAREHOLDERS

     156  

Opexa Proposal No.  1: Approval of the Issuance of Common Stock in the Merger

     156  

Opexa Proposal No.  2: Approval of the Change of Control Resulting from the Merger

     156  

Opexa Proposal No.  3: Approval of Increase in Number of Shares of Common Stock Available for Issuance Under Opexa’s Amended and Restated 2010 Stock Incentive Plan

     157  

Opexa Proposal No. 4: Approval of Name Change

     159  

Opexa Proposal No.  5: Approval of the Amendment to the Certificate of Formation of Opexa Effecting the Reverse Stock Split

     160  

Opexa Proposal No.  6: Approval of Possible Adjournment of the Opexa Special Meeting

     167  

OPEXA BUSINESS

     168  

ACER BUSINESS

     175  

OPEXA MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     197  

ACER MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     204  

MANAGEMENT FOLLOWING THE MERGER

     214  

Executive Officers and Directors

     214  

Board of Directors of the Combined Company Following the Merger

     216  

Director Compensation

     218  

 

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Executive Compensation

     219  

Employment Benefits Plans

     223  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     231  

DESCRIPTION OF OPEXA CAPITAL STOCK

     234  

COMPARISON OF RIGHTS OF HOLDERS OF OPEXA CAPITAL STOCK AND ACER CAPITAL STOCK

     237  

PRINCIPAL SHAREHOLDERS OF OPEXA

     247  

PRINCIPAL SHAREHOLDERS OF ACER

     249  

LEGAL MATTERS

     251  

EXPERTS

     251  

WHERE YOU CAN FIND MORE INFORMATION

     251  

TRADEMARK NOTICE

     252  

OTHER MATTERS

     252  

INDEX TO OPEXA CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

INDEX TO ACER CONSOLIDATED FINANCIAL STATEMENTS

     F-28  

INDEX TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS

     F-52  

ANNEX A—MERGER AGREEMENT

  

ANNEX B—AMENDMENT TO CERTIFICATE OF FORMATION—NAME CHANGE

  

ANNEX C—AMENDMENT TO CERTIFICATE OF FORMATION—REVERSE STOCK SPLIT

  

ANNEX D—DELAWARE APPRAISAL RIGHTS

  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in Opexa Proposal No. 5 in this proxy statement/prospectus/information statement.

The following section provides answers to frequently asked questions about the Merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

Q: What is the Merger?

A: Opexa Therapeutics, Inc., or Opexa, and Acer Therapeutics Inc., or Acer, have entered into an Agreement and Plan of Merger and Reorganization dated June 30, 2017, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Opexa and Acer. Under the Merger Agreement, Opexa Merger Sub, Inc., a wholly-owned subsidiary of Opexa, or Merger Sub, will merge with and into Acer, with Acer surviving as a wholly-owned subsidiary of Opexa. After the completion of the Merger, Opexa will change its corporate name to “Acer Therapeutics Inc.” as required by the Merger Agreement. This transaction is referred to as the Merger.

Immediately prior to the effective time of the Merger, each share of Acer preferred stock will be converted into one share of Acer’s common stock, or Acer common stock, as determined in accordance with the Acer certificate of incorporation then in effect. At the effective time of the Merger, each share of Acer common stock will be converted into the right to receive a fraction of a share of Opexa common stock, or the Exchange Ratio. It is currently anticipated that, at the closing of the Merger, the Exchange Ratio will be approximately 10.4 pre-split shares of Opexa’s common stock, or Opexa common stock, and is expected to be approximately one post-split share of Opexa common stock. Opexa will assume each outstanding and unexercised option to purchase Acer common stock, which will be converted into options to purchase Opexa common stock. Opexa shareholders will continue to own and hold their existing shares of Opexa common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in this proxy statement/prospectus/information statement, and these estimates are subject to adjustment.

Immediately after the Merger, (a) current Opexa shareholders are expected to own approximately 11.2% of the combined company, (b) current Acer shareholders are expected to own approximately 63.8% of the combined company (excluding any shares issued to current shareholders in Acer’s concurrent financing), and (c) the investors participating in Acer’s concurrent financing are expected to own approximately 25% of the combined company (excluding any shares previously held by investors in the concurrent financing), each assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment.

The rules applicable to the calculation of the Exchange Ratio, which are described in the sections titled “ The Merger—Merger Consideration and Exchange Ratio ” and “ The Merger Agreement—Merger Consideration and Exchange Ratio ”, are complex and circumstances as of the effective time of the Merger may result in an Exchange Ratio that differs from estimates in this proxy statement/prospectus/information statement.

Q: What will happen to Opexa if, for any reason, the Merger does not close?

A: If, for any reason, the Merger does not close, Opexa’s board of directors may elect to, among other things, attempt to complete another strategic transaction like the Merger, attempt to sell or otherwise dispose of the various assets of Opexa, dissolve and liquidate its assets, or continue to operate the business of Opexa. If Opexa decides to dissolve and liquidate its assets, Opexa would be required to pay all of its debts and contractual

 

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obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left, if any, to distribute to shareholders after paying the debts and other obligations of Opexa and setting aside funds for reserves.

If Opexa were to continue its business, in addition to raising additional capital to do so it would likely need to identify, acquire and develop other products or product candidates, as it has no current plans to pursue further development of Tcelna, its development candidate for multiple sclerosis, given the lack of efficacy demonstrated in the Phase IIb Abili-T clinical study, announced in the fourth quarter of 2016. Further, as of June 30, 2017, the Opexa workforce consisted of two employees and Opexa no longer has employees engaged in research, development or commercialization activities. If Opexa decided to reestablish its business, Opexa would also need to rebuild its workforce and management team.

Q: Why are the two companies proposing to merge?

A: Following the Merger, Opexa and Acer believe that the Merger will result in a late-stage clinical pharmaceutical company focused on the development and commercialization of therapeutics for patients with serious rare diseases with significant unmet medical needs. Opexa and Acer believe that the combined company will have the following potential advantages: (i) a differentiated, late-stage clinical product development pipeline; (ii) appropriate resources; (iii) an experienced management team; and (iv) the potential to access additional sources of capital.

Q: Why am I receiving this proxy statement/prospectus/information statement?

A: You are receiving this proxy statement/prospectus/information statement because you have been identified as a shareholder of Opexa or a shareholder of Acer as of the applicable record date, and you are entitled, as applicable, to vote at Opexa’s special meeting of shareholders to approve the matters set forth above, or to sign and return the Acer written consent to adopt and approve the matters set forth in the written consent. This document serves as:

 

    a proxy statement of Opexa used to solicit proxies for its special meeting of shareholders to vote on the matters set forth above;

 

    a prospectus of Opexa used to offer shares of Opexa common stock in exchange for shares of Acer common stock in the Merger and issuable upon exercise of Acer options; and

 

    an information statement of Acer used to solicit the written consent of its shareholders for approval of matters relating to the Merger.

Q: What approvals by the shareholders of Acer and Opexa are required to consummate the Merger?

A: To consummate the Merger, Opexa shareholders must approve the proposal numbers 1 through 5. Pursuant to the terms of the Merger Agreement, Opexa is also requesting that Opexa shareholders approve proposal number 6 below, which is, collectively with proposal numbers 1 through 5, referred to as the Opexa Proposals. The Opexa Proposals include the following matters:

 

  1. the issuance of shares of Opexa common stock to Acer shareholders pursuant to the terms of the Agreement and Plan of Merger and Reorganization between Opexa, Acer and Opexa Merger Sub, Inc., dated June 30, 2017, a copy of which is attached as Annex A , which is referred to as the Merger Agreement;

 

  2. the change in control of Opexa resulting from the Merger contemplated by the Merger Agreement;

 

  3. an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan;

 

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  4. an amendment to the certificate of formation of Opexa changing the Opexa corporate name to “Acer Therapeutics Inc.” in the form attached as Annex B ;

 

  5. an amendment to the certificate of formation of Opexa effecting a reverse stock split of Opexa’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Opexa common stock being combined and reclassified into one share of Opexa common stock in the form attached as Annex C , which is referred to as the reverse stock split;

 

  6. to consider and vote on an adjournment of the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above.

The presence, in person or represented by proxy, at the Opexa special meeting of the holders of a majority of the shares of Opexa common stock outstanding and entitled to vote at the Opexa special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of the holders of a majority of the shares of Opexa common stock having voting power present in person or represented by proxy at the Opexa special meeting, assuming a quorum is present, is required for approval of Opexa Proposal Nos. 1, 2, 3 and 6. The affirmative vote of the holders of a majority of the outstanding shares of Opexa common stock entitled to vote on the record date for the Opexa special meeting is required for approval of Opexa Proposal Nos. 4 and 5. Each of Opexa Proposal Nos. 1, 2, 3, 4 and 5 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3, 4 and 5.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “AGAINST” votes for Opexa Proposal Nos. 4 and 5, but will have no effect on Opexa Proposal Nos. 1, 2, 3 and 6. Similarly, broker non-votes will have the same effect as “AGAINST” votes for Opexa Proposal Nos. 4 and 5, but will have no effect on Opexa Proposal Nos. 1, 2, 3 and 6.

As of June 30, 2017, the directors and executive officer of Opexa owned or controlled 1.08% of the outstanding shares of Opexa common stock entitled to vote at the Opexa special meeting. The directors and executive officer of Opexa owning these shares are subject to support agreements. Each Opexa shareholder that entered into a support agreement has agreed to vote all shares of Opexa common stock owned by him or her as of the record date in favor of the Opexa Proposals and against any “acquisition proposal,” as defined in the Merger Agreement.

The adoption of the Merger Agreement and the approval of the Merger and related transactions by the shareholders of Acer require the affirmative votes of the holders of (i) a majority of the outstanding Acer common stock and preferred stock, voting together as one class, (ii) 50% of the shares of Acer preferred stock, voting together as one class, and (iii) 50% of the shares of Acer Series B preferred stock, voting together as one class. In addition to the requirement of obtaining such shareholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Acer shareholders who are party to the support agreements will each execute written consents approving the Merger and related transactions. These shareholders hold a sufficient number of shares of Acer capital stock to adopt the Merger Agreement, and no meeting of Acer shareholders to adopt the Merger Agreement and approve the Merger and related transactions will be held. Shareholders of Acer, including those who are parties to support agreements, are being requested to execute written consents providing such approvals.

For a more complete description of the closing conditions under the Merger Agreement, you are urged to read the section titled “ The Merger Agreement—Conditions to the Completion of the Merger ” in this proxy statement/prospectus/information statement.

 

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Q: What will Acer shareholders and optionholders receive in the Merger?

A:  As a result of the Merger, Acer securityholders will become entitled to receive shares of Opexa common stock equal to approximately 88.8% of the outstanding common stock of the combined company, assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger. Following the closing of the Merger, Acer’s optionholders will have each Acer option converted into an option to purchase Opexa common stock, with the number of shares and exercise price being appropriately adjusted to reflect the Exchange Ratio between Opexa common stock and Acer common stock determined in accordance with the Merger Agreement.

For a more complete description of what Acer shareholders and optionholders will receive in the Merger, please see the sections titled “ Market Price and Dividend Information ” and “ The Merger Agreement—Merger Consideration and Exchange Ratio ” in this proxy statement/prospectus/information statement.

Q: Who will be the directors of Opexa following the Merger?

A:  Immediately following the Merger, Opexa’s board of directors is expected to be composed of seven directors to be designated solely by Acer, including the following: Chris Schelling, Stephen J. Aselage, Hubert Birner, Michelle Griffin, John M. Dunn, Luc Marengere and one additional independent director that Acer expects to identify prior to the consummation of the Merger.

Q: Who will be the executive officers of Opexa immediately following the Merger?

A: Immediately following the Merger, the executive management team of Opexa is expected to be composed of the members of the Acer executive management team prior to the Merger, as set forth below:

 

Name

  

Title

Chris Schelling

   President and Chief Executive Officer

Harry Palmin

   Chief Financial Officer

Robert Steiner, M.D.

   Chief Medical Officer

Jefferson Davis

   Chief Business Officer

Q: As an Opexa shareholder, how does Opexa’s board of directors recommend that I vote?

A: After careful consideration, Opexa’s board of directors recommends that Opexa shareholders vote “FOR” all of the Opexa Proposals.

Q: As an Acer shareholder, how does Acer’s board of directors recommend that I vote?

A: After careful consideration, Acer’s board of directors recommends that Acer shareholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the approval of the Merger and the transactions contemplated thereby.

Q: What risks should I consider in deciding whether to vote in favor of the Merger or to execute and return the written consent, as applicable?

A: You should carefully review the section of this proxy statement/prospectus/information statement titled “ Risk Factors ” which sets forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Opexa and Acer, as an independent company, is subject.

Q: When do you expect the Merger to be consummated?

A: The Merger is anticipated to occur as early as the third quarter of 2017 after the Opexa special meeting to be held on                 , 2017, but the exact timing cannot be predicted. For more information, please see the section titled “ The Merger Agreement—Conditions to the Completion of the Merger ” in this proxy statement/prospectus/information statement.

 

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Q: What do I need to do now?

A: Opexa and Acer urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the Merger affects you.

If you are an Opexa shareholder of record, you may provide your proxy instructions in one of three different ways. First, you can attend the Opexa special meeting in person and Opexa will provide you with a ballot when you arrive at the meeting. Second, you can mail your signed proxy card in the enclosed return envelope. Third, you can provide your proxy instructions via fax by following the instructions on your proxy card. If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting of Opexa shareholders.

If you are a shareholder of Acer, you may execute and return your written consent to Acer in accordance with the instructions provided.

Q: What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

A: If you are an Opexa shareholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Opexa Proposal Nos. 1, 2, 3 and 6 and will have the same effect as voting against Opexa Proposal Nos. 4 and 5. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Opexa special meeting.

Q: May I vote in person at the special meeting of shareholders of Opexa?

A: If your shares of Opexa common stock are registered directly in your name with Opexa’s transfer agent, you are considered to be the shareholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Opexa. If you are an Opexa shareholder of record, you may attend the special meeting of Opexa shareholders and vote your shares in person. Even if you plan to attend the Opexa special meeting in person, Opexa requests that you sign and return the enclosed proxy card to ensure that your shares will be represented at the Opexa special meeting if you are unable to attend.

If your shares of Opexa common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction form. As the beneficial owner, you are also invited to attend the special meeting of Opexa shareholders. Because a beneficial owner is not the shareholder of record, you may not vote these shares in person at the Opexa special meeting unless you obtain a legal proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

Q: When and where is the special meeting of Opexa shareholders being held?

A: The special meeting of Opexa shareholders will be held at 12255 El Camino Real, Suite 300, San Diego, California 92130, at                 , local time, on                 , 2017. Subject to space availability, all Opexa shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

Q: If my Opexa shares are held in “street name” by my broker, will my broker vote my shares for me?

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Opexa common stock on matters requiring discretionary authority without instructions from you.

 

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If you do not give instructions to your broker, your broker can vote your Opexa shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Capital Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Opexa shares will be treated as broker non-votes. It is anticipated that Opexa Proposal Nos. 1, 2, 4 and 5 will be non-discretionary items. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

A: Opexa shareholders of record, other than those Opexa shareholders who are parties to support agreements, may change their vote at any time before their proxy is voted at the Opexa special meeting in one of three ways. First, a shareholder of record of Opexa can send a written notice to the Secretary of Opexa stating that it would like to revoke its proxy. Second, a shareholder of record of Opexa can submit new proxy instructions on a new proxy card. Third, a shareholder of record of Opexa can attend the Opexa special meeting and vote in person. Attendance alone will not revoke a proxy. If an Opexa shareholder who owns Opexa shares in “street name” has instructed a broker to vote its shares of Opexa common stock, the shareholder must follow directions received from its broker to change those instructions.

Q: Who is paying for this proxy solicitation?

A: Opexa and Acer will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Opexa common stock for the forwarding of solicitation materials to the beneficial owners of Opexa common stock. Opexa will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Opexa has retained Advantage Proxy to assist it in soliciting proxies using the means referred to above. Opexa will pay the fees of Advantage Proxy, which Opexa expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

Q: What are the material U.S. federal income tax consequences of the reverse stock split to Opexa shareholders?

A: The reverse stock split described in Opexa Proposal No. 5 should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder (as described in more detail in the section titled “ Matters Being Submitted to a Vote of Opexa Shareholders—Opexa Proposal No.  5: Approval of the Amendment to the Certificate of Formation of Opexa Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split”) of Opexa common stock generally should not recognize gain or loss upon such reverse stock split, except with respect to cash received in lieu of a fractional share of Opexa common stock, as discussed below in the section titled “Matters Being Submitted to a Vote of Opexa Shareholders—Opexa Proposal No.  5: Approval of the Amendment to the Certificate of Formation of Opexa Effecting the  Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split—Cash in Lieu of Fractional Shares . A U.S. Holder’s aggregate tax basis in the shares of Opexa common stock received pursuant to such reverse stock split should equal the aggregate tax basis of the shares of the Opexa common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of Opexa common stock), and such U.S. Holder’s holding period in the shares of Opexa common stock received should include the holding period in the shares of Opexa common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Opexa common stock surrendered to the shares of Opexa common stock received in a recapitalization pursuant to such reverse stock split. U.S. Holders of shares of Opexa common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares. For more information, please see the section titled “Matters Being Submitted to a Vote of Opexa Shareholders—Opexa Proposal No.  5: Approval of

 

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the Amendment to the Certificate of Formation of Opexa Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split .

Q: What are the material U.S. federal income tax consequences of the Merger to Acer shareholders?

A: Each of Opexa and Acer intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. In general, and subject to the qualifications and limitations set forth in the section titled “ The Merger—Material U.S. Federal Income Tax Consequences of the Merger ,” if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material tax consequences to U.S. Holders of Acer common stock will be as follows:

 

    an Acer shareholder will not recognize gain or loss upon the exchange of Acer common stock for Opexa common stock pursuant to the Merger, except to the extent of cash received in lieu of a fractional share of Opexa common stock as described below;

 

    an Acer shareholder who receives cash in lieu of a fractional share of Opexa common stock in the Merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of a fractional share and the shareholder’s tax basis allocable to such fractional share;

 

    an Acer shareholder’s aggregate tax basis for the shares of Opexa common stock received in the Merger (including any fractional share interest for which cash is received) will equal the shareholder’s aggregate tax basis in the shares of Acer common stock surrendered in the Merger; and

 

    the holding period of the shares of Opexa common stock received by an Acer shareholder in the Merger will include the holding period of the shares of Acer common stock surrendered in exchange therefor.

Tax matters are very complicated, and the tax consequences of the Merger to a particular Acer shareholder will depend on such shareholder’s circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws. For more information, please see the section titled “ The Merger—Material U.S. Federal Income Tax Consequences of the Merger .”

Q: Who can help answer my questions?

A: If you are an Opexa shareholder and would like additional copies of this proxy statement/prospectus/information statement without charge or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

ADVANTAGE PROXY

Telephone: (877) 870-8565 (toll free); (206) 870-8565 (collect)

Email: ksmith@advantageproxy.com

If you are an Acer shareholder and would like additional copies of this proxy statement/prospectus/information statement without charge or if you have questions about the Merger, including the procedures for voting your shares, you should contact:

Acer Therapeutics Inc.

222 Third Street, Suite 2240

Cambridge, MA 02142

Telephone: (844) 902-6100

Attn: Harry Palmin

Email: hpalmin@acertx.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the Merger, the proposals being considered at the Opexa special meeting and the Acer shareholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred herein. For more information, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement. Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in Opexa Proposal No.  5, beginning on page 160 in this proxy statement/prospectus/information statement.

The Companies

Opexa Therapeutics, Inc.

2635 Technology Forest Blvd.

The Woodlands, TX 77381

(281) 272-9331

Opexa is a biopharmaceutical company that has historically focused on developing personalized immunotherapies with the potential to treat major illnesses, including multiple sclerosis, or MS, as well as other autoimmune diseases such as neuromyelitis optica, or NMO. These therapies are based on Opexa’s proprietary T-cell technology. As a consequence of the disappointing results from the Phase IIb clinical trial, or Abili-T, of its lead product candidate, Tcelna ® (imilecleucel-T), in patients with secondary progressive MS, or SPMS, Opexa suspended further research and development of Tcelna. Opexa’s current development activities are limited to the oversight of the long-term follow up period in the Abili-T trial, as well as undertaking a review of its other R&D programs including its preclinical program for OPX-212 for the treatment of NMO.

Acer Therapeutics Inc.

222 Third Street, Suite 2240

Cambridge, MA 02142

(844) 902-6100

Acer is a pharmaceutical company that acquires, develops and intends to commercialize therapies for serious rare diseases with significant unmet medical need. Acer is committed to delivering life-changing benefits to patients who lack appropriate treatment options. Acer’s late-stage clinical pipeline includes two candidates for severe genetic disorders for which there are few or no FDA-approved treatments: EDSIVO™ (celiprolol) for vascular Ehlers-Danlos Syndrome, or vEDS, and ACER-001 (a fully taste-masked formulation of sodium phenylbutyrate) for urea cycle disorders, or UCD, and Maple Syrup Urine Disease, or MSUD.

Opexa Merger Sub, Inc.

2635 Technology Forest Blvd.

The Woodlands, TX 77381

(281) 272-9331

Merger Sub is a wholly-owned subsidiary of Opexa and was formed solely for the purpose of carrying out the Merger.

 



 

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The Merger (see page 103)

If the Merger is completed, Merger Sub will merge with and into Acer, with Acer surviving as a wholly-owned subsidiary of Opexa.

Immediately prior to the effective time of the Merger, each share of Acer preferred stock will be converted into one share of Acer’s common stock, or Acer common stock, as determined in accordance with the Acer certificate of incorporation then in effect. At the effective time of the Merger, each share of Acer common stock will be converted into the right to receive a fraction of a share of Opexa common stock, or the Exchange Ratio. It is currently anticipated that, at the closing of the Merger, the Exchange Ratio will be approximately 10.4 pre-split shares of Opexa common stock and will be approximately one post-split share of Opexa common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in this proxy statement/prospectus/information statement and these estimates are subject to adjustment. At the effective time of the Merger, each outstanding option, whether or not vested, to purchase shares of Acer capital stock unexercised immediately prior to the effective time of the Merger will be converted into an option or warrant to purchase shares of Opexa common stock. All rights with respect to each Acer option will be assumed by Opexa in accordance with its terms. Accordingly, from and after the effective time of the Merger, each option or warrant assumed by Opexa may be exercised solely for shares of Opexa common stock.

Each share of Opexa common stock issued and outstanding at the time of the Merger will remain issued and outstanding and those shares will be unaffected by the Merger. Opexa warrants that are unexercised immediately prior to the effective time of the Merger will remain outstanding. Opexa stock options that are not exercised prior to the effective time of the Merger will be cancelled and terminated upon the effectiveness of the Merger. Please see “ The Merger—Stock Options and Warrants ” beginning on page 126.

For a more complete description of the Exchange Ratio, please see the section titled “ The Merger Agreement—Merger Consideration and Exchange Ratio ” beginning on page 134.

The Merger will be completed as promptly as practicable after all of the conditions to completion of the Merger are satisfied or waived, including the approval of the shareholders of Opexa and shareholders of Acer. Opexa and Acer are working to complete the Merger as quickly as practicable. However, Opexa and Acer cannot predict the exact timing of the completion of the Merger because it is subject to various conditions. After completion of the Merger, assuming that Opexa receives the required shareholder approval of Opexa Proposal No. 4, Opexa will be renamed “Acer Therapeutics Inc.”

Reasons for the Merger (see pages 116 and 118)

Following the Merger, the combined company will be a late-stage clinical pharmaceutical company focused on the development and commercialization of therapeutics for patients with serious rare diseases with significant unmet medical need. Acer’s late-stage clinical pipeline includes two candidates for severe genetic disorders for which there are currently no FDA-approved treatments: EDSIVO™ (celiprolol) for vEDS and ACER-001 for the treatment of UCD. Acer is also advancing ACER-001 for the treatment of MSUD. Opexa and Acer believe that the combined company will have the following potential advantages:

 

    Differentiated, Late-Stage Product Development Pipeline. Acer’s pipeline includes two development programs that comprise a differentiated, late-stage portfolio of product candidates with the potential to address orphan diseases for which the unmet medical need is significant and an effective therapy is urgently needed. Since Acer’s founding in 2013, Acer has identified potentially promising candidates which represent novel potential therapeutic approaches for three different diseases:

 

   

Vascular Ehlers-Danlos Syndrome—an inherited disorder that causes abnormal fragility in blood vessels, which can give rise to aneurysms, abnormal connections between blood vessels known as

 



 

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arteriovenous fistulas, arterial dissections, and spontaneous vascular ruptures, all of which can be potentially life-threatening.

 

    Urea Cycle Disorders—a group of disorders caused by genetic mutations that result in a deficiency of enzymes that catalyze the urea cycle, which can lead to an excess accumulation of ammonia in the blood stream, potentially leading to a variety adverse effects, including lethargy, somnolence, coma, multi-organ failure, headaches, confusion, lethargy, self-chosen vegetarian diet, failure to thrive, behavioral changes, and learning and cognitive deficits.

 

    Maple Syrup Urine Disease—an inherited disorder caused by defects in the mitochondrial branched-chain ketoacid dehydrogenase complex, which results in elevated blood levels of certain branched-chain amino acids, which can lead to neurological damage, mental disability, coma or death.

 

    Strategy. Acer’s goal is to become a leading pharmaceutical company that acquires, develops and commercializes therapies for the treatment of rare diseases with significant unmet medical need. The key elements of Acer’s strategy include:

 

    Focus on orphan and ultra-orphan opportunities with significant unmet need;

 

    Accelerate development timelines and costs, while reducing risk;

 

    Provide differentiated products that create value;

 

    Protect its assets via intellectual property protections and regulatory and market exclusivities; and

 

    Commercialize its products in geographies that make strategic sense.

 

    Management Team. It is expected that the combined company will be led by experienced senior management from Acer and a board of directors of seven members designated by Acer.

 

    Resources. Acer has commitments for an aggregate of approximately $15.7 million (inclusive of the conversion of approximately $5.7 million of principal and accrued interest on outstanding convertible promissory notes issued by Acer) to fund Acer’s development pipeline from certain third parties, including certain existing shareholders of Acer. This investment, along with any existing Opexa cash, is expected to fund Acer’s development of EDSIVO for vEDS through the submission of a new drug application, or NDA. In order to advance ACER-001 for the treatment of UCD and MSUD, Acer will require additional capital. Each of Acer’s programs has the potential, if successful, to create value for the shareholders of the merged company and present the combined organization with additional fundraising opportunities in the future.

Each of the board of directors of Opexa and Acer also considered other reasons for the Merger, as described herein. For example, Opexa’s board of directors considered, among other things:

 

    the consequences of the disappointing results from the Phase IIb Abili-T clinical trial of Opexa’s lead product candidate, Tcelna, and the likelihood that the resulting circumstances for the company would not change for the benefit of the Opexa shareholders in the foreseeable future on a stand-alone basis;

 

    the strategic alternatives of Opexa to the Merger, including potential transactions that could have resulted from discussions that Opexa’s management conducted with other potential merger parties;

 

    the consequences of current market conditions, Opexa’s current liquidity position, its depressed stock price and continuing net operating losses;

 

    the risks associated with, and the uncertain value, time and costs to shareholders of, liquidating Opexa or effecting a sale of all or some of its assets and thereafter distributing the proceeds;

 



 

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    the risks of continuing to operate Opexa on a stand-alone basis, including the need to rebuild the company’s product development programs, infrastructure and management to continue its operations;

 

    Opexa management’s belief that it would be difficult to obtain additional equity or debt financing on acceptable terms, if at all; and

 

    the opportunity as a result of the Merger for Opexa shareholders to participate in the potential value that may result from development of the Acer clinical development programs and the potential increase in value of the combined company following the Merger.

In addition, Acer’s board of directors approved the Merger based on a number of factors, including the following:

 

    the potential to provide its current shareholders with greater liquidity by owning stock in a public NASDAQ-listed company;

 

    Acer’s need for capital to support the development, regulatory and commercialization activities for its current product candidates and product candidates that may be acquired in the future and the potential to access of public market capital, including sources of capital from a broader range of investors than it could otherwise obtain if it continued to operate as a privately-held company;

 

    the expectation that the Merger would be a more time- and cost-effective means to access capital than other options considered; and

 

    the fact that shares of Opexa common stock issued to Acer shareholders will be registered pursuant to a registration statement on Form S-4 by Opexa and will become freely tradable for Acer’s shareholders who are not affiliates of Acer.

Interests of Certain Directors, Officers and Affiliates of Opexa and Acer (see pages 120 and 121)

In considering the recommendation of Opexa’s board of directors with respect to issuing shares of Opexa common stock pursuant to the Merger Agreement and the other matters to be acted upon by Opexa shareholders at the Opexa special meeting, Opexa shareholders should be aware that certain members of Opexa’s board of directors and the executive officer of Opexa have interests in the Merger that may be different from, or in addition to, interests they have as Opexa shareholders. For example, Opexa has agreed to reduce the amount of net cash used to calculate the Exchange Ratio by the amount of the severance payments to be made to Neil K. Warma, Opexa’s President, Chief Executive Officer and Acting Chief Financial Officer, pursuant to his employment agreement. The employment of Mr. Warma is expected to terminate no later than the consummation of the Merger.

As of June 30, 2017, directors and the executive officer of Opexa owned or controlled 1.08% of the outstanding shares of Opexa common stock. Opexa directors and the executive officer have entered into support agreements in connection with the Merger. The support agreements are discussed in greater detail in the section titled “ Agreements Related to the Merger—Support Agreements ” in this proxy statement/prospectus/information statement.

As of June 30, 2017, directors and the executive officers of Acer owned or were affiliated with entities that owned a majority of the outstanding shares of Acer common stock, on an as-converted to common stock basis. Acer directors and executive officers and certain significant shareholders of Acer affiliated with Acer directors and executive officers have entered into support agreement in connection with the Merger. The support agreements are discussed in greater detail in the section titled “ Agreements Related to the Merger—Support Agreements ” in this proxy statement/prospectus/information statement.

 



 

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Management Following the Merger (see page 214)

Immediately following the Merger, the executive management team of Opexa is expected to be composed of the members of the Acer executive management team prior to the Merger, as set forth below:

 

Name

  

Title

Chris Schelling

   President and Chief Executive Officer

Harry Palmin

   Chief Financial Officer

Robert Steiner, M.D.

   Chief Medical Officer

Jefferson Davis

   Chief Business Officer

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration and Exchange Ratio (see page 134) Immediately prior to the effective time of the Merger, each outstanding share of preferred stock of Acer will be converted into common stock. At the effective time of the Merger,

 

    each outstanding share of common stock of Acer will be converted into the right to receive that number of shares of Opexa common stock as determined pursuant to the Exchange Ratio described in more detail below; and

 

    each outstanding option to purchase shares of Acer common stock will be assumed by Opexa and will be converted into an option to purchase shares of Opexa common stock.

No fractional shares of Opexa common stock will be issued in connection with the Merger. Instead, each Acer shareholder who otherwise would be entitled to receive a fractional share of Opexa common stock (after aggregating all fractional shares of Opexa common stock issuable to such holder) will be entitled to receive an amount in cash (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the closing price of a share of Opexa common stock on The NASDAQ Capital Market (or such other NASDAQ market on which Opexa common stock then trades) on the date the Merger becomes effective.

The Exchange Ratio is calculated using a formula intended to allocate existing Acer securityholders (on a fully-diluted basis), a percentage of the combined company. Based on Acer’s and Opexa’s capitalization as of June 30, 2017, the Exchange Ratio is currently estimated to be (i) approximately 10.4 pre-split shares of Opexa common stock, subject to adjustment to account for the effect of a reverse stock split of Opexa common stock, for each share of Acer Common Stock, within a range of one new share for every one to 15 shares outstanding, to be implemented prior to the consummation of the Merger as discussed in this proxy statement/prospectus/information statement or (ii), post-split, approximately one share of Opexa common stock.

Under the terms of the Merger Agreement, in addition to certain adjustments to account for the issuance of any additional shares of Acer or Opexa common stock, as applicable, prior to the consummation of the Merger, the Exchange Ratio at the closing of the Merger would be subject to either (i) an upward adjustment to the extent that Opexa’s net cash at the effective time of the Merger is less than negative $500,000 (and as a result, Opexa securityholders could own less, and Acer securityholders could own more, of the combined company) or (ii) a downward adjustment to the extent that Opexa’s net cash at the effective time of the Merger is greater than negative $500,000 (and as a result, Opexa securityholders could own more, and Acer securityholders could own less, of the combined company).

Based on the estimates set forth above, following the completion of the Merger, (a) current Opexa shareholders are expected to own approximately 11.2% of the common stock of the combined company, (b) current Acer shareholders are expected to own approximately 63.8% of the common stock of the combined company

 



 

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(excluding any shares issued to current shareholders in Acer’s concurrent financing), and (c) the investors participating in Acer’s concurrent financing are expected to own approximately 25% of the common stock of the combined company (excluding any shares previously held by investors in the concurrent financing), each assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger.

The Exchange Ratio formula is the quotient obtained by dividing the number of Acer merger shares (defined below) by the Acer fully-diluted outstanding shares (defined below), where:

 

    Acer merger shares is the product determined by multiplying (i) the post-closing Opexa shares by (ii) the Acer allocation percentage.

 

    Acer fully-diluted outstanding shares is the total number of shares of Acer common stock outstanding immediately prior to the effective time of the Merger on a fully-diluted and an as-converted to common stock basis, assuming (i) the exercise of each outstanding Acer option, (ii) the effectiveness of the conversion of all of Acer’s outstanding preferred stock into Acer common stock, (iii) the consummation of the concurrent financing, (iv) the conversion of all of Acer’s outstanding convertible indebtedness into Acer common stock and (v) the issuance of shares of Acer common stock in respect of all other options, warrants or rights to receive such shares that will be outstanding immediately prior to the effective time of the Merger.

 

    Post-closing Opexa shares is the quotient determined by dividing (i) the Opexa fully-diluted outstanding shares by (ii) the Opexa allocation percentage.

 

    Opexa fully-diluted outstanding shares is the total number of shares of Opexa common stock outstanding immediately prior to the effective time of the Merger on a fully-diluted and an as-converted to common stock basis, assuming (i) the exercise of each outstanding Opexa option to purchase Opexa common stock (to the extent such option will not be cancelled pursuant to the Merger Agreement), (ii) the settlement in shares of Opexa common stock of each Opexa restricted stock unit, or RSU (to the extent there are any such RSUs outstanding and that will not be cancelled pursuant to the Merger Agreement), (iii) the conversion of all of Opexa’s outstanding convertible indebtedness into shares of Opexa common stock and (iv) the issuance of shares of Opexa common stock in respect of all other options, warrants or rights to receive such shares that will be outstanding immediately prior to the effective time of the Merger; provided, however, that all shares of Opexa common stock underlying Opexa warrants will be excluded from such amount.

