As filed with the Securities and Exchange Commission on August 18, 2022
Registration No. 333-265429
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 2834 | 82-5089826 | ||
(State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification No.) |
One Research Court, Suite 450
Rockville, Maryland 20850
(240) 403-4212
(Address,
including zip code, and telephone number, including
area code, of registrant’s principal executive office)
Anatoly Dritschilo, M.D.
Chief Executive Officer
Shuttle Pharmaceuticals Holdings, Inc.
One Research Court, Suite 450
Rockville, Maryland 20850
(240) 403-4212
(Name,
address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Megan J. Penick, Esq. |
Spencer G. Feldman, Esq. | |
Stephen A. Weiss, Esq. |
Olshan Frome Wolosky LLP | |
Michelman & Robinson LLP |
1325 Avenue of the Americas, | |
800 Third Avenue, 24th Floor |
15th Floor | |
New York, NY 10020 |
New York, NY 10019 | |
(212) 730-7700 | (212) 451-2300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, 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, please 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(c) 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, a 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 ☒ | 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. ☐
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.
EXPLANATORY NOTE
This Registration Statement contains two prospectuses, as set forth below.
● | Public Offering Prospectus. A prospectus to be used for the public offering of up to 1,660,000(1) units, with each unit consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock of the Registrant (the “Public Offering Prospectus”), with such units to be sold in an underwritten offering through the underwriter named on the cover page of the Public Offering Prospectus. |
● | Resale Prospectus. A prospectus to be used for the resale by the selling stockholders set forth therein of (i) 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock, which shares and warrants will be issuable upon conversion of convertible notes (the “Convertible Notes”), and which Convertible Notes will automatically convert into common stock and warrants upon the effectiveness of this Registration Statement, and (ii) 520,000 shares of common stock issuable upon exercise of warrants held by certain warrant holders, as set forth in the resale prospectus set forth herein (the “Resale Prospectus”). |
The Resale Prospectus is substantively identical to the Public Offering Prospectus, except for the following principal points:
● | they contain different outside and inside front covers and back covers; | |
● | they contain different Offering sections in the Prospectus Summary section beginning on page 1; | |
● | they contain different Use of Proceeds sections on page 40; | |
● | a Selling Stockholder section is included in the Resale Prospectus; | |
● |
a Selling Stockholder Plan of Distribution is included in the Resale Prospectus; and | |
● | the Legal Matters section in the Resale Prospectus on page Alt-13 deletes the reference to counsel for the underwriter. |
The Registrant has included in this Registration Statement a set of alternate pages after the back cover page of the Public Offering Prospectus (the “Alternate Pages”) to reflect the foregoing differences in the Resale Prospectus as compared to the Public Offering Prospectus. The Public Offering Prospectus will exclude the Alternate Pages and will be used for the public offering by the Registrant. The Resale Prospectus will be substantively identical to the Public Offering Prospectus except for the addition or substitution of the Alternate Pages and will be used for the resale offering by the selling stockholder.
(1) Assumes the underwriter’s over-allotment option has not been exercised.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities nor may we accept offers to buy these securities until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED AUGUST 18, 2022 |
$9,960,000
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
1,660,000 Units
Each Unit Consisting of One Share of Common Stock and
One Warrant to Purchase One Share of Common Stock
This is an initial public offering of Shuttle Pharmaceuticals Holdings, Inc. We are offering a total of 1,660,000 units of securities, with each unit consisting of one share of our common stock, par value $0.00001 per share (“common stock”), and a warrant to purchase one share of our common stock. The units are being offered at an assumed combined public offering price of $6.00 per share of common stock and accompanying warrants. Each of the warrants is immediately exercisable for one share of common stock at an exercise price of $0.01 per share and will expire five years from the date of issuance. In addition, the selling shareholders (as defined herein) are offering 984,334 shares of common stock to be sold pursuant to a separate resale prospectus. We will not receive any proceeds from the sale of the common stock to be sold by the selling stockholders.
Prior to this offering, no public market has existed for our common stock. No stockholder affiliated with management is selling shares in this offering. We have applied to list our common stock included in the units and our common stock issuable upon exercise of the warrants for trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “SHPH”. We do not intend to apply for listing of the warrants on Nasdaq or on any other national securities exchange or trading system. Without an active trading market, the liquidity of the warrants will be limited.
An investment in our common stock involves significant risks. You should carefully consider the risk factors beginning on page 13 of this prospectus before you make your decision to invest in our common stock.
Per Share | Total | |||||||
Offering price | $ | 6.00 | $ | 9,960,000 | ||||
Underwriting discounts and commissions (1) | $ | 0.42 | $ | 697,200 | ||||
Proceeds, before expenses, to us | $ | 5.58 | $ | 9,262,800 |
(1) | We have also agreed to pay a non-accountable expense allowance and reimburse the underwriter for certain expenses incurred in connection with this offering. See “Underwriting” on page 92 for a description of compensation payable to the underwriter. |
We have granted a 45-day option to the underwriter to purchase up to 249,000 additional units solely to cover over-allotments, if any.
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and we have elected to comply with certain reduced public company reporting requirements.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriter expects to deliver the shares of common stock against payment as set forth under “Underwriting” on or about , 2022.
Boustead Securities, LLC
The date of this prospectus is ____________, 2022.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
We have not, and the underwriter has not, authorized anyone to provide you with any information or to make any representation other than that contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectus prepared we may authorize to be delivered or made available to you. We do not, and the underwriter does not, take any responsibility for, and can provide no assurance as to the reliability of, any information that others may provide to you. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. You should also read and consider the information in the documents to which we have referred you under the caption “Where You Can Find More Information” in this prospectus.
For investors outside the United States: Neither we nor the underwriter have done anything that would permit a public offering of the securities or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside of the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
You should rely only on the information contained in this prospectus. Neither we nor the underwriter have authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate or plan to operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry, and assumptions based on such information and knowledge which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our company’s and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors” beginning on page 13. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements” on page 39 below.
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PUBLIC OFFERING PROSPECTUS SUMMARY
The following summary provides an overview of all material information contained in this prospectus. It does not contain all of the information you should consider before making a decision to purchase our shares of common stock in the offering. Prior to investing in our common stock, you should carefully and thoroughly read the more detailed information in this prospectus and review our financial statements and all other information that is included in this prospectus, including the section entitled “Risk Factors” beginning at page 13.
Unless the context otherwise requires, references in this prospectus to “Shuttle Pharma,” “Shuttle Pharmaceuticals,” “the Company,” “we,” “our” and “us” refers to Shuttle Pharmaceuticals Holdings, Inc. and its subsidiary, Shuttle Pharmaceuticals, Inc.
Our Company
Overview
Founded in 2012 by faculty members of the Georgetown University Medical Center, Shuttle Pharmaceuticals is a discovery and development stage specialty pharmaceutical company focused on improving the outcomes of cancer patients treated with radiation therapy (RT). Our mission is to improve the lives of cancer patients by developing therapies that are designed to maximize the effectiveness of RT while limiting the late effects of radiation in cancer treatment. Although RT is a proven modality for treating cancers, by developing radiation sensitizers, we aim to increase cancer cure rates, prolong patient survival and improve quality of life when used as a primary treatment, or in combination with surgery, chemotherapy and immunotherapy. We currently have no FDA approved products and we have not yet applied for a new drug application. To date, we have been funded by investments from private investors and government contracts obtained from the National Institutes of Health (NIH) for performing research. We have no product revenue and our independent auditors, in their report dated June 3, 2022, expressed doubt about our ability to continue as a going concern.
Historically, the major advances in radiation oncology have focused on improving technology to increase the amount of radiation that can be administered to a tumor without damaging adjacent, normal tissues. Examples of other such technologies include intensity modulated radiation therapy (IMRT), stereotactic body radiation therapy (SBRT), stereotactic radiosurgery (SRS) and proton therapy – the backbones of state-of-the-art RT. All offer improvements in physical radiation dose shaping. The basic principle underlying the effectiveness of RT for curing cancers lies in the differential cancer cell kill achieved in tumors, as compared to the effects of RT on the normal surrounding tissues, which is achieved by delivery of highly conformal RT doses – in other words, delivery of high-dose to volumes that are shaped to conform to the target cancers while minimizing the dose to surrounding normal tissues. The treated volumes frequently include sensitive normal tissues, thereby limiting the magnitudes of the prescribed RT doses. We suggest that technological innovations to define tumor volumes and shape radiation delivery have reached an effectiveness plateau and that further improvements in RT outcomes will require pharmacological and immunological approaches to sensitize cancers, protect normal tissues and engage the immune system.
At present, the drugs being used for sensitizing cancers to RT are chemotherapeutic agents possessing radiation sensitizing properties as secondary effects. With the exception of Cituximab, a growth factor targeting monoclonal antibody biologic, all other drugs used as radiation sensitizers are used “off-label” to address the clinical need for radiation sensitizers. For example, certain chemotherapeutic agents, such as 5-fluorouracil, capecitabine and cis-platinum, are approved as single agents for cancer treatment, but are used “off-label” as radiation sensitizers in combination with RT. Treatments with such agents are associated with inherent toxicities associated with the drug’s primary, single-agent mechanisms of action.
Shuttle Pharma’s platform of sensitizers offers a pipeline of product candidates designed to address the urgent clinical need and the current limitations of using “off-label” drugs with potential new sensitizer agents. Our pipeline includes Ropidoxuridine, our lead clinical sensitizer drug candidate, to sensitize rapidly growing cancer cells and selective histone deacetylase (HDAC) inhibitors to sensitize cancer cells and stimulate the immune system. Our novel technologies will be tested in combinations with radiation therapies (conventional X-ray and proton radiation therapies) and in combinations with immune-therapies. To date, Ropidoxuridine has completed a Phase I clinical trial. Our HDAC inhibitor platform drug candidates have been tested in preclinical models of solid tumor cancers. Ropidoxuridine and the selective HDAC6 inhibitor SP-2-225 are the clinical and preclinical candidate drug products we propose to develop using funding from this offering.
Our intellectual property for Ropidoxuridine includes novel formulations that show improved drug bioavailability (in a preclinical animal model) and for sensitizing cancers to proton and to conventional radiation therapies. Our HDAC inhibitor intellectual property includes new patent applications and granted patents for composition of matter and methods of use for treating cancers with HDAC inhibitors in combinations with radiation therapy.
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To date, we have obtained funding for our research from private investors and Small Business Innovation Research (“SBIR”) contracts obtained through the National Institutes of Health (“NIH”) to support the development of the radiation sensitizer Ropidoxuridine in a Phase I clinical trial. We have also received awards for Phase I and II SBIR contracts for development of human cell cultures for health disparities studies and predictive biomarkers of radiation late effects through the NIH’s National Cancer Institute. The completed Phase I and II funded discovery work performed to establish “Cell-based Models for Prostate Cancer Health Disparity Research” and to develop “Predictive Biomarkers of Prostate Cancer Sensitivity for Radiation Late Effects” enables Shuttle Pharma to apply for NIH SBIR Phase II funding to develop these products for advancing basic science and clinical research.
Our Product Candidates
The U.S. Food and Drug Administration (the “FDA”) considers new molecular entities as drugs that use new and unique mechanisms of action for treating medical conditions. Our clinical stage agent, Ropidoxuridine (IPdR), increases DNA double strand breaks following radiation exposure and our inhibitors of histone deacetylases (HDACs) stimulate the immune system to produce T-lymphocytes targeting cancer cells.
Our objective is to improve the outcomes of cancer treatment through RT while reducing its side effects by:
● | Sensitizing growing cancer cells to render them more susceptible to the effects of RT; |
● | Activating the DNA damage response pathway to protect normal cells located near cancers; and |
● | Activating the immune response to antigens present on irradiated and un-irradiated cancer cells. |
To our knowledge, no drug utilizing the mechanisms of our candidate small molecule drugs has received FDA approval as a radiation sensitizer. We have developed, to clinical stage, the small molecule strategies to sensitize growing cancer cells in tumors to conventional RT and to large fraction radiation therapy. The pre-clinical technology, HDAC inhibitor platform, is designed to target cancer cells while protecting healthy tissue/normal cells, thus enhancing the candidate radiation sensitizer product pipeline. The selective HDAC6 inhibitor (SP-2-225), discovered and developed by our scientists, has inhibited the growth of melanoma tumors and breast cancers in animal models by an immune stimulating mechanism.
We are focused on developing a clinical stage product candidate (Ropidoxuridine) and a pre-clinical product candidate, selective HDAC6 inhibitor (SP-2-225). We propose to develop these drug candidates as illustrated below:
Overview of Radiation Sensitizer Development
Ropidoxuridine, the clinical stage molecule, sensitizes rapidly growing cancers to radiation therapy by increasing reactive free radicals that increase DNA strand breaks. Ropidoxuridine development for treating glioblastoma will require Phase II clinical testing for use in treating brain tumors. The selective HDAC6 inhibitor, SP-2-225, a pre-clinical stage molecule, activates the innate immune system to target irradiated tumor cells by immune mechanisms.
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Ropidoxuridine (IPdR)
Ropidoxuridine (IPdR) is an orally available halogenated pyrimidine (5-iodo-2-pyrimidinone-2-deoxyribose) with strong cancer radiation sensitizing properties. As a prodrug that does not become an active drug until after it is metabolized, IPdR is absorbed and metabolized to IUdR by enzymes in the liver and in cancer cells. IUdR, a halogenated pyrimidine, is incorporated into DNA by rapidly growing cancer cells. Cells that incorporate IUdR into their DNA then become more sensitive to the effects of RT. The Phase I clinical trial of Ropidoxuridine and RT, supported by an NIH SBIR contract to Shuttle Pharma, was sub-contracted to the Brown University Oncology Group (BrUOG) at the LifeSpan/Rhode Island Hospital. This Phase I clinical trial has been completed and the results were initially reported by the sub-contractor at the 30th EORTC-NCI-AACR Symposium in November 2018 and published in the medical journal Clinical Cancer Research in 2019. A maximum tolerated dose (MTD) of 1200 mg/day for 28 days was established for use in combination with radiation therapy to achieve therapeutic blood levels of IUdR.
The reported Phase I clinical trial of Ropidoxuridine in combination with RT provides the foundation for proposed Phase II clinical trials to establish the data necessary for the FDA to determine efficacy in treating brain tumors, sarcomas and pancreatic cancers, diseases that offer potential for orphan designations. The FDA granted approval of our application for orphan-drug designation for IPdR for the treatment of glioblastoma. Orphan designation protects the marketing position of Ropidoxuridine for up to seven years after marketing approval is received from the FDA. This approval integrates well into the overall intellectual property strategy for Ropidoxuridine which includes filed patent applications for “Method and Compositions for Cancer Therapies that Include Delivery of Halogenated Thymidines and Thymidine Phosphorylase Inhibitors in Combination with Radiation.” We believe that we are positioned to initiate Phase II clinical studies with Ropidoxuridine and RT in 2022.
Extended Bio-availability Ropidoxuridine (IPdR/TPI)
Ropidoxuridine and Tipiracil (IPdR/TPI) is a new combination drug formulation designed to increase the bio-availability and incorporation of IUdR into DNA. Shuttle Pharma’s preclinical studies of the combination of IPdR/TPI have shown up to 10-fold greater bioavailability of the active metabolite (IUdR) as compared to IPdR administered alone in controls. We have filed an application under the Patent Cooperation Treaty (or PCT) for the intellectual property. This new formulation will be tested in a Phase I clinical trial as a sensitizer of rectal cancers. Another nucleoside analogue, Trifluridine has been formulated in combination with Tipiracil (TAS-102) to enhance drug uptake by colon cancer cells to prolong survival in patients treated for metastatic colorectal cancers, as has been reported in the New England Journal of Medicine (N Engl J Med. 2015; 372:1909-1919). We anticipate testing for uptake of IPdR by colorectal cancer cells following administration of the IPdR/TPI drug formulation.
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Proton radiation therapy is an advanced form of radiation therapy using charged proton particles (p+). Proton RT differs from conventional RT in that the radiation is delivered by a beam of protons to precisely target tumors and, due to the favorable physics of energy deposition by proton particles, there is no exit beam, resulting in less radiation to surrounding healthy tissues. The use of Proton RT is expanding rapidly in the U.S. and worldwide. According to the National Association of Proton Therapy, more than 30 facilities are currently in operation in the U.S. and an additional 30 facilities are planned for installation over the next five years. (See www.proton-therapy.org.) Much attention has been paid to proton therapy in the popular press, promoting its advantages, as well as addressing the increased health care costs. The role of a sensitizer that offers proton radiation sensitization presents an opportunity to enhance the value of proton radiation therapy as a cancer treatment modality. We believe the development of a proton therapy targeted radiation sensitizer, such as IPdR/TPI, is timely and consistent with current market needs to advance protons as a therapeutic modality.
We intend to perform clinical studies to support the development of the IPdR/TPI combination to advance this drug candidate with proton RT. The addressable market includes diseases such as brain tumors, cancers of the head and neck, GI cancers and lung cancers.
Selective HDAC Inhibitors
The roles of acetylation in the epigenetic regulation of chromatin structure and gene expression rests on the balance of activities of histone acetyltransferases (HATs) and histone deacetylases (HDACs). Increased acetylation of histones leads to changes in chromatin structure and accessibility for key cellular proteins to specific target sites. Acetylations of non-histone proteins also modulates their enzymatic activities. We have discovered novel HDAC inhibitor molecules and testing in preclinical models has shown cancer radiation sensitizing properties, normal tissue protective properties and selective HDAC6 inhibitory properties. Our HDAC inhibitor platform, described below, will be evaluated in pre-clinical studies of radiation sensitization of solid tumors and activation of the immune response to irradiated cancer cells.
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● | SP-1-161 is our candidate lead pre-clinical, pan-HDAC inhibitor that initiates the mutated in ataxia-telangiectasia (ATM) response pathway. ATM is activated by ionizing radiation induced DNA damage. Activated ATM phosphorylates critical factors involved in DNA repair, apoptosis, and cell cycle checkpoint. Phosphorylation of the molecules in these pathways, in turn, activates the cellular functions. ATM also can be activated by HDAC inhibitors and imparts radiation protective properties. Using rational drug design, we discovered HDAC inhibitors and ATM activators capable of radiation sensitizing cancer cells and protecting normal cells. SP-1-161 is our lead candidate radiation sensitizing pan-HDAC inhibitor. | |
● | SP-2-225 is our candidate lead selective histone deacetylase inhibitor of HDAC6. HDAC6 is a member of the Class IIb HDAC family. Selective HDAC6 inhibitors are an emerging class of pharmaceuticals due to effects on neurodegenerative diseases, cancers and immunology. Specifically, the potential to affect regulation of the immune system and enhance the immune response to cancers is of significant interest as an adjuvant treatment in combination with radiation therapy. We propose to test our HDAC6 inhibitors for a role in enhancing post-RT immune responses to antigens produced in irradiated cancers for their effects on control of local and metastatic disease. | |
● | SP-1-303 is a selective Class I HDAC inhibitor that preferentially affects histone deacetylases HDAC1 and HDAC3 and shows direct and selective cytotoxicity for ER positive and Her2 negative breast cancer cells. |
Drug Development Projects for Radiation Treatment of Cancers
To advance research that is complementary to our radiation sensitizer discovery and development projects, the NIH has awarded SBIR contracts to us to develop reagents for health disparities research and to develop biomarkers of radiation sensitivity for patients treated with radiation therapy. Our scientists have been engaged in developing model human cell systems for testing radiation sensitizers in tissue cultures. This project provides an efficient and low-cost screening technology to provide data for the FDA’s determination of drug efficacy and to identify candidate lead molecules for treating prostate cancers in African-Americans. First developed at Georgetown University, the conditional cellular reprogramming (CRC) technology offers the ability to establish new cell lines from biopsies of cancers. We have obtained a sub-license from Propagenix, Inc. to establish 100 normal and cancer cell lines from prostate biopsy samples for use in screening drug candidates and for health disparities research. A more detailed description of the Propagenix license is set forth on page 60 below.
In addition, to identify patients who may be more sensitive to radiation therapy and are at a higher risk to suffer treatment-related complications, collaborative research with Georgetown University has led to discovery of metabolite biomarkers, which are predictive of patient responses to radiation therapy. A patent for the intellectual property has been submitted by Georgetown University with Shuttle Pharma scientist (Scott Grindrod, PhD) as co-inventor. Developmental work in health disparities and predictive biomarker development has been supported by NIH SBIR contracts to Shuttle Pharmaceuticals for the following areas:
● | Develop prostate cancer cell lines from African-American men with the goal of advancing research to address prostate cancer health disparities (designated SBIR “Topic 352: Cell-Based Models for Prostate Cancer Health Disparity Research- Moonshot Project (Phase II)”); and | |
● | Develop predictive biomarkers of prostate patient outcomes following treatment with SBRT (designated SBIR “Topic 345: Predictive Biomarkers for Prostate Cancer Sensitivity for Radiation Late Effects (Phase I and II).” |
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The NIH’s SBIR program is designed to encourage small businesses to engage in Federal Research/Research and Development (“R/R&D”) that has the potential for commercialization. Shuttle Pharma will apply for additional NIH SBIR grants and contracts to fund advancement of these projects.
Market Opportunity
The American Cancer Society (Cancer Facts & Figures 2020) estimates 1,806,590 new cancer cases and 606,520 cancer deaths each year in the United States and, according to the American Society for Radiation Oncology, more than 50% of patients undergo RT at some point in the treatment of their diseases. RT is used to treat cancers of the lung, breast, brain, esophagus, pancreas, rectum, head and neck, uterus, lymphomas and sarcomas. At present, we are developing drug candidates to address brain, pancreas, rectum, sarcomas and lymphomas, although we may test and seek approval for our drug candidates to treat other cancers in the future.
Currently, there is only one drug (the monoclonal antibody, Cetuximab) that has received FDA approval for the radiation sensitizer indication. Cetuximab is a recombinant monoclonal antibody that binds to epidermal growth factor receptor (EGFR) and inhibits the binding of epidermal growth factor (EGF). Cetuximab is administered via intravenous infusion and is used as monotherapy or in combination with other chemotherapies or radiation therapy. In clinical trials, cetuximab was associated with serious and fatal infusion reactions, cardiopulmonary arrest or sudden death, and serious dermatologic toxicities, toxicities that have created deterrents to its use as a radiation sensitizer. Present treatment utilizes “off-label” small molecule drugs, which are cytotoxic chemotherapy agents that also sensitize, but do not have radiation sensitization as an FDA approved indication. Moreover, since “off-label” drugs are cytotoxic, they are often associated with intrinsic acute and chronic side effects. Nevertheless, these drugs have shown clinically significant improvements in disease control and survival and are typically included in standard-of-care treatment recommendations for patients with cancers of the head and neck, brain, lung, esophagus, stomach, pancreas, liver, bladder, lymphomas and sarcomas. As a result, we believe that there is a significant market opportunity for our product candidates. Based on cancer incidence data published by the American Cancer Society, we have estimated the numbers of patients presenting with local/regional disease, suitable for treatment with RT.
Estimated RT Cases by Disease Site
Cancer Type | Cases Diagnosed Annually | Estimated RT Cases | ||||||
Brain | 23,890 | 21,979 | ||||||
Pancreas | 57,600 | 32,832 | ||||||
Sarcomas | 13,130 | 4,000 | ||||||
Rectum | 43,340 | 26,437 |
Annual cancer cases for each disease site are estimated from American Cancer Society Facts & Figures 2020 publication. The fraction of patients optimally receiving RT for each disease site were obtained from published estimates of Delaney G, Jacob S, Featherstone C, Barton M. The role of radiotherapy in cancer treatment: estimating optimal utilization from a review of evidence-based clinical guidelines. Cancer. 2005 Sep 15;104(6):1129-37. doi: 10.1002/cncr.21324. The Estimated RT cases were obtained by multiplying Cases Diagnosed Annually by the fraction receiving RT for optimal utilization.
Our Development Strategy
Our goal is to maintain and build upon our leadership position in radiation sensitization. We plan to develop Ropidoxuridine and the HDAC6 inhibitor (SP-2-225) and, if approved by the FDA, to commercialize our product candidates for the treatment of cancers. While this process may require years to complete, we believe achieving this goal could result in radiation sensitizer and immunotherapy products for cancer treatment. Key elements of our strategy include:
● | Capitalize on Ropidoxuridine as an orally available, small molecule radiation sensitizer. To date, there is one drug (Cetuximab) approved by the FDA specifically as a radiation sensitizer. If we are successful in developing Ropidoxuridine to obtain FDA approval, a small moleculesensitizer will be enabled for clinical applications for radiation sensitization. | |
● | Expand our leadership position within radiation sensitizers. In addition to our traditional radiation sensitizers, we plan to advance our near-term pipeline to include radiation sensitizers for proton therapy. Proton Therapy is growing worldwide as a form of radiation therapy due to its unique beam shaping characteristics. As a result, this new technology offers a major opportunity for Shuttle Pharma to strive to develop a sensitizer drug for proton therapy sensitization applications. | |
● | Execute a disciplined business development strategy to strengthen our portfolio of product candidates. We have built our current product pipeline through in-house development, partnerships with leading academic institutions and through successful in-licensing deals. We will continue to evaluate new in-licensing opportunities and collaboration agreements with leading academic institutions and other biotechnology companies around programs that seek to address areas of high unmet need and for which we believe there is a high probability of clinical success, including programs beyond our target franchise areas and current technology footprint. |
● | Invest in our HDAC platform technology to maximize its utility across cancer therapies. We are initially applying the platform to develop drugs for cancer radiation sensitization and normal tissue radiation protection. In addition, these drugs also affect immune regulatory properties. We intend to invest to investigate other properties of our platform technology. | |
● | Enter into collaborations to realize the full potential of our platform. The breadth of our HDAC technology platform enables other therapeutic applications, in addition to radiation sensitization and immune therapy. We intend to seek collaborations centered on our platform to maximize applications for our HDAC inhibitor technology. |
We propose the following clinical development plan to identify, develop and commercialize drugs for use in cancer treatments in combination with RT:
Develop Ropidoxuridine (IPdR) for Orphan disease indications to take to market
● | Manufacture 24 kg of Ropidoxuridine and formulate for use in clinical trials. | |
● | Conduct a Phase II clinical trial of Ropidoxuridine, Temodar and RT in glioblastoma. | |
● | Conduct a Phase III clinical trial in glioblastoma to secure FDA approval to market Ropidoxuridine for the glioblastoma indication using orphan disease designation for marketing protection. |
Develop Ropidoxuridine and tipiracil (IPdR/TPI) for colorectal cancer indications to take to market
● | Formulate 5 kg of IPdR/TPI for use in pre-clinical efficacy studies, IND-enabling studies and a Phase I clinical trial. |
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● | Conduct IND-enabling studies; obtain IND for IPdR/TPI with RT. | |
● | Conduct a Phase I clinical trial of IPdR/TPI with RT in rectal cancers to establish the MTD. | |
● | Conduct a Phase II clinical trial of IPdR/TPI with RT in rectal cancer. |
Develop HDAC Inhibitors for use in breast cancer for immune activation after RT
● | Complete pre-clinical studies of HDAC inhibitors in human xenograft tumor models. |
○ | SP-1-161 with RT in breast cancers. | |
○ | SP-1-303 with RT in ER+, Her2- breast cancers. | |
○ | SP-2-225 with immune checkpoint inhibitors in lung cancers. |
● | Advance the lead HDAC6 inhibitor, SP-2-225, for IND-enabling. | |
● | Conduct Phase I clinical trials to determine MTD. | |
● | Conduct Phase II clinical trials for proof-of-concept efficacy evaluation in lung cancers. |
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Management Team
Our management team has significant experience in radiation oncology and in progressing products from early-stage research through clinical trials. Our CEO, Anatoly Dritschilo, M.D., is an experienced clinician and researcher who has held senior academic and management positions including serving as Department Chairman, Hospital Medical Director and Cancer Center Director at Georgetown University Medical Center. Prior to co-founding our company, Dr. Dritschilo was a co-founder of Oncomed, Inc., a company that became public as NeoPharm, Inc. (Nasdaq: NEOL). He has experience in providing care for patients undergoing treatment for cancers of the prostate, breast, brain, lung, sarcomas and GI systems. Dr. Dritschilo has directed basic science research supported by grants from the National Cancer Institute (“NCI”) and performed clinical trials using drugs and radiation therapy. In addition, Dr. Dritschilo served as the principal investigator of pharmaceutical industry sponsored clinical evaluations of human interferon alpha-2 (Bristol-Myers) with radiation therapy and antisense raf oligonucleotides, LErafAON (NeoPharm) with radiation therapy. He serves as a Radiation Biology and Radiation Oncology expert on committees of the NIH to review Program Project (P01) grant applications, Specialized Program of Research Excellence (SPORE) grant applications and investigator-initiated research project (R01) applications.
Dr. Dritschilo is supported in our clinical development effort by Tyvin Rich, MD, our Chief Clinical Officer and Medical Director. Dr. Rich is the former Professor and Chairman of the Department of Therapeutic Radiology and Oncology at the University of Virginia Health Sciences Center and proton radiation therapy specialist at the Hampton Proton Therapy Center in Hampton, Virginia. Dr. Rich has served as principal investigator on multi-modality clinical trials for the treatment of gastrointestinal (GI) cancers and helped to develop treatment with 5-fluorouracil (5-FU) as a radiation sensitizer for use with RT in the treatment of GI cancers. He has extensive cancer clinical trial experience in developing radiation sensitizer applications through his participation in the Radiation Therapy Oncology Group (RTOG). Dr. Rich is a co-inventor with scientists at the University of Virginia of the Proton Activated Atomic Medicine technology.
Our administrative services are provided by Peter Dritschilo, MBA, who has served as our President and COO since 2012. Mr. Dritschilo’s experience in hospital administration and management of medical oncology clinical services and radiation therapy facilities, including management of day-to-day operations, human resources and financial oversight. Peter Dritschilo is the son of our Chairman and CEO, Dr. Anatoly Dritschilo. The addition of Michael Vander Hoek as our CFO and Vice President for Operations and Regulatory expands our capability to provide the level of management needed for the proposed expansion of clinical trials. Mr. Vander Hoek has served as administrative director of the Lombardi Comprehensive Cancer Center (LCC) for the past 12 years and has extensive experience in negotiations, management and supervision of Contract Research Organizations (CROs) and research contracts in general. As the administrative director of the Lombardi Comprehensive Cancer Center, Mr. Vander Hoek also served as the chief financial officer. Taken together, we believe our leadership team of highly qualified specialists will help us achieve the proposed milestones for the development of radiation sensitizer products.
Pre-IPO Bridge Financing
In December 2021, we completed a $500,000 note offering pursuant to which we sold to two accredited investors (the “Investors”) units consisting of (i) a $250,000 promissory note bearing 10% interest, repayable at the time of this offering (the “Note”) and (ii) a warrant to purchase 250,000 shares (the “Warrant Shares”) of our common stock at an exercise price of $1.00 per share (the “Warrant”). Immediately before closing on the Offering, the Notes will be repaid and cancelled in exchange for the exercise of the Warrants and issuance of the 500,000 Warrant Shares to the Investors.
In February and March 2022, we sold a total of $365,000 and $225,000, respectively, in convertible notes (“Convertible Notes”) to certain accredited investors, which notes will automatically convert into units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock, upon effectiveness of this offering at a conversion price of $3.00 per unit (the “Conversion Units”). In addition, each of the Convertible Note holders will be entitled to demand registration rights, and we are required to register the Conversion Units within 180 days of the closing of this offering. We are using the net proceeds from the Convertible Notes offering to expand our current operations, including our technology and intellectual property portfolio, and to fund the costs of this offering. Any funds remaining will be used for working capital and other general corporate purposes.
In August 2022, we completed a $125,000 note offering pursuant to which we sold to three accredited investors (the “Investors”) units consisting of (i) a total of $125,000 in 10% promissory notes bearing 10% interest, repayable at the time of this offering (the “August Note”) and (ii) warrants to purchase a total of 50,000 shares of common stock exercisable at $2.50 per share. We anticipate that the notes will be repaid upon closing of the Offering.
Boustead Securities LLC (“Boustead”) acted as placement agent in both the Note and Warrant offering and the Convertible Notes offering, pursuant to which Boustead waived its cash compensation related to the Note and Warrant offerings and received cash compensation of $36,500 and $22,250 in each of the February and March 2022 closings, respectively, and also received warrants to purchase 10% of the total number of Conversion Shares, exercisable at the conversion price of the Convertible Notes. For the August 2022 offering, Boustead received a warrant to purchase 5,000 shares of common stock and is entitled to receive $12,500 in cash compensation, which cash compensation has been deferred.
Our Resale Offering
Certain of our shareholders will be selling through a separate prospectus (the “Resale Prospectus”) (i) 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock, which shares and warrants will be issuable upon conversion of convertible notes, which convertible notes will automatically convert into common stock and warrants upon the effectiveness of this offering and the date of this prospectus, and (ii) 520,000 shares of common stock issuable upon exercise of warrants held by certain warrant holders, as set forth in the Resale Prospectus. We will not receive any proceeds from the sales by the selling stockholders of the securities set forth in thee Resale Prospectus.
The Resale Prospectus is substantively identical to this Prospectus, except for the following principal points:
● | they contain different outside and inside front covers and back covers; | |
● | they contain different Offering sections in the Prospectus Summary section beginning on page 1; | |
● | they contain different Use of Proceeds sections on page 40; | |
● | a Selling Stockholder section is included in the Resale Prospectus; | |
● | a Selling Stockholder Plan of Distribution is included in the Resale Prospectus; and | |
● | the Legal Matters section in the Resale Prospectus deletes the reference to counsel for the underwriter. |
Summary Risk Factors
Our business is subject to a number of risks you should be aware of before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus at page 13 immediately following this prospectus summary. These risks include the following:
● | Our success is primarily dependent on achieving the development, regulatory approval and commercialization of our product candidates, both of which are in the early stages of development. | |
● | Our approach to the discovery and development of innovative radiation oncology drugs based on our HDAC small molecule delivery platform, which is novel, unproven and may not result in marketable products. | |
● | We have no product revenue, have incurred significant losses since inception, may never become profitable and may incur substantial and increasing net losses for the foreseeable future as we continue the development of, and seek regulatory approvals for our product candidates. |
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● | If clinical trials of our product candidates fail to demonstrate safety and efficacy, which are ongoing determinations that are solely within the authority of the FDA, we may be unable to obtain regulatory approvals to commercialize our product candidates. | |
● |
We have not generated any revenue and have incurred losses in each year since our founding in December 2012. Our net loss for the year ended December 31, 2021 and the six months ended June 30, 2022 was $1,152,134 and $1,279,114 respectively. As of June 30, 2022, we had an accumulated deficit of $7,126,082 and received a “going concern” opinion from our independent auditors for the fiscal year ended December 31, 2021. As a clinical stage pharmaceutical company, we expect to continue to incur significant losses for the foreseeable future. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. | |
● | We are subject to regulatory approval processes that are lengthy, time-consuming and unpredictable. We may not obtain approval for any of our product candidates from the FDA or foreign regulatory authorities. | |
● | Even if we obtain regulatory approval, the market may not be receptive to our product candidates. | |
● | We may not be able to establish collaborative partnerships with other pharmaceutical companies, through which we expect to complete development of, obtain marketing approval for and, if approved, manufacture and market our product candidates. | |
● | We may encounter difficulties satisfying the requirements of clinical trial protocols, including patient enrollment. | |
● | We may face competition from other companies in our field or claims from third parties alleging infringement of their intellectual property. | |
● | We may be unable to recruit or retain key employees, including our senior management team. | |
● | We will need to obtain significant additional funding on acceptable terms to continue operations following this offering. | |
● | We are a Phase I clinical stage pharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Specialty pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. | |
● | We do not currently have any product candidates in advanced clinical trials or approved for sale, and we continue to incur significant research and development and general and administrative expenses in relation to our operations. In addition, we have 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. | |
● | We have not submitted an application or received marketing approval for any of our product candidates. Regulatory approval of our product candidates is not guaranteed, and the approval process is expensive and may take several years. | |
● | It is difficult and costly to protect our intellectual property rights. | |
● | The offering price of the primary offering and resale offering could differ. | |
● | The resale by the Selling Stockholders whose shares are being registered in our resale offering may cause the market price of our common stock to decline. |
Implications of Being an Emerging Growth Company
● | As a smaller reporting company, and as a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: | ||
● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; | ||
● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
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● | not being required to comply with any mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
● | reduced disclosure obligations regarding executive compensation; and | |
● | exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We may take advantage of the above provisions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may also choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting requirements in this prospectus. Accordingly, the information contained in this prospectus may be different than the information you receive from other public companies in which you hold stock.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period for adopting new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Corporate Information
The Company was formed as a limited liability company in the state of Maryland in December 2012 and was converted to a C corporation, Shuttle Pharmaceuticals, Inc. (“Shuttle”), in August of 2016. In June 2018, Shuttle completed a share exchange with Shuttle Pharma Acquisition Corp. Inc. (“Acquisition Corp.”), pursuant to which Shuttle Pharmaceuticals, Inc. became a subsidiary of Acquisition Corp. and we subsequently changed the name of Acquisition Corp. to Shuttle Pharmaceuticals Holdings, Inc. Our executive offices are located at 1 Research Court, Suite 450, Rockville, Maryland 20850 and our telephone number is (240) 403-4212. Our corporate website is www.shuttlepharma.com. Information appearing on our corporate website is not incorporated as part of this prospectus.
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The Offering
Securities offered by us: | 1,660,000 units, with each unit comprised of (i) one share of common stock and (ii) a warrant to purchase one share of common stock. The units will not be certificated, and the common stock and the warrants comprising each unit are immediately separable and will be issued separately in this offering.
This prospectus also relates to the offering of shares of common stock and warrants included in the units. | |
Warrants | Each warrant entitles the holder thereof to purchase one share of common stock at a price of $0.01 per share. Only whole warrants are exercisable. The warrants are exercisable at any time for period of five years from the date on which such warrants were issued. The warrants and the shares of common stock will be purchased together in this offering. The exercise price and the number of shares into which the warrant may be exercised are subject to adjustments in certain circumstances. See “Description of Capital Stock—Warrants” for a discussion of the terms of the Warrants. | |
Common stock outstanding before this offering: | 9,312,991 shares(1) | |
Common stock outstanding immediately after this offering: | 14,123,629 shares (and 14,417,629 shares if the underwriter exercises its over-allotment option in full) (2) | |
Underwriter’s over-allotment option: | We have granted the underwriter a 45-day option, exercisable one or more times in whole or in part, to purchase up to an additional 294,000 units, with each unit comprised of (i) one share of common stock and (ii) one warrant to purchase a share of common stock. | |
Dividend policy: | We have never paid cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. See the section entitled “Dividend Policy.” |
Use of proceeds: | Our net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us at closing of approximately $1,296,736, will be approximately $8,663,264.
We intend to use the net proceeds from this offering to fund Phase II clinical trials of product candidates, including radiation sensitizer Ropidoxuridine and the HDAC inhibitor small molecule technology platform, potential acquisition or in-licensing activities and working capital and general corporate purposes. We anticipate that the funds raised from this Offering will allow us to complete Phase II clinical trials, although there is no guarantee that we will not require additional funds. See “Risk Factors” beginning on page 13 below. | |
Proposed Nasdaq symbol: | “SHPH”. We do not intend to apply for listing of the warrants on Nasdaq or on any other national securities exchange or trading system. Without an active trading market, the liquidity of the warrants will be limited. | |
Risk Factors: | You should carefully read and consider the information set forth under “Risk Factors” beginning on page 13 below and all other information included in this prospectus for a discussion of factors that you should consider before deciding to invest in shares of our common stock. |
(1) | The number of shares of our common stock outstanding excludes: |
● | (i) 3,000,000 shares of our common stock reserved for issuance under our 2018 Equity Incentive Plan, of which 384,167 restricted stock units have been issued, of which 353,390 RSUs are fully vested and 30,777 remain subject to vesting; (ii) 500,000 shares of our common stock issuable upon exercise of warrants held by certain selling stockholders, which warrants will be exercised and sold in this offering; (iii) 269,444 shares of our common stock issuable upon conversion of 1,212.5 shares of Series A convertible preferred stock and 269,444 shares of common stock issuable upon exercise of outstanding warrants to purchase common stock, which will be convertible or exercised upon completion of this offering (which conversion amounts do not include an 8.5% cumulative dividend payable, which dividend may be paid in either cash or common stock as determined by the Company); (iv) 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock issuable upon conversion of the outstanding convertible notes, which will be convertible and issued upon effectiveness of this offering; and (v) 50,000 shares of common stock issuable upon exercise of warrants to purchase common stock. | |
● | 232,400 shares of common stock issuable upon exercise of the underwriter warrants, which underwriter warrants are expected to be issued in this offering. |
(2) | This number assumes (i) all warrants to purchase 1,660,000 shares of common stock issued in this offering have been exercised, (ii) 269,444 shares of our common stock issuable upon conversion of 1,212.5 shares of Series A convertible preferred stock and 269,444 shares of common stock issuable upon exercise of outstanding warrants to purchase common stock, which will be issued upon completion of this offering (which conversion amounts do not include an 8.5% cumulative dividend payable, which dividend may be paid in either cash or common stock as determined by the Company), (iii) 500,000 shares of our common stock issuable upon exercise of warrants held by certain selling stockholders whose shares will be exercised in full at the time of this offering; (iv) 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock issuable upon conversion of outstanding convertible notes, which will be convertible and issued upon completion of this offering and (v) the exercise of 50,000 shares of our common stock issuable upon exercise of warrants to purchase common stock. |
Reverse Stock Split
Effective April 1, 2022, we effected a 2-for-1 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). All references to shares of our common stock in this prospectus refers to the number of shares of common stock after giving effect to the Reverse Stock Split (unless otherwise indicated).
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The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Financial Statements and notes thereto, included elsewhere in this prospectus.
Statements of Operations Data:
For the Years Ended | For the Six Months Ended | |||||||||||||||
December 31, | June 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
(As Restated) | ||||||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
Operating expenses | $ | 1,742,992 | $ | 509,522 | $ | 992,022 | $ | 512,377 | ||||||||
Loss from operations | $ | (1,742,992 | ) | $ | (509,522 | ) | $ | (992,002 | ) | $ | (512,337 | ) | ||||
Other income (expense) | $ | 590,858 | $ | (296,210 | ) | $ | (287,092 | ) | $ | 36,212 | ||||||
Net loss | $ | (1,152,134 | ) | $ | (805,732 | ) | $ | (1,279,114 | ) | $ | (476,125 | ) | ||||
Weighted average common shares outstanding - basic and diluted | 9,301,750 | 9,291,526 | 9,312,583 | 9,291,526 | ||||||||||||
Net loss per share - basic and diluted | $ | (0.12 | ) | $ | (0.09 | ) | $ | (0.14 | ) | $ | (0.05 | ) |
Balance Sheet Data:
As of June 30, 2022 | ||||||||||||
Actual | Pro Forma | Pro Forma as Adjusted for Conversions and this Offering | ||||||||||
Cash | $ | 50,437 | $ | 10,846,965 | $ | 10,923,974 | ||||||
Total current assets | 63,952 | 10,860,480 | 10,937,489 | |||||||||
Total assets | 173,480 | 10,970,008 | 11,047,017 | |||||||||
Total current liabilities | 2,453,951 | 2,453,951 | 1,851,326 | |||||||||
Total liabilities | 2,479,553 | 2,479,553 | 1,876,928 | |||||||||
Accumulated deficit | (7,126,082 | ) | (7,126,082 | ) | (7,126,082 | ) | ||||||
Total stockholders’ equity (deficit) | $ | (2,306,073 | ) | $ | 8,490,455 | $ | 9,170,089 |
The number of shares of common stock issued and outstanding actual, pro forma (reflecting the conversions of Series A preferred stock and convertible notes) and pro forma as adjusted in the table above excludes 3,000,000 shares reserved for issuance under our 2018 Equity Incentive Plan, of which 384,167 shares (on a post-reverse split basis) have been granted to date in the form of restricted stock units, some of which remain subject to certain vesting conditions.
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An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all the other information in this prospectus before you decide to buy our common stock. If any of the following risks related to our business actually occurs, our business, financial condition, operating results, and prospects would be adversely affected. The market price of our common stock could decline due to any of these risks and uncertainties related to our business, or related to an investment in our common stock, and you may lose part or all of your investment.
Risks Related to Our Business, Financial Condition and Capital Requirements
Our funds are limited and our independent auditing firm issued a going concern opinion related to our audit for the year ended December 31, 2021.
To date, we have been funded by investments from private investors and government contracts obtained from the National Institutes of Health (NIH) for performing research. While this has allowed us to complete a Phase I clinical trial for Ropidoxuridine and a pre-clinical trial for our HDAC inhibitor platform, we have not yet completed our clinical trials, will require additional funds to reach such milestone, and do not know if any of our products will ever achieve commercial viability. As such, to date we have no product revenue and our independent auditors, in their report dated June 3, 2022, have expressed doubt about our ability to continue as a going concern.
Our success is primarily dependent on the successful development, regulatory approval and commercialization of our product candidates, all of which are in the early stages of development.
We currently have one clinical stage product candidate in the early stages of development. Ropidoxuridine has undergone an SBIR funded Phase 1 clinical trial at Lifespan/Rhode Island Hospital. We also have an HDAC inhibitor small molecule platform. The three lead drug candidate molecules are in preclinical phases of development. none of our product candidates have gained marketing approval for sale in the United States or any other country, and we cannot guarantee that we will ever have marketable products. To date, we have invested substantially all of our efforts and financial resources in the research and development and commercial planning for our current product candidate and our HDAC small molecule delivery platform. Our near-term prospects, including our ability to finance our Company and generate revenue, as well as our future growth, will depend heavily on the development, marketing approval and commercialization of our product candidates. The clinical and commercial success of product candidates will depend on a number of factors, including the following:
● | obtaining favorable results from our Phase 1 clinical trial for IPdR and proceeding to Phase II and Phase III clinical trials, which may be slower or cost more than we currently anticipate; | |
● | our ability to demonstrate safety and efficacy of our product candidates, which are ongoing determinations that are solely within the authority of the FDA; | |
● | even if our clinical trials are completed, there can be no assurance that the FDA will agree that we have satisfactorily demonstrated safety or efficacy or that the FDA will not raise new issues regarding the design of our clinical trials; | |
● | whether we are required by the FDA to conduct additional clinical trials to support the approval of our product candidates; | |
● | the acceptance by the FDA of our proposed parameters for regulatory approval, including our proposed indication, endpoints and endpoint measurement tools relating to our product candidates; | |
● | the incidence, duration and severity of adverse side effects; | |
● | the timely receipt of necessary marketing approvals from the FDA; | |
● | whether we are able to secure collaborations for completing the development and, if approved, commercialization of our product candidates; |
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● | the effectiveness of our and our potential collaborators’ marketing, sales and distribution strategy and operations of product candidates that are approved; | |
● | our success in educating physicians and patients about the benefits, administration and use of our product candidates; | |
● | the ability of our third-party manufacturers and potential collaborators to manufacture clinical trial and commercial supplies of our product candidates to remain in good standing with regulatory bodies, and to develop, validate and maintain commercially viable manufacturing processes that are compliant with current Good Manufacturing Practices (“cGMP”) regulations; | |
● | our ability to commercialize our product candidates, if approved for marketing; | |
● | our ability to enforce our intellectual property rights; | |
● | our ability to avoid third-party patent interference or patent infringement claims; | |
● | acceptance of our product candidates as safe and effective by patients and the medical community; and | |
● | a continued acceptable quality profile of our product candidates following approval. |
Many of the above-listed factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of our product candidates. Any one of these factors or other factors discussed in this prospectus could affect our ability to commercialize product candidates, which could impact our ability to earn sufficient revenues to transition from a developmental stage company and continue our business. If we do not obtain marketing approval of and commercialization of our product candidates, or are significantly delayed in doing so, our business will be materially harmed. We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur losses for the foreseeable future and may never achieve or maintain profitability.
We are a Phase I clinical stage pharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Specialty pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We do not currently have any product candidates in advanced clinical trials or approved for sale, and we continue to incur significant research and development and general and administrative expenses related to our operations. In addition, we have limited experience and have 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. We have not generated any revenue and have incurred losses in each year since our founding in December 2012. Our accumulated deficit as of June 30, 2022 was $7,126,082. We expect to continue to incur significant losses for the foreseeable future. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.
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We currently have no source of product sales revenue.
We have not generated any revenues from commercial sales of our product candidates. Our ability to generate product revenue depends upon our ability to develop and commercialize products, including any of our current product candidates or other product candidates that we may develop, in-license or acquire in the future. We do not anticipate generating revenue from the sale of products for the foreseeable future. Our ability to generate future product revenue from our current or future product candidates also depends on a number of additional factors, including our ability to:
● | complete research and clinical development of current and future product candidates, either directly or through collaborative relationships; | |
● | establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply; | |
● | obtain regulatory approval from relevant regulatory authorities in jurisdictions where we intend to market our product candidates, either directly or through collaborative relationships; | |
● | launch and commercialize future product candidates for which we obtain marketing approval, if any, through collaborative partners; | |
● | obtain coverage and adequate product reimbursement from third-party payors, including government payors; | |
● | achieve market acceptance for our products, if any; | |
● | establish, maintain and protect our 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 our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of any potential future product sales revenues. Our expenses also could increase beyond expectations if we decide to or are required by the FDA, or comparable foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.
The market may not be receptive to our product candidates based on our novel therapeutic modality, and we may not generate any future revenue from the sale or licensing of product candidates.