 

    Acer allocation percentage is 1.00 minus the Opexa allocation percentage.

 

    Opexa allocation percentage means the quotient determined by dividing (i) the sum of $7,000,000, plus or minus $1.00 for each $1.00 that the net cash determined pursuant to the Merger Agreement is greater than or less than negative $500,000, by (ii) the sum of (A) the product of the Acer fully-diluted outstanding shares multiplied by the price per share of Acer common stock for cash investors in the concurrent financing, plus (B) the amount determined pursuant to clause (i), minus (C) the aggregate amount of any indebtedness for borrowed money of Acer outstanding at the closing of the Merger. For example, the Opexa allocation percentage would be 0.11147 if Opexa’s net cash is negative $600,000, the product of the Acer fully-diluted outstanding shares multiplied by the price per share of Acer common stock for cash investors in the concurrent financing is $55,000,000, and Acer has no indebtedness for borrowed money outstanding at the closing.

Treatment of Opexa Stock Options (see page 126)

Opexa stock options that remain unexercised as of the effective time will be cancelled and terminated.

 



 

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Treatment of Acer Stock Options (see page 146)

At the effective time of the Merger, each outstanding option, whether or not vested, to purchase Acer capital stock unexercised immediately prior to the effective time of the Merger will be converted into an option to purchase Opexa common stock. All rights with respect to each Acer option will be assumed by Opexa in accordance with its terms. Accordingly, from and after the effective time of the Merger each option assumed by Opexa may be exercised solely for shares of Opexa common stock.

The number of shares of Opexa common stock subject to each outstanding Acer option assumed by Opexa will be determined by multiplying the number of shares of Acer capital stock that were subject to such option by the Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Opexa common stock. The per share exercise price for the Opexa common stock issuable upon exercise of each Acer option assumed by Opexa will be determined by dividing the per share exercise price of Acer capital stock subject to such option by the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option or warrant will otherwise remain unchanged.

Conditions to the Completion of the Merger (see page 148)

To complete the Merger, Opexa shareholders must approve the Opexa proposals set forth herein. Additionally, the Acer shareholders must approve the Merger and adopt the Merger Agreement. In addition to obtaining such shareholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

Non-Solicitation (see page 143)

The Merger Agreement contains provisions prohibiting Acer and Opexa from seeking a competing transaction, subject to specified exceptions described in the Merger Agreement. Under these “non-solicitation” provisions, each of Acer and Opexa has agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents will directly or indirectly:

 

    solicit, initiate, respond to or take any action to facilitate or encourage any inquiries or the communication, making, submission or announcement of any competing proposal or take any action that could reasonably be expected to lead to a competing proposal;

 

    enter into or participate in any discussions or negotiations with any person with respect to any competing proposal;

 

    furnish any information regarding such party to any person in connection with, in response to, relating to or for the purpose of assisting with or facilitating a competing proposal;

 

    approve, endorse or recommend any competing proposal, subject to the terms and conditions in the Merger Agreement;

 

    execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any competing proposal; or

 

    grant any waiver or release under any confidentiality, standstill or similar agreement (other than to the other party).

Termination of the Merger  Agreement (see page 150)

Either Acer or Opexa can terminate the Merger Agreement under certain circumstances, which would prevent the Merger from being consummated.

 



 

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Termination Fee (see page 150)

The Merger Agreement provides that, upon termination of the Merger Agreement under specified circumstances, Acer may be required to pay Opexa a termination fee of $1,000,000 and/or up to $200,000 in expense reimbursements, or Opexa may be required to pay Acer a termination fee of $250,000 and/or up to $200,000 in expense reimbursements.

Subscription Agreement (see page 153)

On June 30, 2017, prior to the execution of the Merger Agreement, Acer entered into a subscription agreement, or the Subscription Agreement, with certain current shareholders of Acer and certain new investors in Acer pursuant to which Acer agreed to sell, and the purchasers listed therein agreed to purchase, shares of Acer common stock for an aggregate purchase price of approximately $15.7 million (inclusive of the conversion of approximately $5.7 million of principal and accrued interest on outstanding convertible promissory notes issued by Acer).

The consummation of the financing contemplated by the Subscription Agreement is subject to certain conditions, including the satisfaction or waiver of each of the conditions to the consummation of the Merger set forth in the Merger Agreement and the parties to the Merger Agreement being ready, willing and able to consummate the Merger immediately after the closing of the financing.

Support Agreements (see page 154)

In connection with the execution of the Merger Agreement, officers, directors and some shareholders of Acer, who collectively beneficially own or control a majority of the voting power of Acer’s outstanding capital stock on an as-converted to common stock basis as of June 30, 2017 entered into support agreements with Opexa under which such parties have agreed to vote in favor of the Merger and the Merger Agreement and against any competing transaction.

In connection with the execution of the Merger Agreement, Opexa’s executive officer and directors also entered into support agreements with Acer under which such parties have agreed to vote in favor of the Opexa Proposals and against any competing transaction.

Each shareholder executing a support agreement has made representations and warranties to Opexa or Acer, as applicable, regarding ownership and unencumbered title to the shares subject to such agreement, such shareholder’s power and authority to execute the support agreement, due execution and enforceability of the support agreement, and ownership and unencumbered title to the shares. Unless otherwise waived, all of these support agreements prohibit the transfer, sale, assignment, gift or other disposition by the shareholder of their respective shares of Opexa or Acer capital stock, or the entrance into an agreement or commitment to do any of the foregoing, subject to specified exceptions. Each Acer shareholder executing a support agreement has also waived its statutory appraisal rights in connection with the Merger.

The support agreements will terminate at the earlier of the effective time of the Merger or the termination of the Merger Agreement in accordance with its terms.

Regulatory Approvals (see page 126)

In the United States, Opexa must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Opexa common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement on Form S-4 of which this proxy statement/prospectus/information statement is a part has not become effective.

 



 

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Material U.S. Federal Income Tax Consequences of the Merger (for more information, see page 127)

Opexa and Acer intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. In general, and subject to the qualifications and limitations set forth in the section titled “ The Merger—Material U.S. Federal Income Tax Consequences of the Merger ,” if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material U.S. federal income tax consequences to U.S. Holders (as defined in the section titled “ The Merger—Material U.S. Federal Income Tax Consequences of the Merger” ) of Acer common stock will be as follows:

 

    an Acer shareholder will not recognize gain or loss upon the exchange of Acer common stock for Opexa common stock pursuant to the Merger, except with respect to cash received in lieu of a fractional share of Opexa common stock as described below;

 

    an Acer shareholder who receives cash in lieu of a fractional share of Opexa common stock in the Merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

    an Acer shareholder’s aggregate tax basis for the shares of Opexa common stock received in the Merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Acer common stock surrendered in the Merger; and

 

    the holding period of the shares of Opexa common stock received by an Acer shareholder in the Merger will include the holding period of the shares of Acer common stock surrendered in exchange therefor.

Tax matters are very complicated, and the tax consequences of the Merger to a particular Acer shareholder will depend on such shareholder’s circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.

NASDAQ Stock Market Listing (see page 130)

Acer has filed an initial listing application for the combined company with The NASDAQ Capital Market. If such application is accepted, Acer anticipates that the combined company’s common stock will be listed on The NASDAQ Capital Market following the closing of the Merger under the trading symbol “ACER.”

Anticipated Accounting Treatment (see page 130)

The Merger will be treated by Opexa as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. For accounting purposes, Acer is considered to be acquiring Opexa in the Merger.

Appraisal Rights and Dissenters’ Rights (see page 131)

Holders of Opexa common stock are not entitled to appraisal rights in connection with the Merger. Holders of Acer common stock are entitled to appraisal rights in connection with the Merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the Delaware General Corporation Law, or the DGCL, attached hereto as Annex D , and the section titled “ The Merger—Appraisal Rights and Dissenters Rights ” in this proxy statement/prospectus/information statement.

Comparison of Shareholder Rights (see page 237)

Acer is incorporated under the laws of the State of Delaware, and Opexa is organized under the laws of the State of Texas. Upon completion of the Merger, Acer shareholders will become Opexa shareholders, and their rights

 



 

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will be governed by the Texas Business Organizations Code, or the TBOC, the amended and restated bylaws of Opexa, as amended (referred to as Opexa’s bylaws), and the restated certificate of formation of Opexa, as amended (referred to as Opexa’s certificate of formation). The material differences between the current rights of Acer shareholders under the second amended and restated certificate of incorporation of Acer (referred to as Acer’s certificate of incorporation) and the bylaws of Acer, and their rights as Opexa shareholders after the Merger under Opexa’s certificate of formation and bylaws, both as will be in effect immediately following the completion of the Merger, are more fully described under the section titled “ Comparison of Rights of Holders of Opexa Capital Stock and Acer Capital Stock ” in this proxy statement/prospectus/information statement.

Risk Factors (see page 25)

Both Opexa and Acer are subject to various risks associated with their businesses and their industries. In addition, the Merger, including the possibility that the Merger may not be completed, poses a number of risks to each company and its respective shareholders, including the following risks:

 

    the Exchange Ratio is not adjustable based on the market price of Opexa common stock so the Merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

    failure to complete the Merger may result in Opexa or Acer paying a termination fee to the other party and could harm the common stock price of Opexa and future business and operations of each company;

 

    if the conditions to the Merger are not met, the Merger may not occur;

 

    the Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes;

 

    some Opexa and Acer executive officers and directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests;

 

    the market price of Opexa common stock following the Merger may decline as a result of the Merger;

 

    Opexa and Acer securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company as compared to their current ownership and voting interest in the respective companies following the completion of the Merger;

 

    during the pendency of the Merger, Opexa and Acer may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

    certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement; and

 

    because the lack of a public market for Acer’s capital stock makes it difficult to evaluate the fairness of the Merger, the shareholders of Acer may receive consideration in the Merger that is less than the fair market value of Acer’s capital stock and/or Opexa may pay more than the fair market value of Acer’s capital stock.

These risks and other risks are discussed in greater detail under the section titled “ Risk Factors ” in this proxy statement/prospectus/information statement. Opexa and Acer both encourage you to read and consider all of these risks carefully.

 



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL

INFORMATION AND DATA

The following tables present summary historical financial data for Opexa and Acer, summary unaudited pro forma condensed combined financial data for Opexa and Acer, and comparative historical and unaudited pro forma per share data for Opexa and Acer.

Selected Historical Consolidated Financial Data of Opexa

The selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 are derived from Opexa’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The selected statements of operations data for the three months ended March 31, 2017 and 2016 and the selected balance sheet data as of March 31, 2017 and 2016 are derived from Opexa’s unaudited interim financial statements included elsewhere in this proxy statement/prospectus/information statement. Opexa’s unaudited interim financial statements have been prepared in accordance with U.S. GAAP on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim consolidated financial statements. Opexa’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the three months ended March 31, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical consolidated financial data below should be read in conjunction with the sections titled “ Opexa Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” “ Risk Factors—Risks Related to Opexa ” and Opexa’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2015     2017     2016  
                 (unaudited)  

Consolidated Statements of Operations Data

        

Option revenue

   $ 2,905,165     $ 2,556,329     $ —       $ 726,291  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     6,497,531       10,039,496       206,024       1,829,062  

General and administrative

     3,122,337       4,258,147       719,869       987,248  

Depreciation and amortization

     238,127       351,403       —         72,589  

Impairment loss

     1,036,467       —         —         —    

Loss on disposal of fixed assets

     2,320       1,167       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,896,782       14,650,213       925,893       2,888,899  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (7,991,617     (12,093,884     (925,893     (2,162,608

Interest income (expense), net

     874       5,911       (846     108  

Other income, net

     10,629       68,695       467       2,106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (7,980,114   $ (12,019,278   $ (926,272   $ (2,160,394
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share, basic and diluted

   $ (1.13   $ (2.05   $ (0.12   $ (0.31

Weighted-average shares outstanding, basic and
diluted

     7,048,661       5,854,438       7,597,769       6,982,909  

 



 

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     As of
December 31,
    As of
March 31,
 
     2016     2015     2017     2016  
                 (unaudited)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 3,444,952     $ 12,583,764     $ 2,822,677     $ 9,955,449  

Other current assets

     371,562       498,798       237,331       932,409  

Fixed assets, net

     50,000       837,867       —         765,763  

Total assets

     3,866,514       14,416,698       3,060,008       11,653,621  

Total liabilities

     1,160,488       4,801,436       818,315       4,044,900  

Accumulated deficit

     (161,319,600     (153,339,486     (162,245,872     (155,499,880

Total shareholders’ equity

     2,706,026       9,615,262       2,241,693       7,608,721  

 



 

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Selected Historical Consolidated Financial Data of Acer

The selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 are derived from Acer’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The selected consolidated statements of operations data for the three months ended March 31, 2017 and 2016 and the selected consolidated balance sheet data as of March 31, 2017 are derived from Acer’s unaudited interim condensed consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. Acer’s unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair presentation of those unaudited interim condensed consolidated financial statements. Acer’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the three months ended March 31, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical consolidated financial data below should be read in conjunction with the sections titled “ Acer Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” “ Risk Factors—Risks Related to Acer’s Financial Condition and Capital Requirements ” and Acer’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.

 

     Years Ended
December 31,
    Three Months Ended
March 31,
 
     2016     2015     2017     2016  

Consolidated Statements of Operations Data:

        

Operating expenses:

        

Research and development

   $ 5,308,662     $ 1,957,967     $ 3,033,539     $ 636,681  

General and administrative

     1,391,182       715,201       333,529       256,174  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     6,699,844       2,673,168       3,367,068       892,855  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (6,699,844     (2,673,168     (3,367,068     (892,855

Interest income (expense), net

     282       (994,529     (12,630     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (6,699,562   $ (3,667,697   $ (3,379,698   $ (892,855
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ ( 2.73   $ (1.51   $ (1.38   $ (0.36

Shares used in computing net loss per share, basic and diluted

     2,450,000       2,433,973       2,450,000       2,450,000  

 

     As of
December 31,
     As of
March 31,
2017
 
     2016      2015     
                   (unaudited)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 1,834,018      $ 798,545      $ 2,823,115  

Working capital

     1,552,632        123,609        (1,808,384

Total assets

     2,773,104        1,377,005        3,431,902  

Notes payable

     —          —          3,067,352  

Convertible redeemable preferred stock

     12,136,440        4,099,380        12,149,277  

Accumulated deficit

     (11,357,221      (4,657,659      (14,736,919

Total stockholders’ deficit

     (10,184,775      (3,506,793      (13,561,775

 



 

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Selected Unaudited Pro Forma Condensed Combined Financial Data of Opexa and Acer

The following information does not give effect to the proposed reverse stock split described in Opexa Proposal No. 5, beginning on page 160 in this proxy statement/prospectus/information statement.

 

     Year Ended
December 31,
2016
    Three Months
Ended
March 31,
2017
 

Unaudited Pro Forma Combined Consolidated Statements of Operations Data:

    

Revenue

   $ 2,905,165     $ —    
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     11,802,661       3,239,563  

General and administrative

     5,827,633       2,367,512  

Depreciation and amortization

     241,659       —    

Impairment loss

     1,036,467       —    

Loss on disposal of fixed assets

     2,320       —    

Total operating expenses

     18,910,740       5,607,075  
  

 

 

   

 

 

 

Loss from operations

     (16,005,575     (5,607,075

Interest and other income (expense), net

     11,785       (13,009
  

 

 

   

 

 

 

Net loss

   $ (15,993,790   $ (5,620,084
  

 

 

   

 

 

 

Net loss applicable to common shareholders

   $ (15,993,790   $ (5,620,084
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.24   $ (0.08

Shares used in computing net loss per share, basic and diluted

     66,239,687       66,788,795  

 

     As of
March 31,
2017
 

Unaudited Pro Forma Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 18,020,792  

Working capital

     13,384,359  

Total assets

     18,866,910  

Notes payable

     91,871  

Accumulated deficit

     (15,411,207

Total shareholders’ equity

     13,780,586  

 



 

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Comparative Historical and Unaudited Pro Forma Per Share Data

The following information does not give effect to the proposed reverse stock split described in Opexa Proposal No. 5, beginning on page 160 in this proxy statement/prospectus/information statement.

The information below reflects the historical net loss and book value per share of Opexa common stock and the historical net loss and book value per share of Acer common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the Merger of Opexa with Acer on a pro forma basis.

You should read the tables below in conjunction with the audited and unaudited consolidated financial statements of Opexa included in this proxy statement/prospectus/information statement and the audited and unaudited consolidated financial statements of Acer included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

     Year Ended
December 31,
2016
     Three Months
Ended
March 31,
2017
 

Opexa Historical Per Common Share Data:

     

Basic and diluted net loss per share

   $ (1.13    $ (0.12

Book value per share

     0.38        0.29  

Acer Historical Per Common Share Data:

     

Basic and diluted net loss per share

   $ (2.73    $ (1.38

Book value per share

     0.80        (0.58

Opexa and Acer Combined Company Pro Forma Data:

     

Basic and diluted net loss per share

   $ (0.24    $ (0.08

Book value per share

     N/A        0.21  

 



 

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MARKET PRICE AND DIVIDEND INFORMATION

Opexa common stock is listed on The NASDAQ Capital Market under the symbol “OPXA.” The following table presents, for the periods indicated, the range of high and low per share sales prices for Opexa common stock as reported on The NASDAQ Capital Market for each of the periods set forth below. Acer is a private company and its common stock and preferred stock are not publicly traded. These per share sales prices have not been adjusted to give effect to the proposed reverse stock split of Opexa common stock.

Opexa Common Stock

 

     Price Ranges  
     High      Low  

2015:

     

First Quarter

   $ 8.64      $ 4.24  

Second Quarter

   $ 5.84      $ 2.64  

Third Quarter

   $ 4.24      $ 2.33  

Fourth Quarter

   $ 5.10      $ 2.75  

2016:

     

First Quarter

   $ 2.87      $ 1.69  

Second Quarter

   $ 4.29      $ 2.05  

Third Quarter

   $ 4.93      $ 2.92  

Fourth Quarter

   $ 4.38      $ 0.50  

2017:

     

First Quarter

   $ 1.37      $ 0.73  

The closing price of Opexa common stock on June 30, 2017, the last trading day prior to the public announcement of the Merger, was $0.65 per share, and the closing price of Opexa common stock on August 7, 2017 was $0.93 per share, in each case as reported on The NASDAQ Capital Market.

Because the market price of Opexa common stock is subject to fluctuation, the market value of the shares of Opexa common stock that Acer shareholders will be entitled to receive in the Merger may increase or decrease.

Assuming approval of Opexa Proposal No. 4 and successful application for initial listing with The NASDAQ Capital Market, following the completion of the Merger, Opexa common stock will be listed on The NASDAQ Capital Market and will trade under Opexa’s new name, “Acer Therapeutics Inc.,” and new trading symbol, “ACER.”

As of June 30, 2017 Opexa had 214 registered holders of its common stock. This number does not include shareholders for whom shares were held in “nominee” or “street name.” For detailed information regarding the beneficial ownership of some shareholders of Opexa and Acer, see the section titled “ Principal Shareholders of Opexa ” beginning on page 247 and the section titled “ Principal Shareholders of Acer ” beginning on page 249 of this proxy statement/prospectus/information statement.

Dividends

Opexa has never paid or declared any cash dividends on its common stock and does not anticipate paying cash dividends on its common stock for the foreseeable future. Opexa currently expects to retain any future earnings to fund the operation and expansion of its business. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the Merger will be at the discretion of Opexa’s then-current board of directors and

 



 

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will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors Opexa’s then-current board of directors deems relevant.

Acer has never paid or declared any cash dividends on its common or preferred stock. If the Merger does not occur, Acer does not anticipate paying any cash dividends on its common or preferred stock in the foreseeable future, and Acer intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of Acer’s board of directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors Acer’s then-current board of directors deems relevant.

 



 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Opexa because these risks may also affect the combined company—these risks can be found in Opexa’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement. Please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Risks Related to the Merger

The Exchange Ratio is not adjustable based on the market price of Opexa common stock so the Merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

It is currently anticipated that, at the closing of the Merger, the Exchange Ratio will be approximately 10.4 pre-split shares of Opexa common stock for each share of Acer common stock and is expected to be approximately one post-split share of Opexa common stock for each share of Acer common stock after giving effect to the proposed reverse stock split described in Opexa Proposal No. 5, beginning on page 160 in this proxy statement/prospectus/information statement. These estimates are subject to adjustment prior to closing of the Merger, including (i) adjustments to account for the issuance of any additional shares of Acer or Opexa common stock, as applicable, prior to the consummation of the Merger, (ii) an upward adjustment to the extent that Opexa’s net cash at the effective time of the Merger is less than negative $500,000 (and as a result, Opexa securityholders could own less, and Acer securityholders could own more, of the combined company), or (iii) a downward adjustment to the extent that Opexa’s net cash at the effective time of the Merger is greater than negative $500,000 (and as a result, Opexa securityholders could own more, and Acer securityholders could own less, of the combined company). Any changes in the market price of Opexa common stock before the completion of the Merger will not affect the number of shares Acer securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of Opexa common stock declines from the market price on the date of the Merger Agreement, then Acer securityholders could receive Merger consideration with substantially lower value. Similarly, if before the completion of the Merger the market price of Opexa common stock increases from the market price on the date of the Merger Agreement, then Acer securityholders could receive Merger consideration with substantially more value for their shares of Acer capital stock than the parties had negotiated for in the establishment of the Exchange Ratio. The Merger Agreement does not include a price-based termination right. However, Acer’s obligation to consummate the Merger is conditioned upon Opexa having “Net Cash” that is greater than or equal to negative $1,250,000, as defined and described under “ The Merger Agreement—Conditions to the Completion of the Merger .” Because the Exchange Ratio does not adjust as a result of changes in the value of Opexa common stock, for each one percentage point that the market value of Opexa common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Merger consideration issued to Acer securityholders.

Failure to complete the Merger may result in Opexa or Acer paying a termination fee to the other party and could harm the common stock price of Opexa and future business and operations of each company.

If the Merger is not completed, Opexa and Acer are subject to the following risks:

 

    if the Merger Agreement is terminated under specified circumstances, Acer may be required to pay Opexa a termination fee of $1,000,000 and/or up to $200,000 in expense reimbursements, or Opexa may be required to pay Acer a termination fee of $250,000 and/or up to $200,000 in expense reimbursements;

 

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    the price of Opexa common stock may decline and remain volatile;

 

    costs related to the Merger, such as legal and accounting fees, which Opexa and Acer estimate will total approximately $850,000 and $550,000, respectively, some of which must be paid even if the Merger is not completed; and

 

    Opexa may be forced to cease its operations, dissolve and liquidate its assets.

In addition, if the Merger Agreement is terminated and the board of directors of Opexa or Acer determines to seek another business combination, there can be no assurance that either Opexa or Acer will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger.

If the conditions to the Merger are not met, the Merger may not occur.

Even if the Merger is approved by the shareholders of Acer and change of control and related share issuance are approved by the shareholders of Opexa, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “ The Merger Agreement—Conditions to the Completion of the Merger ” in this proxy statement/prospectus/information statement. Opexa and Acer cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and Opexa and Acer each may lose some or all of the intended benefits of the Merger.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

In general, either Opexa or Acer can refuse to complete the Merger if there is a material adverse change affecting the other party between June 30, 2017, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even if such change could be said to have a material adverse effect on Opexa or Acer, including:

 

    any effect, change, event, circumstance or development in the conditions generally affecting the industries in which Acer and Opexa operate or the U.S. or global economy or capital markets as a whole;

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation of worsening thereof;

 

    any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;

 

    any effect resulting from the announcement or pendency of the Merger or any related transactions;

 

    any failure by Opexa or Acer to meet internal projections or forecasts or third-party revenue or earnings predictions for any period ending on or after June 30, 2017;

 

    with respect to Opexa, any change in the price or trading volume of Opexa common stock;

 

    any rejection by a governmental body of a registration or filing by Acer or Opexa relating to specified intellectual property rights; or

 

    any change in the cash position of Acer or Opexa which results from operations in the ordinary course of business.

If adverse changes occur and Opexa and Acer still complete the Merger, the stock price of the combined company may suffer. This in turn may reduce the value of the Merger to the shareholders of Opexa, Acer or both.

 

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Some Opexa and Acer executive officers and directors have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.

Some officers and directors of Opexa and Acer participate in arrangements that provide them with interests in the Merger that are different from yours, including, among others, the continued service as an officer or director of the combined company, severance and retention benefits, the acceleration of stock option vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined company in accordance with Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. For more information regarding the interests of the Opexa and Acer executive officers and directors in the Merger, see the sections titled “ The Merger—Interests of the Opexa Directors and Executive Officers in the Merger ” and “ The Merger—Interests of Acer Directors and Executive Officers in the Merger ” of this proxy statement/prospectus/information statement.

The market price of Opexa common stock following the Merger may decline as a result of the Merger.

The market price of Opexa common stock may decline as a result of the Merger for a number of reasons, including if:

 

    investors react negatively to the prospects of the combined company’s business and prospects from the Merger;

 

    the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

    the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts.

Acer and Opexa securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company as compared to their current ownership and voting interest in the respective companies following the completion of the Merger.

After the completion of the Merger, the current shareholders of Acer and Opexa will own a smaller percentage of the combined company than their ownership of their respective companies prior to the Merger. Immediately after the Merger, Acer securityholders will own approximately 88.8% of the common stock of Opexa, with Opexa securityholders, whose shares of Opexa common stock will remain outstanding after the Merger, owning approximately 11.2% of the common stock of the combined company, each assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close and the Merger is consummated, then Acer securityholders would own approximately 85.1% of the common stock of the combined company and Opexa’s securityholders would own approximately 14.9% of the common stock of the combined company. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment. In addition, the seven-member board of directors of the combined company will initially consist of Chris Schelling, Stephen J. Aselage, Hubert Birner, Michelle Griffin, John M. Dunn, Luc Marengere and one additional independent director to be identified by Acer. Consequently, securityholders of Acer and Opexa will be able to exercise less influence over the management and policies of the combined company than they currently exercise over the management and policies of their respective companies.

During the pendency of the Merger, Opexa and Acer may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Opexa and Acer to make acquisitions, subject to specified exceptions relating to fiduciary duties or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a

 

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disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into specified extraordinary transactions, such as a merger, sale of assets or other business combination, with any third party, subject to specified exceptions. Any such transactions could be favorable to such party’s shareholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Opexa and Acer from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith, after consultation with its independent financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would be reasonably likely to result in a breach of the fiduciary duties of the board of directors. In addition, if Opexa or Acer terminate the Merger Agreement under specified circumstances, including terminating because of a decision of a board of directors to recommend a superior competing proposal, Acer may be required to pay Opexa a termination fee of $1,000,000 and/or up to $200,000 in expense reimbursements, or Opexa may be required to pay Acer a termination fee of $250,000 and/or up to $200,000 in expense reimbursements, as defined and described under “ The Merger Agreement—Termination of the Merger Agreement and Termination Fee. ” This termination fee may discourage third parties from submitting competing proposals to Opexa or Acer or their shareholders, and may cause the respective boards of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for Acer’s capital stock makes it difficult to evaluate the fairness of the Merger, the shareholders of Acer may receive consideration in the Merger that is less than the fair market value of Acer’s capital stock and/or Opexa may pay more than the fair market value of Acer’s capital stock.

The outstanding capital stock of Acer is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Acer’s capital stock. Because the percentage of Opexa equity to be issued to Acer shareholders was determined based on negotiations between the parties, it is possible that the value of the Opexa common stock to be received by Acer shareholders will be less than the fair market value of Acer’s capital stock, or Opexa may pay more than the aggregate fair market value for Acer’s capital stock.

Risks Related to Opexa

Risks Related to Opexa’s Business

Opexa’s business to date has been almost entirely dependent on the development of Tcelna for multiple sclerosis. In the fourth quarter of 2016, Opexa announced that its Phase IIb clinical study, known as the Abili-T study, failed to reach its primary efficacy endpoint. Opexa has communicated that it will no longer continue the development of Tcelna and is evaluating the viability of its preclinical program for OPX-212 in NMO and the related T-cell platform. It is possible that Opexa may ultimately decide not to pursue any further drug development. Although Opexa has decreased its cash burn substantially, Opexa’s cash needs over the next few months may be unpredictable.

On October 28, 2016, Opexa announced that the Phase IIb Abili-T clinical trial designed to evaluate the efficacy and safety of Tcelna (imilecleucel-T) in patients with SPMS did not meet its primary endpoint of reduction in brain volume change, or atrophy, nor did it meet the secondary endpoint of reduction of the rate of sustained disease progression. Opexa had previously devoted substantially all of its research, development, clinical efforts and financial resources toward the development of Tcelna. Opexa implemented a reduction in workforce of 40% of its then 20 full-time employees, announced on November 2, 2016, while it reevaluated its programs and various strategic alternatives in light of the disappointing Abili-T study data. On December 14, 2016, a further

 

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workforce reduction was implemented to conserve cash, reducing the number of full-time employees by an additional 25% of the then 12 employees. In January 2017, an additional workforce reduction of seven full-time employees was implemented to conserve cash. As of June 30, 2017, Opexa had two full-time employees. After further analysis of the data from the Abili-T trial, Opexa has determined that it will not move forward with further development of Tcelna. Opexa is conducting a review of its preclinical program for OPX-212 in NMO and the related T-cell platform, to assess the viability of continuing to pursue this program. Opexa cannot fully predict whether or to what extent it will resume drug development activities, and Opexa cannot predict its future cash needs for any such activities.

If Opexa decides to continue one or more of its development programs, it will be required to raise additional capital. Given the disappointing results from the Abili-T clinical study, raising additional capital may be challenging. If sufficient capital is not available, Opexa may not be able to continue its operations, which may require it to suspend or terminate any ongoing development activities, modify its business plan, curtail various aspects of its operations, cease operations or seek relief under applicable bankruptcy laws.

As of June 30, 2017, Opexa had cash and cash equivalents of $1.8 million as well as accounts payable, short-term notes payable and accrued expenses aggregating $368,547. Opexa’s operating cash burn rate during the three months ended June 30, 2017 was approximately $310,944 per month, consisting mainly of general and administrative expenses.

Opexa believes that it has sufficient liquidity to support its current activities in winding down the Abili-T trial and for general operations to sustain the Company and support such activities into September 2017. However, if Opexa’s projections prove to be inaccurate, or if it encounters additional costs to wind down the trial or to sustain its operations, or if Opexa incurs other costs such as those associated with pursuing further research and development, it would need to raise additional capital to continue its operations.

If Opexa decides to continue research and development in one or more of its programs, Opexa would expect to incur significant expenses and increasing losses for the next several years. In this situation, Opexa would need to raise additional capital. Given the disappointing results of the Abili-T trial, Opexa believes its ability to issue equity securities or obtain debt financing in the future on favorable terms, or at all, has been substantially impaired, particularly if the intended use of proceeds would be for the continued development of Tcelna.

As Opexa pursues the proposed Merger with Acer, it will continue to explore potential opportunities and alternatives to preserve options should the Merger not be consummated. Additional options may include raising additional capital through either private or public equity or debt financing as well as using its ATM facility and cutting expenses where possible. If Opexa is unable to obtain additional funding to support its current activities and operations, or is not successful in attracting a development partner, it may not be able to continue its operations as proposed, which may require it to suspend or terminate any development activities, modify its business plan, curtail various aspects of its operations, cease operations or seek relief under applicable bankruptcy laws. In such event, Opexa shareholders may lose a substantial portion or even all of their investment.

Opexa does not maintain any external lines of credit or have any sources of debt or equity capital committed for funding, other than its ATM facility. Should Opexa need any additional capital in the future beyond these sources, management will be reliant upon “best efforts” debt or equity financings. Opexa can provide no assurance that it will be successful in any funding effort. The timing and degree of any future capital requirements will depend on many factors, including:

 

    Opexa’s ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;

 

    the accuracy of the assumptions underlying its estimates for capital needs;

 

    scientific progress in its research and development programs;

 

    the magnitude and scope of its research and development programs;

 

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    its progress with preclinical development and clinical trials;

 

    the time and costs involved in obtaining regulatory approvals;

 

    the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

 

    the number and type of product candidates that it pursues.

If Opexa raises additional funds by issuing equity securities, shareholders may experience substantial dilution. Debt financing, if available, may involve restrictive covenants that may impede Opexa’s ability to operate its business. Any debt financing or additional equity that Opexa raises may contain terms that are not favorable to it or its shareholders. There is no assurance that Opexa’s capital raising efforts will be able to attract the capital needed to execute on its business plan and sustain its operations.

There is substantial doubt as to Opexa’s ability to continue as a going concern, which may make it more difficult for it to raise capital.

The report of Opexa’s independent auditors in respect of the 2016 fiscal year expressed substantial doubt about Opexa’s ability to continue as a going concern. Specifically, it noted Opexa’s recurring losses, negative operating cash flows and accumulated deficit. Opexa’s consolidated financial statements as of March 31, 2017 and for the three-month period then ended were prepared assuming that it will continue as a going concern, meaning that it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. While Opexa has historically recognized revenue related to the $5 million and $3 million payments from Merck Serono received in February 2013 and March 2015 in connection with the Option and License Agreement and the Amendment over the exclusive option period based on the expected completion term of the Abili-T clinical trial, Opexa has never generated any commercial revenues, nor does it expect to generate any commercial revenues for the foreseeable future or other revenues in the near term that will result in cash receipts. As of June 30, 2017, Opexa had cash and cash equivalents of $1.8 million as well as accounts payable, short-term notes payable and accrued expenses aggregating $368,547.

On October 28, 2016, Opexa announced that the Abili-T trial did not meet its primary or secondary endpoints, and, in order to conserve cash resources while it reevaluated its programs and explored various strategic alternatives, during the fourth quarter of 2016 and the first quarter of 2017 Opexa implemented several reductions in workforce totaling 90% of its then 20 full-time employees. As of June 30, 2017, Opexa had two full time employees. After further analysis of the data from the Abili-T trial, Opexa has determined that it will not move forward with further studies of Tcelna, and it is conducting a review of its preclinical program for OPX-212 in NMO and the related T-cell platform to assess the viability of continuing to pursue this program. Opexa believes that it has sufficient liquidity to support its current activities in winding down the Abili-T trial and for general operations to sustain the company and support such activities into September 2017.