Even if approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due to factors such as whether the product can be sold at a competitive cost and otherwise accepted in the market. The product candidates that we are developing are based on new delivery platform therapeutic approaches (there currently is no drug which has FDA approval for indications of radiation sensitization). Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not accept our delivery platform, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable reimbursement for, any product candidates developed by us. Market acceptance of our product candidates will depend on, among other factors:
● | timing of our receipt of any marketing and commercialization approvals; |
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● | terms of any approvals and the countries in which approvals are obtained; | |
● | safety and efficacy of our product candidates, which are determinations solely within the authority of the FDA; | |
● | prevalence and severity of any adverse side effects associated with our product candidates; | |
● | warnings contained in any labeling approved by the FDA or other regulatory authority; | |
● | convenience and ease of administration of our product candidates; | |
● | success of our physician education programs; | |
● | availability of adequate government and third-party payor reimbursement; | |
● | pricing of our products, particularly as compared to alternative treatments; and | |
● | availability of alternative effective products for indications our product candidates are intended to treat. |
We will require substantial additional financing in order to obtain marketing approval of our product candidates and commercialize our product candidates; a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.
Since our inception, substantially all of our resources have been dedicated to the preclinical and clinical development of our HDAC small molecule delivery platform and our initial product candidate, Ropidoxuridine. Our capital needs to date have been met by contributions from existing shareholders, as well as through private offerings of our securities and our SBIR contracts. We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we 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, if we are not able to enter into planned collaborations, 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, we cannot reasonably estimate the actual amounts necessary to complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any.
We estimate that our net proceeds from this Offering will be approximately $8,663,264, if all 1,660,000 units, with each unit consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock, offered hereby, are offered and sold, less offering expenses payable by us. We believe that such proceeds together with our existing capital resources, will be sufficient to fund our operations through 2024. However, our operating plan may change as a result of factors currently unknown to us, and we 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 our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Our future capital requirements depend on many factors, including:
● | the scope, progress, results and costs of researching and developing our current product candidates, future product candidates and conducting preclinical and clinical trials; | |
● | the cost of commercialization activities if our current product candidates and future product candidates are approved for sale, including securing collaborative ventures for completing development of, securing marketing approval for and ultimately marketing, selling and distributing our product candidates, if approved or building a corporate infrastructure if we have to undertake these activities directly; |
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● | our 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 we may develop or acquire; | |
● | any product liability or other lawsuits related to our products or commenced against us; | |
● | 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 patent claims, 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 we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:
● | delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for our current product candidates or future product candidates, if any; | |
● | delay, limit, reduce or terminate our research and development activities; or | |
● | delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our current or future product candidates. |
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We 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 we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic collaborations and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us.
Unstable market and economic conditions caused by the ongoing conflict between the Ukraine and Russia, as well as the ongoing COVID-19 pandemic, may have serious adverse consequences on our business, financial condition and results of operations.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions as a result of the ongoing conflict between the Ukraine and Russia, as well as challenges arising from the ongoing COVID-19 pandemic, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. Any such volatility and disruptions may have adverse consequences on us or the third parties upon whom we rely.
Our product candidates are in the early stages of development and may fail in development or suffer delays that materially adversely affect their commercial viability.
We have no products on the market and all of our product candidates are in the early stages of development. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals, including institutional review board (“IRB”) approval, for and commercializing our product candidates, either alone or with third parties. Before obtaining regulatory approval for the commercial distribution of our product candidates, we or one of our collaborators must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates, the final determination of which rests solely in the authority of the FDA. Preclinical testing and clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. The start or end of a clinical study is often delayed or halted due to changing regulatory requirements, manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a comparative drug or required prior therapy, clinical outcomes or financial constraints. For instance, delays or difficulties in patient enrollment or difficulties in retaining trial participants can result in increased costs, longer development times or termination of a clinical trial. Clinical trials of a new product candidate require the enrollment of a sufficient number of patients, including patients who are suffering from the disease the product candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors, including the size of the patient population, the eligibility criteria for the clinical trial, the age and condition of the patients, the stage and severity of disease, the nature of the protocol, the proximity of patients to clinical sites and the availability of effective treatments for the relevant disease.
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A product candidate can unexpectedly fail at any stage of preclinical and clinical development. The historical failure rate for product candidates is high due to scientific feasibility, lack of quality and effectiveness, changing standards of medical care and other variables. The results from preclinical testing or early clinical trials of a product candidate may not predict the results that will be obtained in later phase clinical trials of the product candidate. We, the FDA or other applicable regulatory authorities may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects participating in such trials are being exposed to unacceptable health risks or adverse side effects. We may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any problems or other unforeseen events that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:
● | negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program; | |
● | serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates; | |
● | delays in submitting an Investigational New Drug application (“IND”) or delays or failure in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; | |
● | conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials; | |
● | delays in enrolling research subjects in clinical trials; | |
● | high drop-out rates of research subjects; | |
● | greater than anticipated clinical trial costs; | |
● | poor effectiveness of our product candidates during clinical trials; | |
● | unfavorable FDA or other regulatory agency inspection and review of a clinical trial site; | |
● | failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; | |
● | delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or | |
● | varying interpretations of data by the FDA and similar foreign regulatory agencies. |
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If third parties on which we depend to conduct our preclinical studies, or any future clinical trials, do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, our development program could be delayed with materially adverse effects on our business, financial condition, results of operations and prospects.
We are relying on third party collaborators to conduct our efficacy clinical trials for Ropidoxuridine and plan to rely on third party clinical investigators, contract research organizations (“CROs”), clinical data management organizations and consultants to design, conduct, supervise and monitor preclinical studies of our product candidates and will do the same for any clinical trials. Because we plan to largely rely on third parties and do not have the ability to conduct preclinical studies or clinical trials independently, we have less control over the timing, quality and other aspects of preclinical studies and clinical trials than we would if we conducted them on our own. These investigators, CROs, and consultants are not our employees and we have limited control over the amount of time and resources that they dedicate to our programs. These third parties may have contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our programs. The third parties with whom we contract might not be diligent, careful or timely in conducting our preclinical studies or clinical trials, resulting in the preclinical studies or clinical trials being delayed or unsuccessful.
If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all events, we are responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. The FDA requires clinical trials to be conducted in accordance with good clinical practices, including for conducting, recording and reporting the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Any such event could have a material adverse effect on our business, financial condition, results of operations and/or prospects.
Because we rely on third party manufacturing and supply partners, our supply of research and development, preclinical and clinical development materials may become limited or interrupted or may not be of satisfactory quantity or quality.
We rely on third party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial drug supplies. We do not own manufacturing facilities or supply sources for such components and materials. There can be no assurance that our supply of research and development, preclinical and clinical development drugs and other materials will not be limited, interrupted, restricted in certain geographic regions or of satisfactory quality or continue to be available at acceptable prices. In particular, any replacement of any drug product formulation manufacturer we may use could require significant effort and expertise in the event there are a limited number of qualified replacements for a particular product candidate.
The manufacturing process for a product candidate is subject to FDA and foreign regulatory authority review. Suppliers and manufacturers must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory authorities in order to comply with regulatory standards, such as Current Good Manufacturing Practice (or CGMP). In the event that any of our suppliers or manufacturers fail to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer, and we may have difficulty, or there may be contractual restrictions prohibiting us from, transferring such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our product candidates. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.
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We expect to continue to rely on third party manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing or future manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner consistent with contractual and regulatory requirements, including those related to quality control and assurance. If we are unable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able to fully develop and commercialize our product candidates. Our or a third party’s failure to execute on our manufacturing requirements could adversely affect our business in a number of ways, including:
● | an inability to initiate or continue clinical trials of product candidates under development; | |
● | delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates; | |
● | loss of the cooperation of a collaborator; | |
● | subjecting our product candidates to additional inspections by regulatory authorities; | |
● | requirements to cease distribution or to recall batches of our product candidates; and | |
● | in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products. |
We may be unsuccessful in engaging in strategic transactions which could adversely affect our ability to develop and commercialize product candidates, impact our cash position, increase our expense and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as collaborations, acquisitions of companies, asset purchases and out- or in- licensing of product candidates or technologies. In particular, we will evaluate and, if strategically attractive, seek to enter into additional collaborations, including with major biotechnology or pharmaceutical companies to complete development and marketing of our product candidates, if approved. The competition for collaborators is intense, and the negotiation process is time-consuming and complex. Any proposed collaboration may be on terms that are not optimal for us, and we may not be able to maintain any new or existing collaboration if, for example, development or approval of a product candidate is delayed, sales of an approved product candidate do not meet expectations or the collaborator terminates the collaboration. Any such collaboration, or other strategic transaction, may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and have a material adverse effect on our business, results of operations, financial condition and prospects. Conversely, any failure to enter into any collaboration or other strategic transaction that would be beneficial to us could delay the development and potential commercialization of our product candidates and have a negative impact on the competitiveness of any product candidate that reaches market.
We face competition from entities that have developed or may develop product candidates for our target disease indications, including companies developing novel treatments and technology platforms based on modalities and technology similar to ours. If these companies develop technologies or product candidates more rapidly than we do or their technologies, including delivery technologies, are more effective, our ability to develop and commercialize product candidates may be adversely affected.
The development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as with universities and other research institutions which are developing new technology. Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that enter the market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we may try to develop product candidates.
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Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than we have. If we obtain approval for any product candidate, we will face competition based on many different factors, including the quality and effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.
Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.
Our success largely depends on the continued service of certain key management and other specialized personnel, including Anatoly Dritschilo, M.D., our Chief Executive Officer, Mira Jung, Ph.D., our Chief Scientific Officer for Biology, Michael Vander Hoek, our Chief Financial Officer and Vice President Operations and Regulatory, and Peter Dritschilo, our President and Chief Operating Officer. The loss of one or more members of our management team or other key employees or advisors could delay our research and development programs and materially harm our business, financial condition, results of operations and prospects. The relationships that our key managers have cultivated within our industry make us particularly dependent upon their continued employment with us. We are dependent on the continued service of our technical personnel because of the highly technical nature of our product candidates and technologies and the specialized nature of the regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, they could terminate their employment with us at any time without penalty. We do not maintain key person life insurance policies on any of our management team members or key employees. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation and commercialization. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations.
If our product candidates advance into Phase II and Phase III clinical trials, we may experience difficulties in managing our growth and expanding our operations.
We have limited experience in drug development and have not begun clinical trials for any of our product candidates, other than a Phase 1 clinical trial for Ropidoxuridine. As our product candidates enter and advance through preclinical studies and any clinical trials, we will need to expand our development, regulatory and manufacturing capabilities or contract with other organizations to provide these capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.
If any of our product candidates are approved for marketing and commercialization and we are unable to develop sales, marketing and distribution capabilities on our own or enter into agreements with third parties to perform these functions on acceptable terms, we will be unable to commercialize any such future products.
We currently have no sales, marketing or distribution capabilities or experience. If any of our product candidates is approved, we plan to enter into collaborations with third parties to sell, market and distribute our products. In the alternative, we would have to develop internal sales, marketing and distribution capabilities to commercialize any approved product, which would be expensive and time-consuming, or, as is more likely, enter into collaborations with third parties to perform these services. If we rely on third parties with sales, marketing and distribution capabilities to market our products or decide to co-promote products with collaborators, we will need to establish and maintain marketing and distribution arrangements with third parties, and there can be no assurance that we will be able to enter into such arrangements on acceptable terms, if, at all. In entering into third-party marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be successful in gaining market acceptance of any approved product. If we decide to market our products directly, we will need to commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and supporting distribution, administration and compliance capabilities. If we are not able to commercialize any product approved in the future, either on our own or through third parties, our business, financial condition, results of operations and prospects could be materially adversely affected.
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If we fail to comply with U.S. and foreign regulatory requirements, regulatory authorities could limit or withdraw any marketing or commercialization approvals we may receive and subject us to other penalties that could materially harm our business.
Even if we receive marketing and commercialization approval of a product candidate, there can be no assurance we will not be subject to future or continuing regulatory review, including in relation to adverse patient experiences with the product and clinical results that are reported after a product is made commercially available, both in the U.S. and any foreign jurisdiction in which we seek regulatory approval. The FDA has significant post-market authority, including the authority to require labeling changes based on new safety information and to require post-market studies or clinical trials to evaluate safety risks related to the use of a product or to require withdrawal of the product from the market. The FDA also has the authority to require a risk evaluation and mitigation strategies (“REMS”) plan after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug. The manufacturer and manufacturing facilities we use to make a future product, if any, will also be subject to periodic review and inspection by the FDA and other regulatory agencies, including for continued compliance with CGMP requirements. The discovery of any new or previously unknown problems with our third-party manufacturers, manufacturing processes or facilities may result in restrictions on the product, manufacturer or facility, including withdrawal of the product from the market. If we rely on third-party manufacturers, we will not have control over compliance with applicable rules and regulations by such manufacturers. Any product promotion and advertising will also be subject to regulatory requirements and continuing regulatory review. If we or our collaborators, manufacturers or service providers fail to comply with applicable continuing regulatory requirements in the U.S. or foreign jurisdictions in which we seek to market our products, we or they may be subject to, among other things, fines, warning letters, holds on clinical trials, refusal by the FDA to approve pending applications or supplements to approved applications, suspension or withdrawal of regulatory approval, product recalls and seizures, refusal to permit the import or export of products, operating restrictions, injunction, civil penalties and criminal prosecution.
Our business entails a significant risk of product liability and our ability to obtain sufficient insurance coverage could have a material effect on our business, financial condition, results of operations or prospects.
Our business exposes us to significant product liability risks inherent in the development, testing, manufacturing and marketing of therapeutic treatments. Product liability claims could delay or prevent completion of our development programs. If we succeed in marketing products, such claims could result in an FDA investigation of the quality and effectiveness of our products, our manufacturing processes and facilities or our marketing programs and potentially a recall of our products or more serious enforcement action, limitations on the approved indications for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion of management’s time and our resources, substantial monetary awards to trial participants or patients and a decline in our stock price. We currently have product liability insurance that we believe is appropriate for our stage of development and may need to obtain higher levels prior to marketing any of our product candidates. Any insurance we have or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance at a reasonable cost to protect us against losses caused by product liability claims that could have a material adverse effect on our business.
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Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we may establish, comply with federal and state healthcare fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations, 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. While we make an effort to maintain strict employee work processes and oversight, employee misconduct could expose us to liability through the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. Furthermore, it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of cyber security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such events could cause interruptions of our operations. For example, the loss of preclinical data or data from any future clinical trial involving our product candidates could result in delays in our development and regulatory filing efforts and significantly increase our costs. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of our product candidates could be delayed.
Our proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, clinical trial data, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers, clinical trial subjects and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Although to our knowledge we have not experienced any such material security breach to date, any such breach could compromise our network, or the networks of our CROs or other third party service providers, and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and our ability to conduct clinical trials, which could adversely affect our business and reputation and lead to delays in gaining regulatory approvals for our drugs. Although we maintain business interruption insurance coverage, our insurance might not cover all losses from any future breaches of our systems.
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Failure of our information technology systems could significantly disrupt the operation of our business.
Our business increasingly depends on the use of information technologies, which means that certain key areas such as research and development, production and sales are to a large extent dependent on our information systems or those of third-party providers. Our ability to execute our business plan and to comply with regulatory requirements with respect to data control and data integrity, depends, in part, on the continued and uninterrupted performance of our information technology systems, or IT systems and the IT systems supplied by third-party service providers. These systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and backup measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we and our third-party service providers have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data, and in particular to operate our proprietary technology platform, could adversely affect our ability to operate our business.
If we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research, development and manufacturing involve the use of hazardous materials and various chemicals. We maintain quantities of various flammable and toxic chemicals in our facilities in Gaithersburg, Maryland that are required for our research, development and manufacturing activities. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. We believe our procedures for storing, handling and disposing these materials in our Gaithersburg facilities comply with the relevant guidelines of Gaithersburg, the State of Maryland and the Occupational Safety and Health Administration of the U.S. Department of Labor. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards mandated by applicable regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of animals and biohazardous materials. Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of these materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological or hazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws or regulations.
Our information technology systems could face serious disruptions that could adversely affect our business.
Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our operations. A significant disruption in the availability of our information technology and other internal infrastructure systems could cause interruptions in our collaborations with our partners and delays in our research and development work.
Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require us to change our compensation policies.
Accounting methods and policies for pharmaceutical companies, including policies governing revenue recognition, research and development and related expenses and accounting for stock-based compensation are subject to review, interpretation and guidance from relevant accounting authorities, including the SEC. Changes to accounting methods or policies, or interpretations thereof, may require us to reclassify, restate or otherwise change or revise our financial statements, including those contained in this prospectus.
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Risks Related to Our Intellectual Property
If we are not able to obtain and enforce patent protection for our technologies or product candidates, development and commercialization of our product candidates may be adversely affected.
Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, for our product candidates, methods used to manufacture our product candidates and methods for treating patients using our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our proprietary rights and to operate without infringing upon the proprietary rights of others. As of the date of this prospectus, we have filed five patent applications with the U.S. Patent and Trademark Office (the “USPTO”) with respect to various aspects of our HDAC inhibitor small molecule delivery platform and Ropidoxuridine, our lead product candidate. However, we may not be able to apply for patents on certain aspects of our product candidates or delivery technologies in a timely fashion or at all. To date, four US patents and two European patents have been granted. There is no guarantee that any of our pending patent applications will result in issued or granted patents, that any of our issued, granted or licensed patents will not later be found to be invalid or unenforceable or that any issued, granted or licensed patents will include claims that are sufficiently broad to cover our product candidates or delivery technologies or to provide meaningful protection from our competitors. Moreover, the patent position of specialty pharmaceutical companies can be highly uncertain because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our current and future proprietary technology and product candidates are covered by valid and enforceable patents or are effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely impact our position in the market.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other requirements during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in pharmaceutical patents. As such, we do not know the degree of future protection that we will have on our proprietary products and technology. While we will endeavor to try to protect our product candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and sometimes unpredictable.
We may decide for business reasons to no longer pursue or to abandon certain intellectual property rights in the US or elsewhere, including due to non-cooperation of inventors or owners of such intellectual property, prior art, or scope of protection, or for other reasons.
Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such initial grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. In addition, there can be no assurance that:
● | others will not or may not be able to make, use or sell compounds that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own or license; | |
● | we or our licensors, collaborators or any future collaborators are the first to make the inventions covered by each of our issued patents and pending patent applications that we own or license; | |
● | we or our licensors, collaborators or any future collaborators are the first to file patent applications covering certain aspects of our inventions; | |
● | others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; | |
● | A third party may not challenge our patents and, if challenged, a court may not hold that our patents are valid, enforceable and infringed; |
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● | any issued patents that we own or have licensed will provide us with any competitive advantages, or will not be challenged by third parties; | |
● | we may develop additional proprietary technologies that are patentable; | |
● | the patents of others will not have an adverse effect on our business; and | |
● | our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets. |
We intend to license patent rights from third-party owners or licensees. If such owners or licensees do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected. We may not be able to protect our intellectual property rights throughout the world.
Obtaining a valid and enforceable issued or granted patent covering our technology in the U.S. and worldwide can be extremely costly. In jurisdictions where we have not obtained patent protection, competitors may use our technology to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but where it is more difficult to enforce a patent as compared to the U.S. Competitor products may compete with our future products in jurisdictions where we do not have issued or granted patents or where our issued or granted patent claims or other intellectual property rights are not sufficient to prevent competitor activities in these jurisdictions. The legal systems of certain countries, particularly certain developing countries, make it difficult to enforce patents and such countries may not recognize other types of intellectual property protection, particularly that relating to biopharmaceuticals. This could make it difficult for us to prevent the infringement of patents or marketing of competing products in violation of our proprietary rights generally in certain jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
We generally file a provisional patent application first (a priority filing) at the USPTO. A U.S. utility application and international application under the Patent Cooperation Treaty (PCT) are usually filed within twelve months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in the European Union, Japan, Australia and Canada and other countries. We have so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national or regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is also quite common that depending on the country, various scopes of patent protection may be granted on the same product candidate or technology. The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the U.S., and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished, and we may face additional competition from others in those jurisdictions. Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position in the relevant jurisdiction may be impaired and our business and results of operations may be adversely affected.
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We or our licensors, or any future collaborators or a strategic partners may become subject to third party claims or litigation alleging infringement of patents or other proprietary rights or seeking to invalidate patents or other proprietary rights, and we may need to resort to litigation to protect or enforce our patents or other proprietary rights, all of which could be costly, time consuming, delay or prevent the development and commercialization of our product candidates, or put our patents and other proprietary rights at risk.
We or our licensors, or any future collaborators or strategic partners may be subject to third-party claims for infringement or misappropriation of patent or other proprietary rights. We are generally obligated under our license or collaboration agreements to indemnify and hold harmless our licensors or collaborator for damages arising from intellectual property infringement by us. If we or our licensors, or any future collaborators or strategic partners are found to infringe a third-party patent or other intellectual property rights, we could be required to pay damages, potentially including treble damages, if we are found to have willfully infringed. In addition, we or our licensors, collaborators or any future strategic partners may choose to seek, or be required to seek, a license from a third party, which may not be available on acceptable terms, if at all. Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our competitors access to the same technology or intellectual property rights licensed to us. If we fail to obtain a required license, we or our collaborator, or any future collaborator, may be unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. In addition, we may find it necessary to pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and development efforts and limit our ability to continue our operations.
If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products or our technology, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform technology. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.
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Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, and we might be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.
Our competitive position may suffer if patents issued to third parties or other third-party intellectual property rights cover our products or elements thereof, or our manufacture or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products or product candidates unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms.
Third party intellectual property right holders may also actively bring infringement claims against us. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our products. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates and delivery technologies or we could lose certain rights to grant sublicenses.
Our current licenses impose, and any future licenses we enter into are likely to impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement, and other obligations on us. If we breach any of these obligations, or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. Moreover, our licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we aim to develop and commercialize, if any. Therefore, even if we are able to develop and commercialize products, we may be unable to achieve or maintain profitability.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for certain aspects of our product candidates and delivery technologies, we also consider trade secrets, including confidential and unpatented know-how important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time- consuming, and the outcome is unpredictable. In addition, some courts in the U.S. and certain foreign jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
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We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay monetary damages and may lose valuable intellectual property rights or personnel.
Many of our employees were previously employed at universities or biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing, our product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to effectively compete and our business may be adversely affected.
Risks Related to Government Regulation and Product Approvals
We may be unable to obtain U.S. or foreign regulatory approval and, as a result, unable to commercialize our product candidates.
Our product candidates are subject to extensive governmental regulations relating to, among other things, research, testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising and promotion, pricing, marketing and distribution of drugs. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be completed in the U.S. and in many foreign jurisdictions before a new drug can be marketed. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the product candidates we may develop will obtain the regulatory approvals necessary for us or our collaborators to begin selling them.
We have very limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. The time required to obtain FDA and other approvals is unpredictable but typically takes many years following the commencement of clinical trials, depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its foreign counterparts use when regulating us are not always applied predictably or uniformly and can change. Any analysis we perform of data from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. It is impossible to predict whether legislative changes will be enacted, or whether FDA or foreign regulations, guidance or interpretations will be changed, or what the impact of such changes, if any, may be.
Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from the particular product candidate for which we are seeking approval. Furthermore, any regulatory approval to market a product may be subject to limitations on the approved uses for which we may market the product or the labeling or other restrictions. In addition, the FDA has the authority to require a Risk Evaluation and Mitigation Strategy (REMS) plan as part of an NDA or biologics license application (BLA) or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug or biologic, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. These limitations and restrictions may limit the size of the market for the product and affect reimbursement by third-party payors.
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If we or our collaborators, manufacturers or service providers fail to comply with healthcare laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to develop, market and sell our products and may harm our reputation.
We and our collaborators are subject to federal, state, and foreign healthcare laws and regulations pertaining to fraud and abuse and patients’ rights. These laws and regulations include:
● | the U.S. federal healthcare program anti-kickback law, which prohibits, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual for a healthcare item or service, or the purchasing or ordering of an item or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid; | |
● | the U.S. federal false claims law, which prohibits, among other things, individuals or entities from knowingly presenting or causing to be presented, claims for payment by government funded programs such as Medicare or Medicaid that are false or fraudulent, and which may apply to us by virtue of statements and representations made to customers or third parties; | |
● | the U.S. federal Health Insurance Portability and Accountability Act (HIPAA) and Health Information Technology for Economic and Clinical Health (HITECH) Act, which prohibit executing a scheme to defraud healthcare programs, impose requirements relating to the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information; | |
● | the federal Open Payments regulations under the National Physician Payment Transparency Program have been issued under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, and will require that manufacturers of pharmaceutical and biological drugs covered by Medicare, Medicaid, and Children’s Health Insurance Programs report all consulting fees, travel reimbursements, research grants, and other payments or gifts with values over $10 made to physicians and teaching hospitals; and | |
● | state laws comparable to each of the above federal laws, such as, for example, anti-kickback and false claims laws applicable to commercial insurers and other non-federal payors, requirements for mandatory corporate regulatory compliance programs, and laws relating to patient data privacy and security. |
If our operations are found to be in violation of any such requirements, we may be subject to penalties, including civil or criminal penalties, monetary damages, the curtailment or restructuring of our operations, loss of eligibility to obtain approvals from the FDA, or exclusion from participation in government contracting, healthcare reimbursement or other government programs, including Medicare and Medicaid, any of which could adversely our financial results. Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated. Any action against us for an alleged or suspected violation could cause us to incur significant legal expenses and could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and sustaining compliance with applicable laws and regulations may be costly to us in terms of money, time and resources.
If we or our collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our products successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include, among others:
● | adverse regulatory inspection findings; | |
● | warning letters; |
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● | voluntary or mandatory product recalls or public notification or medical product safety alerts to healthcare professionals; | |
● | restrictions on, or prohibitions against, marketing our products; | |
● | restrictions on, or prohibitions against, importation or exportation of our products; | |
● | suspension of review or refusal to approve pending applications or supplements to approved applications; | |
● | exclusion from participation in government-funded healthcare programs; | |
● | exclusion from eligibility for the award of government contracts for our products; | |
● | suspension or withdrawal of product approvals; | |
● | product seizures; | |
● | injunctions; and | |
● | civil and criminal penalties and fines. |
Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. Although we intend to monitor these regulations, our programs are currently in the early stages of development and we will not be able to assess the impact of price regulations for a number of years. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenues we are able to generate from the sale of the product in that country.
Our ability to commercialize any products also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Even if we succeed in bringing one or more products to the market, these products may not be considered cost-effective, and the amount reimbursed for any products may be insufficient to allow us to sell our products on a competitive basis. Because our programs are in the early stages of development, we are unable at this time to determine their cost effectiveness or the likely level or method of reimbursement. Increasingly, the third-party payors who reimburse patients or healthcare providers, such as government and private insurance plans, are requiring that drug companies provide them with predetermined discounts from list prices and are seeking to reduce the prices charged or the amounts reimbursed for pharmaceutical products. If the price we are able to charge for any products we develop, or the reimbursement provided for such products, is inadequate in light of our development and other costs, our return on investment could be adversely affected.
Our current product candidates will need to be administered under the supervision of a physician on an outpatient basis. Under currently applicable U.S. law, certain drugs that are not usually self-administered (including injectable drugs) may be eligible for coverage under the Medicare Part B program if:
● | they are incident to a physician’s services; | |
● | they are reasonable and necessary for the diagnosis or treatment of the illness or injury for which they are administered according to accepted standards of medical practice; and | |
● | they have been approved by the FDA and meet other requirements of the statute. |
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There may be significant delays in obtaining coverage for newly-approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA. Moreover, eligibility for coverage does not imply that any drug will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement may be based on payments allowed for lower- cost drugs that are already reimbursed, may be incorporated into existing payments for other services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for new drugs that we develop and for which we obtain regulatory approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our financial condition.
We believe that the efforts of governments and third-party payors to contain or reduce the cost of healthcare and legislative and regulatory proposals to broaden the availability of healthcare will continue to affect the business and financial condition of pharmaceutical and biopharmaceutical companies. A number of legislative and regulatory changes in the healthcare system in the U.S. and other major healthcare markets have been proposed in recent years, and such efforts have expanded substantially in recent years. These developments have included prescription drug benefit legislation that was enacted and took effect in January 2006, healthcare reform legislation enacted by certain states, and Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (the “ACA”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending and enhance remedies against fraud and abuse. The ACA also contains provisions that will affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:
● | mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans; | |
● | the 340B Drug Pricing Program under the Public Health Services Act has been extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities; | |
● | pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “Donut Hole”; and | |
● | pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal health program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition. |
Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further federal and state legislative and regulatory developments are likely, and we expect ongoing initiatives in the U.S. to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
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Our ability to obtain services, reimbursement or funding from the federal government may be impacted by possible reductions in federal spending.
U.S. federal government agencies currently face potentially significant spending reductions. Under the Budget Control Act of 2011, the failure of Congress to enact deficit reduction measures of at least $1.2 trillion for the years 2013 through 2021 triggered automatic cuts to most federal programs. These cuts would include aggregate reductions to Medicare payments to providers of up to two percent per fiscal year, starting in 2013. Under the American Taxpayer Relief Act of 2012, which was enacted on January 1, 2013, the imposition of these automatic cuts was delayed until March 1, 2013. Certain of these automatic cuts have been implemented. The full impact on our business of these automatic cuts is uncertain. If federal spending is reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant agencies to timely review and approve drug research and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop.
If any of our product candidates receives marketing approval and we or others later identify undesirable side effects caused by the product candidate, our ability to market and derive revenue from the product candidates could be compromised.
In the event that any of our product candidates receive regulatory approval and we or others identify undesirable side effects caused by one of our products, any of the following adverse events could occur, which could result in the loss of significant revenue to us and materially and adversely affect our results of operations and business:
● | regulatory authorities may withdraw their approval of the product or seize the product; | |
● | we may be required to recall the product or change the way the product is administered to patients; | |
● | additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof; | |
● | we may be subject to fines, injunctions or the imposition of civil or criminal penalties; | |
● | regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication; | |
● | we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients; | |
● | we could be sued and held liable for harm caused to patients; | |
● | the product may become less competitive; and | |
● | our reputation. |
Risks Related to our Common Stock and this Offering
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
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● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and | |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
We will be required to include a report of management on the effectiveness of our internal control over financial reporting. We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification requirements.
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to timely remediate. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
The Jobs Act has reduced the information that we are required to disclose.
Under the Jobs Act, the information that we will be required to disclose has been reduced in a number of ways.
As a company that had gross revenues of less than $1.0 billion during the Company’s last fiscal year, the Company is an “emerging growth company,” as defined in the Jobs Act (an “EGC”). We will retain that status until the earliest of (a) the last day of the fiscal year which we have total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”); (c) the date on which we have, during the previous three year period, issued more than $1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, the Company is relieved from the following:
● | The Company is excluded from Section 404(b) of Sarbanes-Oxley Act (“Sarbanes-Oxley”), which otherwise would have required the Company’s auditors to attest to and report on the Company’s internal control over financial reporting. The JOBS Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules adopted by the PCAOB requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (in the event the PCAOB adopts an auditor rotation requirement) will not apply to an audit of an EGC; and (ii) any other future rules adopted by the PCAOB will not apply to the Company’s audits unless the SEC determines otherwise. | |
● | The Jobs Act amended Section 7(a) of the Securities Act to provide that the Company need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, the Company is not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable if the Company were required to comply with them. |
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● | As long as we are an EGC, we may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company.” | |
● | The Jobs Act will also exempt us from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act; (ii) the requirements of Section 14A(b) of the Exchange Act relating to shareholder advisory votes on “golden parachute” compensation; (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance; and (iv) the requirement of Section 953(b)(1)of the Dodd-Frank Act, which requires disclosure as to the relationship between the compensation of our chief executive officer and median employee pay. |
Our stock price may be volatile, and purchasers of our common stock could incur substantial losses.
Our stock price is likely to be volatile. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including the other risks described in this section of the prospectus entitled “Risk Factors” and the following:
● | the success of competitive products or technologies; | |
● | results of preclinical and clinical studies of our product candidates, or those of our competitors, our existing collaborator or any future collaborators; | |
● | regulatory or legal developments in the U.S. and other countries, especially changes in laws or regulations applicable to our products; | |
● | introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these introductions or announcements; | |
● | actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms; | |
● | actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us; | |
● | the success of our efforts to acquire or in-license additional technologies, products or product candidates; | |
● | developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners; | |
● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; | |
● | developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products; | |
● | our ability or inability to raise additional capital and the terms on which we raise it; | |
● | the recruitment or departure of key personnel; | |
● | changes in the structure of healthcare payment systems; | |
● | market conditions in the pharmaceutical and biotechnology sectors; |
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● | actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; | |
● | our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; | |
● | fluctuations in the valuation of companies perceived by investors to be comparable to us; | |
● | announcement and expectation of additional financing efforts; | |
● | speculation in the press or investment community; | |
● | trading volume of our common stock; | |
● | sales of our common stock by us or our shareholders; | |
● | the concentrated ownership of our common stock; | |
● | changes in accounting principles; | |
● | terrorist acts, acts of war or periods of widespread civil unrest; | |
● | natural disasters and other calamities; and | |
● | general economic, industry and market conditions. |
In addition, the stock markets in general, and the markets for pharmaceutical stocks, in particular, have experienced extreme volatility that has been often unrelated to the operating performance of the issuer. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.
If you purchase common stock in this offering, you will incur immediate and substantial dilution of $5.36 per share, representing the difference between the assumed initial public offering price of $6.00 per share and our pro forma net tangible book value per share after giving effect to this offering. In addition, we can offer no assurance that you will not experience substantial dilution in the future.
The future issuance of equity or of debt securities that are convertible into common stock will dilute our share capital.
We may choose to raise additional capital in the future, depending on market conditions, strategic considerations and operational requirements. To the extent that additional capital is raised through the issuance of shares or other securities convertible into shares of our common stock, our stockholders will be diluted. Future issuances of our common stock or other equity securities, or the perception that such sales may occur, could adversely affect the trading price of our common stock and impair our ability to raise capital through future offerings of shares or equity securities. No prediction can be made as to the effect, if any, that future sales of common stock or the availability of common stock for future sales will have on the trading price of our common stock.
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Holders of 1% or more of our common stock prior to this offering will be subject to a six month lock-up agreement, and all directors, officers and 10% shareholders will be subject to a one year lock-up. Nonetheless, at such time as such stock becomes available for sale, it is possible a significant number of our shares may cause the market price of our common stock to drop significantly.
Commencing six months after the date of this prospectus, the shares of our common stock outstanding as of the date of this prospectus, will be eligible for sale in the public market from time to time thereafter pursuant to Rule 144 under the Securities Act, and shares of our common stock will be eligible for resale following a one-year lock-up period; some of such shares may be subject to the volume and other restrictions of Rule 144. Further, we have 3,000,000 shares reserved for issuance under our 2018 Equity Incentive Plan, which shares may be issued from time to time by our management and which will be subject to vesting and other requirements. At such time as the lock-up periods end, it is possible that a significant number of such shares will be sold into the market. At such time, the sale of a significant number of shares of our common stock in the public market or the perception that such sales may occur could significantly reduce the market price of our common stock.
The offering price of the shares and the other terms of this Offering have been arbitrarily determined by the Company.
The offering price of the shares and other terms of this offering have been arbitrarily determined by us and bear no relationship to our assets, book value, potential earnings or any other recognized criterion of value. In addition, no investment banker, appraiser, or other independent third party has been consulted concerning the offering price for the shares or the fairness of the offering price used for the shares.
The offering price of the primary offering and resale offering could differ.
The offering price of shares of our common stock in the initial public offering has been determined by negotiations between the Company and the underwriter. The offering price in the initial public bears no relationship to our assets, earnings or book value, or any other objective standard of value. The selling shareholders may sell the resale shares at prevailing market prices or privately negotiated prices after close of the offering and listing of our common stock on Nasdaq. Therefore, the offering prices of the initial public and resale offering could differ. As a result, the purchasers in the resale offering could pay more or less than the offering price in the primary offering.
The Resale by the Selling Stockholders in our Resale Offering may cause the market price of our Common Stock to decline.
The resale of shares of our common stock by the selling stockholders in the Resale Offering, as well as the issuance of common stock in this Offering, could result in resales of our common stock by our current stockholders concerned about the potential dilution of their holdings. In addition, the resale by other unregistered stockholders after expiration of the lock-up period could have the effect of depressing the market price for our common stock.
An active trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. We intend to apply to have the shares of common stock listed on Nasdaq, subject to our sale of a sufficient number of shares in the offering to meet the listing requirements of Nasdaq. There can be no assurance that an application for listing the shares on Nasdaq or on any other market will be approved. Accordingly, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for the shares or at all.
If we fail to meet or maintain applicable listing requirements, Nasdaq may delist our common stock from trading, in which case the liquidity and market price of our common stock could decline.
Assuming our common stock is listed on Nasdaq, we cannot assure you that we will be able to meet the continued listing standards of Nasdaq in the future. If we fail to comply with the applicable listing standards and Nasdaq delists our common stock, we and our stockholders could face significant material adverse consequences, including:
● | a limited availability of market quotations for shares of our common stock; | |
● | reduced liquidity for our common stock; | |
● | a determination that our common stock is “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for shares of our common stock; | |
● | a limited amount of news about us and analyst coverage of us; and | |
● | a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our common stock will be listed on Nasdaq, such securities will be deemed covered securities. Although the states will be preempted from regulating the sale of our securities, the federal statute does allow states to investigate companies if there is a suspicion of fraud and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulations in each state in which we offer our securities.
Because our management will have broad discretion over the use of the net proceeds from this Offering, you may not agree with how we use them and the proceeds may not be invested successfully.
We intend to use the net proceeds to us from this offering to fund offering to fund preclinical and clinical trials of product candidates, Ropidoxuridine and new formulations of Ropidoxuridine with Tipiracil, O-18 containing molecules for proton radiation sensitization, continued HDAC technology platform development, working capital and general corporate purposes, including the costs of operating as a public company, as well as potential acquisition or in-licensing activities. Therefore, our management will have broad discretion as to the use of the offering proceeds. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for our Company.
If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our target studies and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Our board of directors has the authority, without shareholder approval, to issue preferred stock with terms that may not be beneficial to holders of our common stock and such issuance could potentially affect adversely shareholder voting power and perpetuate their control over us.
Our Certificate of Incorporation, as amended to date, allows us to issue shares of preferred stock without any vote or further action by our shareholders. Our board of directors has the authority to fix and determine the relative rights and preferences of any preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of shares of our common stock. These rights and preferences could negatively affect the holders of our common stock.
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The ability of our executive officers and directors, who are our principal stockholders, to control our business may limit or eliminate the ability of minority shareholders to influence corporate affairs.
Our executive officers and directors, who are our principal stockholders, own approximately 73% of our issued and outstanding common stock and, following this offering, will own approximately 63% of our issued and outstanding common stock. Accordingly, they will be able to effectively control the election of directors, as well as all other matters requiring shareholder approval. The interests of our principal stockholders may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other directors and other business decisions. The minority shareholders have no way of overriding decisions made by our principal stockholders. This level of control may also have an adverse impact on the market value of our shares because our principal stockholders may institute or undertake transactions, policies or programs that result in losses and may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
Our Certificate of Incorporation and Bylaws, each as amended to date, provide for indemnification of officers and directors at the expense of the Company and limit their liability that may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our Certificate of Incorporation and Bylaws, each as amended to date, provide for the indemnification of our officers and directors. We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is therefore, unenforceable.
Our Certificate of Incorporation, as amended to date, provides that disputes must be resolved in the Court of Chancery of the State of Delaware, except for cases brought under the Securities Act or Exchange Act.
Our Certificate of Incorporation, as amended to date, provides that the Court of Chancery in the State of Delaware will be the exclusive forum for dispute resolution for certain enumerated actions, excluding any actions brought under the Securities Act or Exchange Act, or unless the Company consents in writing to an alternative jurisdiction. This exclusive forum selection clause may cause inconvenience of our shareholders or other stakeholders, should they need to bring suit against the Company for an action other than one arising under the Securities Act or Exchange Act.
We do not expect to pay cash dividends in the foreseeable future.
We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
Provisions in our amended and restated certificate of incorporation, as amended, and bylaws, as amended, as well as Delaware law, might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the market price of our common stock.
Our Certificate of Incorporation and Bylaws, each as amended to date, and bylaws contain provisions that could depress the market price of our common stock by acting to discourage, delay, or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:
● | permit the board of directors to establish the number of directors; | |
● | provide that directors may only be removed “for cause” and only with the approval of 66 2/3 percent of our stockholders; | |
● | require super-majority voting to amend some provisions in our Certificate of Incorporation and Bylaws; | |
● | authorize the issuance of “blank check” preferred stock that our board could use to implement a stockholder rights plan (also known as a “poison pill”); | |
● | eliminate the ability of our stockholders to call special meetings of stockholders; | |
● | prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; | |
● | provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and | |
● | establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at annual stockholder meetings. |
In addition, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control of our company. Section 203 imposes certain restrictions on merger, business combinations and other transactions between us and holders of 15% or more of our common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this prospectus are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
● | the initiation, timing, progress and results of our research and development programs, preclinical studies, any clinical trials and INDs, NDAs other regulatory submissions; | |
● | our expected dependence on third party collaborators for developing, obtaining regulatory approval for and commercializing product candidates; | |
● | our receipt and timing of any milestone payments or royalties under any research collaboration and license agreement we enter into; | |
● | our ability to identify and develop product candidates; | |
● | our or a collaborator’s ability to obtain and maintain regulatory approval of any of our product candidates; | |
● | the rate and degree of market acceptance of any approved products candidates; | |
● | the commercialization of any approved product candidates; | |
● | our ability to establish and maintain additional collaborations and retain commercial rights for our product candidates subject to collaborations; | |
● | the implementation of our business model and strategic plans for our business, technologies and product candidates; | |
● | our estimates of our expenses, ongoing losses, future revenue and capital requirements; | |
● | our ability to obtain additional funds for our operations; | |
● | our ability to obtain and maintain intellectual property protection for our technologies and product candidates and our ability to operate our business without infringing the intellectual property rights of others; | |
● | our reliance on third parties to conduct our preclinical studies or any future clinical trials; | |
● | our reliance on third party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial drug supplies; | |
● | our ability to attract and retain qualified key management and technical personnel; | |
● | our use of net proceeds to us from this offering; | |
● | our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; | |
● | our financial performance; and | |
● | developments relating to our competitors or our industry. |
These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those described in the section entitled “Risk Factors” and elsewhere in this prospectus.
Any forward-looking statement in this prospectus reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by U.S. federal securities law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
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We estimate that the net proceeds from this offering will be approximately $8,663,264, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter exercises its over-allotment option to purchase additional shares in full, we estimate that our net proceeds will be approximately $10,157,264, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering to fund Phase II clinical trials and IND-enabling studies of our product candidates, including radiation sensitizer Ropidoxuridine and the HDAC inhibitor small molecule technology platform, potential acquisition or in-licensing activities, and working capital and general corporate purposes. We anticipate that the funds raised from this offering will allow us to complete Phase II clinical trial of 30 patients for Ropidoxuridine and complete IND-enabling studies to file for IND in preparation for a Phase I clinical trial for our selective HDAC6 inhibitor. The funds are expected to be used as follows:
● | approximately $8.5 million will be used for product development and operational costs, including the drug manufacturing costs and the costs related to performing the Phase II clinical trials of Ropidoxuridine, as well as covering our IPO-related expenses; and |
● | approximately $1.5 million will be used to fund drug manufacturing and perform pre-IND testing and obtain IND in preparation for initiating Phase I clinicals trials of our selective HDAC6 inhibitor. |
The above estimates include the working capital necessary to fund each of the above listed projects; any additional funds raised in this offering will be used toward additional working capital.
Notwithstanding our planned use of funds, there is no guarantee that we will not require additional funds to complete the above clinical trials. In addition, following our completion of the above-listed clinical trials, we believe we will need approximately $22 million in additional funding to complete Phase III clinical trials for Ropidoxuridine and approximately $30 million in additional funding to complete Phase I through III clinical trials for our selective HDAC6 inhibitor. If such additional funds are required, we will have to secure additional funding from investors or through a joint development partner.
We believe that the net proceeds from this offering, together with our existing cash on hand, cash equivalents and investments, will enable us to fund our operations and continued growth and development through at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong and we may end up using our available capital resources more quickly than currently anticipated.
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The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures depend on numerous factors, including the progress of our preclinical development efforts, the results of any clinical trials and other studies and any unforeseen cash needs. All of our research and development programs are at an early stage and development of product candidates from these programs is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Accordingly, we will have broad discretion in the use of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our stock.
We may seek additional financing to support the intended use of proceeds discussed above. If we secure additional equity funding, investors in this offering would be diluted. In all events, there can be no assurance that additional financing would be available when needed and, if available, on terms acceptable to us.
Pending the use of the proceeds from this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities, certificates of deposit or government securities.
We have not paid any dividends on our common stock since inception and we currently expect that, in the foreseeable future, all earnings (if any) will be retained for the development of our business and no dividends will be declared or paid. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, our earnings (if any), operating results, financial condition and capital requirements, general business conditions and other pertinent facts.
The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2022:
● | on an actual basis; | |
● | on a pro forma basis to reflect the sale of 1,660,000 units, with the units consisting of a total of 1,660,000 shares of common stock and warrants to purchase 1,660,000 shares of common stock at an exercise price of $0.01 per share, at an initial public offering price of $6.00 per unit, after deducting estimated underwriting discounts and commissions and offering expenses payable by us; and | |
● | on a pro forma as adjusted basis to reflect the (a) Pre-IPO Bridge Financings, (b) sale of 1,660,000 units, with the units consisting of a total of 1,660,000 shares of common stock and warrants to purchase 1,660,000 shares of common stock at an exercise price of $0.01 per share, at an initial public offering price of $6.00 per unit, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, and (c) the conversion of the Series A convertible preferred stock, convertible notes and the exercise of certain warrants upon effectiveness of this offering. |
You should read this table in conjunction with our financial statements and related notes and the sections titled “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Capital Stock” appearing elsewhere in this prospectus.
Actual | Pro forma | Pro form As Adjusted | ||||||||||
Cash and cash equivalents | $ | 50,437 | $ | 10,846,965 | $ | 10,923,974 | ||||||
Capitalization: | ||||||||||||
Notes payable | $ | 1,261,097 | $ | 1,261,097 | $ | 671,097 | ||||||
Stockholders’ equity (deficit): | ||||||||||||
Series A convertible preferred stock, $0.00001 par value; $1,000 per share liquidation value or aggregate of $1,212,500; 20,000,000 shares authorized; 1,213 shares issued and outstanding actual, 0 shares pro forma, and 0 shares pro forma as adjusted | - | - | - | |||||||||
Common stock, $0.00001 par value; 100,000,000 shares authorized; 9,312,991 shares issued and outstanding at June 30, 2022 actual, 13,671,879 shares pro forma, and 14,123,629 shares pro forma as adjusted | 93 | 137 | 141 | |||||||||
Additional paid-in capital | 4,819,916 | 15,616,400 | 16,296,030 | |||||||||
Accumulated deficit | (7,126,082 | ) | (7,126,082 | ) | (7,126,082 | ) | ||||||
Total stockholders’ equity (deficit) | (2,306,073 | ) | 8,490,455 | 9,170,089 | ||||||||
Total capitalization | $ | (1,044,976 | ) | $ | 9,751,552 | $ | 9,841,186 |
The number of shares of common stock issued and outstanding actual, pro forma and pro forma as adjusted in the table above excludes 2,615,883 shares reserved for issuance under our 2018 Equity Incentive Plan. To date, we have issued grants of 384,167 shares (on a post-reverse split basis), which were issued in the form of restricted stock units, some of which remain subject to certain vesting conditions.
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If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock that you pay and the pro forma as adjusted net tangible book value per share of our common stock after this Offering, which includes the conversion of 1,212.5 shares of Series A convertible preferred stock (which will convert into approximately 269,444 shares of common stock upon completion of this offering, not including the 8.5% cumulative dividend, which is payable at the time of conversion in either cash or common stock at the Company’s determination), the exercise of approximately 269,444 shares of common stock issuable to the Series A convertible preferred stockholders upon exercise of warrants (which warrants will be issuable to the Series A convertible preferred stockholders upon completion of this offering, and which share calculation does not including the 8.5% cumulative dividend payable at the time of conversion in either cash or common stock at the Company’s determination), the exercise of 500,000 warrants into 500,000 shares of common stock (which shares are being registered in the Resale Offering), and the conversion of $590,000 of convertible notes and accrued interest of $12,625 (which will convert into units consisting of a total of 200,875 shares of common stock and warrants to purchase 200,875 shares of common stock (the “Conversion Units”) upon completion of this Offering and which Conversion Units are being registered in the Resale Offering). Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of June 30, 2022 was $(2,393,456) or $(0.26) per share, based on 9,312,991 shares of common stock, 500,000 warrants to purchase common stock, and 1,212.5 shares of Series A preferred stock and related warrants outstanding as of June 30, 2022.
Net tangible book value dilution per share represents the difference between the amount per share paid by new investors who purchase shares from us in this offering and the pro forma net tangible book value per share of common stock immediately after completion of this Offering. As of June 30, 2022, after giving effect to our sale of 1,660,000 units, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock, in this Offering at an initial offering price of $6.00 per unit, the exercise of warrants to purchase 500,000 shares of common stock and the sale of such common stock by certain selling stockholders in the Resale Offering, the automatic conversion of our Series A convertible preferred stock into 538,888 shares of common stock and the automatic conversion of our convertible notes into the equivalent of 401,750 shares of common stock, after deducting estimated Offering expenses that we must pay, our pro forma as adjusted net tangible book value would have been $9,082,706, or $0.64 per share. This represents an immediate increase in pro forma net tangible book value of $0.90 per share to existing shareholders, and an immediate dilution in pro forma net tangible book value of $5.36 per share to new investors purchasing shares in this Offering. The table below illustrates this per share dilution as of June 30, 2022.
Pro forma, | ||||||||
Before | as adjusted | |||||||
Offering | after offering | |||||||
Assumed initial offering price per common share | $ | 6.00 | ||||||
Net tangible book value per share as of June 30, 2022 | $ | (0.26 | ) | |||||
Increase in pro forma net tangible book value per share attributable to new investors participating in this Offering and conversion of the Convertible Notes | $ | 0.90 | ||||||
Pro forma as adjusted net tangible book value per share after this Offering and conversion of the Convertible Notes | $ | 0.64 | ||||||
Dilution of pro forma net tangible book value per share to new investors | $ | 5.36 |
The following table sets forth, on a pro forma as adjusted basis as of June 30, 2022, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid and the average price per share paid or to be paid by existing holders of common stock and by new investors, at a public offering price of $6.00 per share, before deducting estimated Offering expenses that we must pay.
*reflects both shares of common stock and warrants issued in this unit offering, and assumes the new investors’ exercise of warrants to purchase 1,660,000 shares of common stock.
The foregoing discussion and tables are based on the number of shares of common stock outstanding as of June 30, 2022 but excluding 2,615,883 shares of common stock reserved for issuance under our 2018 Equity Incentive Plan. To date, 384,167 shares have been granted in the form of restricted stock units (“RSUs”), of which 357,390 RSUs have vested and 30,777 RSUs remain subject to vesting.
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this prospectus. The Management’s Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this form. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors including, but not limited to, those noted under “Risk Factors” in this prospectus. In addition, any compensation disclosure contained in this prospectus regarding our officers and directors is likely to increase in the near term following completion of the offering, and therefore all such disclosures made within this prospectus reflect historical facts and will not reflect forward looking or anticipated compensation going forward. See the section entitled “Executive Compensation” below for a more detailed discussion.
We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus, except as required by U.S. federal securities laws.
Overview
Founded by Georgetown University Medical School faculty members, we are a discovery and development stage pharmaceutical company leveraging our proprietary technology to develop novel therapies that are designed to cure cancer. Originally formed as Shuttle Pharmaceuticals, LLC in 2012, our goal is to extend the benefits of cancer treatments by leveraging insights into cancer therapy with surgery, radiation therapy, chemotherapy and immunotherapy. While there are several therapies being developed with the goal of curing cancer, one of the most effective and proven approaches to this is radiation therapy (RT). We are developing a pipeline of products designed to address the limitations of this current standard of cancer therapies. We believe that our product candidates will enable us to deliver cancer treatments that are safer, more reliable and at a greater scale than that of the current standard of care.
Operations to date have focused on continuing our research and development efforts to advance Ropidoxuridine clinical testing and improved drug formulation, to advance HDAC6 inhibitor (SP-2-225) preclinical development, and complete SBIR contract work on predictive biomarkers of radiation response, as well as prostate cell lines for health disparities research. We have received SBIR contract funding from the NIH for the aforementioned projects. The clinical development of Ropidoxuridine has shown drug bioavailability and a maximum tolerated dose has been established for use in Phase II clinical trials. The radiation biomarker project and the health disparities project have been completed. Changes in operational, administrative, legal and professional expenses related to our operations are set forth in more detail in the discussion below.
Results of Operations
Comparison of the three months ended June 30, 2022 and 2021
The following table summarizes the results of our operations:
Three Months Ended | ||||||||||||||||
June 30, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
Revenue | $ | - | $ | - | $ | - | - | |||||||||
Operating expenses: | ||||||||||||||||
Research and development, net of contract expense reimbursements | 83,868 | 286,730 | (202,862 | ) | (71 | )% | ||||||||||
General and administrative | 9,078 | 7,213 | 1,865 | 26 | % | |||||||||||
Legal and professional | 260,680 | 42,308 | 218,372 | 516 | % | |||||||||||
Total operating expenses | 353,626 | 336,251 | 17,375 | 5 | % | |||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense - related party | 14,836 | 10,547 | 4,289 | 41 | % | |||||||||||
Interest expense | 170,391 | 120 | 170,271 | n/a | ||||||||||||
(Gain) Loss on change in fair value of warrant liability | 58,422 | (117 | ) | 58,539 | n/a | |||||||||||
Total other expense | 243,649 | 10,550 | 233,099 | 2209 | % | |||||||||||
Net loss | $ | 597,275 | $ | 346,801 | $ | 250,474 | 72 | % |
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Research and Development-Net of contract expense reimbursements. Research and development-net of contract expense reimbursements (“R&D”) was $83,368 for the three months ended June 30, 2022, as compared to $286,730 for three months ended June 30, 2021. For the three months ended June 30, 2022, the Company received $211,455 in reimbursement from the NIH contracts and incurred $295,323 in R&D expenses. For the three months ended June 30, 2021, reimbursement from the NIH totaled $0 and total expenses related to R&D was $286,731. Quarterly expenses increased by $8,592, or 3%, in the second quarter of 2022 as Topic 345 work was completed. Expenses were offset by a final payment of $211,455 received in April 2022 following the Company’s submission of a final report to the NIH for the period of performance ending March 15, 2022.
R&D expense reimbursements reflect the final payment of $211,455 received in April 2022 after the final report was filed with the NIH and reviewed. NIH requires that milestones included in the fixed price contract be met, therefore, compensation related expenses continued in 2022 under the no cost extension from the NIH. Compensation related expenses were $225,597 in the three months ended June 30,2021 as compared to $270,164 in the three months ended June 30, 2022. Compensation related expenses increased from 79% of total R&D in the three months ened June 30, 2021 to 91% for the three months ended June 30, 2022. Subcontract work made up 13% of total R&D expense in the three months ended June 30, 2021 and there were no subcontractor expenses during the three months ended June 30, 2022. All other R & D expenses were inconsequential.
Below is a breakdown of the actual costs and reimbursements received by the company for the three months ended June 30, 2022 and 2021, and a breakdown of how such cost and reimbursements were distributed across research projects.
For the three months ended June 30, 2022, total research and development costs were $295,323 for which all costs were funded by the Shuttle. For the three months ended June 30, 2021, total R & D costs were $286,730 for which 21.3% of the costs were allocated to the NIH funded project (Topic 345) and Shuttle funded the remaining costs of $225,597, or 78.7% of the total costs. For the three months ended June 30, 2022, total R&D costs were $295,323 for which $211, 455 was reimbursed by NIH and the remaining costs were funded by the Shuttle for a net R&D loss of $83,868. Company funded R&D activities increased in 2021 and decreased in 2022 due to NIH no cost extensions required to complete contracted work and file the final reports before receiving payment from the NIH.
Key Research and Development Projects
R & D, Net of Contract Expense Reimbursements | 3 Months |
3 Month Periods ending June 30, 2021 and 2022 (Q2)
Research & Development | NIH Topic 345 | NIH Topic 352* | Shuttle Funded | Total | ||||||||||||||||||||||||||||
Revenue and Expenses | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||||
NIH Reimbursement | - | 211,455 | - | - | - | - | - | 211,455.00 | ||||||||||||||||||||||||
Compensation | - | - | - | 225,596.59 | 270,164.09 | 225,596.59 | 270,164.09 | |||||||||||||||||||||||||
Subcontracts | 36,927.56 | - | - | - | - | - | 36,927.56 | - | ||||||||||||||||||||||||
Supplies | 7,143.63 | - | - | - | - | 619.36 | 7,143.63 | 619.36 | ||||||||||||||||||||||||
Other, Lab | 17,062.90 | - | - | - | - | 24,539.10 | 17,062.90 | 24,539.10 | ||||||||||||||||||||||||
Expense total | 61,134.09 | - | - | - | 225,596.59 | 295,322.55 | 286,730.68 | 295,322.55 | ||||||||||||||||||||||||
Research and Development, Net of Contracts | (61,134.09 | ) | 211,455 | - | - | (225,596.59 | ) | (295,322.55 | ) | (286,730.68 | ) | (83,867.55 | ) | |||||||||||||||||||
21.3 | % | 0.0 | % | 78.7 | % | 100.0 | % |
Note: | Project 352 reimbursements were not received in 2021 and research costs were Company funded through an NIH extension without cost Project 345 reimbursement for the period of performance ending March 15, 2022, which reimbursement was received in April 2022 |
In addition, the CEO and CMO are actively involved in the research and development activities, but neither receives a salary from the Company. As such, research and development expenses are lower than might be incurred in the future.
The allocation of costs to each research project for the three months ended June 30, 2021 and 2022 are as follows:
Cost Allocation for the 3-month Period Ending June 30, 2021
● | Compensation - $225,597, making up 79% of total R & D, with all research cost allocated to Shuttle. | |
● | Subcontracts - $36,928, making up 13% of total R&D, with 100% of costs allocated to Topic 345. | |
● | Supplies and Other Lab expenses - $24,207, making up 8% of total R&D, with all costs allocated to Topic 345. |
General and Administrative Expenses. General and Administrative expenses in the three months ended June 30, 2022 increased by $1,865, from $7,213 in 2021 to $9,078 in 2022.
Legal and Professional Expenses. During the three months ended June 30, 2022, legal and professional expenses increased by $260,680 or 497%. This increase in legal and professional fees was primarily due to increases in our expenses related to obtaining pre-IPO financing and other expenses related to preparation for the IPO.
Other (Income) Expense. Other expense was $243,649 for the three months ended June 30, 2022, which consisted of $170,394 in interest expense on convertible loans, $14,836 in interest expense on related party loans, and a loss on change in warrant liability of $58,422. Other income was $10,550 for the three months ended June 30, 2021, which consisted of $120 in interest expense, $10,547 in interest expense on related party loans and a gain on change in warrant liability of $117.
Comparison of the six months ended June 30, 2022 and 2021
The following table summarizes the results of our operations:
Six Months Ended | ||||||||||||||||
June 30, | Change | |||||||||||||||
2022 | 2021 | $ | % | |||||||||||||
Revenue | $ | - | $ | - | $ | - | - | |||||||||
Operating expenses: | ||||||||||||||||
Research and development, net of contract expense reimbursements | 379,783 | 392,726 | (12,943 | ) | (3 | )% | ||||||||||
General and administrative | 22,847 | 13,461 | 9,386 | 70 | % | |||||||||||
Legal and professional | 589,392 | 106,150 | 483,242 | 455 | % | |||||||||||
Total operating expenses | 992,022 | 512,337 | 479,685 | 94 | % | |||||||||||
Other (income) expense: | ||||||||||||||||
Interest expense - related party | 25,383 | 21,094 | 4,289 | 20 | % | |||||||||||
Interest expense | 315,944 | 350 | 315,594 | n/a | ||||||||||||
(Gain) Loss on change in fair value of warrant liability | 18,772 | (57,656 | ) | 76,428 | n/a | |||||||||||
Gain on forgiveness of Paycheck Protection Program note payable | (73,007 | ) | - | (73,007 | ) | n/a | ||||||||||
Total other (income) expense | 287,092 | (36,212 | ) | 323,304 | n/a | |||||||||||
Net loss | $ | 1,279,114 | $ | 476,125 | $ | 802,989 | 169 | % |
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Research and Development-Net of contract expense reimbursements. Research and development-net of contract expense reimbursements (“R&D”) was $379,783 for the six months ended June 30, 2022, as compared to $392,726 for six months ended June 30, 2021. For six months ended June 30, 2022, the Company received $211,455 in reimbursement from the NIH contracts and incurred $591,237 in R&D expenses. For the six months ended June 30, 2021, reimbursement from NIH totaled $211,455 and total expenses related to R&D were $604,181. The decrease of $12,945, or 2%, is primarily related to the Company reducing R&D spending as a result of NIH contracts ending and new contract proposals being prepared but not yet started. The no cost extension from the NIH ended on March 15, 2022, and the final report to the NIH was filed and accepted, resulting in a payment of $211,455 during the six months ended June 30, 2022.
R&D expense reimbursements were the same during the six months ended June 30, 2021 and June 30, 2022. NIH requires that milestones included in the fixed price contract be met, therefore, compensation related expenses continued in 2022 under the no cost extension from the NIH. Compensation related expenses were $447,222 in the six months ended June 30, 2021 as compared to $532,961 in the six months ended June 30, 2022. Compensation related expenses increased from 74% of total R&D in the six months ended June 30, 2021 as compared to 90.1% in the six months ended June 30, 2022. Subcontract work made up 17% of total R&D expense in the six months ended June 30, 2021 and there were no subcontractor expenses during the six months ended June 30, 2022. All other R&D expenses were inconsequential.
Below is a breakdown of the actual costs and reimbursements received by the Company for the six months ended June 30, 2022 and 2021, and a breakdown of how such cost and reimbursements were distributed across research projects.
For the six months ended June 30, 2022, total research and development costs were $591,236 for which $211,455 was paid by reimbursements received from the NIH, leaving a net of $392,726. For the six months ended June 30, 2021, total R&D costs were $604,181 for which $211,455 was paid by reimbursements received from the NIH, leaving a net of $379,783. Company funded R&D activities increased in the six months ended June 30, 2021 and remained relatively consistent during the six months ended June 30, 2022 due to the NIH no cost extensions required for the Company to complete contracted work and file the final reports. A summary of the breakdown of costs is listed below.
Key Research and Development Projects
Research and Development, Net of Contract Expense Reimbursements | 6 Months |
6 Month Periods ending June 30, 2021 and 2022 (Q2)
Research & Development | NIH Topic 345 | NIH Topic 352* | Shuttle Funded | Total | ||||||||||||||||||||||||||||
Revenue and Expenses | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||||||||||||||||||||||||
NIH Reimbursement | - | 211,455 | - | - | - | - | 211,455.00 | 211,455.00 | ||||||||||||||||||||||||
Compensation | - | - | - | - | 447,222.22 | 532,961.32 | 447,222.22 | 532,961.32 | ||||||||||||||||||||||||
Subcontracts | 102,855.59 | - | - | - | - | - | 102,855.59 | - | ||||||||||||||||||||||||
Supplies | 13,522.47 | - | - | - | - | 2,198.70 | 13,522.47 | 2,198.70 | ||||||||||||||||||||||||
Other, Lab | 40,581.15 | - | - | - | - | 56,076.87 | 40,581.15 | 56,076.87 | ||||||||||||||||||||||||
Expense total | 156,959.21 | - | - | - | 447,222.22 | 591,236.89 | 604,181.43 | 591,236.89 | ||||||||||||||||||||||||
Research and Development, Net of Contracts | (156,959.21 | ) | 211,455 | - | - | (447,222.22 | ) | (591,236.89 | ) | (392,726.43 | ) | (379,781.89 | ) |
Note: | Project 352 reimbursements were not received in 2021 and research costs were Company funded through an NIH extension without cost |
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In addition, the CEO and CMO are actively involved in the research and development activities, but neither receives a salary from the Company. As such, research and development expenses are lower than might be incurred in the future.
The allocation of costs to each research project for the six months ended June 30, 2021 and 2022 are as follows:
Cost Allocation for the six-month Period Ending June 30, 2022
● | Compensation - $270,164, making up 91% of total R&D expenses, with all costs allocated to Shuttle. | |
● | Remaining costs of $25,158 were all allocated to Shuttle, with supplies and other lab expenses making up 9%of total R&D costs. |
General and Administrative Expenses. General and Administrative expenses increased by $9,386, from $13,461 in the six months ending June 30, 2021 to $22,847 in the six months ended June 30, 2022. Processing fees related to filing accounted for an increase of $6,215 and are related to pre-IPO activities. Website expenses during the six moths ended June 30, 2022 increased by $1,424 in order to maintain and update the company’s profile and prepare for the Company’s IPO.
Legal and Professional Expenses. Legal and professional expenses increased by $475,242, or 448%, primarily due to increases in fees related to obtaining pre-IPO financing and expenses incurred related to preparing for the IPO.
Other (Income) Expense. Other expense was $221,516 for the six months ended June 30, 2022, which consisted of $315,944 in interest expense on convertible loans, $25,383 in interest expense on related party loans, a gain on change in warrant liability of $46,804 and a $73,007 gain on the forgiveness of the Company’s Paycheck Protection Program loan. Other income was $36,212 for the six months ended June 30, 2021, which consisted of $350 in interest expense, $21,094 in interest expense on related party loans and a gain on change in warrant liability of $57,656.
Comparison of the Years ended December 31, 2021 (Restated) and 2020
The following table summarizes the results of our operations for the years ended December 31, 2021 (Restated) and 2020:
Years Ended | ||||||||||||||||
December 31, | ||||||||||||||||
2021 | 2020 | Change | % | |||||||||||||
Revenue | $ | - | $ | - | $ | - | - | |||||||||
Operating expenses: | ||||||||||||||||
Research and development, net of contract expense reimbursements | 1,021,808 | 161,772 | 860,036 | 532 | % | |||||||||||
General and administrative | 36,500 | 85,927 | (49,427 | ) | (58 | %) | ||||||||||
Legal and professional | 684,684 | 261,823 | 422,861 | 162 | % | |||||||||||
Total operating expenses | 1,742,992 | 509,522 | 1,233,470 | 242 | % | |||||||||||
Other income (expense): | ||||||||||||||||
Interest expense - related party | (46,947 | ) | (36,771 | ) | (10,176 | ) | 28 | % | ||||||||
Interest expense | (3,841 | ) | (2,859 | ) | (982 | ) | 34 | % | ||||||||
Change in fair value of warrant liability | 579,146 | (256,580 | ) | 835,726 | 326 | % | ||||||||||
Gain on disposal of loan | 62,500 | - | 62,500 | 100 | % | |||||||||||
Total other income (expense) | 590,858 | (296,210 | ) | 887,068 | 299 | % | ||||||||||
Net loss | $ | (1,152,134 | ) | $ | (805,732 | ) | $ | (346,402 | ) | 43 | % |
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Research and Development-Net of contract expense reimbursements. Research and development-net of contract expense reimbursements was $1,021,808 for the year ended December 31, 2021, as compared to $161,772 for the year ended December 31, 2020. For the year ended December 31, 2021, the Company received $505,377 in reimbursement from NIH contracts and incurred $1,527,185 in research and development expenses. For the year ended December 31, 2020, reimbursement from the NIH totaled $1,258,141 and total expenses related to research and development was $1,419,913. The increase of $860,036 or 532% is primarily related to the Company receiving $752,764 less in contract reimbursements in 2021 as compared to 2020. The lower contract reimbursements are due to the completion of Topic 345-Predictive-Biomakers and Phase 1 of Topic 352-Prostate Health Disparity contracts in 2020. In 2021, the Company received $82,467 for Topic 352 Prostate Health Disparity Phase 2 and $422,910 Topic 345-Predictive-Biomakers and Phase 2.
The research and development expenses with the largest variances included compensation of $885,349, subcontractor expenses of $539,043, and lab supply costs of $30,181 for the year end December 31, 2021, as compared to compensation of $888,001, subcontractor expenses of $403,409, and lab supply costs of $57,355 for the year end December 31, 2020. Subcontractor expenses increased by $135,634, or 33.62%, between 2020 and 2021. These expenses increased as more subcontractor services were needed due to the Phase 2 NIH contracts and pending additional financing. All other research and development expense variances between 2020 and 2021 are immaterial.
Below is a breakdown of the actual costs and reimbursements received by the company for the years ended December 31, 2021 and 2020, and a breakdown of how such cost and reimbursements were distributed across research projects.
Key Research and Development Projects
Research and Development, Net of Contract Expense Reimbursements
Periods ending December 31, 2020 and 2021
Research & Development Revenue and | NIH Topic 345 | NIH Topic 352* | Shuttle Funded | Total | ||||||||||||||||||||||||||||
Expenses | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | ||||||||||||||||||||||||
NIH Reimbursement | 845,820 | 422,910 | 412,321 | 82,467 | - | - | 1,258,141 | 505,377 | ||||||||||||||||||||||||
Compensation | 183,183 | 198,426 | 174,026 | - | 530,791 | 686,923 | 888,000 | 885,349 | ||||||||||||||||||||||||
Subcontracts | 236,633 | 539,043 | 163,979 | - | 2,797 | - | 403,409 | 539,043 | ||||||||||||||||||||||||
Supplies | 24,670 | 30,181 | 32,655 | - | - | - | 57,355 | 30,181 | ||||||||||||||||||||||||
Other, Lab | 36,969 | 72,611 | 34,179 | - | - | - | 71,148 | 72,611 | ||||||||||||||||||||||||
Expense total | 481,485 | 840,261 | 404,840 | - | 533,588 | 686,923 | 1,419,913 | 1,527,185 | ||||||||||||||||||||||||
Research and Development, Net of Contracts | 364,336 | (417,351 | ) | 7,481 | 82,467 | (533,588 | ) | (686,923 | ) | (161,772 | ) | (1,021,808 | ) |
Note: The Project 352 final reimbursement was received in 2021 and research costs were company funded through an NIH extension without cost
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In addition, our CEO and CMO are actively involved in the research and development activities, but neither receives a salary from the Company. As such, research and development expenses are lower than might be incurred in the future.
General and Administrative Expenses. General and Administrative expenses decreased by $49,427, from $85,927 for the year ended December 31, 2020, to $36,500 for the year ended December 31, 2021. There were two changes that account for the decrease in expenses: (1) directors and officers insurance decreased by $34,322 from $45,629 in 2020 to $$11,308 in 2021; and (2) a decrease in travel and conference expenses by $16,686 from $16,887 in 2020 to $202 in 2021. The decrease in costs for insurance was due to a negotiated reduction in premiums for 2021 and the reduction in the number of members serving on our board of directors from seven directors in 2020 to five directors in 2021. Travel and conference fees decreased from 2020 to 2021 due to a shift to virtual investment conferences related to the ongoing Covid-19 pandemic and a change in company strategy from contacting investors through conferences in 2020 to contacting investors through introductions made through an agreement with Boustead Securities.
Legal and Professional Expenses. The 162% increase in legal and professional fees was primarily due to a non-cash payment of $420,000 for business consulting services resulting from the transfer of 210,000 shares (105,000 shares on a post-split basis) of common stock from a major shareholder, who is also the wife our Chairman and CEO, to a business consultant, and increases in accounting and consulting fees of $684,684 for the year ended December 31, 2021 as compared to $261,823 for the year ended December 31, 2020.
Other Income (Expense). Other income was $590,858 for the year ended December 31, 2021, which consisted of $3,841 for interest expense on convertible loans, $46,947 interest expense on a loan-related party, gain on change in warrant liability of $579,146 and $62,500 gain on the forgiveness of the PPP loan. Other expense was $296,210 for the year ended December 31, 2020, which consisted of $2,859 for interest expense on convertible loans, $36,771 interest expense on a loan-related party and loss on change in warrant liability of $256,580.
Liquidity and Capital Resources
Our capital needs to date have been met by contributions from existing shareholders, as well as through private offerings of our securities, SBIR contracts and other grants. In the six months ended June 30, 2022, we raised a total of $525,715 through the sale of convertible notes and warrants. In the year ended December 31, 2021, we raised a total of $687,932 through the sale of convertible notes and warrants and PPP loans. In addition, since inception, we have received a total of $5,531,722 in SBIR contracts and other grants received primarily through the National Institutes of Health.
We believe that we will continue to expend substantial resources for the foreseeable future on the completion of clinical development and regulatory preparedness of our product candidates, preparations for a commercial launch of our product candidates, if approved, and development of any other current or future product candidates we 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, if we are not able to enter into planned collaborations, 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, we cannot reasonably estimate the actual amounts necessary to complete the development and commercialization of our current product candidates, if approved, or future product candidates, if any.
There can be no assurance that additional financing will be available to us when needed, on favorable terms or otherwise. Moreover, any such additional financing may dilute the interests of existing shareholders. The absence of additional financing, when needed, could cause us to delay implementation of its business plan in whole or in part, curtail its business activities and seriously harm us and our prospects.
Balance Sheet Data:
June 30, | December 31, | |||||||||||||||
2022 | 2021 | Change | % | |||||||||||||
Current assets | $ | 63,952 | $ | 509,615 | $ | (445,663 | ) | (87 | )% | |||||||
Current liabilities | 2,453,951 | 2,217,331 | 236,620 | 11 | % | |||||||||||
Working capital deficiency | $ | (2,389,999 | ) | $ | (1,707,716 | ) | $ | (682,283 | ) | 40 | % |
As of June 30, 2022, total current assets were $63,952. Total current liabilities as of June 30, 2022, were $2,453,951, resulting in a working capital deficiency of $2,389,999. As of December 31, 2021, total current assets were $509,615. Total current liabilities as of December 31, 2021, were $2,217,331, resulting in a working capital deficiency of $1,707,716. The current assets primarily resulted from $525,715 cash received from notes payable issued. The increase in current liabilities is due to the increase in notes payable issued, forgiveness of the PPP loan and payments on trades payable.
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Cash Flows from Operating Activities
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2022 | 2021 | Change | % | |||||||||||||
Cash used in operating activities | $ | (980,027 | ) | $ | (147,641 | ) | $ | (832,386 | ) | 564 | % | |||||
Cash used in investing activities | $ | - | $ | - | $ | - | 0 | % | ||||||||
Cash provided by financing activities | $ | 525,715 | $ | 73,007 | $ | 452,708 | 620 | % | ||||||||
Cash on hand | $ | 50,437 | $ | 42,519 | $ | 7,918 | 19 | % |
We have not generated positive cash flows from operating activities. For the six months ended June 30, 2022, net cash flows used in operating activities was $980,027, consisting of a net loss of $1,279,114, reduced by depreciation expense of $2,899, loss on change in warranty liability of $18,772 amortization of right of use assets of $29,599, amortization of debt discount of $278,531, stock-based compensation of $333,066, gain on forgiveness of the PPP of loan of $73,007 and a net change in working capital of $290,773. For the six months ended June 30, 2021, net cash flows used in operating activities was $147,641, consisting of a net loss of $476,125, adjusted for depreciation expense of $2,700, change in warranty liability of $57,656, amortization of right of use assets of $26,582, stock-based compensation of $245,034, and a net change in working capital of $111,824.
Cash Flows from Investing Activities
For the six months ended June 30, 2022 and 2021, we had no investing activities.
Cash Flows from Financing Activities
For the six months ended June 30, 2022, we received $525,715 from the issuance of convertible notes. For the six months ended June 30, 2021, we received, $73,007 from the Paycheck Protection Program.
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company’s only revenue source since inception from 2014 through present has been awards from government contracts totaling $5,531,722, and the Company has incurred losses since inception, having accumulated a deficit of $7,126,082 as of June 30, 2022. We currently have limited liquidity and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period. These factors, among others, raise substantial doubt about our ability to continue as a going concern.
We will need to raise capital to fund its operations. To address its financing requirements, the Company intends to seek financing through debt or equity financings with an aim to continue progress toward commercial viability of its products. We continue to submit Federal grant and contract applications which have historically been the primary source of revenue. The financial statements do not include any adjustments that might result from the outcome of the uncertainty of raising additional capital.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
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Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this registration statement, we believe that the following accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
Our most critical accounting policies and estimates relate to the following:
● | Research and Development Expenses | |
● | Operating Lease Accounting | |
● | Derivative Financial Instruments | |
● | Income Taxes |
Research and Development
Research and Development expenses are offset by contract receivable payments from an NIH SBIR contract that supports this scientific research. This is stated in the financials as research and development-net of contract expense reimbursements.
Operating Lease Right-of-use Assets and Operating Lease Liability
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term.
Derivative Financial Instruments
We evaluate all of our agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, we use a Binomial Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of June 30, 2022, our only derivative financial instrument was an embedded warrant feature associated with warrants issuable to our Series A convertible preferred stockholders upon completion of our initial public offering or public listing due to certain provisions that allow for a change in the warrant value based on fluctuations of our fair value of common stock at the date of issuance of the warrant based on certain contingent call features.
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We are a clinical stage pharmaceutical company leveraging our proprietary technology to develop novel therapies designed to cure cancers. Our goal is to extend the benefits of cancer treatments with surgery, radiation therapy, chemotherapy and immunotherapy. Radiation therapy (RT) is one of the most effective modalities for treating cancers. We are developing a pipeline of products designed to address limitations of the current cancer therapies as well as to extend to the new applications of radiation therapy. We believe that our product candidates will enable us to deliver cancer treatments that are safer, more reliable and at a greater scale than that of the current standard of care.
Our product candidates include Ropidoxuridine, Extended Bio-availability Ropidoxuridine (IPdR/TPI), and a platform of HDAC inhibitors (SP-1-161, SP-2-225 and SP-1-303). We have advanced Ropidoxuridine through a Phase I clinical trial using non-dilutive NIH SBIR contracts and are currently preparing a Phase II study that we intend to commence in 2022. We also plan to submit investigational new drug applications (INDs) for the extended Bio-availability Ropidoxuridine with the goals of initiating Phase I clinical trials in 2023, leveraging the outcomes of the Phase I clinical study results of Ropidoxuridine. We have applied for and received FDA approval of Orphan designation for Ropidoxuridine and RT for treating brain cancer (glioblastoma). In addition, we plan to continue to develop our pre-clinical products SP-1-161, SP-2-225 and SP-1-303 with the goal of submitting INDs in 2023 and 2024. We believe our management team’s expertise in radiation therapy, combined modality cancer treatment and immuno-oncology will help drive the development and, if approved, the commercialization of these potentially curative therapies for patients with aggressive cancers.
Radiation Oncology has gone through transformative technological innovation over the last several years to better define tumors, allow improved shaping of radiation delivery and support dose escalation with shorter courses of treatment. Furthermore, achieving higher dose distributions within tumor volumes has reached a practical plateau, since cancers are frequently integrated with or surrounded by more sensitive normal tissues and further dose increases risk of tissue necrosis. To increase cancer cures at maximally tolerated radiation doses, pharmacological and biological modifications of cells are needed to sensitize cancers, protect normal tissues, and stimulate the immune system to react against antigens produced by irradiated, damaged cancer cells. Drugs that show sensitizing properties, or the ability to make cancer cells more sensitive to radiation, offer a solution to this problem. Currently, such drugs are used off-label, and many have inherent toxicities since they were designed for direct cancer treatments and not for sensitization.
We are developing our products with the goal of addressing the unmet need in cancer treatment for a commercially marketable radiation response modifier solution that leads to greater sensitivity of cancer cells to ionizing radiation therapy. The goal of our products is to increase the therapeutic index for patients receiving radiation and to decrease radiation-related toxicities in patients with solid tumors. Our products operate across three areas related to the treatment of cancer with RT:
1. | Sensitization of growing cancer cells, rendering them more susceptible to the effects of radiation therapy. | |
3. | Activation of the DNA damage response pathway to kill cancer cells and protect adjacent normal cells. | |
4. | Activation of the immune system to kill any remaining cells after RT. |
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Our platform technology allows for the creation of an inventory of products for radiation sensitizing, immune modulation, and protection of healthy tissue.
Our Pipeline
We are currently developing a pipeline of small molecule radiation sensitizers and immune response regulating drugs. Our most advanced product candidate is Ropidoxuridine, an orally available halogenated pyrimidine with strong cancer radiation sensitizing properties in preclinical studies. In addition to our clinical study-ready candidate, we have a pipeline of complimentary product candidates that we are developing to address a host of solid tumor cancer indications. Our pipeline is represented in the diagram below:
Timeline for clinical phase (Ropidoxuridine) and pre-clinical phase (HDAC inhibitors) pipeline.
Our lead product candidates include:
● | Ropidoxuridine (IPdR) is our lead candidate radiation sensitizer for use in combination with RT to treat brain tumors (glioblastoma) and sarcomas. Phase I clinical trial results supported by Shuttle Pharma and the NCI (CTEP) were reported at the 30th EORTC-NCI-AACR Symposium in November 2018 and in a full report in the medical journal, Clinical Cancer Research, in July 2019, by our SBIR subcontractor. Eighteen patients completed dose escalations to 1,800 mg/day for 30 days, establishing the maximum tolerated dose (MTD) of 1,200 mg/day in combination with RT. Four partial responses, nine stable disease and one progressive disease in target lesions were reported. Four patients did not have measurable disease and, as a result, were not evaluable. These Phase I trial results demonstrate oral bioavailability and an MTD of 1,200 mg per day for 28 days for use in combination with radiation for Phase II clinical trials in brain tumors and Phase II clinical trials in sarcomas and/or unresectable pancreatic cancers. These disease sites are eligible for orphan disease designations. |
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● | Ropidoxuridine and Tipracil (IPdR/TPI) is a new combination formulation demonstrating extended bioavailability after oral administration in an animal model system. The IPdR/TPI formulation will be developed for use as a radiation sensitizer of stage II and stage III rectal cancers with an endpoint of pathologic complete response rate (pCR) of greater than 40% as the therapeutic target. The pCR is recognized as a surrogate of survival in patients with solid tumors. | |
● | SP-1-161 is Shuttle Pharma’s pre-clinical candidate lead HDAC inhibitor product. This pan HDAC inhibitor initiates the mutated in ataxia-telangiectasia (ATM) response pathway. Using rational drug design, we discovered HDAC inhibitors and ATM activators capable of radiation sensitizing cancer cells and protecting normal cells. These candidate drugs may serve as direct chemotherapeutic agents or as radiation sensitizers for treating cancers. | |
● | SP-2-225 is Shuttle Pharma’s pre-clinical class IIb selective HDAC inhibitor that affects histone deacetylase HDAC6. SP-2-225 has effects on the regulation of the immune system. The interactions of RT with the immune response to cancers are of great current interest, offering insight into potential mechanisms for primary site and metastatic cancer treatment. With the introduction of check-point inhibitors, CAR-T therapies and personalized medicine in cancer, regulation of the immune response following RT is of significant clinical and commercial interest. | |
● | SP-1-303 is Shuttle Pharma’s pre-clinical selective Class I HDAC inhibitor that preferentially affects histone deacetylases HDAC1 and HDAC3 and is a member of the class I HDAC family. SP-1-303 data show direct cellular toxicity in ER positive breast cancer cells. Furthermore, SP-1-303 increases PD-L1 expression. |
Our Approach
We believe that we have established a leadership position in radiation sensitizer discovery and development. Over approximately six years of research, we have identified two clinical phase product candidates and discovered new pre-clinical molecules using our proprietary platform technologies to increase the therapeutic index for patients receiving radiation for treatment of solid tumors. Our development strategy has four key pillars: (1) to improve the efficacy of RT by demonstrating improved disease-free survival rates in patients who undergo radiation therapy, (2) reduce the amount of radiation needed for a favorable tumor response, thereby limiting the potential for radiation related toxicities to healthy cells, (3) decrease the extent of surgery needed to remove cancers and improve quality of life, and (4) leverage our next generation technologies to create drugs that regulate the immune response assisting immune checkpoint and CAR-T therapies and other personalized medicines targeting cancers.
We propose to perform Phase I and Phase II clinical trials to advance our clinical product candidates. In addition, candidate HDAC inhibitor molecules will be tested, and IND-enabling studies will be performed to prepare for Phase I clinical trials.
To date, we have been awarded three SBIR contracts from the NIH to:
● | Develop IPdR as a radiation sensitizer for the treatment of gastro-intestinal cancers, in combination with radiation therapy. This funding provided partial support for the Phase I clinical trial of Ropidoxuridine and RT. | |
● | Develop prostate cancer cell cultures from African-American men, with donor matched normal prostate cells, with the goal of establishing 50 pairs for accelerating research to reduce prostate cancer health disparities in African-American men. This project was funded under “Moonshot” designation and Shuttle Pharma is eligible to submit an application for additional SBIR (Phase IIb) funding to establish the infrastructure required to expand and distribute cells for research purposes. Cells from African-American patients are distributed to investigators who are conducting health disparities research. | |
● | Develop predictive biomarkers for determining outcomes for prostate cancer patients following treatment with SBRT. This SBIR-funded project was completed on March 15, 2022 and Shuttle Pharma is eligible to apply for additional funding through the SBIR (Phase IIb) mechanism to de-risk clinical validation to develop the predictive biomarkers. |
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All three SBIR funded projects have been completed. The Company is eligible to apply for SBIR Phase IIb funding to “bridge” the funding gap should Shuttle Pharma elect to advance the “Moon shot” health disparities or the predictive biomarker project. The NIH SBIR program is designed to encourage small businesses to engage in Federal Research/Research and Development (“R/R&D”) that has the potential for commercialization.
Our Strategy
Our goal is to maintain and build upon our leadership position in radiation sensitization. We plan to develop Ropidoxuridine and the HDAC6 inhibitor (SP-2-225) and, if approved by the FDA, commercialize our product candidates for the treatment of cancers. While this process may require years to complete, we believe achieving this goal could result in new radiation sensitizer and immunotherapy products. Key elements of our strategy include:
● | Capitalize on Ropidoxuridine as an orally available, small molecule radiation sensitizer. To date, there is one drug (Cetuximab, a monoclonal antibody) approved by the FDA specifically as a radiation sensitizer. If we are successful in developing Ropidoxuridine and obtaining FDA approval, a small molecule sensitizer would then be enabled for clinical applications for radiation sensitization. | |
● | Expand our leadership position within radiation sensitizers. In addition to our traditional radiation sensitizers, we plan to advance our near-term pipeline to include radiation sensitizers for proton therapy. Proton Therapy is growing worldwide as a form of radiation therapy due to its unique beam shaping characteristics. As a result, this new technology offers a major opportunity for Shuttle Pharma to strive to develop an innovative and well-tolerated drug for proton therapy sensitization. | |
● | Execute a disciplined business development strategy to strengthen our portfolio of product candidates. We have built our current product pipeline through in-house development, partnerships with leading academic institutions and through successful in-licensing deals. We will continue to evaluate new in-licensing opportunities and collaboration agreements with leading academic institutions and other biotechnology companies around programs that seek to address areas of high unmet need and for which we believe there is a high probability of clinical success, including programs beyond our target franchise areas and current technology footprint. |
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● | Invest in our HDAC platform technology and maximize its utility across cancer therapies. We are initially applying the platform to develop drugs for cancer radiation sensitization and normal tissue radiation protection. In addition, based on the data we have obtained thus far, these drugs are immune regulatory. We intend to invest to develop other properties of our platform technology, as well. | |
● | Enter into collaborations to realize the full potential of our platform. The breadth of our HDAC technology platform enables other therapeutic applications, including radiation sensitization and immune therapy. We intend to seek collaborations centered on our platform to maximize applications for cancer treatment. |
Radiation Therapy
Radiation Oncologists use Radiation Therapy (RT) to treat cancers that cannot be completely removed by surgery but have not yet spread to distant sites within the body. RT has been a mainstay for the treatment of cancer malignancies for more than half a century. The combination treatment of radiation therapy and chemotherapy has involved the use of cytotoxic drugs, targeted biologic agents and targeted external beam radiation to increase the destruction of tumor cells and cure or delay cancer progression. The low number of drugs and biologic agents under investigation as radiation sensitizing agents highlights an unmet need for new approaches and agents that provide greater effectiveness, increased quality and better tolerability for patients. |
Currently, “chemo-radiation” treatments are established in cancers of the head and neck, esophagus, lung, stomach, breast, brain, pancreas, rectum and uterine cervix. The ideal radiation sensitizer would reach the tumor in adequate concentrations and act selectively in the tumor, as compared to surrounding normal tissues. It would have predictable pharmacokinetics for timing with radiation therapy and could be administered with every radiation treatment approach. The ideal radiation sensitizer would have minimal toxicity or manageable enhancement of radiation toxicity. |
The U.S. market for radiation sensitizing agents is experiencing dynamic growth through development of new radiation technology, the introduction of new agents, growth in the number of diagnosed patients in a variety of cancers and changes in treatment patterns. New agents have been introduced, including bevacizumab (Avastin®, Roche), panitumumab (Vectibix®, Amgen), temozolomide (Temodar®, Merck) and cetuximab (Erbitux®, Eli Lilly/Imclone), with potential as radiation sensitizing agents (though all but cetuximab are used off label); and all are recommended by the NCCN® (National Comprehensive Cancer Network) in clinical practice guidelines for use in combination with established therapies such as FOLFOX (leucovorin, 5-FU, oxaliplatin), CapeOX (capecitabine, oxaliplatin) and FOLFIRI (leucovorin, 5-FU, irinotecan). |
The growth in the number of patients with cancers is being driven by an aging population and improved diagnostic tools. According to the National Cancer Institute (NCI), more than half (~50 - 60%) of all cancer patients undergo some type of radiotherapy during the course of their treatment. Confirming the patient estimate from the NCI, the American Society for Therapeutic Radiology and Oncology (ASTRO) factsheet states approximately 67% of approximately 1.25 million cancer patients are treated with radiation therapy annually, either one or more times during the course of treatment. In addition, in a study published by the Journal of Clinical Oncology in 2016, it is estimated that the number of cancer patients needing radiation therapy will increase by 22% in the next 10 years. (See “The Future of Radiation Oncology in the United States From 2010 to 2020: Will Supply Keep Pace With Demand?” Benjamin D. Smith, Bruce G. Haffty, Lynn D. Wilson, Grace L. Smith, Akshar N. Patel, and Thomas A. Buchholz Journal of Clinical Oncology 2010 28:35, 5160-5165). |
The American Society of Clinical Oncology (ASCO) estimates more than 80% of cancers in the U.S. occur in people in the age group of 50 and above with over 60% of cancers occurring in those 65 and over. (See, 2018 Clinical Cancer Advances Report, American College of Clinical Oncology, 2018). For example, according to the American Cancer Society (ACS), more than 90% of colorectal cancer patients are individuals aged 50 years and older, with approximately 40% of all cases occur in patients aged 75 years and over. The Colon Cancer Alliance estimates that 90% of new cases and 95% of deaths from colorectal cancers occur in people aged 50 or older. Also, the U.S. Census estimates that the age group of 65-84 will grow by 23% within the next five years, indicating a likely increase in the overall number of cancer patients in the U.S. |
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The table below details the number and rate of cancers occurring in the United States in 2018:
Estimated New Cancer Cases in the US
Male | Female | |||||||||||||||||
Prostate | 174,650 | 26 | % | Breast | 268,600 | 38 | % | |||||||||||
Lung & bronchus | 116,440 | 17 | % | Lung & bronchus | 111,710 | 16 | % | |||||||||||
Colon & rectum | 78,500 | 12 | % | Colon & rectum | 67,100 | 10 | % | |||||||||||
Urinary bladder | 61,700 | 9 | % | Uterine corpus | 61,880 | 9 | % | |||||||||||
Melanoma of the skin | 57,220 | 8 | % | Melanoma of the skin | 39,260 | 6 | % | |||||||||||
Kidney & renal pelvis | 44,120 | 7 | % | Thyroid | 37,810 | 5 | % | |||||||||||
Non-Hodgkin lymphoma | 41,090 | 6 | % | Non-Hodgkin lymphoma | 33,110 | 5 | % | |||||||||||
Oral cavity & pharynx | 38,140 | 6 | % | Kidney & renal pelvis | 29,700 | 4 | % | |||||||||||
Leukemia | 35,920 | 5 | % | Pancreas | 26,830 | 4 | % | |||||||||||
Pancreas | 29,940 | 4 | % | Leukemia | 25,860 | 4 | % | |||||||||||
All sites | 677,720 | All sites | 701,860 |
2018 Clinical Cancer Advances Report, American College of Clinical Oncology, 2018
Colon Cancer Alliance. Colorectal Cancer Survival Rates from Facts and Figures, 2017. Chicago, IL; 2017
The U.S. 2019 estimated incidence, deaths and five-year survival rate of cancer patients responsive to radiation therapy is significant (ACS Facts & Figures, 2019). The top cancers responsive to radiation are shown, based on the number of newly diagnosed patients. The incidence rates for some cancers are increasing by approximately 1-2% per year in the U.S. The number of newly diagnosed patients is significant and growing due to the aging of the population and improved diagnostic techniques. |
All of the listed cancers illustrate the opportunity presented for radiation sensitizers. Of note is the low five-year survival of pancreas, brain, lung and esophagus cancers—all are candidates for Shuttle’s pipeline of radiation sensitizing compounds. Cancers with low survival rates are of interest since they show a high unmet need for new therapeutics and an opportunity for Shuttle to gain significant uptake of their pipeline compounds. |
Factors that are challenges and may restrict growth in the radiation sensitizer market include the safety and tolerability of many of the newer agents with radiation sensitizing properties; a regulatory environment that engenders greater levels of scrutiny of clinical practice issues; the high cost of newer agents; and the changing (and more restrictive) reimbursement environment in radiation oncology through CMS (Center for Medicare and Medicaid Services) and private payors. These factors may negatively impact the potential for growth in the US market. |
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Many of the drugs used “off-label” as radiation sensitizers currently require close scrutiny of their potential for side effects that can affect the safety and tolerability of their use with patients. All of the current agents carry significant potential for side effects that can affect patients’ therapies and quality of life. Radiation sensitizing agents can cause both acute and chronic side effects in patients. Side effects can vary from person to person depending on age, sex, type of cancer, dose given per day, total dose given, and the patient’s general medical condition. Some common side effects of currently used radiation sensitizers include leukopenia, skin damage, hair loss, fatigue, bladder problems, nausea, fibrosis, memory loss, infertility, and enhanced risk of developing a second cancer, which may arise as a result of the patient’s weakened immune system due to cytotoxic drugs used in treatment or when newer biologic agents cause the over-production of specific cytokines or proteins, which can lead to developing secondary cancers. |
Over the past five years, the FDA has taken an increasingly conservative approach to the approval of new agents for oncology treatment. There is greater scrutiny of results from clinical trials regarding progression free survival, overall survival, and safety and tolerability of new agents. Restrictions such as black box warnings and REMS (Risk Evaluation and Migration Strategies) are being applied to more new products over the past five years compared to the previous five years. These restrictions require physicians to be more careful in evaluating the use of newer agents and newer diagnostic tools to select the most appropriate patients for newer approved agents. |
Many of the new agents are molecularly targeted therapies that are biologic in their development and manufacturing. The cost of the newer agents can be significant. For example, the cost for Avastin for one treatment course as a radiation sensitizer is estimated at $9,000-12,000 according to one Key Opinion Leader in the U.S. (Carl Schmidt, Consultant, Shuttle Pharmaceuticals Holdings, Inc., Business Plan 2018). Recently, a CAR-T gene therapy from Novartis was launched with a yearly cost of $475,000. Further, as many private payors scrutinize the cost and appropriate use of newer drugs, they require physicians to provide justification for use of newer agents through prior authorization requests, use of step therapy and to follow guidelines that delay treatment, increase administrative costs and limit the therapeutic choices for physicians and hospitals. |
Public payors for radiation oncology therapies such as CMS have instituted reimbursement reductions that potentially affect the overall cost of therapy and can limit the acceptance of newer agents. With CMS announced reductions in reimbursement for radiation oncology, there is increased pressure to find a more potent radiation sensitizer agent with reduced side effects, and greater cost-effectiveness. |
Escalating healthcare spending is adding pressure on government and commercial payors to contain drug costs. While the oncology space is arguably not as tightly managed by payors as other therapeutic areas, utilization management of costly cancer therapeutics has become an increasing priority for US payors, especially with the advent of biologics. Payors (and market access agencies in the EU) will most often restrict high-cost drugs, drugs with limited or no survival benefits, and drugs deemed to be at high risk for widespread off-label use. |
Beyond efforts at cost containment by insurers (which often require patients to first be prescribed lower cost drugs in order to determine effectiveness prior to allowing for reimbursements for more expensive (or less cost effective) drugs), payors are also looking toward implementing clinical pathways as a way to maintain or improve health outcomes while lowering costs. Clinical pathways are designed to address the limitations of prior authorization and of reduced fee schedules, offering more durable cost containment to payors. These pathways may lead to cost savings by encouraging the use of generics, streamlining treatment choices, and reducing side effects while maintaining outcomes. |
Engineered Radiation Sensitizers
The market for radiation sensitizers in selected cancer types is defined by the need to improve local-regional tumor control. Treatment regimens have been developed to address patient needs for tumor control and quality of life. Since the initial applications of Ropidoxuridine and selective HDAC inhibitors are as adjuncts to the standard of care for the treatment of radiation responsive cancers, the unmet needs of the market lie in the potential for the following:
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● | Improvement in efficacy of radiation treatments as determined by overall survival, progression free survival and response rates in comparison to currently used “off-label” sensitizer drugs. | |
● | Reduction in radiation doses needed to affect a positive clinical response for the patient. | |
● | Reduction in the surgical extent that is needed to remove residual cancer. | |
● | Improvement in quality of life outcomes. |
Various sources have estimated that more than 800,000 patients in the US are treated with radiation therapy for their cancers. According to the American Cancer Society about 50% are treated for curative purposes and the balance for palliative care. The market opportunity for radiation sensitizers lies with the 400,000 patients treated for curative purposes. The number of patients being treated with RT is expected to grow by more than 22% over the next five years. Based on a rough estimate of a course of radiation sensitizing brand drug therapy (off label at this time) of $12,000 per patient—the market size would be in excess of $4.0 billion. This would represent about 4% of the annual cost of cancer care in the US.