As Opexa pursues the proposed Merger with Acer, it will continue to explore potential opportunities and alternatives to preserve options should the Merger not be consummated. Additional options may include raising additional capital through either private or public equity or debt financing as well as using its ATM facility and cutting expenses where possible. In the absence of significant additional funding to support Opexa’s operations, there is substantial doubt about its ability to continue as a going concern. Opexa’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Additionally, in light of the disappointing Abili-T study results, there can be no assurance that Opexa will be able to secure additional funds, or if such funds are available, that the terms or conditions would be acceptable. If Opexa is unable to obtain additional funding to support its current activities and operations, it may not be able to continue its operations as proposed, which may require it to suspend or terminate any development activities, modify its business plan, curtail various aspects of its operations, cease operations or seek relief under applicable bankruptcy laws. In such event, Opexa shareholders may lose a substantial portion or even all of their investment.

 

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Opexa has a history of operating losses and does not expect to be profitable in the foreseeable future.

Opexa has not generated any profits since its entry into the biotechnology business and it has incurred significant operating losses. Opexa expects to incur additional operating losses for the foreseeable future. Opexa has not received, and it does not expect to receive for at least the next several years, any revenues from the commercialization of any potential products. Opexa does not currently have any sources of revenues and may not have any in the foreseeable future.

The employment agreement with Opexa’s President and Chief Executive Officer may require it to pay severance benefits if he is terminated under specified circumstances, including in connection with a change of control of Opexa, which could harm its financial condition or results.

The employment agreement with Opexa’s President and Chief Executive Officer contains change of control and severance provisions providing for the payment of severance and other benefits, including accelerated vesting of stock options, in the event of a termination of employment under specified circumstances, including in connection with a change of control of Opexa. The accelerated vesting of options could result in dilution to Opexa’s existing shareholders and harm the market price of Opexa’s common stock. The payment of severance benefits could harm Opexa’s financial condition and results of operation. In addition, these potential severance payments and benefits may discourage or prevent third parties from seeking a business combination with Opexa.

Opexa’s business is at an early stage of development. To date, Opexa has devoted substantially all of its resources to research and development efforts relating to Tcelna.

Opexa’s business is at an early stage of development. Opexa does not have any products on the market. Opexa has discontinued further development of its only clinical candidate, Tcelna, and is evaluating whether to continue development of its preclinical candidate, OPX-212 in NMO, and the related T-cell platform. If Opexa decides to continue the development of its preclinical program, it will need to commence and complete additional clinical trials, manage clinical and manufacturing activities, and obtain necessary regulatory approvals from the FDA in the United States and from foreign regulatory authorities in other jurisdictions. Any of Opexa’s potential products will require regulatory approval prior to marketing in the United States and other countries. Obtaining such approval requires significant research and development and preclinical and clinical testing. Opexa may not be able to develop any products, obtain regulatory approvals, enter clinical trials (or any development activities) for any product candidates, or commercialize any products. Any of Opexa’s potential products may prove to have undesirable or unintended side effects or other characteristics adversely affecting their safety, efficacy or cost-effectiveness that could prevent or limit their use. Any product using any of Opexa’s technology may fail to provide the intended therapeutic benefits or to achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production.

The Abili-T trial results cast doubt about the probative value of the results in earlier clinical trials of Tcelna.

Trial designs and results from previous trials are not necessarily predictive of future clinical trial designs or results. For example, although the results of prior clinical trials of Tcelna for the treatment of MS included evidence of efficacy, the Abili-T trial for the treatment of patients with SPMS failed to meet either its primary or secondary endpoints.

There is a high failure rate for drug candidates proceeding through clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

 

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Opexa will need regulatory approvals for any product candidate prior to introduction to the market, which will require successful testing in clinical trials. Clinical trials are subject to extensive regulatory requirements, and are very expensive, time-consuming and difficult to design and implement. Any product candidate may fail to achieve necessary safety and efficacy endpoints during clinical trials in which case Opexa will be unable to generate revenue from the commercialization and sale of its products.

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous FDA requirements, and must otherwise comply with federal, state and local requirements and policies of the medical institutions where they are conducted. The clinical trial process is also time-consuming. Failure can occur at any stage of the trials, and problems could be encountered that would cause Opexa to be unable to initiate a trial, or to abandon or repeat a clinical trial.

The commencement and completion of clinical trials may be delayed or prevented by several factors, including:

 

    FDA or IRB objection to proposed protocols;

 

    discussions or disagreement with the FDA over the adequacy of trial design to potentially demonstrate effectiveness, and subsequent design modifications;

 

    unforeseen safety issues;

 

    determination of dosing issues, epitope profiles, and related adjustments;

 

    lack of effectiveness during clinical trials;

 

    slower than expected rates of patient recruitment;

 

    product quality problems (e.g., sterility or purity);

 

    challenges to patient monitoring, retention and data collection during or after treatment (e.g., patients’ failure to return for follow-up visits or to complete the trial, detection of epitope profiles in subsequent visits, etc.); and

 

    failure of medical investigators to follow Opexa’s clinical protocols.

In addition, Opexa or the FDA (based on its authority over clinical studies) may delay a proposed investigation or suspend clinical trials in progress at any time if it appears that the study may pose significant risks to the study participants or other serious deficiencies are identified. Prior to approval of any product candidate, the FDA must determine that the data demonstrate safety and effectiveness. The large majority of drug candidates that begin human clinical trials fail to demonstrate the desired safety and efficacy characteristics.

Furthermore, changes in regulatory requirements and guidance may occur and Opexa may need to amend clinical trial protocols, or otherwise modify its intended course of clinical development, to reflect these changes. This, too, may impact the costs, timing or successful completion of a clinical trial. In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the U.S. Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products, and establishment of risk management programs that may, for instance, restrict distribution of drug products. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion or require longer or additional clinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

Even if regulatory approval is obtained for any product candidate, any such approval may be subject to limitations on the indicated uses for which it may be marketed. Opexa’s ability to generate revenues from the commercialization and sale of any potential products, whether directly or through any development arrangement, will be limited by any failure to obtain or limitation on necessary regulatory approvals.

 

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As a result of the disappointing data from the Abili-T trial and the reductions in Opexa’s workforce during 2016 and early 2017, Opexa’s workforce has been reduced substantially. If Opexa is unable to retain its remaining employees, or rebuild its workforce if it decides to continue one or more of its development programs, Opexa’s business will be seriously jeopardized. It will be difficult to grow or operate Opexa’s business with the current limited number of employees.

On November 2, 2016, Opexa announced a reduction of 40% of its then full-time workforce of 20 employees as a result of the disappointing data from the Abili-T study. Opexa’s Chief Development Officer resigned in November 2016 after announcement of the Abili-T trial results. On December 14, 2016, a further workforce reduction was implemented to conserve cash, reducing the number of full-time employees by an additional 25% of the then 12 employees. During January 2017, an additional workforce reduction of seven full-time employees was implemented to conserve cash, and the employment of Opexa’s Chief Scientific Officer was terminated as part of the reduction. As of June 30, 2017, Opexa had two full-time employees. Opexa has only one officer remaining, who serves as the President, Chief Executive Officer and Acting Chief Financial Officer.

Opexa’s recent exploration of strategic alternatives and cash conservation activities may yield unintended consequences, such as attrition beyond Opexa’s planned reductions in workforce and reduced employee morale which may cause Opexa’s remaining employees to seek alternate employment. In such event, Opexa may be unable on a timely basis to hire suitable replacements to operate its business effectively. The loss of the services of any of Opexa’s employees could have a material adverse effect on its business and results of operations. Opexa’s restructuring initiatives have caused disruption in its business operations, and it may not be able to effectively realize the savings anticipated by any restructuring initiative and reductions-in-force. Additionally, there may be future changes in Opexa’s workforce, including as a result of changes that may occur in its operations or operating plan, or other reasons or events. There may also be possible changes in the amount of charges and cash payments associated with any workforce reduction, including the possibility that Opexa may incur unanticipated charges or make cash payments that are not contemplated.

Additionally, if Opexa ultimately decides to pursue one or more of its development programs, it will need to rebuild its workforce and management team. Opexa may be unable on a timely basis to hire and train suitable new employees to continue to operate its business and further any such development programs. It will be difficult to grow or operate Opexa’s business with the current small number of employees it has.

Funding from Opexa’s ATM facility may be limited or be insufficient to fund its operations or to implement its strategy.

Opexa will need to keep current its shelf registration statement and the offering prospectus relating to the ATM facility with Brinson Patrick (now a division of IFS Securities, Inc.) in order to use the program to sell shares of Opexa’s common stock. The number of shares and price at which Opexa may be able to sell shares under its ATM facility may be limited due to market conditions and other factors beyond its control.

Opexa may make changes to discretionary R&D investments that may have an impact on costs.

Opexa conducted an immune monitoring program on blood samples collected over time to detect Tcelna-induced immune modulation. While certain data has been analyzed to date, a correlation analysis of immune monitoring T-cell phenotypes to MRTC bio-activity has not been conducted. Expenses associated with the immune monitoring program are incurred at Opexa’s discretion and are not required to satisfy any FDA-mandated criteria. Consequently, Opexa may make changes to the parameters that are being analyzed, or it may elect not to proceed with certain analyses, and these changes may result in either increased or decreased expenses for any such study.

Opexa may also incur discretionary expenses related to preclinical, Phase I, Phase II and/or Phase III development programs, manufacturing scale-up/automation and technology transfer, research on additional indications and business development activities. There is no assurance that any such future expenses would be recovered by Opexa.

 

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Opexa would need to rely on third parties to conduct its clinical trials and perform data collection and analysis, which may result in costs and delays that may hamper its ability to successfully develop and commercialize any product candidate.

Although Opexa has participated in the design and management of its past clinical trials, Opexa does not have the ability to conduct clinical trials directly for any product candidate. Opexa would need to rely on contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct any clinical trials and to perform data collection and analysis.

Any clinical trials Opexa may conduct could be delayed, suspended or terminated if:

 

    any third party upon whom Opexa relies does not successfully carry out its contractual duties or regulatory obligations or meet expected deadlines;

 

    licenses needed from third parties for manufacturing in order to conduct Phase III trials or to conduct commercial manufacturing, if applicable, are not obtained;

 

    any such third party needs to be replaced; or

 

    the quality or accuracy of the data obtained by the third party is compromised due to its failure to adhere to clinical protocols or regulatory requirements or for other reasons.

Failure to perform by any third party upon whom Opexa relies may increase the development costs, delay the ability to obtain regulatory approval and prevent the commercialization of any product candidate. While Opexa believes that there are numerous alternative sources to provide these services, it might not be able to enter into replacement arrangements without delays or additional expenditures if Opexa were to seek such alternative sources.

If Opexa fails to identify and license or acquire other product candidates, it will not be able to expand its business over the long term.

Opexa has focused on MS as the first disease to be pursued off its T-cell platform technology, and in 2014, Opexa initiated development activities for OPX-212, its drug candidate for NMO, as the second disease it is pursuing. As a platform technology, there exists the potential to address other autoimmune diseases with the technology. While preclinical development and manufacturing activities have been conducted for OPX-212 in NMO, such work is modest compared to the effort that has been committed to Tcelna for the lead MS indication. However, inasmuch as the Abili-T study of Tcelna in SPMS did not meet either its primary or secondary endpoints, Opexa has determined that it will not move forward with further studies of Tcelna and is assessing whether to continue its other development activities. Opexa’s business over the long term is substantially dependent on its ability to develop, license or acquire product candidates and further develop them for commercialization. The success of this strategy depends upon Opexa’s ability to expand its existing platform or identify, select and acquire the right product candidates. Opexa has limited experience identifying, negotiating and implementing economically viable product candidate acquisitions or licenses, which is a lengthy and complex process. Also, the market for licensing and acquiring product candidates is intensely competitive, and many of Opexa’s competitors have greater resources than Opexa does. Opexa may not have the requisite capital resources to consummate product candidate acquisitions or licenses that it identifies to fulfill its strategy.

Moreover, any product candidate acquisition that Opexa does complete will involve numerous risks, including:

 

    difficulties in integrating the development program for the acquired product candidate into Opexa’s existing operations;

 

    diversion of financial and management resources from existing operations;

 

    risks of entering new potential markets or technologies;

 

    inability to generate sufficient funding to offset acquisition costs; and

 

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    delays that may result from Opexa having to perform unanticipated preclinical trials or other tests on the product candidate.

If Opexa fails to meet its obligations under any license agreements, Opexa may lose its rights to key technologies on which Opexa’s business depends.

Opexa’s business depends on licenses from third parties. These third-party license agreements impose obligations on Opexa, such as payment obligations and obligations diligently to pursue development of commercial products under the licensed patents. If applicable, Opexa may also need to seek additional licenses to move into Phase III trials or the commercial stage of operations. These licenses may require increased payments to the licensors. If a licensor believes that Opexa has failed to meet its obligations under a license agreement, the licensor could seek to limit or terminate Opexa’s license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, Opexa’s ability to carry out the development and commercialization of potential products could be significantly and negatively affected. If Opexa’s license rights were restricted or ultimately lost, Opexa’s ability to continue its business based on the affected technology platform could be adversely affected.

Opexa no longer leases a research and manufacturing facility in which to conduct development or manufacture product candidates for its programs or clinical trial activities or, if any such clinical trials were to be successful, commercial applications.

Through January 2017, Opexa conducted its research and development in a 10,200 square foot facility in The Woodlands, Texas, which included an approximately 1,200 square foot suite of three rooms for the manufacture of T-cell therapies. On February 1, 2017, Opexa assigned the facility lease to a third party, who assumed from Opexa all of Opexa’s remaining rights and obligations under the lease. In connection with the lease assignment, Opexa also sold certain furniture, fixtures and equipment (including laboratory and manufacturing equipment) as well as Opexa’s laboratory supplies located at its corporate headquarters to the third party for cash consideration. In light of the continuing evaluation of Opexa’s strategic alternatives following the release of data from the Abili-T clinical study, Opexa deemed it advisable to reduce its office, R&D and manufacturing space and corresponding rent obligations. As a result, Opexa is currently using temporary office space in the same facility but no longer has the capacity for any research and development or for any manufacturing operations. If Opexa decides to continue to pursue development of any of its product candidates, Opexa would need to locate and obtain a new facility, arrange for R&D and manufacturing staff, contract with corporate collaborators or other third parties to assist with future drug production and commercialization, or defer to a collaborative partner or third party to address these needs.

In the event that Opexa decides to again establish a R&D or manufacturing facility, it would require substantial additional funds and would be required to hire and train significant numbers of employees and comply with applicable regulations, which are extensive. Opexa does not have funds available for building an R&D or manufacturing facility, and Opexa may not be able to build a facility that both meets regulatory requirements and is sufficient for its needs.

Opexa may arrange with third parties for the manufacture of its future products, if any. However, Opexa’s third-party sourcing strategy may not result in a cost-effective means for manufacturing its future products. If Opexa employs third-party manufacturers, it will not control many aspects of the manufacturing process, including compliance by these third parties with cGMP and other regulatory requirements. Opexa further may not be able to obtain adequate supplies from third-party manufacturers in a timely fashion for development or commercialization purposes, and commercial quantities of products may not be available from contract manufacturers at acceptable costs.

Problems with Opexa’s manufacturing process or with a manufacturing facility (whether Opexa’s or a third party’s) could result in the failure to produce, or a delay in producing, adequate supplies of any of Opexa’s

 

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product candidates. A number of factors could cause interruptions or delays, including equipment malfunctions or failures, destruction or damage to a manufacturing facility due to natural disasters or otherwise, contamination of materials, changes in regulatory requirements or standards that require modifications to Opexa’s manufacturing process, action by a regulatory agency or by a manufacturer (whether Opexa or a third party) that results in the halting or slowdown of production due to regulatory issues, any third-party manufacturer going out of business or failing to produce as contractually required, or other similar factors.

Difficulties, delays or interruptions in the manufacture and supply of any of Opexa’s product candidates could require it to stop treating patients in its clinical development of such product candidate and/or require a halt to or suspension of, or otherwise adversely affect, a clinical trial, thus increasing Opexa’s costs and damaging its reputation. If a product candidate is approved, difficulties, delays or interruptions in the manufacture and supply of such product candidate could cause a delay in or even halt or suspend the commercialization of such product candidate, potentially causing a partial or complete loss of revenue or market share.

Tcelna was manufactured using Opexa’s proprietary ImmPath ® technology for the production of an autologous T-cell immunotherapy utilizing a patient’s own blood. Opexa’s manufacturing process may raise development issues that may not be resolvable, regulatory issues that could delay or prevent approval, or personnel issues that may prevent the further development or commercialization, if approved, of any product candidate.

Tcelna was based on Opexa’s novel T-cell immunotherapy platform, ImmPath, which produces an autologous T-cell immunotherapy utilizing a patient’s own blood. OPX-212 may be similarly produced. The manufacture of living T-cell products requires specialized facilities, equipment and personnel which are different than the resources required for manufacturing chemical or biologic compounds. Scaling-out the manufacture of living cell products to meet demands for commercialization will require substantial amounts of such specialized facilities, equipment and personnel, especially where the products are personalized and must be made for each patient individually. Because Opexa’s manufacturing processes are complex, require facilities and personnel that are not widely available in the industry, involve equipment and training with long lead times, and the establishment of new manufacturing facilities is subject to a potentially lengthy regulatory approval process, alternative qualified production capacity may not be available on a timely basis or on reasonably terms, if at all. In addition, not many consultants or advisors in the industry have relevant experience and can provide guidance or assistance because active immune therapies are fundamentally a new category of product in two major ways: (i) the product consists of living T-cells, not chemical or biologic compounds; and (ii) the product is personalized. There can be no assurance that manufacturing problems will not arise in the future which Opexa may not be able to resolve or which may cause significant delays in development or, if any product candidate is approved, commercialization.

Regulatory approval of product candidates that are manufactured using novel manufacturing processes such as Opexa’s can be more expensive and take longer than other, more well-known or extensively studied pharmaceutical or biopharmaceutical products, due to a lack of experience with them. FDA approval of personalized immunotherapy products has been limited to date. This lack of experience and precedent may lengthen the regulatory review process, require that additional studies or clinical trials be conducted, increase development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization, or lead to significant post-approval limitations or restrictions.

In addition, the novel nature of product candidates also means that fewer people are trained in or experienced with product candidates of this type, which may make it difficult to find, hire and retain capable personnel for research, development and manufacturing positions.

 

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If any product Opexa may eventually have is not accepted by the market or if users of any such product are unable to obtain adequate coverage of and reimbursement for such product from government and other third-party payors, Opexa’s revenues and profitability will suffer.

Opexa’s ability to successfully commercialize any product it may eventually have, to the extent applicable, and/or its ability to receive any revenue will depend in significant part on the extent to which appropriate coverage of and reimbursement for such product and any related treatments are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs. Third-party payors are increasingly challenging the prices charged for medical products and services. Opexa cannot provide any assurances that third-party payors will consider any product cost-effective or provide coverage of and reimbursement for such product, in whole or in part.

Uncertainty exists as to the coverage and reimbursement status of newly approved medical products and services and newly approved indications for existing products. Third-party payors may conclude that any product is less safe, less clinically effective, or less cost-effective than existing products, and third-party payors may not approve such product for coverage and reimbursement. If adequate coverage of and reimbursement for any product from third-party payors cannot be obtained, physicians may limit how much or under what circumstances they will prescribe or administer them. Such reduction or limitation in the use of any such product would cause sales to suffer. Even if third-party payors make reimbursement available, payment levels may not be sufficient to make the sale of any such product profitable.

In addition, the trend towards managed health care in the United States and the concurrent growth of organizations such as HMOs, which could control or significantly influence the purchase of medical services and products, may result in inadequate coverage of and reimbursement for any product Opexa may eventually have. Many third-party payors, including in particular HMOs, are pursuing various ways to reduce pharmaceutical costs, including, for instance, the use of formularies. The market for any product depends on access to such formularies, which are lists of medications for which third-party payors provide reimbursement. These formularies are increasingly restricted, and pharmaceutical companies face significant competition in their efforts to place their products on formularies of HMOs and other third-party payors. This increased competition has led to a downward pricing pressure in the industry. The cost containment measures that third-party payors are instituting could have a material adverse effect on Opexa’s ability to operate profitably.

Any product candidate, if approved for sale, may not gain acceptance among physicians, patients and the medical community, thereby limiting Opexa’s potential to generate revenues.

Even if a product candidate is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, healthcare professionals and third-party payors, and Opexa’s profitability and growth, will depend on a number of factors, including:

 

    demonstration of efficacy;

 

    relative convenience and ease of administration;

 

    the prevalence and severity of any adverse side effects;

 

    availability and cost of alternative treatments, including cheaper generic drugs;

 

    pricing and cost effectiveness, which may be subject to regulatory control;

 

    effectiveness of sales and marketing strategies for the product and competition for such product;

 

    the product labeling or product insert required by the FDA or regulatory authority in other countries; and

 

    the availability of adequate third-party insurance coverage or reimbursement.

If any product candidate does not provide a treatment regimen that is as beneficial as the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA

 

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or other regulatory authorities, likely will not achieve market acceptance and Opexa’s ability to generate revenues from that product candidate would be substantially reduced.

Opexa has incurred, and expects to continue to incur, increased costs and risks as a result of being a public company.

As a public company, Opexa is required to comply with the Sarbanes-Oxley Act of 2002, or SOX, as well as rules and regulations implemented by the SEC and The NASDAQ Stock Market, or NASDAQ. Changes in the laws and regulations affecting public companies, including the provisions of SOX and rules adopted by the SEC and by NASDAQ, have resulted in, and will continue to result in, increased costs as Opexa responds to their requirements. Given the risks inherent in the design and operation of internal controls over financial reporting, the effectiveness of Opexa’s internal controls over financial reporting is uncertain. If Opexa’s internal controls are not designed or operating effectively, it may not be able to conclude an evaluation of its internal control over financial reporting as required or Opexa or its independent registered public accounting firm may determine that Opexa’s internal control over financial reporting was not effective. Opexa currently has a very limited workforce, and it may be difficult to adhere to appropriate internal controls over financial reporting or disclosure controls with such limited staffing. In addition, Opexa’s registered public accounting firm may either disclaim an opinion as it relates to management’s assessment of the effectiveness of its internal controls or may issue an adverse opinion on the effectiveness of Opexa’s internal controls over financial reporting, especially in light of the fact that Opexa currently has a very limited workforce. Investors may lose confidence in the reliability of Opexa’s financial statements, which could cause the market price of Opexa’s common stock to decline and which could affect its ability to run its business as it otherwise would like to. New rules could also make it more difficult or more costly for Opexa to obtain certain types of insurance, including directors’ and officers’ liability insurance, and Opexa may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is the same or similar to Opexa’s current coverage. The impact of these events could also make it more difficult for Opexa to attract and retain qualified persons to serve on its board of directors, its board committees and as executive officers. Opexa cannot predict or estimate the total amount of the costs it may incur or the timing of such costs to comply with these rules and regulations.

Under the corporate governance standards of NASDAQ, a majority of Opexa’s board of directors and each member of Opexa’s Audit and Compensation Committees must be an independent director. If any vacancies on Opexa’s Board or Audit or Compensation Committees occur that need to be filled by independent directors, Opexa may encounter difficulty in attracting qualified persons to serve on its Board and, in particular, its Audit Committee. If Opexa fails to attract and retain the required number of independent directors, Opexa may be subject to SEC enforcement proceedings and delisting of its common stock from the NASDAQ Capital Market.

Any acquisitions that Opexa makes could disrupt its business and harm its financial condition.

Opexa expects to evaluate potential strategic acquisitions of complementary businesses, products or technologies on a global geographic footprint. Opexa may also consider joint ventures, licensing and other collaborative projects. Opexa may not be able to identify appropriate acquisition candidates or strategic partners, or successfully negotiate, finance or integrate acquisitions of any businesses, products or technologies. Furthermore, the integration of any acquisition and management of any collaborative project may divert Opexa’s management’s time and resources from its core business and disrupt its operations. Opexa does not have any experience with acquiring companies, or with acquiring products outside of the United States. Any cash acquisition Opexa pursues would potentially divert the cash Opexa has on its balance sheet from its present clinical development programs. Any stock acquisitions would dilute Opexa’s shareholders’ ownership. While Opexa from time to time evaluates potential collaborative projects and acquisitions of businesses, products and technologies, and anticipate continuing to make these evaluations, Opexa has no present agreements with respect to any acquisitions or collaborative projects.

 

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Risks Related to Opexa’s Intellectual Property

Patents obtained by other persons may result in infringement claims against Opexa that are costly to defend and which may limit Opexa’s ability to use the disputed technologies and prevent it from pursuing research and development or commercialization of potential products, such as Tcelna.

If third party patents or patent applications contain claims infringed by either Opexa’s licensed technology or other technology required to make or use its potential products, such as Tcelna, and such claims are ultimately determined to be valid, there can be no assurance that Opexa would be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If Opexa is unable to obtain such licenses at a reasonable cost, it may not be able to develop any affected product candidate commercially. There can be no assurance that Opexa will not be obliged to defend itself in court against allegations of infringement of third-party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject Opexa to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require Opexa to cease using such technology.

If Opexa is unable to obtain patent protection and other proprietary rights, Opexa’s operations will be significantly harmed.

Opexa’s ability to compete effectively is dependent upon obtaining patent protection relating to its technologies. The patent positions of pharmaceutical and biotechnology companies, including Opexa’s, are uncertain and involve complex and evolving legal and factual questions. The coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently, Opexa does not know whether pending patent applications for its technology will result in the issuance of patents, or if any issued patents will provide significant protection or commercial advantage or will be circumvented by others. Since patent applications are secret until the applications are published (usually 18 months after the earliest effective filing date), and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, Opexa cannot be certain that the inventors of its owned or licensed intellectual property rights were the first to make the inventions at issue or that any patent applications at issue were the first to be filed for such inventions. There can be no assurance that patents will issue from pending patent applications or, if issued, that such patents will be of commercial benefit to Opexa, afford Opexa adequate protection from competing products, or not be challenged or declared invalid.

Given Opexa’s limited cash resources and the current priorities it has set for its use of cash, certain costs related to intellectual property, including those for continued prosecution of individual patents, patent applications and patent counsel costs have been reduced or have ceased. The focus on preservation of cash resulting in reduced patent expenses may cause certain patents to become abandoned and/or prosecution to be dropped. This could materially affect Opexa’s patent estate and could jeopardize the ability of Opexa to continue its development programs, secure a development partner, protect its global patent position and its ability to challenge future patent infringement.

Issued U.S. patents require the payment of maintenance fees to continue to be in force. Opexa relies on a third-party payor to do this and their failure to do so could result in the forfeiture of patents not timely maintained.

 

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Many foreign patent offices also require the payment of periodic annuities to keep patents and patent applications in good standing. As Opexa may not maintain direct control over the payment of all such annuities, it cannot assure you that its third-party payor will timely pay such annuities and that the granted patents and pending patent applications will not become abandoned. In addition, Opexa or its licensors may have selected a limited amount of foreign patent protection, and therefore applications have not been filed in, and foreign patents may not have been perfected in, all commercially significant countries.

The patent protection of product candidates, such as Tcelna, involves complex legal and factual questions. To the extent that it would be necessary or advantageous for any of Opexa’s licensors to cooperate or lead in the enforcement of its licensed intellectual property rights, Opexa cannot control the amount or timing of resources such licensors devote on its behalf or the priority they place on enforcing such rights. Opexa may not be able to protect its intellectual property rights against third-party infringement, which may be difficult to detect. Additionally, challenges may be made to the ownership of Opexa’s intellectual property rights, its ability to enforce them, or its underlying licenses.

Opexa cannot be certain that any of the patents issued to it or to its licensors will provide adequate protection from competing products. Opexa’s success will depend, in part, on whether it or its licensors can:

 

    obtain and maintain patents to protect Opexa’s product candidates such as Tcelna;

 

    obtain and maintain any required or desirable licenses to use certain technologies of third parties, which may be protected by patents;

 

    protect Opexa’s trade secrets and know-how;

 

    operate without infringing the intellectual property and proprietary rights of others;

 

    enforce the issued patents under which Opexa holds rights; and

 

    develop additional proprietary technologies that are patentable.

The degree of future protection for Opexa’s proprietary rights (owned or licensed) is uncertain. For example:

 

    Opexa or its licensor might not have been the first to make the inventions covered by pending patent applications or issued patents owned by, or licensed to, Opexa;

 

    Opexa or its licensor might not have been the first to file patent applications for these inventions;

 

    others may independently develop similar or alternative technologies or duplicate any of the technologies owned by, or licensed to, Opexa;

 

    it is possible that none of the pending patent applications owned by, or licensed to, Opexa will result in issued patents;

 

    any patents under which Opexa holds rights may not provide it with a basis for commercially viable products, may not provide it with any competitive advantages or may be challenged by third parties as invalid, or unenforceable under U.S. or foreign laws;

 

    inability to continue supporting and funding patent prosecution costs; or

 

    any of the issued patents under which Opexa holds rights may not be valid or enforceable or may be circumvented successfully in light of the continuing evolution of domestic and foreign patent laws.

Confidentiality agreements with employees and others may not adequately prevent disclosure of Opexa’s trade secrets and other proprietary information and may not adequately protect its intellectual property, which could limit its ability to compete.

Opexa relies in part on trade secret protection in order to protect its proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and Opexa cannot be certain that others will not

 

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develop the same or similar technologies on their own. Opexa has taken steps, including entering into confidentiality agreements with its employees, consultants, outside scientific collaborators and other advisors, to protect its trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by Opexa during the course of the party’s relationship with Opexa. Opexa also typically obtains agreements from these parties which provide that inventions conceived by the party in the course of rendering services to Opexa will be its exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to Opexa. Further, Opexa has limited control, if any, over the protection of trade secrets developed by its licensors. Enforcing a claim that a party illegally obtained and is using Opexa’s trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect Opexa’s competitive position.

A dispute concerning the infringement or misappropriation of Opexa’s proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm Opexa’s business.

A number of pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, T-cells, and other technologies potentially relevant to or required by Opexa’s product candidates such as Tcelna. Opexa cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. Opexa is aware of a number of patent applications and patents claiming use of modified cells to treat disease, disorder or injury.

There is significant litigation in Opexa’s industry regarding patent and other intellectual property rights. While Opexa is not currently subject to any pending intellectual property litigation, and is not aware of any such threatened litigation, it may be exposed to future litigation by third parties based on claims that its product candidates, such as Tcelna, or their methods of use, manufacturing or other technologies or activities infringe the intellectual property rights of such third parties. If Opexa’s product candidates, such as Tcelna, or their methods of manufacture are found to infringe any such patents, Opexa may have to pay significant damages or seek licenses under such patents. Opexa has not conducted comprehensive searches of patents issued to third parties relating to Tcelna or OPX-212. Consequently, no assurance can be given that third-party patents containing claims covering Tcelna or OPX-212, their methods of use or manufacture do not exist or have not been filed and will not be issued in the future. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, and because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, Opexa cannot be certain that others have not filed patent applications that will mature into issued patents that relate to Opexa’s current or future product candidates that could have a material effect in developing and commercializing one or more of Opexa’s product candidates. A patent holder could prevent Opexa from importing, making, using or selling the patented compounds. Opexa may need to resort to litigation to enforce its intellectual property rights or to determine the scope and validity of third-party proprietary rights. Similarly, Opexa may be subject to claims that it has inappropriately used or disclosed trade secrets or other proprietary information of third parties. If Opexa becomes involved in litigation, it could consume a substantial portion of Opexa’s managerial and financial resources, regardless of whether it wins or loses. Some of Opexa’s competitors may be able to sustain the costs of complex intellectual property litigation more effectively than Opexa can because they have substantially greater resources. Opexa may not be able to afford the costs of litigation. Any legal action against Opexa or its collaborators could lead to:

 

    payment of actual damages, royalties, lost profits, potentially treble damages and attorneys’ fees, if Opexa is found to have willfully infringed a third party’s patent rights;

 

    injunctive or other equitable relief that may effectively block Opexa’s ability to further develop, commercialize and sell its products;

 

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    Opexa or its collaborators having to enter into license arrangements that may not be available on commercially acceptable terms if at all; or

 

    significant cost and expense, as well as distraction of Opexa’s management from its business.

As a result, Opexa could be prevented from commercializing current or future product candidates.

Risks Related to Opexa’s Industry

Opexa is subject to stringent regulation of its product candidates, which could delay development and commercialization.

Opexa, its third-party contractors and suppliers, and its product candidates are subject to stringent regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. None of Opexa’s product candidates can be marketed in the United States until it has been approved by the FDA. No product candidate of Opexa’s has been approved, and Opexa may never receive FDA approval for any product candidate. Obtaining FDA approval typically takes many years and requires substantial resources. Even if regulatory approval is obtained, the FDA may impose significant restrictions on the indicated uses, conditions for use and labeling of such products. Additionally, the FDA may require post-approval studies, including additional research and development and clinical trials. These regulatory requirements may limit the size of the market for the product or result in the incurrence of additional costs. Any delay or failure in obtaining required approvals could substantially reduce Opexa’s ability to generate revenues.

In addition, both before and after regulatory approval, Opexa and its product candidates are subject to numerous FDA requirements covering, among other things, testing, manufacturing, quality control, labeling, advertising, promotion, distribution and export. The FDA’s requirements may change and additional government regulations may be promulgated that could affect Opexa and its product candidates. Given the number of recent high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk management programs, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising. Furthermore, heightened Congressional scrutiny on the adequacy of the FDA’s drug approval process and the agency’s efforts to assure the safety of marketed drugs resulted in the enactment of legislation addressing drug safety issues, the FDA Amendments Act of 2007. This legislation provides the FDA with expanded authority over drug products after approval and the FDA’s exercise of this authority could result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, and increased costs to assure compliance with new post-approval regulatory requirements. Opexa cannot predict the likelihood, nature or extent of government regulation that may arise from this or future legislation or administrative action, either in the United States or abroad.

In order to market any of Opexa’s products outside of the United States, Opexa must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods and the time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States. Approval by the FDA does not automatically lead to the approval of authorities outside of the United States and, similarly, approval by other regulatory authorities outside the United States will not automatically lead to FDA approval. In addition, regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. Opexa’s product candidates may not be approved for all indications that Opexa requests, which would limit uses and adversely impact Opexa’s potential royalties and product sales. Such approval may be subject to limitations on the indicated uses for which any potential product may be marketed or require costly, post-marketing follow-up studies.

 

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If Opexa fails to comply with applicable regulatory requirements in the United States and other countries, among other things, Opexa may be subject to fines and other civil penalties, delays in approving or failure to approve a product, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, interruption of manufacturing or clinical trials, injunctions and criminal prosecution, any of which would harm Opexa’s business.

Opexa may need to change its business practices to comply with health care fraud and abuse regulations, and its failure to comply with such laws could adversely affect Opexa’s business, financial condition and results of operations.

If Opexa is successful in achieving approval to market one or more of its product candidates, its operations will be directly, or indirectly through its customers, subject to various state and federal fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and False Claims Act. These laws may impact, among other things, Opexa’s proposed sales, marketing, and education programs.

The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. Recognizing that the Anti-Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the Department of Health and Human Services, Office of Inspector General, or OIG, to issue a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities such as the OIG. Penalties for violations of the federal Anti-Kickback Statute include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

The federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false claim to, or the knowing use of false statements to obtain payment from, the federal government. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf of the government and such individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts paid by the entity to the government in fines or settlement. The frequency of filing of qui tam actions has increased significantly in recent years, causing greater numbers of healthcare companies to have to defend a False Claims Act action. When an entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties. Various states have also enacted laws modeled after the federal False Claims Act.

In addition to the laws described above, the Health Insurance Portability and Accountability Act of 1996 created two new federal crimes: healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.

 

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Beginning August 1, 2013, the Physician Payments Sunshine Act, or the Sunshine Act, which is part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the Affordable Care Act, requires manufacturers of drugs, medical devices, biologicals or medical supplies that participate in U.S. federal health care programs to track and then report certain payments and items of value given to U.S. physicians and U.S. teaching hospitals (referred to as Covered Recipients). The Sunshine Act requires that manufacturers collect this information on a yearly basis and then report it to Centers for Medicare & Medicaid Services by the 90th day of each subsequent year.

If Opexa’s operations are found to be in violation of any of the laws described above and other applicable state and federal fraud and abuse laws, Opexa may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare programs, and the curtailment or restructuring of its operations.

If Opexa’s competitors develop and market products that are more effective than Opexa’s product candidates, they may reduce or eliminate Opexa’s commercial opportunities.

Competition in the pharmaceutical industry, particularly the market for MS products, is intense, and Opexa expects such competition to continue to increase. Opexa faces competition from pharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies, in the United States and abroad. Opexa’s competitors have products that have been approved or are in advanced development and may succeed in developing drugs that are more effective, safer and more affordable or more easily administered than Opexa’s, or that achieve patent protection or commercialization sooner than Opexa’s products. Opexa’s most significant competitors are fully integrated pharmaceutical companies and more established biotechnology companies. These companies have significantly greater capital resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals, and marketing than Opexa currently does. However, smaller companies also may prove to be significant competitors, particularly through proprietary research discoveries and collaboration arrangements with large pharmaceutical and established biotechnology companies. In addition to the competitors with existing products that have been approved, many of Opexa’s competitors are further along in the process of product development and also operate large, company-funded research and development programs. As a result, Opexa’s competitors may develop more competitive or affordable products, or achieve earlier patent protection or further product commercialization than Opexa is able to achieve. Competitive products may render any products or product candidates that Opexa develops obsolete.

Opexa’s competitors may also develop alternative therapies that could further limit the market for any products that Opexa may develop.

Rapid technological change could make Opexa’s products obsolete.

Biopharmaceutical technologies have undergone rapid and significant change, and Opexa expects that they will continue to do so. As a result, there is significant risk that Opexa’s product candidates may be rendered obsolete or uneconomical by new discoveries before it recovers any expenses incurred in connection with their development. If Opexa’s product candidates are rendered obsolete by advancements in biopharmaceutical technologies, Opexa’s prospects will suffer.

Consumers may sue Opexa for product liability, which could result in substantial liabilities that exceed Opexa’s available resources and damage its reputation.

Developing and commercializing drug products entails significant product liability risks. Liability claims may arise from Opexa’s and Opexa’s collaborators’ use of products in clinical trials and the commercial sale of those products.

In the event that any of Opexa’s product candidates becomes an approved product and is commercialized, consumers may make product liability claims directly against Opexa and/or its partners, and its partners or others

 

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selling these products may seek contribution from Opexa if they incur any loss or expenses related to such claims. Opexa has insurance that covers clinical trial activities. Opexa believes its insurance coverage as of the date hereof is reasonably adequate at this time. However, Opexa will need to increase and expand this coverage as it commences additional clinical trials, as well as larger scale trials, and if any product candidate is approved for commercial sale. This insurance may be prohibitively expensive or may not fully cover Opexa’s potential liabilities. Opexa’s inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the regulatory approval or commercialization of products that Opexa or one of its collaborators develop. Product liability claims could have a material adverse effect on Opexa’s business and results of operations. Liability from such claims could exceed Opexa’s total assets if it does not prevail in any lawsuit brought by a third party alleging that an injury was caused by one or more of Opexa’s products.

Government controls and health care reform measures could adversely affect Opexa’s business.

The business and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the United States and in foreign jurisdictions, there have been, and Opexa expects that there will continue to be, a number of legislative and regulatory proposals aimed at changing the health care system. For example, in some foreign countries, particularly in Europe, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, Opexa may be required to conduct additional clinical trials that compare the cost-effectiveness of any product candidate to other available therapies. If reimbursement of any product candidate is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, Opexa may be unable to achieve or sustain profitability in such country. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for any product candidate covered by a Part D prescription drug plan will likely be lower than the prices that might otherwise be obtained outside of the Medicare Part D prescription drug plan. Moreover, while Medicare Part D applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from non-governmental payors.

The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect Opexa’s ability to sell any product candidate. Among policy-makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Opexa cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect: the demand for any product candidate; the ability to set a price that Opexa believes is fair for any product candidate; Opexa’s ability to generate revenues and achieve or maintain profitability; the level of taxes that Opexa is required to pay; and the availability of capital.

 

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Risks Related to Opexa’s Securities

There is currently a limited market for Opexa’s securities, and any trading market that exists in Opexa’s securities may be highly illiquid and may not reflect the underlying value of its net assets or business prospects.

Although Opexa’s common stock is traded on the NASDAQ Capital Market, there is currently a limited market for its securities and there can be no assurance that an active market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.

Opexa’s stock may be delisted from NASDAQ, which could affect its market price and liquidity, as well as Acer’s and Opexa’s obligation to complete the Merger.

Opexa is required to meet certain qualitative and financial tests (including a minimum bid price for its common stock of $1.00 per share and a minimum shareholders’ equity of $2.5 million), as well as certain corporate governance standards, to maintain the listing of its common stock on the NASDAQ Capital Market. While Opexa is exercising diligent efforts to maintain the listing of its common stock and warrants on NASDAQ, there can be no assurance that it will be able to do so, and its securities could be delisted.

For example, as a consequence of Opexa’s announcement on October 28, 2016 that the Abili-T trial did not meet either its primary or secondary endpoints, Opexa’s stock has traded below $1.00 per share at times. On April 10, 2017, Opexa received a staff deficiency letter from NASDAQ indicating that Opexa’s common stock failed to comply with the minimum bid price requirement because it closed below the $1.00 minimum closing bid price for 30 consecutive business days. The notice further stated that Opexa will be provided a period of 180 calendar days to regain compliance. If Opexa’s common stock maintains a closing bid price of $1.00 per share or more for a minimum of 10 consecutive business days (or such longer period of time as the NASDAQ staff may require in some circumstances, but generally not more than 20 consecutive business days) before October 9, 2017, Opexa will achieve compliance with this listing standard. If Opexa’s common stock does not achieve compliance with the minimum bid price by October 9, 2017, Opexa may be eligible for an additional 180-day grace period to regain compliance if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement, and provides timely notice of its intention to cure the deficiency during the second grace period by effecting a reverse stock split, if necessary. However, if it appears to the NASDAQ staff that Opexa will not be able to cure the deficiency, or if Opexa does not meet the other listing standards, NASDAQ could provide notice that Opexa’s stock will become subject to delisting. Opexa is actively monitoring the closing bid price of its common stock and evaluating available options to resolve this deficiency and regain compliance with the minimum bid price rule.

Additionally, on May 16, 2017, Opexa received a letter from the listing qualifications department staff of the NASDAQ notifying Opexa that the stockholders’ equity of $2,241,693 as reported in Opexa’s Quarterly Report on Form 10-Q for the period ended March 31, 2017 was below the minimum stockholders’ equity of $2,500,000 required for continued listing on the NASDAQ Capital Market as set forth in NASDAQ listing rule 5550(b)(1). Opexa was provided 45 calendar days, or until June 30, 2017, to submit a plan to regain compliance with the minimum stockholders’ equity standard. Opexa timely submitted such plan. On July 18, 2017, NASDAQ notified Opexa that its plan was acceptable to NASDAQ, and Opexa was granted an extension to November 13, 2017 to evidence compliance with the minimum stockholders’ equity standard. While Opexa is exercising diligent efforts to maintain the listing of its common stock on NASDAQ, there can be no assurance that Opexa will be able to regain or maintain compliance. If Opexa does not regain compliance by November 13, 2017, or if Opexa fails to satisfy another NASDAQ requirement for continued listing, NASDAQ staff could provide notice that Opexa’s common stock will become subject to delisting. In such event, NASDAQ rules permit Opexa to appeal the decision to reject its proposed compliance plan or any delisting determination to a NASDAQ Hearings Panel.

It is also possible that Opexa could fail to satisfy another NASDAQ requirement for continued listing of its stock, such as the market value or number of publicly held shares or number of shareholders, or a corporate governance

 

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requirement. In addition to the minimum bid price deficiency notice Opexa received on April 10, 2017 and the minimum stockholders’ equity deficiency notice Opexa received on May 16, 2017, Opexa may receive additional future notices from NASDAQ that it has failed to meet NASDAQ’s requirements, and proceedings to delist Opexa’s stock could be commenced. In such event, NASDAQ rules permit Opexa to appeal any delisting determination to a NASDAQ Hearings Panel. If Opexa is unable to maintain or regain compliance in a timely manner or if it does not meet the other listing standards and its common stock is delisted, it could be more difficult to buy or sell Opexa’s common stock and obtain accurate quotations, and the price of Opexa’s stock could suffer a material decline. Delisting may also impair Opexa’s ability to raise capital or enter into a potential strategic transaction.

In addition, it is a condition precedent to both Acer’s and Opexa’s obligation to complete the Merger that Opexa’s shares of common stock remain continually listed on the NASDAQ Capital Market from the date of the Merger through the date the Merger is completed and that the shares of Opexa common stock to Acer shareholders in the Merger shall have been approved for listing. If Opexa’s common stock ceases to be listed on the NASDAQ Capital Market and either or both of the parties to the Merger Agreement decline to complete the Merger, the value of Opexa’s common stock may decline.

Opexa’s share price is volatile, and you may not be able to resell your shares at a profit or at all.

The market prices for securities of biopharmaceutical and biotechnology companies, and early-stage drug discovery and development companies like Opexa in particular, have historically been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of Opexa’s common stock:

 

    the disappointing results recently announced on October 28, 2016 for the Abili-T clinical study of Tcelna in SPMS;

 

    announcements of significant changes in Opexa’s business or operations, including the decision not to pursue one or more of Opexa’s drug development programs or the decision to implement restructurings such as reductions in its workforce;

 

    the development status of any drug candidates, such as Tcelna, including clinical study results and determinations by regulatory authorities with respect thereto;

 

    the initiation, termination or reduction in the scope of any collaboration arrangements or any disputes or developments regarding such collaborations;

 

    Opexa’s inability to obtain additional funding;

 

    announcements of technological innovations, new commercial products or other material events by Opexa competitors or by Opexa;

 

    disputes or other developments concerning Opexa’s proprietary rights;

 

    changes in, or failure to meet, securities analysts’ or investors’ expectations of Opexa’s financial performance;

 

    additions or departures of key personnel;

 

    discussions of Opexa’s business, products, financial performance, prospects or stock price by the financial and scientific press and online investor communities;

 

    public concern as to, and legislative action with respect to, the pricing and availability of prescription drugs or the safety of drugs and drug delivery techniques;

 

    regulatory developments in the United States and in foreign countries; or

 

    dilutive effects of sales of shares of common stock by Opexa or Opexa’s shareholders, and sales of common stock acquired upon exercise or conversion by the holders of warrants, options or convertible notes.

 

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Broad market and industry factors, as well as economic and political factors, also may materially adversely affect the market price of Opexa’s common stock.

Opexa may be or become the target of securities litigation, which is costly and time-consuming to defend.

In the past, following periods of market volatility in the price of a company’s securities or the reporting of unfavorable news, security holders have often instituted class action litigation. This risk is especially relevant for Opexa because biotechnology companies have experienced significant stock price volatility in recent years. Moreover, following the announcement on October 28, 2016 of disappointing results of the Abili-T study, Opexa’s stock price decreased substantially, which may portend securities class action litigation against Opexa. If Opexa becomes involved in this type of litigation, regardless of the outcome, Opexa could incur substantial legal costs and its management’s attention could be diverted from the operation of its business, causing its business to suffer.

Opexa’s “blank check” preferred stock could be issued to prevent a business combination not desired by management or its majority shareholders.

Opexa’s charter authorizes the issuance of “blank check” preferred stock with such designations, rights and preferences as may be determined by Opexa’s board of directors without shareholder approval. Opexa’s preferred stock could be utilized as a method of discouraging, delaying, or preventing a change in Opexa’s control and as a method of preventing shareholders from receiving a premium for their shares in connection with a change of control.

Future sales of Opexa’s securities could cause dilution, and the sale of such securities, or the perception that such sales may occur, could cause the price of Opexa’s stock to fall.

On March 25, 2016, Opexa entered into a new Sales Agreement with IFS Securities, Inc. (doing business as Brinson Patrick, a division of IFS Securities, Inc.) as sales agent, pursuant to which Opexa can offer and sell shares of its common stock from time to time depending upon market demand, in transactions deemed to be an “at the market” offering. Opexa registered up to 1,000,000 shares of common stock for potential sale under the new ATM facility. From August 17, 2016 through December 31, 2016, Opexa sold an aggregate of 66,184 shares of its common stock under the ATM facility. Opexa generated gross and net proceeds, including amortization of deferred offering costs, of $293,345 and $276,912, respectively, with the average share price ranging from $4.12 to $4.73 per share. During January 2017, Opexa further sold an aggregate of 516,278 shares of common stock for gross and net proceeds of $490,098 and $413,662 respectively, with the average share price ranging from $0.90 to $0.97. Opexa will need to keep current its shelf registration statement and the offering prospectus relating to the ATM facility in order to use the program to sell shares of common stock in the future.

Sales of additional shares of Opexa’s common stock, as well as securities convertible into or exercisable for common stock, could result in substantial dilution to Opexa’s shareholders and cause the market price of Opexa’s common stock to decline. An aggregate of 7,657,332 shares of common stock were outstanding as of March 31, 2017. As of such date, another (i) 244,868 shares of common stock were issuable upon exercise of outstanding options and (ii) 3,468,731 shares of common stock were issuable upon the exercise of outstanding warrants. A substantial majority of the outstanding shares of Opexa’s common stock and warrants (as well as a substantial majority of the shares of common stock issuable upon exercise of outstanding options and warrants) are freely tradable without restriction or further registration under the Securities Act of 1933.

Opexa may sell additional shares of common stock, as well as securities convertible into or exercisable for common stock, in subsequent public or private offerings. Opexa may also issue additional shares of common stock, as well as securities convertible into or exercisable for common stock, to finance future acquisitions. Opexa may need to raise additional capital in order to initiate or complete additional development activities for Tcelna in MS and for OPX-212 in NMO, or to pursue additional disease indications for its T-cell technology, and

 

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this may require Opexa to issue a substantial amount of securities (including common stock as well as securities convertible into or exercisable for common stock). There can be no assurance that Opexa’s capital raising efforts will be able to attract the capital needed to execute on its business plan and sustain its operations. Moreover, Opexa cannot predict the size of future issuances of its common stock, as well as securities convertible into or exercisable for common stock, or the effect, if any, that future issuances and sales of its securities will have on the market price of its common stock. Sales of substantial amounts of Opexa’s common stock, as well as securities convertible into or exercisable for common stock, including shares issued in connection with an acquisition or securing funds to complete any clinical trial plans, or the perception that such sales could occur, may result in substantial dilution and may adversely affect prevailing market prices for Opexa’s common stock.

Opexa presently does not intend to pay cash dividends on its common stock.

Opexa currently anticipates that no cash dividends will be paid on the common stock in the foreseeable future. While Opexa’s dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansion of its business.

Opexa shareholders may experience substantial dilution in the value of their investment if Opexa issues additional shares of its capital stock.

Opexa’s charter allows it to issue up to 150,000,000 shares of common stock and to issue and designate the rights of, without shareholder approval, up to 10,000,000 shares of preferred stock. In order to raise additional capital, Opexa may in the future offer additional shares of its common stock or other securities convertible into or exchangeable for its common stock at prices that may not be the same as the price per share paid by other investors, and dilution to Opexa’s shareholders could result. Opexa may sell shares or other securities in any other offering at a price per share that is less than the price per share paid by investors, and investors purchasing shares or other securities in the future could have rights superior to existing shareholders. The price per share at which Opexa sells additional shares of its common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by other investors.

Opexa may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to its common stock as to distributions and in liquidation, which could negatively affect the value of Opexa’s common stock.

In the future, Opexa may attempt to increase its capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of its assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of Opexa’s liquidation, its lenders and holders of its debt and preferred securities would receive distributions of available assets before distributions to the holders of Opexa’s common stock. Because Opexa’s decision to incur debt and issue securities in future offerings may be influenced by market conditions and other factors beyond its control, Opexa cannot predict or estimate the amount, timing or nature of its future offerings or debt financings. Further, market conditions could require Opexa to accept less favorable terms for the issuance of its securities in the future.

Opexa’s management has significant flexibility in using the current available cash.

In addition to general corporate purposes (including working capital, research and development, business development and operational purposes), Opexa currently intends to use its available cash to continue to assess the viability of pursuing its preclinical program for OPX-212 in NMO and the related T-cell platform and to complete the strategic process that resulted in Opexa signing the Merger Agreement with Acer. Opexa cannot fully predict its future cash needs until it completes this analysis and process. However, after further analysis of the data from the Abili-T trial, Opexa has determined that it will not move forward with further studies of Tcelna in SPMS at this time.

 

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Depending on future developments and circumstances, Opexa may use some of its available cash for other purposes which may have the potential to decrease its cash runway. Notwithstanding Opexa’s current intentions regarding use of its available cash, Opexa’s management will have significant flexibility with respect to such use. The actual amounts and timing of expenditures will vary significantly depending on a number of factors, including the amount and timing of cash used in Opexa’s operations and its research and development efforts. Management’s failure to use these funds effectively would have an adverse effect on the value of Opexa’s common stock and could make it more difficult and costly to raise funds in the future.

An active trading market may never develop for Opexa’s Series M warrants, which may limit the ability to resell the warrants.

There is no established trading market for the Series M warrants Opexa issued in April 2015. While the warrants have been listed for trading on NASDAQ under the symbol “OPXAW,” there can be no assurance that that a market will develop for the warrants. Even if a market for the warrants does develop, the price of the warrants may fluctuate and liquidity may be limited. If a market for the warrants does not develop, then holders of the warrants may be unable to resell the warrants or be able to sell them only at an unfavorable price. Future trading prices of the warrants will depend on many factors, including Opexa’s operating performance and financial condition, Opexa’s ability to continue the effectiveness of the registration statement covering the warrants and the common stock issuable upon exercise of the warrants, the interest of securities dealers in making a market and the market for similar securities.

The market price of Opexa’s common stock may not exceed the exercise price of the Series M warrants.

The Series M warrants issued in April 2015 will expire on April 9, 2018. The warrants entitle the holders to purchase shares of common stock at an exercise price of $12.00 per share through their expiration. There can be no assurance that the market price of Opexa’s common stock will exceed the exercise price of the warrants at any or all times prior to their expiration. Any warrants not exercised by their expiration date will expire worthless and Opexa will be under no further obligation to the warrant holder.

The Series M warrants may be redeemed on short notice. This may have an adverse impact on their price.

Opexa may redeem the Series M warrants for $0.01 per warrant if the closing price of Opexa’s common stock has equaled or exceeded $20.00 per share, subject to adjustment, for 10 consecutive trading days. If Opexa gives notice of redemption, holders will be forced to sell or exercise their warrants or accept the redemption price. The notice of redemption could come at a time when it is not advisable or possible to exercise the warrants. As a result, holders would be unable to benefit from owning the warrants being redeemed.

Opexa’s ability to use net operating loss carryovers to reduce future tax payments may be limited.

As of December 31, 2016, Opexa had net operating loss carryforwards, or NOLs, for federal income tax purposes of approximately $74 million. These NOLs are generally carried forward to reduce taxable income in future years. If unused, the NOLs will begin to expire December 31, 2024. However, Opexa’s ability to utilize the NOLs is subject to the rules under Section 382 of the Internal Revenue code.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain shareholders (generally 5% shareholders, applying certain look-through and aggregation rules) increases by more than 50 percentage points over such shareholders’ lowest percentage ownership during the testing period (generally three years). In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income a corporation may offset with NOL carryforwards. This annual limitation is generally equal to the product of the value of Opexa’s stock on the date of the ownership change, multiplied by the long-term tax-exempt rate published monthly by the Internal Revenue Service. Any unused annual limitation may be carried over to later years until the applicable expiration date for the respective NOL carryforwards.

 

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The rules of Section 382 are complex and subject to varying interpretations. As a result of Opexa’s numerous capital raises, which have included the issuance of various classes of convertible securities and warrants, uncertainty exists as to whether Opexa may have undergone an ownership change in the past. Based on Opexa’s recent stock prices, Opexa believes any ownership change would severely limit its ability to utilize the NOLs. Limitations imposed on Opexa’s ability to utilize NOL carryforward amounts could cause U.S. federal income taxes to be paid earlier than if such limitations were not in effect and could cause such NOL carryforward amounts to expire unused, in each case reducing or eliminating the expected benefit to Opexa. Furthermore, Opexa may not be able to generate sufficient taxable income to utilize its NOL carryforward amounts before they expire. If any of these events occur, Opexa may not derive some or all of the benefits from its NOL carryforward amounts. Presently, impairment tests have not been conducted to verify NOL preservation. Accordingly, no assurance can be given that Opexa’s NOLs will be fully available.

Risks Related to Acer

Risks Related to Acer’s Business and Financial Condition

Acer has a limited operating history and has incurred significant losses since its inception and anticipates that it will continue to incur losses for the foreseeable future and may never achieve or maintain profitability. The absence of any commercial sales and Acer’s limited operating history make it difficult to assess its future viability.

Acer is a development-stage pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Acer is focused principally on repurposing and/or reformulating existing drugs for (ultra) orphan diseases with significant unmet medical need. Acer is not profitable and has incurred losses in each year since its inception in 2013. Acer has only a limited operating history upon which you can evaluate its business and prospects. In addition, Acer has limited experience and has not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the specialty pharmaceutical industry. Acer has not generated any revenue to date. Acer continues to incur significant research and development and other expenses related to its ongoing operations. Acer’s net loss for the year ended December 31, 2016 was $6.7 million. As of March 31, 2017, Acer had an accumulated deficit of $14.7 million. Acer expects to continue to incur losses for the foreseeable future as it continues its development of, and seeks marketing approvals for, its product candidates.

Acer has devoted substantially all of its financial resources to identify, acquire, and develop its product candidates, including providing general and administrative support for its operations. To date, Acer has financed its operations primarily through the sale of equity securities and convertible promissory notes. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Acer expects losses to increase as it conducts clinical trials and continues to develop its lead product candidates. Acer expects to invest significant funds into the research and development of its current product candidates to determine the potential to advance these product candidates to regulatory approval.

If Acer obtains regulatory approval to market a product candidate, its future revenue will depend upon the size of any markets in which its product candidates may receive approval, and its ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for its product candidates in those markets. Even if Acer obtains adequate market share for its product candidates, because the potential markets in which its product candidates may ultimately receive regulatory approval could be very small, Acer may never become profitable despite obtaining such market share and acceptance of its products.

Acer expects to continue to incur significant expenses and increasing operating losses for the foreseeable future, and its expenses will increase substantially if and as Acer:

 

    continues the clinical development of its product candidates;

 

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    continues efforts to discover new product candidates;

 

    undertakes the manufacturing of its product candidates or increases volumes manufactured by third parties;

 

    advances its programs into larger, more expensive clinical trials;

 

    initiates additional pre-clinical, clinical, or other trials or studies for its product candidates;

 

    seeks regulatory and marketing approvals and reimbursement for its product candidates;

 

    establishes a sales, marketing and distribution infrastructure to commercialize any products for which Acer may obtain marketing approval and market for itself;

 

    seeks to identify, assess, acquire and/or develop other product candidates;

 

    makes milestone, royalty or other payments under third-party license agreements;

 

    seeks to maintain, protect and expand its intellectual property portfolio;

 

    seeks to attract and retain skilled personnel; and

 

    experiences any delays or encounters issues with the development and potential for regulatory approval of its clinical candidates such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses Acer incurs may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of its results of operations may not be a good indication of its future performance.

If the Merger is not completed, Acer will require, and may not be able to obtain, substantial additional financial resources in order to carry out planned activities and to continue as a going concern.

As of June 30, 2017, Acer had cash and cash equivalents totaling $2.5 million as well as current liabilities aggregating $7.9 million, consisting of accounts payable, accrued expenses and convertible notes payable, net. Acer’s existing cash resources will not be sufficient to meet its operating plan for the full 12-month period after the date of this proxy statement/prospectus/information statement. Based on available resources, Acer believes it can maintain its current operations into September 2017. As a result, to continue to fund Acer’s ongoing operations beyond September 2017, Acer would need to (i) raise additional capital through the issuance of equity, debt or other securities, (ii) convert its existing debt into equity and/or (iii) enter into strategic partnerships, alliances, collaborations or other similar transactions. Due to current market conditions and Acer’s current liquidity position, Acer believes it may be difficult to obtain additional equity or debt financing on terms acceptable to Acer, if at all, thus raising substantial doubt about Acer’s ability to continue as a going concern. If Acer is unable to raise additional capital or successfully complete the Merger or another strategic partnership, alliance, collaboration or other similar transaction, Acer will need to delay or reduce expenses or limit or curtail operations, any of which would have a material adverse effect on its business. Further, if Acer is unable to raise additional capital or successfully complete the Merger or a strategic partnership, alliance, collaboration or other similar transaction on a timely basis and on terms that are acceptable, Acer may also be required to sell or license its assets, sell the company or otherwise liquidate all or a portion of its assets and/or cease its operations altogether. If Acer cannot continue as a viable entity, its shareholders might lose some or all of their investment. Acer’s financial statements do not include any adjustments that might be necessary if Acer is unable to continue as a going concern.

Acer currently has no source of product sales revenue and may never be profitable.

Acer has not generated any revenues from commercial sales of any of its current product candidates, EDSIVO (for vEDS) and ACER-001 (for UCD and MSUD). Acer’s ability to generate product revenue depends upon its ability to successfully commercialize these product candidates or other product candidates that it may develop, in-license or acquire in the future. Acer does not anticipate generating revenue from the sale of products prior to

 

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2018. Acer’s ability to generate future product revenue from its current or future product candidates also depends on a number of additional factors, including its ability to:

 

    successfully complete research and clinical development of current and future product candidates;

 

    establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of product candidates;

 

    obtain regulatory approval from relevant regulatory authorities in jurisdictions where Acer intends to market its product candidates;

 

    launch and commercialize future product candidates for which Acer obtains marketing approval, if any, and if launched independently, successfully establish a sales force and marketing and distribution infrastructure;

 

    obtain coverage and adequate product reimbursement from third-party payors, including government payors;

 

    achieve market acceptance for its products, if any;

 

    establish, maintain and protect its intellectual property rights; and

 

    attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with clinical product development, including that Acer’s product candidates may not advance through development or achieve regulatory approval, Acer is unable to predict the timing or amount of any potential future product sales revenues. Acer’s expenses also could increase beyond expectations if Acer decides to or is required by the FDA, or comparable foreign regulatory authorities, to perform studies or trials in addition to those that Acer currently anticipates. Even if Acer completes the development and regulatory processes described above, Acer anticipates incurring significant costs associated with launching and commercializing these products.

Acer will require substantial additional financing to obtain marketing approval of its product candidates and commercialize its product candidates, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force Acer to delay, limit, reduce or terminate its product development, other operations or commercialization efforts.

Since Acer’s inception, substantially all of its resources have been dedicated to the clinical development of its product candidates. As of March 31, 2017, Acer had an accumulated deficit of $14.7 million. As of June 30, 2017, Acer had cash and cash equivalents of $2.5 million as well as current liabilities aggregating $7.9 million, consisting of accounts payable, accrued expenses and convertible notes payable, net. Based on available resources, Acer believes it can maintain its current operations into September 2017. Acer believes that it will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of its product candidates, preparations for a commercial launch of its product candidates, if approved, and development of any other current or future product candidates it may choose to further develop. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining marketing approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, Acer cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of its current product candidates, if approved, or future product candidates, if any.

Acer’s operating plan may change as a result of factors currently unknown to Acer, and it may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to shareholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect its business. In addition, Acer may seek additional capital due to favorable market conditions or strategic considerations even if Acer believes it has sufficient funds for its current or future operating plans.

 

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Acer’s future capital requirements depend on many factors, including:

 

    the scope, progress, results and costs of researching and developing Acer’s current product candidates, future product candidates and conducting preclinical and clinical trials;

 

    the cost of commercialization activities if Acer’s current product candidates and future product candidates are approved for sale, including marketing, sales and distribution costs and preparedness of its corporate infrastructure;

 

    the cost of manufacturing current product candidates and future product candidates that Acer obtains approval for and successfully commercializes;

 

    Acer’s ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

 

    the number and characteristics of any additional product candidates Acer may develop or acquire;

 

    any product liability or other lawsuits related to Acer’s products or commenced against Acer;

 

    the expenses needed to attract and retain skilled personnel;

 

    the costs associated with being a public company;

 

    the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing its intellectual property rights, including litigation costs and the outcome of such litigation; and

 

    the timing, receipt and amount of sales of, or royalties on, any future approved products, if any.

Additional funds may not be available when Acer needs them, on terms that are acceptable to Acer, or at all. If adequate funds are not available to Acer on a timely basis, Acer may be required to:

 

    delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for Acer’s current product candidates or future product candidates, if any;

 

    delay, limit, reduce or terminate its research and development activities; or

 

    delay, limit, reduce or terminate its establishment of sales and marketing capabilities or other activities that may be necessary to commercialize its future product candidates.

Raising additional capital may cause dilution to Acer’s existing shareholders, restrict its operations or require Acer to relinquish rights to its technologies or product candidates.

Acer may seek additional capital through a combination of public and private equity offerings, debt financings, strategic collaborations and alliances and licensing arrangements. To the extent that Acer raises additional capital through the sale of equity or convertible debt securities, including the issuance of shares of capital stock in its concurrent financing in connection with the Merger, the ownership interest of Acer’s shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of Acer’s shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on Acer’s ability to incur additional debt, limitations on its ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact Acer’s ability to conduct its business. If Acer raises additional funds through strategic collaborations and alliances and licensing arrangements with third parties, Acer may have to relinquish valuable rights to its technologies or product candidates, or grant licenses on terms unfavorable to Acer.

Acer’s auditors have expressed doubt about its ability to continue as a going concern.

In their audited financial report, Acer’s independent auditor included in its report an emphasis-of-a-matter indicating that Acer’s recurring losses from operations raise a substantial doubt as to Acer’s ability to continue as

 

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a going concern. Acer anticipates that it would need approximately $3 million, not including funds raised in the concurrent financing, over the next 12 months to continue as a going concern and expand its operations in accordance with its current business plan.

As of March 31, 2017, Acer had an accumulated deficit of $14.7 million. These matters raise substantial doubt about Acer’s ability to continue as a going concern. Because Acer has been issued an opinion by its auditors that substantial doubt exists as to whether it can continue as a going concern, it may be more difficult for it to attract investors.

Risks Related to the Clinical Development and Marketing Approval of Acer’s Product Candidates

The marketing approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if Acer is ultimately unable to obtain marketing approval for its product candidates, its business will be substantially harmed.

None of Acer’s current product candidates have gained marketing approval for sale in the United States or any other country, and Acer cannot guarantee that it will ever have marketable products. Acer’s business is substantially dependent on its ability to complete the development of, obtain marketing approval for, and successfully commercialize its product candidates in a timely manner. Acer cannot commercialize its product candidates in the United States without first obtaining approval from the FDA to market each product candidate. Similarly, Acer cannot commercialize its product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Acer’s product candidates could fail to receive marketing approval for many reasons, including the following:

 

    the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of Acer’s clinical trials;

 

    the FDA or comparable foreign regulatory authorities may find the human subject protections for its clinical trials inadequate and place a clinical hold on an IND at the time of its submission precluding commencement of any trials or a clinical hold on one or more clinical trials at any time during the conduct of its clinical trials;

 

    the FDA could determine that Acer cannot rely on Section 505(b)(2) for any or all of its product candidates;

 

    Acer may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

 

    the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

    Acer may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

    the FDA or comparable foreign regulatory authorities may disagree with Acer’s interpretation of data from preclinical studies or clinical trials;

 

    the FDA could determine that Acer has identified the wrong reference listed drug or drugs or that approval of Acer’s 505(b)(2) application for any of its product candidates is blocked by patent or non-patent exclusivity of the reference listed drug or drugs;

 

    the data collected from clinical trials of Acer’s product candidates may not be sufficient to support the submission of an application to obtain marketing approval in the United States or elsewhere;

 

    the FDA or comparable foreign regulatory authorities may find inadequate the manufacturing processes or facilities of third-party manufacturers with which Acer contracts for clinical and commercial supplies; and

 

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    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

Before obtaining marketing approval for the commercial sale of any drug product for a target indication, Acer must demonstrate in preclinical studies and well-controlled clinical trials and, with respect to approval in the United States, to the satisfaction of the FDA, that the product is safe and effective for its intended use and that the manufacturing facilities, processes and controls are adequate to preserve the drug’s identity, strength, quality and purity. In the United States, it is necessary to submit and obtain approval of an NDA from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. After the submission of an NDA, but before approval of the NDA, the manufacturing facilities used to manufacture a product candidate must be inspected by the FDA to ensure compliance with the applicable cGMP requirements. The FDA and the Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities, may also inspect Acer’s clinical trial sites and audit clinical study data to ensure that its studies are properly conducted in accordance with the IND regulations, human subject protection regulations, and good clinical practice, or cGCP.

Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. Upon submission of an NDA, the FDA must make an initial determination that the application is sufficiently complete to accept the submission for filing. Acer cannot be certain that any submissions will be accepted for filing and reviewed by the FDA, or ultimately be approved. If the application is not accepted for review, the FDA may require that Acer conduct additional clinical studies or preclinical testing, or take other actions before it will reconsider Acer’s application. If the FDA requires additional studies or data, Acer would incur increased costs and delays in the marketing approval process, which may require Acer to expend more resources than Acer has available. In addition, the FDA may not consider any additional information to be complete or sufficient to support the filing or approval of the NDA.

Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs for commercial sale with which Acer must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of Acer’s product candidates. Clinical trials conducted in one country may not be accepted or the results may not be found adequate by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. However, the failure to obtain regulatory approval in one jurisdiction could have a negative impact on Acer’s ability to obtain approval in a different jurisdiction. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time consuming. Foreign regulatory approval may include all of the risks associated with obtaining FDA approval. For all of these reasons, Acer may not obtain foreign regulatory approvals on a timely basis, if at all.

The process to develop, obtain marketing approval for, and commercialize product candidates is long, complex and costly both inside and outside of the United States, and approval is never guaranteed. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. Even if Acer’s product candidates were to successfully obtain approval from regulatory authorities, any such approval might significantly limit the approved indications for use, including more limited patient populations, require that precautions, warnings or contraindications be included on the product labeling, including black box warnings, require expensive and time-consuming post-approval clinical studies, risk evaluation and mitigation strategies or surveillance as conditions of approval, or,

 

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through the product label, the approval may limit the claims that it may make, which may impede the successful commercialization of its product candidates. Following any approval for commercial sale of Acer’s product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, as well as new safety information, may require new studies and will be subject to additional FDA notification, or review and approval. Also, marketing approval for any of Acer’s product candidates may be withdrawn. If Acer is unable to obtain marketing approval for its product candidates in one or more jurisdictions, or any approval contains significant limitations, Acer’s ability to market to its full target market will be reduced and its ability to realize the full market potential of its product candidates will be impaired. Furthermore, Acer may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue or complete the development of any of its current or future product candidates.

If Acer is unable to submit an application for approval under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act or if Acer is required to generate additional data related to safety and efficacy in order to obtain approval under Section 505(b)(2), it may be unable to meet its anticipated development and commercialization timelines.

Acer’s current strategy for seeking marketing authorization in the United States for its product candidates relies primarily on Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, which permits use of a marketing application, referred to as a 505(b)(2) application, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use. The FDA interprets this to mean that an applicant may rely for approval on such data as that found in published literature or the FDA’s finding of safety or effectiveness, or both, of a previously approved drug product owned by a third party. There is no assurance that the FDA would find third-party data relied upon by Acer in a 505(b)(2) application sufficient or adequate to support approval and may require Acer to generate additional data to support the safety and efficacy of its product candidates. Consequently, Acer may need to conduct substantial new research and development activities beyond those it currently plans to conduct. Such additional new research and development activities would be costly and time consuming and there is no assurance that such data generated from such additional activities would be sufficient to obtain approval.

If the data to be relied upon in a 505(b)(2) application are related to drug products previously approved by the FDA and covered by patents that are listed in the FDA’s Orange Book, Acer would be required to submit with its 505(b)(2) application a Paragraph IV Certification in which Acer must certify that it does not infringe the listed patents or that such patents are invalid or unenforceable, and provide notice to the patent owner or the holder of the approved NDA. The patent owner or NDA holder would have 45 days from receipt of the notification of Acer’s Paragraph IV Certification to initiate a patent infringement action against Acer. If an infringement action is initiated, the approval of Acer’s NDA would be subject to a stay of up to 30 months or more while it defends against such a suit. Approval of Acer’s product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until Acer successfully challenges the applicability of those patents to its product candidates. Alternatively, Acer may elect to generate sufficient clinical data so that it would no longer need to rely on third-party data, which would be costly and time consuming and there would be no assurance that such data generated from such additional activities would be sufficient to obtain approval.

Acer may not be able to obtain shortened review of its applications, and the FDA may not agree that its product candidates qualify for marketing approval. If Acer is required to generate additional data to support approval, it may be unable to meet anticipated or reasonable development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of its product candidates. If the FDA changes its interpretation of Section 505(b)(2) allowing reliance on data in a previously approved drug application owned by a third party, or there is a change in the law affecting Section 505(b)(2), this could delay or even prevent the FDA from approving any Section 505(b)(2) application that Acer submits.

 

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Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive, and can take many years to complete, and its outcome is inherently uncertain. The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process, and determining when or whether marketing approval will be obtained for Acer’s current product candidates. Even if Acer believes the data collected from clinical trials of its current product candidates are promising, such data may not be sufficient to support approval by the FDA or comparable foreign authorities. Acer’s future clinical trial results may not be successful.

It is impossible to predict the extent to which the clinical trial process may be affected by legislative and regulatory developments. Due to these and other factors, Acer’s current product candidates or future product candidates could take a significantly longer time to gain marketing approval than expected or may never gain marketing approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of Acer’s current product candidates.

Preclinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including Good Laboratory Practice, or GLP, an international standard meant to harmonize the conduct and quality of nonclinical studies and the archiving and reporting of findings. Preclinical studies including long-term toxicity studies and carcinogenicity studies in experimental animals may result in findings that may require further evaluation, which could affect the risk-benefit evaluation of clinical development, or which may even lead the regulatory agencies to delay, prohibit the initiation of or halt clinical trials or delay or deny marketing authorization applications. Failure to adhere to the applicable GLP standards or misconduct during the course of preclinical trials may invalidate the data and require one or more studies to be repeated or additional testing to be conducted.

Clinical trials must also be conducted in accordance with FDA and comparable foreign authorities’ legal requirements, regulations or guidelines, including human subject protection requirements and GCP. Clinical trials are subject to further oversight by these governmental agencies and institutional review boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of Acer’s current product candidates produced under cGMP, and other requirements. Acer’s clinical trials are conducted at multiple sites, including some sites in countries outside the United States and the European Union, which may subject Acer to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of foreign and non-EU clinical research organizations, as well as expose Acer to risks associated with clinical investigators who are unknown to the FDA or the European regulatory authorities, and with different standards of diagnosis, screening and medical care.

To date, Acer has not completed all clinical trials required for the approval of its current product candidates. The commencement and completion of clinical trials for Acer’s current product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:

 

    the delay or refusal of regulators or IRBs to authorize Acer to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;

 

    the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of Acer’s clinical trials;

 

    failure to reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

    delays in patient enrollment and variability in the number and types of patients available for clinical trials;

 

    the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;

 

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    lower than anticipated retention rates of patients and volunteers in clinical trials;

 

    clinical sites deviating from trial protocol or dropping out of a trial;

 

    adding new clinical trial sites;

 

    negative or inconclusive results, which may require Acer to conduct additional preclinical or clinical trials or to abandon projects that Acer expects to be promising;

 

    safety or tolerability concerns could cause Acer to suspend or terminate a trial if it finds that the participants are being exposed to unacceptable health risks;

 

    regulators or IRBs requiring that Acer or its investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

    Acer’s third-party research and manufacturing contractors failing to comply with regulatory requirements or meet their contractual obligations to Acer in a timely manner, or at all;

 

    difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

 

    delays in establishing the appropriate dosage levels;

 

    the quality or stability of Acer’s current product candidates falling below acceptable standards;

 

    the inability to produce or obtain sufficient quantities of Acer’s current product candidates to complete clinical trials; and

 

    exceeding budgeted costs due to difficulty in predicting accurately the costs associated with clinical trials.

Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications Acer is investigating.

There are significant requirements imposed on Acer and on clinical investigators who conduct clinical trials that Acer sponsors. Although Acer is responsible for selecting qualified clinical investigators, providing them with the information they need to conduct the clinical trial properly, ensuring proper monitoring of the clinical trial, and ensuring that the clinical trial is conducted in accordance with the general investigational plan and protocols contained in the IND, Acer cannot ensure the clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. Acer cannot ensure that the clinical investigators in its trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect on Acer’s ability to obtain marketing approval, Acer’s business, and Acer’s financial condition.

Acer could encounter delays if a clinical trial is suspended or terminated by Acer, by the IRBs of the institutions in which such trial is being conducted, by the data safety monitoring board, or DSMB, for such trial, or by the FDA or comparable foreign regulatory authorities. Acer or such authorities may impose a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or Acer’s clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using the drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If Acer experiences delays in the completion of, or termination of, any clinical trial of its current product candidates, the commercial prospects of its current product candidates will be harmed, and Acer’s ability to generate product revenues from its product

 

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candidates will be delayed. In addition, any delays in completing Acer’s clinical trials will increase its costs, slow its development and approval process and jeopardize its ability to commence product sales and generate revenues. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of Acer’s product candidates.

Moreover, clinical investigators for Acer’s clinical trials may serve as scientific advisors or consultants to Acer from time to time and receive compensation in connection with such services. Acer is required to report certain financial relationships with clinical investigators to the FDA and, where applicable, take steps to minimize the potential for bias resulting from such financial relationships. The FDA will evaluate the reported information and may conclude that a financial relationship between Acer and a clinical investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site, and the utility of the clinical trial itself may be jeopardized. This could result in a refusal to accept or a delay in approval of Acer’s marketing applications by the FDA and may ultimately lead to the denial of marketing approval of one or more of its product candidates.

Any of these occurrences could materially adversely affect Acer’s business, financial condition, results of operations, and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval of Acer’s current product candidates. Significant clinical trial delays could also allow Acer’s competitors to bring products to market before Acer is able to do so, shorten any periods during which Acer has the exclusive right to commercialize its current product candidates and impair its ability to commercialize its current product candidates, which may harm Acer’s business, financial condition, results of operations, and prospects.

Clinical failure can occur at any stage of clinical development. Because the results of earlier clinical trials are not necessarily predictive of future results, any product candidate Acer advances through clinical trials may not have favorable results in later clinical trials or receive marketing approval.

Clinical failure can occur at any stage of Acer’s clinical development. The results of preclinical studies and early clinical trials of Acer’s product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Clinical trials may produce negative or inconclusive results, and Acer may decide, or regulators may require Acer, to conduct additional clinical or preclinical testing. Data obtained from tests are susceptible to varying interpretations, and regulators may not interpret Acer’s data as favorably as Acer does, which may delay, limit or prevent marketing approval. In addition, the design of a clinical trial can determine whether its results will support approval of a product, or approval of a product for desired indications, and flaws or shortcomings in the design of a clinical trial may not become apparent until the clinical trial is well advanced. Acer has limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval for Acer’s desired indications. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If one of Acer’s product candidates is found to be unsafe or lack efficacy, Acer will not be able to obtain marketing approval for it and Acer’s business would be harmed. For example, if the results of Acer’s clinical trials of its product candidates do not achieve pre-specified endpoints or Acer is unable to provide primary or secondary endpoint measurements deemed acceptable by the FDA or comparable foreign regulators or if Acer is unable to demonstrate an acceptable level of safety relative to the efficacy associated with its proposed indications, the prospects for approval of Acer’s product candidates would be materially and adversely affected. A number of companies in the pharmaceutical industry, including those with greater resources and experience than Acer, have suffered significant setbacks in Phase 2 and Phase 3 clinical trials, even after seeing promising results in earlier clinical trials.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including differences in trial protocols and design, the size

 

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and type of the patient population, adherence to the dosing regimen and the rate of dropout among clinical trial participants. Acer does not know whether any clinical trials it may conduct will demonstrate consistent and/or adequate efficacy and safety to obtain marketing approval for Acer’s product candidates.

As an organization, Acer has never completed any clinical trial before and may be unable to do so efficiently or at all for its current product candidates or any product candidate Acer develops.

Acer intends to conduct clinical trials of its product candidates. The conduct of clinical trials and the submission of a successful NDA is a complicated process. As an organization, Acer has not completed a clinical trial before, and Acer has limited experience in preparing and submitting regulatory filings. Consequently, Acer may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of Acer’s current product candidates or for any other product candidate it develops. Acer may require more time and incur greater costs than anticipated and may not succeed in obtaining marketing approval of the product candidates it develops. Failure to commence or complete, or delays in, Acer’s planned clinical trials would prevent Acer from or delay Acer in commercializing its current product candidates or any other product candidate Acer develops.

Marketing approval may be substantially delayed or may not be obtained for one or all of Acer’s product candidates if regulatory authorities require additional or more time-consuming studies to assess the safety and efficacy of its product candidates.

Acer may be unable to initiate or complete development of its product candidates on schedule, if at all. The timing for the completion of the studies for Acer’s product candidates will require funding beyond the proceeds of the concurrent financing. In addition, if regulatory authorities require additional or more time-consuming studies to assess the safety or efficacy of Acer’s product candidates, Acer may not have or be able to obtain adequate funding to complete the necessary steps for approval for any or all of its product candidates. Additional delays may result if the FDA, an FDA Advisory Committee (if one is convened to review Acer’s NDA) or other regulatory authority indicates that the product candidate should not be approved or there should be restrictions on approval, such as the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to ensure safe use of the drug. Delays in marketing approval or rejections of applications for marketing approval in the United States or other markets may result from many factors, including:

 

    the FDA’s or comparable foreign regulatory authorities’ disagreement with the design or implementation of Acer’s clinical trials;

 

    regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;

 

    regulatory questions or disagreement by the FDA or comparable regulatory authorities regarding interpretations of data and results and the emergence of new information regarding Acer’s current or future product candidates or the field of research;

 

    unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding safety or efficacy of Acer’s product candidates during clinical trials;

 

    failure to meet the level of statistical significance required for approval;

 

    inability to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

    lack of adequate funding to commence or continue Acer’s clinical trials due to unforeseen costs or other business decisions;

 

    regulatory authorities may find inadequate the manufacturing processes or facilities of the third-party manufacturers with which Acer contracts for clinical and commercial supplies;

 

    Acer may have insufficient funds to pay the significant user fees required by the FDA upon the filing of an NDA; and

 

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    the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner that would delay marketing approval.

The lengthy and unpredictable approval process, as well as the unpredictability of future clinical trial results, may result in Acer’s failure to obtain marketing approval to market its other product candidates, which would significantly harm Acer’s business, results of operations and prospects.

Acer’s product candidates may cause undesirable adverse effects or have other properties that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if obtained.

Undesirable side effects caused by Acer’s product candidates could cause Acer or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or other comparable foreign authorities. If any of Acer’s current product candidates or any other product candidate Acer develops is associated with serious adverse, undesirable or unacceptable side effects, Acer may need to abandon such candidate’s development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early-stage or clinical testing have later been found to cause side effects that prevented further development of the compound. Results of Acer’s trials could reveal a high and unacceptable prevalence of these or other side effects. In such an event, Acer’s trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order Acer to cease further development of or deny approval of its product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

If Acer’s product candidates receive marketing approval, and Acer or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

    regulatory authorities may withdraw approvals of such product;

 

    Acer may be required to recall a product or change the way such product is administered to patients;

 

    additional restrictions may be imposed on the marketing of the particular product or the manufacturing process for the product or any component thereof;

 

    regulatory authorities may require the addition of labeling statements, such as a precaution, “black box” warning or other warnings or a contraindication;

 

    Acer or its collaborators may be required to implement a REMS or create a medication guide outlining the risks of such side effect for distribution to patients;

 

    Acer or its collaborators could be sued and held liable for harm caused to patients;

 

    the product may become less competitive; and

 

    Acer’s reputation may suffer.

Any of these events could prevent Acer from achieving or maintaining market acceptance of its product candidates, if approved, and could materially adversely affect Acer’s business, financial condition, results of operations and prospects.

Acer is heavily dependent on the success of its product candidates, which are in the early stages of clinical development. Acer cannot give any assurance that it will generate data for any of its product candidates sufficient to receive regulatory approval in its planned indications, which will be required before they can be commercialized.

Acer has invested substantially all of its efforts and financial resources to identify, acquire and develop its portfolio of product candidates. Its future success is dependent on its ability to successfully further develop,

 

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obtain regulatory approval for, and commercialize one or more product candidates. Acer currently generates no revenue from sales of any products, and Acer may never be able to develop or commercialize a product candidate.

None of Acer’s product candidates have advanced into a pivotal clinical trial for Acer’s proposed indications. Acer is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and Acer may never receive such regulatory approval for any of its product candidates. Acer cannot be certain that any of its product candidates will be successful in clinical trials or receive regulatory approval. Further, its product candidates may not receive regulatory approval even if they are successful in clinical trials. If Acer does not receive regulatory approvals for its product candidates, Acer may not be able to continue its operations.

Acer may use its financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because Acer has limited financial and human resources, it may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that later prove to have greater commercial potential. Acer’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or more profitable market opportunities. Acer’s spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. Acer may also enter into additional strategic collaboration agreements to develop and commercialize some of its programs and potential product candidates in indications with potentially large commercial markets. If Acer does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for Acer to retain sole development and commercialization rights to such product candidate, or Acer may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

Acer may find it difficult to enroll patients in its clinical trials given the limited number of patients who have the diseases for which its product candidates are being studied. Difficulty in enrolling patients could delay or prevent clinical trials of its product candidates.

Identifying and qualifying patients to participate in clinical trials of Acer’s product candidates is essential to its success. The timing of Acer’s clinical trials depends in part on the rate at which Acer can recruit patients to participate in clinical trials of its product candidates, and Acer may experience delays in its clinical trials if Acer encounters difficulties in enrollment.

The eligibility criteria of Acer’s planned clinical trials may further limit the available eligible trial participants as Acer expects to require that patients have specific characteristics that Acer can measure or meet the criteria to assure their conditions are appropriate for inclusion in its clinical trials. Acer may not be able to identify, recruit, and enroll a sufficient number of patients to complete its clinical trials in a timely manner because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, and the willingness of physicians to participate in its planned clinical trials. If patients are unwilling to participate in Acer’s clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of its product candidates may be delayed.

If Acer experiences delays in the completion of, or termination of, any clinical trials of its product candidates, the commercial prospects of its product candidates could be harmed, and its ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing its clinical trials would likely increase its overall costs, impair product candidate development and jeopardize its ability to

 

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obtain regulatory approval relative to its current plans. Any of these occurrences may harm its business, financial condition, and prospects significantly.

Even if Acer receives marketing approval for its product candidates, such approved products will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, Acer’s product candidates, if approved, could be subject to labeling and other restrictions, and Acer may be subject to penalties and legal sanctions if it fails to comply with regulatory requirements or experience unanticipated problems with its approved products.

If the FDA approves any of Acer’s product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP regulations and GCP for any clinical trials that Acer conducts post-approval. Any marketing approvals that Acer receives for its product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy.

Later discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, or evidence of acts that raise questions about the integrity of data supporting the product approval, may result in, among other things:

 

    restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

    fines, warning letters, or holds on clinical trials;

 

    refusal by the FDA to approve pending applications or supplements to approved applications filed by Acer, or suspension or revocation of product approvals;

 

    product seizure or detention, or refusal to permit the import or export of products; and

 

    injunctions or the imposition of civil or criminal penalties.

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay marketing approval, manufacturing or commercialization of Acer’s product candidates. Acer cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Acer is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or not able to maintain regulatory compliance, it may lose any marketing approval that may have been obtained and it may not achieve or sustain profitability, which would adversely affect Acer’s business.

If Acer fails to obtain regulatory approval in jurisdictions outside the United States, it will not be able to market its products in those jurisdictions.

Acer intends to market its product candidates, if approved, in international markets, or in conjunction with collaborators. Such marketing will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The approval procedures vary from country to country and may require testing in addition to what is required for a marketing application in the United States. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities

 

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in other foreign countries or by the FDA. The failure to obtain approval in one jurisdiction may negatively impact Acer’s ability to obtain approval in another jurisdiction. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval and additional or different risks. Acer may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize its products in any market.

Agencies like the FDA and national competition regulators in European countries regulate the promotion and uses of drugs not consistent with approved product labeling requirements. If Acer is found to have improperly promoted its current product candidates for uses beyond those that are approved, Acer may become subject to significant liability.

Regulatory authorities like the FDA and national competition laws in Europe strictly regulate the promotional claims that may be made about prescription products, such as EDSIVO or ACER-001, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreign regulatory authorities as reflected in the product’s approved labeling, known as “off-label” use, nor may it be promoted prior to obtaining marketing approval. If Acer receives marketing approval for its product candidates for Acer’s proposed indications, physicians may nevertheless use Acer’s products for their patients in a manner that is inconsistent with the approved label if the physicians personally believe in their professional medical judgment it could be used in such manner. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses.

In addition, the FDA requires that promotional claims not be “false or misleading” as such terms are defined in the FDA’s regulations. For example, the FDA requires substantial evidence, which generally consists of two adequate and well-controlled head-to-head clinical trials, for a company to make a claim that its product is superior to another product in terms of safety or effectiveness. Generally, unless Acer performs clinical trials meeting that standard comparing its product candidates to competitive products and these claims are approved in Acer’s product labeling, Acer will not be able promote its current product candidates as superior to other products. If Acer is found to have made such claims it may become subject to significant liability. In the United States, the federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in improper promotion. The FDA has also requested that companies enter into consent decrees or corporate integrity agreements. The FDA could also seek permanent injunctions under which specified promotional conduct is monitored, changed or curtailed.

Acer’s current and future relationships with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose Acer to sanctions.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which Acer obtains marketing approval. Acer’s current and future arrangements with healthcare professionals, investigators, consultants, collaborators, actual customers, potential customers and third-party payors may expose Acer to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which Acer sells, markets and distributes any drug candidates for which it obtains marketing approval. In addition, Acer may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states and foreign jurisdictions in which Acer conducts its business. The applicable federal, state and foreign healthcare laws that may affect Acer’s ability to operate include the following:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in

 

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kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid;

 

    federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

    the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;

 

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

    the federal Open Payments program, created under Section 6002 of the Affordable Care Act and its implementing regulations, which imposed new annual reporting requirements for manufacturers of drugs, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all covered payments, transfers of value and ownership or investment interests may result in civil monetary penalties; and

 

    analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided

 

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that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Efforts to ensure that Acer’s future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that Acer’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If Acer’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, Acer may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of Acer’s operations, which could significantly harm its business. If any of the physicians or other healthcare providers or entities with whom Acer expects to do business, including its current and future collaborators, if any, are found not to be in compliance with applicable laws, those persons or entities may be subject to criminal, civil or administrative sanctions, including exclusion from participation in government healthcare programs, which could also affect Acer’s business.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and healthcare spending on Acer is currently unknown, and may adversely affect its business model.

In the United States and some foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of Acer’s drug candidates, restrict or regulate post-approval activities and affect its ability to profitably sell any drug candidates for which Acer obtains marketing approval.

Acer’s revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. Acer operates in a highly regulated industry and new laws, judicial decisions, or new interpretations of existing laws, or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact Acer’s business, financial condition, results of operations and prospects. There is significant interest in promoting health care reform, as evidenced by the enactment in the United States of the Affordable Care Act. Among other things, the Affordable Care Act contains provisions that may reduce the profitability of drug products, including, for example, revising the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated, extending the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans, imposing mandatory discounts for certain Medicare Part D beneficiaries, and subjecting drug manufacturers to payment of an annual fee.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of 2% per fiscal year, which started in April 2013, and, due to subsequent legislative amendments, will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, also reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers.

Acer expects that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that it receives for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Acer from being able to generate revenue or commercialize Acer’s drugs.

 

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It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. Acer cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

 

    the demand for any drug products for which Acer may obtain marketing approval;

 

    Acer’s ability to set a price that Acer believes is fair for its products;

 

    Acer’s ability to obtain coverage and reimbursement approval for a product;

 

    Acer’s ability to generate revenues and achieve or maintain profitability; and

 

    the level of taxes that Acer is required to pay.

If Acer fails to comply with environmental, health and safety laws and regulations, Acer could become subject to fines or penalties or incur costs that could have a material adverse effect on its business, financial condition or results of operations.

Acer’s research and development activities and its third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of its product candidates and other hazardous compounds. Acer and its manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at Acer’s and its manufacturers’ facilities pending their use and disposal. Acer cannot eliminate the risk of contamination, which could cause an interruption of its commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although Acer believes that the safety procedures utilized by it and its third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, Acer cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, Acer may be held liable for any resulting damages and such liability could exceed its resources and state or federal or other applicable authorities may curtail Acer’s use of specified materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. Acer cannot predict the impact of such changes and cannot be certain of its future compliance. Acer does not currently carry biological or hazardous waste insurance coverage.

Other Risks Related to Acer’s Business

Due to Acer’s limited resources and access to capital, it must decide to prioritize development of its current product candidates for certain indications and at certain doses. These decisions may prove to have been wrong and may materially adversely affect Acer’s business, financial condition, results of operations and prospects.

Because Acer has limited resources and access to capital to fund its operations, it must decide which dosages and indications to pursue for the clinical development of its current product candidates and the amount of resources to allocate to each. Acer’s decisions concerning the allocation of research, collaboration, management and financial resources toward dosages or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. If Acer makes incorrect determinations regarding the market potential of its current product candidates or misreads trends in the pharmaceutical industry, Acer’s business, financial condition, results of operations and prospects could be materially adversely affected.

Acer may not be able to win government, academic institution or non-profit contracts or grants.

From time to time, Acer may apply for contracts or grants from government agencies, non-profit entities and academic institutions. Such contracts or grants can be highly attractive because they provide capital to fund the

 

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ongoing development of Acer’s product candidates without diluting its shareholders. However, there is often significant competition for these contracts or grants. Entities offering contracts or grants may have requirements to apply for or to otherwise be eligible for certain contracts or grants that Acer’s competitors may be able to satisfy that Acer cannot. In addition, such entities may make arbitrary decisions as to whether to offer contracts or make grants, to whom the contracts or grants may or will be awarded and the size of the contracts or grants to each awardee. Even if Acer is able to satisfy the award requirements, there is no guarantee that Acer will be a successful awardee. Therefore, Acer may not be able to win any contracts or grants in a timely manner, if at all.

If Acer fails to attract and retain key management and scientific personnel, it may be unable to successfully develop or commercialize its product candidates.

Acer’s success as a specialty pharmaceutical company depends on its continued ability to attract, retain and motivate highly qualified management and scientific and clinical personnel. The loss of the services of any of Acer’s senior management could delay or prevent obtaining marketing approval or commercialization of its product candidates.

Acer may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of qualified personnel among specialty pharmaceutical businesses, and other pharmaceutical, biotechnology and other businesses. Acer’s failure to attract, hire, integrate and retain qualified personnel could impair its ability to achieve its business objectives.

If a successful product liability claim or series of claims is brought against Acer for uninsured liabilities or in excess of insured liabilities, Acer could be forced to pay substantial damage awards.

The use of any of Acer’s product candidates in clinical trials, and the sale of any approved products, may expose Acer to product liability claims. Acer currently maintains product liability insurance coverage for up to $5.0 million per occurrence, up to an aggregate limit of $5.0 million. Acer intends to monitor the amount of coverage it maintains as the size and design of its clinical trials evolve and adjust the amount of coverage it maintains accordingly. However, there is no assurance that such insurance coverage will fully protect Acer against some or all of the claims to which it might become subject. Acer might not be able to maintain adequate insurance coverage at a reasonable cost or in sufficient amounts or scope to protect it against potential losses. In the event a claim is brought against Acer, it might be required to pay legal and other expenses to defend the claim, as well as uncovered damages awards resulting from a claim brought successfully against Acer.

Furthermore, whether or not Acer is ultimately successful in defending any such claims, Acer might be required to direct financial and managerial resources to such defense and adverse publicity could result, all of which could harm Acer’s business.

Acer’s employees, independent contractors, investigators, contract research organizations, consultants, collaborators and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

Acer is exposed to the risk that its employees and other third parties may engage in fraudulent conduct or other illegal activity. Misconduct by employees and other third parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to Acer that violate FDA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could

 

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result in regulatory sanctions and serious harm to Acer’s reputation. It is not always possible to identify and deter employee and other third-party misconduct, and the precautions Acer takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Acer from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against Acer, and Acer is not successful in defending itself or asserting its rights, those actions could have a significant impact on Acer’s business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of Acer’s operations, any of which could adversely affect Acer’s ability to operate.

Acer will need to expand its organization and Acer may experience difficulties in managing this growth, which could disrupt its operations.

As of June 30, 2017, Acer had three full-time employees. As Acer’s development and commercialization plans and strategies develop, Acer expects to need additional managerial, operational, sales, marketing, financial, legal and other resources. Its management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. As Acer advances its product candidates through clinical trials, it will need to expand its development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for Acer. As Acer’s operations expand, Acer expects that it will need to manage additional relationships with such third parties, as well as additional collaborators and suppliers.

Acer may not be able to effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Acer’s expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If its management is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenue could be reduced and Acer may not be able to implement its business strategy. Acer’s future financial performance and its ability to commercialize product candidates and compete effectively will depend, in part, on its ability to effectively manage any future growth.

Acer’s internal computer systems, or those of its development collaborators, third-party clinical research organizations or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of Acer’s product development programs.

Despite the implementation of security measures, Acer’s internal computer systems and those of its current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While Acer has not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in its operations, it could result in a material disruption of Acer’s development programs and its business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in Acer’s marketing approval efforts and significantly increase its costs to recover or reproduce the data. Likewise, Acer intends to rely on third parties to manufacture its product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on Acer’s business. To the extent that any disruption or security breach were to result in a loss of, or damage to, Acer’s data or applications, or inappropriate disclosure of confidential or proprietary information, Acer could incur liability and the further development and commercialization of its product candidates could be delayed.

 

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Risks Related to Commercialization of Acer’s Product Candidates

Even if Acer obtains the required regulatory approvals in the United States and other territories, the commercial success of its product candidates will depend on market awareness and acceptance of its product candidates.

Even if Acer obtains marketing approval for its current product candidates or any other product candidates that it may develop or acquire in the future, the products may not gain market acceptance among physicians, key opinion leaders, healthcare payors, patients and the medical community. Market acceptance of any approved products depends on a number of factors, including:

 

    the timing of market introduction;

 

    the efficacy and safety of the product, as demonstrated in clinical trials;

 

    the clinical indications for which the product is approved and the label approved by regulatory authorities for use with the product, including any precautions, warnings or contraindications that may be required on the label;

 

    acceptance by physicians, key opinion leaders and patients of the product as a safe and effective treatment;

 

    the cost, safety and efficacy of treatment in relation to alternative treatments;

 

    the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

 

    the number and clinical profile of competing products;

 

    the growth of drug markets in Acer’s various indications;

 

    relative convenience and ease of administration;

 

    marketing and distribution support;

 

    the prevalence and severity of adverse side effects; and

 

    the effectiveness of Acer’s sales and marketing efforts.

Market acceptance is critical to Acer’s ability to generate revenue. Any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved products are not accepted by the market to the extent that Acer expects, Acer may not be able to generate revenue and its business would suffer.

If the market opportunities for Acer’s product candidates are smaller than Acer believes they are, then Acer’s revenues may be adversely affected and its business may suffer.

The diseases that Acer’s current and future product candidates are being developed to address are rare. Acer’s projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with Acer’s product candidates, and Acer’s assumptions relating to pricing are based on estimates. Given the small number of patients who have the diseases that Acer is targeting, its eligible patient population and pricing estimates may differ significantly from the actual market addressable by its product candidates.

Currently, most reported estimates of the prevalence of vEDS, UCD and MSUD, and are based on studies of small subsets of the population of specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases in the broader world population. It is difficult to precisely measure the incidence or prevalence of vEDS in any population. Studies estimate the prevalence of vEDS as ranging from approximately 1 in 90,000 to 1 in 250,000. Studies indicate that MSUD affects an estimated 1 in 185,000 infants worldwide.

 

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Approximately 3,000 patients suffer from MSUD worldwide, of whom approximately 800 are located in the United States. It is estimated that vEDS, UCD and MSUD collectively impact approximately 4,900 patients in the United States. As new studies are performed the estimated prevalence of these diseases may change. The number of patients may turn out to be lower than expected. There can be no assurance that the prevalence of vEDS, UCD or MSUD in the study populations accurately reflect the prevalence of these diseases in the broader world population. If Acer’s estimates of the prevalence of vEDS, UCD or MSUD or of the number of patients who may benefit from treatment with EDSIVO or ACER-001 prove to be incorrect, the market opportunities for Acer’s product candidates may be smaller than Acer believes they are, Acer’s prospects for generating revenue may be adversely affected and its business may suffer. Likewise, the potentially addressable patient population for each of Acer’s product candidates may be limited or may not be amenable to treatment with its product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect Acer’s business, financial condition, results of operations and prospects

Acer currently has limited marketing and sales experience. If Acer is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its product candidates, Acer may be unable to generate any revenue.

Acer has never commercialized a product candidate, and Acer currently has no marketing and sales organization. To the extent Acer’s product candidates are approved for marketing, if Acer is unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell its product candidates, Acer may not be able to effectively market and sell its product candidates or generate product revenue.

Acer has never commercialized a product candidate, and Acer currently does not have marketing, sales or distribution capabilities for its product candidates. In order to commercialize any of Acer’s products that receive marketing approval, it would have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and Acer may not be successful in doing so. In the event of successful development of Acer’s product candidates, if Acer elects to build a targeted specialty sales force, such an effort would be expensive and time consuming. Any failure or delay in the development of Acer’s internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. Acer may choose to collaborate with third parties that have their own sales forces and established distribution systems, in lieu of or to augment any sales force and distribution systems Acer may create. If Acer is unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such collaborator does not devote sufficient resources to the commercialization of Acer’s product or otherwise fails in commercialization efforts, Acer may not be able to successfully commercialize its product candidates if it receives marketing approval. If Acer is not successful in commercializing its product candidates, either on its own or through collaborations with one or more third parties, its future revenue will be materially and adversely impacted.

If Acer fails to enter into strategic relationships or collaborations, its business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

Acer’s product development programs and the potential commercialization of its current product candidates will require substantial additional cash to fund expenses. Therefore, in addition to financing the development of Acer’s product candidates through additional equity financings or through debt financings, Acer may decide to enter into collaborations with pharmaceutical or biopharmaceutical companies for the development and potential commercialization of its product candidates.

Acer faces significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. Acer may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators. Acer may not be able to negotiate collaborations on acceptable terms, or at all. If that were to occur, Acer may have to curtail the development of a particular product, reduce or delay its development program or one or more of its other

 

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development programs, delay its potential commercialization or reduce the scope of its sales or marketing activities, or increase its expenditures and undertake development or commercialization activities at its own expense. If Acer elects to increase its expenditures to fund development or commercialization activities on its own, Acer may need to obtain additional capital, which may not be available to Acer on acceptable terms or at all. If Acer does not have sufficient funds, Acer will not be able to bring its product candidates to market and generate product revenue. If Acer does enter into a new collaboration agreement, it could be subject to the following risks, each of which may materially harm Acer’s business, commercialization prospects and financial condition:

 

    Acer may not be able to control the amount or timing of resources that the collaborator devotes to the product development program;

 

    the collaborator may experience financial difficulties and thus not commit sufficient financial resources to the product development program;

 

    Acer may be required to relinquish important rights such as marketing, distribution and intellectual property rights;

 

    a collaborator could move forward with a competing product developed either independently or in collaboration with third parties, including Acer’s competitors; or

 

    business combinations or significant changes in a collaborator’s business strategy may adversely affect Acer’s willingness to complete its obligations under any arrangement.