In the past two decades, developments in the field of oncology have resulted in an increase in the number of clinical trials of marketed products that exhibit radiation sensitizing properties. The following are a few examples of recently approved products that exhibit radiation sensitizing properties: topotecan (Hycamtin®) was approved for ovarian and small-cell lung cancer and also in cervical cancer when used in combination with cisplatin. Irinotecan (Camptosar®) is used for metastatic colorectal carcinoma, trastuzumab (Hercepetin®) for breast cancer, and gefitinib (Iressa®) for locally advanced non-small-cell lung cancer. However, the claims on radiation sensitization are anecdotal in the scientific literature.
In addition, clinical trials are in progress to develop novel molecules (such as poly (ADP-ribose) polymerase (PARP), histone deacetylase (HDAC) inhibitors (such Zolinza® (vorinostat) and heat-shock protein 90 (hsp90) inhibitors with potential to increase the therapeutic use of compounds with radiation sensitizing properties for other cancers. Several drugs with radiation sensitizing properties are currently in Phase III clinical trials, such as nimorazole (for head and neck cancer), motexafin gadolinium (for brain metastases), and cisplatin (for cervical cancer); though none are likely to apply for a radiosensitizing claim with the FDA since the radiosensitizing element in their clinical trials are not primary endpoints. While additional drugs with radiation sensitizing properties are expected to be launched in the future, thereby driving the radiation sensitizers market further, to date, there is no indication that any drug in development is expected to be approved specifically as a radiation sensitizer.
The competitive environment for “off-label” radiation sensitizers for solid tumor cancers is anticipated to become predominantly generic. Avastin, Erbitux, Camptosar and Xeloda have or will lose patent protection in the next three years. Newer products under investigation or approved, such as Vectibix® (panitumumab) from Amgen will be promoted as having radiation sensitizing properties, along with indications for treatment for specific cancers. The high cost of these new therapies coupled with limited efficacy compared to current standard of care will be constrained by both public and private payors. Other new agents are in development but will face similar challenges.
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We anticipate that new products launching into the cancer market with anecdotal claims for use as radiation sensitizers with improved effectiveness, quality and tolerability will initially be limited in their growth until they have been added to established clinical pathways and guidelines. If their effectiveness, quality and tolerability are demonstrated clinically, as determined by the FDA, it is anticipated the National Comprehensive Cancer Network (NCCN), the leading authority in oncology drug evaluation for treatment guidelines, would issue a recommendation and addition to standard of care within approximately six to twelve months after launch. An NCCN recommendation would positively impact the growth potential for a new product entering the market. Also, payors, both public and private, would add the new product to their approved drug lists and provide reimbursement giving providers incentive to use the product as neoadjuvant and adjuvant therapy to standard of care.
As with many cancer therapies, side effects can often have a distinct impact on quality of life and influence the potential for market growth. Patients increasingly have a stronger voice in the decision-making process for the appropriate therapies and costs to treat their cancers. As payors are increasingly placing more of the financial burden of the cost of therapy directly on patients, patients are voicing their opinions to their physicians and payors which have a direct effect on which products are selected. Many of the current therapies have significant side effects:
Private insurers are expected to have more restrictive formularies and medical benefits in which patients will be expected to carry more of the burden of the cost of drugs. Also, it is anticipated that increased application of third party developed treatment guidelines, such as those from the NCCN (National Comprehensive Cancer Network), are expected to be used by private payors to limit the access to products for specific conditions through prior authorizations and implementation of step therapy or increased out of pocket cost approaches. As many of the current drugs used as radiation sensitizers are expensive and not approved for use as radiation sensitizers (thus, such treatment is “off label”), and as many of the products in clinical trials are expected to be at the current or higher price levels, new products that may be specifically approved for an indication as the only approved product as a radiation sensitizer will have increased consideration for reimbursement.
CMS is increasingly moving many patients to private insurance through Medicare Advantage and ACOs. Medicare Advantage plans are capitation HMO and PPO plans offered through private insurers to Medicare patients. ACOs are being developed to increase quality of care for their patients. Most of the new ACOs are initially positioned for Medicare patients with over 400 approved by CMS. Several studies from the Center for Health Strategies, 2017, Journal of American Medical Association, 2018 and the Brookings Institute, 2015 estimated that almost 1000 ACOs for Medicare and non-Medicare patient populations would be approved by CMS or developed by a variety of healthcare entities to begin operating under the ACA in 2017. We expect the growth in ACOs to continue, regardless of any changes that may be made to the ACA going forward. In early 2017, Health Affairs, a magazine tracking ACOs, estimated that over 22 million patients are enrolled in Medicare and private ACOs. To address the quality of care measures designated by CMS and to gain additional incentives, use of clinical pathways or treatment guidelines is anticipated to be increasingly instituted to manage patient care. The impact on the uptake of new products in this environment can be profound if the new product is first in class and is included in national guidelines from organizations such as the NCCN and/or approval by the regional CMS contracting groups.
ROPIDOXURIDINE
The halogenated thymidine (TdR) analogs, bromodeoxyuridine (BUdR) and iododeoxyuridine (IUdR), are a class of pyrimidine analogs that have been recognized as potent radiosensitizing agents since the early 1960s. (See Kinsella TJ. An Approach to the Radiosensitization of Human Tumors. Cancer J Sci Am. Jul-Aug 1996:2(4); 184-193). Their cellular uptake and metabolism are dependent on the TdR salvage pathway where they are initially phosphorylated to the monophosphate derivative by the rate-limiting enzyme, thymidine kinase (TK). (See Shewach DS, Lawrence TS. Antimetabolite radiosensitizers. J Clin Oncol, Sep 10 2007; 25(26):4043-4050). After sequential phosphorylation to triphosphates, they are then used in DNA replication, in competition with deoxythymidine triphosphate (dTTP), by DNA polymerase. DNA incorporation is a prerequisite for radiosensitization of human tumors by the halogenated TdR analogs, and the extent of radiosensitization correlates directly with the percentage TdR replacement in DNA. (See Lawrence TS, Davis MA, Maybaum J, Stetson PL, Ensminger WD. The Dependence of Halogenated Pyrimidine Incorporation and Radiosensitization on the Duration of Drug Exposure. International Journal of radiation oncology, biology, physics. Jun 1990; 18(6);1393-1398). The molecular mechanisms of radiosensitization are most likely the result of increased susceptibility of TdR analog-substituted DNA to the generation of highly reactive uracil free radicals by ionizing radiation (IR), which may also damage unsubstituted complementary-strand DNA. Repair of IR damage may also be reduced by pre-IR exposure to these analogs.
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The rationale for using Ropidoxuridine as a radiation sensitizer is based on prior clinical studies with the active metabolite IUdR; identified in NIH laboratories as a potent radiation sensitizer. Ropidoxuridine is an orally available prodrug of IUdR. In the body, Ropidoxuridine is metabolized in the liver into IUdR. IUdR is incorporated into the DNA of actively growing cells and when cells are exposed to ionizing radiation, DNA strand breaks are generated, resulting in more cell death and radiation sensitization. (See Gurkan E, Schupp JE, Aziz MA, Kinsella TJ, Loparo KA. Probabilistic modeling of DNA mismatch repair effects on cell cycle dynamics and iododeoxyuridine-DNA incorporation. Cancer Res. Nov 15 2007; 67(22):10993-11000).
Most of the clinical efficacy data were obtained from NIH supported studies performed with IUdR, the active metabolite of Ropidoxuridine. However, IUdR requires constant infusion over six weeks of therapy which creates a significant compliance issue for patients. Ropidoxuridine can be given as a capsule for oral administration, resulting in greater ease of medication delivery and potentially improved compliance and fewer complications.
Over the last 20 years, there has been renewed interest in these halogenated TdR analogs as experimental radiation sensitizers in selected cancer patient groups. These analogs are rapidly metabolized in both rodents and humans, principally with cleavage of deoxyribose and subsequent dehalogenation by hepatic and extrahepatic metabolism, when given as a bolus infusion with a plasma half-life of <5 min. Consequently, prolonged continuous or repeated intermittent drug infusions over several weeks before and during irradiation are necessary, based on in vivo human tumor kinetics, to maximize the proportion of tumor cells that incorporate these analogs into DNA during the S phase of the cell cycle. (See Fowler JF, Kinsella TJ. The Limiting Radiosensitization of Tumors by S-phase Sensitizers. Br J Cancer. 1996;74 (Suppl)(27):294-296). Phase I and Phase II trials using prolonged continuous or repeated intermittent intravenous infusions of BUdR or IUdR before and during radiation therapy (RT) have focused principally on patients with high-grade brain tumors. These clinically radiation resistant tumors can have a rapid proliferation rate (potential tumor doubling times of 5–15 days) and are surrounded by non-proliferating normal brain tissues that show little to no DNA incorporation of the TdR analogs. As such, high-grade brain tumors are ideal targets for this approach to radiation sensitization. In Phase I/Phase II clinical trials, prolonged survival outcomes were observed compared to RT alone in patients with anaplastic astrocytomas and in patients with glioblastoma multiforme IUdR continuous IV infusion (1000 mg/m2/ day/ 14 days), Total 39 patients (F. Sullivan, et al. Int J Radiat Oncol Biol Phys. 1994; 30(3):583-90.) A therapeutic gain in clinical radiation sensitization using these halogenated TdR analogs was proposed for other types of clinically poorly radiation responsive (radiation resistant) cancers, including locally advanced cervical cancer, head and neck cancers, unresectable hepatic metastases from colorectal cancers, and locally advanced sarcomas, based on the results of other Phase I/Phase II clinical trials.
Target Indication: Glioblastoma, Sarcomas and Rectal Cancers
After completion of the Phase I clinical trial of Ropidoxuridine and RT in advanced GI cancers, we proposed to perform Phase II efficacy clinical trials in brain tumors (glioblastoma), soft tissue sarcomas, and rectal cancers. Glioblastoma multiforme is a deadly malignancy of the brain with no known cure. Radiation therapy provides delay of disease progression and is standard of care following surgical resection or biopsy. Radiation therapy is combined with Temodar, a drug that has shown activity (~ four months survival benefit) in treating brain tumors. Preliminary data using radiation therapy in combination with IUdR resulted in a delay of disease progression of up to six months. We propose to test IPdR in combination with radiation therapy in the Phase II clinical trial. Similarly, delay in disease progression has been observed following treatment of sarcomas by the combination of IUdR and RT. Based on the Phase I data of our clinical trial we know that therapeutic levels of IUdR are reached by administering the orally available prodrug, IPdR.
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Clinical Data
The Phase I results of the clinical trial supported by an SBIR contract to Shuttle Pharma and a sub-contract to the Brown University Oncology Group (BrUOG) at the LifeSpan/Rhode Island Hospital were reported by the subcontractor at the 30th EORTC-NCI-AACR Symposium in November 2018 and in the medical journal, Clinical Cancer Research, in 2019. Eighteen patients completed dose escalation to 1800 mg/day for 30 days, establishing the maximum tolerated dose (MTD) of 1,200 mg/day in combination with RT. Therapeutic blood levels of IUdR were achieved. Four patients were scored as partial responses, nine patients had stable disease and one patient progressed in the target lesions. These data support advancing IPdR and RT to clinical trials for the FDA to determine efficacy.
Development Plan
A key to driving the Ropidoxuridine product forward, the new formulation of IPdR/TPI, is the development of a clinical plan with aggressive timelines and support within the radiation oncology community to participate in clinical trials with the appropriate patients to ensure a comprehensive NDA dossier for each product. Initially, the plan is focused on the Phase I and Phase II clinical trials. Upon completion of these studies, we will determine whether to extend the Phase II study to a randomized Phase II, or to perform a randomized Phase III clinical trial. Such determination will be based, in part, on results of the initial clinical trials and the end of a Phase II meeting with the FDA. Shuttle Pharmaceuticals requested and received FDA orphan drug status for Ropidoxuridine as a clinical radiation sensitizer for treatment of glioblastoma and pre-operative treatment of soft tissue sarcomas. As a result, the application for “orphan” designation for Ropidoxuridine with RT for glioblastoma has been approved. The application for sarcomas, however, was not approved and will require addressing certain FDA comments and resubmission. The IPdR/TPI formulation clinical plan will focus on resectable stage II and III rectal cancer patients.
Our clinical plan for Ropidoxuridine development includes:
● | GMP manufacture and formulation of 24 kg of Ropidoxuridine for use in clinical trials. | |
● | Completion of pre-clinical Ropidoxuridine and Temodar drug-drug interaction safety study. | |
● | Submission of an IND for a Phase II clinical trial of Ropidoxuridine, Temodar and RT in glioblastoma. | |
● | Negotiations for CRO contracts to perform the Phase II clinical trial. | |
● | Completion of the Phase II clinical trial in glioblastomas to determine appropriate dosing, quality, effectiveness and tolerability. |
We believe the data obtained from the NIH/NCI SBIR funded Phase I clinical trial supports efforts to raise additional capital to enable performing the Phase II clinical trials of Ropidoxuridine. We aim to conduct and complete the Phase II clinical trial so that we may present data to the FDA for its determination of efficacy. We believe this will support our efforts to raise the additional required capital to fund Phase III clinical trials and seek FDA approval of an NDA with “orphan” designation.
The clinical plan for the IPdR/TPI formulation will focus on resectable Stage II and Stage III rectal cancer patients. Nonetheless, we cannot guarantee the successful completion of any of these trials. Our inability to meet any of the aforementioned milestones in the Phase II or Phase III clinical trials will cause us to be unable to proceed with our present efforts and will likely cause us to be unable to raise additional funds.
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Our HDAC Small Molecule Delivery Platform
General
Since the founding of Shuttle Pharma, our discovery research and development efforts have been focused on our small molecule technology delivery platform which uses HDAC inhibitors, designed to target cancer cells, while protecting healthy tissue.
HDACs are a class of enzymes that regulate gene expression through chemical modification of histones and non-histone proteins. Increased HDAC activity leads to a more condensed chromatin (which is a protein complex consisting of DNA and other proteins), decreased gene expression and loss of key gene products, including tumor suppressor gene function. Inhibition of HDAC activity leads to a more open chromatin and increased expression of the key gene products. This chromatin modification underlies the epigenetic cellular regulatory system and is an area of intense investigation.
Our research and development efforts to date have focused on the discovery of novel, dual functional molecules for potential use in cancer treatment as radiation sensitizers of cancers, protectors of normal tissues, and activators of the immune responses to antigens expressed by irradiated cancer cells. To date, we have produced three candidate molecules:
● | SP-1-161, a candidate lead of compounds demonstrating activation of the “ATM” gene product (mutated in Ataxia-Telangiectasia). Ataxia-Telangiectasia is a human genetic disease characterized by neurological, immunological and radiobiological clinical features. | |
● | SP-2-225, a candidate lead of compounds demonstrating Class II (HDAC6) selective inhibition. HDAC6 is a molecule integral to the presentation of antigens by macrophages to T-lymphocytes. | |
● | SP-1-303 is a candidate Class I HDAC inhibitor with preferential efficacy against ER positive cancers. |
SP-1-161 - A Dual Functional Agent
SP-1-161 is an HDAC inhibitor of the hydroxamate chemical class of compounds and an ATM activator of the indole chemical class. HDACs modify histones and non-histone proteins, which are key components of the chromatin structure, gene expression regulation, and cell growth. HDAC inhibitors inhibit cell proliferation, angiogenesis and immunity. Eighteen human HDACs have been identified, subdivided into four classes based on sequence and functional homology. In cancer cells, HDAC activity silences tumor suppressor genes important for cell growth regulation and to chromosomal instability. Abnormal HDAC activity is also associated with tumor cell growth, invasion, metastasis and resistance to therapy. Therefore, inhibitors of HDACs have emerged as anti-cancer agents for cancer therapy. Vorinostat and romidepsin have been approved by the FDA for treatment of patients with relapsed or refractory T-cell lymphomas. In addition, panobinostat received FDA approval for treatment of recurrent multiple myeloma in combination with bortezomib and dexamethasone.
In preclinical studies, SP-1-161 inhibited the activity of pan-HDACs and activated the ATM gene product. ATM is a critical protein for the activation of the cell stress response for cellular recovery from radiation exposure in normal cells, but not in cancer cells. ATM activates the P53 protein, referred to as the “guardian of the genome,” and serves as a tumor suppressor critical for normal cell function and activation of programmed cell death in cancer cells.
In preclinical studies, SP-1-161 protected normal breast epithelial cells (184A1) following exposure to ionizing radiation while increasing sensitivity of breast cancer cells (MCF7). SP-1-161 provides this dual function in a single molecule and this molecule is differentiated from other HDAC inhibitors by treatment of cancers while protecting normal cells.
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SP-2-225
SP-2-225 is a selective HDAC inhibitor that affects histone deacetylase (HDAC6) and is a member of the class IIb HDAC family. Class II HDACs play important roles in cancer motility, invasion, neurological diseases, and immune checkpoint. HDAC6 inhibition has been most extensively studied for its role in the treatment of hematological cancers. HDAC6 is unique among HDAC enzymes in having two active catalytic domains and a unique physiological function. In addition to the modification of histones, HDAC6 targets specific substrates including α-tubulin and HSP90, and are involved in protein trafficking and degradation, cell shape and migration. Selective HDAC6 inhibitors are an emerging class of pharmaceuticals due to the involvement of HDAC6 in pathways related to neurodegenerative diseases, cancer and immunology. Specifically, its potential to affect regulation of the immune system and enhance the immune response in cancer is of great interest. With the introduction of check-point inhibitors, CAR-T therapies and personalized medicine in cancer, regulation of the immune response to this therapy is of significant clinical and commercial interest. (See Grindrod S, Brown M, Jung M. “Development of dual Function Small Molecules as Therapeutic Agents for Cancer Research,” Poster presentation #A178, American Association of Cancer Research Oct 2017).
Selective inhibition of HCAC6 reduces dose limiting side effects associated with non-selective HDAC inhibitors. Selective HDAC6 inhibitors may be combined with other cytotoxic agents. Shuttle’s discovery of selective HDAC inhibitors has yielded several HDAC6 selective candidate molecules including SP-2-225. HDAC6 inhibitors are under investigation for roles in the treatment of diseases such as multiple myeloma.
SP-1-303 - Target Indication: Breast Cancer
Histone deacetylase inhibitors sensitize cancers to the effects of radiation, protecte normal tissues from radiation injury and activate the immune system. SP-1-303 is a selective Class I HDAC inhibitor that inhibits HDAC1, 3 and 6 and has direct cellular toxicity in ER positive breast cancer cells. Furthermore, SP-1-303 increases the PD-L1 expression level in a time-dependent manner, support combination of SP-1-303 with an immune checkpoint blocker to enhance the therapeutic benefits. We are currently conducting preclinical efficacy studies of these molecules.
Development Plan
The HDAC inhibitor platform of candidate molecules will require pre-clinical evaluation, completion of IND-enabling studies and the lead drug candidates will be tested in Phase I clinical trials for pharmacokinetics and MTD determination. We have three lead candidates for potential development for the treatment of solid tumors, including breast cancer, lung cancer and multiple myeloma.
The results of Phase I and Phase II clinical trials will determine further drug development and Shuttle will seek to establish collaborative partnerships with other pharmaceutical companies to complete pre-clinical and clinical development, drug manufacturing and marketing of our product candidates. In the event we are unsuccessful in completing our clinical trials at any stage, or in the event we obtain negative results, we will likely be unable to raise additional funding related to our HDAC studies or will have to change direction of our research efforts regarding the HDAC inhibitor platform of candidate molecules.
Our Manufacturing Strategy
We have no manufacturing facilities that are company owned or operated. We have performed laboratory scale synthesis and testing in our research laboratories in Gaithersburg, Maryland. GMP synthesis of API, drug formulation and human dosage preparation will be performed under contracts with third-party manufacturers.
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Strategic Agreements
We have developed important strategic agreements with academic institutions for access to resources such as intellectual property, core facilities and contracting relationships. In addition, we have established an agreement with Propagenix for intellectual property in-licensing. Our current and ongoing relationships include:
● | Georgetown University |
○ | Sub-contractor for the SBIR supported African-American prostate cancer patient health disparities project (completed). The conditional reprogramming of cells (CRC) technology was invented at Georgetown University and Georgetown University owns the intellectual property. Propagenix holds the license for the intellectual property for the CRC technology from Georgetown University. The intellectual property for cells derived from African-American patients under the Georgetown University subcontract belong to Shuttle Pharmaceuticals, Inc. based on our sub-licensing agreement with Propagenix. | |
○ | Sub-contractor for the SBIR supported metabolomic predictive biomarker project (completed). The metabolomic biomarker intellectual property belongs to Georgetown University |
● | Brown University |
○ | Sub-contractor of the SBIR supported Phase I clinical trial of IPdR and RT (completed). |
● | University of Virginia |
○ | Research collaboration to develop heavy oxygen molecules for proton radiation sensitizer applications. |
● | George Washington University |
○ | Material transfer agreement for testing HDAC inhibitor effects in immune model systems | |
○ | The material transfer agreement that protects our HDAC inhibitor intellectual property is with George Washington University, transferring drugs for research purposes and sharing authorship on publications. There is no transfer of funds related to such activities. |
● | Propagenix, Inc. |
○ | License agreement for “conditional re-programmed cell” (CRC) technology. The cells established by Shuttle Pharma scientists at Georgetown University belong to us, based on the sublicense from Propagenix, Inc. An up-front licensing fee of $25,000 was paid to Propagenix. No other future milestone or royalty payments owed related to the Propagenix agreement. |
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Competition “Off-Label” Use
Drugs with radiation sensitizing properties.
Our Product Candidates
We are advancing a clinical stage product candidate, Ropidoxuridine, that we believe will target cancer cells while protecting healthy tissue when used in conjunction with RT.
Ropidoxuridine
Ropidoxuridine, an orally available halogenated pyrimidine with strong cancer radiation sensitizing properties, is our lead “clinical phase” product candidate. Halogenated pyrimidines are incorporated into DNA by rapidly growing cancer cells and become more sensitive to the effects of RT. We have received an SBIR contract from the NIH to fund a Phase I clinical trial in collaboration with Brown University at the Lifespan/Rhode Island Hospital to determine the maximum tolerated dose in patients with advanced gastrointestinal cancers. In connection with the trial, NCI has approved the Phase I clinical protocol and provided drug and clinical data management support to Rhode Island Hospital. The Phase I clinical trial has been completed and the results support advancing Ropidoxuridine to Phase II clinical trials of brain tumors, sarcomas and other tumors through contracted research organizations (or CROs).
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The following tables provide data from reported clinical trials of Iododeoxyuridine and RT therapy in brain cancers (glioblastoma multiforme) and high-grade sarcomas. Our primary strategy for Ropidoxuridine and RT therapy is to provide oral drug delivery to effect radiation sensitization of cancers and validate effectiveness in glioblastoma and sarcoma, potential “Orphan” indications.
Brain Cancer Treatment
Efficacy compared to historical RT-alone controls for treatment
of high-grade primary brain tumors (RTOG*, NCI** trials)
** | IUdR continuous IV infusion (1000 mg/m2/ day/ 14 days), Total of 39 patients (F. Sullivan, et al. Int J Radiat Oncol Biol Phys. 1994; 30(3):583-90) |
* | IUdR continuous IV infusion (2000 mg/m2/ 4 day infusion/ 6 week treatment), Total of 21 patients (R. Urtasun, et al. Int J Radiat Oncol Biol Phys. 1996;36(5):1163-7.) |
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Sarcoma Treatment
Efficacy compared to historical RT-alone controls for treatment
of high-grade sarcomas (University of Michigan*** trials)
*** | 16 patients were treated with continuous infusion (1000-1600 mg/m2/day) plus RT (J.M. Robertson, et al. Int J Radiat Oncol Biol Phys. 1995; 31(1):87-92). |
In addition to our primary product candidate, we are developing and planning to develop other cancer radiation sensitizers and radiation protectors, which target protecting normal tissue during the administration of RT, and other products utilizing our HDAC small molecule technology platform.
SBIR Contracts
The SBIR Program
The Small Business Innovation Research program, as developed by Congress under the Small Business Innovation Development Act of 1982, is designed to encourage domestic small businesses to engage in Federal Research/Research and Development (“R/R&D”) that has the potential for commercialization. Through a competitive awards-based program, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. Some of the SBIR’s program goals include stimulating technological innovation, meeting Federal research and development needs and encouraging participation in innovation and entrepreneurship.
The SBIR program is a three-phase program. Phase 1 is to establish the technical merit and commercial potential of the proposed R/R&D efforts. Phase 2 is to continue the R/R&D efforts initiated in Phase 1 and funding is based on the results achieved in Phase 1. Phase 3 allows for the small business to pursue commercialization objectives resulting from the Phase 1 and 2 R/R&D activities. In addition, companies that have successfully completed Phases I and II are also eligible to apply for Phase IIb funding.
In addition to the SBIR contract to fund our Phase I clinical study on Ropidoxuridine in combination with RT for treatment of advanced gastrointestinal cancers, we have also received awards of SBIR contracts from the NIH to address prostate cancer health disparities and prostate cancer radiation biomarker development.
As of the date of this prospectus, all SBIR contracts received by the Company have been completed. The Company submitted a final report for SBIR contract # 75N81018C00031 on March 28, 2022. The following summary of terms for the three Phase II SBIR contracts is provided below.
Summary of SBIR Contracts
● | SBIR contract #261201400013C: Phase I ($191,971) and Phase II ($1,428,117) for Clinical Development of IPdR for Radiosensitization, dates September 19, 2014 through August 3, 2017, Subcontract to Brown University/LifeSpan Rhode Island Hospital. No related intellectual property. | |
● | SBIR contracts # HHSN261201600038C; Phase I ($224,687) and #261201800016C: Cell-Based Models for Prostate Cancer Health Disparity Research - Moonshot Project (Phase II), award amount $1,484,350, dates September 19, 2016 through September 16, 2021, Subcontract to Georgetown University, Intellectual property consists of cell cultures and is property of Shuttle Pharmaceuticals, Inc. via licensing agreement. | |
● | SBIR contracts #HHSN261201600027C ($299,502) and #75N81018C00031: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects, award amount $1,903,015, dates September 16, 2019 through March 15, 2022. Subcontract to Georgetown University, Intellectual property is owned by subcontractor Georgetown University with option to license to Shuttle Pharmaceuticals, Inc. |
Prostate Cancer Studies to Address Health Disparities
Prostate cancer health disparities studies have shown that African-American men are at higher risk for developing prostate cancer, as well as at higher risk of cancer specific death rates as compared to Caucasian American men. The causes of disparities have been attributed to socioeconomic differences, environmental exposures and biological factors. Most disparities studies have been population based, in part, due to the lack of relevant in vitro and in vivo models to support biological studies.
Shuttle Pharma has been awarded Phase I and II SBIR contracts entitled “Cell-based models for prostate cancer health disparity research” to develop African-American prostate cancer cell lines with donor matched normal prostate epithelial cell lines from African American men.
The commercialization of the prostate cells will require additional support through the SBIR funding mechanism. Companies that have completed Phase I and II SBIR awards are eligible to apply for Phase IIb SBIR funding. These awards are intended to de-risk a project by providing up to $4 million of matching funding for product development to commercialization. We intend to apply for such government funding to advance laboratory facilities and to expand the availability of the cell cultures. We are not raising capital through this IPO for the health disparities project. Should we not be successful for SBIR IIb funding, we will pause and may have to terminate this project.
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Prostate Cancer Biomarker Development
Patients treated for prostate cancer may experience treatment related late effects that adversely affect quality of life and may prove life-threatening. Shuttle has been awarded a Phase I SBIR contract entitled “Predictive biomarkers for prostate cancer patient sensitivity for radiation late effects” to determine the technical and commercial feasibility of a biomarker panel predictive of radiation mediated late effects in patients treated for prostate cancer.
Through collaboration with Georgetown University, patients treated with SBRT for prostate cancers will be analyzed for urinary and rectal symptoms and their blood will be analyzed by mass spectroscopy for predictive biomarkers. The discovery and validation of metabolite panels to serve as a predictive biomarker of patient outcomes following radiation therapy will support future development and commercialization of a diagnostic product through a Phase 2 SBIR effort.
The development to commercialization of the metabolite predictive biomarker panel will require additional support through the SBIR funding mechanism. We will be eligible to apply for Phase IIb SBIR funding the next round of solicitation. A Phase IIb will help de-risk the project by providing up to $4 million of matching funds for performing the clinical validation trial for product development to commercialization. We intend to apply for such government funding to advance this project. We do not intend to use the funds raised through this IPO for the health disparities project. Should we not be successful for SBIR IIb funding, we will terminate this project.
Collaborative Arrangements
While we intend to enter into collaborative arrangements to further develop our drug candidates in the future, at present we have not entered into any collaborative arrangements with third parties to develop our drug candidates as we are still completing clinical trials and, as a result, there can be no assurance that we will be able to do so on commercially reasonable terms or otherwise.
Intellectual Property
We invest significant amounts in research and development. Our research and development expenses before contract reimbursements were $591,237 and $604,181 for the six months ended June 30, 2022 and 2021 respectively. After reimbursements for contracts of $211,455 for the six months ended June 30, 2022 and 2021, net research and development expenses were $379,783 and $392,726, respectively.
We are seeking multifaceted protection for our intellectual property that includes licenses, confidentiality and non-disclosure agreements, copyrights, patents, trademarks and common law rights, such as trade secrets. We enter into confidentiality and proprietary rights agreements with our employees, consultants, collaborators, subcontractors and other third parties and generally control access to our documentation and proprietary information.
As of the date of this prospectus, we have filed four patent applications with the USPTO with respect to various aspects of our HDAC small molecule delivery platform and Ropidoxuridine, our lead product candidate. The following is the status of the patent applications Shuttle has filed to date:
Summary of Shuttle Pharma’s Intellectual Property Portfolio
USPTO number | Title | Date Filed | Date Granted | Anticipated Expiration Date** | ||||
US Application No.: 16/475,999 | Methods and compositions for cancer therapies that include delivery of halogenated thymidines and thymidine phosphorylase inhibitors in combination with radiation | 7/3/2019
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US Application No.: 17/484,876 | Dual function molecules for histone deacetylase inhibition and ataxia telangiectasia mutated activation and methods of use thereof | 9/24/2021 | ||||||
US Application No.: 17/315,567 | Selective histone deacetylase inhibitors for the treatment of human disease | 5/10/2021 | ||||||
US Application No.: 16/959,570 |
Selective histone deacetylase inhibitors for the treatment of human disease | 7/01/2020 | ||||||
US Patent No.: 9,809,539 | Dual function molecules for histone deacetylase inhibition and ataxia telangiectasia mutated activation and methods of use thereof | 3/3/2015 | 11/7/2017 | 3/3/2035 | ||||
US Patent No.: 11,034,667 | Selective histone deacetylase inhibitors for the treatment of human disease | 7/3/2019 | 6/15/2021 | 1/9/2038 | ||||
US Patent No.: 10,730,834 | Selective histone deacetylase inhibitors for the treatment of human disease | 8/4 /2020 | 8/4/2020 | 3/3/2035 | ||||
US Patent No.: 10,745,352 | Selective histone deacetylase inhibitors for the treatment of human disease | 8/18/2020 | 8/18/2020 | 3/3/2035 |
Morgan, Lewis & Bockius LLP prepared patent applications related to Ropidoxuridine (IpdR) and HDAC inhibitors, and, in the fourth quarter of 2018, found no freedom to operate (FTO) issue for Ropidoxuridine used as radiosensitizer and used with tipiracil, and HDAC inhibitors SP-1-161 and SP-2-225.
Our strategy around protection of our proprietary technology, including any innovations and improvements, is to obtain worldwide patent coverage with a focus on jurisdictions that represent significant global pharmaceutical markets. Generally, patents have a term of twenty years from the earliest priority date, assuming that all maintenance fees are paid, no portion of the patent has been terminally disclaimed and the patent has not been invalidated. In certain jurisdictions, and in certain circumstances, patent terms can be extended or shortened. We are obtaining worldwide patent protection for at least novel molecules, composition of matter, pharmaceutical formulations, methods of use, including treatment of disease, methods of manufacture and other novel uses for the inventive molecules originating from our research and development efforts. We continuously assess whether it is strategically more favorable to maintain confidentiality for the “know-how” regarding a novel invention rather than pursue patent protection. For each patent application that is filed we strategically tailor our claims in accordance with the existing patent landscape around a particular technology.
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There can be no assurance that an issued patent will remain valid and enforceable in a court of law through the entire patent term. Should the validity of a patent be challenged, the legal process associated with defending the patent can be costly and time consuming. Issued patents can be subject to oppositions, interferences and other third-party challenges that can result in the revocation of the patent limit patent claims such that patent coverage lacks sufficient breadth to protect subject matter that is commercially relevant. Competitors may be able to circumvent our patents. Development and commercialization of pharmaceutical products can be subject to substantial delays and it is possible that at the time of commercialization any patent covering the product has expired or will be in force for only a short period of time following commercialization. We cannot predict with any certainty if any third-party U.S. or foreign patent rights or other proprietary rights will be deemed infringed by the use of our technology. Nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third parties. Should we need to defend ourselves and our partners against any such claims, substantial costs may be incurred. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability to develop or commercialize some or all of our products in the U.S. and abroad, and could result in the award of substantial damages. In the event of a claim of infringement, we or our partners may be required to obtain one or more licenses from a third party. There can be no assurance that we can obtain a license on a reasonable basis should we deem it necessary to obtain rights to an alternative technology that meets our needs. The failure to obtain a license may have a material adverse effect on our business, results of operations and financial condition.
We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that we can meaningfully protect our trade secrets on a continuing basis. Others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets.
It is our policy to require our employees and consultants, outside scientific collaborators, sponsored researchers and other advisors who receive confidential information from us to execute confidentiality agreements upon the commencement of employment or consulting relationships. These agreements provide that all confidential information developed or made known to these individuals during the course of the individual’s relationship with the company is to be kept confidential and is not to be disclosed to third parties except in specific circumstances. The agreements provide that all inventions conceived by an employee will be the property of our company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for our trade secrets in the event of unauthorized use or disclosure of such information.
Our success will depend in part on our ability to obtain and maintain patent protection, preserve trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others, both in the U.S. and other territories worldwide.
Manufacturing and Supply
We do not currently own or operate manufacturing facilities for the production of preclinical, clinical or commercial quantities of any of our product candidates. We currently use a number of our suppliers for the raw materials and formulation to meet the preclinical and any clinical requirements of our product candidates. We do not have a long-term agreement with any of these parties and we believe alternative sources of supply exist.
We intend to enter into collaborations for the manufacture of our product candidates, with our collaborators assuming responsibility for such manufacturing. Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Any collaborator or third-party contract manufacturer we use would need to be compliant with cGMP. cGMP is a regulatory standard for the production of pharmaceuticals that will be used in humans.
Competition
The development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as technology being developed at universities and other research institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that enter the market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we may try to develop product candidates.
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Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than we have. If we are able to obtain approval for any product candidate, we will face competition based on many different factors, including the quality and effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, and less expensive or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.
The following figure provides summary information about cytotoxic drugs that may be used with radiation therapy for their sensitizing properties that currently comprise the competition for Shuttle’s agents.
Fluorouracil (5-FU) is an anti-metabolite used to treat cancer, by injection, for colon cancer, esophageal cancer, stomach cancer, pancreatic cancer, breast cancer, and cervical cancer. Fluorouracil was patented in 1956 and is an effective and safe drug with radiation sensitizing properties. Capecitabine, an orally available formulation of 5-FU and was patented in 1992. It is used for the treatment of gastric, esophageal and other cancers for sensitization to radiation therapy.
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Cetuximab is an epidermal growth factor receptor (EGFR) inhibitor used for the treatment of metastatic colorectal, lung cancer and head and neck cancers. This monoclonal antibody is administered by intravenous infusion and improves the 5-year survival of patients when used in combination with radiation therapy, compared with radiotherapy alone.
Platinum based compounds (cis-platin, carbo-platin and oxaloplatin) also exhibit radiation sensitizing properties. Platinum and radiation are used together for the treatment of locally advanced cervical cancer and for head and neck cancers. Cisplatin is believed to augment the effects of radiation by inhibiting the repair of radiation-induced sub-lethal damage.
Bevacizumab works as an anti-angiogenic agent. It was approved for medical use in the United States in 2004. The addition of bevacizumab to standard treatment can prolong the lives of breast and lung cancer patients by several months and may be used with radiation therapy.
Irinotecan is given by injection and is used to treat colon cancer and small cell lung cancer and can be combined with radiation therapy. For colon cancer it is used either alone or with fluorouracil.
Government Regulation and Product Approval
Governmental authorities in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through the NDA process before they may be legally marketed in the U.S. and will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
U.S. government regulation
NDA approval processes
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development or approval process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:
● | refusal to approve pending applications; | |
● | withdrawal of an approval; | |
● | imposition of a clinical hold; | |
● | warning letters; | |
● | product seizures; | |
● | total or partial suspension of production or distribution; or | |
● | injunctions, fines, disgorgement, or civil or criminal penalties. |
The process required by the FDA before a drug may be marketed in the U.S. generally involves the following:
● | completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to GLPs or other applicable regulations; |
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● | submission to the FDA of an IND, which must become effective before human clinical trials may begin; | |
● | performance of adequate and well-controlled human clinical trials according to GCPs to produce data that the FDA may review to determine safety and efficacy of the product candidate for its intended use; | |
● | submission to the FDA of an NDA; | |
● | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product candidate is produced to assess compliance with cGMPs to assure that the facilities, methods and controls are adequate to preserve the product candidate’s identity, strength, quality and purity; and | |
● | FDA review and approval of the NDA. |
Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring quality and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective thirty (30) days after receipt by the FDA, unless the FDA, within the thirty (30) day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the IND.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the quality and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug. An institutional review board (IRB) at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined.
● | Phase I—The product candidate is initially introduced into healthy human subjects and tested for quality, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some product candidates for severe or life-threatening diseases, such as cancer, especially when the product candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. | |
● | Phase II—Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. | |
● | Phase III—Clinical trials are undertaken to further evaluate dosage and produce data that the FDA may determine to establish clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling. |
Human clinical trials are inherently uncertain and Phase I, Phase II and Phase III testing may not achieve desired results or otherwise be completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
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During the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to the submission of an IND, at the end of Phase II and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase II to discuss their Phase II clinical results and present their plans for the pivotal Phase III clinical trial that they believe will support the approval of the new drug. If a Phase II clinical trial is the subject of discussion at the end of Phase II meeting with the FDA, a sponsor may be able to request a Special Protocol Assessment (“SPA”), the purpose of which is to reach agreement with the FDA on the Phase III clinical trial protocol design and analysis that will form the primary basis of an efficacy claim.
According to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for a SPA and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocol within forty-five (45) days of the request to assess whether the proposed trial is adequate, which evaluation may result in discussions and a request for additional information. An SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the product candidate was identified after the testing began.
Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must develop methods for testing the quality, purity and potency of the product candidate. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its proposed shelf-life.
The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested.
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Expedited review and approval
The FDA has various programs, including Fast Track, priority review and accelerated approval, which are intended to expedite or simplify the process for reviewing product candidates, or provide for the approval of a product candidate on the basis of a surrogate endpoint. Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product candidate no longer meets the conditions for qualification or that the time period for FDA review or approval will be shortened. Generally, product candidates that are eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs and those that offer meaningful benefits over existing treatments. For example, Fast Track is a process designed to facilitate the development and expedite the review of product candidates to treat serious or life-threatening diseases or conditions and fill unmet medical needs. Priority review is designed to give product candidates that offer major advances in treatment or provide a treatment where no adequate therapy exists an initial review within six months as compared to a standard review time of ten (10) months.
Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated product candidate and expedite review of the application for a product candidate designated for priority review. Accelerated approval, which is described in Subpart H of 21 CFR Part 314, provides for an earlier approval for a new product candidate that is intended to treat a serious or life-threatening disease or condition and that fills an unmet medical need based on a surrogate endpoint. A surrogate endpoint is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome. As a condition of approval, the FDA may require that a sponsor of a product candidate receiving accelerated approval perform post-marketing clinical trials.
In the Food and Drug Administration Safety and Innovation Act (“FDASIA”), the U.S. Congress encouraged the FDA to utilize innovative and flexible approaches to the assessment of product candidates under accelerated approval. The law required the FDA to issue related draft guidance within a year after the law’s enactment and also promulgate confirming regulatory changes. In June 2013, the FDA published a draft Guidance for Industry titled “Expedited Programs for Serious Conditions—Drugs and Biologics,” which provides guidance on FDA programs that are intended to facilitate and expedite development and review of new product candidates as well as threshold criteria generally applicable to concluding that a product candidate is a candidate for these expedited development and review programs.
In addition to the Fast Track, accelerated approval and priority review programs discussed above, the FDA also provided guidance on a new program for Breakthrough Therapy designation. The FDA defines a Breakthrough Therapy as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A drug designated as a Breakthrough Therapy is eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a Breakthrough Therapy. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. A request for Breakthrough Therapy designation should be submitted concurrently with, or as an amendment to an IND. FDA has already granted this designation to approximately thirty (30) new product candidates and has begun approving Breakthrough Therapy designated drugs.
Patent term restoration and marketing exclusivity
Depending upon the timing, duration and specifics of FDA approval of the use of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch- Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of fourteen (14) years from the product candidate’s approval date. The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved product candidate is eligible for the extension and the application for extension must be made prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
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Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for a new chemical entity. A product candidate is a new chemical entity if the FDA has not previously approved any other new product candidate containing the same active moiety, which is the molecule or ion responsible for the action of the product candidate substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA submitted by another company for another version of such product candidate where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b) (2) NDA, or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing product candidate. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for product candidates containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate quality and effectiveness.
Orphan drug designation
Under the Orphan Drug Act, the FDA may grant orphan drug designation to product candidates intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S. or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a product candidate for this type of disease or condition will be recovered from sales in the U.S. for that product candidate. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the FDA publicly discloses the identity of the therapeutic agent and its potential orphan use. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
If a product candidate that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product candidate is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same product candidate for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity, however, could also block the approval of one of our product candidates for seven years if a competitor obtains approval of the same product candidate as defined by the FDA or if our product candidate is determined to be contained within the competitor’s product candidate for the same indication or disease.
Pediatric exclusivity and pediatric use
Under the Best Pharmaceuticals for Children Act (“BPCA”), certain product candidates may obtain an additional six months of exclusivity if the sponsor submits information requested in writing by the FDA (a “Written Request”) relating to the use of the active moiety of the product candidate in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines that information relating to the use of a product candidate in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.
In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric studies for most product candidates and biologics, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, biologics license application and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the quality and effectiveness of the product candidate for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product candidate is safe and effective. The sponsor or FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the product candidate or biologic is ready for approval for use in adults before pediatric studies are complete, or that additional quality or effectiveness data needs to be collected before the pediatric studies begin. After April 2013, the FDA must send a noncompliance letter to any sponsor that fails to: submit the required assessment, keep a deferral current, or submit a request for approval of a pediatric formulation.
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Post-approval requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product candidate reaches the market. Later discovery of previously unknown problems with a product candidate may result in restrictions on the product candidate or even complete withdrawal of the product candidate from the market. After approval, some types of changes to the approved product candidate, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved product candidates that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product candidate based on the results of these post-marketing programs.
Any product candidates manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:
● | record-keeping requirements; | |
● | reporting of adverse experiences with the product candidate; | |
● | providing the FDA with updated data for the FDA’s continuing safety and efficacy determination; | |
● | drug sampling and distribution requirements; | |
● | notifying the FDA and gaining its approval of specified manufacturing or labeling changes; and | |
● | complying with FDA promotion and advertising requirements. |
Drug manufacturers and other entities involved in the manufacture and distribution of approved product candidates are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP and other laws.
Regulation outside of the U.S.
In addition to regulations in the U.S., we will be subject to regulations of other countries governing any clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the U.S. before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and is optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
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As in the U.S., we may apply for designation of a product candidate as an orphan drug for the treatment of a specific indication in the European Union before the application for marketing authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan-designated product.
Reimbursement
Sales of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutics committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA 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 that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to the U.S. Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the “ACA,” enacted in March 2010, had a significant impact on the health care industry by expanding coverage for the uninsured. With regard to pharmaceutical products, among other things, ACA is expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare Part D program. The administration and Congress which will take office in January 2017, has pledged to repeal and replace the ACA, largely because of significantly increasing health insurance premiums and decreasing participation by members of the insurance companies. We cannot predict the impact of any repeal, replacement or modifications which may be enacted.
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In addition, in some non-U.S. jurisdictions, the proposed pricing for a product candidate must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, product candidates launched in the European Union do not follow price structures of the U.S. and generally tend to be significantly lower.
Environment
Our third-party manufacturers are subject to inspections by the FDA for compliance with cGMP and other U.S. regulatory requirements, including U.S. federal, state and local regulations regarding environmental protection and hazardous and controlled substance controls, among others. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. We have incurred, and may continue to incur, significant expenditures to ensure we are in compliance with these laws and regulations. We would be subject to significant penalties for failure to comply with these laws and regulations.
Sales and Marketing
Our current focus is on the development of our existing portfolio, the completion of clinical trials and, if and where appropriate, the registration of our product candidates. We currently do not have marketing, sales and distribution capabilities. If we receive marketing and commercialization approval for any of our product candidates, we intend to market the product either directly or through collaborations, strategic alliances and distribution agreements with third parties. The ultimate implementation of our strategy for realizing the financial value of our product candidates is dependent on the results of clinical trials for our product candidates, the availability of funds and the ability to negotiate acceptable commercial terms with third parties.
Employees
As of the date of this prospectus, we have five employees, including our three executive officers, one engaged in research and development and one in administration. We consider our relationship with our employees to be good.
Facilities
Our corporate headquarters are located in Rockville, Maryland, where we lease shared access to office space and reception services. Our research and development activities are performed in approximately 1,727 square feet of laboratory and office space located in Gaithersburg, Maryland. All of such space is leased from a non-affiliated third party, pursuant to leases expiring in 2023, which provide for an aggregate monthly rental of $5,757.
We believe that our existing facilities are adequate for our current needs and have sufficient laboratory space to house additional scientists as we grow. When our lease expires, we may exercise our renewal options or look for additional or alternate space for our operations. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms.
Legal Proceedings
Currently, there are no legal proceedings pending or threatened against us.
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Directors and Executive Officers
Our directors and executive officers and their respective ages and titles are as follows:
Name | Age | Position(s) and Office(s) Held | ||
Anatoly Dritschilo, M.D. | 77 | Chairman of the Board and Chief Executive Officer | ||
Michael Vander Hoek | 62 | Chief Financial Officer, VP for Operations and Regulatory | ||
Peter Dritschilo | 52 | President and Chief Operating Officer | ||
Mira Jung, Ph.D. | 71 | Chief Scientific Officer for Biology | ||
Tyvin Rich, M.D. | 73 | Chief Clinical Officer | ||
Joshua Schafer | 48 | Independent Director | ||
Steven Richards | 51 | Independent Director | ||
Milton Brown, M.D., Ph.D. | 53 | Director and Chief Scientific Officer for Chemistry | ||
William H. Adkins | 75 | Independent Director | ||
Chris Senanayake, Ph.D. | 64 | Independent Director |
Set forth below is a description of the background and business experience of our directors and executive officers.
Anatoly Dritschilo, M.D. is a co-founder of the Company and has served as Chairman of the Board and Chief Executive Officer since the Company’s formation in December 2012. Dr. Dritschilo is a radiation oncologist by training and has held multiple leadership positions in health care. At Georgetown University Medical School in Washington, D.C., he served principally as Department Chair from 1980 to 2018; Chief of Radiation Oncology at MedStar-Georgetown University Hospital from 2005 to 2016; Medical Director of Georgetown University Hospital from 1994 to 1997; and Interim Director of the NCI-funded Lombardi Comprehensive Cancer Center from 2005 to 2007. He has also served on the Boards of Directors of MedStar-Georgetown University Hospital, the National Capital Rehabilitation Hospital and the MedStar Health Research Institute. His experience with Pharma includes Board of Directors membership of NeoPharm, Inc, and he was a founding director of Oncomed (Neopharm). His 200+ scientific publications and 12 issued patents have earned him election as a Fellow of the National Academy of Inventors. Dr. Dritschilo holds a Bachelor of Science degree in Chemical Engineering from the University of Pennsylvania, his medical degree from the College of Medicine of New Jersey and residency training from the Harvard, Joint Center for Radiation Therapy. His qualifications support his service as our Chairman of the Board of Directors.