Acer’s product candidate EDSIVO has not been approved for any indication in the United States, which may result in greater research and development expenses, regulatory issues that could delay or prevent approval, or discovery of unknown or unanticipated adverse effects.

EDSIVO is a repurposing of celiprolol for the treatment of vEDS. An NDA for this drug in the treatment of hypertension was filed with the FDA in 1987 but not approved. However, the drug was approved in Europe for the treatment of hypertension since 1984. There can be no assurance that problems related to the development of this drug candidate will not arise in the future, which may cause significant delays or Acer may not be able to resolve.

Regulatory approval of EDSIVO may be more expensive and take longer than for other, more well-known or extensively studied pharmaceutical product candidates due to Acer’s and regulatory agencies’ lack of experience with celiprolol. The novelty of this product candidate may lengthen the regulatory review process, require Acer to conduct additional studies or clinical trials, increase Acer’s development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of Acer’s product candidates or lead to significant post-approval limitations or restrictions. There is also an increased risk that Acer may discover previously unknown or unanticipated adverse effects during Acer’s clinical trials and beyond. Any such events could adversely impact Acer’s business prospects, financial condition and results of operations.

Coverage and reimbursement may be limited or unavailable in certain market segments for Acer’s product candidates, which could make it difficult for Acer to sell its products profitably.

There is significant uncertainty related to third-party coverage and reimbursement of newly approved pharmaceuticals. Market acceptance and sales of any approved product candidates will depend significantly on the availability of coverage and adequate reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Government authorities and third-party payors, such as private health insurers, health maintenance organizations, and government payors like Medicare and Medicaid, decide which drugs they will pay for and establish reimbursement levels. Increasingly, third-party payors are requiring that drug companies

 

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provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and products. Coverage and reimbursement may not be available for any product that Acer commercializes and, even if coverage is provided, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, or the price of, any drug candidate for which Acer obtains marketing approval.

Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is, among other things:

 

    a covered benefit under its health plan;

 

    safe, effective and medically necessary;

 

    appropriate for the specific patient;

 

    cost-effective; and

 

    neither experimental nor investigational.

Obtaining coverage and adequate reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require Acer to conduct expensive pharmacoeconomic studies and provide supporting scientific, clinical and cost-effectiveness data for the use of Acer’s products to the payor. Acer may not be able to provide data sufficient to gain acceptance with respect to coverage and adequate reimbursement. In addition to examining the medical necessity and cost-effectiveness of new products, coverage may be limited to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. There may also be formulary placements that result in lower reimbursement levels and higher cost-sharing borne by patients, any of which could have an adverse effect on Acer’s revenues and profits. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable Acer to maintain price levels sufficient to realize an appropriate return on its investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the drug product, or even if coverage is available, establish an adequate reimbursement rate.

Acer cannot be sure that coverage or adequate reimbursement will be available for any of its product candidates. Also, Acer cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, its products. If reimbursement is not available or is available only to limited levels, Acer may not be able to commercialize certain of its products. In the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. Third-party payors are increasingly challenging the prices charged for medical products and services, examining the medical necessity and reviewing the cost-effectiveness of drug products and medical services and questioning safety and efficacy. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs. Additionally, emphasis on managed care in the United States has increased and Acer expects will continue to increase the pressure on drug pricing. If third-party payors do not consider Acer’s products to be cost-effective compared to other available therapies, they may not cover the products for which Acer receives FDA approval or, if they do, the level of payment may not be sufficient to allow Acer to sell its products at a profit.

The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs and drug prices in general, including for therapies for rare diseases. These measures include price controls, transparency requirements triggered by the introduction of new, high-cost drugs onto the market, drug re-importation, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Some laws

 

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and regulations have already been enacted in these areas, and additional measures have been introduced or are under consideration at both the federal and state levels. Additionally, at the request of U.S. Senators, the Government Accountability Office is currently investigating abuses of the Orphan Drug Act, which could potentially lead to legislation or regulation that affects reimbursement for drugs with small patient populations. Other governmental funding restrictions, legislative proposals and interpretations of policy may negatively impact amounts available through reimbursement, including by restricting payment increases to hospitals and other providers through reimbursement systems. Acer is not able to predict whether changes will be made in the rates prescribed by governmental programs, whether other controls will be imposed on drug prices, or, if such measures do go into effect, what impact they could have on Acer’s business. However, adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as Acer’s drug product candidates and could adversely affect Acer’s net revenue and results.

In addition, in the United States, the Affordable Care Act contains provisions that have the potential to substantially change healthcare delivery and financing, including impacting the profitability of drugs. For example, the Affordable Care Act revised the methodology by which rebates owed by manufacturers for covered outpatient drugs are calculated under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to utilization of covered drugs dispensed to individuals enrolled in Medicaid managed care organizations and subjected manufacturers to new annual fees for certain branded prescription drugs. On May 4, 2017, the House of Representatives passed the American Health Care Act (H.R. 1628), which would repeal large parts of the Affordable Care Act, including the annual fees for branded prescription drugs, and would significantly reduce spending on Medicaid. The Senate is currently considering this legislation, and any repeal of the Affordable Care Act could impact the profitability of Acer’s drug product candidates.

Pricing and reimbursement methodologies vary widely from country to country. Some countries require that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or they may instead adopt a system of direct or indirect controls on Acer’s profitability in placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements for any of Acer’s products.

Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time, and there is the potential for significant movement in these areas in the foreseeable future. Even if favorable coverage and reimbursement status is attained for one or more products for which Acer receives marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Acer faces substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than Acer does.

The life sciences industry is highly competitive, and Acer faces significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are generally developing and marketing therapeutic products. Such competition may include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic companies and medical technology companies. Acer’s future success depends on its ability to demonstrate and maintain a competitive advantage with respect to the design,

 

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development and commercialization of its product candidates for the treatment of orphan and ultraorphan diseases for which there is a small patient population in the United States. A drug designated an orphan drug may receive up to seven years of exclusive marketing in the United States for that indication. Acer’s objective is to design, develop and commercialize product candidates by repurposing or reformulating existing drugs for orphan diseases with significant unmet medical need.

Many of Acer’s potential competitors have significantly greater financial, manufacturing, marketing, development, technical and human resources than Acer does. Large pharmaceutical and biotechnology companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing clinical products. These companies also have significantly greater research and marketing capabilities than Acer does and may also have products that have been approved or are in late stages of development, and have collaborative arrangements in Acer’s target markets with leading companies and research institutions. Established companies may also invest heavily to accelerate discovery and development of compounds that could make the product candidates that Acer develops obsolete. As a result of all of these factors, the obtaining of orphan drug designation for Acer’s product candidates is essential to its viability since its competitors may, among other things:

 

    have greater name and brand recognition, financial and human resources;

 

    develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;

 

    obtain quicker marketing approval;

 

    establish superior proprietary positions;

 

    have access to more manufacturing capacity;

 

    implement more effective approaches to sales and marketing; or

 

    form more advantageous strategic alliances.

Should any of these events occur, Acer’s business, financial condition, results of operations, and prospects could be materially adversely affected. If Acer is not able to compete effectively against potential competitors, its business will not grow and its financial condition and operations will suffer.

Acer believes that its ability to successfully compete will depend on its ability to obtain orphan drug designation as well as:

 

    its ability to design and successfully execute appropriate clinical trials;

 

    its ability to recruit and enroll patients for its clinical trials;

 

    the results of its clinical trials and the efficacy and safety of its product candidates;

 

    the speed at which Acer develops its product candidates;

 

    achieving and maintaining compliance with regulatory requirements applicable to Acer’s business;

 

    the timing and scope of regulatory approvals, including labeling;

 

    adequate levels of reimbursement under private and governmental health insurance plans, including Medicare and Medicaid;

 

    its ability to protect intellectual property rights related to its product candidates;

 

    its ability to commercialize and market any of its product candidates that may receive marketing approval;

 

    its ability to manufacture and sell commercial quantities of any approved product candidates to the market;

 

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    acceptance of its product candidates by physicians, other healthcare providers and patients; and

 

    the cost of treatment in relation to alternative therapies.

If Acer’s competitors are able to obtain orphan drug exclusivity for their products that are the same drug as Acer’s product candidates, Acer may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

Acer expects to seek orphan drug designation from the FDA and the European Medicines Agency, or the EMA, for EDSIVO and ACER-001, and there can be no assurance that Acer will be successful. If Acer is unable to secure orphan status in either Europe or the United States, it may have a material negative effect on Acer’s business.

Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, that product is entitled to a period of marketing exclusivity, which precludes the applicable regulatory authority from approving another marketing application for the same drug for the same indication for that time period. The applicable period is seven years in the United States and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if the product no longer meets the criteria for orphan drug designation or if its commercialization is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to ensure sufficient quantity of the product to meet the needs of patients with the rare disease or condition. Obtaining orphan drug exclusivity for EDSIVO and ACER-001 may be important to the product candidate’s success. Even if Acer obtains orphan drug exclusivity for EDSIVO for vEDS and ACER-001 for UCD and MSUD, Acer may not be able to maintain it. For example, if a competitive product that treats the same disease as Acer’s product candidate is shown to be clinically superior to Acer’s product candidate, any orphan drug exclusivity Acer has obtained will not block the approval of such competitive product and Acer may effectively lose what had previously been orphan drug exclusivity. Orphan drug exclusivity for EDSIVO or ACER-001 also will not bar the FDA from approving another celiprolol drug product or a sodium phenylbutyrate, or NaPB product, for another indication. In the U.S., reforms to the Orphan Drug Act, if enacted, could also materially affect Acer’s ability to maintain orphan drug exclusivity for EDSIVO for vEDS and ACER-001 for UCD and MSUD.

Price controls may be imposed in foreign markets, which may adversely affect Acer’s future profitability.

In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, Acer may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of its product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of Acer’s products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, Acer’s business could be adversely affected.

 

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Risks Related to Third Parties

Acer relies on third-party suppliers and other third parties for production of its product candidates and Acer’s dependence on these third parties may impair the advancement of its research and development programs and the development of its product candidates.

Acer does not currently own or operate manufacturing facilities for clinical or commercial production of its product candidates. Acer lacks the resources and the capability to manufacture any of its product candidates on a clinical or commercial scale. Instead, Acer relies on, and expects to continue to rely on, third parties for the supply of raw materials and manufacture of drug supplies necessary to conduct its preclinical studies and clinical trials. Acer’s reliance on third parties may expose Acer to more risk than if Acer was to manufacture its current product candidates or other products itself. Delays in production by third parties could delay Acer’s clinical trials or have an adverse impact on any commercial activities. In addition, the fact that Acer is dependent on third parties for the manufacture of and formulation of its product candidates means that Acer is subject to the risk that the products may have manufacturing defects that Acer has limited ability to prevent or control. Although Acer oversees these activities to ensure compliance with its quality standards, budgets and timelines, Acer has had and will continue to have less control over the manufacturing of its product candidates than potentially would be the case if it was to manufacture its product candidates. Further, the third parties Acer deals with could have staffing difficulties, might undergo changes in priorities or may become financially distressed, which would adversely affect the manufacturing and production of Acer’s product candidates. In addition, a third party could be acquired by, or enter into an exclusive arrangement with, one of Acer’s competitors, which would adversely affect Acer’s ability to access the formulations it requires.

The facilities used by Acer’s current contract manufacturers and any future manufacturers to manufacture Acer’s product candidates must be inspected by the FDA after Acer submits its NDA. Acer does not control the manufacturing process of, and is completely dependent on, its contract manufacturers for compliance with the regulatory requirements, known as cGMPs, for manufacture of both active drug substances and finished drug products. If Acer’s contract manufacturers cannot successfully manufacture material that conforms to Acer’s specifications and the strict regulatory requirements of the FDA or others, the FDA may refuse to approve Acer’s NDA. If the FDA or a comparable foreign regulatory authority does not approve Acer’s NDA because of concerns about the manufacture of its product candidates or if significant manufacturing issues arise in the future, Acer may need to find alternative manufacturing facilities, which would significantly impact its ability to develop its product candidates, obtain marketing approval of its NDA or to continue to market its product candidates, if approved. Although Acer is ultimately responsible for ensuring compliance with these regulatory requirements, Acer does not have day-to-day control over a contract manufacturing organization, or CMO, or other third-party manufacturer’s compliance with applicable laws and regulations, including cGMPs and other laws and regulations, such as those related to environmental health and safety matters. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject Acer to the risk that Acer may have to suspend the manufacturing of its product candidates or that obtained approvals could be revoked, which would adversely affect Acer’s business and reputation. In addition, third-party contractors, such as Acer’s CMOs, may elect not to continue to work with Acer due to factors beyond Acer’s control. They may also refuse to work with Acer because of their own financial difficulties, business priorities or other reasons, at a time that is costly or otherwise inconvenient for Acer. If Acer was unable to find adequate replacement or another acceptable solution in time, Acer’s clinical trials could be delayed or its commercial activities could be harmed.

Problems with the quality of the work of third parties, may lead Acer to seek to terminate its working relationships and use alternative service providers. However, making this change may be costly and may delay clinical trials. In addition, it may be very challenging, and in some cases impossible, to find replacement service providers that can develop and manufacture Acer’s drug candidates in an acceptable manner and at an acceptable cost and on a timely basis. The sale of products containing any defects or any delays in the supply of necessary services could adversely affect Acer’s business, financial condition, results of operations, and prospects.

Growth in the costs and expenses of components or raw materials may also adversely affect Acer’s business, financial condition, results of operations, and prospects. Supply sources could be interrupted from time to time

 

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and, if interrupted, supplies may not be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or at all.

Acer plans to rely on third parties to conduct clinical trials for its product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, it may cause delays in commencing and completing clinical trials of Acer’s product candidates or Acer may be unable to obtain marketing approval for or commercialize its product candidates.

Clinical trials must meet applicable FDA and foreign regulatory requirements. Acer does not have the ability to independently conduct Phase 2 or Phase 3 clinical trials for any of its product candidates. Acer expects to rely on third parties, such as CROs, medical institutions, clinical investigators and contract laboratories, to conduct all of its clinical trials of its product candidates; however, Acer remains responsible for ensuring that each of its clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and other foreign regulatory authorities require Acer to comply with IND and human subject protection regulations and current good clinical practice standards, commonly referred to as GCPs, for conducting, monitoring, recording, and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. Acer’s reliance on third parties does not relieve Acer of these responsibilities and requirements. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If Acer or any of its third-party contractors fail to comply with applicable GCPs, the clinical data generated in Acer’s clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Acer to perform additional clinical trials before approving its marketing applications. There is no assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of Acer’s clinical trials comply with GCPs. Acer’s failure to comply with these regulations may require Acer to repeat clinical trials, which would delay the marketing approval process.

There are significant requirements imposed on Acer and on clinical investigators who conduct clinical trials that Acer sponsors. Although Acer is responsible for selecting qualified CROs or clinical investigators, providing them with the information they need to conduct the clinical trials properly, ensuring proper monitoring of the clinical trials, and ensuring that the clinical trials are conducted in accordance with the general investigational plan and protocols contained in the IND, Acer cannot ensure that the CROs or clinical investigators will maintain compliance with all regulatory requirements at all times. The pharmaceutical industry has experienced cases where clinical investigators have been found to incorrectly record data, omit data, or even falsify data. Acer cannot ensure that the CROs or clinical investigators in Acer’s trials will not make mistakes or otherwise compromise the integrity or validity of data, any of which would have a significant negative effect on Acer’s ability to obtain marketing approval, its business, and its financial condition.

Acer or the third parties it relies on may encounter problems in clinical trials that may cause Acer or the FDA or foreign regulatory agencies to delay, suspend or terminate Acer’s clinical trials at any phase. These problems could include the possibility that Acer may not be able to manufacture sufficient quantities of materials for use in its clinical trials, conduct clinical trials at its preferred sites, enroll a sufficient number of patients for its clinical trials at one or more sites, or begin or successfully complete clinical trials in a timely fashion, if at all. Furthermore, Acer, the FDA or foreign regulatory agencies may suspend clinical trials of Acer’s product candidates at any time if Acer or they believe the subjects participating in the trials are being exposed to unacceptable health risks, whether as a result of adverse events occurring in Acer’s trials or otherwise, or if Acer or they find deficiencies in the clinical trial process or conduct of the investigation.

The FDA and foreign regulatory agencies could also require additional clinical trials before or after granting of marketing approval for any products, which would result in increased costs and significant delays in the development and commercialization of such products and could result in the withdrawal of such products from the market after obtaining marketing approval. Acer’s failure to adequately demonstrate the safety and efficacy of a product candidate in clinical development could delay or prevent obtaining marketing approval of the

 

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product candidate and, after obtaining marketing approval, data from post-approval studies could result in the product being withdrawn from the market, either of which would likely have a material adverse effect on Acer’s business.

Acer may be unable to realize the potential benefits of any collaboration.

Even if Acer is successful in entering into a collaboration with respect to the development and/or commercialization of one or more product candidates, there is no guarantee that the collaboration will be successful. Collaborations may pose a number of risks, including:

 

    collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject to the collaboration;

 

    collaborators may not perform their obligations as expected;

 

    any such collaboration may significantly limit Acer’s share of potential future profits from the associated program, and may require it to relinquish potentially valuable rights to its current product candidates, potential products or proprietary technologies or grant licenses on terms that are not favorable to Acer;

 

    collaborators may cease to devote resources to the development or commercialization of Acer’s product candidates if the collaborators view its product candidates as competitive with their own products or product candidates;

 

    disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of product candidates, and might result in legal proceedings, which would be time consuming, distracting and expensive;

 

    collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration;

 

    collaborators may infringe the intellectual property rights of third parties, which may expose Acer to litigation and potential liability;

 

    the collaborations may not result in Acer achieving revenues to justify such transactions; and

 

    collaborations may be terminated and, if terminated, may result in a need for Acer to raise additional capital to pursue further development or commercialization of the applicable product candidate.

As a result, a collaboration may not result in the successful development or commercialization of Acer’s product candidates.

Acer enters into various contracts in the normal course of its business in which Acer indemnifies the other party to the contract. In the event Acer has to perform under these indemnification provisions, it could have a material adverse effect on its business, financial condition and results of operations.

In the normal course of business, Acer periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Acer’s academic and other research agreements, Acer typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Acer has secured licenses, and from claims arising from Acer’s or its sublicensees’ exercise of rights under the agreement.

Should Acer’s obligation under an indemnification provision exceed applicable insurance coverage or if Acer were denied insurance coverage, Acer’s business, financial condition and results of operations could be adversely

 

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affected. Similarly, if Acer is relying on a collaborator to indemnify Acer and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify Acer, its business, financial condition and results of operations could be adversely affected.

If Acer’s contractors fail to comply with continuing regulations, Acer or they may be subject to enforcement action that could adversely affect Acer.

If any of Acer’s contractors fail to comply with the requirements of the FDA and other applicable U.S. or foreign governmental or regulatory authorities or previously unknown problems with Acer’s products, manufacturers or manufacturing processes are discovered, Acer or the contractor could be subject to administrative or judicially imposed sanctions, including: restrictions on the products, the manufacturers or manufacturing processes Acer uses, warning letters, civil or criminal penalties, fines, injunctions, product seizures or detentions, import bans, voluntary or mandatory product recalls and publicity requirements, suspension or withdrawal of regulatory approvals, total or partial suspension of production, and refusal to approve pending applications for marketing approval of new products to approved applications.

Risks Related to Acer’s Intellectual Property

Acer’s proprietary rights may not adequately protect its technologies and product candidates.

Acer’s commercial success will depend in part on its ability to obtain additional patents and protect its existing patent position as well as its ability to maintain adequate protection of other intellectual property for its technologies, product candidates, and any future products in the United States and other countries. If Acer does not adequately protect its intellectual property, competitors may be able to use Acer’s technologies and erode or negate any competitive advantage Acer may have, which could harm Acer’s business and ability to achieve profitability. The laws of some foreign countries do not protect Acer’s proprietary rights to the same extent or in the same manner as U.S. laws, and Acer may encounter significant problems in protecting and defending its proprietary rights in these countries. Acer will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that Acer’s proprietary technologies, product candidates and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.

Acer applies for patents covering both its technologies and product candidates, as it deems appropriate. However, Acer may fail to apply for patents on important technologies or product candidates in a timely fashion, or at all. Acer’s existing patents and any future patents it obtains may not be sufficiently broad to prevent others from practicing its technologies or from developing competing products and technologies. Acer cannot be certain that its patent applications will be approved or that any patents issued will adequately protect Acer’s intellectual property.

While Acer is responsible for and has control over the filing and prosecuting of patent applications and maintaining patents which cover making, using or selling EDSIVO and ACER-001 Acer may lose such rights if it decides to allow any licensed patent to lapse. If Acer fails to appropriately prosecute and maintain patent protection for any of its product candidates, Acer’s ability to develop and commercialize those product candidates may be adversely affected and Acer may not be able to prevent competitors from making, using and selling competing products.

Moreover, the patent positions of pharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles are evolving and remain unresolved. As a result, the validity and enforceability of patents cannot be predicted with certainty. In addition, Acer does not know whether:

 

    Acer or its licensors were the first to make the inventions covered by each of Acer’s issued patents and pending patent applications;

 

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    Acer or its licensors were the first to file patent applications for these inventions;

 

    any of the patents that cover Acer’s product candidates will be eligible to be listed in the FDA’s compendium of “Approved Drug Products with Therapeutic Equivalence Evaluation,” sometimes referred to as the FDA’s Orange Book;

 

    others will independently develop similar or alternative technologies or duplicate any of Acer’s technologies;

 

    any of Acer’s or its licensors’ pending patent applications will result in issued patents;

 

    any of Acer’s or its licensors’ patents will be valid or enforceable;

 

    any patents issued to Acer or its licensors and collaborators will provide Acer with any competitive advantages, or will be challenged by third parties;

 

    Acer will develop additional proprietary technologies that are patentable;

 

    the U.S. government will exercise any of its statutory rights to Acer’s intellectual property that was developed with government funding; or

 

    Acer’s business may infringe the patents or other proprietary rights of others.

The actual protection afforded by a patent varies based on products or processes, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country, the validity and enforceability of the patents and Acer’s financial ability to enforce its patents and other intellectual property. Acer’s ability to maintain and solidify its proprietary position for its products will depend on its success in obtaining effective claims and enforcing those claims once granted. Acer’s issued patents and those that may issue in the future, or those licensed to Acer, may be challenged, narrowed, invalidated or circumvented, and the rights granted under any issued patents may not provide Acer with proprietary protection or competitive advantages against competitors with similar products. Due to the extensive amount of time required for the development, testing and regulatory review of a potential product, it is possible that, before any of Acer’s product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

Acer may also rely on trade secrets to protect some of its technology, especially where Acer does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain. While Acer uses reasonable efforts to protect its trade secrets, Acer’s or any of its collaborators’ employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose Acer’s proprietary information to competitors and Acer may not have adequate remedies in respect of that disclosure. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to protect trade secrets. If Acer’s competitors independently develop equivalent knowledge, methods and know-how, Acer would not be able to assert its trade secrets against them and Acer’s business could be harmed.

Acer is a party to license agreements under which Acer licenses intellectual property and receives commercialization rights relating to EDSIVO and ACER-001. If Acer fails to comply with obligations in such agreements or otherwise experience disruptions to its business relationships with its licensors, Acer could lose license rights that are important to its business; any termination of such agreements would adversely affect Acer’s business.

In April 2014, Acer entered into an agreement with Baylor College of Medicine pursuant to which Acer obtained an exclusive, worldwide license to develop and commercialize NaPB for treatment of MSUD. In August 2016, Acer entered into an agreement with Assistance Publique—Hôpitaux de Paris, Hôpital Européen Georges Pompidou, or AP-HP, pursuant to which Acer obtained an exclusive worldwide right to access and use data from

 

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the Ong trial, which Acer intends to use to support an NDA filing for EDSIVO for the treatment of vEDS. Under each license agreement, Acer is subject to commercialization and development, diligence obligations, royalty payments and other obligations. If Acer fails to comply with any of these obligations or otherwise breaches any of these license agreements, the licensor may have the right to terminate the license in whole or in part or to terminate the exclusive nature of the license. The loss of the licenses granted to Acer under its agreements with these licensors or the rights provided therein would prevent Acer from developing, manufacturing or marketing products covered by the license or subject to supply commitments, and could materially harm Acer’s business, financial condition, results of operations and prospects. See “Acer Business—Licenses and Royalties” for a description of the material terms of these agreements.

Acer may not be able to protect its intellectual property rights throughout the world.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and Acer’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, Acer may not be able to prevent third parties from practicing Acer’s inventions in all countries outside the United States, or from selling or importing products made using Acer’s inventions in and into the United States or other jurisdictions. Competitors may use Acer’s technologies in jurisdictions where Acer has not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where Acer has patent protection, but enforcement rights are not as strong as those in the United States. These products may compete with Acer’s product candidates in jurisdictions where Acer does not have any issued patents and Acer’s patent claims or other intellectual rights may not be effective or sufficient to prevent them from so competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for Acer to stop the infringement of its patents generally. Proceedings to enforce Acer’s patent rights in foreign jurisdictions could result in substantial costs and divert Acer’s efforts and attention from other aspects of its business, could put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against Acer. Acer may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Acer’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that it develops or licenses.

If Acer does not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of marketing exclusivity for its product candidates, Acer’s business may be materially harmed.

Depending on the timing, duration and specifics of FDA marketing approval of Acer’s product candidates, if any, one of the U.S. patents covering each of such approved product(s) or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA-approved product. Patent term extension also may be available in certain foreign countries upon regulatory approval of Acer’s product candidates. Nevertheless, Acer may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than Acer requests.

If Acer is unable to obtain patent term extension or restoration, or the term of any such extension is less than Acer or its collaborators request, the period during which Acer will have the right to exclusively market its

 

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product will be shortened and Acer’s competitors may obtain approval of competing products following Acer’s patent expiration, and Acer’s revenue could be reduced, possibly materially.

Acer may not identify relevant patents or may incorrectly interpret the relevance, scope or expiration of a patent, which may adversely affect Acer’s ability to develop and market its product candidates.

Acer cannot guarantee that any of its patent searches or analyses, including but not limited to the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can Acer be certain that Acer has identified each and every patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of its product candidates in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Acer’s interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact its ability to market its product candidates. Acer may incorrectly determine that its product candidates are not covered by a third-party patent.

Many patents may cover a marketed product, including but not limited to patents covering the composition, methods of use, formulations, production processes and purification processes of or for the product. The identification of all patents and their expiration dates relevant to the production and sale of a therapeutic product is extraordinarily complex and requires sophisticated legal knowledge in the relevant jurisdiction. It may be impossible to identify all patents in all jurisdictions relevant to a marketed product. Acer’s determination of the expiration date of any patent in the United States or abroad that it considers relevant may be incorrect, which may negatively impact its ability to develop and market its product candidates.

Obtaining and maintaining Acer’s patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and Acer’s patent protection could be reduced or eliminated for non-compliance with these requirements.

The United States Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent prosecution process. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on any issued patent and/or pending patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of a patent or patent application. Acer employs an outside firm and relies on its outside counsel to pay these fees. While an inadvertent lapse may sometimes be cured by payment of a late fee or by other means in accordance with the applicable rules, there are many situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If Acer fails to maintain the patents and patent applications directed to its product candidates, Acer’s competitors might be able to enter the market earlier than should otherwise have been the case, which would have a material adverse effect on Acer’s business.

The patent protection for Acer’s product candidates may expire before Acer is able to maximize their commercial value, which may subject Acer to increased competition and reduce or eliminate its opportunity to generate product revenue.

The patents for Acer’s product candidates have varying expiration dates and, if these patents expire, Acer may be subject to increased competition and Acer may not be able to recover its development costs or market any of its approved products profitably. In some of the larger potential market territories, such as the United States and Europe, patent term extension or restoration may be available to compensate for time taken during aspects of the product’s development and regulatory review. However, Acer cannot be certain that such an extension will be granted, or if granted, what the applicable time period or the scope of patent protection afforded during any extension period will be. In addition, even though some regulatory authorities may provide some other

 

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exclusivity for a product under their own laws and regulations, Acer may not be able to qualify the product or obtain the exclusive time period. If Acer is unable to obtain patent term extension/restoration or some other exclusivity, Acer could be subject to increased competition and its opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, Acer may not have sufficient time to recover its development costs prior to the expiration of its U.S. and foreign patents.

Acer may become involved in lawsuits to protect its patents or other intellectual property rights, which could be expensive, time-consuming and ultimately unsuccessful.

Competitors may infringe Acer’s patents or other intellectual property rights. To counter infringement or unauthorized use, Acer may be required to file infringement claims, directly or through its licensors, which can be expensive and time consuming. In addition, in an infringement proceeding, a court may decide that a patent of Acer’s licensor is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Acer’s patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of the patents Acer licenses at risk of being invalidated or interpreted narrowly and could put Acer’s licensors’ patent applications at risk of not issuing.

Interference proceedings brought by the USPTO may be necessary to determine the priority of inventions with respect to patents of Acer’s licensors and patent applications or those of Acer’s current or future collaborators. An unfavorable outcome could require Acer to cease using the technology or to attempt to license rights to it from the prevailing party. Acer’s business could be harmed if a prevailing party does not offer Acer a license on terms that are acceptable to Acer. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction of Acer’s management and other employees. Acer may not be able to prevent, alone or with its collaborators, misappropriation of its proprietary rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Acer’s confidential and proprietary information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Acer’s common stock.

Third-party claims of intellectual property infringement or misappropriation may adversely affect Acer’s business and could prevent Acer from developing or commercializing its product candidates.

Acer’s commercial success depends in part on Acer not infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, ex-parte review and inter partes reexamination and post-grant review proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which Acer is developing and may develop its product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Acer’s product candidates may be subject to claims of infringement of the patent rights of third parties. If a third party claims that Acer infringes on their products or technology, Acer could face a number of issues, including:

 

    infringement and other intellectual property claims which, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from Acer’s core business;

 

    substantial damages for past infringement, which Acer may have to pay if a court decides that its product infringes on a competitor’s patent;

 

    a court prohibiting Acer from selling or licensing its product unless the patent holder licenses the patent to Acer, which the collaborator would not be required to do;

 

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    if a license is available from a patent holder, Acer may have to pay substantial royalties or grant cross licenses to Acer’s patents; and

 

    redesigning Acer’s processes so they do not infringe, which may not be possible or could require substantial funds and time.

Third parties may assert that Acer is employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of Acer’s product candidates, that Acer failed to identify. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering Acer’s product candidates could have been filed by others without the knowledge of Acer or its licensors. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover Acer’s product candidates or the use or manufacture of its product candidates. Acer may also face a claim of misappropriation if a third party believes that it inappropriately obtained and used trade secrets of such third party. If Acer is found to have misappropriated a third party’s trade secrets, Acer may be prevented from further using such trade secrets, limiting its ability to develop its product candidates, and Acer may be required to pay damages.

If any third-party patents were held by a court of competent jurisdiction to cover aspects of Acer’s materials, formulations, methods of manufacture or methods for treatment, the holders of any such patents would be able to block Acer’s ability to develop and commercialize the applicable product candidate until such patent expired or unless Acer obtains a license. These licenses may not be available on acceptable terms, if at all. Even if Acer was able to obtain a license, the rights may be nonexclusive, which could result in Acer’s competitors gaining access to the same intellectual property.

Ultimately, Acer could be prevented from commercializing a product, or be forced to cease some aspect of its business operations, if, as a result of actual or threatened patent infringement claims, Acer is unable to enter into licenses on acceptable terms. In addition, during the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of Acer’s product candidates, programs, or intellectual property could be diminished. Accordingly, the market price of Acer’s common stock may decline.

Parties making claims against Acer may obtain injunctive or other equitable relief, which could effectively block Acer’s ability to further develop and commercialize one or more of its product candidates. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the outcome. Thus, even if Acer was to ultimately prevail, or to settle at an early stage, such litigation could burden Acer with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of Acer’s management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against Acer, Acer may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign its infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. In addition, the uncertainties associated with litigation could have a material adverse effect on Acer’s ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties, or enter into development collaborations that would help Acer bring its product candidates to market.

 

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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Acer’s ability to protect its product candidates.

As is the case with other pharmaceutical companies, Acer’s success is heavily dependent on intellectual property, particularly on obtaining and enforcing patents and patent rights. Obtaining and enforcing patents and patent rights in the specialty pharmaceutical industry involves both technological and legal complexity, and therefore, is costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, several recent U.S. Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Acer’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents and patent rights, once obtained.

For Acer’s U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, or the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted, reviewed after issuance, and may also affect patent litigation. The USPTO is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact the AIA will have on the operation of Acer’s business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of patent rights, all of which could have a material adverse effect on Acer’s business and financial condition.

An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-inventor-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before a licensor or Acer could therefore be awarded a patent covering an invention of Acer’s even if said licensor Acer had made the invention before it was made by the third party. This will require Acer to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Acer’s ability to obtain and maintain valid and enforceable patent rights depends on whether the differences between the licensor’s or Acer’s technology and the prior art allow Acer’s technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, Acer cannot be certain that a licensor or it was the first to either (a) file any patent application related to Acer’s product candidates or (b) invent any of the inventions claimed in Acer’s patents or patent applications.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid as unpatentable even though the same evidence may be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate patent rights that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken Acer’s ability to obtain new patents or to enforce its existing patents and patents that Acer might obtain in the future.

 

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Because of the expense and uncertainty of litigation, Acer may not be in a position to enforce its intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, Acer may conclude that even if a third party is infringing the patents of Acer’s licensors or Acer or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of Acer or its shareholders. In such cases, Acer may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

Intellectual property rights do not address all potential threats to Acer’s competitive advantage.

The degree of future protection afforded by Acer’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Acer’s business, or permit Acer to maintain its competitive advantage. The following examples are illustrative:

 

    Others may be able to make products that are similar to Acer’s product candidates but that are not covered by the claims of the patents that Acer licenses from others or may license or own in the future.

 

    Others may independently develop similar or alternative technologies or otherwise circumvent any of Acer’s technologies without infringing its intellectual property rights.

 

    Any of Acer’s collaborators might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that Acer licenses or will, in the future, own or license.

 

    Any of Acer’s collaborators might not have been the first to file patent applications covering certain of the patents or patent applications that Acer licenses or will, in the future, license.

 

    Issued patents that have been licensed to Acer may not provide Acer with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by Acer’s competitors.

 

    Acer’s competitors might conduct research and development activities in countries where Acer does not have license rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in Acer’s major commercial markets.

 

    Ownership of patents or patent applications licensed to Acer may be challenged by third parties.

 

    The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on Acer’s business.

Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.

Acer considers proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to its business. Acer may rely on trade secrets and/or confidential know-how to protect its technology, especially where patent protection is believed by Acer to be of limited value. However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, Acer’s policy is to require its employees, consultants, contractors and advisors to enter into confidentiality agreements with Acer. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose Acer’s confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

 

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Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect Acer’s competitive position. Moreover, Acer’s competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, Acer’s competitors could limit Acer’s use of its trade secrets and/or confidential know-how.

Acer may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights that are important or necessary to the development or commercialization of Acer’s product candidates. It may be necessary for Acer to use the patented or proprietary technology of third parties to commercialize its product candidates, in which case Acer would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms or at all, which could materially harm Acer’s business.

Acer may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

Acer has received confidential and proprietary information from third parties. In addition, Acer employs individuals who were previously employed at other biotechnology or pharmaceutical companies. Acer may be subject to claims that Acer or its employees, consultants or independent contractors have inadvertently or otherwise improperly used or disclosed confidential information of these third parties or Acer’s employees’ former employers.

Further, Acer may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing Acer’s product candidates. Acer may also be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an ownership interest in Acer’s patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging Acer’s right to and use of confidential and proprietary information. If Acer fails in defending any such claims, in addition to paying monetary damages, Acer may lose its rights therein. Such an outcome could have a material adverse effect on Acer’s business.

Even if Acer is successful in defending against these claims, litigation could result in substantial cost and be a distraction to Acer’s management and employees.

Acer may be subject to claims challenging the inventorship or ownership of its patents and other intellectual property.

Acer may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in its patents and other intellectual property. Acer may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing Acer’s product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If Acer fails in defending any such claims, in addition to paying monetary damages, Acer may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on Acer’s business. Even if Acer is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Acer’s reliance on third parties requires Acer to share its trade secrets, which increases the possibility that a competitor will discover them or that Acer’s trade secrets will be misappropriated or disclosed.

Because Acer relies on third parties to assist with research and development and to manufacture its product candidates, Acer must, at times, share trade secrets with them. Acer seeks to protect its proprietary technology in

 

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part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with its advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose Acer’s confidential information, including its trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by Acer’s competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that Acer’s proprietary position is based, in part, on its know-how and trade secrets, a competitor’s discovery of Acer’s trade secrets or other unauthorized use or disclosure would impair Acer’s competitive position and may have a material adverse effect on its business.

In addition, these agreements typically restrict the ability of Acer’s advisors, employees, third-party contractors and consultants to publish data potentially relating to Acer’s trade secrets, although Acer’s agreements may contain certain limited publication rights. For example, any academic institution that Acer may collaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that Acer is notified in advance and given the opportunity to delay publication for a limited time period in order for Acer to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future Acer may also conduct joint research and development programs that may require Acer to share trade secrets under the terms of its research and development or similar agreements. Despite Acer’s efforts to protect its trade secrets, Acer’s competitors may discover its trade secrets, either through breach of Acer’s agreements with third parties, independent development or publication of information by any of Acer’s third-party collaborators. A competitor’s discovery of Acer’s trade secrets would impair Acer’s competitive position and have an adverse impact on its business.

If Acer’s trademarks and trade names are not adequately protected, then Acer may not be able to build name recognition in its markets of interest and its business may be adversely affected.

If Acer’s trademarks and trade names are not adequately protected, then Acer may not be able to build name recognition in its markets of interest and its business may be adversely affected. Acer’s unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Acer may not be able to protect its rights to these trademarks and trade names, which Acer needs to build name recognition among potential collaborators or customers in its markets of interest. At times, competitors may adopt trade names or trademarks similar to Acer’s, thereby impeding Acer’s ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of Acer’s unregistered trademarks or trade names. Over the long term, if Acer is unable to successfully register its trademarks and trade names and establish name recognition based on its trademarks and trade names, then Acer may not be able to compete effectively and its business may be adversely affected. Acer’s efforts to enforce or protect its proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact Acer’s financial condition or results of operations.

 

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Risks Related to the Combined Company

In determining whether you should approve the Merger, the issuance of shares of Opexa common stock and other matters related to the Merger, as applicable, you should carefully read the following risk factors in addition to the risks described above.

The market price of the combined company’s common stock is expected to be volatile, and the market price of its common stock may drop following the Merger.

The market price of the combined company’s common stock following the Merger could be subject to significant fluctuations. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

    the ability of the combined company to obtain regulatory approvals for EDSIVO, ACER-001 or other product candidates, and delays or failures to obtain such approvals;

 

    failure of any of the combined company’s product candidates, if approved, to achieve commercial success;

 

    failure to maintain its existing third-party license and supply agreements;

 

    failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights;

 

    changes in laws or regulations applicable to its product candidates;

 

    any inability to obtain adequate supply of its product candidates or the inability to do so at acceptable prices;

 

    adverse regulatory authority decisions;

 

    introduction of new products, services, or technologies by its competitors;

 

    failure to meet or exceed financial and development projections that the combined company may provide to the public;

 

    failure to meet or exceed the financial and development projections of the investment community;

 

    the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;

 

    announcements of significant acquisitions, strategic collaborations, joint ventures, or capital commitments by the combined company or its competitors;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters, and its ability to obtain patent protection for its technologies;

 

    additions or departures of key personnel;

 

    significant lawsuits, including patent or shareholder litigation;

 

    if securities or industry analysts do not publish research or reports about its business, or if they issue adverse or misleading opinions regarding its business and stock;

 

    changes in the market valuations of similar companies;

 

    general market or macroeconomic conditions;

 

    sales of common stock by the combined company or its shareholders in the future;

 

    trading volume of its common stock;

 

    announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

 

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    adverse publicity relating to the markets in which the combined company operates, including with respect to other products and potential products in such markets;

 

    the introduction of technological innovations or new therapies that compete with potential products of the combined company;

 

    changes in the structure of health care payment systems; and

 

    period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.

In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

Additionally, a decrease in the stock price of the combined company may cause the combined company’s common stock to no longer satisfy the continued listing standards of The NASDAQ Capital Market. If the combined company is not able to maintain the requirements for listing on The NASDAQ Capital Market, it could be delisted, which could have a materially adverse effect on its ability to raise additional funds as well as the price and liquidity of its common stock.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that Acer did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and NASDAQ. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, the combined company’s management team will consist of the executive officers of Acer prior to the Merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

Because the Merger is a reverse merger, this registration statement may be subject to heightened scrutiny by the SEC, and the combined company may not be able to attract the attention of major brokerage firms.

Additional risks may exist as a result of the combined company becoming a public reporting company through a “reverse merger.” Certain SEC rules are more restrictive when applied to reverse merger companies, such as the ability of shareholders to re-sell their shares of common stock pursuant to Rule 144, and the SEC may subject this registration statement, which is being filed with respect to the shares of Opexa common stock received by investors in the Merger, to heightened scrutiny.

In addition, security analysts of major brokerage firms may not provide coverage of the combined company since, because it became public through a reverse merger, there is no incentive to brokerage firms to recommend the purchase of its common stock. In addition, because of past abuses and fraud concerns stemming primarily from a lack of public information about newly public businesses, there are many people in the securities industry

 

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and business in general who view reverse merger transactions with suspicion. Without brokerage firm and analyst coverage, there may be fewer people aware of the combined company and its business, resulting in fewer potential buyers of its common stock, less liquidity and lower stock prices for its investors than would be the case if it had become a public reporting company in a more traditional manner. There is no assurance that brokerage firms will want to provide analyst coverage of the combined company’s capital stock or business in the future.

Anti-takeover provisions in the combined company’s organizational documents and Texas law might discourage or delay acquisition attempts for the combined company that you might consider favorable.

The combined company’s certificate of formation and bylaws will contain provisions that may delay or prevent an acquisition or change in control of the combined company. Among other things, these provisions:

 

    authorize the board of directors to issue without shareholder approval blank-check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by the board of directors;

 

    establish advance notice requirements for shareholder nominations of directors and for shareholder proposals that can be acted on at shareholder meetings; and

 

    limit who may call shareholder meetings.

Further, as a Texas corporation, the combined company will also be subject to provisions of Texas law, which may impair a takeover attempt that the combined company’s shareholders may find beneficial. These anti-takeover provisions and other provisions under Texas law could discourage, delay or prevent a transaction involving a change in control of the combined company, including actions that its shareholders may deem advantageous, or negatively affect the trading price of its common stock. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and to cause the combined company to take other corporate actions you desire.

The combined company may experience adverse consequences because of required indemnification of officers and directors.

Provisions of the combined company’s certificate of formation and bylaws provide that it will indemnify any director and officer as to liabilities incurred in their capacity as a director or officer and on those terms and conditions set forth therein to the fullest extent of Texas law. Further, the combined company may purchase and maintain insurance on behalf of any such persons whether or not the combined company would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the combined company and prevent any recovery from its officers, directors, agents and employees for losses incurred by the combined company as a result of their actions.

Opexa and Acer do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.

An active trading market for the combined company’s common stock may not develop and its shareholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the Merger, there has been no public market for Acer’s common stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for the combined company’s common stock does not develop or is not sustained, it may be difficult for shareholders to sell their shares at an attractive price or at all.

 

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Future sales of shares by existing shareholders could cause the combined company’s stock price to decline.

If existing shareholders of Opexa and Acer sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of June 30, 2017, shares expected to be issued upon completion of the Merger, and assuming completion of Acer’s concurrent financing in connection with the Merger, the combined company is expected to have outstanding a total of approximately 6.5 million shares of common stock immediately following the completion of the Merger, assuming an Exchange Ratio of one and the occurrence of the proposed reverse stock split described in Opexa Proposal No. 5 in this proxy statement/prospectus/information statement at a reverse split ratio of 1 to 10.359281. Other than shares of common stock held by affiliates of the combined company, which will be subject to the provisions of Rule 144, all outstanding shares of common stock will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Acer will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of the combined company’s common stock could decline.

If the ownership of the combined company common stock is highly concentrated, it may prevent you and other shareholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.

Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 63% of the outstanding shares of common stock of the combined company following the completion of the Merger and assuming that Acer closes its concurrent financing immediately prior to the effective time of the Merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other shareholders of the combined company. The significant concentration of stock ownership may adversely affect the trading price of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of this offering, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

The combined company will have broad discretion in the use of proceeds from the concurrent financing in connection with the Merger and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

The combined company will have broad discretion over the use of proceeds from Acer’s concurrent financing in connection with the Merger. You may not agree with the combined company’s decisions, and its use of the

 

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proceeds may not yield any return on your investment. The combined company’s failure to apply the net proceeds of the concurrent financing effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. You will not have the opportunity to influence its decisions on how to use the net proceeds from the concurrent financing.

Because the Merger will result in an ownership change under Section 382 of the Code for Opexa, Opexa’s pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Acer and of the combined company may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, or Section 382, the corporation’s net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain shareholders that exceeds fifty percentage points by value over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Opexa and, accordingly, Opexa’s net operating loss carryforwards and certain other tax attributes will be subject to limitation and possibly elimination after the Merger. It is possible that Acer’s net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Opexa’s, Acer’s and the combined company’s net operating loss carryforwards and certain other tax attributes. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Opexa’s, Acer’s or the combined company’s net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

If Acer fails to retain accounting and finance staff with appropriate experience, its ability to maintain the financial controls required of a public company may adversely affect its business.

Acer currently relies on third-party accounting professionals to assist Acer with its financial accounting and compliance obligations. Acer is seeking financial professionals with appropriate experience to maintain its financial control and reporting obligations as a public company. If Acer is unable to identify and retain such qualified and experienced personnel, its business may be adversely affected.

If the combined company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.

The combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and NASDAQ rules and regulations. The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. The combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. Acer relies on third-party accounting professionals to assist Acer with its financial accounting and compliance obligations. As a private company, Acer has never been required to test its internal controls within a specified period. This will require that the combined company incur substantial professional fees and internal costs to expand its accounting and finance functions and that it expend significant management efforts. The combined company may experience difficulty in meeting these reporting requirements in a timely manner.

In connection with the preparation of Acer’s audited financial statements for the period from December 26, 2013 (inception) through December 31, 2013 and the year ended December 31, 2014, its independent auditors advised management that a material weakness existed in internal control over financial reporting and its disclosure

 

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controls. Although Acer is committed to continuing to improve its internal control processes, and although Acer will continue to diligently and vigorously review its internal control over financial reporting, Acer cannot be certain that, in the future, additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. The combined company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The combined company’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the combined company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by NASDAQ, the SEC, or other regulatory authorities.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Opexa cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include, but are not limited to statements about:

 

    the strategies, prospects, plans, expectations and objectives of management of Opexa or Acer for future operations of the combined company, including the execution of integration and restructuring plans and the anticipated timing of filings;

 

    the progress, scope or duration of the development of product candidates or programs;

 

    the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication;

 

    the ability of Opexa or Acer to protect their intellectual property rights;

 

    the ability of Opexa to regain or maintain compliance with NASDAQ listing standards;

 

    the anticipated operations, financial position, revenues, costs or expenses of Opexa, Acer or the combined company;

 

    statements regarding future economic conditions or performance;

 

    any statements concerning proposed new products, services or developments;

 

    the approval and closing of the Merger, including the timing of the Merger, Opexa’s ability to solicit a sufficient number of proxies to approve the Merger, other conditions to the completion of the Merger and the Exchange Ratio as of the closing of the Merger;

 

    the expected benefits of and potential value created by the Merger for the shareholders of Opexa and shareholders of Acer;

 

    the ability of Opexa and Acer to complete the Merger;

 

    Acer’s ability to complete the concurrent financing of its common stock in connection with the Merger; and

 

    statements of belief and any statement of assumptions underlying any of the foregoing.

For a discussion of the factors that may cause Opexa, Acer or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Opexa and Acer to complete the Merger and the effect of the Merger on the business of Opexa, Acer and the combined company, see “ Risk  Factors ” beginning on page 25. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Opexa. See “ Where You Can Find More Information ” beginning on page 251. There can be no assurance that the Merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the Merger will be realized.

 

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If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Opexa, Acer or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Opexa and Acer do not undertake any obligation (and expressly disclaim any such obligation to) to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF OPEXA SHAREHOLDERS

Date, Time and Place

The Opexa special meeting will be held on                     , 2017, at 12255 El Camino Real, Suite 300, San Diego, California 92130, commencing at            local time. Opexa is sending this proxy statement/prospectus/information statement to its shareholders in connection with the solicitation of proxies by Opexa’s board of directors for use at the Opexa special meeting and any adjournments or postponements of the Opexa special meeting. This proxy statement/prospectus/information statement is first being furnished to shareholders of Opexa on or about                      , 2017.

Purposes of the Opexa Special Meeting

The purposes of the Opexa special meeting are:

 

  1. To approve the issuance of shares of Opexa common stock to Acer shareholders pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A ;

 

  2. To approve the change in control of Opexa resulting from the Merger contemplated by the Merger Agreement;

 

  3. To approve an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan;

 

  4. To approve an amendment to the certificate of formation of Opexa changing the Opexa corporate name to “Acer Therapeutics Inc.” in the form attached as Annex B ;

 

  5. To approve an amendment to the certificate of formation of Opexa effecting a reverse stock split of Opexa’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Opexa common stock being combined and reclassified into one share of Opexa common stock in the form attached as Annex C , which is referred to as the reverse stock split;

 

  6. To consider and vote upon an adjournment of the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

  7. To transact such other business as may properly come before the shareholders at the Opexa special meeting or any adjournment or postponement thereof.

Each of Opexa Proposal Nos. 1, 2, 3, 4 and 5 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Opexa Proposal Nos. 1, 2, 3, 4 and 5.

Recommendation of Opexa’s Board of Directors

 

    Opexa’s board of directors has determined and believes that the issuance of shares of Opexa common stock pursuant to the Merger Agreement and the resulting change of control is fair to, in the best interests of, and advisable to, Opexa and its shareholders and has approved such items. Opexa’s board of directors recommends that Opexa shareholders vote “FOR” Opexa Proposal Nos. 1 and 2 to approve the issuance of shares of Opexa common stock pursuant to the Merger Agreement and the change of control of Opexa resulting from the Merger.

 

    Opexa’s board of directors has determined and believes that the approval of an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan is fair to, in the best interests of, and advisable to, Opexa and its shareholders and has approved and adopted such increase. Opexa’s board of directors recommends that Opexa shareholders vote “FOR” Proposal No. 3.

 

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    Opexa’s board of directors has determined and believes that the amendment to the certificate of formation of Opexa to change the name of Opexa to “Acer Therapeutics Inc.” is advisable to, and in the best interests of, Opexa and its shareholders and has approved such name change. Opexa’s board of directors recommends that Opexa shareholders vote “FOR” Opexa Proposal No. 4 to approve the name change.

 

    Opexa’s board of directors has determined and believes that it is advisable to, and in the best interests of, Opexa and its shareholders to approve the amendment to the certificate of formation of Opexa effecting the reverse stock split, as described in this proxy statement/prospectus/information statement. Opexa’s board of directors recommends that Opexa shareholders vote “FOR” Opexa Proposal No. 5 to approve the reverse stock split.

 

    Opexa’s board of directors has determined and believes that adjourning the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Opexa Proposal Nos. 1, 2, 3, 4 and 5 is fair to, in the best interests of, and advisable to, Opexa and its shareholders and has approved and adopted the proposal. Opexa’s board of directors recommends that Opexa shareholders vote “FOR” Opexa Proposal No. 6 to adjourn the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Opexa Proposal Nos. 1, 2, 3, 4 and 5.

Record Date and Voting Power

Only holders of record of Opexa common stock at the close of business on the record date,                     , 2017, are entitled to notice of, and to vote at, the Opexa special meeting. At the close of business on the record date, there were            holders of record of Opexa common stock and there were              shares of Opexa common stock issued and outstanding. Each share of Opexa common stock entitles the holder thereof to one vote on each matter submitted for shareholder approval. See the section titled “ Principal Shareholders of Opexa ” in this proxy statement/prospectus/information statement for information regarding persons known to the management of Opexa to be the beneficial owners of more than 5% of the outstanding shares of Opexa common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of Opexa’s board of directors for use at the Opexa special meeting.

If you are a shareholder of record of Opexa as of the record date referred to above, you may vote in person at the Opexa special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Opexa special meeting, Opexa urges you to vote by proxy to ensure your vote is counted. You may still attend the Opexa special meeting and vote in person if you have already voted by proxy. As a shareholder of record:

 

    to vote in person, attend the Opexa special meeting and Opexa will give you a ballot when you arrive at the meeting; or

 

    to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly via mail or fax, but in any event, before the Opexa special meeting to ensure your shares are voted. Your vote must be received by                     , 2017,            Eastern Time to be counted.

If your Opexa shares are held by your broker as your nominee, that is, in “street name,” you should receive voting instructions from the bank, broker or other nominee that holds your shares. If you do not give instructions to your broker, your broker can vote your Opexa shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Capital Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Opexa shares will be treated as broker non-votes. It is anticipated that Opexa Proposal Nos. 1, 2, 4 and 5 will be non-discretionary items. If your shares of Opexa common stock are held in “street name,” you may vote in one the following ways:

 

    to vote by mail, you should follow the instructions included on the vote instruction form regarding how to instruct your broker to vote your Opexa shares;

 

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    to vote in person at the Opexa special meeting, you will need to contact the bank, broker or other nominee that is the shareholder of record for your shares to obtain a legal proxy and then bring the legal proxy indicating that you beneficially owned the shares as of the record date and a form of government issued picture identification to the Opexa special meeting. If you bring all of these materials to the Opexa special meeting, you may vote by completing a paper ballot, which will be available at the Opexa special meeting. If you do not bring all of these materials, you will not be able to vote at the Opexa special meeting; or

 

    to vote by telephone or over the Internet if you are permitted and wish to do so, you should receive instructions from your bank, broker or other nominee and follow those instructions.

All properly executed proxies that are not revoked will be voted at the Opexa special meeting and at any adjournments or postponements of the Opexa special meeting in accordance with the instructions contained in the proxy. If a holder of Opexa common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Opexa Proposal No. 1 to approve the issuance of shares of Opexa common stock in the Merger, “FOR” Opexa Proposal No. 2 to approve the change of control resulting from the Merger, “FOR” Opexa Proposal No. 3 to approve an increase in the number of shares of common stock available for issuance under Opexa’s Amended and Restated 2010 Stock Incentive Plan, “FOR” Opexa Proposal No. 4 to approve an amendment to the certificate of formation of Opexa changing the Opexa corporate name to “Acer Therapeutics Inc.,” “FOR” Opexa Proposal No. 5 to approve an amendment to the certificate of formation of Opexa effecting the reverse stock split and “FOR” Opexa Proposal No. 6 to adjourn the Opexa special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Opexa Proposal Nos. 1, 2, 3, 4 and 5 in accordance with the recommendation of Opexa’s board of directors.

If you are a shareholder of record of Opexa and you have not executed a support agreement, you may change your vote at any time before your proxy is voted at the Opexa special meeting in any one of the following ways:

 

    you can send a written notice to the Secretary of Opexa before the Opexa special meeting stating that you would like to revoke your proxy;

 

    if you have signed and returned a paper proxy card, you may sign a new proxy card bearing a later date and submit it as instructed above; or

 

    you can attend the Opexa special meeting and vote in person, but attendance alone will not revoke a proxy. You must specifically request at the meeting that it be revoked.

If you hold your shares in “street name,” please contact your broker to provide new voting instructions according to directions they will provide.

Required Vote

The presence, in person or represented by proxy, at the Opexa special meeting of the holders of a majority of the shares of Opexa common stock outstanding and entitled to vote at the Opexa special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of the holders of a majority of the shares of Opexa common stock having voting power present in person or represented by proxy at the Opexa special meeting, assuming a quorum is present, is required for approval of Opexa Proposal Nos. 1, 2, 3 and 6. The affirmative vote of the holders of a majority of the outstanding shares of Opexa common stock entitled to vote outstanding on the record date for the Opexa special meeting is required for approval of Opexa Proposal Nos. 4 and 5. Each of Opexa Proposal Nos. 1, 2, 3, 4 and 5 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3, 4 and 5.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each

 

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proposal and will have the same effect as “AGAINST” votes for Opexa Proposal Nos. 4 and 5, but will have no effect on Opexa Proposal Nos. 1, 2, 3 and 6. Similarly, broker non-votes will have the same effect as “AGAINST” votes for Opexa Proposal Nos. 4 and 5, but will have no effect on Opexa Proposal Nos. 1, 2, 3 and 6.

As of June 30, 2017, the directors and executive officer of Opexa owned or controlled 1.08% of the outstanding shares of Opexa common stock entitled to vote at the Opexa special meeting. The directors and executive officer of Opexa owning these shares are subject to support agreements. Each shareholder that entered into a support agreement has agreed to vote all shares of Opexa common stock owned by him or her as of the record date in favor of the Opexa Proposals and against any “acquisition proposal,” as defined in the Merger Agreement.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Opexa may solicit proxies from Opexa shareholders by personal interview, telephone, telegram or otherwise. Opexa and Acer will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Opexa common stock for the forwarding of solicitation materials to the beneficial owners of Opexa common stock. Opexa will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Opexa has retained Advantage Proxy to assist it in soliciting proxies using the means referred to above. Opexa will pay the fees of Advantage Proxy, which Opexa expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

Other Matters

As of the date of this proxy statement/prospectus/information statement, Opexa’s board of directors does not know of any business to be presented at the Opexa special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Opexa special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section titled “The Merger Agreement” in this proxy statement/prospectus/information statement describe the material aspects of the Merger, including the Merger Agreement. While Opexa and Acer believe that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement, and the other documents to which you are referred herein. See the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement beginning on page 251.

Background of the Merger

Historical Background of Opexa

Opexa is a biopharmaceutical company that has historically focused on developing personalized immunotherapies with the potential to treat major illnesses, including multiple sclerosis (MS) as well as other autoimmune diseases such as neuromyelitis optica (NMO). These therapies are based on Opexa’s proprietary T-cell technology. In the third quarter of 2012, Opexa initiated a Phase IIb clinical study (Abili-T) of its lead product candidate, Tcelna (imilecleucel-T), in patients with Secondary Progressive Multiple Sclerosis (SPMS). Opexa completed enrollment of the Abili-T study in May 2014 and un-blinded the results from the study in late October 2016.

On October 28, 2016, Opexa announced that the Abili-T trial did not meet its primary endpoint of reduction in brain volume change (atrophy), nor did it meet the secondary endpoint of reduction of the rate of sustained disease progression. Tcelna was considered safe and well tolerated. Abili-T was a 183-patient, randomized, double-blind, placebo-controlled Phase IIb study that was conducted at 35 clinical trial sites in the U.S. and Canada and designed to evaluate the safety and efficacy of Tcelna in patients with SPMS.

As a consequence of the negative results from the Abili-T trial, in late October 2016 Opexa’s board of directors began evaluating its strategic opportunities to maximize shareholder value, including the possibility of seeking a merger, a sale of the company or all or some of its assets, and/or a liquidation. Opexa’s management provided the Opexa board of directors with a preliminary assessment of a variety of strategic alternatives that Opexa could pursue to maximize shareholder value, including engaging in a merger process, a sale of some or all of Opexa’s assets, or distributing some or all of Opexa’s remaining cash through either a dividend or a liquidation of Opexa.

Opexa also began implementing various cost-cutting measures, including several reductions in workforce. On October 31, 2016, director Scott Seaman resigned as a member of the Opexa board of directors. On November 2, 2016, Opexa announced a reduction in workforce of 40% of its then 20 full-time employees in order to reduce operating expenses and conserve cash resources while it evaluated its programs and various strategic alternatives. Opexa’s Chief Development Officer Donna Rill resigned effective as of November 4, 2016. On December 14, 2016, Opexa implemented a further workforce reduction to conserve cash, reducing the number of full-time employees by an additional 25% of the then 12 employees. On January 31, 2017, Opexa further reduced its workforce by terminating the employment of seven full-time employees, including Opexa’s Chief Scientific Officer Don Healey. On February 1, 2017, Opexa entered into an assignment and assumption of lease with a third party for Opexa’s 10,200 square foot corporate headquarters facility located in The Woodlands, Texas, and a related assignment of a lease on a major piece of equipment. Opexa also sold certain furniture, fixtures and equipment, as well as its laboratory supplies, located at its corporate headquarters to the third party for a lump sum cash payment.

Beginning in October 2016 and continuing through June 2017, Opexa conducted a process of identifying and evaluating potential strategic combinations with private biotechnology companies. While the Opexa board of

 

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directors considered the potential engagement of a financial advisor to assist in the strategic process, the board ultimately determined not to do so after considering a number of factors, including the access of the board and its officers to a variety of potential strategic opportunities, Opexa’s limited cash resources, and the background and experience of Opexa’s management and directors in matters of financial analysis, strategic planning and biotechnology industry experience. In its review, Opexa focused on biotechnology companies possessing (i) a portfolio of product development candidates with the potential for significant value appreciation, (ii) resources sufficient to achieve potentially meaningful development milestones within such portfolio, including resources to be obtained through financing activities consummated prior to the effectiveness of a combination with Opexa as well as the resources that would result from a combination of the companies, (iii) an ability to enter into an agreement in the near-term for a combination with a public company such as Opexa and thereafter proceed in an orderly manner toward implementing the combination (necessitating, for example, the availability of the requisite audited financial statements to accompany a registration statement on Form S-4), and (iv) a management team with the breadth and skills to accomplish the foregoing. Opexa management identified and screened approximately 30 companies and set management calls and meetings with 13 companies.

These activities resulted in indications of interest in a potential combination with six biotechnology companies and discussions with three other companies. In evaluating these indications of interest, including in certain cases through discussions and diligence activities with potential counterparties (see in this regard the discussion below with respect to Opexa’s engagement with Parties 1, 2, 3, 4, 5, 6, 7, 8 and 9), Opexa ultimately concluded in each instance (except for Acer) that (x) one or more desired elements were missing from a potential combination (for example, that the counterparty did not have sufficient resources to achieve potentially meaningful development milestones within its portfolio of product development candidates or an ability to enter into an agreement in the near-term for a combination with a public company), (y) the terms expected to be available to Opexa and its shareholders in a potential combination, including as represented by the potential share of the combined company that might be owned by the pre-combination Opexa shareholders immediately following a combination and any concurrent financing, would likely not be fair or appropriate to the pre-combination Opexa shareholders, and/or (z) Opexa should pursue a combination with Acer to the exclusion of other possibilities. In the course of its process, Acer was the only party with which Opexa ultimately reached a mutual understanding on deal terms, including the potential share of the combined company that would be owned by the pre-combination Opexa shareholders immediately following a combination and any concurrent financing, and moved forward with negotiating a definitive merger agreement. A more detailed chronological description of the Merger process follows below under “ The Merger—Background of the Merger—History of Opexa Strategic Alternatives and Significant Corporate Events.”

Historical Background of Acer

Acer was incorporated in December 2013. From inception to March 31, 2017, Acer raised net cash proceeds of approximately $15.1 million, primarily from private placements of convertible preferred stock and debt financings. In parallel with its private financing activities, Acer has explored the availability of public sources of financing to support the development of its product candidates through a traditional initial public offering, as well as through a potential business combination with a NASDAQ-listed company. Acer also explored the potential benefits of a strategic transaction, and while that effort culminated in several non-binding verbal and written proposals from potential acquirers, Acer’s board of directors ultimately concluded that a merger with Opexa and the concurrent financing is in the best interest of Acer’s shareholders. Acer retained Piper Jaffray & Co. to assist it with financing and strategic transactions, as well as Extera Partners LLC to assist it with corporate partnerships and other potential strategic transactions.

History of Opexa Strategic Alternatives and Significant Corporate Events

In late October 2016, Neil K. Warma, Opexa’s President, Chief Executive Officer and Acting Chief Financial Officer, initiated discussions with Party 1 regarding the potential timing and financial implications for a potential business combination transaction with Opexa. Party 1 was a private medical device biotechnology company with a late stage cardiovascular asset in clinical development.

 

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On October 31, 2016, Mr. Warma initiated discussions with Party 2 regarding the potential timing and financial implications for a potential business combination transaction. Party 2 was a private biotechnology company with an oncology platform in early, preclinical stage development. Also on October 31, 2016, director Scott Seaman resigned as a member of the Opexa board of directors.

On November 2, 2016, Opexa announced a reduction in workforce of 40% of its then 20 full-time employees in order to reduce operating expenses and conserve cash resources while it evaluated its programs and various strategic alternatives. Opexa’s Chief Development Officer Donna Rill resigned effective as of November 4, 2016.

On November 4, 2016, a mutual non disclosure agreement was executed between Opexa and Party 2. Over the course of six weeks, discussions took place and diligence material was exchanged.

Also on November 4, 2016, Mr. Warma initiated discussions with Party 3 regarding the potential timing and financial implications for a potential business combination transaction. Party 3 was a private biotechnology company with an oncology candidate being positioned for a Phase 3 clinical trial.

On November 9, 2016, a mutual non disclosure agreement was executed between Opexa and Party 3. Over the next three months, discussions took place and diligence material was exchanged.

On November 10, 2016, Party 4 contacted Mr. Warma to discuss a potential business combination opportunity. Party 4 was a private biotechnology company developing a medical device for possible treatment of neurological disorders.

On November 11, 2016, a mutual non disclosure agreement was executed between Opexa and Party 1. Over the course of six weeks, discussions took place, diligence material was exchanged and a draft non-binding term sheet for a potential business combination was presented to Opexa management by Party 1.

On November 14, 2016, Opexa disclosed in its Quarterly Report on Form 10-Q that in addition to evaluating its various strategic alternatives in light of the disappointing Abili-T Trial study data, it was analyzing the complete data set from the Abili-T trial and conducting a review of its other research and development programs to assess the viability of continuing to pursue one or more of these programs. However, based on the top-line results from the Abili-T trial, Opexa stated that it was unlikely to continue further development of Tcelna.

On November 17, 2016, Mr. Warma met with the chief executive officer of Party 3 to discuss the potential business combination.

Also on November 17, 2016, Mr. Warma was introduced to Party 5 by the banker representing Party 5 to discuss a possible business combination opportunity with their client. Party 5 was a private biotechnology company developing a Phase 3 asset for a neurology indication.

Further, on November 17, 2016, Mr. Warma initiated discussions with Party 6 around a possible business combination. Party 6 was a private biotechnology company focused on gastrointestinal tract (GI) drug candidates. While Opexa management believed that Party 6’s technology was interesting, Party 6 had modest cash resources.

On November 21, 2016, Mr. Warma had a discussion with the chairman of the board of Party 1 regarding the clinical development and financing plans for Party 1.

On November 22, 2016, Opexa held a board meeting to discuss the numerous opportunities that had been presented to management and to evaluate the most promising technologies that would require further assessment.

On November 23, 2016, Opexa received notice from Ares Trading S.A. (“Merck Serono”), a wholly owned subsidiary of Merck Serono S.A., that Merck Serono would not be exercising its option to acquire the exclusive,

 

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worldwide (excluding Japan) license to Opexa’s Tcelna program for the treatment of MS granted to Merck Serono pursuant to an option and license agreement dated February 4, 2013, as amended, by and between Opexa and Merck Serono. As a result of receiving the notice from Merck Serono, the option and license agreement automatically expired upon receipt.

Also on November 23, 2016, Mr. Warma was introduced to Party 7 by an investor of Party 7 to discuss a business combination opportunity. Party 7 was a private preclinical stage company developing an oncology platform.

On November 27, 2016, a non disclosure agreement was executed and diligence material was shared with Party 7.

On November 28, 2016, a non disclosure agreement was executed between Opexa and Party 4.

On December 1, 2016, an in person meeting between Opexa management (i.e., Messrs. Warma and Healey) and management of Party 4 occurred at the Opexa facility. Party 4 was preparing for a Phase 3 trial, pending results from an ongoing Phase 2 clinical study.

On December 2, 2016, a non disclosure agreement was executed with Party 6 and diligence material was shared. However, the lack of capital on the balance sheet of Party 6 resulted in it being dropped from the short list of potential business combination candidates.

On December 9, 2016, the chief executive officer of Party 7 visited Opexa’s facility to engage in further discussions.

On December 12, 2016, Mr. Warma was contacted by the chief executive officer of Party 8 to discuss a potential business combination. Party 8 was a private biotechnology company in Phase 2 trials developing products for the cardiovascular market.

Also on December 12, 2016, Party 1 informed Mr. Warma that it was no longer pursuing a public path and had shifted its strategy to remain a private company.