Michael P. Vander Hoek serves as the Company’s Chief Financial Officer, a position he was appointed to in August 2019, and Vice President, Operations and Regulatory, a position he has held since 2019. From November 2019 until April 2021, Mr. Vander Hoek served as Director, Finance and Business Development at Georgetown Lombardi Comprehensive Cancer Center (“LCCC”), where he directed a new five-year $221.9 million institutional commitment for cancer center research under a new NCI-approved cancer consortium arrangement and recruited scientists to fulfill strategic objectives with senior leaders to improve cancer research and treatment. From 2007 until November 2019, Mr. Vander Hoek served as Associate Director, Administration, at Georgetown’s LCCC, where he was responsible for direct administrative operations for more than 400 faculty and staff in the department of oncology, radiation medicine, pathology and biostatistics, bioinformatics and biomathematics, including managing $216.9 million in institutional commitments to LCCC from Medstar Health, John Theurer Cancer Center (“JTCC”), and Georgetown University. and implementing an enterprise-wide clinical trial management system for Georgetown University and Medstar Health. From 2004 until 2007, Mr. Vander Hoek served as Chief Financial Officer at Georgetown’s LCCC. During his time at Georgetown, Mr. Vander Hoek negotiated a series of 12 research integration agreements between LCCC and the JTCC that resulted in the approval of an NCI recognized Consortium in 2019. From 2001 until 2004, Mr. Vander Hoek served as Vice-Chair, Planning and Administration, at MedStar Georgetown University Hospital, where he was responsible for managing administrative and financial operations for some 440 staff, physicians, residents and fellows in the departments of Medicine and Neurology. From 1996 until 2001, Mr. Vander Hoek served as Senior Associate Administrator, Finance and Information Systems, for the Department of Medicine, Georgetown University Medical Center, where he designed and managed the faculty compensation system, while managing the finances and information systems for the department. His financial management experience in publicly held companies includes Director of Managed Care Reimbursement for Critical Care America from 1990 to 1993 and Regional Controller for Laboratory Corporation of America (LabCorp) from 1993 to 1996. His responsibilities at both companies included extensive financial management related to mergers, acquisitions, and start-up operations. Mr. Vander Hoek holds a Master’s in Health Services Administration from The George Washington University and a Bachelor of Arts in Biology and Psychology from Hope College.
Peter Dritschilo has served as our President and Chief Operating Officer since Shuttle was formed in December 2012. He also served as our Chief Financial Officer from December 2012 until August 2019. Mr. Dritschilo has over 20 years of business management experience in medical services and cancer treatment. He has held administrative positions with Medstar-Rad America from 2001 to 2005, Georgetown University 2005 to 2006, Prince William Hospital and the Fauquier Hospital Cancer Center 2006 to 2011 and Inova Health System’s Schar Cancer Institute from 2011 to 2018. In 2014, Mr. Dritschilo filed for Chapter 7 bankruptcy protection due to the failure of a personal business venture. Mr. Dritschilo graduated from Georgetown University and received his MBA from the George Washington University.
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Mira Jung, Ph.D., a co-founder of our company, presently serves as our Chief Scientific Officer for Biology and was a member of our board of directors from our formation in December 2012 until 2019. Since 2005, Dr. Jung has served as Professor of Radiation Medicine and Microbiology at Georgetown University Medical School, with over 20 years of experience in molecular radiation biology research. She is an expert in mechanisms of radiation resistance and on the roles of HDAC inhibitors in modifying the radiation response. Dr. Jung’s research has been funded by NIH and the DOD leading to 100 publications and six issued patents, including the first reports of HDAC inhibitor drug classes modifying cancer cell radiation resistance and protecting normal tissues from radiation damage. Dr. Jung holds an MA degree and a PhD in Microbiology and Molecular Virology from the University of Kansas.
Tyvin A. Rich, M.D. serves as our company’s Chief Medical Officer and is responsible for the clinical development of novel radiation sensitizers. Since 2010, Dr. Rich has served as a Staff Radiation Oncologist at the Hampton University Proton Therapy Institute in Hampton Virginia and Professor Emeritus at University of Virginia Health Sciences Center, Department of Radiation Oncology. From 1995 until 2010, Dr. Rich was a Professor and Chairman of the Department of Therapeutic Radiology and Oncology at the University of Virginia Health Sciences Center. And prior to that, from 1984 through 1995, Dr. Rich was a Professor of Radiotherapy and Director of Clinics in the Department of Radiotherapy of the University of Texas M. D. Anderson Cancer Center. He has served as the protocol chair for RTOG clinical trials that advanced the use of chemoradiation for the treatment of rectal and pancreatic cancers. He is an expert in the applications of infusional 5-Fluorouracil for chemoradiation therapy of gastro-intestinal cancers and has authored more than 200 scientific articles, reviews and book chapters. Dr. Rich received his undergraduate degree at Rutgers University, his medical degree at the University of Virginia, and completed residencies in internal medicine at Georgetown University Medical Center and radiation therapy at Massachusetts General, Harvard Medical School.
Joshua Schafer was appointed to be a member of our company’s board of directors in 2019. Since 2015, he has served as Senior Vice President and Head of Corporate Strategy and Business Development for Mallinckrodt Pharmaceuticals Incorporated. From 2009 until 2015, he served as Vice President and Oncology Therapeutic Area Head at Astellas Pharmaceuticals Incorporated, where he was responsible for building the company’s global oncology franchise. From 2000 until 2009, Mr. Schafer served in positions of increasing seniority at Takeda Pharmaceuticals North America, including Manager and Senior Manager, New Product and New Business Development; Senior Product Manager, Gastrointestinal Marketing; and Director, Oncology and Renal Marketing and Commercial Development. He began working in the healthcare and pharmaceutical industry in 1998, and has served in various positions including management consulting at Accenture (formerly Anderson Consulting), G.D. Searle & Co. (later acquired by Pfizer) and Cognia Corporation. He received his Bachelor of Arts in Biology and German at the University of Notre Dame, his MS in Biotechnology from Northwestern University and his MBA from Northwestern University. We believe Mr. Schafer’s extensive experience in pharmaceutical strategy, marketing and business development will assist our board’s oversight role as we build and develop our Company.
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Steven Richards was appointed to be a member of our company’s board of directors in 2019. He is CEO and Founder of Endurance Media, a media finance company based in Santa Monica, California, that launched in 2014 with a strategic alliance with eOne Entertainment and a mandate to produce and finance commercially driven feature films. From 2006 to 2014, Mr. Richards served as Co-President and Chief Operating Officer of Silver Pictures where he oversaw all business activities and managed a team of more than 20 people responsible for film development, production and financial information. From 2000 to 2006, he served as Chief Financial Officer at Silver Pictures and from 1995 to 2000 as Vice President, Finance, at Silver Pictures. Mr. Richards holds an MBA in Finance from UCLA, a BBA in accounting from Temple University, and holds his CPA license. We believe his experience as a chief financial officer and in accounting will assist in providing our board guidance and oversight as we grow our company.
Milton Brown, M.D., Ph.D. is a co-founder of our company and has served as our Chief Scientific Officer for Chemistry and as a member of our board of directors since we were formed in December 2012. Since August 2022, Dr. Brown has also served as Vice Dean of Research at Eastern Virginia Medical School. Dr. Brown was a founder in 2004 of Rivanna Pharmaceuticals, a Virginia-based biopharmaceutical company engaged in the discovery and development of novel small molecule therapeutics for the treatment of neurological diseases and cancer. Since 2012, Dr. Brown has served as Director of the Drug Discovery Center at Georgetown University Medical School and since 2010, he has been the principal investigator of the NIH/NCI funded Chemical Diversity Center. He brings to Shuttle 15 years of experience in drug discovery with over 80 publications and eight issued patents, including discovery of novel HDAC inhibitors and has two drugs currently in clinical trials. He has served on government committees including the NIH Experimental Therapeutics Study Section, the NIH Drug Discovery and Molecular Pharmacology Study Section and was a scientific counselor to the U.S. Secretary of Health. Dr. Brown holds a Ph.D. in synthetic chemistry from University of Alabama, and an MD from the University of Virginia. His extensive experience and expertise in drug discovery makes him uniquely qualified to direct the company’s drug discovery program and serve as our director.
William H. Adkins was appointed to be a member of our company’s board of directors in 2019. From 2018 to present, Mr. Adkins has worked as a consultant to businesses, working with business owners to develop strategy, planning and problem solving, especially as concerns developing strategic goals, performance plans and marketing strategies. From 2017 until present, Mr. Adkins has served as the President and General Manager at Gen’R LLC, a business consulting firm. From 2014 until 2017 Mr. Adkins served as a Strategic Business Development Manager at automotiveMastermind Inc., where he was responsible for training dealer candidates and general management, including consulting with dealers and interviewing applicants for management instructor positions. While at automotiveMastermind Inc., he partnered with the company’s founders to develop automotiveMastermind Inc. into a major company that eventually merged with IHS Markit Ltd. From 2004 to 2014, Mr. Adkins was a management instructor for the National Automobile Dealers Association, where he trained managers and dealer successors how to effectively operate a retail automobile dealership with knowledge of the various departments in a traditional dealership (e.g. sales, service, parts, and accounting). From 1985 until 2003, Mr. Adkins was President and General Manager at Chevrolet dealerships in Ohio, California and New York, including Adkins Chevrolet Buick Oldsmobile, Bayview Lincoln Mercury and Palanker Chevrolet. Mr. Adkins attended the University of Maryland where he studied marketing and business management. Mr. Adkins studied marketing at the University of Cincinnati and law at Bryant and Stranton Business College. Mr. Adkins’ substantial business and marketing experience will help us as we develop the Company’s products and business.
Chris Senanayake, Ph.D. was appointed to be a member of the Company’s board of directors in 2021. He is CEO and Founder of TCG GreenChem, Inc., a US subsidiary of TCG Lifesciences Pvt. Ltd., a leading global Contract Research and Manufacturing Services (CRAMS) company in the area of drug discovery, development and commercialization. Dr. Senanayake has more than 30 years of pharmaceutical industry experience, making him an invaluable asset to Shuttle Pharma’s mission as the Company advances its pharmaceutical candidates in clinical trials. He is the Founder and Chief Executive Officer (CEO) of TCG GreenChem Inc. and Chief Scientific Officer of TCG Lifesciences, Pvt. Ltd. He has held positions of Senior Scientist at Dow Chemical, and Research Fellow at Merck & Co, Inc. Director and Executive Director of Process Research at Sepracor, Inc. (1996 to 2002), Director of Chemical Development and Vice President of Chemical Development for Boehringer Ingelheim Pharmaceuticals, Inc. In 2018, he was appointed as the CEO of Asta GreenChem, Inc in Richmond VA and Astatech (Chengdu) Biopharmaceuticals Corp. in China. He has a record of leading and delivering on high complexity APIs for manufacturing. Dr. Senanayake participated in development activities of many drugs, including multi-billion-dollar blockbuster drugs, such as Crixivan, Lunesta, Jardiance, Formotorol, Desvenlafaxine and other drug candidates. He is co-author of 425 scientific publications and is co-inventor of more than 150 patents. We believe he will provide value to us by introducing potential joint venture partners, as well as enhancing our oversight through his in-depth understanding of and experience in the pharmaceuticals industry.
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Scientific Advisory Committee
Theodore L. Phillips, M.D. has served as the Chair of our Scientific Advisory Committee since 2018. He held the position of Chief Medical Officer and Clinical Director at Shuttle Pharmaceuticals from 2014 until 2018. Dr. Phillips’ distinguished career has included positions of Chair of the Department of Radiation Oncology (from1978 to 1998) and Associate Director (from 1996 to 1999) of the UCSF Cancer Center at the University of California at San Francisco. He is highly experienced in radiation oncology clinical trials of hypoxic radiation sensitizers. Dr. Phillips served as the principal investigator of the SBIR contract for the Phase I clinical trial of Ropidoxuridine. He previously served as Associate Director of the Northern California Oncology Group from 1983-1990, president of the American Society of Therapeutic Radiation Oncologists from 1984 to 1985, and is an elected member of the Institute of Medicine of the National Academy of Science. Dr. Phillips holds a BS degree from Dickinson College in Carlisle, Pennsylvania and a MD from the University of Pennsylvania. He provides advice to the leadership team to help design and implement clinical trials of radiation therapy and radiation response modifying drugs.
Ralph R. Weichselbaum, M.D. has served as Scientific Advisor to Shuttle Pharmaceuticals for translational research for the discovery and development of radiation response modifiers since 2013. Dr. Weichselbaum is the Daniel K. Ludwig Professor and Chairman of the Department of Radiation and Cellular Oncology, the University of Chicago, a position he has held since 1985. He is also an elected member of the Institute of Medicine, National Academy of Sciences. He has devoted his career to translational research in cancer with combined radiotherapy and chemotherapy. Dr. Weichselbaum and his colleagues conceived “genetic radiotherapy” and developed viral constructs for use in clinical tumor radiation sensitization. These were commercialized as TNFerade (GenVec, Inc.) and tested in a Phase I clinical trial in prostate cancer and a Phase III clinical trial for pancreatic cancer.
J. Martin Brown, Ph.D. has served as a Scientific Advisor to Shuttle Pharmaceuticals for translational research for the development of hypoxic radiation sensitizers since 2017. Dr. Brown received his Ph.D.in Cancer Biology from Oxford University in 1968 and was Director of the Division of Radiation and Cancer Biology at Stanford University from 1984 to 2004. He is an expert in the radiation biology of hypoxia in cancers and has more than 300 peer-reviewed published articles. He has received awards in recognition of his work, including the Gold Medal, American Society for Therapeutic Radiology and Oncology (1999, the Failla Memorial Award, Radiation Research Society (2000), the Weiss Medal, Association for Radiation Research (2001) and the Henry S. Kaplan Distinguished Scientist Award, International Association for Radiation Research (2007). He developed etanidazole, a hypoxic radiation sensitizer, and tirapazamine, a hypoxic cytotoxic drug, from bench to clinical trials.
Alejandro Villagra, Ph.D. has served as a Scientific Advisor to Shuttle Pharmaceuticals with expertise in cellular signaling pathways, epigenetics and immunology since 2017. Dr. Villagra received his Ph.D. in Molecular Biology from the University of Concepcion, in Chile in 2004 and completed post-graduate training at the H. Lee Moffitt Cancer Center and Research Institute in Tampa, Florida in Molecular Immunology in 2009, in the Laboratory of Eduardo Sotomayor, MD. He joined the faculty of the Moffitt Cancer Center and Research Institute, as a research scientist from 2009 through 2015 and advanced to Assistant Professor of Oncologic Sciences. He became an Assistant Professor in the Department of Biochemistry and Molecular Medicine at the George Washington University (GWU) School of Medicine and Health Sciences in 2015, as a member of the GWU Cancer Center. His research is focused on molecular and cellular roles of histone deacetylases (HDACs) in tumor immunology and as adjuvants for immunotherapy of cancers.
Joseph Armstrong, III, Ph.D. joined as a Scientific Advisor to Shuttle Pharmaceuticals in 2021, He received his Ph.D. from the University of Colorado in 1988, completed his post-doctoral work at the University of Virginia at Charlottesville and holds the position of Chief Operating Officer at and Global Head of Business Development TCG GreenChem, Inc. He provides industry experience in chemistry, drug development and process research, having previously held positions at Merck & Co. Inc. in Rahway, N.J and in the U.K. for two pharmaceutical companies in the areas of Pharmaceutical Research and Development. His primary areas of focus have been in the design and implementation of efficient synthesis of drug candidates amenable to large scale production. Dr. Armstrong led the development team that designed, developed and implemented the manufacturing process for the new treatment for Type II diabetes, Januvia TM. His team was awarded the Solvias Prize in 2004 (Basel, Switzerland), the IChemE Aztra-Zeneca Award for Green Chemistry and Engineering in 2005 (London, England), Dr. Armstrong has more than 40 publications and holds 10 patents.
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Family Relationships
Dr. Anatoly Dritschilo and Peter Dritschilo are father and son. There are no other family relationships among our directors and executive officers.
Board of Directors
Our board of directors is responsible for overseeing the Company’s business consistent with its fiduciary duty to the stockholders. This significant responsibility requires highly skilled individuals with various qualities, attributes and professional experience. There are general requirements for service on the board that are applicable to directors and there are other skills and experience that should be represented on the board as a whole but not necessarily by each director. Our Corporate Governance and Nominating Committee, detailed below, considers the qualifications of director candidates individually and in the broader context of the board’s overall composition and the Company’s current and future needs.
Terms of Office
Our directors were initially appointed for staggered two and three-year terms as initial appointments. The Chairman of the Board is also the CEO and was appointed for an initial three-year term. Following this offering, we intend that all of our directors will be elected to one-year terms to hold office until the next annual meeting of our stockholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.
Director Independence
In order to qualify to list our shares of common stock for trading on Nasdaq, our board of directors must consist of a majority of “independent” directors, as defined under Nasdaq listing standards and Rule 10A-3(b)(1) under the Exchange Act. At present, four of the six directors serving on our board of directors qualify as “independent.” Our independent directors consist of Messrs. Adkins, Richards and Schafer and Dr. Senanayake.
Board Committees
General
Our board of directors has established three committees consisting of an audit committee, a compensation committee, and a nominating and corporate governance committee. The members of each committee qualify as “independent” as defined under Nasdaq listing standards and Rule 10A-3(b)(1). Moreover, at least one member of the audit committee qualifies as an “audit committee financial expert” as the term is defined under Nasdaq listing standards and applicable rules and regulations of the SEC, based on their respective business professional experience in the financial and accounting fields.
Audit Committee
The audit committee, which consists of Steve Richards, MBA, CPA (Chair), William Adkins and Chris Senanayake, MD, assists our board of directors in its oversight of the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements, including (a) the quality and integrity of the Company’s financial statements (b) the Company’s compliance with legal and regulatory requirements, (c) the independent auditors’ qualifications and independence and (d) the performance of the Company’s internal audit functions and independent auditors, as well as other matters which may come before it as directed by the board of directors. Further, the audit committee, to the extent it deems necessary or appropriate, among its several other responsibilities, will:
● | be responsible for the appointment, compensation, retention, termination and oversight of the work of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company; | |
● | discuss the annual audited financial statements and the quarterly unaudited financial statements with management and the independent auditor prior to their filing with the SEC in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q; | |
● | review with the Company’s management on a periodic basis (i) issues regarding accounting principles and financial statement presentations, including any significant changes in our company’s selection or application of accounting principles; and (ii) the effect of any regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the company; | |
● | monitor the Company’s policies for compliance with federal, state, local and foreign laws and regulations and the Company’s policies on corporate conduct; | |
● | maintain open, continuing and direct communication between the board of directors, the audit committee and our independent auditors; and | |
● | monitor our compliance with legal and regulatory requirements and will have the authority to initiate any special investigations of conflicts of interest, and compliance with federal, state and local laws and regulations, including the Foreign Corrupt Practices Act, as may be warranted. |
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Compensation Committee
The compensation committee, which consists of Steve Richards (Chair) and Joshua Schafer, aids our board of directors in meeting its responsibilities relating to the compensation of the Company’s executive officers and to administer all incentive compensation plans and equity-based plans of the Company, including the plans under which Company securities may be acquired by directors, executive officers, employees and consultants. Further, the compensation committee, to the extent it deems necessary or appropriate, among its several other responsibilities, will:
● | review periodically our Company’s philosophy regarding executive compensation to (i) ensure the attraction and retention of corporate officers; (ii) ensure the motivation of corporate officers to achieve the Company’s business objectives; and (iii) align the interests of key management with the long-term interests of the Company’s shareholders; | |
● | review and approve corporate goals and objectives relating to chief executive officer compensation and other executive officers of Shuttle; | |
● | make recommendations to the board of directors regarding compensation for non-employee directors, and review periodically non- employee director compensation in relation to other comparable companies and in light of such factors as the compensation committee may deem appropriate; and | |
● | review periodically reports from management regarding funding the Company’s pension, retirement, long-term disability and other management welfare and benefit plans. |
Nominating and Corporate Governance Committee
The nominating and corporate governance committee, which consists of Joshua Schafer (Chair) and Steve Richards, recommends to the board of directors individuals qualified to serve as directors and on committees of the board of directors to advise the board of directors with respect to the board of directors composition, procedures and committees to develop and recommend to the board of directors a set of corporate governance principles applicable to the Company, and to oversee the evaluation of the board of directors and Shuttle’s management. In addition, the nominating and corporate governance committee will consider diversity of background including diversity of race, ethnicity, international background, gender and age when evaluating candidates for board membership.
Further, the nominating and corporate governance committee, to the extent it deems necessary or appropriate, among its several other responsibilities will:
● | recommend to the board of directors and for approval by a majority of independent directors for election by shareholders or appointment by the board of directors as the case may be, pursuant to our bylaws and consistent with the board of director’s evidence for selecting new directors; | |
● | review the suitability for continued service as a director of each member of the board of directors when his or her term expires or when he or she has a significant change in status; | |
● | review annually the composition of the board of directors and to review periodically the size of the board of directors; | |
● | make recommendations on the frequency and structure of board of directors meetings or any other aspect of procedures of the board of directors; | |
● | make recommendations regarding the chairmanship and composition of standing committees and monitor their functions; | |
● | review annually committee assignments and chairmanships; | |
● | recommend the establishment of special committees as may be necessary or desirable from time to time; and | |
● | develop and periodically review corporate governance procedures and consider any other corporate governance issue. |
Code of Ethics
We have adopted a code of ethics that applies to all of our executive officers, directors and employees. The code of ethics codifies the business and ethical principles that govern all aspects of our business. This document will be made available in print, free of charge, to any shareholder requesting a copy in writing from our Secretary at our executive offices in Rockville, Maryland. A copy of our code of ethics is available on our website at www.shuttlepharma.com.
Board of Directors Role in Risk Oversight
Members of the board of directors have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company. The Company believes that its founders, leadership team and members of the board of directors exemplify diversity and inclusivity with respect to race, sex and ethnic origin. The board of directors presently has two diverse directors and is in the process of reviewing and vetting a female candidate to serve as a director. As such, the Company anticipates being in full compliance with Nasdaq’s newly adopted diversity requirements by the end of its first year of listing.
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Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and Chief Financial Officer and certain of our other executive officers for 2021 and 2020.
SUMMARY COMPENSATION TABLE
Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||||||
Anatoly Dritschilo M.D., CEO | 2021 | 18,829 | - | - | - | - | - | - | 18,829 | |||||||||||||||||||||||||||
2020 | 35,144 | - | - | - | - | - | - | 35,144 | ||||||||||||||||||||||||||||
Michael Vander Hoek, CFO, VP | 2021 | 18,338 | - | - | - | - | - | - | 18,138 | |||||||||||||||||||||||||||
2020 | 17,484 | - | - | - | - | - | - | 17,484 | ||||||||||||||||||||||||||||
Peter Dritschilo, President and COO | 2021 | 31,534 | - | - | - | - | - | - | 31,534 | |||||||||||||||||||||||||||
2020 | 23,970 | - | - | - | - | - | - | 23,970 |
Employment Agreements
Each of our executive officers has entered into an employment agreement with us. The employees each will receive compensation on an annual basis in cash, payable in monthly installments commencing at the completion of this offering, as well as restricted stock units subject to achieving certain key performance indicators. Certain of our executive officers are entitled to various target bonuses, upon achievement of certain milestones. The terms of the employment agreements are as follows:
Employment Agreement with Anatoly Dritschilo, MD
On June 28, 2019, we entered into an employment agreement with our Chief Executive Officer and Chairman of the Board, Anatoly Dritschilo, M.D. Under Dr. Dritschilo’s employment agreement, Dr. Dritschilo will receive base compensation of $274,000 per year. Dr. Dritschilo also received an initial restricted stock unit grant of 45,495 restricted stock units (“RSUs”) (22,747 on a post-reverse split basis) issuable under the Company’s 2018 Equity Incentive Plan, which RSUs vest over three years in substantially equal one-third installments on each one year anniversary of the agreement. Under his employment agreement, if Dr. Dritschilo terminates his employment for “Good Reason,” as defined in the agreement, Dr. Dritschilo will be entitled to his then applicable base salary for period of 12 months, subject to his continued compliance with certain requirements of his employment agreement.
Employment Agreement with Michael Vander Hoek
On September 1, 2019, we entered into an amended employment agreement with our Chief Financial Officer and Vice President for Operations and Regulatory, Michael Vander Hoek. Under Mr. Vander Hoek’s employment agreement, he will receive base compensation of $227,000 and is entitled to a target bonus of $72,000 upon achievement of certain milestones. Mr. Vander Hoek also received an initial restricted stock unit grant of 6,096 RSUs (on a post-reverse split basis) issuable under the Company’s 2018 Equity Incentive Plan, which RSUs vest over three years in substantially equal installments on each one year anniversary of the agreement. Under Mr. Vander Hoek’s employment agreement, if he terminates his employment for “Good Reason,” as defined in the agreement, he will be entitled to his then applicable base salary for period of 12 months, subject to his continued compliance with certain requirements of his employment agreement.
Employment Agreement with Peter Dritschilo
On May 30, 2019, we entered into an employment agreement with our President and Chief Operating Officer, Peter Dritschilo. Under Mr. Dritschilo’s employment agreement, Mr. Dritschilo will receive base compensation of $236,000 and is entitled to a target bonus of $72,000 upon achievement of certain milestones. Mr. Dritschilo also received an initial restricted stock unit grant of 20,760 RSUs (10,380 on a post-reverse split basis) issuable under the Company’s 2018 Equity Incentive Plan, which RSUs vest over three years in substantially equal installments on each one year anniversary of the agreement. Under Mr. Dritschilo’s employment agreement, if Mr. Dritschilo terminates his employment for “Good Reason,” as defined in the agreement, he will be entitled to his then applicable base salary for period of 12 months, subject to his continued compliance with certain requirements of his employment agreement.
Employment Agreement with Tyvin Rich, MD
On May 31, 2019, we entered into an employment agreement with our Chief Clinical Officer, Tyvin Rich, M.D. Under Dr. Rich’s employment agreement, Dr. Rich receives base compensation of $218,000 per year and is entitled to a target bonus of $43,000 upon achievement of certain milestones. Dr. Rich also received an initial restricted stock unit grant of 3,843 RSUs (on a post-reverse split basis) issuable under the Company’s 2018 Equity Incentive Plan, which RSUs vest over three years in substantially equal installments on each one year anniversary of the agreement. Under Dr. Rich’s employment agreement, if Dr. Rich terminates his employment for “Good Reason,” as defined in the agreement, he is entitled to his then applicable base salary for period of 12 months, subject to his continued compliance with certain provisions of his employment agreement.
Employment Agreement with Mira Jung, Ph.D.
On May 30, 2019, we entered into an employment agreement with our Chief Scientific Officer for Biology, Mira Jung, Ph.D. Under Dr. Jung’s employment agreement, Dr. Jung receives base compensation of $46,800 and is entitled to a target bonus of $14,200 upon achievement of certain milestones. Dr. Jung also received an initial restricted stock unit grant of 892 RSUs (on a post-reverse split basis) issuable under the Company’s 2018 Equity Incentive Plan, which RSUs vest over three years in substantially equal installments on each one year anniversary of the agreement. Under Dr. Jung’s employment agreement, if Dr. Jung terminates her employment for “Good Reason,” as defined in the agreement, Dr. Jung is then entitled to her then applicable base salary for period of 12 months, subject to her continued compliance with certain requirements of her employment agreement.
Outstanding Equity Awards at Fiscal Year-End
On a post-reverse split basis, a total of 384,167 RSUs have been granted to our executive officers under our 2018 Equity Incentive Plan (the “Plan”), of which 357,390 have vested to date yet remain unissued. After completion of this public offering, it is our intent to file a registration statement on Form S-8 to register the shares granted under our 2018 Equity Incentive Plan, at which time we will issue all such vested shares.
2018 Equity Incentive Stock Plan
Our 2018 Equity Incentive Plan provides for equity incentives to be granted to our employees, executive officers or directors and to key advisers and consultants. Equity incentives may be in the form of stock options with an exercise price of not less than the fair market value of the underlying shares as determined pursuant to the 2018 Equity Incentive Plan, restricted stock awards, other stock- based awards, or any combination of the foregoing. The 2018 Equity Incentive Plan is administered by the Company’s compensation committee or, alternatively, if there is no compensation committee, the Company’s board of directors. We have reserved 3,000,000 shares of our common stock for issuance under the 2018 Equity Incentive Plan (the “Plan”), of which 384,167 shares have been granted under the Plan as of the date of this prospectus.
Director Compensation
Each of our non-employee directors, who were elected in 2019, receives compensation on an annual basis consisting of $25,000 in cash, payable in quarterly installments commencing 90 days after completion of the offering, and 2,702 restricted stock units. Pursuant to director offer letters entered into between each director and our company (the “Director Agreements”), the RSUs vest over a two-year period in one third increments, with one-third vesting immediately upon signing and then one-third vesting on each of the first and second anniversary of election. In addition, non-employee directors will also be reimbursed for out-of-pocket costs incurred in connection with attending meetings.
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The following table sets forth, as of the date of this prospectus, the beneficial ownership of our common stock by each director and executive officer, by each person known by us to beneficially own 5% or more of our common stock and by directors and executive officers as a group. Unless otherwise stated, the address of the persons set forth in the table is c/o Shuttle Pharmaceuticals Holdings, Inc., One Research Court, Suite 450, Rockville, Maryland 20850.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the stockholders listed in the table below have sole voting and investment power with respect to the shares indicated.
All share ownership figures include shares of our commons stock issuable upon securities convertible or exchangeable into shares of our common stock, whether or not convertible or exchangeable within 60 days of the effective date of this registration statement. Such shares are deemed outstanding and beneficially owned by such person only for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership for any other person.
As of August 15, 2022, there were issued and outstanding 9,312,991 shares of common stock, 269,444 shares of common stock issuable upon conversion of 1,212.5 shares of Series A convertible preferred stock, warrants to purchase up to 269,444 common stock issuable to the Series A convertible preferred stockholders upon completion of this initial public offering, 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock issuable upon conversion of convertible notes, which conversion will occur immediately following completion of this initial public officer, and warrants to purchase 550,000 shares of common stock issuable upon exercise of such warrants.
Names and addresses | Number of shares of common stock beneficially owned (#) | Percentage of shares of common stock beneficially owned before offering (%) | Number of shares of common stock beneficially owned after the Offering | Percentage of shares of common stock beneficially owned after offering (%) (1) | ||||||||||||
Directors and Named Executive Officers: | ||||||||||||||||
Anatoly Dritschilo, M.D.(2) | 4,557,979 | 48.9 | 4,557,979 | 32.3 | ||||||||||||
Milton Brown, M.D., Ph.D.(3) | 1,073,826 | 11.5 | 1,073,826 | 7.6 | ||||||||||||
Mira Jung, Ph.D.(4) | 1,071,716 | 11.5 | 1,071,716 | 7.5 | ||||||||||||
Michael Vander Hoek(5) | 6,095 | - | 6,095 | - | ||||||||||||
(5) | 10,380 | - | 10,380 | - | ||||||||||||
Tyvin A. Rich, M.D. (5) | 3,843 | - | 3,843 | - | ||||||||||||
Steve Richards(6) | 2,702 | - | 2,702 | - | ||||||||||||
Joshua Schafer(6) | 2,702 | - | 2,702 | - | ||||||||||||
Chris Senanayake(6) | 3,843 | - | 3,843 | - | ||||||||||||
William H. Adkins(6)(7) | 224,298 | 2.4 | 224,298 | 1.6 | ||||||||||||
All directors and officers as a group (eleven persons) | 6,957,384 | 74.4 | 6,957,384 | 49.0 | ||||||||||||
Other 5% beneficial owners: | ||||||||||||||||
Amir F. Heshmatpour(8) | 1,569,518 | 16.9 | 1,569,581 | 11.1 |
- | Denotes the holder owns less than one percent of the outstanding common stock. |
± | The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. |
+ | Assumes the Series A convertible preferred shares will convert at 90% of the IPO per share price, in accordance with the Series A convertible preferred stock certificate of designation, as amended. Upon conversion, each holder of Series A convertible preferred stock will consist of 50% common stock and 50% warrants to purchase common stock, which warrants will be exercisable at the per share price of this offering. |
(1) | Gives pro forma effect to the sale of (i) 1,660,000 units, with each unit consisting of (i) one share of common stock and (ii) a warrant to purchase one share of common stock, offered hereby, (ii) 269,444 shares of common stock issuable upon conversion of Series A preferred stock and the issuance of 269,444 shares of common stock issuable upon exercise of warrants held by the Series A preferred stockholders, which warrants are issuable upon completion of the IPO, (iii) 500,000 shares of common stock issuable upon the exercise of warrants, which warrants will be exercised upon completion of the IPO, (iv) 196,667 shares and warrants to purchase 196,667 shares of common stock issuable upon conversion of convertible notes outstanding, which conversion will occur upon completion of the IPO, and (v) the exercise of warrants to purchase 50,000 shares of common stock. |
(2) | Consists of 1,070,824 shares of common stock held of record by Dr. Anatoly Dritschilo, 22,748 restricted stock units which have been granted to Dr. Dritschilo, two-thirds of which have fully vested but none of which has yet been issued, and 3,464,407 shares of common stock held of record by Joy Dritschilo, his spouse. |
(3) | Consists of 1,070,824 shares of our common stock held by Dr. Milton Brown and 2,702 restricted stock units which have been granted to Dr. Brown, all of which have fully vested but none of which have been issued. |
(4) | Consists of 1,070,824 shares of our common stock held by Dr. Mira Jung and 892 restricted stock units which have been granted to Dr. Jung, two-thirds of which have vested and one-third of which remain subject to vesting. |
(5) | Consists of a grant of restricted stock units, two-thirds of which is fully vested and one-third of which remains subject to vesting. |
(6) | Each of our directors have been granted restricted stock units (“RSUs”) pursuant to their letter agreements with the Company, all of which have fully vested as of the date of this prospectus, aside from the RSUs held by Dr. Senanayake, of which two-thirds have fully vested and one-third remains subject to vesting. |
(7) | Includes the following shares held by the William Henry Adkins & Pauline Adkins 1993 Revocable Trust (i) 111,112 shares of common stock issuable upon conversion of Series A Convertible preferred stock, (ii) 111,112 shares of common stock issuable upon exercise of warrants to purchase common stock, and 2,702 restricted stock units, all of which have vested but have yet to be issued. |
(8) | Includes (i) 1,119,581 shares of our common stock held of record by AFH Holding & Advisory, LLC, of which Mr. Heshmatpour is the sole member and over which he has sole voting and investment control; (ii) 300,000 shares of our common stock held of record by KIG LLC of which Mr. Heshmatpour’s spouse, Kathy Heshmatpour, exercises sole voting and investment control; and (iii) 150,000 shares held by Angelina Heshmatpour, the minor daughter of Mr. Heshmatpour. |
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Related Party Transactions
Unless described below, during the last two fiscal years, there were no transactions or series of similar transactions to which we
were a party or will be a party, in which:
● | the amounts involved exceed or will exceed $120,000; and | |
● | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of any of the foregoing had, or will have, a direct or indirect material interest. |
On January 25, 2018, Shuttle entered into a loan from Joy Dritschilo, the wife of our Chief Executive Officer, Anatoly Dritschilo, in the amount of $300,000 (the “January 2018 Loan”). The January 2018 Loan bears an interest rate of 7.5% per annum. The loan plus accrued interest was payable in full on January 25, 2019. On January 25, 2019, the Company amended the terms to extend the maturity date from January 25, 2019 to October 25, 2019.
On April 4, 2018, Shuttle entered into a loan from Mrs. Dritschilo in the amount of $50,000 (the “April 2018 Loan”). The April 2018 Loan bears an interest rate of 7.5% per annum. The loan plus accrued interest were payable in full on September 4, 2018. On October 31, 2018, the Company amended the terms to extend the maturity date of the April 2018 Loan from September 4, 2018 to April 4, 2019. On April 4, 2019, the Company amended the terms to extend the maturity date from April 4, 2019 to October 25, 2019.
On April 5, 2018, our predecessor in interest, Shuttle Pharma Acquisition Corp. Inc. (“Acquisition Corp.”), issued 3,600,000 shares to its founders, AFH Holding & Advisory, LLC and its affiliates (together, “AFH”). Such shares were issued at par value. AFH has also served as an advisor and consultant to the Company, and its owner, Amir Heshmatpour, has also served as a board member to our Company, a position he relinquished in advance of our commencement of the IPO process.
On May 31, 2018, the Company entered into a loan with our Chief Executive Officer in the amount of $25,000 (the “May 2018 Loan”). The May 2018 Loan bears interest at the rate of 7.5% per annum. The loan plus accrued interest were payable in full on July 15, 2018. On October 31, 2018, the Company amended the terms to extend the maturity date from July 15, 2018 to November 30, 2019.
On June 29, 2018, the Company entered into a loan with our Chief Executive Officer in the amount of $25,000. The loan bears an interest rate of 7.5% per annum. The loan plus accrued interest were payable in full on August 15, 2018. On December 6, 2018, the Company amended the terms to extend the maturity date from August 15, 2018 to February 15, 2019. On February 19, 2019, the Company paid off this note in full. The interest expense incurred on this loan was $1,223 for the year ended December 31, 2019.
On June 24, 2019, the Company entered into a loan from Mrs. Dritschilo in the amount of $70,000. The loan bears an interest rate of 7.5% per annum. The loans plus accrued interest are payable in full on June 23, 2020. This loan has since been satisfied in full.
In the fall of 2018 through to June 2019, we paid a total of $500,000 in cash to pay for a deposit on Acquisition Corp. in order to facilitate the process of taking the Company public.
On July 15, 2019, the Company issued 639,161 RSUs to our then consultant, AFH, to satisfy certain compensation owed to the consultant in relation to certain advisory services provided during 2018 and 2019. Such shares were issued pursuant to the Company’s 2018 Equity Incentive Plan.
On August 24, 2019, the Company entered into a loan with our Chief Executive Officer in the amount of $70,000. The loan bears interest at the rate of 7.5% per annum. The loan plus accrued interest is due and payable in full on August 24, 2020. This loan has since been satisfied in full.
On September 23, 2019, the Company entered into a loan with our Chief Executive Officer in the amount of $100,000 (the “September 2019 Loan”). The September 2019 Loan bear interest at the rate of 7.5% per annum and the loan plus accrued interest.
On December 1, 2020, the Company consolidated the January 2018 Loan and the April 2018 Loan into a single loan between Mrs. Dritschilo and the Company (the “2018 Consolidated Loan”) such that, with accrued interest, the 2018 Consolidated Loan had a principal balance of $424,005.65, bears interest at a rate of 7.5% per annum, and has a maturity date of December 31, 2021. The 2018 Consolidated Loan was extended until June 30, 2022, pursuant to an amendment to the 2018 Consolidated Loan agreement dated January 24, 2022. On July 29, 2022, the Company and Mrs. Dritschilo entered into an amendment to the 2018 Consolidated Loan, pursuant to which repayment was extended through June 30, 2023.
On December 1, 2020, the Company consolidated the May 2018 Loan and the September 2019 Loan with our Chief Executive Officer (the “2019 Consolidated Loan”), such that, with accrued interest, the 2019 Consolidated Loan had a principal balance of $138,448.20, bears interest at the rate of 7.5% per annum, and has a maturity date of December 31, 2021. The 2019 Consolidated Loan was extended until June 30, 2022, pursuant to an amendment to the 2019 Consolidated Loan agreement dated January 24, 2022. On July 29, 2022, the Company and our Chief Executive Officer entered into an amendment to the 2019 Consolidated Loan, pursuant to which repayment was extended through June 30, 2023.
On June 21, 2021, the Company entered into a loan agreement with Mrs. Dritschilo in the amount of $120,000 (principal), bearing interest at the rate of 7.5% per annum, with a single balloon payment due at maturity on June 21, 2022 (the “June 2021 Loan Agreement”). On July 29, 2022, the Company and Mrs. Dritschilo entered into an amendment to the June 2021 Loan Agreement, pursuant to which repayment was extended through June 30, 2023.
On September 22, 2021, Mrs. Dritschilo, who is one of our major shareholders, transferred 210,000 shares (105,000 shares post-split) of common stock of the Company in a private transaction to Steven Bayern, who had also been engaged by the Company to perform certain consulting services for the Company. Such shares, which represent approximately three percent of her total share ownership, were sold at par value pursuant to an exemption from registration under Section 4(a)(7) of the Securities Act. As a result of the transfer, the Company recognized $420,000 in non-cash stock compensation in legal and professional fees.
On August 1, 2022, in conjunction with our private placement of $125,000 of units consisting of 10% notes and warrants to purchase common stock, which were sold to three accredited investors in total, Mrs. Dritschilo purchased a $50,000 note and received warrants to purchase 20,000 shares of common stock at $2.50 per share. The notes and warrants were sold pursuant to an exemption from registration pursuant to Rule 506(b) of Regulation D of the Securities Act.
Review, Approval and Ratification of Related Party Transactions
All related party transactions are subject to the review, approval, or ratification of our board of directors or an appropriate committee thereof.
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Capital Stock
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.00001 per share, and 20,000,000 shares of preferred stock, par value $0.00001 per share.
Common Stock
As of the date of this prospectus, we had 9,312,991 shares of common stock issued and outstanding. In addition, 500,000 shares of common stock will be issuable upon exercise of certain warrants at the effectiveness of this offering, and 236,000 shares will be issuable upon conversion of notes upon effectiveness of this offering. The shares of common stock and preferred stock presently outstanding are, and the shares of common stock in this offering, when issued and paid for as contemplated in this prospectus, will be, fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions.
Holders of common stock are entitled to receive dividends, if and when declared by the board of directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.
Warrants
General
The following is a summary of the material terms and provisions of the Warrants that are being offered hereby. This summary is subject to and qualified in its entirety by the form of warrant, which has been filed as an exhibit to the registration statement of which this prospectus is a part. Prospective investors should carefully review the terms and provisions of the form of warrant for a complete description of the terms and conditions of the Warrants.
Duration and Exercise Price
Each Unit offered in this offering consists of one ordinary share and one Warrant. Each whole warrant shall be exercisable into one share of common stock at an exercise price equal to $0.01 per share. The Warrants will be immediately exercisable and will be exercisable for a five-year period after the date of issuance. The exercise price and numbers of shares of common stock issuable upon exercise are subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our ordinary shares. The Warrants will be issued in certificated form only.
Exercisability
The Warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full for the number of our shares of common stock purchased upon such exercise. A holder (together with its affiliates) may not exercise any portion of such holder’s Warrants to the extent that the holder would own more than 4.99% of our outstanding shares of common stock immediately after exercise.
Transferability
A Warrant may be transferred at the option of the holder upon surrender of the Warrant to us together with the appropriate instruments of transfer.
Fractional Shares
No fractional shares of common stock will be issued upon the exercise of the Warrants. Rather, the number of shares of common stock to be issued will, at our election, either be rounded up to the nearest whole number or we will pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the exercise price.
Trading Market
There is no established trading market for any of the Warrants. Without an active trading market, the liquidity of the Warrants will be limited.
Rights as a Shareholder
Except as otherwise provided in the Warrants or by virtue of the holders’ ownership of our ordinary shares, the holders of Warrants do not have the rights or privileges of holders of our ordinary shares, including any voting rights, until such warrant holders exercise their Warrants.
Fundamental Transaction
In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization, recapitalization or reclassification of our shares of common stock, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding ordinary shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding ordinary shares, the holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction.
Waivers and Amendments
No term of the Warrants may be amended or waived without the written consent of the holder of such Warrant.
Exclusive Forum
We have agreed that any action, proceeding or claim against us arising out of or relating in any way to the Warrants will be brought and enforced in the courts of the State of New York sitting in the City and County of New York or the United States District Court for the Southern District of New York, and we irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. See “Risk Factors”. This exclusive forum provision shall not apply to suits brought to enforce a duty or liability created by the Exchange Act, any other claim for which the federal courts have exclusive jurisdiction or any complaint asserting a cause of action arising under the Securities Act against us or any of our directors, officers, other employees or agents. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
Preferred Stock
Our board of directors has the authority, without further action by the shareholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences and the number of shares constituting any series or the designation of such series. While our Certificate of Incorporation and Bylaws, each as amended to date, do not contain any provisions that may delay, defer or prevent a change in control, the issuance of preferred stock may have the effect of delaying or preventing a change in control or make removal of our management more difficult. At present, our board of directors has authorized the issuance of up to 10,000 shares of Series A preferred stock, of which 1,212.5 shares are issued and outstanding as of the date of this prospectus.
Series A Convertible Preferred Stock
Our board of directors has designated and authorized the issuance of up to 10,000 shares of Series A Convertible Preferred Stock, par value $0.00001 per share (the “Series A Convertible Preferred Stock”), of which there are presently 1,212.5 shares outstanding. A total of $1,212,500 was raised during 2018 and 2019 from the sale of our Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock has a stated value of $1,000 per share, is entitled to receive a dividend at the rate of 8.5% per annum, which dividend is cumulative and will be payable at our option in shares of common stock or cash upon the date of conversion or redemption, as so determined by the Company. The Series A Convertible Preferred Stock will be automatically convertible upon the earlier of (a) the closing of the sale of shares of common stock to the public at an offering price of at least $5.00 per share in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, resulting in gross proceeds to us (before underwriter’s discounts, commissions and expenses) of an amount of at least $10 million (a “Qualified IPO”), or (b) listing of the common stock on the NYSE or Nasdaq (a “Qualified Listing”). All shares of Series A Convertible Preferred Stock will be convertible at either (i) 90% of the gross public offering price per share of the Qualified IPO (before deducting underwriter’s discounts, commissions and expenses) or (ii) in the case of (b) above, $5.00 per share. Until such time as the Series A Convertible Preferred Stock has been converted into our common stock, the Series A Convertible Preferred stockholders have no voting rights other than to rights to vote on matters concerning the Series A Convertible Preferred Stock.
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Warrants
In conjunction with our sale of Series A Convertible Preferred Stock, our board of directors authorized the issuance of warrants to purchase up to approximately 269,444 shares of common stock (the “Warrants”) to the holders of Series A Preferred Stock. The Warrants are issuable upon the earlier of the closing of a Qualified IPO or Qualified Listing, will have an exercise price per share equal to the IPO’s initial per share offering price and shall be exercisable at any time on or before expiration on the three-year anniversary following their issuance.
Notes and Warrants
On December 28, 2021, we completed a private placement offering (the “Note and Warrant Offering”) pursuant to which we sold to two accredited investors (the “Note and Warrant holders”) an aggregate of $500,000 of our 10% promissory notes, which are due upon completion of this Offering, and warrants to purchase $500,000 shares of common stock, at an exercise price of $1.00 per share. Such issuance was completed pursuant to an exemption from registration under Rule 506(b) of Regulation D of the Securities Act. Boustead Securities, LLC acted as placement agent in the Note and Warrant offering but waived its compensation in relation to such offering. Upon completion of this Offering, the notes will be repaid and the warrants will be exercised simultaneously, such that the Note and Warrant holders will have been repaid in full through their receipt of 500,000 shares of common stock, all of which shares will then be registered for resale in the resale offering accompanying this Offering.
On August 1, 2022, we completed a private placement offering (the “2022 Note and Warrant Offering”) pursuant to which we sold to three accredited investors (the “Note and Warrant holders”) an aggregate of $125,000 of our 10% promissory notes, which are due upon completion of this Offering, and warrants to purchase 50,000 shares of common stock, at an exercise price of $2.50 per share. Such issuance was completed pursuant to an exemption from registration under Rule 506(b) of Regulation D of the Securities Act. Boustead Securities, LLC acted as placement agent in the Note and Warrant offering but deferred its cash compensation in relation to such offering.
6% Convertible Notes
On February 8, 2022 and March 11, 2022, we completed private placement offerings pursuant to which we sold to several accredited investors an aggregate of $365,000 and $225,000, respectively, of our 6% convertible notes due three years from the date of issuance (the “Convertible Notes”), pursuant to an exemption from registration under Rule 506(b) of Regulation D of the Securities Act. Boustead Securities, LLC acted as placement agent in the Convertible Note and Warrant offering and received commissions and non-accountable reimbursements of 10% of the gross proceeds received and warrants to purchase 10% of the common stock.
Upon completion of this Offering, the Convertible Notes will automatically convert into units, comparable to those issued in this Offering, at a conversion price equal to 50% of the per share price in our initial public offering.
In connection with this Convertible Note offering, each purchaser of Convertible Notes entered into an investor rights and lock-up agreement (the “Investor Rights and Lock-up Agreement”) pursuant to which the Company has agreed, upon conversion of the Convertible Notes, to register the shares of common stock underlying the Convertible Notes and the Convertible Note holders have each agreed not to sell their shares of common stock for a period of 180 days following completion of this offering.
Registration Rights
We are party to a registration rights agreement with the holders of Series A Convertible Preferred Stock pursuant to which we are obligated to register the shares of common stock underlying the Series A Convertible Preferred Stock and Warrants. The registration of these shares of common stock would enable the holders to sell their shares without restriction under the Securities Act when the registration statement is declared effective. We will pay for the registration expenses, other than underwriting discounts and commissions, of any shares subject to registration rights.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specific conditions, to limit the number of shares such holders may include. As a result of the underwriter objecting to the registration of the common stock underlying the Series A Convertible Preferred shares in this offering, we will be required to file a resale registration statement registering the shares, with an obligation of having such registration statement declared effective within 180 days of the initial filing of such resale registration statement.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation, our Bylaws and Delaware Law
Some provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of a non-friendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
In general, Delaware corporations are subject to Section 203 of the DGCL, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
● | before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested holder; | |
● | upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; |
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● | on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662/3% of the outstanding voting stock that is not owned by the interested stockholder; or | |
● | the corporation does not have a class of voting stock that is: (i) listed on a national securities exchange; or (ii) held of record by more than 2,000 stockholders, unless any of the foregoing results from action taken, directly or indirectly, by an interested stockholder or from a transaction in which a person becomes an interested stockholder |
In general, Section 203 defines business combination to include the following:
● | any merger or consolidation involving the corporation and the interested stockholder; | |
● | any sale, transfer, pledge, or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; | |
● | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; | |
● | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or | |
● | the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation. |
Section 203 defines interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or any entity or person affiliated with or controlling or controlled by such entity or person.
While we are currently not subject to the restrictions contained in Section 203, we will become subject to these restrictions if our common stock is listed on a national securities exchange or we have more than 2,000 stockholders of record of our common stock.
Nasdaq Listing
We have applied to list our shares of common stock on The Nasdaq Capital Market (“Nasdaq”) under the symbol “SHPH”. There can be no assurance that our application for listing will be approved. We do not intend to apply for listing of the warrants included in the Units on Nasdaq or on any other national securities exchange or trading system. Without an active trading market, the liquidity of the warrants will be limited.
Transfer Agent
The transfer agent and registrar of our common stock is VStock Transfer, LLC, of Woodmere, New York. Our transfer agent’s telephone number is (212) 828-8436.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering.
Commencing 90 days after the date of this prospectus, subject to lock-up agreements of 365 days for directors, officer and affiliates and 180 days for holders of 1% or more of our comment stock (excluding the non-affiliate stockholders whose shares are being registered in the resale offering), the 9,312,991 shares of our common stock outstanding as of the date of this prospectus will be eligible for sale in the public market from time to time thereafter pursuant to Rule 144 under the Securities Act, and in some cases, subject to the volume and other restrictions of Rule 144. In addition, we have 1,212.5 share of Series A convertible preferred common stock, which shares will be convertible into approximately 269,444 shares of common stock upon the earlier of completion of the offering or the Company’s listing on a national securities exchange, as well as warrants to purchase up to 269,444 shares of common stock, which will be issuable upon closing of this offering. We also have 3,000,000 shares of common stock reserved for issuance under our 2018 Equity Incentive Plan, of which 384,167 shares have been granted to date. The sale of a significant number of shares of our common stock in the public market or the perception that such sales may occur could significantly reduce the market price of our common stock.
Rule 144
In general, under Rule 144 under the Securities Act, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported through Nasdaq or such other market on which our shares of common stock are listed for trading during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
2018 Equity Incentive Plan Form S-8 Registration Statement
We intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock that we may issue upon exercise of awards which may be granted under our 2018 Equity Incentive Plan. Such registration statement is expected to be filed and become effective as soon as practicable after the effectiveness of this registration statement. Accordingly, shares registered under such registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume and manner of sale limitations, if applicable.
Selling Stockholder Resale Prospectus
As described in the Explanatory Note to the registration statement of which this prospectus forms a part, the registration statement also contains the Resale Prospectus to be used in connection with the potential resale by certain selling stockholders of our common stock. These shares of common stock have been registered to permit public resale of such shares, and the selling stockholders may offer the shares for resale from time to time pursuant to the Resale Prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirements of the Securities Act or pursuant to another effective registration statement covering those shares. Any shares sold by the selling stockholders until our common stock is listed or quoted on an established public trading market will take place at $4.00 per share, which is the low end of the public offering price range of the shares of common stock we are selling in our initial public offering. Thereafter, any sales will occur at prevailing market prices or in privately negotiated prices.
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In connection with this offering, we will enter into an underwriting agreement with Boustead Securities, LLC to serve as lead book-running manager of the offering and as representative of the several underwriters (if any) named below. Subject to the terms and conditions of the underwriting agreement, each underwriter will severally agree to purchase from us the number of shares of common stock set forth opposite its name below, at the public offering price, less the underwriting discount set forth on the cover page of this prospectus.
Underwriters | Number of Units | |||
Boustead Securities, LLC | 1,660,000 | |||
Total | 1,660,000 |
*Each unit consists of one share of common stock and one warrant to purchase one share of common stock, exercisable at $0.01 per share.
Subject to the terms and conditions set forth in the underwriting agreement, the underwriter has agreed to purchase the 1,660,000 units offered by this prospectus (other than those covered by the over-allotment option described below, if any are purchased).
The underwriter is offering the shares of common stock subject to various conditions and may reject all or part of any order. The underwriter has advised us that the underwriter proposes initially to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at a price less a concession not in excess of $0.42 per share of common stock to brokers and dealers. After the shares of common stock are released for sale to the public, the underwriter may change the offering price, the concession and other selling terms at various times.
The table below provides information regarding the amount of the discounts and commissions to be paid to the underwriters by us, before estimated expenses.
Over-Allotment Option
We have granted the underwriter an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriter to purchase a maximum of 249,000 additional units from us to cover over-allotments. If the underwriter exercises all or part of this option, it will purchase shares covered by the option at the initial public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total proceeds to us will be $11,454,000 before deduction of underwriting discounts and estimated offering expenses. The underwriters have agreed that, to the extent the over-allotment option is exercised, they will purchase a number of additional shares proportionate to the underwriter’s initial amount reflected in the foregoing table.
Underwriting Discount
The following table summarizes the compensation and estimated expenses we will pay. The information assumes either no exercise or full exercise by the underwriter of the over-allotment option.
Per Share | Total | |||||||||||||||
Without Over-allotment | With Over-allotment | Without Over-allotment | With Over-allotment | |||||||||||||
Underwriting discount payable by us | $ | 0.42 | $ | 0.42 | $ | 697,000 | $ | 801,780 | ||||||||
Non-accountable and accountable expenses payable by us | $ | 0.06 | $ | 0.06 | $ | 99,600 | $ | 114,500 |
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We have agreed to pay a non-accountable expense allowance to the underwriter equal to 1.0% of the gross proceeds (including proceeds subject to the over-allotment option, if and to the extent it is exercised) for expenses in connection with this offering. We have also agreed to pay the underwriter an accountable expense reimbursement of up to $255,000 for out-of-pocket expenses incurred by it with respect to this offering. We estimate that our total expenses of the offering, excluding the underwriting discounts and commissions, will be approximately $499,936.
We have also agreed to issue to the underwriter a warrant to purchase a number of shares of common stock equal to an aggregate of 7% of the aggregate number of the units sold in this offering. The warrant will be exercisable on a cashless basis at an exercise price equal to 140% of the offering price of the shares sold in this offering. The warrants are exercisable commencing six months after the date of effectiveness of the registration statement of which this prospectus forms a part, and will be exercisable for a period of five years from the effective date of the registration statement of which this prospectus forms a part. We have agreed to a one-time demand registration of the shares of common stock underlying the underwriter’s warrants for a period of five years from the effective date of the registration statement. The underwriter’s warrants also provide for immediate “piggyback” registration rights with respect to the underlying shares of common stock during the three-year period commencing from the effective date of the registration statement related to this offering. The warrants are not redeemable by us. The warrants and the shares of common stock issuable upon exercise of the warrants have been included on the registration statement of which this prospectus forms a part. Pursuant to applicable FINRA rules, and in particular Rule 5110, the warrants (and underlying shares) issued to the underwriter may not be sold, transferred, assigned, pledged, or hypothecated, or the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective disposition of the securities by any person for a period of 180 days after the effective date of the registration statement related to this offering; provided, however, the warrants (and underlying shares) may be transferred to the underwriter’s officers, partners, registered persons or affiliates as long as the warrants (and underlying shares) remain subject to the lock-up.
We have agreed to indemnify the underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended.
Pursuant to the underwriting agreement, we will provide the underwriter the right of first refusal for two years from the date of commencement of sales of this offering to act as financial advisor or to act as joint financial advisor on at least equal economic terms on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of our company.
We have agreed to a six-month “lock-up” from the closing of this offering, during which, without the prior written consent of the underwriter, we will not issue, sell or register with the SEC (other than on Form S-8 or on any successor form) with respect to any of our equity securities (or any securities convertible into, exercisable for or exchangeable for any of our equity securities), except for (i) the issuance of the shares of common stock offered pursuant to this prospectus; and (ii) the issuance of shares of common stock pursuant to our existing stock option or bonus plan as described in the registration statement of which this prospectus forms a part.
Our executive officers, directors and certain of our significant stockholders have also agreed to a 12-month “lock-up” period, and any stockholders who own in excess of 1% of the outstanding shares of our common stock will be subject to a six-month lock-up period, during which time, without the prior written consent of the underwriter, they will not, directly or indirectly, (i) offer, pledge, assign, encumber, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, owned either of record or beneficially (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by any signatory of the lock-up agreement on the date of the prospectus or thereafter acquired; (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or any securities convertible into or exercisable or exchangeable for common stock, whether any such transaction described in clauses (i) or (ii) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or publicly announce an intention to do any of the foregoing; and (iii) make any demand for or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock. The foregoing will not apply to (i) common stock to be transferred as a gift or gifts (provided, that (a) any donee will execute and deliver to the underwriter, not later than one business day prior to such transfer, a lock-up agreement to the underwriter and (b) if the lock-up signatory is required to file a report under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock or beneficially owned shares or any securities convertible into or exercisable or exchangeable for common stock or beneficially owned shares during the six-month “lock-up,” the lock-up signatory will include a statement in such report to the effect that such transfer is being made as a gift), and (ii) the sale of the shares of common stock to be sold pursuant to this prospectus.
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Rules of the SEC may limit the ability of the underwriter to bid for or purchase shares before the distribution of the shares is completed. However, the underwriter may engage in the following activities in accordance with the rules:
● | Stabilizing transactions — The representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum. | |
● | Over-allotments and syndicate covering transactions — The underwriter may sell more shares of common stock in connection with this offering than the number of shares that they have committed to purchase. This over-allotment creates a short position for the underwriter. This short sales position may involve either “covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriter’s over-allotment option to purchase additional shares in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close the covered short position, the underwriter will consider, among other things, the price of shares available for purchase in the open market, as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriter must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriter is concerned that, in the open market after pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering. | |
● | Penalty bids — If the representative purchases the shares in the open market in a stabilizing transaction or syndicate covering transaction, it may reclaim a selling concession from the underwriter and selling group members who sold those shares as part of this offering. | |
● | Passive market making — Market makers in the shares who are underwriters or prospective underwriters may make bids for or purchase the shares, subject to limitations, until the time, if ever, at which a stabilizing bid is made. |
Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the common stock if it discourages resales of our shares of common stock.
Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may occur on the Nasdaq Capital Market or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.
In December 2021, we completed a $500,000 unit offering private placement offering to two investors, which units consisted of a total of $500,000 of 10% promissory notes and warrants to purchase 500,000 shares of common stock, exercisable at a purchase price of $1.00 per share, which private placement was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead acted as placement agent in the private placement, however, Boustead agreed to waive its placement agent fees and expenses.
In February and March 2022, we completed a $365,000 and a $225,000 convertible note offering, respectively, to certain accredited investors, which notes are convertible into shares of units, consisting of one share of common stock and a warrant to purchase one share of common stock, (the “Conversion Units”) at a conversion price of $3.00 per unit upon effectiveness of this offering. The convertible note offering was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead acted as placement agent in each of the February and March 2022 private placements and received $36,500 and $22,250 cash compensation, respectively, and five-year warrants to purchase shares of common stock equal to 10% of the number of Conversion Shares, which warrants will be exercisable at the conversion price.
In August 2022, we completed a $125,000 unit offering private placement offering to two investors, which units consisted of a total of $125,000 of 10% promissory notes and warrants to purchase 50,000 shares of common stock, exercisable at a purchase price of $2.50 per share, which private placement was completed pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead acted as placement agent in the private placement and received a placement agent warrant to purchase 5,000 shares of our common stock, exercisable at $2.50 per share, however, Boustead agreed to waive its cash fees and expenses related to the private placement.
The warrants received in connection with the February, March 2022 and August 2022 private placements (the “Private Placement Warrants”) will not be exercisable or convertible more than five years from the commencement of this public offering. Pursuant to applicable FINRA rules and, in particular, Rule 5110(e)(1), the Private Placement Warrants may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities for a period of 180 days beginning on the date of commencement of sales of this public offering; provided, however, the Private Placement Warrants may be transferred to the underwriter’s officers, partners, registered persons or affiliates as long as the warrants remain subject to the lock-up restriction above.
A prospectus in electronic format may be delivered to potential investors by one or more of the underwriters participating in this offering. The prospectus in electronic format will be identical to the paper version of such preliminary prospectus. Other than the prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of the prospectus or the registration statement of which this prospectus forms a part.
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Transfer Agent and Registrar
The transfer agent and registrar for shares of our common stock and preferred stock is VStock Transfer, LLC, Woodmere, New York. Our transfer agent’s telephone number is (212) 828-8436.
Notice to Non-US Investors
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal who are “accredited investors,” as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are “permitted clients”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, with effect from and including the date on which the European Union Prospectus Directive, or the EU Prospectus Directive, was implemented in that Relevant Member State, or the Relevant Implementation Date, no offer of securities may be made to the public in that Relevant Member State other than:
1. | to any legal entity which is a qualified investor as defined under the EU Prospectus Directive; | |
2. | to fewer than 150 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive), subject to obtaining the prior consent of the representatives; or | |
3. | in any other circumstances falling within Article 3(2) of the EU Prospectus Directive; |
provided that no such offer of securities shall require the Company or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive and each person who initially acquires any securities or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and the Company that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.
In the case of any securities being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the securities acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any securities to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
For the purposes of this provision, the expression an “offer of securities to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State. The expression “EU Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
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United Kingdom
In the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the securities in the United Kingdom.
Any person in the United Kingdom who is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
The validity of the common stock being offered hereby has been passed upon by Michelman & Robinson, LLP, California and New York. The underwriter has been represented in connection with this offering by Olshan Frome Wolosky LLP, New York, New York.
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The consolidated financial statements of Shuttle Pharmaceuticals Holdings, Inc. appearing in this prospectus and related registration statement for the years ended December 31, 2021 and 2020 have been audited by BF Borgers CPA PC, an independent registered public accounting firm, as set forth in their report thereon and are included in reliance upon such report given on the authority of BF Borgers CPA PC as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the SEC with respect to the shares of our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement, but does not contain all of the information contained in the registration statement and exhibits. Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the company. We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the company. You may inspect the registration statement, exhibits and schedules filed with the SEC at the SEC’s principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, 100 F Street, N.E. Washington, D.C. 20549. Please Call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy Statements and information regarding registrants that files electronically with the SEC. Our registration statement and the referenced exhibits can also be found on this site.
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DISCLOSURE OF SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
In accordance with the provisions in our Certificate of Incorporation, as amended, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
Consolidated Financial Statements
Contents
F-1 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash | $ | 50,437 | $ | 504,749 | ||||
Prepaid expenses | 13,515 | 4,866 | ||||||
Total current assets | 63,952 | 509,615 | ||||||
Property and equipment, net | 15,665 | 18,564 | ||||||
Other assets | 6,480 | 6,480 | ||||||
Operating lease right-of-use asset | 87,383 | 116,982 | ||||||
Total Assets | $ | 173,480 | $ | 651,641 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 515,786 | $ | 828,313 | ||||
Accrued interest payable | 37,828 | 552 | ||||||
Accrued interest payable - related parties | 72,330 | 46,947 | ||||||
Dividends Payable | 382,595 | 331,059 | ||||||
Notes payable to related parties | 685,473 | 685,473 | ||||||
Notes payable | 575,624 | 91,021 | ||||||
Paycheck Protection Program note payable | - | 73,007 | ||||||
Derivative liability | 112,797 | 94,025 | ||||||
Operating lease liability current portion | 71,518 | 66,934 | ||||||
Total Current Liabilities | 2,453,951 | 2,217,331 | ||||||
Operating lease liability non-current | 25,602 | 62,442 | ||||||
Total Liabilities | 2,479,553 | 2,279,773 | ||||||
Stockholders’ Deficit | ||||||||
Series A convertible preferred stock, $0.00001 par value; $1,000 per share liquidation value or aggregate of $1,212,500; 20,000,000 shares authorized; 1,213 shares issued and outstanding at June 30, 2022 and December 31, 2021 | - | - | ||||||
Common stock, $0.00001 par value; 100,000,000 shares authorized; 9,312,991 and 9,312,152 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | 93 | 93 | ||||||
Additional paid in capital | 4,819,916 | 4,150,867 | ||||||
Common stock to be issued | - | 16,340 | ||||||
Accumulated deficit | (7,126,082 | ) | (5,795,432 | ) | ||||
Total Stockholders’ Deficit | (2,306,073 | ) | (1,628,132 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 173,480 | $ | 651,641 |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
F-2 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
Operating expenses | ||||||||||||||||
Research and development, net of contract expense reimbursements | 83,868 | 286,730 | 379,783 | 392,726 | ||||||||||||
General and administrative | 9,078 | 7,213 | 22,847 | 13,461 | ||||||||||||
Legal and professional | 260,680 | 42,308 | 589,392 | 106,150 | ||||||||||||
Total operating expenses | 353,626 | 336,251 | 992,022 | 512,337 | ||||||||||||
Net loss from operations | (353,626 | ) | (336,251 | ) | (992,022 | ) | (512,337 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest expense - related parties | (14,836 | ) | (10,547 | ) | (25,383 | ) | (21,094 | ) | ||||||||
Interest expense | (170,391 | ) | (120 | ) | (315,944 | ) | (350 | ) | ||||||||
Change in fair value of derivative liability | (58,422 | ) | 117 | (18,772 | ) | 57,656 | ||||||||||
Gain on forgiveness of Paycheck Protection Program note payable | - | - | 73,007 | - | ||||||||||||
Total other income (expense) | (243,649 | ) | (10,550 | ) | (287,092 | ) | 36,212 | |||||||||
Income (loss) before income taxes | (597,275 | ) | (346,801 | ) | (1,279,114 | ) | (476,125 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net income (loss) | $ | (597,275 | ) | $ | (346,801 | ) | $ | (1,279,114 | ) | $ | (476,125 | ) | ||||
Dividend on Series A Preferred Stock | (25,768 | ) | (25,768 | ) | (51,536 | ) | (51,536 | ) | ||||||||
Net loss attributable to common stockholders | $ | (623,043 | ) | $ | (372,569 | ) | $ | (1,330,650 | ) | $ | (527,661 | ) | ||||
Weighted average common shares outstanding - basic and diluted | 9,312,991 | 9,291,526 | 9,312,583 | 9,291,526 | ||||||||||||
Net loss per shares - basic and diluted | $ | (0.06 | ) | $ | (0.04 | ) | $ | (0.14 | ) | $ | (0.05 | ) |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
F-3 |
Shuttle Pharmaceuticals Holdings, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(Unaudited)
Series A Preferred Stock | Common Stock | Additional Paid in | Common Stock to be | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Deficit | |||||||||||||||||||||||||
Balance - December 31, 2021 | 1,213 | $ | - | 9,312,152 | $ | 93 | $ | 4,150,867 | $ | 16,340 | $ | (5,795,432 | ) | $ | (1,628,132 | ) | ||||||||||||||||
Warrants issued for financing costs | - | - | - | - | 319,643 | - | - | 319,643 | ||||||||||||||||||||||||
Common stock issued for conversion of convertible debt and accrued interest | - | - | 839 | - | 16,340 | (16,340 | ) | - | - | |||||||||||||||||||||||
Common stock issued for restricted stock units | - | - | - | - | 166,533 | - | - | 166,533 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (25,768 | ) | (25,768 | ) | ||||||||||||||||||||||
Net loss (Unaudited) | - | - | - | - | - | - | (681,839 | ) | (681,839 | ) | ||||||||||||||||||||||
Balance - March 31, 2022 | 1,213 | $ | - | 9,312,991 | $ | 93 | $ | 4,653,383 | $ | - | $ | (6,503,039 | ) | $ | (1,849,563 | ) | ||||||||||||||||
Warrants issued for financing costs | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common stock issued for restricted stock units | - | - | - | - | 166,533 | - | - | 166,533 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (25,768 | ) | (25,768 | ) | ||||||||||||||||||||||
Net loss (Unaudited) | - | - | - | - | - | (597,275 | ) | (597,275 | ) | |||||||||||||||||||||||
Balance - June 30, 2022 (Unaudited) | 1,213 | $ | - | 9,312,991 | $ | 93 | $ | 4,819,916 | $ | - | $ | (7,126,082 | ) | $ | (2,306,073 | ) |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
F-4 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Deficit
(Unaudited)
Series A Convertible Preferred Stock | Common Stock | Additional Paid-in | Common Stock to be | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Issued | Deficit | Deficit | |||||||||||||||||||||||||
Balance, December 31, 2020 | 1,213 | $ | - | 9,291,526 | $ | 93 | $ | 2,833,507 | $ | 16,340 | $ | (4,540,236 | ) | $ | (1,690,296 | ) | ||||||||||||||||
Warrants issued for financing costs | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common stock issued for restricted stock units | - | - | - | - | 122,517 | - | - | 122,517 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (25,768 | ) | (25,768 | ) | ||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (129,324 | ) | (129,324 | ) | ||||||||||||||||||||||
Balance, March 31, 2021 | 1,213 | $ | - | 9,291,526 | $ | 93 | $ | 2,956,024 | $ | 16,340 | $ | (4,695,328 | ) | $ | (1,722,871 | ) | ||||||||||||||||
Warrants issued for financing costs | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Common stock issued for restricted stock units | - | - | 7,738 | - | 122,517 | - | - | 122,517 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (25,768 | ) | (25,768 | ) | ||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (346,801 | ) | (346,801 | ) | ||||||||||||||||||||||
Balance, June 30, 2021 | 1,213 | $ | - | 9,299,264 | $ | 93 | $ | 3,078,541 | $ | 16,340 | $ | (5,067,897 | ) | $ | (1,972,923 | ) |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
F-5 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (1,279,114 | ) | $ | (476,125 | ) | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation | 2,899 | 2,700 | ||||||
Change in fair value of derivative liability | 18,772 | (57,656 | ) | |||||
Amortization of right-of-use asset | 29,599 | 26,582 | ||||||
Amortization of debt discount | 278,531 | - | ||||||
Gain on forgiveness of Paycheck Protection Program note payable | (73,007 | ) | - | |||||
Stock-based compensation | 333,066 | 245,034 | ||||||
Changes in operating assets and liabilities: | ||||||||
Contracts receivable | - | 211,455 | ||||||
Prepaid expenses | (8,649 | ) | 7,450 | |||||
Accounts payable and accrued expenses | (312,527 | ) | (100,241 | ) | ||||
Accrued interest payable | 37,276 | 210 | ||||||
Accrued interest payable - related parties | 25,383 | 21,094 | ||||||
Operating lease liability | (32,256 | ) | (28,144 | ) | ||||
Net Cash used in Operating Activities | (980,027 | ) | (147,641 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | - | - | ||||||
Net Cash used in Investing Activities | - | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from PPP note payable | - | 73,007 | ||||||
Proceeds from notes payable | 525,715 | - | ||||||
Net Cash provided by Financing Activities | 525,715 | 73,007 | ||||||
Net change in cash | (454,312 | ) | (74,634 | ) | ||||
Cash, beginning of period | 504,749 | 117,153 | ||||||
Cash, end of period | $ | 50,437 | $ | 42,519 | ||||
Cash paid for: | ||||||||
Interest | $ | - | $ | - | ||||
Income taxes | $ | - | $ | - | ||||
Supplemental non-cash financing activities: | ||||||||
Shares issued for conversion of accrued interest | $ | 16,340 | $ | - |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
F-6 |
Shuttle Pharmaceuticals Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022 and 2021
(Unaudited)
Note 1 – Organization and Going Concern
Organization and Line of Business
The Company was formed as Shuttle Pharmaceuticals, LLC, in the State of Maryland on December 18, 2012. On August 12, 2016, the Company filed articles of conversion with the state of Maryland to convert from an LLC to a corporation and the Company changed its name to Shuttle Pharmaceuticals, Inc. (“Shuttle”). In connection with the conversion the Company issued 45,000,000 shares of common stock in exchange for 100% of the outstanding membership interests prior to conversion. On June 4, 2018, Shuttle completed a reverse merger with Shuttle Pharmaceuticals Holdings, Inc. (then known as Shuttle Pharma Acquisition Corp.), a Delaware corporation (the “Company”), pursuant to which Shuttle, our operating entity, became a wholly owned subsidiary of the Company.
The Company’s primary purpose is to develop and commercialize unique drugs for the sensitization of cancers and protection of normal tissues, with the goal of improving outcomes for cancer patients receiving radiation therapy. Shuttle has deployed its proprietary technology to develop novel cancer immunotherapies which has produced a pipeline of selective HDAC inhibitors for cancer and immunotherapy applications. The Company’s HDAC platform is designed to target candidate molecules with potential roles in therapeutics beyond cancer, including autoimmune, inflammatory, metabolic, neurological and infectious diseases. The Company’s Ropidoxuridine product, which is used with radiation therapy to sensitize cancer cells, was funded by a Small Business Innovation Research (SBIR) contract provided by the National Cancer Institute (NCI), a unit of the National Institutes of Health (NIH). Ropidoxuridine has been further developed though the Company’s collaborations with the University of Virginia for use in combination with proton therapy to improve patient survival. The Company is working on developing products through NIH grants, including a product to predict late effects of radiation with metabolite biomarkers and develop prostate cancer cell lines in health disparities research.
The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any combination product developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company now or in the future.
Reverse Stock Split
Effective April 1, 2022, we effected a 2-for-1 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). All references to shares of our common stock in this report refers to the number of shares of common stock after giving effect to the Reverse Stock Split (unless otherwise indicated).
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company’s only revenue source since inception has been government awarded contracts totaling $5,531,722, and the Company has incurred losses since inception, having accumulated a deficit of $7,126,082 as of June 30, 2022. The Company currently has limited liquidity and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The Company will need to raise capital to fund its operations. To address its financing requirements, the Company intends to seek financing through debt or equity financings with an aim to continue progress toward commercial viability of its products. The Company continues to submit Federal grant and contract applications which have historically been the primary source of revenue. The financial statements do not include any adjustments that might result from the outcome of the uncertainty of raising additional capital.
F-7 |
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles of the United States (“GAAP”).
Basis of Consolidation
The financial statements have been prepared on a consolidated basis with those of the Company’s wholly-owned subsidiary, Shuttle Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include useful lives of property and equipment, valuation of derivatives, and the valuation allowance on deferred tax assets.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
Furniture | 5 years | |
Computers and equipment | 5 years | |
Research Equipment | 10 years |
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, related subcontract expenses, and consulting costs. The expenses assigned to NIH SBIR sponsored research are related to: (1) “Topic 352: Cell-Based Models for Prostate Cancer Health Disparity Research – Moonshot Project” and (2) “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects.”
The research expenses are assigned to the research projects to demonstrate proof of principle in patients with prostate cancer that may support development and commercialization of biomarker products and to gather prostate cancer cell lines in African American men to serve as the product for use in health disparities research. Costs that are not covered by the SBIR contract for performing the Phase I contract to determine commercialization feasibility included partial salary support of personnel and a consultant to develop a commercialization plan. Costs that are not covered in the Phase II contract include business development and partial salary support.
Research expenses related to new drug discovery include partial support of personnel, space, supplies, and legal costs.
During fiscal year 2022, the Company completed two SBIR contracts from the NIH to support research projects with potential for commercialization. The SBIR contract awards are fixed payments made by the NIH in response to quarterly Shuttle invoices and provide non-dilutive funds that do not include a repayment obligation. Details on the three contracts follow:
1. Contract #HHSN261201600027C/75N91018C00016 supported “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects.” This $299,502 Phase I award includes funded research from 9/19/2016 through 9/18/2017 and was advanced to Phase II of the awards with funding of $1,903,095 with a fixed price contract period of 9/17/2018 through 9/16/2020 and subsequent no cost extensions through 9/15/2021 and then 3/15/2022 (Reference 75N91019C00031). The Company received quarterly payments of $211,455 for a total of $845,820 in 2020; and 2 quarterly payments related to Topic 345 for a total of $422,910 in 2021. On April 6, 2022, the Company submitted the final invoice for “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects,” for $211,455, following the completion of the Final Quarterly Progress Report to NIH covering the performance period of 9/16/2019-3/15/2022. The invoice was paid in full on April 27, 2022. In Phase II of the SBIR effort, the Company will license the metabolite signatures (intellectual property) from Georgetown University, manufacture 500 “kits,” test and validate the metabolic kit performance and develop a multi-institutional clinical trial to be implemented in the Phase III effort. This contract includes a subcontract to Georgetown University (“Georgetown”) for use of Mass Spectrometry core facilities to analyze clinical samples. The contract was extended to complete the milestones which were delayed due to the impact of COVID-19.
F-8 |
On December 6, 2019, the Company engaged Georgetown to perform the $795,248 subcontract of its Phase II contract #HHSN75N91019C00031. The Company agreed to reimburse Georgetown for its allowable costs not to exceed the ceiling amount of $795,248. Georgetown invoiced the Company for a total of $791,017.12 as of June 30, 2022, leaving a balance of $4,230.88. Depending on the resources it uses, Georgetown may or may not invoice for the total subcontract amount. In the event Georgetown does not invoice for the total allowable amount, the Company is not obligated to pay the ceiling amount. As of April 2022, cumulative payments of $791,017.12 were made to Georgetown, including an additional invoice for $282,643 which was received but not paid until the second quarter of 2022. All invoices have now been paid.
2. The Phase II contract #HHSN261201800016C supports the discovery work following a Phase I contract # HHSN261600038C “Topic 352 – SBIR Phase II Cell-based Models for Prostate Cancer Health Disparity Research” and was awarded to provide $1,484,350 to fund research from 9/17/2018 through 9/16/2020 and was extended without cost through 11/16/2021 due to delays caused by the impact of COVID-19. For the entire contract period, the Company invoiced and received a total of $1,411,883. The final draft report was filed with the NIH along with the final invoice for $10,000, which payment was made on December 3, 2021, and no additional payments are expected. The Phase II contract also includes a subcontract to Georgetown University for $742,002 to establish prostate cancer cell lines from African American patients undergoing prostate surgery for cancers.
On December 5, 2018, the Company engaged Georgetown University to perform the $742,002 subcontract of its Phase II contract #HHSN261201800016C. Depending on the resources it uses, Georgetown may or may not invoice for the total subcontract amount. In the event Georgetown does not invoice for the total allowable amount, the Company is not obligated to pay the ceiling amount. The Company has been invoiced by Georgetown and has paid Georgetown a total of $305,866.35 as of June 30, 2022.
The Company recognizes the amounts received from the contract at fair value when there is reasonable assurance that the contract amount will be received, and it is probable that all attaching conditions will be complied with. The Company recognizes the amounts received in accordance with the contract as a reduction of research and development expenses over the periods necessary to match the contract on a systematic basis to the costs that it is intended to compensate. The Company records reimbursements on the balance sheet as contract receivables upon meeting the criteria discussed above until cash is received. During the quarter ended June 30, 2022, the Company recorded a net deficit of $83,868 with the Company funding the NIH no-cost extension along with other R&D activities. The NIH made the final payment of $211,455 in April 2022 for Topic 345.
Regarding the accounting treatment for reimbursements, GAAP provides limited guidance on the accounting for government grants received by for-profit companies. We understand there is more than one acceptable alternative for the accounting treatment – a reduction of costs, a deferred credit to be amortized, revenue, or other income. Due to the terms of the contracts, we have entered into the Company concluded that the reimbursements were more akin to a reduction of costs rather than any of the other alternatives that would match the contract reimbursements on a systematic basis to the costs that the contract is intended to compensate.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a Binomial Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of June 30, 2022, the Company’s only derivative financial instrument was an embedded warrant feature associated with Series A Convertible Preferred Stock due to certain provisions that allow for a change in the warrant value based on fluctuations of the Company’s fair value of common stock at the date of issuance of the warrant based on certain contingent call features.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
F-9 |
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
● | Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
An established trading market for the Company’s common stock does not exist. The fair value of the shares was determined based on the then most recent price per share at which we sold preferred stock to unrelated parties in a private placement during the six months then ended.
During the year ended December 31, 2020, the Company utilized $25.22 (post-share exchange) per share as the fair value of its common stock for accounting purposes based on preferred share transactions with investors from August 2018 through December 2019, with no transactions occurring in 2020 and $5.00 in 2021, $4.00 through March 31, 2022 and $6.00 through June 30, 2022.
At June 30, 2022, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
June 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities | ||||||||||||||||
Derivative Liabilities | $ | - | $ | - | $ | 112,797 | $ | 112,797 |
At December 31, 2021, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities | ||||||||||||||||
Derivative Liabilities | $ | - | $ | - | $ | 94,025 | $ | 94,025 |
Revenue Recognition
Revenue from providing research and development is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration and includes the following elements:
● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
● | identification of performance obligations in the respective contract; | |
● | determination of the transaction price for each performance obligation in the respective contract; | |
● | allocation the transaction price to each performance obligation; and | |
● | recognition of revenue only when the Company satisfies each performance obligation. |
To satisfy these five elements, the Company records revenue for research and development services on a quarterly basis as services are provided. Revenue received from National Institutes of Health contracts is received in accordance with Federal grants and contracts policies. Research and development expenses are posted against revenue and recorded on the statement of operations as “Research and development, net of contract expense reimbursements.”
F-10 |
Basic and Diluted Earnings Per Share
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential common shares include outstanding warrants and Series A preferred stock.
For the six months ended June 30, 2022 and year ended December 31, 2021, the following common stock equivalents were excluded from the computation of diluted net loss per share as the result of the computation was anti-dilutive.
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Series A preferred stock | 97,062 | 97,062 | ||||||
Warrants | 48,531 | 48,531 | ||||||
145,593 | 145,593 |
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted this standard on January 1, 2021.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Note 3 – Property and Equipment, Net
Property and equipment consisted of the following:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Office Furniture and equipment | $ | 8,861 | $ | 8,861 | ||||
Laboratory equipment | 118,605 | 118,605 | ||||||
127,466 | 127,466 | |||||||
Less accumulated depreciation | (111,801 | ) | (108,902 | ) | ||||
Property and equipment, net | $ | 15,665 | $ | 18,564 |
Depreciation expense for the six months ended June 30, 2022 and 2021, were $2,899 and $2,700 respectively.
Note 4 – Operating Lease Right-of-use Asset and Operating Lease Liability
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the six months ended June 30 2022, and 2021, the Company recorded $35,088 and $35,088, respectively, as operating lease expense.
The Company currently has a lease agreement which allows for the use of a laboratory facility for a monthly payment of $6,107, which monthly lease payment increases by 3% every year. The laboratory lease commenced October 1, 2018, with the first payment due January 1, 2019, and expires on October 31, 2023. A security deposit of $6,480 is being held for the duration of the lease term.
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients,’ which permits the Company to avoid reassessing its prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, as the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded a right-of-use asset.
F-11 |
The Right-of-use assets are summarized below:
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Office Lease | $ | 265,207 | $ | 265,207 | ||||
Less accumulated amortization | (177,824 | ) | (148,225 | ) | ||||
Right-of-use, net | $ | 87,383 | $ | 116,982 |
Amortization on the right-of -use asset is included in rent expense on the statements of operations.
Operating lease liabilities are summarized below:
June 30, | ||||
2022 | ||||
Office Lease | $ | 97,120 | ||
Less: current portion | (71,518 | ) | ||
Long term portion | $ | 25,602 |
The Maturities of lease liabilities are summarized below:
As of | ||||
June 30, | ||||
2022 | ||||
2022 | $ | 38,502 | ||
2023 | 64,800 | |||
Total future minimum lease payments | 103,302 | |||
Less imputed interest | (6,182 | ) | ||
PV of Payments | $ | 97,120 |
Note 5 – Notes Payable-Related Party
On December 1, 2020, the Company consolidated all of the outstanding loans owed to an officer of the Company and to his spouse, resulting in the following two loans: (i) a single loan from the spouse of an officer of the Company, dated December 1, 2020, with a principal balance of $426,243, bearing interest at the rate of 7.5% per annum, with a maturity date of December 31, 2021; and (ii) a single loan owed to an officer of the company in the principal amount of $139,229, bearing interest at the rate of 7.5% per annum, with a maturity date of December 31, 2021. In December of 2021 the maturity dates of these loans were extended to June 30, 2022. As of June 30, 2022, the accrued interest was $47,575 and $15,533, and the total balances with accrued interest of $473,818 and $154,762 respectively. Subsequent to the date of this report, in July of 2022 the notes were extended to June 30, 2023 (Note 8).
On June 21, 2021, the Company entered into a loan from the spouse of an officer of the Company in the amount of $120,000 (principal) with an interest rate of 7.5% per annum due June 21, 2022, due at maturity. As of June 30, 2022, the accrued interest was $9,222 and the total balances with accrued interest of $129,222. Subsequent to the date of this report, in July of 2022 the notes were extended to June 30, 2023 (Note 8).
Note 6 - Notes Payable
On March 9, 2021, the Company obtained a $73,007 term note issued under the Coronavirus Aid, Relief, and Economic Security Act’s Paycheck Protection Program (the “PPP”). The note bears an interest rate of 1% per annum, has a six-month deferral period with payments beginning the seventh month and all outstanding principal and interest is due within two years from the note’s inception date. All or a portion of the note may be forgiven in accordance with PPP requirements. No more than 25% of the amount forgiven can be attributable to non-payroll costs. As of December 31, 2021, a “Loan Forgiveness Application” was submitted to PNC Bank along with the requested documentation and during the quarter ended March 31, 2022 the note liability was reduced in its entirety.
F-12 |
On May 15, 2020, the Company obtained a $62,500 term note issued under the Coronavirus Aid, Relief, and Economic Security Act’s Paycheck Protection Program (the “PPP”). The note bears an interest rate of 1% per annum, has a six-month deferral period with payments beginning the seventh month and all outstanding principal and interest is due within two years from the note’s inception date. All or a portion of the note may be forgiven in accordance with PPP requirements. No more than 25% of the amount forgiven can be attributable to non-payroll costs. A “Loan Forgiveness Application” was submitted to PNC Bank along with the requested documentation and the note liability was reduced in its entirety during the year ended December 31, 2021.
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
PPP Note payable | ||||||||
PPP Note May 15, 2020 | $ | - | $ | 62,500 | ||||
PPP Note March 9, 2021 | 73,007 | 73,007 | ||||||
Loan Forgiveness | (73,007 | ) | (62,500 | ) | ||||
$ | - | $ | 73,007 |
On December 28, 2021, the Company issued $500,000 note units, consisting of two $250,000 notes, for a total of $500,000 10% unsecured promissory notes with a maturity date of December 28, 2022, and 500,000 warrants exercisable at $1.00 per share with an expiry date of December 28, 2026, and fees of $5,075. The value of the warrants was determined using a computed volatility of 85.5%, 0% dividend rate, and a risk free interest rate of 1.27% and was applied as a discount on the notes payable.
On February 8, 2022, and March 11, 2022, the Company sold $365,000 and $224,985, respectively, in 6% convertible notes (the “Notes”), which bear 6% interest, are repayable three years from the date of issuance, and will convert automatically into units, with each unit consisting of one share of common stock and a warrant to purchase one share of commons stock (the “Conversion Units”) at a conversion price equal to 50% of the per unit offering price upon closing of this offering. Boustead Securities LLC acted as placement agent for this offering and received compensation of $36,500 and $22,250, respectively, and warrants to purchase shares of common stock equal to 10% of the Conversion Shares, exercisable at the conversion price of the Convertible Notes. The value of the warrants was determined using computed volatility of 83.4%, 0% dividend rate, and a risk free interest rate of 1.27%, and computed volatility of 85.5% %, 0% dividend rate, and a risk free interest rate of 1.96%, and was applied as a discount on the notes payable.
June 30, | December 31, | |||||||
2022 | 2021 | |||||||
Promissory note issued on December 28, 2021 | $ | 500,000 | $ | 500,000 | ||||
Promissory note issued on February 8, 2022 | 365,000 | - | ||||||
Promissory note issued on March 11, 2022 | 225,000 | - | ||||||
1,090,000 | 500,000 | |||||||
Less discount on notes payable | (514,376 | ) | (408,979 | ) | ||||
$ | 575,624 | $ | 91,021 |
Note 7 – Stockholders’ Equity
Pursuant to the Company’s amended and restated articles of incorporation, the Company is authorized to issue 100,000,000 shares of common stock, with a par value of $0.00001 per share, and 20,000,000 shares of preferred stock, with a par value of $0.00001 per share.
Series A Preferred Shares
The Series A Preferred Stock, in accordance with its terms, is automatically convertible into a number of shares of the Company’s common stock upon the closing of the sale of shares of common stock to the public in a qualified offering (as set forth in the Series A certificate of designation) or upon listing of the Company’s common stock on a national securities exchange.
As of June 30, 2022, and December 31, 2021, the Company had 1,213 shares of Series A Preferred Stock issued and outstanding.
As of June 30, 2022, and December 31, 2021, the Company accrued $51,536 for the 8.5% cumulative dividends on the Series A Preferred stock for the six months ended June 30, 2022 and $103,062 for the year ended December 31, 2021, for a total of $382,595 and $331,059 respectively.
Common Stock
As of June 30, 2022 and December 31, 2021, the Company had 9,312,991 and 9,312,152 shares of common stock issued and outstanding, respectively. The balance includes 20,626 and 21,530 shares of restricted stock issued in 2021 and 2020 respectively and 839 common shares issued to settle common stock to be issued.
F-13 |
Common Stock to be Issued
On June 4, 2018, $120,250 outstanding convertible notes were converted to 6,182 shares of common stock of the Company at a price of $19.44 per share. The Company recorded $16,340 of common stock to be issued for the accrued interest. As of June 30, 2022, 839 common shares were issued to settle the $16,340 of common stock to be issued.
Warrants
The Series A Preferred Stock sold in the private placement offerings, included warrants to be issued upon the earlier of a closing of the sale of shares of common stock to the public at a prices per share of at least $13.88 or in a firm commitment underwritten public offering pursuant to an effective registration statement resulting in gross proceeds of at least $15,000,000. The warrants shall be exercisable for a period of three years after the date of issuance. The warrant exercise price is contingent on the terms of the public offering. If an initial public offering occurs at a price at or above $13.88 per share, then the exercise price shall be set to the issuance price of the common stock with the number of warrants determined based on a 10% discount to the per share common stock issuance price. In the scenario where the common stock is listed with the common stock issuance price below $13.88, the exercise price will be set to $20.82 with the number of warrants based on a fixed conversion price of $12.49, which represents a 10.0% discount to the $13.88 threshold. The warrants also have contingent call features based on the terms of the public offering. If an initial public offering occurs at a price at or above $13.88, then the warrants are callable if the 20-day VWAP of the common stock in at or above 150% of the variable exercise price. In the scenario where the common stock is listed with a common stock issuance price below $13.88, then the warrants are callable if the 20-day VWAP of the common stock is at or above the $20.82 exercise price. The detachable warrants contained terms and features that gave rise to derivative liability classification.
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial Option Pricing valuation technique to fair value the compound embedded derivative. Inherent in a binomial options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility of comparable companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.
The derivative liability linked to the Series A Preferred Stock as of June 30, 2022, and December 31, 2021 was $47,221 and $94,025, respectively. For the period ended June 30, 2022 and 2021, the change in fair value of warrant liability was a gain of $46,804 and a gain of $57,656, respectively.
The estimated fair values of the liability measured on a recurring basis are as follows:
June 30, | December 31, | June 30, | ||||||||||
% | 2022 | 2021 | 2021 | |||||||||
Expected average volatility | 87.4 | % | 85.5 | % | 86 | % | ||||||
Dividend yield | 8.5 | % | 8.5 | % | 8.5 | % | ||||||
Expected life | 1.84 Years | 2.33 Years | 2.84 Years | |||||||||
Risk-free interest rate | 2.92 | % | 0.73 | % | 0.25 | % |
A continuity schedule of the Series A Preferred Stock warrants is set forth below:
Number of Warrants | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
Outstanding, December 31, 2020 | 48,532 | $ | 24.98 | 3.33 | ||||||||
Granted | - | - | - | |||||||||
Forfeited | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding and Exercisable, December 31, 2021 | 48,532 | $ | 24.98 | 2.33 | ||||||||
Granted | - | - | - | |||||||||
Forfeited | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding and Exercisable, June 30, 2022 | 48,532 | $ | 24.98 | 1.83 |
F-14 |
Equity Incentive Plan
Our 2018 Equity Incentive Plan provides for equity incentives to be granted to our employees, executive officers or directors and to key advisers and consultants. Equity incentives may be in the form of stock options with an exercise price of not less than the fair market value of the underlying shares as determined pursuant to the 2018 Equity Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2018 Equity Incentive Plan is administered by the Company’s compensation committee or, alternatively, if there is no compensation committee, the Company’s board of directors. We have reserved 3,000,000 shares of our common stock for issuance under the 2018 Equity Incentive Plan. As of June 30, 2022, 384,167 shares have been granted under the 2018 Equity Incentive Plan.
Restricted Stock Units. We may grant restricted stock units under our 2018 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator, in its sole discretion, may pay earned restricted stock units in the form of cash, in shares or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
On August 16, 2019, five individuals were appointed to the Board of Directors of the Company to serve as directors. Each individual entered into an agreement pursuant to which they will serve as a director and pursuant to which they would each receive a grant of $75,000 worth of Restricted Stock Units (“RSUs”) issuable under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”). The RSUs vest annually in one third increments from the date of appointment. Under the terms of the director agreements, the Company has also agreed to pay each director $25,000 per annum, payable in equal quarterly installments commencing 90 days following the Company becoming a publicly reporting company under the Securities Exchange Act of 1934, as amended.
During the six months ended June 30, 2022 and 2021, pursuant to the agreements with directors and officers compensation expense for the RSUs of $333,066 and $245,034 was included in wages, respectively.
As of June 30, 2022, there was $32,001 of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized within the current year.
A continuity schedule of the Restricted Stock Units (RSU) follows:
Number of RSU | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
Outstanding, December 31, 2020 | 61,884 | $ | 23.76 | 4.33 | ||||||||
Granted | - | - | ||||||||||
Forfeited | (2,702 | ) | 27.76 | - | ||||||||
Exercised | - | - | - | |||||||||
Outstanding, December 31, 2021 | 59,182 | $ | 23.57 | 3.33 | ||||||||
Granted | - | - | - | |||||||||
Forfeited | - | - | - | |||||||||
Exercised | - | - | - | |||||||||
Outstanding, June 30, 2022 | 59,182 | $ | 23.57 | 2.84 | ||||||||
Exercisable, June 30, 2022 | 57,768 | $ | 23.74 | 2.84 |
Note 8 – Subsequent Events
Management evaluated all additional events subsequent to the balance sheet date through August 12, 2022, the date the financial statements were available to be issued, and determined the following items:
In July of 2022, the Company signed extension agreements for the related party notes of $138,449, $424,036 and $120,000 that were due during June of 2022. The extensions updated the maturity date for the three notes to June 30, 2023.
In August of 2022, the Company closed on a bridge financing arrangement or $125,000 of 10% notes and warrants to purchase 50,000 shares of common stock exercisable at $2.50 per share. The notes are due 12 months from the date of execution or upon closing the initial public offering (“IPO”) and warrants are exercisable for five years.
F-15 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the board of directors of Shuttle Pharmaceuticals Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Shuttle Pharmaceuticals Holdings, Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Restatement of December 31, 2021 Financial Statements
As discussed in Note 9 to the financial statements, the financial statements have been restated to correct certain misstatements.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BF Borgers CPA PC
BF Borgers CPA PC
Served as Auditor since 2021
Lakewood, CO
June 3, 2022, except for the effects of the restatement disclosed in Note 9, as to which the date is June 23, 2022
F-16 |
Shuttle Pharmaceuticals Holdings, Inc.
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
(As Restated) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 504,749 | $ | 117,153 | ||||
Prepaid expenses | 4,866 | 12,579 | ||||||
Contracts receivable | - | 211,455 | ||||||
Total current assets | 509,615 | 341,187 | ||||||
Property and equipment, net | 18,564 | 24,782 | ||||||
Other assets | 6,480 | 6,480 | ||||||
Operating lease right-of-use asset | 116,982 | 171,598 | ||||||
Total assets | $ | 651,641 | $ | 544,047 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 828,313 | $ | 516,966 | ||||
Accrued interest payable | 552 | 392 | ||||||
Accrued interest payable - related parties | 46,947 | - | ||||||
Dividends Payable | 331,059 | 227,997 | ||||||
Notes payable - related parties | 685,473 | 565,473 | ||||||
Notes payable | 91,021 | - | ||||||
Paycheck Protection Program note payable, current portion | 73,007 | 62,500 | ||||||
Derivative liability | 94,025 | 673,171 | ||||||
Operating lease liability current portion | 66,934 | 58,468 | ||||||
Total current liabilities | 2,217,331 | 2,104,967 | ||||||
Operating lease liability non-current | 62,442 | 129,376 | ||||||
Total liabilities | 2,279,773 | 2,234,343 | ||||||
Stockholders’ Deficit: | ||||||||
Series A convertible preferred stock, $0.00001 par value; $1,000 per share liquidation value or aggregate of $1,212,500; 20,000,000 shares authorized; 1,213 shares issued and outstanding at December 31, 2021 | - | - | ||||||
Common stock, $0.00001 par value; 100,000,000 shares authorized; 9,312,152 and 9,291,526 shares issued and outstanding at December 31, 2021 and 2020, respectively | 93 | 93 | ||||||
Additional paid in capital | 4,150,867 | 2,833,507 | ||||||
Common stock to be issued | 16,340 | 16,340 | ||||||
Accumulated deficit | (5,795,432 | ) | (4,540,236 | ) | ||||
Total stockholders’ deficit | (1,628,132 | ) | (1,690,296 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 651,641 | $ | 544,047 |
The accompanying footnotes are an integral part of these consolidated financial statements.
F-17 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Operations
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
(As Restated) | ||||||||
Revenue | $ | - | $ | - | ||||
Operating expenses: | ||||||||
Research and development, net of contract expense reimbursements | 1,021,808 | 161,772 | ||||||
General and administrative | 36,500 | 85,927 | ||||||
Legal and professional | 684,684 | 261,823 | ||||||
Total operating expenses | 1,742,992 | 509,522 | ||||||
Loss from operations | (1,742,992 | ) | (509,522 | ) | ||||
Other income (expense): | ||||||||
Loss on write off of deposit | - | - | ||||||
Interest expense - related parties | (46,947 | ) | (36,771 | ) | ||||
Interest expense | (3,841 | ) | (2,859 | ) | ||||
Change in fair value of warrant liability | 579,146 | (256,580 | ) | |||||
Gain on forgiveness of Paycheck Protection Program note payable | 62,500 | - | ||||||
Total other income (expense) | 590,858 | (296,210 | ) | |||||
Loss before income taxes | (1,152,134 | ) | $ | (805,732 | ) | |||
Income tax provision | - | - | ||||||
Net loss | $ | (1,152,134 | ) | $ | (805,732 | ) | ||
Dividend on Series A preferred stock | (103,062 | ) | (103,062 | ) | ||||
Net loss attributable to common stockholders | $ | (1,255,196 | ) | $ | (908,794 | ) | ||
Weighted average common shares outstanding - basic and diluted | 9,301,750 | 9,291,526 | ||||||
Diluted | 9,306,610 | 18,575,143 | ||||||
Net loss per shares - basic and diluted | $ | (0.12 | ) | $ | (0.09 | ) |
The accompanying footnotes are an integral part of these consolidated financial statements.
F-18 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Deficit
Series A Convertible | Additional | Common | Total | |||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Stock to | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | be Issued | Deficit | Deficit | |||||||||||||||||||||||||
Balance, December 31, 2019 | 1,213 | $ | - | 9,269,996 | $ | 93 | $ | 2,373,918 | $ | 16,340 | $ | (3,631,442 | ) | $ | (1,241,091 | ) | ||||||||||||||||
Common stock issued for restricted stock units | - | - | 21,530 | - | 459,589 | - | - | 459,589 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (103,062 | ) | (103,062 | ) | ||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (805,732 | ) | (805,732 | ) | ||||||||||||||||||||||
Balance, December 31, 2020 | 1,213 | $ | - | 9,291,526 | $ | 93 | $ | 2,833,507 | $ | 16,340 | $ | (4,540,236 | ) | $ | (1,690,296 | ) | ||||||||||||||||
Stock based compensation (As Restated) | - | - | - | - | 420,000 | - | - | 420,000 | ||||||||||||||||||||||||
Warrants issued for financing costs | - | - | - | - | 407,293 | - | - | 407,293 | ||||||||||||||||||||||||
Common stock issued for restricted stock units | - | - | 20,626 | - | 490,067 | - | - | 490,067 | ||||||||||||||||||||||||
Dividends on Series A preferred stock | - | - | - | - | - | - | (103,062 | ) | (103,062 | ) | ||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (1,152,134 | ) | (1,152,134 | ) | ||||||||||||||||||||||
Balance, December 31, 2021 (As Restated) | 1,213 | $ | - | 9,312,152 | $ | 93 | $ | 4,150,867 | $ | 16,340 | $ | (5,795,432 | ) | $ | (1,628,132 | ) |
The accompanying footnotes are an integral part of these consolidated financial statements.
F-19 |
Shuttle Pharmaceuticals Holdings, Inc.
Consolidated Statements of Cash Flows
Year Ended | ||||||||
December 31, | ||||||||
2021 | 2020 | |||||||
(As Restated) | ||||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (1,152,134 | ) | $ | (805,732 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 6,218 | 5,782 | ||||||
Change in fair value of warrant liability | (579,146 | ) | 256,580 | |||||
Amortization of right-of-use asset | 54,616 | 49,169 | ||||||
Amortization of debt discount | 3,389 | - | ||||||
Gain on forgiveness of Paycheck Protection Program note payable | (62,500 | ) | - | |||||
Stock-based compensation | 490,067 | 459,589 | ||||||
Changes in operating assets and liabilities: | ||||||||
Contracts receivable | 211,455 | 164,927 | ||||||
Prepaid expenses | 7,713 | (586 | ) | |||||
Accounts payable and accrued expenses | 311,347 | (51,127 | ) | |||||
Accrued interest payable | 160 | 392 | ||||||
Accrued interest payable - related parties | 46,947 | (54,959 | ) | |||||
Operating lease liability | (58,468 | ) | (50,866 | ) | ||||
Net cash used in operating activities | (300,336 | ) | (26,831 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Purchase of property and equipment | - | (10,818 | ) | |||||
Net cash used in investing activities | - | (10,818 | ) | |||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from notes payable-related parties | 120,000 | 7,573 | ||||||
Proceeds from PPP note payable | 73,007 | 62,500 | ||||||
Proceeds from notes payable | 494,925 | - | ||||||
Net cash provided by financing activities | 687,932 | 70,073 | ||||||
Net change in cash | 387,596 | 32,424 | ||||||
Cash, beginning of period | 117,153 | 84,729 | ||||||
Cash, end of period | $ | 504,749 | $ | 117,153 | ||||
Cash paid for: | ||||||||
Interest | $ | 293 | $ | 1,886 | ||||
Income taxes | $ | - | $ | - |
The accompanying footnotes are an integral part of these consolidated financial statements.
F-20 |
Shuttle Pharmaceuticals Holdings, Inc.
Notes to Consolidated Financial Statements
Year Ended December 31, 2020 and 2021
Note 1 – Organization and Going Concern
Organization and Line of Business
The Company was formed as Shuttle Pharmaceuticals, LLC, in the State of Maryland on December 18, 2012. On August 12, 2016, the Company filed articles of conversion with the state of Maryland to convert from an LLC to a corporation and the Company changed its name to Shuttle Pharmaceuticals, Inc. (“Shuttle”). In connection with the conversion the Company issued 45,000,000 shares of common stock in exchange for 100% of the outstanding membership interests prior to conversion. On June 4, 2018, Shuttle completed a reverse merger with Shuttle Pharmaceuticals Holdings, Inc. (then known as Shuttle Pharma Acquisition Corp.), a Delaware corporation (the “Company”), pursuant to which Shuttle, our operating entity, became a wholly owned subsidiary of the Company.
The Company’s primary purpose is to develop and commercialize unique drugs for the sensitization of cancers and protection of normal tissues, with the goal of improving outcomes for cancer patients receiving radiation therapy. Shuttle has deployed its proprietary technology to develop novel cancer immunotherapies which has produced a pipeline of selective HDAC inhibitors for cancer and immunotherapy applications. The Company’s HDAC platform is designed to target candidate molecules with potential roles in therapeutics beyond cancer, including autoimmune, inflammatory, metabolic, neurological and infectious diseases. The Company’s Ropidoxuridine product, which is used with radiation therapy to sensitize cancer cells, was funded by a Small Business Innovation Research (SBIR) contract provided by the National Cancer Institute (NCI), a unit of the National Institutes of Health (NIH). Ropidoxuridine has been further developed though the Company’s collaborations with the University of Virginia for use in combination with proton therapy to improve patient survival. The Company is working on developing products through NIH grants, including a product to predict late effects of radiation with metabolite biomarkers and develop prostate cancer cell lines in health disparities research.
The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any combination product developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the Food and Drug Administration (“FDA”) under the Food, Drug and Cosmetic Act. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company now or in the future.
Reverse Stock Split
Effective April 1, 2022, we effected a 2-for-1 reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). All references to shares of our common stock in this registration statement on Form S-1 refers to the number of shares of common stock after giving effect to the Reverse Stock Split (unless otherwise indicated).
Going Concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company’s only revenue source since inception has been government awarded contracts totaling $5,531,722, and the Company has incurred losses since inception, having accumulated a deficit of $5,795,432 as of December 31, 2021. The Company currently has limited liquidity and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
F-21 |
The Company will need to raise capital to fund its operations. To address its financing requirements, the Company intends to seek financing through debt or equity financings with an aim to continue progress toward commercial viability of its products. The Company continues to submit Federal grant and contract applications which have historically been the primary source of revenue. The financial statements do not include any adjustments that might result from the outcome of the uncertainty of raising additional capital.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles of the United States (“GAAP”).
Basis of Consolidation
The financial statements have been prepared on a consolidated basis with those of the Company’s wholly-owned subsidiary, Shuttle Pharmaceuticals, Inc. All intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include useful lives of property and equipment, valuation of derivatives, and the valuation allowance on deferred tax assets.
Accounts Receivable
The Company’s accounts receivable consists of amounts due from the National Institutes of Health (“NIH”), a government agency under the Department of Health and Human Services. The Company submits quarterly reports of progress for tasks performed on research and development contracts it is awarded. The contracts are typically reimbursed on a fixed fee cost reimbursement basis and payments from the contracts are generally collected within 30 days of the Company’s submission for reimbursement. The Company currently does not provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Normal receivable terms vary from 7-30 days after the issuance of the invoice and typically would be considered past due when the term expires. The Company’s allowance for doubtful accounts was $0 at December 31, 2020 and 2021.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
Furniture | 5 years | |
Computers and equipment | 5 years | |
Research Equipment | 10 years |
F-22 |
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses include, but are not limited to, product development, clinical and regulatory expenses, payroll and other personnel expenses, materials, supplies, related subcontract expenses, and consulting costs. The expenses assigned to NIH SBIR sponsored research are related to: (1) “Topic 352: Cell-Based Models for Prostate Cancer Health Disparity Research – Moonshot Project” and (2) “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects.”
The research expenses are assigned to the research projects to demonstrate proof of principle in patients with prostate cancer that may support development and commercialization of biomarker products and to gather prostate cancer cell lines in African American men to serve as the product for use in health disparities research. Costs that are not covered by the SBIR contract for performing the Phase I contract to determine commercialization feasibility included partial salary support of personnel and a consultant to develop a commercialization plan. Costs that are not covered in the Phase II contract include business development and partial salary support.
Research expenses related to new drug discovery include partial support of personnel, space, supplies, and legal costs.
During fiscal year 2021, the Company has made progress on completing two SBIR contracts from the NIH to support research projects with potential for commercialization. The SBIR contract awards are fixed payments made by the NIH in response to quarterly Shuttle invoices and provide non-dilutive funds that do not include a repayment obligation. Details on the three contracts follow:
1. Contract #HHSN261201600027C/75N91018C00016 supported “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects.” This $299,502 Phase I award includes funded research from 9/19/2016 through 9/18/2017 and was advanced to Phase II of the awards with funding of $1,903,095 with a fixed price contract period of 9/17/2018 through 9/16/2020 and subsequent no cost extensions through 9/15/2021 and then 3/15/2022 (Reference 75N91019C00031). The Company received quarterly payments of $211,455 for a total of $845,820 in 2020; and 2 quarterly payments related to Topic 345 for a total of $422,910 in 2021. In Phase II of the SBIR effort, the Company will license the metabolite signatures (intellectual property) from Georgetown University, manufacture 500 “kits,” test and validate the metabolic kit performance and develop a multi-institutional clinical trial to be implemented in the Phase III effort. This contract includes a subcontract to Georgetown University for use of Mass Spectrometry core facilities to analyze clinical samples. The contract was extended to complete the milestones which were delayed due to the impact of COVID-19.
On December 6, 2019, the Company engaged Georgetown University to perform the $795,248 subcontract of its Phase II contract #HHSN75N91019C00031. The Company will reimburse Georgetown for its allowable costs not to exceed the ceiling amount of $795,248. Depending on the resources it uses, Georgetown may or may not invoice for the total subcontract amount. In the event Georgetown does not invoice for the total allowable amount, the Company is not obligated to pay the ceiling amount. As of December 31, 2021, payments of $354,829 were made to Georgetown, and additional invoices for $436,188 were received but not yet paid.
2. The Phase II contract #HHSN261201800016C supports the discovery work following a Phase I contract # HHSN261600038C “Topic 352 – SBIR Phase II Cell-based Models for Prostate Cancer Health Disparity Research” and was awarded to provide $1,484,350 to fund research from 9/17/2018 through 9/16/2020 and was extended without cost through 11/16/2021 due to delays caused by the impact of COVID-19. For 2020, the Company received 2.5 quarterly payments for a total of $412,321 and $82,467 in 2021. The Phase II contract also includes a subcontract to Georgetown University for $742,002 to establish prostate cancer cell lines from African American patients undergoing prostate surgery for cancers.
On December 5, 2018, the Company engaged Georgetown University to perform the $742,002 subcontract of its Phase II contract #HHSN261201800016C. Depending on the resources it uses, Georgetown may or may not invoice for the total subcontract amount. In the event Georgetown does not invoice for the total allowable amount, the Company is not obligated to pay the ceiling amount. The Company has been invoiced by Georgetown and has paid Georgetown a total of $292,252 as of December 31, 2021.
F-23 |
The Company recognizes the amounts received from the contract at fair value when there is reasonable assurance that the contract amount will be received, and it is probable that all attaching conditions will be complied with. The Company recognizes the amounts received in accordance with the contract as a reduction of research and development expenses over the periods necessary to match the contract on a systematic basis to the costs that it is intended to compensate. The Company records reimbursements on the balance sheet as contract receivables upon meeting the criteria discussed above until cash is received. During the 12 months ended December 31, 2021, the Company recorded a net deficit of $1,021,808 from these two SBIR contracts which is the result of recording $1,527,185 in SBIR contract related expenses on revenues of $505,377.
Regarding the accounting treatment for reimbursements, GAAP provides limited guidance on the accounting for government grants received by for-profit companies. We understand there is more than one acceptable alternative for the accounting treatment – a reduction of costs, a deferred credit to be amortized, revenue, or other income. Due to the terms of the contracts, we have entered into the Company concluded that the reimbursements were more akin to a reduction of costs rather than any of the other alternatives that would match the contract reimbursements on a systematic basis to the costs that the contract is intended to compensate.
Derivative Financial Instruments
The Company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a Binomial Simulation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of December 31, 2021, the Company’s only derivative financial instrument was an embedded warrant feature associated with Series A Convertible Preferred Stock due to certain provisions that allow for a change in the warrant value based on fluctuations of the Company’s fair value of common stock at the date of issuance of the warrant based on certain contingent call features.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
● | Level 3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the fair value measurement. |
F-24 |
The Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480, Distinguishing Liabilities from Equity, and FASB ASC Topic 815, Derivatives and Hedging.
For certain financial instruments, the carrying amounts reported in the balance sheets for cash and current liabilities, including convertible notes payable, each qualify as a financial instrument, and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest.
An established trading market for the Company’s common stock does not exist. The fair value of the shares was determined based on the then most recent price per share at which we sold preferred stock to unrelated parties in a private placement during the six months then ended.
During the year ended December 31, 2020, the Company utilized $25.22 (post-share exchange) per share as the fair value of its common stock for accounting purposes based on preferred share transactions with investors from August 2018 through December 2019, with no transactions occurring in 2020 and $5.00 in 2021.
At December 31, 2021, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
Description | Level 1 | Level 2 | Level 3 | |||||||||
Warrant Liability | $ | - | $ | - | $ | 94,025 |
At December 31, 2020, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
Description | Level 1 | Level 2 | Level 3 | |||||||||
Warrant Liability | $ | - | $ | - | $ | 673,171 |
Revenue Recognition
Revenue from providing research and development is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services to customers in return for expected consideration and includes the following elements:
● | executed contracts with the Company’s customers that it believes are legally enforceable; | |
● | identification of performance obligations in the respective contract; | |
● | determination of the transaction price for each performance obligation in the respective contract; | |
● | allocation the transaction price to each performance obligation; and | |
● | recognition of revenue only when the Company satisfies each performance obligation. |
To satisfy these five elements, the Company records revenue for research and development services on a quarterly basis as services are provided. Revenue received from National Institutes of Health contracts is received in accordance with Federal grants and contracts policies. Research and development expenses are posted against revenue and recorded on the statement of operations as “Research and development, net of contract expense reimbursements.”
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to the estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge will be recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no impairments of long-lived assets during the periods presented.
F-25 |
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Basic and Diluted Earnings Per Share
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential common shares include outstanding warrants and Series A preferred stock.
For the years ended December 31, 2021, and 2020, the following common stock equivalents were excluded from the computation of diluted net loss per share as the result of the computation was anti-dilutive.
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
Series A preferred stock | 97,062 | 97,062 | ||||||
Warrants | 48,532 | 48,532 | ||||||
Total | 145,594 | 145,594 |
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity.” The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company has adopted this standard on January 1, 2021.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
F-26 |
Note 3 – Property and Equipment, Net
Property and equipment consisted of the following as of December 31, 2021, and 2020:
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
Office Furniture and equipment | $ | 8,861 | $ | 8,861 | ||||
Laboratory equipment | 118,605 | 118,605 | ||||||
127,466 | 127,466 | |||||||
Less accumulated depreciation | (108,902 | ) | (102,684 | ) | ||||
Property and equipment, net | $ | 18,564 | $ | 24,782 |
Depreciation expense for the twelve months ended December 31, 2021, and 2020 were $6,218 and $5,782 respectively.
Note 4 – Operating Lease Right-of-use Asset and Operating Lease Liability
Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of our leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. During the twelve months ended December 31, 2021, and the year ended December 31, 2020, the Company recorded $74,028 and $71,872, respectively, as operating lease expense.
The Company currently has a lease agreement which allows for the use of a laboratory facility for a monthly payment of $6,107, which monthly lease payment increases by 3% every year. The laboratory lease commenced October 1, 2018, with the first payment due January 1, 2019, and expires on October 31, 2023. A security deposit of $6,480 is being held for the duration of the lease term.
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients,’ which permits the Company to avoid reassessing its prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, as the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded a right-of-use asset.
F-27 |
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
Office Lease | $ | 265,207 | $ | 265,207 | ||||
Less accumulated amortization | (148,225 | ) | (93,609 | ) | ||||
Right-of-use, net | $ | 116,982 | $ | 171,598 |
The Right-of-use assets are summarized below:
Amortization on the right-of -use asset is included in rent expense on the statements of operations.
Operating lease liabilities are summarized below:
December 31, | ||||
2021 | ||||
Office Lease | $ | 129,376 | ||
Less: current portion | (66,934 | ) | ||
Long term portion | $ | 62,442 |
The Maturities of lease liabilities are summarized below:
As of | ||||
December 31, | ||||
2021 | ||||
2022 | $ | 76,248 | ||
2023 | 64,800 | |||
Total future minimum lease payments | 141,048 | |||
Less imputed interest | (11,672 | ) | ||
PV of Payments | $ | 129,376 |
Note 5 – Notes Payable-Related Party
On January 25, 2018, the Company entered into a loan from the spouse of an officer of the Company in the amount of $300,000. The loan bears interest at the rate of 7.5% per annum. The loan plus accrued interest was payable in full on January 25, 2019. On January 25, 2019, the Company amended the loan for purposes of extending the maturity date from January 25, 2019, to October 25, 2020. On December 1, 2020, the Company again amended the terms and extended the maturity date to December 31, 2021, bringing the total amount owed under the loan, together with accrued interest of $64,084, to a total of $364,084. This note was rolled into the note referenced below with a principal amount of $424,056.
On April 4, 2018, the Company entered into a loan from the spouse of an officer of the Company in the amount of $50,000. The loan bears an interest rate of 7.5% per annum. The loan plus accrued interest was payable in full on September 4, 2018. On October 31, 2018, the Company amended the terms to extend the maturity date from September 4, 2018, to April 4, 2019. On April 4, 2019, the Company amended the terms to extend the maturity date from April 4, 2019, to October 25, 2020. On December 1, 2020, the Company again amended the terms and extended the maturity date to December 31, 2021, bringing the total amount owed under the loan, together with accrued interest of $9,972, to a total of $59,972. This note was rolled into the note referenced below with a principal amount of $424,056.
On May 30, 2018, the Company entered into a loan with an officer of the Company in the amount of $25,000. The loan bears an interest rate of 7.5% per annum. The loan plus accrued interest was payable in full on July 15, 2018. On October 31, 2018, the Company amended the terms to extend the maturity date from July 15, 2018, to November 30, 2020. On December 1, 2020, the Company again amended the terms and extended the maturity date to December 31, 2021, bringing the total amount owed under the loan, together with accrued interest of $4,698, to a total of $29,698. This note was rolled into the note reference below with a principal amount of $138,448.
F-28 |
On June 24, 2019, the Company entered into a loan from the spouse of an officer of the Company in the amount of $70,000. The loan bore interest rate of 7.5% per annum and required monthly payments of $6,073. The loan plus accrued interest was paid in full on June 30, 2020.
On August 24, 2019, the Company entered into a loan from the spouse of an officer of the Company in the amount of $70,000. The loan bore an interest rate of 7.5% per annum and required monthly payments of $6,073. The loan plus accrued interest was paid in full on August 23, 2020.
On September 23, 2019, the Company entered into a loan from the spouse of an officer of the Company in the amount of $100,000. The loan bore an interest rate of 7.5% per annum and became payable in full on September 22, 2020. This note was rolled into the note reference below with a principal amount of $138,448.
On December 1, 2020, the Company consolidated all of the outstanding loans owed to an officer of the Company and to his spouse, resulting in the following two loans: (i) a single loan from the spouse of an officer of the Company, dated December 1, 2020, with a principal balance of $424,056, bearing interest at the rate of 7.5% per annum, with a maturity date of December 31, 2021; and (ii) a single loan owed to an officer of the company in the principal amount of $138,449, bearing interest at the rate of 7.5% per annum, with a maturity date of December 31, 2021. In December of 2021 the maturity dates of these loans were extended to June 30, 2022. As of December 31, 2021, the accrued interest was $31,804 and $10,384, and the total balances with accrued interest of $458,047 and $149,613 respectively.
On June 21, 2021, the Company entered into a loan from the spouse of an officer of the Company in the amount of $120,000 (principal) with an interest rate of 7.5% per annum due June 21, 2022, due at maturity. As of December 31, 2021, the accrued interest was $4,759 and the total balances with accrued interest of $124,759.
Note 6 - Notes Payable
On March 9, 2021, the Company obtained a $73,007 term note issued under the Coronavirus Aid, Relief, and Economic Security Act’s Paycheck Protection Program (the “PPP”). The note bears an interest rate of 1% per annum, has a six-month deferral period with payments beginning the seventh month and all outstanding principal and interest is due within two years from the note’s inception date. All or a portion of the note may be forgiven in accordance with PPP requirements. No more than 25% of the amount forgiven can be attributable to non-payroll costs. As of December 31, 2021, a “Loan Forgiveness Application” was submitted to PNC Bank along with the requested documentation and subsequent to the close of the December 31, 2021, reporting period the note liability was reduced in its entirety.
On May 15, 2020, the Company obtained a $62,500 term note issued under the Coronavirus Aid, Relief, and Economic Security Act’s Paycheck Protection Program (the “PPP”). The note bears an interest rate of 1% per annum, has a six-month deferral period with payments beginning the seventh month and all outstanding principal and interest is due within two years from the note’s inception date. All or a portion of the note may be forgiven in accordance with PPP requirements. No more than 25% of the amount forgiven can be attributable to non-payroll costs. A “Loan Forgiveness Application” was submitted to PNC Bank along with the requested documentation and the note liability was reduced in its entirety during the year ended December 31, 2021.
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
PPP Note May 15, 2020 | $ | 62,500 | $ | 62,500 | ||||
PPP Note March 9, 2021 | 73,007 | - | ||||||
Loan Forgiveness | (62,500 | ) | - | |||||
Total | $ | 73,007 | $ | 62,500 |
F-29 |
On December 28, 2021, the Company issued $500,000 note units, consisting of two $250,000 notes, for a total of $500,000 10% unsecured promissory notes with a maturity date of December 28, 2022, and 500,000 warrants exercisable at $1.00 per share with an expiry date of December 28, 2026, and fees of $5,075. The value of the warrants was determined using a computed volatility of 85.5%, 0% dividend rate, and a risk free interest rate of 1.27% and was applied as a discount on the notes payable as follows:
December 31, | ||||
2021 | ||||
Promissory notes issued on December 28, 2021 | $ | 500,000 | ||
Less unamortized discount on notes payable | (408,979 | ) | ||
Total | $ | 91,021 |
Note 7 – Stockholders’ Equity
Pursuant to the Company’s amended and restated articles of incorporation, the Company is authorized to issue 100,000,000 shares of common stock, with a par value of $0.00001 per share, and 20,000,000 shares of preferred stock, with a par value of $0.00001 per share.
Series A Preferred Shares
The Series A Preferred Stock, in accordance with its terms, is automatically convertible into a number of shares of the Company’s common stock upon the closing of the sale of shares of common stock to the public in a qualified offering (as set forth in the Series A certificate of designation) or upon listing of the Company’s common stock on a national securities exchange.
As of December 31, 2021, and 2020, the Company had 1,213 shares of Series A Preferred Stock issued and outstanding.
As of December 31, 2021, and 2020, the Company had accrued the 8.5% cumulative dividends on the Series A Preferred stock of $331,059 and $227,997 respectively.
Common Stock
As of December 31, 2021, and 2020, the Company had 9,312,152 and 9,291,526 shares of common stock issued and outstanding, respectively. The balance includes 20,626 and 21,530 shares of restricted stock issued in 2021 and 2020 respectively.
Common Stock to be Issued
On June 4, 2018, $120,250 outstanding convertible notes were converted to 6,182 shares of common stock of the Company at a price of $19.44 per share. The Company has recorded $16,340 of common stock to be issued for the accrued interest. As of December 31, 2020 and 2021, the common stock has not been issued.
Warrants
The Series A Preferred Stock sold in the private placement offerings, included warrants to be issued upon the earlier of a closing of the sale of shares of common stock to the public at a prices per share of at least $13.88 or in a firm commitment underwritten public offering pursuant to an effective registration statement resulting in gross proceeds of at least $15,000,000. The warrants shall be exercisable for a period of three years after the date of issuance. The warrant exercise price is contingent on the terms of the public offering. If an initial public offering occurs at a price at or above $13.88 per share, then the exercise price shall be set to the issuance price of the common stock with the number of warrants determined based on a 10% discount to the per share common stock issuance price. In the scenario where the common stock is listed with the common stock issuance price below $13.88, the exercise price will be set to $20.82 with the number of warrants based on a fixed conversion price of $12.49, which represents a 10.0% discount to the $13.88 threshold. The warrants also have contingent call features based on the terms of the public offering. If an initial public offering occurs at a price at or above $13.88, then the warrants are callable if the 20-day VWAP of the common stock in at or above 150% of the variable exercise price. In the scenario where the common stock is listed with a common stock issuance price below $13.88, then the warrants are callable if the 20-day VWAP of the common stock is at or above the $20.82 exercise price. The detachable warrants contained terms and features that gave rise to derivative liability classification.
F-30 |
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. The Company has selected the Binomial Option Pricing valuation technique to fair value the compound embedded derivative. Inherent in a binomial options pricing model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield. The Company estimates the volatility of its ordinary shares based on historical volatility of comparable companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.
The derivative liability linked to the Series A Preferred Stock as of December 31, 2021 and 2021 was $94,025 and $673,171, respectively. The change in fair value of warrant liability was a gain of $579,146 as of December 31, 2021 and a loss of $256,580 as of December 31, 2020.
For the year ended December 31, 2021, and 2020, the estimated fair values of the liability measured on a recurring basis are as follows:
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
Expected average volatility | 85.5 | % | 69.8 | % | ||||
Dividend yield | 8.5 | % | 8.5 | % | ||||
Expected life | 2.33 Years | 3.33 Years | ||||||
Risk-free interest rate | 0.73 | % | 0.17 | % |
A continuity schedule of the Series A Preferred Stock warrants is set forth below:
Number of Warrants | Weighted Average Exercise Price | Weighted Average Life (years) | Intrinsic Value | |||||||||||||
Outstanding, December 31, 2019 | 48,532 | $ | 24.98 | 4.33 | $ | - | ||||||||||
Granted | - | - | - | |||||||||||||
Forfeited | - | - | - | |||||||||||||
Exercised | - | - | - | |||||||||||||
Outstanding, December 31, 2020 | 48,532 | 24.98 | 3.33 | - | ||||||||||||
Granted | - | - | - | |||||||||||||
Forfeited | - | - | - | |||||||||||||
Exercised | - | - | - | |||||||||||||
Outstanding and Exercisable, December 31, 2021 | 48,532 | $ | 24.98 | 2.33 | $ | - |
F-31 |
Equity Incentive Plan
Our 2018 Equity Incentive Plan provides for equity incentives to be granted to our employees, executive officers or directors and to key advisers and consultants. Equity incentives may be in the form of stock options with an exercise price of not less than the fair market value of the underlying shares as determined pursuant to the 2018 Equity Incentive Plan, restricted stock awards, other stock-based awards, or any combination of the foregoing. The 2018 Equity Incentive Plan is administered by the Company’s compensation committee or, alternatively, if there is no compensation committee, the Company’s board of directors. We have reserved 3,000,000 shares of our common stock for issuance under the 2018 Equity Incentive Plan. As of December 31, 2021, 384,167 shares have been granted under the 2018 Equity Incentive Plan.
Restricted Stock Units. We may grant restricted stock units under our 2018 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator, in its sole discretion, may pay earned restricted stock units in the form of cash, in shares or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.
On August 16, 2019, five individuals were appointed to the Board of Directors of the Company to serve as directors. Each individual entered into an agreement pursuant to which they will serve as a director and pursuant to which they would each receive a grant of $75,000 worth of Restricted Stock Units (“RSUs”) issuable under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”). The RSUs vest annually in one third increments from the date of appointment. Under the terms of the director agreements, the Company has also agreed to pay each director $25,000 per annum, payable in equal quarterly installments commencing 90 days following the Company becoming a publicly reporting company under the Securities Exchange Act of 1934, as amended.
During the years ended December 31, 2021 and 2020, pursuant to the agreements with directors and officers 20,626 and 21,530 RSUs were issued with a value of $490,067 and $459,589 included in wages, respectively.
As of December 31, 2021, there was $390,067 of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized within the next two years.
A continuity schedule of the Restricted Stock Units (RSU) follows:
Number of RSU | Weighted Average Exercise Price | Weighted Average Life (years) | ||||||||||
Outstanding, December 31, 2019 | 60,169 | $ | 24.02 | - | ||||||||
Granted | 4,417 | 22.64 | - | |||||||||
Forfeited | (2,702 | ) | 27.76 | - | ||||||||
Exercised | - | - | - | |||||||||
Outstanding, December 31, 2020 | 61,884 | 23.76 | 4.33 | |||||||||
Granted | - | - | ||||||||||
Forfeited | (2,702 | ) | 27.76 | - | ||||||||
Exercised | - | - | - | |||||||||
Outstanding, December 31, 2021 | 59,182 | $ | 23.57 | 3.33 | ||||||||
Exercisable, December 31, 2021 | 43,056 | $ | 23.93 | 3.33 |
Note 8 – Income Taxes (Restated)
The Company has not made provision for income taxes for the years ended December 31, 2021, since the Company has the benefit of net operating losses in these periods.
F-32 |
The reconciliation of income tax benefit at the U.S. statutory rate of 21% to the Company’s tax expense is as follows:
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
(Restated) | ||||||||
Federal tax benefit at statutory rate | $ | (241,948 | ) | $ | (21,111 | ) | ||
State income tax benefit, net of federal tax effect | (95,051 | ) | (8,293 | ) | ||||
Permanent differences | 19,381 | 19,381 | ||||||
Change in valuation allowance | 317,618 | 10,023 | ||||||
$ | - | $ | - |
The principal components of deferred tax assets consist of the following:
December 31, | December 31, | |||||||
2021 | 2020 | |||||||
(Restated) | ||||||||
Deferred income tax asset: | ||||||||
Net operation loss carry forwards | $ | 890,970 | $ | 587,699 | ||||
Fixed assets | 7,479 | 8,110 | ||||||
Intangibles | 7,788 | 7,788 | ||||||
Interest | 45,574 | 30,596 | ||||||
R&D tax credits | 87,801 | 87,801 | ||||||
Total deferred income tax asset | 1,039,612 | 721,994 | ||||||
Less: valuation allowance | (1,039,612 | ) | (721,994 | ) | ||||
Total deferred income tax asset | $ | - | $ | - |
The Company has approximately $3,000,000 of net operating losses (“NOL”) carried forward to offset taxable income, if any, in future. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all of the deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.
F-33 |
Note 9 – Restatement of Financial Statements
The Company’s financial statements as of and for the year ended December 31, 2021, contained an understatement of legal and professional expenses of $420,000 for the valuation of a total of 210,000 shares (105,000 shares on a post-split basis) of incentive stock transferred from a significant shareholder of the Company , who is also the wife of our Chairman and CEO, to a consultant for the Company in a private transaction.
Originally Reported
| Restatement Adjustment ($) | As Restated ($) | ||||||||||
Stockholders’ Equity | ||||||||||||
Additional paid-in capital | 3,730,867 | 420,000 | 4,150,867 | |||||||||
Accumulated deficit | (5,375,432 | ) | (420,000 | ) | (5,795,432 | ) |
Year Ended December 31, 2021
Originally Reported ($) | Restatement Adjustment ($) | As Restated ($) | ||||||||||
OPERATING EXPENSES | ||||||||||||
Legal and professional | 264,684 | 420,000 | 684,684 | |||||||||
Total operating expenses | 1,322,992 | 420,000 | 1,742,992 | |||||||||
Loss from operations | (1,322,992 | ) | (420,000 | ) | (1,742,992 | ) | ||||||
Loss before Income Taxes | (732,134 | ) | (420,000 | ) | (1,152,134 | ) | ||||||
Net loss | (732,134 | ) | (420,000 | ) | (1,152,134 | ) | ||||||
Net loss attributable to common stockholders | (835,196 | ) | (420,000 | ) | (1,255,196 | ) | ||||||
Net loss per shares - basic and diluted | (0.08 | ) | (0.04 | ) | (0.12 | ) |
Originally Reported ($) | Restatement Adjustment ($) | As Restated ($) | ||||||||||
Cash Flows From Operating Activities: | ||||||||||||
Net loss | (732,134 | ) | (420,000 | ) | (1,152,134 | ) | ||||||
Stock-based compensation | 490,067 | 420,000 | 910,067 |
Note 10 – Subsequent Events
Management evaluated all additional events subsequent to the balance sheet date through June 3, 2022, the date the financial statements were available to be issued, and determined the following items:
On January 22, 2022, the Company received notice of forgiveness for the PPP loan entered into on March 9, 2021 for $73,007 and $641 in interest that reduced the note liability in its entirety.
On February 8, 2022, and March 11, 2022, the Company sold $365,000 and $224,985, respectively, in 6% convertible notes (the “Notes”), which bear 6% interest, are repayable three years from the date of issuance, and will convert automatically into shares of common stock (the “Conversion Shares”) at a conversion price of $2.50 per share upon closing of this offering. Boustead Securities LLC acted as placement agent for this offering and received compensation of $36,500 and $22,250, respectively, and warrants to purchase shares of common stock equal to 10% of the Conversion Shares, exercisable at the conversion price of the Convertible Notes.
Effective March 30, 2022, the Company issued 1,678 shares (839 shares post-reverse split) of common stock to correct an issuance error on completion of the 2018 share exchange which is valued at $16,340 common stock to be issued.
Effective April 1, 2022, pursuant to the consent of the Company’s board of directors and a majority of its common stockholders, the Company effectuated a two-for-one reverse split, pursuant to which each stockholder received one share of common stock for every two shares held.
On April 6, 2022, the Company submitted the final invoice for “Topic 345: Predictive Biomarkers of Prostate Cancer Patient Sensitivity for Radiation Late Effects,” for $211,455, following the completion of the Final Quarterly Progress Report to NIH covering the performance period of 9/16/2019-3/15/2022. The invoice was paid in full on April 27, 2022.
F-34 |
$
1,660,000 Units
Each Unit Consisting of One Share of Common Stock and
One Warrant to Purchase One Share of Common Stock
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
_______________
PROSPECTUS
______________
Boustead Securities, LLC
______________
_______, 2022
Through and including , 2022 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED AUGUST 18, 2022
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
913,334 shares of common stock
This prospectus relates to the resale of 913,334 shares of common stock, par value $0.00001 per share of the Company, which includes (i) 196,667 shares of common stock and warrants to purchase 197,667 shares of common stock issuable upon conversion of certain convertible notes and (ii) exercise of warrants to purchase shares of common stock held by the selling stockholder named in this prospectus.
Prior to this offering, there has been no public market for our common stock. We have reserved the symbol “SHPH” for purposes of listing our Common Stock on The Nasdaq Capital Market and have applied to list our shares on Nasdaq. There is no guarantee or assurance that our shares of common stock will be approved for listing on Nasdaq. We will not receive any proceeds from the sale of shares by the selling stockholder.
Any shares sold by the selling stockholders until our common stock is listed or quoted on an established public trading market will take place at $6.00, which is the per share public offering price we are selling in our initial public offering. Thereafter, any sales will occur at prevailing market prices or in privately negotiated prices. The distribution of securities offered hereby may be effected in one or more transactions that may take place in ordinary brokers’ transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the selling shareholders. No sales of the shares covered by this prospectus shall occur until the common stock sold in our initial public offering begins trading on Nasdaq.
On ______, 2022, a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) with respect to our initial public offering of shares of our common stock was declared effective by the U.S. Securities and Exchange Commission. We received approximately $___ million in net proceeds from the offering (assuming no exercise of the underwriters’ over-allotment option) after payment of underwriting discounts and commissions and estimated expenses of the offering.
Investing in our common stock involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 13 of the primary offering prospectus contained in this Registration Statement to read about factors you should consider before buying our common stock.
Neither the Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2022
RESALE PROSPECTUS SUMMARY
The following summary provides an overview of all material information contained in this prospectus. It does not contain all of the information you should consider before making a decision to purchase our shares of common stock in the offering. Prior to investing in our common stock, you should carefully and thoroughly read the more detailed information in this prospectus and review our financial statements and all other information that is included in this prospectus, including the section entitled “Risk Factors” beginning at page 13.
Unless the context otherwise requires, references in this prospectus to “Shuttle Pharma,” “Shuttle Pharmaceuticals,” “the Company,” “we,” “our” and “us” refers to Shuttle Pharmaceuticals Holdings, Inc. and its subsidiary, Shuttle Pharmaceuticals, Inc.
Our Company
Overview
Founded in 2012 by faculty members of the Georgetown University Medical Center, Shuttle Pharmaceuticals is a discovery and development stage specialty pharmaceutical company focused on improving the outcomes of cancer patients treated with radiation therapy (RT). Our mission is to improve the lives of cancer patients by developing therapies that are designed to maximize the effectiveness of RT while limiting the late effects of radiation in cancer treatment. Although RT is a proven modality for treating cancers, by developing radiation sensitizers, we aim to increase cancer cure rates, prolong patient survival and improve quality of life when used as a primary treatment, or in combination with surgery, chemotherapy and immunotherapy. We currently have no FDA approved products and we have not yet applied for a new drug application. To date, we have been funded by investments from private investors and government contracts obtained from the National Institutes of Health (NIH) for performing research. We have no product revenue and our independent auditors, in their report dated June 3, 2022, expressed doubt about our ability to continue as a going concern.
Historically, the major advances in radiation oncology have focused on improving technology to increase the amount of radiation that can be administered to a tumor without damaging adjacent, normal tissues. Examples of other such technologies include intensity modulated radiation therapy (IMRT), stereotactic body radiation therapy (SBRT), stereotactic radiosurgery (SRS) and proton therapy – the backbones of state-of-the-art RT. All offer improvements in physical radiation dose shaping. The basic principle underlying the effectiveness of RT for curing cancers lies in the differential cancer cell kill achieved in tumors, as compared to the effects of RT on the normal surrounding tissues, which is achieved by delivery of highly conformal RT doses – in other words, delivery of high-dose to volumes that are shaped to conform to the target cancers while minimizing the dose to surrounding normal tissues. The treated volumes frequently include sensitive normal tissues, thereby limiting the magnitudes of the prescribed RT doses. We suggest that technological innovations to define tumor volumes and shape radiation delivery have reached an effectiveness plateau and that further improvements in RT outcomes will require pharmacological and immunological approaches to sensitize cancers, protect normal tissues and engage the immune system.
At present, the drugs being used for sensitizing cancers to RT are chemotherapeutic agents possessing radiation sensitizing properties as secondary effects. With the exception of Cituximab, a growth factor targeting monoclonal antibody biologic, all other drugs used as radiation sensitizers are used “off-label” to address the clinical need for radiation sensitizers. For example, certain chemotherapeutic agents, such as 5-fluorouracil, capecitabine and cis-platinum, are approved as single agents for cancer treatment, but are used “off-label” as radiation sensitizers in combination with RT. Treatments with such agents are associated with inherent toxicities associated with the drug’s primary, single-agent mechanisms of action.
Shuttle Pharma’s platform of sensitizers offers a pipeline of product candidates designed to address the urgent clinical need and the current limitations of using “off-label” drugs with potential new sensitizer agents. Our pipeline includes Ropidoxuridine, our lead clinical sensitizer drug candidate, to sensitize rapidly growing cancer cells and selective histone deacetylase (HDAC) inhibitors to sensitize cancer cells and stimulate the immune system. Our novel technologies will be tested in combinations with radiation therapies (conventional X-ray and proton radiation therapies) and in combinations with immune-therapies. To date, Ropidoxuridine has completed a Phase I clinical trial. Our HDAC inhibitor platform drug candidates have been tested in preclinical models of solid tumor cancers. Ropidoxuridine and the selective HDAC6 inhibitor SP-2-225 are the clinical and preclinical candidate drug products we propose to develop using funding from this offering.
Our intellectual property for Ropidoxuridine includes novel formulations that show improved drug bioavailability (in a preclinical animal model) and for sensitizing cancers to proton and to conventional radiation therapies. Our HDAC inhibitor intellectual property includes new patent applications and granted patents for composition of matter and methods of use for treating cancers with HDAC inhibitors in combinations with radiation therapy.
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To date, we have obtained funding for our research from private investors and Small Business Innovation Research (“SBIR”) contracts obtained through the National Institutes of Health (“NIH”) to support the development of the radiation sensitizer Ropidoxuridine in a Phase I clinical trial. We have also received awards for Phase I and II SBIR contracts for development of human cell cultures for health disparities studies and predictive biomarkers of radiation late effects through the NIH’s National Cancer Institute. The completed Phase I and II funded discovery work performed to establish “Cell-based Models for Prostate Cancer Health Disparity Research” and to develop “Predictive Biomarkers of Prostate Cancer Sensitivity for Radiation Late Effects” enables Shuttle Pharma to apply for NIH SBIR Phase IIb funding to develop these products for advancing basic science and clinical research.
Our Product Candidates
The U.S. Food and Drug Administration (the “FDA”) considers new molecular entities as drugs that use new and unique mechanisms of action for treating medical conditions. Our clinical stage agent, Ropidoxuridine (IPdR), increases DNA double strand breaks following radiation exposure and our inhibitors of histone deacetylases (HDACs) stimulate the immune system to produce T-lymphocytes targeting cancer cells.
Our objective is to improve the outcomes of cancer treatment through RT while reducing its side effects by:
● | Sensitizing growing cancer cells to render them more susceptible to the effects of RT; | |
● | Activating the DNA damage response pathway to protect normal cells located near cancers; and | |
● | Activating the immune response to antigens present on irradiated and un-irradiated cancer cells. |
To our knowledge, no drug utilizing the mechanisms of our candidate small molecule drugs has received FDA approval as a radiation sensitizer. We have developed, to clinical stage, the small molecule strategies to sensitize growing cancer cells in tumors to conventional RT and to large fraction radiation therapy. The pre-clinical technology, HDAC inhibitor platform, is designed to target cancer cells while protecting healthy tissue/normal cells, thus enhancing the candidate radiation sensitizer product pipeline. The selective HDAC6 inhibitor (SP-2-225), discovered and developed by our scientists, has inhibited the growth of melanoma tumors and breast cancers in animal models by an immune stimulating mechanism.
We are focused on developing a clinical stage product candidate (Ropidoxuridine) and a pre-clinical product candidate, selective HDAC6 inhibitor (SP-2-225). We propose to develop these drug candidates as illustrated below:
Overview of Radiation Sensitizer Development
Ropidoxuridine, the clinical stage molecule, sensitizes rapidly growing cancers to radiation therapy by increasing reactive free radicals that increase DNA strand breaks. Ropidoxuridine development for treating glioblastoma will require Phase II clinical testing for use in treating brain tumors. The selective HDAC6 inhibitor, SP-2-225, a pre-clinical stage molecule, activates the innate immune system to target irradiated tumor cells by immune mechanisms.
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Ropidoxuridine (IPdR)
Ropidoxuridine (IPdR) is an orally available halogenated pyrimidine (5-iodo-2-pyrimidinone-2-deoxyribose) with strong cancer radiation sensitizing properties. As a prodrug that does not become an active drug until after it is metabolized, IPdR is absorbed and metabolized to IUdR by enzymes in the liver and in cancer cells. IUdR, a halogenated pyrimidine, is incorporated into DNA by rapidly growing cancer cells. Cells that incorporate IUdR into their DNA then become more sensitive to the effects of RT. The Phase I clinical trial of Ropidoxuridine and RT, supported by an NIH SBIR contract to Shuttle Pharma, was sub-contracted to the Brown University Oncology Group (BrUOG) at the LifeSpan/Rhode Island Hospital. This Phase I clinical trial has been completed and the results were initially reported by the sub-contractor at the 30th EORTC-NCI-AACR Symposium in November 2018 and published in the medical journal Clinical Cancer Research in 2019. A maximum tolerated dose (MTD) of 1200 mg/day for 28 days was established for use in combination with radiation therapy to achieve therapeutic blood levels of IUdR.
The reported Phase I clinical trial of Ropidoxuridine in combination with RT provides the foundation for proposed Phase II clinical trials to establish the data necessary for the FDA to determine efficacy in treating brain tumors, sarcomas and pancreatic cancers, diseases that offer potential for orphan designations. The FDA granted approval of our application for orphan-drug designation for IPdR for the treatment of glioblastoma. Orphan designation protects the marketing position of Ropidoxuridine for up to seven years after marketing approval is received from the FDA. This approval integrates well into the overall intellectual property strategy for Ropidoxuridine which includes filed patent applications for “Method and Compositions for Cancer Therapies that Include Delivery of Halogenated Thymidines and Thymidine Phosphorylase Inhibitors in Combination with Radiation.” We believe that we are positioned to initiate Phase II clinical studies with Ropidoxuridine and RT in 2022.
Extended Bio-availability Ropidoxuridine (IPdR/TPI)
Ropidoxuridine and Tipiracil (IPdR/TPI) is a new combination drug formulation designed to increase the bio-availability and incorporation of IUdR into DNA. Shuttle Pharma’s preclinical studies of the combination of IPdR/TPI have shown up to 10-fold greater bioavailability of the active metabolite (IUdR) as compared to IPdR administered alone in controls. We have filed an application under the Patent Cooperation Treaty (or PCT) for the intellectual property. This new formulation will be tested in a Phase I clinical trial as a sensitizer of rectal cancers. Another nucleoside analogue, Trifluridine has been formulated in combination with Tipiracil (TAS-102) to enhance drug uptake by colon cancer cells to prolong survival in patients treated for metastatic colorectal cancers, as has been reported in the New England Journal of Medicine (N Engl J Med. 2015; 372:1909-1919). We anticipate testing for uptake of IPdR by colorectal cancer cells following administration of the IPdR/TPI drug formulation.
Proton radiation therapy is an advanced form of radiation therapy using charged proton particles (p+). Proton RT differs from conventional RT in that the radiation is delivered by a beam of protons to precisely target tumors and, due to the favorable physics of energy deposition by proton particles, there is no exit beam, resulting in less radiation to surrounding healthy tissues. The use of Proton RT is expanding rapidly in the U.S. and worldwide. According to the National Association of Proton Therapy, more than 30 facilities are currently in operation in the U.S. and an additional 30 facilities are planned for installation over the next five years. (See www.proton-therapy.org.) Much attention has been paid to proton therapy in the popular press, promoting its advantages, as well as addressing the increased health care costs. The role of a sensitizer that offers proton radiation sensitization presents an opportunity to enhance the value of proton radiation therapy as a cancer treatment modality. We believe the development of a proton therapy targeted radiation sensitizer, such as IPdR/TPI, is timely and consistent with current market needs to advance protons as a therapeutic modality.
We intend to perform clinical studies to support the development of the IPdR/TPI combination to advance this drug candidate with proton RT. The addressable market includes diseases such as brain tumors, cancers of the head and neck, GI cancers and lung cancers.
Selective HDAC Inhibitors
The roles of acetylation in the epigenetic regulation of chromatin structure and gene expression rests on the balance of activities of histone acetyltransferases (HATs) and histone deacetylases (HDACs). Increased acetylation of histones leads to changes in chromatin structure and accessibility for key cellular proteins to specific target sites. Acetylations of non-histone proteins also modulates their enzymatic activities. We have discovered novel HDAC inhibitor molecules and testing in preclinical models has shown cancer radiation sensitizing properties, normal tissue protective properties and selective HDAC6 inhibitory properties. Our HDAC inhibitor platform, described below, will be evaluated in pre-clinical studies of radiation sensitization of solid tumors and activation of the immune response to irradiated cancer cells.
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● | SP-1-161 is our candidate lead pre-clinical, pan-HDAC inhibitor that initiates the mutated in ataxia-telangiectasia (ATM) response pathway. ATM is activated by ionizing radiation induced DNA damage. Activated ATM phosphorylates critical factors involved in DNA repair, apoptosis, and cell cycle checkpoint. Phosphorylation of the molecules in these pathways, in turn, activates the cellular functions. ATM also can be activated by HDAC inhibitors and imparts radiation protective properties. Using rational drug design, we discovered HDAC inhibitors and ATM activators capable of radiation sensitizing cancer cells and protecting normal cells. SP-1-161 is our lead candidate radiation sensitizing pan-HDAC inhibitor. | |
● | SP-2-225 is our candidate lead selective histone deacetylase inhibitor of HDAC6. HDAC6 is a member of the Class IIb HDAC family. Selective HDAC6 inhibitors are an emerging class of pharmaceuticals due to effects on neurodegenerative diseases, cancers and immunology. Specifically, the potential to affect regulation of the immune system and enhance the immune response to cancers is of significant interest as an adjuvant treatment in combination with radiation therapy. We propose to test our HDAC6 inhibitors for a role in enhancing post-RT immune responses to antigens produced in irradiated cancers for their effects on control of local and metastatic disease. | |
● | SP-1-303 is a selective Class I HDAC inhibitor that preferentially affects histone deacetylases HDAC1 and HDAC3 and shows direct and selective cytotoxicity for ER positive and Her2 negative breast cancer cells. |
Drug Development Projects for Radiation Treatment of Cancers
To advance research that is complementary to our radiation sensitizer discovery and development projects, the NIH has awarded SBIR contracts to us to develop reagents for health disparities research and to develop biomarkers of radiation sensitivity for patients treated with radiation therapy. Our scientists have been engaged in developing model human cell systems for testing radiation sensitizers in tissue cultures. This project provides an efficient and low-cost screening technology to provide data for the FDA’s determination of drug efficacy and to identify candidate lead molecules for treating prostate cancers in African-Americans. First developed at Georgetown University, the conditional cellular reprogramming (CRC) technology offers the ability to establish new cell lines from biopsies of cancers. We have obtained a sub-license from Propagenix, Inc. to establish 100 normal and cancer cell lines from prostate biopsy samples for use in screening drug candidates and for health disparities research. A more detailed description of the Propagenix license is set forth on page 60 below.
In addition, to identify patients who may be more sensitive to radiation therapy and are at a higher risk to suffer treatment-related complications, collaborative research with Georgetown University has led to discovery of metabolite biomarkers, which are predictive of patient responses to radiation therapy. A patent for the intellectual property has been submitted by Georgetown University with Shuttle Pharma scientist (Scott Grindrod, PhD) as co-inventor. Developmental work in health disparities and predictive biomarker development has been supported by NIH SBIR contracts to Shuttle Pharmaceuticals for the following areas:
● | Develop prostate cancer cell lines from African-American men with the goal of advancing research to address prostate cancer health disparities (designated SBIR “Topic 352: Cell-Based Models for Prostate Cancer Health Disparity Research- Moonshot Project (Phase II)”); and | |
● | Develop predictive biomarkers of prostate patient outcomes following treatment with SBRT (designated SBIR “Topic 345: Predictive Biomarkers for Prostate Cancer Sensitivity for Radiation Late Effects (Phase I and II).” |
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The NIH’s SBIR program is designed to encourage small businesses to engage in Federal Research/Research and Development (“R/R&D”) that has the potential for commercialization. Shuttle Pharma will apply for additional NIH SBIR grants and contracts to fund advancement of these projects.
Market Opportunity
The American Cancer Society (Cancer Facts & Figures 2020) estimates 1,806,590 new cancer cases and 606,520 cancer deaths each year in the United States and, according to the American Society for Radiation Oncology, more than 50% of patients undergo RT at some point in the treatment of their diseases. RT is used to treat cancers of the lung, breast, brain, esophagus, pancreas, rectum, head and neck, uterus, lymphomas and sarcomas. At present, we are developing drug candidates to address brain, pancreas, rectum, sarcomas and lymphomas, although we may test and seek approval for our drug candidates to treat other cancers in the future.
Currently, there is only one drug (the monoclonal antibody, Cetuximab) that has received FDA approval for the radiation sensitizer indication. Cetuximab is a recombinant monoclonal antibody that binds to epidermal growth factor receptor (EGFR) and inhibits the binding of epidermal growth factor (EGF). Cetuximab is administered via intravenous infusion and is used as monotherapy or in combination with other chemotherapies or radiation therapy. In clinical trials, cetuximab was associated with serious and fatal infusion reactions, cardiopulmonary arrest or sudden death, and serious dermatologic toxicities, toxicities that have created deterrents to its use as a radiation sensitizer. Present treatment utilizes “off-label” small molecule drugs, which are cytotoxic chemotherapy agents that also sensitize, but do not have radiation sensitization as an FDA approved indication. Moreover, since “off-label” drugs are cytotoxic, they are often associated with intrinsic acute and chronic side effects. Nevertheless, these drugs have shown clinically significant improvements in disease control and survival and are typically included in standard-of-care treatment recommendations for patients with cancers of the head and neck, brain, lung, esophagus, stomach, pancreas, liver, bladder, lymphomas and sarcomas. As a result, we believe that there is a significant market opportunity for our product candidates. Based on cancer incidence data published by the American Cancer Society, we have estimated the numbers of patients presenting with local/regional disease, suitable for treatment with RT.
Estimated RT Cases by Disease Site
Cancer Type | Cases Diagnosed Annually | Estimated RT Cases | ||||||
Brain | 23,890 | 21,979 | ||||||
Pancreas | 57,600 | 32,832 | ||||||
Sarcomas | 13,130 | 4,000 | ||||||
Rectum | 43,340 | 26,437 |
Annual cancer cases for each disease site are estimated from American Cancer Society Facts & Figures 2020 publication. The fraction of patients optimally receiving RT for each disease site were obtained from published estimates of Delaney G, Jacob S, Featherstone C, Barton M. The role of radiotherapy in cancer treatment: estimating optimal utilization from a review of evidence-based clinical guidelines. Cancer. 2005 Sep 15;104(6):1129-37. doi: 10.1002/cncr.21324. The Estimated RT cases were obtained by multiplying Cases Diagnosed Annually by the fraction receiving RT for optimal utilization.
Our Development Strategy
Our goal is to maintain and build upon our leadership position in radiation sensitization. We plan to develop Ropidoxuridine and the HDAC6 inhibitor (SP-2-225) and, if approved by the FDA, to commercialize our product candidates for the treatment of cancers. While this process may require years to complete, we believe achieving this goal could result in radiation sensitizer and immunotherapy products for cancer treatment. Key elements of our strategy include:
● | Capitalize on Ropidoxuridine as an orally available, small molecule radiation sensitizer. To date, there is one drug (Cetuximab) approved by the FDA specifically as a radiation sensitizer. If we are successful in developing Ropidoxuridine to obtain FDA approval, a small moleculesensitizer will be enabled for clinical applications for radiation sensitization. | |
● | Expand our leadership position within radiation sensitizers. In addition to our traditional radiation sensitizers, we plan to advance our near-term pipeline to include radiation sensitizers for proton therapy. Proton Therapy is growing worldwide as a form of radiation therapy due to its unique beam shaping characteristics. As a result, this new technology offers a major opportunity for Shuttle Pharma to strive to develop a sensitizer drug for proton therapy sensitization applications. | |
● | Execute a disciplined business development strategy to strengthen our portfolio of product candidates. We have built our current product pipeline through in-house development, partnerships with leading academic institutions and through successful in-licensing deals. We will continue to evaluate new in-licensing opportunities and collaboration agreements with leading academic institutions and other biotechnology companies around programs that seek to address areas of high unmet need and for which we believe there is a high probability of clinical success, including programs beyond our target franchise areas and current technology footprint. |
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● | Invest in our HDAC platform technology to maximize its utility across cancer therapies. We are initially applying the platform to develop drugs for cancer radiation sensitization and normal tissue radiation protection. In addition, these drugs also affect immune regulatory properties. We intend to invest to investigate other properties of our platform technology. | |
● | Enter into collaborations to realize the full potential of our platform. The breadth of our HDAC technology platform enables other therapeutic applications, in addition to radiation sensitization and immune therapy. We intend to seek collaborations centered on our platform to maximize applications for our HDAC inhibitor technology. |
We propose the following clinical development plan to identify, develop and commercialize drugs for use in cancer treatments in combination with RT:
Develop Ropidoxuridine (IPdR) for Orphan disease indications to take to market
● | Manufacture 24 kg of Ropidoxuridine and formulate for use in clinical trials. | |
● | Conduct a Phase II clinical trial of Ropidoxuridine, Temodar and RT in glioblastoma. | |
● | Conduct a Phase III clinical trial in glioblastoma to secure FDA approval to market Ropidoxuridine for the glioblastoma indication using orphan disease designation for marketing protection. |
Develop Ropidoxuridine and tipiracil (IPdR/TPI) for colorectal cancer indications to take to market
● | Formulate 5 kg of IPdR/TPI for use in pre-clinical efficacy studies, IND-enabling studies and a Phase I clinical trial. |
● | Conduct IND-enabling studies; obtain IND for IPdR/TPI with RT. | |
● | Conduct a Phase I clinical trial of IPdR/TPI with RT in rectal cancers to establish the MTD. | |
● | Conduct a Phase II clinical trial of IPdR/TPI with RT in rectal cancer. |
Develop HDAC Inhibitors for use in breast cancer for immune activation after RT
● | Complete pre-clinical studies of HDAC inhibitors in human xenograft tumor models. |
○ | SP-1-161 with RT in breast cancers. | |
○ | SP-1-303 with RT in ER+, Her2- breast cancers. | |
○ | SP-2-225 with immune checkpoint inhibitors in lung cancers. |
● | Advance the lead HDAC6 inhibitor, SP-2-225, for IND-enabling. | |
● | Conduct Phase I clinical trials to determine MTD. | |
● | Conduct Phase II clinical trials for proof-of-concept efficacy evaluation in lung cancers. |
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Management Team
Our management team has significant experience in radiation oncology and in progressing products from early-stage research through clinical trials. Our CEO, Anatoly Dritschilo, M.D., is an experienced clinician and researcher who has held senior academic and management positions including serving as Department Chairman, Hospital Medical Director and Cancer Center Director at Georgetown University Medical Center. Prior to co-founding our company, Dr. Dritschilo was a co-founder of Oncomed, Inc., a company that became public as NeoPharm, Inc. (Nasdaq: NEOL). He has experience in providing care for patients undergoing treatment for cancers of the prostate, breast, brain, lung, sarcomas and GI systems. Dr. Dritschilo has directed basic science research supported by grants from the National Cancer Institute (“NCI”) and performed clinical trials using drugs and radiation therapy. In addition, Dr. Dritschilo served as the principal investigator of pharmaceutical industry sponsored clinical evaluations of human interferon alpha-2 (Bristol-Myers) with radiation therapy and antisense raf oligonucleotides, LErafAON (NeoPharm) with radiation therapy. He serves as a Radiation Biology and Radiation Oncology expert on committees of the NIH to review Program Project (P01) grant applications, Specialized Program of Research Excellence (SPORE) grant applications and investigator-initiated research project (R01) applications.
Dr. Dritschilo is supported in our clinical development effort by Tyvin Rich, MD, our Chief Clinical Officer and Medical Director. Dr. Rich is the former Professor and Chairman of the Department of Therapeutic Radiology and Oncology at the University of Virginia Health Sciences Center and proton radiation therapy specialist at the Hampton Proton Therapy Center in Hampton, Virginia. Dr. Rich has served as principal investigator on multi-modality clinical trials for the treatment of gastrointestinal (GI) cancers and helped to develop treatment with 5-fluorouracil (5-FU) as a radiation sensitizer for use with RT in the treatment of GI cancers. He has extensive cancer clinical trial experience in developing radiation sensitizer applications through his participation in the Radiation Therapy Oncology Group (RTOG). Dr. Rich is a co-inventor with scientists at the University of Virginia of the Proton Activated Atomic Medicine technology.
Our administrative services are provided by Peter Dritschilo, MBA, who has served as our President and COO since 2012. Mr. Dritschilo’s experience in hospital administration and management of medical oncology clinical services and radiation therapy facilities, including management of day-to-day operations, human resources and financial oversight. Peter Dritschilo is the son of our Chairman and CEO, Dr. Anatoly Dritschilo. The addition of Michael Vander Hoek as our CFO and Vice President for Operations and Regulatory expands our capability to provide the level of management needed for the proposed expansion of clinical trials. Mr. Vander Hoek has served as administrative director of the Lombardi Comprehensive Cancer Center (LCC) for the past 12 years and has extensive experience in negotiations, management and supervision of Contract Research Organizations (CROs) and research contracts in general. As the administrative director of the Lombardi Comprehensive Cancer Center, Mr. Vander Hoek also served as the chief financial officer. Taken together, we believe our leadership team of highly qualified specialists will help us achieve the proposed milestones for the development of radiation sensitizer products.
Pre-IPO Bridge Financing
In December 2021, we completed a $500,000 note offering pursuant to which we sold to two accredited investors (the “Investors”) units consisting of (i) a $250,000 promissory note bearing 10% interest, repayable at the time of this offering (the “Note”) and (ii) a warrant to purchase 250,000 shares (the “Warrant Shares”) of our common stock at an exercise price of $1.00 per share (the “Warrant”). Immediately before closing on the Offering, the Notes will be repaid and cancelled in exchange for the exercise of the Warrants and issuance of the 500,000 Warrant Shares to the Investors.
In February and March 2022, we sold a total of $365,000 and $225,000, respectively, in convertible notes (“Convertible Notes”) to certain accredited investors, which notes will automatically convert upon effectiveness of this offering at a conversion price of 50% of the per unit offering price (the “Conversion Units”). In addition, each of the Convertible Note holders will be entitled to demand registration rights, and we are required to register the shares underlying the Convertible Notes within 180 days of the closing of this offering. We are using the net proceeds from the Convertible Notes offering to expand our current operations, including our technology and intellectual property portfolio, and to fund the costs of this offering. Any funds remaining will be used for working capital and other general corporate purposes.
In August 2022, we completed a $125,000 note and warrant offering pursuant to which we sold to three accredited investors (the “Investors”) units consisting in total of (i) $125,000 in promissory notes bearing 10% interest, repayable at the time of this offering (the “Note”) and (ii) warrant to purchase a total of 50,000 shares (the “Warrant Shares”) of our common stock at an exercise price of $2.50 per share (the “Warrants”).
Boustead Securities LLC (“Boustead”) acted as placement agent in both the Note and Warrant offering and the Convertible Notes offering, pursuant to which Boustead waived its cash compensation related to the Note and Warrant offering and received cash compensation of $36,500 and $22,250 in each of the February and March 2022 closings, respectively, and also received (i) warrants to purchase 5,000 shares of common stock, exercisable at $2.50 per share, and (ii) warrants to purchase 10% of the total number of Conversion Shares, exercisable at the conversion price of the Convertible Notes.
Summary Risk Factors
Our business is subject to a number of risks you should be aware of before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus at page 13 immediately following this prospectus summary. These risks include the following:
● | Our success is primarily dependent on achieving the development, regulatory approval and commercialization of our product candidates, both of which are in the early stages of development. | |
● | Our approach to the discovery and development of innovative radiation oncology drugs based on our HDAC small molecule delivery platform, which is novel, unproven and may not result in marketable products. | |
● | We have no product revenue, have incurred significant losses since inception, may never become profitable and may incur substantial and increasing net losses for the foreseeable future as we continue the development of, and seek regulatory approvals for our product candidates. |
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● | If clinical trials of our product candidates fail to demonstrate safety and efficacy, which are ongoing determinations that are solely within the authority of the FDA, we may be unable to obtain regulatory approvals to commercialize our product candidates. | |
● | We have not generated any revenue and have incurred losses in each year since our founding in December 2012. Our net loss for the year end December 31, 2021 and the six months ended June 30, 2022 was $1,152, 134 and $1,279,114, respectively. As of June 30, 2022, we had an accumulated deficit of $7,126,082 and received a “going concern” opinion from our independent auditors for the fiscal year ended December 31, 2021. As a clinical stage pharmaceutical company, we expect to continue to incur significant losses for the foreseeable future. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. | |
● | We are subject to regulatory approval processes that are lengthy, time-consuming and unpredictable. We may not obtain approval for any of our product candidates from the FDA or foreign regulatory authorities. | |
● | Even if we obtain regulatory approval, the market may not be receptive to our product candidates. | |
● | We may not be able to establish collaborative partnerships with other pharmaceutical companies, through which we expect to complete development of, obtain marketing approval for and, if approved, manufacture and market our product candidates. | |
● | We may encounter difficulties satisfying the requirements of clinical trial protocols, including patient enrollment. | |
● | We may face competition from other companies in our field or claims from third parties alleging infringement of their intellectual property. | |
● | We may be unable to recruit or retain key employees, including our senior management team. | |
● | We will need to obtain significant additional funding on acceptable terms to continue operations following this offering. | |
● | We are a Phase I clinical stage pharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Specialty pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. | |
● | We do not currently have any product candidates in advanced clinical trials or approved for sale, and we continue to incur significant research and development and general and administrative expenses in relation to our operations. In addition, we have 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. | |
● | We have not submitted an application or received marketing approval for any of our product candidates. Regulatory approval of our product candidates is not guaranteed, and the approval process is expensive and may take several years. | |
● | It is difficult and costly to protect our intellectual property rights. | |
● | The offering price of the primary offering and resale offering could differ. | |
● | The Resale by the Selling Stockholders may cause the market price of our common stock to decline. |
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Implications of Being an Emerging Growth Company
● | As a smaller reporting company, and as a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure and other requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: |
● | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; | ||
● | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
● | not being required to comply with any mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; | |
● | reduced disclosure obligations regarding executive compensation; and | |
● | exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
We may take advantage of the above provisions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may also choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of some reduced reporting requirements in this prospectus. Accordingly, the information contained in this prospectus may be different than the information you receive from other public companies in which you hold stock.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period for adopting new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Corporate Information
The Company was formed as a limited liability company in the state of Maryland in December 2012 and was converted to a C corporation, Shuttle Pharmaceuticals, Inc. (“Shuttle”), in August of 2016. In June 2018, Shuttle completed a share exchange with Shuttle Pharma Acquisition Corp. Inc. (“Acquisition Corp.”), pursuant to which Shuttle Pharmaceuticals, Inc. became a subsidiary of Acquisition Corp. and we subsequently changed the name of Acquisition Corp. to Shuttle Pharmaceuticals Holdings, Inc. Our executive offices are located at 1 Research Court, Suite 450, Rockville, Maryland 20850 and our telephone number is (240) 403-4212. Our corporate website is www.shuttlepharma.com. Information appearing on our corporate website is not incorporated as part of this prospectus.
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THE RESALE OFFERING
Common Stock we are offering | 913,334 shares of common stock | |
Shares of Common Stock outstanding before this offering | 9,312,991 shares of common stock | |
Shares of Common Stock outstanding after this offering | Up to 14,123,629 shares of common stock (1) | |
Use of proceeds | We will not receive any proceeds from the sale of common stock held by the selling stockholder being registered in this prospectus. | |
Proposed Nasdaq Symbol | SHPH | |
Risk factors | An investment in our securities involves a high degree of risk. See “Risk Factors” beginning on page 39 of the primary offering prospectus contained in this Registration Statement and other information included in this prospectus and the Registration Statement for a discussion of factors you should carefully consider before deciding to invest in our common stock. |
(1) | Assumes the issuance and sale by us of 1,660,000 units, with each unit consisting of (i) one share of commons stock and (ii) a warrant to purchase one share of our common stock, pursuant to the Public Offering Prospectus filed contemporaneously herewith and assumes the 249,000 over-allotment options available for sale to the underwriters in the Public Offering Prospectus have not been exercised. In addition, assumes (i) 269,444 shares of our common stock issuable upon conversion of 1,212.5 shares of Series A convertible preferred stock and 269,444 shares of common stock issuable upon exercise of outstanding warrants to purchase common stock, which will be issued upon completion of this offering (which conversion amounts do not include an 8.5% cumulative dividend payable, which dividend may be paid in either cash or common stock as determined by the Company), (ii) 500,000 shares of our common stock issuable upon exercise of warrants held by certain selling stockholders whose shares will be exercised in full at the time of this offering, (iii) 196,667 shares of common stock and warrants to purchase 196,667 shares of common stock issuable upon conversion of outstanding convertible notes, which will be convertible and issued upon completion of this offering, and (iv) the exercise of 50,000 shares of common stock issuable upon exercise of warrants to purchase common stock. |
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock held by the selling stockholders named in this prospectus.
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SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the selling stockholders’ beneficial ownership of shares of common stock as of the date of this prospectus. Although there was no agreement between the Company and the stockholders to register these shares, the Company believes the registration of these shares is beneficial to the Company.
Percentage of beneficial ownership before this offering is based on 9,313,334 shares of our common stock outstanding as of August 15, 2022. We have determined beneficial ownership in accordance with the rules of the SEC. Beneficial ownership is based on information furnished by the selling stockholder. Unless otherwise indicated, the selling stockholder named in the following table has, to our knowledge, sole voting and investment power with respect to the shares it beneficially owns.
The selling stockholders may offer for sale from time to time any or all of the shares. The table below assumes that the selling stockholders will sell all of the shares offered for sale hereby. The selling stockholders, however, are under no obligation to sell any shares pursuant to this prospectus.
Names and addresses | Number of shares of common stock beneficially owned before the Offering(#) | Number of shares being registered in the Offering | Number of shares of common stock beneficially owned after Offering | Percentage of class of common stock beneficially owned after Offering(*) | ||||||||||||
Steven Bayern | 355,000 | (1) | 250,000 | 105,000 | - | |||||||||||
Rui Wu | 250,000 | (2) | 250,000 | - | - | |||||||||||
BaseStones, Inc. | 20,000 | (3) | 20,000 | - | - | |||||||||||
Chris Etherington | 16,667 | (4) | 16,667 | - | - | |||||||||||
Mel Feldman | 16,667 | (4) | 16,667 | - | - | |||||||||||
Robert Frome (5) | 16,667 | (4) | 16,667 | - | - | |||||||||||
Robert Gutman | 26,666 | (4) | 26,666 | - | - | |||||||||||
One10 Food Sciences Pte. Ltd. | 66,667 | (4) | 66,667 | - | - | |||||||||||
Jerry Katzman | 16,666 | (4) | 16,666 | - | - | |||||||||||
John & Mary Lynch | 16,666 | (4) | 16,666 | - | - | |||||||||||
Lawrence Shields | 50,000 | (4) | 50,000 | - | - | |||||||||||
Kenneth Zuckerbrot | 16,667 | (4) | 16,667 | - | - | |||||||||||
Dan Montzka | 66,666 | (4) | 66,666 | - | - | |||||||||||
Daniel Hutt | 16,667 | (4) | 16,667 | - | - | |||||||||||
Frank Bucciero | 16,667 | (4) | 16,667 | - | - | |||||||||||
Tanya White | 16,667 | (4) | 16,667 | - | - | |||||||||||
Lanier W. Moore II | 16,667 | (4) | 16,667 | - | - | |||||||||||
Varkes Churukian | 16,667 | (4) | 16,667 | - | - |
- | Denotes the holder owns less than one percent of the outstanding common stock. |
± | Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name. |
* | Gives pro forma effect to the sale of 1,660,000 units, with each unit consisting of (i) one share of common stock and (ii) one warrant to purchase common stock, being sold in our initial public offering (“IPO”). |
** | No registered broker-dealers or associates of such broker-dealers are participating in this resale offering. |
(1) | Consists of (i) 250,000 shares of common stock issuable upon exercise of warrants to purchase common stock and (ii) 105,000 shares of common stock. |
(2) | Consists of 250,000 shares of common stock issuable upon exercise of warrants to purchase common stock. |
(3) | Consists of shares of common stock issuable upon exercise of warrants to purchase common stock. |
(4) | Consists of shares of common stock and common stock underlying warrants issuable upon conversion of a 6% convertible note, which note automatically converts at conversion price of $2.50 per share upon completion of the IPO. |
(5) | Mr. Frome is of counsel to the law firm Olshan Frome Wolosky LLP, which is acting as counsel to the underwriter in the Company’s IPO. |
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SELLING STOCKHOLDER PLAN OF DISTRIBUTION
Since there is currently no public market established for our securities, the selling stockholders have represented to the Company that they will not offer or sell shares prior to the closing of the primary offering and listing of our common stock on the Nasdaq Capital Market (“Nasdaq”). After the primary offering closes, our common stock is listed on Nasdaq and there is an established market for these resale shares, the selling stockholder may sell the resale shares from time to time at the market price prevailing on the Nasdaq Capital Market at the time of offer and sale, or at prices related to such prevailing market prices or in negotiated transactions or a combination of such methods of sale directly or through brokers.
The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
● | block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; | |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
● | an exchange distribution in accordance with the rules of the applicable exchange; |
● | privately negotiated transactions; |
● | to cover short sales made after the date the registration statement of which this Resale Prospectus is a part is declared effective by the SEC; |
● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
● | broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share; and |
● | a combination of any such methods of sale. |
The selling stockholder may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholder to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus. The selling stockholder also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the selling stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
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The aggregate proceeds to the selling stockholder from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. The selling stockholder reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.
Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchase of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved, and in no case will the maximum compensation received by any broker-dealer exceed seven percent (7%).
The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule.
Any underwriters, agents, or broker-dealers, and any selling stockholders who are affiliates of broker-dealers, that participate in the sale of the Common Stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. The selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. We know of no existing arrangements between any of the selling stockholder and any other stockholder, broker, dealer, underwriter, or agent relating to the sale or distribution of the shares, nor can we presently estimate the amount, if any, of such compensation. See “Selling Stockholder” for description of any material relationship that a shareholder has with us and the description of such relationship.
To the extent required, shares of our common stock to be sold, the name of the selling stockholder, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the shares of common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.
We have advised the selling stockholder that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholder and its affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholder for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholder may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with this offering with respect to the United States federal securities law and New York law will be passed upon for us by Michelman & Robinson LLP, Los Angeles, California and New York, New York.
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943,333 shares of Common Stock
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
RESALE PROSPECTUS
You should rely only on the information contained in this Resale Prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this Resale Prospectus. This Resale Prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this Resale Prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or the sale of these securities.
The date of this Resale Prospectus is , 2022
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. | OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION |
Financial Printing Fees | $ | 5,000 | ||
SEC Filing Fees | $ | 1,711 | ||
Nasdaq Application Fees | $ | 75,000 | ||
FINRA Expenses | $ | 2,225 | ||
Transfer Agent Fees | $ | 21,000 | ||
Accounting Fees and Expenses | $ | 45,000 | ||
Legal Fees and Expenses | $ | 350,000 | ||
Miscellaneous Fees and Expenses | $ | - | ||
Total | $ | 499,936 |
All amounts are estimates other than the Nasdaq Application Fees and the SEC’s and FINRA’s registration fees.
ITEM 14. | INDEMNIFICATION OF DIRECTORS AND OFFICERS |
Section 145 of the Delaware General Corporation Law, as amended, authorizes us to indemnify any director or officer under certain prescribed circumstances and subject to certain limitations against certain costs and expenses, including attorney’s fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which a person is party by reason of being one of our directors or officers if it is determined that such person acted in accordance with the applicable standard of conduct set forth in such statutory provisions. Our certificate of incorporation contains provisions relating to the indemnification of directors and officers and our by-laws extend such indemnities to the full extent permitted by Delaware law. We currently maintain insurance for the benefit of any director or officer which cover claims for which we could not indemnify such persons.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 15. | RECENT SALES OF UNREGISTERED SECURITIES |
During the past three years, we effected the following transactions in reliance upon exemptions from registration under the Securities Act, as amended:
During the period commencing October 29, 2018 through February 11, 2019, we issued 1,215.5 units (the “Units”), at a purchase price of $1,000 per Unit, which Units consist of a total of (i) 1,215.5 shares of Series A convertible preferred stock, par value $0.001 per share, which shares will convert into approximately 269,444 shares of common stock, and (ii) warrants to purchase up to 269,444 shares of common stock, which warrants will be issuable upon completion of the Company’s initial public offering (“IPO”). The Units were sold to a total of 21 accredited investors pursuant to an exemption from registration under Rule 506(b) of the Securities Act.
On July 15, 2019, the Company issued to AFH Holding & Advisory, LLC, as consultant (“AFH”), 639,161 restricted stock units (319,580 shares post-reverse split) under the Company’s 2018 Equity Incentive Plan.
On December 28, 2021, in conjunction with entering into two loan agreements for a total of $500,000, which are repayable at the time of our IPO, we issued warrants to purchase a total of 500,000 shares of our common stock, exercisable at $1.00 per share. Such warrants were sold to two accredited investors pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead Securities LLC acted as placement agent, but waived its cash compensation related to such offering and, to date, has received no warrant compensation.
The above disclosures do not include 768,334 shares (384,167 shares on a post-reverse split basis) granted pursuant to the Shuttle Pharmaceuticals Holdings, Inc. 2018 Equity Incentive Plan, which were issued to certain employees, directors and consultants, and vest on a periodic basis in accordance with the grant agreements between such individuals and the Company.
On February 8, 2022 and March 11, 2022, the Company sold to certain accredited investors $365,000 and $224,985, respectively, in 6% convertible notes (the “Notes”), which bear 6% interest, are repayable three years from the date of issuance, and will convert automatically into shares of common stock or, in the event that units are sold in the offering, units, at a conversion price of $3.00 per share or unit upon closing of this offering. Such notes were sold to accredited investors pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead Securities LLC acted as placement agent and received compensation of (i) $36,500 in cash and warrants to purchase 10% of the total number of shares issuable upon conversion of the Convertible Notes, exercisable at the conversion price of the Convertible Notes for the February offering and (ii) $22,750 in cash and warrants to purchase 10% of the total number of shares issuable upon conversion of the Convertible Notes, exercisable at the conversion price of the Convertible Notes for the March offering.
Effective March 30, 2022, the Company issued a total of 1,678 shares (839 shares on a post-reverse split basis) of common stock (the “Issuance”) to some 23 existing shareholders in satisfaction of certain interest that had accrued as the result of an inaccurate conversion of convertible notes in our 2018 share exchange. The Issuance satisfied in full all interest owed or otherwise accruing as the result of the inaccurate conversion. Such issuance was made in accordance with Rule 506(b) of the Securities Act.
On August, 1 2022, in conjunction with entering into three loan agreements for a total of $125,000, which are repayable at the time of our IPO, we issued warrants to purchase a total of 50,000 shares of our common stock, exercisable at $2.50 per share. Such warrants were sold to three accredited investors pursuant to an exemption from registration under Rule 506(b) of the Securities Act. Boustead Securities LLC acted as placement agent, and received warrants to purchase 5,000 shares of common stock exercisable at $2.50 per share, equal to 10% of the value of the note offering. To date, Boustead has deferred its cash compensation.
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ITEM 16. | EXHIBITS |
Unless otherwise indicated, all exhibits previously filed. | |
* | Filed herewith. |
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ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time to be deemed the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing this registration statement on Form S-1 to be signed on its behalf by the undersigned, in Rockville, Maryland, on August 18, 2022.
SHUTTLE PHARMACEUTICALS, INC. | ||
By: | /s/ Anatoly Dritschilo | |
Anatoly Dritschilo, M.D., Chief Executive Officer | ||
(Principal Executive Officer) |
Signatures | Title(s) | Date | ||
/s/ Anatoly Dritschilo | Chairman of the Board and | August 18, 2022 | ||
Anatoly Dritschilo, M.D. | Chief Executive Officer (Principal Executive Officer) | |||
/s/ Michael Vander Hoek | Chief Financial Officer | August 18, 2022 | ||
Michael Vander Hoek | (Principal Financial and Accounting Officer) | |||
/s/ Chris Senanayake* | Director | August 18, 2022 | ||
Chris Senanayake, Ph.D. | ||||
/s/ Steven Richards* | Director | August 18, 2022 | ||
Steven Richards | ||||
/s/ Josh Schafer* | Director | August 18, 2022 | ||
Josh Schafer | ||||
/s/ Milton Brown* | Director | August 18, 2022 | ||
Milton Brown, M.D., Ph.D. | ||||
/s/ William Adkins* | Director | August 18, 2022 | ||
William H. Adkins |
*By: | /s/ Anatoly Dritschilo | |
Anatoly Dritschilo | ||
Attorney-in-Fact |
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Exhibit 1.1
UNDERWRITING AGREEMENT
__________, 2022
Boustead Securities, LLC
6 Venture, Suite 265
Irvine, CA 92618
As Representative of the several Underwriters
named on Schedule 1 attached hereto
Ladies and Gentlemen:
The undersigned, Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), hereby confirms its agreement (this “Agreement”) with Boustead Securities, LLC (hereinafter referred to as “you” (including its correlatives) or the “Representative”) and with the other underwriters named on Schedule 1 hereto for which the Representative is acting as representative (the Representative and such other underwriters being collectively called the “Underwriters” or, individually, an “Underwriter”) as follows:
1. Purchase and Sale of Units.
1.1 Firm Units.
1.1.1. Nature and Purchase of Firm Units.
(i) On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell in the aggregate 1,660,000 units (the “Units”), with each of the Units consisting of (i) one share of common stock of the Company, par value $0.00001 per share (the “Common Stock”), and (ii) one warrant (“Warrant”) to purchase one share of Common Stock, and each Underwriter agrees to purchase, severally and not jointly, at the Closing, an aggregate of 1,660,000 Units (“Firm Units”). The shares of Common Stock and the shares of Common Stock underlying each Warrant, together comprising the Firm Units, are called the “Shares”. The offering and sale of the Units is herein referred to as the “Offering.”
(ii) The Firm Units are to be offered together to the public at the offering price per one Firm Unit as set forth on Schedule 2-A hereto (the “Purchase Price”). The Underwriters, severally and not jointly, agree to purchase from the Company the number of Firm Units set forth opposite their respective names on Schedule 1 attached hereto and made a part hereof at the purchase price for one Firm Unit of $___ (or 93% of the Purchase Price).
1.1.2. Firm Units Payment and Delivery.
(i) Delivery and payment for the Firm Units shall be made at 10:00 a.m., Eastern time, on the second (2nd) Business Day following the effective date (the “Effective Date”) of the Registration Statement (as defined in Section 2.1.1 below) (or the third (3rd) Business Day following the Effective Date if the Registration Statement is declared effective after 4:01 p.m., Eastern time) or at such earlier time as shall be agreed upon by the Representative and the Company, at the offices of Olshan Frome Wolosky LLP, 1325 Avenue of the Americas, 15th Floor, New York, New York 10019 (“Representative’s Counsel”), or at such other place (or remotely by facsimile or other electronic transmission) as shall be agreed upon by the Representative and the Company. The hour and date of delivery and payment for the Firm Units is called the “Closing Date.”
(ii) Payment for the Firm Units shall be made on the Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery of the certificates (in form and substance satisfactory to the Underwriters) representing the Firm Units (or through the facilities of the Depository Trust Company (“DTC”)) for the account of the Underwriters. The Firm Units shall be registered in such name or names and in such authorized denominations as the Representative may request in writing prior to the Closing Date. The Company shall not be obligated to sell or deliver the Firm Units except upon tender of payment by the Representative for all of the Firm Units. The term “Business Day” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions are authorized or obligated by law to close in New York, New York.
1.2 Over-allotment Option.
1.2.1. Option Units. For the purposes of covering any over-allotments in connection with the distribution and sale of the Firm Units, the Company hereby grants to the Underwriters an option to purchase up to 249,000 additional Units, representing fifteen percent (15%) of the Firm Units sold in the offering, from the Company (the “Over-allotment Option”). Such 249,000 additional Units, the net proceeds of which will be deposited with the Company’s account, are hereinafter referred to as “Option Units.” The purchase price to be paid per Option Unit shall be equal to the price per Firm Unit set forth in Section 1.1.1 hereof.
1.2.2. Exercise of Option. The Over-allotment Option granted pursuant to Section 1.2.1 hereof may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Units within 45 days after the Effective Date. The purchase price to be paid per Option Unit shall be equal to the Firm Unit purchase price. The Underwriters shall not be under any obligation to purchase any Option Units prior to the exercise of the Over-allotment Option. The Over-allotment Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or facsimile or other electronic transmission setting forth the number of Option Units to be purchased and the date and time for delivery of and payment for the Option Units (the “Option Closing Date”), which shall not be later than five (5) full Business Days after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of Representative Counsel at such other place (including remotely by facsimile or other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Units does not occur on the Closing Date, the Option Closing Date will be as set forth in the notice. Upon exercise of the Over-allotment Option with respect to all or any portion of the Option Units, subject to the terms and conditions set forth herein, (i) the Company shall become obligated to sell to the Underwriters the number of Option Units specified in such notice and (ii) each of the Underwriters, acting severally and not jointly, shall purchase that portion of the total number of Option Units then being purchased that the number of Firm Units as set forth on Schedule 1 opposite the name of such Underwriter bears to the total number of Firm Units (except as otherwise agreed to by the Underwriters).
1.2.3. Option Units Payment and Delivery. Payment for the Option Units shall be made on the Option Closing Date by wire transfer in Federal (same day) funds, payable to the order of the Company upon delivery to you of certificates (in form and substance satisfactory to the Underwriters) representing the Option Units (or through the facilities of DTC) for the account of the Underwriters. The Option Units shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two (2) full Business Days prior to the Option Closing Date. The Company shall not be obligated to sell or deliver the Option Units except upon tender of payment by the Representative for applicable Option Units.
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1.3 Representative’s Warrants.
1.3.1. Purchase Warrants. The Company hereby agrees to issue and sell to the Representative (and/or its designees) on the Closing Date, or Option Closing Date, as applicable (“Representative’s Warrants”), five-year warrants for the purchase of a number of shares of Common Stock equal to 7.0% of the number of the Firm Units issued in the Offering, pursuant to a warrant in the form attached hereto as Exhibit A, at an initial exercise price of $___ (or 140% of the public offering price per Firm Unit). The Representative’s Warrants and the shares of Common Stock issuable upon exercise thereof are hereinafter referred to together as the “Representative’s Securities.” The Representative understands and agrees that there are significant restrictions pursuant to FINRA Rule 5110 against transferring the Representative’s Warrants and the underlying shares of Common Stock during the one hundred eighty (180) days after the Effective Date and by its acceptance thereof shall agree that it will not sell, transfer, assign, pledge or hypothecate the Representative’s Warrants, or any portion thereof, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of such securities for a period of one hundred eighty (180) days following the Effective Date to anyone other than (i) an Underwriter or a selected dealer in connection with the Offering, or (ii) an officer, partner, registered person or affiliate of the Representative or of any such Underwriter or selected dealer; and only if any such transferee agrees to the foregoing lock-up restrictions. The Representative understands and agrees that the Representative’s Warrants are exercisable or convertible commencing six months after the Effective Date of the Registration Statement (as defined in Section 2.1.1 below) and will not be exercisable or convertible for more than five years from the commencement of sales of the Offering.
1.3.2. Delivery. Delivery of the Representative’s Warrants shall be made on the Closing Date and shall be issued in the name or names and in such authorized denominations as the Representative may request.
2. Representations and Warranties of the Company. The Company represents and warrants to the Underwriters as of the Applicable Time (as defined below), as of the Closing Date and as of the Option Closing Date, if any, as follows:
2.1. Filing of Registration Statement.
2.1.1. Pursuant to the Securities Act. The Company has filed with the U.S. Securities and Exchange Commission (the “Commission”) a registration statement, and an amendment or amendments thereto, on Form S-1 (File No. 333-265429), including any related prospectus or prospectuses, for the registration of the Units and the Representative’s Securities under the Securities Act of 1933, as amended (the “Securities Act”), which registration statement and amendment or amendments have been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act (the “Securities Act Regulations”) and will contain all material statements that are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement became effective (including the Preliminary Prospectus (as hereinafter defined) included in the registration statement, financial statements, schedules, exhibits and all other documents filed as a part thereof and all information deemed to be a part thereof as of the Effective Date pursuant to paragraph (b) of Rule 430A of the Securities Act Regulations (the “Rule 430A Information”)), is referred to herein as the “Registration Statement.” If the Company files any registration statement pursuant to Rule 462(b) of the Securities Act Regulations, then after such filing, the term “Registration Statement” shall include such registration statement filed pursuant to Rule 462(b). The Registration Statement has been declared effective by the Commission on the date hereof.
Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “Preliminary Prospectus.” The Preliminary Prospectus, subject to completion, dated __________, 2022, that was included in the Registration Statement immediately prior to the Applicable Time is hereinafter called the “Pricing Prospectus.” The final prospectus in the form first furnished to the Underwriters for use in the Offering is hereinafter called the “Prospectus.” Any reference to the “most recent Preliminary Prospectus” shall be deemed to refer to the latest Preliminary Prospectus included in the Registration Statement.
“Applicable Time” means 4:00 p.m., Eastern time, on the date of this Agreement.
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“Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the Securities Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the Securities Act Regulations) relating to the Units that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Units or of the Offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
“Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule 2-B hereto.
“Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
“Pricing Disclosure Package” means any Issuer General Use Free Writing Prospectus issued at or prior to the Applicable Time, the Pricing Prospectus and the information included on Schedule 2-A hereto, all considered together.
2.1.2. Pursuant to the Exchange Act. The Company has filed with the Commission a Form 8-A (File Number 001-_____), dated ___________, 2022, providing for the registration pursuant to Section 12(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the Common Stock. The registration of the Common Stock under the Exchange Act has become effective on or prior to the date hereof. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act, nor has the Company received any notification that the Commission is contemplating terminating such registration.
2.2. Stock Exchange Listing. The Shares and the shares of Common Stock underlying the Representative’s Warrants have been approved for listing on The Nasdaq Capital Market (the “Exchange”), and the Company has taken no action designed to, or likely to have the effect of, delisting of the Shares or the shares of Common Stock underlying the Representative’s Warrants from the Exchange, nor has the Company received any written notification that the Exchange is contemplating terminating such listing.
2.3. No Stop Orders, etc. Neither the Commission nor, to the Company’s knowledge, any state regulatory authority has issued any written order preventing or suspending the use of the Registration Statement, any Preliminary Prospectus or the Prospectus or has instituted or, to the Company’s knowledge, threatened to institute, any proceedings with respect to such an order. The Company has complied with each request (if any) from the Commission for additional information.
2.4. Disclosures in Registration Statement.
2.4.1. Compliance with Securities Act and 10b-5 Representation.
(i) Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus, including the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, and the Prospectus, at the time each was filed with the Commission, complied in all material respects with the requirements of the Securities Act and the Securities Act Regulations. Each Preliminary Prospectus delivered to the Underwriters for use in connection with this Offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(ii) Neither the Registration Statement nor any amendment thereto, at its effective time, as of the Applicable Time, at the Closing Date, contained, contains, or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to statements made in reliance upon and in conformity with written information furnished to the Company in writing with respect to the Underwriters by the Representative expressly for use in the Registration Statement, the Pricing Prospectus or the Prospectus or any amendment thereof or supplement thereto. The parties acknowledge and agree that such information provided by or on behalf of any Underwriter consists solely of the information in the table set forth in the second paragraph of the “Underwriting” section and the disclosure contained in the “Underwriting” subsections “- Discounts and Commissions,” “Representative’s Warrants,” and “Price Stabilization, Short Positions and Penalty Bids” of the Prospectus (the “Underwriters’ Information”)The Pricing Disclosure Package, as of the Applicable Time, at the Closing Date, did not, does not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and each Issuer Limited Use Free Writing Prospectus hereto does not conflict with the information contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, and each such Issuer Limited Use Free Writing Prospectus, as supplemented by and taken together with the Pricing Prospectus as of the Applicable Time, did not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
(iii) Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Date, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to the Underwriters’ Information.
2.4.2. Disclosure of Agreements. The agreements and documents described in the Registration Statement, the Pricing Disclosure Package and the Prospectus conform in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the Securities Act and the Securities Act Regulations to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed. Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound or affected and (i) that is referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, or (ii) is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Except as disclosed in the Registration Statement, the Pricing Disclosure Package or the Prospectus, none of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse of time or the giving of notice, or both, would constitute a default thereunder, except for any default or event which would not reasonably be expected to result in a Material Adverse Change (as defined below). To the Company’s knowledge, performance by the Company of the material provisions of such agreements or instruments will not result in a violation of any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses (each, a “Governmental Entity”), including, without limitation, those relating to environmental laws and regulations, except for any violation which would not reasonably be expected to result in a Material Adverse Change (as defined below).
2.4.3. Prior Securities Transactions. During the past three (3) years from the date of this Agreement, no securities of the Company have been sold by the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by or under common control with the Company, except as disclosed in the Registration Statement, the Pricing Disclosure Package and any Preliminary Prospectus.
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2.4.4. Regulations. The disclosures in the Registration Statement, the Pricing Disclosure Package and the Prospectus concerning the effects of federal, state, local and all foreign regulation on the Offering and regulations applicable to the Company’s business as currently contemplated are correct in all material respects and no other such regulations are required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which are not so disclosed.
2.5. Changes after Dates in Registration Statement.
2.5.1. No Material Adverse Change. Since the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except as otherwise specifically stated therein: (i) there has been no material adverse change in the financial position or results of operations of the Company or its Subsidiaries taken as a whole, nor, to the Company’s knowledge, any change or development that, singularly or in the aggregate, would involve a material adverse change in or affecting the condition (financial or otherwise), results of operations, business, or assets of the Company or its Subsidiaries taken as a whole (a “Material Adverse Change”); (ii) there have been no material transactions entered into by the Company or its Subsidiaries, other than as contemplated pursuant to this Agreement; and (iii) no officer or director of the Company has resigned from any position with the Company.
2.5.2. Recent Securities Transactions, etc. Subsequent to the respective dates as of which information is given in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as may otherwise be indicated or contemplated herein or disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not: (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
2.6. Independent Accountants. To the knowledge of the Company, BF Borgers CPA PC (“Auditor”), whose report is filed with the Commission as part of the Registration Statement, the Pricing Disclosure Package and the Prospectus, is an independent registered public accounting firm as required by the Securities Act and the Securities Act Regulations and the Public Company Accounting Oversight Board. The Auditor has not, during the periods covered by the financial statements included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, provided to the Company any non-audit services, as such term is used in Section 10A(g) of the Exchange Act.
2.7. Financial Statements, etc. The financial statements, including the notes thereto and supporting schedules, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, fairly present in all material respects the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. Except as included therein, no historical or pro forma financial statements are required to be included in the Registration Statement, the Pricing Disclosure Package or the Prospectus under the Securities Act or the Securities Act Regulations. The pro forma and pro forma as adjusted financial information and the related notes, if any, included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been properly compiled and prepared in all material respects in accordance with the applicable requirements of the Securities Act and the Securities Act Regulations and present fairly in all material respects the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Registration Statement, the Pricing Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. Each of the Registration Statement, the Pricing Disclosure Package and the Prospectus discloses all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (a) neither the Company nor any of its subsidiaries listed in Exhibit 21.1 to the Registration Statement (each, a “Subsidiary” and, collectively, the “Subsidiaries”), has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its Common Stock or preferred stock (c) there has not been any change in the capital of the Company or any of its Subsidiaries, or, other than in the course of business, any grants under any stock compensation plan, and (d) there has not been any Material Adverse Change in the Company’s long-term or short-term debt. The Company represents that it has no direct or indirect subsidiaries other than those listed in Exhibit 21.1 to the Registration Statement.
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2.8. Authorized Capital; Options, etc. The Company had, at the date or dates indicated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the duly authorized, issued and outstanding capitalization as set forth therein. Based on the assumptions stated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company will have on the Closing Date the adjusted capitalization set forth therein. Except as set forth in, or contemplated by, the Registration Statement, the Pricing Disclosure Package and the Prospectus, on the Effective Date, as of the Applicable Time and on the Closing Date and any Option Closing Date, there will be no options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued Common Stock or any security convertible or exercisable into Common Stock, or any contracts or commitments to issue or sell Common Stock or any such options, warrants, rights or convertible securities.
2.9. Valid Issuance of Securities, etc.
2.9.1. Outstanding Securities. All issued and outstanding securities of the Company issued prior to the transactions contemplated by this Agreement have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Common Stock, preferred stock, and any other securities outstanding or to be outstanding upon consummation of the Offering conform in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus. The offers and sales of the outstanding Common Stock were at all relevant times either registered under the Securities Act and the applicable state securities or “blue sky” laws or, based in part on the representations and warranties of the purchasers of such shares, exempt from such registration requirements.
2.9.2. Securities Sold Pursuant to this Agreement. The Units and Representative’s Warrants have been duly authorized for issuance and sale and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Units and Representative’s Warrants are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Units and Representative’s Warrants has been duly and validly taken; the Common Stock issuable upon exercise of the Representative’s Warrants have been duly authorized and reserved for issuance by all necessary corporate action on the part of the Company and when issued in accordance with such Representative’s Warrants, as the case may be, such Common Stock will be validly issued, fully paid and non-assessable. The Units and the Representative’s Warrants conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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2.10. Registration Rights of Third Parties. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
2.11. Validity and Binding Effect of Agreements. This Agreement and the Representative’s Warrants have been duly and validly authorized by the Company, and, when executed and delivered, will constitute, the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except: (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (ii) as enforceability of any indemnification or contribution provision may be limited under the federal and state securities laws; and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
2.12. No Conflicts, etc. The execution, delivery and performance by the Company of this Agreement and all ancillary documents, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms hereof and thereof do not and will not, with or without the giving of notice or the lapse of time or both: (i) result in a material breach of, or conflict with any of the terms and provisions of, or constitute a material default under, or result in the creation, modification, termination or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any agreement or instrument to which the Company is a party; (ii) result in any violation of the provisions of the Company’s Certificate of Incorporation (as the same may be amended or restated from time to time, the “Charter”) or the by-laws of