On December 13, 2016, following discussions with the Opexa board of directors, Mr. Warma terminated discussions with Party 2 due to the questionable financial strength of Party 2 and the early stage of its preclinical development candidate.

On December 14, 2016, a draft non-binding term sheet was sent to Opexa management by Party 7.

Also on December 14, 2016, Opexa implemented a further workforce reduction to conserve cash, reducing the number of full-time employees by an additional 25% of its then 12 employees.

On December 16, 2016, discussions ensued with Party 5 and a non disclosure agreement was executed between Opexa and Party 5. Mr. Warma subsequently had several calls with Party 5 management. Diligence material was exchanged and discussions continued for several weeks.

Also on December 16, 2016, a draft non-binding term sheet for a potential business combination was sent to Opexa by Party 3.

Following discussions with the Opexa board of directors, Opexa management believed that due to the significant capital that would be needed to fund a large Phase 3 program and given the length of time and the uncertainty around securing the necessary financing, Party 5 did not represent a viable business combination opportunity. Additionally, data reported by a large pharmaceutical company developing a drug for the same indication as Party 5 and with a similar mechanism of action had recently failed in a large phase 3 trial, providing further doubt about the likelihood for success of Party 5’s drug candidate.

 

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On December 20, 2016, a non disclosure agreement was executed between Opexa and Party 8 and access to the data rooms was provided, and an in person meeting was held at Opexa’s facility between Opexa management and the management of Party 8.

On December 21, 2016, a draft non-binding term sheet for a potential business combination was sent to Mr. Warma by Party 8.

Also on December 21, 2016, Opexa held a board of directors meeting to discuss the numerous strategic opportunities and review the term sheet that had been presented by Party 8. It was determined that further discussion with Party 8 was warranted, in addition to continuing discussions with those parties that remained of interest.

On December 22, 2016, Opexa provided a draft non-binding term sheet to Party 8 for a proposed business combination. As Party 8 was targeting a convertible note financing as a form of bridge financing, Party 8 provided Opexa with a copy of its draft non-binding term sheet of the convertible note for Opexa management to review.

On December 23, 2016, a revised term sheet proposing a business combination between Opexa and Party 8 was sent to Opexa management and its counsel (Pillsbury Winthrop Shaw Pittman LLP). Party 8 was also targeting a large financing to fund its Phase 3 clinical trial, which was planned to close concurrent with a business combination.

On December 28, 2016, Opexa held a board of directors meeting to assess the status of the discussions involving Party 8 and also that of several other parties that remained of interest in the strategic review process.

A further Opexa board of directors meeting was held on January 5, 2017 to review the status primarily of Parties 3, 7 and 8, which were considered to be the most promising at this stage of Opexa’s evaluation. The Opexa board of directors also reviewed and considered a proposal to assign Opexa’s facility lease to a third party, which eventually resulted in Opexa assigning the facility and equipment lease to such third party.

Numerous discussions ensued and on January 10, 2017, following discussions with Opexa’s board of directors, Mr. Warma terminated discussions with Party 7 based on a very complicated business combination structure that was being proposed by Party 7 and concerns over Party 7’s intellectual property estate.

Also on January 10, 2017, Mr. Warma met with certain members of the board of directors for Party 8 and had discussions with its chief executive officer regarding the status of the financing that was being proposed to support the large cardiovascular trial.

Further, on January 10, 2017, Mr. Warma had a meeting with the chief financial officer and chief business officer of Acer regarding a potential business combination, and Opexa entered into a mutual non-disclosure agreement with Acer.

On January 11, 2017, Opexa held a board of directors meeting and Mr. Warma updated the directors and provided a detailed overview of the ongoing discussions. At this stage, Parties 3 and 8 were on the short list of possible merger partners. Acer was now added to this short list given the attractiveness of its platform, stage of development and perceived ability to close a financing concurrent with a potential business combination.

On January 12, 2017, Mr. Warma met with the Acer management team (Chris Schelling, chief executive officer, and Harry Palmin, acting chief financial officer) in person to discuss details around a possible business combination.

As it appeared to Opexa that Party 8’s financing to support operations and the conduct of a Phase 3 study appeared to not be materializing, Mr. Warma terminated discussions with Party 8 on or around January 13, 2017 given the uncertainty of the Phase 3 financing and lack of clarity around the timing.

 

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Also on January 13, 2017, Acer provided access to Opexa and its legal counsel to its virtual data room for purposes of reviewing due diligence materials.

On January 17, 2017, following discussions with Opexa’s board of directors, Mr. Warma terminated discussions with Party 3 based on the terms outlined in the draft term sheet and due to the limited funds that Party 3 was willing to raise concurrent to the business combination to support a potential Phase 3 trial of its product candidate.

On January 20, 2017, Opexa held a board of directors meeting to review the progress of discussions with the parties on Opexa’s short list of potential business combination candidates. An update was provided by Mr. Warma regarding the status of discussions with Acer.

Also on January 20, 2017, Mr. Warma was introduced to the chairman of the board representing Party 9 to discuss a potential business combination. Party 9 was a private biotechnology company with a product candidate in Phase 2 development for an autoimmune condition. Party 9 appeared to have a solid management team, a desire to complete a business combination in the near-term and suggested to Opexa that they had advanced considerably on a possible large financing to support a Phase 3 clinical trial of their product candidate.

Following discussions with Opexa’s board of directors, Mr. Warma was urged to continue discussions with Party 8 and Acer, in addition to Party 9, who had just entered the discussions.

On January 22, 2017, Opexa and Party 9 entered into a non disclosure agreement.

Lack of capital and concerns over the effectiveness of the device led Opexa management to conclude on January 25, 2017 that Party 4 did not offer reasonable value to Opexa shareholders.

Also on January 25, 2017, Mr. Schelling sent Mr. Warma a non-binding proposal for a potential business combination between Opexa and Acer.

On January 26, 2017, Party 9 provided Opexa management with a draft bid letter for a proposed business combination. Additionally, access to each party’s virtual data room was provided by Opexa and Party 9 to the respective party.

On January 31, 2017, Opexa further reduced its workforce to conserve cash by terminating the employment of seven full-time employees, including Opexa’s Chief Scientific Officer Don Healey.

In light of Opexa’s continuing evaluation of its strategic alternatives following the release of data from the Abili-T trial, management deemed it advisable to reduce Opexa’s office, R&D and manufacturing space and corresponding rent obligations. Therefore, on February 1, 2017, Opexa entered into an assignment and assumption of lease with a third party for Opexa’s 10,200 square foot corporate headquarters facility located in The Woodlands, Texas, and a related assignment of a lease on a major piece of equipment. Opexa also sold certain furniture, fixtures and equipment, as well as its laboratory supplies, located at its corporate headquarters to the third party for a lump sum cash payment.

On February 1, 2017, Party 9 provided access to its virtual data room to Opexa’s legal counsel to review due diligence information.

During the first two weeks of February 2017, Mr. Warma spoke to three potential investors who were contemplating a financing of Party 9 to support its operations and clinical program.

On February 2, 2017, Opexa held a board of directors meeting to discuss the status of its negotiations with the various parties. During this meeting, Party 9 was discussed as a potential new business combination partner and the Opexa board of directors evaluated the status of developments with Acer and Party 9, comparing the

 

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likelihood of securing financing for each party, the stage of clinical development of the technology and commitment to a potential business combination. It was determined based on a careful evaluation that Party 9 should move into the front position in Opexa’s evaluation process, based on a number of comparators.

On February 20, 2017, the banker representing Party 9 sent Mr. Warma and Pillsbury a revised non-binding term sheet based on Party 9’s initial draft bid letter.

On February 21, 2017, Mr. Warma provided Opexa’s comments on the draft term sheet.

Also on February 21, 2017, the banker for Party 9 sent Mr. Warma a revised edition of the term sheet.

On February 23, 2017, Opexa held a board of directors meeting to review the progress of all discussions, and subject to that outcome, for the Opexa board of directors to review and provide guidance on the draft term sheet being negotiated with Party 9, and, if appropriate, to give its authority to Mr. Warma to enter into a period of exclusivity with Party 9, during which the parties intended to negotiate a merger agreement pursuant to the terms outlined in the draft term sheet. The Opexa board of directors instructed Mr. Warma to enter into an exclusivity arrangement with Party 9 as well as negotiations with Party 9 for a potential merger agreement.

On February 27, 2017, Opexa and Party 9 entered into a 30-day two-way exclusivity period pursuant to an amended non disclosure agreement. The agreement also included a mid-point check by Opexa as to the status of Party 9’s concurrent financing, pursuant to which Party 9 was required to confirm to Opexa, upon written request, that Party 9 had either reached an agreement in principle with investors regarding the material terms for a concurrent financing of at least a stated minimum in gross proceeds to Party 9 or could demonstrate to Opexa’s reasonable satisfaction that Party 9 would have, prior to termination of the exclusivity period, binding commitments from identified investors to participate in a concurrent financing of at least a stated minimum in gross proceeds to Party 9. In the event such mid-point check was not satisfactory, Opexa could terminate the exclusivity period by providing written notice to Party 9.

Over the course of the next 30 days after signing the exclusivity amendment, Opexa management continued to be engaged with Party 9 management to assess the level of commitment to a financing to fund the pipeline of Party 9. Opexa continued to conduct diligence on Party 9 throughout the exclusivity period.

On March 1, 2017, the legal counsel for Party 9 sent Pillsbury, on behalf of Opexa, a draft merger agreement for a proposed business combination between Opexa and Party 9.

On March 7, 2017, Pillsbury sent comments on the draft merger agreement to legal counsel for Party 9.

On March 28, 2017, Opexa disclosed in its Annual Report on Form 10-K that, after further analysis of the data from the Abili-T trial, it had determined that it would not be moving forward with further studies of Tcelna in SPMS at that time, and that it was continuing to explore strategic alternatives.

By the end of the exclusivity period with Party 9 on March 29, 2017, Party 9 did not have binding commitments nor an agreement in principal as to its concurrent financing, and it appeared evident to the Opexa board of directors that the financing to support Party 9 and a potential business combination would either not come together at all or not in a timeframe that would support Opexa’s objectives or the best interests of its shareholders.

On April 2, 2017, Mr. Warma called Mr. Schelling to re-engage in discussions regarding a potential business combination and continue the dialogue that was initiated between Opexa and Acer in January 2017.

On April 4, 2017, the legal counsel for Party 9 sent Pillsbury, on behalf of Opexa, comments on the draft merger agreement.

 

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On April 5, 2017, Mr. Warma discussed with Messrs. Schelling and Palmin the terms of a potential business combination between Opexa and Acer.

On April 6, 2017, Mr. Warma sent a draft of a proposed non-binding term sheet to Messrs. Schelling and Palmin, based on discussions between Opexa and Acer in January 2017 for a potential business combination between the parties.

On April 7, 2017, Mr. Warma spoke with the lead investor of Acer and Mr. Schelling to discuss future financing plans and the funds needed to support Acer’s goals and objectives.

On April 8, 2017, Mr. Warma sent Mr. Schelling a draft exclusivity amendment to the non disclosure agreement with Acer to propose a 30-day exclusivity period.

On April 9 and 11, 2017, Mr. Schelling sent to Mr. Warma proposed revisions to the draft term sheet and exclusivity amendment, respectively.

On April 10, 2017, Mr. Warma received a letter from the listing qualifications department staff of the NASDAQ Stock Market notifying Opexa that for the last 30 consecutive business days the bid price of Opexa’s common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements of NASDAQ. Opexa was granted 180 calendar days, or until October 9, 2017, to regain compliance with the minimum bid price rule (i.e., by Opexa’s common stock closing at a price of at least $1.00 per share for a minimum of 10 consecutive business days or such longer period of time as the NASDAQ staff may require).

On April 12, 2017, Mr. Warma sent Mr. Schelling further comments on the draft term sheet and exclusivity amendment.

On April 13, 2017, Mr. Palmin sent to Mr. Warma further comments on the draft term sheet and exclusivity amendment.

On April 15, 2017, Opexa held a board of directors meeting to review the status of discussions with Party 9 and the recent re-initiation of talks with Acer management. The Opexa board of directors also reviewed the draft Acer term sheet and exclusivity amendment. Given the lack of progress on a financing by Party 9 and the expiration of the exclusivity period, the Opexa board of directors determined it was in the best interest of Opexa shareholders to reassess and not continue forward with Party 9, unless and until Party 9 could secure appropriate financing in the relevant time period. The Opexa board of directors directed Mr. Warma to enter into an exclusivity arrangement between Opexa and Acer and move forward to attempt to negotiate a merger agreement with Acer under the terms outlined in the non-binding term sheet.

On April 16, 2017, Mr. Warma informed Party 9 that Opexa would not be re-entering an exclusivity period with Party 9 but wished to stay updated on its progress in the event circumstances changed.

Also on April 16, 2017, Opexa and Acer entered a 45-day two-way exclusivity period pursuant to an amended non disclosure agreement. The agreement also included a mid-point check by Opexa as to the status of Acer’s concurrent financing, pursuant to which Acer was required to confirm to Opexa, upon written request, that Acer had reached an agreement in principle with investors regarding the material terms for a concurrent financing of at least a stated minimum in gross proceeds to Acer. In the event such mid-point check was not satisfactory, Opexa could terminate the exclusivity period by providing written notice to Acer.

On April 17, 2017, Messrs. Warma, Schelling and Palmin, and representatives from Pillsbury and Acer counsel (Foley Hoag LLP) conducted a telephonic meeting to review the tasks and responsibilities associated with moving forward for a potential business combination process between Opexa and Acer.

 

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On April 27, 2017, Mr. Warma met with Messrs. Schelling and Palmin and a representative from the lead investor proposed for Acer’s concurrent financing.

On May 1, 2017, Foley Hoag, on behalf of Acer, sent to Pillsbury, on behalf of Opexa, a draft of a proposed Merger Agreement for a business combination between Opexa and Acer and a draft of a proposed subscription agreement for a concurrent financing by Acer. The draft Merger Agreement provided that the pre-combination Opexa shares actually outstanding would represent $7 million of the post-money valuation of the combined company following the Merger and Acer’s concurrent financing, with (i) such post-money valuation to be based upon the price paid by the cash investor’s in Acer’s concurrent financing, (ii) such $7 million amount to be subject to adjustment for Opexa’s Net Cash, (iii) the Exchange Ratio to be determined accordingly, and (iv) the $7 million valuation for Opexa’s shares actually outstanding immediately prior to the Merger to be adjusted up or down (dollar-for-dollar) based upon a peg of negative $500,000 in Net Cash available at closing of the Merger. The draft Merger Agreement also provided that Acer would conduct a financing concurrent with the proposed combination, and that there would be a two-way termination fee payable by the parties in certain circumstances in an amount subject to further negotiation.

On May 9, 2017, Pillsbury provided to Foley Hoag comments on the draft merger agreement and subscription agreement.

On May 16, 2017, Mr. Warma received a letter from the listing qualifications department staff of the NASDAQ Stock Market notifying Opexa that the stockholders’ equity of $2,241,693 as reported in Opexa’s Quarterly Report on Form 10-Q for the period ended March 31, 2017 was below the minimum stockholders’ equity of $2,500,000 required for continued listing on the NASDAQ Capital Market. Opexa was provided 45 calendar days, or until June 30, 2017, to submit a plan to regain compliance with NASDAQ’s minimum stockholders’ equity standard.

On May 18, 2017, Pillsbury and Foley Hoag held a telephone conference to discuss comments and provisions of the draft merger agreement and subscription agreement.

On May 26, 2017, Pillsbury provided to Foley Hoag comments with respect to certain provisions of the draft merger agreement discussed on their earlier call.

On June 5, 2017, Opexa and Acer entered into an extension of the exclusivity arrangement extending the period of exclusivity through June 13, 2017.

Between May 26, 2017 and June 30, 2017, Pillsbury and Foley Hoag exchanged multiple additional drafts of the Merger Agreement and subscription agreement and held conference calls with respect to a proposed business combination transaction between Opexa and Acer to reflect the ongoing negotiations on various issues between senior management of Opexa and Acer, and there were various telephone conferences, correspondence and meetings between Mr. Warma and Messrs. Schelling and Palmin to negotiate terms of the proposed transaction.

On June 25, 2017, Pillsbury distributed to Opexa’s board of directors copies of the proposed Merger Agreement with respect to a proposed business combination transaction between Opexa and Acer, Acer’s proposed subscription agreement for its concurrent financing, as well as proposed resolutions for adoption by the Opexa board of directors if it elected to authorize Opexa’s management to proceed with such transaction, and related transaction documents, for review prior to the board meeting scheduled for June 28, 2017.

On June 28, 2017, the Opexa board of directors held a meeting which included Pillsbury. During the meeting, Mr. Warma reviewed the key features of the proposed business combination transaction between Opexa and Acer, including: structure and timing considerations; the Exchange Ratio for the conversion of Acer capital stock into Opexa common stock as well as the relative percentages of ownership of the existing Opexa shareholders, on the one hand, and the Acer stockholders (including investors in Acer’s planned concurrent financing), on the other hand, following completion of the Merger; the planned concurrent financing of Acer; the terms of support

 

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agreement from certain Acer directors, officers, stockholders and affiliates, as well as Opexa directors and its executive officer, to vote in favor of the proposed business combination; the closing conditions in the Merger Agreement as well as the subscription agreement for Acer’s planned concurrent financing; and the termination provisions and termination fees set forth in the Merger Agreement. The Opexa board of directors determined that the Exchange Ratio negotiated with Acer reflected an appropriate relative valuation of the two entities, taking into account a number of factors including but not limited to Opexa’s public company enterprise value and remaining assets, Acer’s pre-closing financing, Opexa’s net cash requirement in the Merger Agreement, the potential adjustment in the Exchange Ratio depending upon Opexa’s final net cash, and the expiration of outstanding Opexa warrants and options that were under-water (many of which would expire soon). Representatives from Pillsbury reviewed with Opexa’s board of directors the fiduciary duties of the board members in the context of the proposed business combination. During the various discussions, Opexa’s board of directors asked questions and discussed the terms and features of the proposed business combination, including provisions of the proposed Merger Agreement and related documentation, as well as Opexa’s cash forecast and ability to satisfy its obligations prior to the projected closing date in light of the net cash requirement contained in the Merger Agreement. After further discussion among Opexa’s board of directors, the board unanimously (i) determined that the Merger and the other transactions contemplated by the Merger Agreement were fair to and in the best interests of Opexa and its shareholders, (ii) approved and adopted the Merger Agreement and the transactions contemplated thereby, subject to finalization of the Merger Agreement and ancillary documents by Opexa’s management in consultation with Opexa’s legal counsel, with such changes thereto as Opexa’s management deemed to be in the best interests of Opexa and its shareholders, and (iii) resolved to recommend that the Opexa shareholders vote to approve the Merger, adopt the Merger Agreement and approve and/or adopt the other transactions and arrangements as contemplated by the Merger Agreement, including the issuance of shares of Opexa common stock in the Merger.

Between June 28, 2017 and June 30, 2017, members of the Opexa’s and Acer’s management teams continued to negotiate and finalize the Merger Agreement and related transaction documents, together with representatives of Pillsbury and Foley Hoag. After finalization, Opexa and Acer entered into the Merger Agreement and related transaction documents on June 30, 2017.

After execution of the definitive Merger Agreement and related transaction documents, Opexa submitted its compliance plan to NASDAQ on June 30, 2017. Opexa’s plan to regain compliance was subsequently accepted by NASDAQ and Opexa was granted an extension until November 13, 2017 to evidence compliance with the minimum stockholders’ equity standard.

History of Acer Strategic Alternatives and Significant Corporate Events

Beginning in July 2016, Acer entered into confidential discussion with Party A regarding a potential acquisition of Acer or its assets by Party A. In November 2016, following Party A’s due diligence review of Acer, Party A presented a non-binding acquisition proposal for EDSIVO to Acer. Acer continued discussions with Party A, while exploring other strategic alternatives, as well as private and public financing options.

Also in November 2016, Acer entered into a mutual non-disclosure agreement with Party B and submitted a non-binding proposal for a potential business combination between Acer and Party B. Party B was a NASDAQ-listed company in the process of identifying and evaluating potential strategic combinations with private biotechnology companies.

In December 2016, mutual diligence and discussions continued, and Party B expressed preliminary interest in entering into a business combination with Acer.

On December 30, 2016, Acer submitted a revised non-binding proposal to Party B.

In early January 2017, Party B publicly announced that it had entered into a merger agreement with another party.

 

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On January 6, 2017, Acer reached out to investment bankers representing Party C. Party C was a NASDAQ-listed company in the process of identifying and evaluating potential strategic combinations with private biotechnology companies. Discussions followed in the month of January.

On January 10, 2017, Harry Palmin, Acer’s acting chief financial officer, and Jeff Davis, Acer’s acting chief business officer, had an initial meeting with Neil K. Warma, Opexa’s President, Chief Executive Officer and Acting Chief Financial Officer regarding a potential business combination.

Also on January 10, 2017, Acer entered into a mutual non-disclosure agreement with Opexa.

On January 12, 2017, Chris Schelling, Acer’s founder and chief executive officer, and other members of Acer’s management team met in person (Mr. Schelling participated telephonically) with Mr. Warma to discuss the details of a possible business combination between Opexa and Acer.

On January 13, 2017, Acer provided access to Opexa and its legal counsel to its virtual data room for purposes of reviewing due diligence materials.

On January 16, 2017, Acer entered into a mutual non-disclosure agreement with Party C.

On January 25, 2017, Mr. Schelling sent Mr. Warma a non-binding proposal for a potential business combination between Opexa and Acer.

Discussions with Opexa continued until early February, at which time they were suspended.

On February 3, 2017, Acer submitted a non-binding proposal for a potential business combination between Acer and Party C.

On February 14, 2017, Party C informed Acer that it was one of 10 companies invited to present to Party C’s board of directors.

Also on February 14, 2017, the investment bankers representing Party D, a public biopharmaceutical company, contacted Acer to explore the possibility of Party D acquiring Acer.

On February 15, 2017, the investment bankers representing Party C informed Acer that Party C was pursuing other merger candidates.

On March 22, 2017, Acer issued senior secured convertible notes to existing investors and a vendor in the aggregate principal amount of $3,125,000.

Also on March 22, 2017, Acer entered into a mutual non-disclosure agreement with Party D, as discussions continued.

On April 2, 2017, Mr. Warma called Mr. Schelling to re-engage in discussions regarding a potential business combination between Opexa and Acer and continue the dialogue that was initiated between Opexa and Acer in January 2017.

On April 5, 2017, Mr. Warma discussed with Messrs. Schelling and Palmin the terms of a potential business combination between Opexa and Acer.

On April 6, 2017, Mr. Warma sent a draft of a proposed non-binding term sheet to Messrs. Schelling and Palmin, based on discussions between Opexa and Acer in January 2017 for a potential business combination between the parties.

 

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On April 7, 2017, Mr. Schelling and a representative of Acer’s lead investor talked with Mr. Warma about future financing plans and the funds needed to support Acer’s goals and objectives.

Also on April 7, 2017, Acer provided data room access to Party D.

On April 8, 2017, Mr. Warma sent Mr. Schelling a draft amendment to the non-disclosure agreement between Opexa and Acer proposing a 30-day exclusivity period for discussions regarding the potential business combination between Opexa and Acer.

On April 9 and 11, 2017, Mr. Schelling sent to Mr. Warma proposed revisions to the draft term sheet and exclusivity amendment, respectively.

On April 12, 2017, Mr. Warma sent Mr. Schelling further comments on the draft term sheet and exclusivity amendment.

On April 13, 2017, Mr. Palmin sent to Mr. Warma further comments on the draft term sheet and exclusivity amendment.

On April 15, 2017, Acer obtained unanimous written consent of its directors to enter into a 45-day two-way exclusivity period pursuant to an amended non-disclosure agreement and to proceed with negotiation of definitive agreements relating to the transactions contemplated by the term sheet.

On April 16, 2017, Opexa and Acer entered a 45-day two-way exclusivity period pursuant to an amended non-disclosure agreement. The agreement also included a mid-point check by Opexa as to the status of Acer’s concurrent financing, pursuant to which Acer was required to confirm to Opexa, upon written request, that Acer had reached an agreement in principle with investors regarding the material terms for a concurrent financing of at least a stated minimum in gross proceeds to Acer. In the event such mid-point check was not satisfactory, Opexa could terminate the exclusivity period by providing written notice to Acer.

During the exclusivity period with Opexa, Party D reached out to Acer on several occasions with requests for further information, on which Acer took no action.

On April 17, 2017, Messrs. Warma, Schelling and Palmin, and representatives from each party’s respective legal counsel, conducted a telephonic meeting to review the tasks and responsibilities associated with moving forward with a potential business combination process between Opexa and Acer.

On April 27, 2017, Mr. Warma met with Messrs. Schelling and Palmin and a representative from the lead investor proposed for Acer’s concurrent financing.

On May 1, 2017, representatives of Foley Hoag sent to Pillsbury a draft of a proposed merger agreement for the Merger and a draft of a proposed subscription agreement for the concurrent financing. Between May 1, 2017 and June 28, 2017, representatives of Opexa, Acer and their respective legal counsel negotiated the terms of the definitive Merger Agreement and related ancillary documents.

On May 24, 2017, Party D submitted to Acer an unsolicited non-binding proposal to acquire Acer. Acer acknowledged receipt of the proposal, but took no action on it.

On May 30, 2017, Acer’s board of directors met telephonically. At the meeting, the board discussed the status of the discussions with Opexa, and the board authorized Mr. Schelling to extend the exclusivity period with Opexa. The board also discussed the proposal received from Party D on May 24 and considered its implications for the Merger and the concurrent financing.

Following expiration of the Opexa exclusivity period, Acer had several discussions regarding a potential business combination transaction with Party D between May 31, 2017 and June 4, 2017.

 

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On May 31, 2017, Acer issued senior secured convertible notes payable to existing investors in the aggregate principal amount of $2,375,000. These notes were part of the same issuance as the convertible notes issued on March 22, 2017 and, as part of the concurrent financing, will be converted into Acer common stock prior to the consummation of the Merger.

On June 5, 2017, Acer and Opexa agreed to an amendment to the non-disclosure agreement to provide for an additional eight-day exclusivity period beginning on June 5, 2017 and ending on June 12, 2017, and Acer ceased discussions with Party D.

Following expiration of the additional Opexa exclusivity period, Acer resumed discussions regarding a potential business combination transaction with Party D between June 13, 2017 and June 28, 2017.

On June 14, 2017, the Acer board of directors held a telephonic meeting at which the status of the Merger and the concurrent financing was discussed, as well as other strategic alternatives including the transaction proposed by Party D. The board directed Acer management to proceed with both the Merger and the transaction proposed by Party D in parallel.

On June 27, 2017, Party D submitted to Acer a revised proposal to acquire Acer.

On June 29, 2017, the Acer board of directors held a meeting which included representatives of Foley Hoag. During the meeting, Acer’s management presented the material terms of the Merger and the concurrent financing, as well as the revised terms of the transaction proposed by Party D. The board undertook an extensive discussion of the merits and risks of each transaction, including the expected timing to complete each transaction, as well as the certainty of closure and the ability of current Acer stockholders to share in any future appreciation of Acer as the result of any future commercialization of EDSIVO or ACER-001. Following further discussion of the terms of the Merger, the proposal from Party D and Acer’s other options for financing its development of EDSIVO and ACER-001, the board unanimously instructed Acer management to work to finalize the terms of the Merger Agreement with Opexa as soon as possible, with such changes as could be incorporated to address specific concerns raised by the board.

On June 29 and 30, 2017, members of the Opexa and Acer management teams, together with representatives of Pillsbury and Foley Hoag, finalized the Merger Agreement and related transaction documents.

On June 30, 2017, the Acer board of directors, acting by written consent, unanimously (i) determined that the Merger and the other transactions contemplated by the Merger Agreement were fair to and in the best interests of Acer and its shareholders, (ii) approved and adopted the Merger Agreement and the transactions contemplated thereby, and (iii) resolved to recommend that the Acer shareholders vote to approve the Merger and adopt the Merger Agreement. On June 30, 2017, Opexa and Acer entered into the Merger Agreement and related transaction documents.

 

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Opexa Reasons for the Merger

The Opexa board of directors considered the following factors in reaching its conclusion to approve and adopt the Merger Agreement and the transactions contemplated thereby and to recommend that the Opexa shareholders approve the Merger, adopt the Merger Agreement and approve the other transactions contemplated by the Merger Agreement, including the issuance of shares of Opexa common stock in the Merger, all of which the Opexa board of directors viewed as supporting its decision to approve the business combination with Acer:

 

    The Opexa board of directors believes, based in part on the judgment, advice and analysis of Opexa management with respect to the potential strategic, financial and operational benefits of the Merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Acer), that:

 

    The combined company’s goal will be to become a leading pharmaceutical company that acquires, develops and commercializes therapies for the treatment of rare diseases with significant unmet medical need. The key elements of the combined company’s strategy include:

 

    focus on orphan and ultra-orphan opportunities with significant unmet need;

 

    accelerate development timelines and costs, while reducing risk;

 

    provide differentiated products that create value;

 

    protect its assets via intellectual property protections and regulatory and market exclusivities; and

 

    commercialize its products in geographies that make strategic sense;

 

    The combined organization will be led by experienced senior management from Acer and a board of directors of seven members designated by Acer; and

 

    Acer has commitments for an aggregate of approximately $15.7 million (inclusive of the conversion of approximately $5.7 million of principal and accrued interest on outstanding convertible promissory notes issued by Acer) to fund Acer’s development pipeline from certain third parties, including certain existing shareholders of Acer. This investment, along with any existing Opexa cash, is expected to provide sufficient funding to advance all of Acer’s pipeline programs, including Acer’s development of EDSIVO for vEDS through the submission of a new drug application, or NDA. Each of Acer’s programs has the potential, if successful, to create value for the shareholders of the combined company and present the combined organization with additional fundraising opportunities in the future.

 

    The Opexa board of directors also reviewed with the management of Opexa the current plans of Acer for developing its product candidates to confirm the likelihood that the combined organization would possess sufficient financial resources to allow the management team to focus initially on the continued development of its product candidates. The Opexa board of directors also considered the possibility that the combined organization would be able to take advantage of the potential benefits resulting from the combination of Opexa and Acer to raise additional funds in the future.

 

    The Opexa board of directors considered the opportunity as a result of the Merger for Opexa shareholders to participate in the potential value that may result from development of the Acer product candidate portfolio and the potential increase in value of the combined organization following the Merger.

 

    The Opexa board of directors concluded that the Merger would provide the existing Opexa shareholders with a significant opportunity to participate in the potential increase in value of the combined organization following the Merger.

 

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    The Opexa board of directors also reviewed various factors impacting the financial condition, results of operations and prospects for Opexa, including:

 

    the consequences of the disappointing results from the Phase IIb Abili-T clinical trial of Opexa’s lead product candidate, Tcelna, and the likelihood that the resulting circumstances for the company would not change for the benefit of the Opexa shareholders in the foreseeable future on a stand-alone basis;

 

    the strategic alternatives of Opexa to the Merger, including potential transactions that could have resulted from discussions that Opexa’s management conducted with other potential merger partners;

 

    the consequences of current market conditions, Opexa’s current liquidity position, its depressed stock price and continuing net operating losses;

 

    the risks associated with, and the uncertain value, timing and costs to shareholders of, liquidating Opexa or effecting a sale of all or some of its assets and thereafter distributing the proceeds;

 

    the risks of continuing to operate Opexa on a stand-alone basis, including the need to rebuild the company’s product candidate development programs, infrastructure and management to continue its operations;

 

    Opexa management’s belief that it would be difficult to obtain additional equity or debt financing on acceptable terms, if at all; and

 

    the opportunity as a result of the Merger for Opexa shareholders to participate in the potential value that may result from development of the Acer clinical development programs and the potential increase in value of the combined company following the Merger.

The Opexa board of directors also reviewed the terms and conditions of the proposed Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

    the Exchange Ratio used to establish the number of shares of Opexa common stock to be issued in the Merger, and the expected relative percentage ownership of Opexa shareholders and Acer shareholders immediately following the completion of the Merger;

 

    the planned pre-merger financing in Acer, the limited number and nature of conditions to the obligation of the proposed investors in Acer to consummate the planned pre-merger financing, and the ability of Opexa to specifically enforce the obligations of the investors to complete the investment in Acer if all of such conditions have been satisfied;

 

    the limited number and nature of the conditions to the Acer obligation to consummate the Merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the Merger will be consummated on a timely basis;

 

    the respective rights of, and limitations on, Opexa and Acer under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Opexa or Acer receive a superior proposal;

 

    the reasonableness of the potential termination fee and the reimbursement of certain transaction expenses, which could become payable by either Opexa or Acer if the Merger Agreement is terminated in certain circumstances;

 

    the support agreements, pursuant to which certain directors, officers and affiliated shareholders of Acer agreed, solely in their capacity as shareholders, to vote all of their shares of Acer capital stock in favor of adoption of the Merger Agreement;

 

    the agreement of Acer to provide written consent of its shareholders necessary to adopt the Merger Agreement thereby approving the Merger and related transactions within five business days of the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, becoming effective; and

 

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    the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the Opexa board of directors also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

 

    the termination fee or the reimbursement of certain transaction expenses that may be payable to Acer upon the occurrence of certain events, and the potential effect of such termination fee or reimbursement of transaction expenses in deterring other potential acquirors from proposing an alternative transaction that may be more advantageous to Opexa shareholders;

 

    the substantial expenses to be incurred in connection with the Merger;

 

    the possible volatility, at least in the short term, of the trading price of the Opexa common stock resulting from the Merger announcement;

 

    the risk that the Merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the Merger or on the delay or failure to complete the Merger on the reputation of Opexa;

 

    the risk to Opexa’s business, operations and financial results in the event that the Merger is not consummated;

 

    the strategic direction of the continuing entity following the completion of the Merger, which will be determined by a board of directors initially designated entirely by Acer;

 

    while the Merger would give rise to substantial limitations on the utilization of Opexa’s NOLs, Opexa also has capitalized research and development costs of approximately $40 million which could generate a tax asset at the corporation’s applicable tax rate and may be available to a merger partner; and

 

    various other risks associated with the combined organization and the Merger, including those described in the section entitled “ Risk Factors ” in this proxy statement/prospectus/information statement.

The foregoing information and factors considered by the Opexa board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the Opexa board of directors. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the Opexa board of directors did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Opexa board of directors may have given different weight to different factors. The Opexa board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Opexa management team and the legal advisors of Opexa, and considered the factors overall to be favorable to, and to support, its determination.

Acer Reasons for the Merger

In the course of reaching its decision to approve the Merger, Acer’s board of directors consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others: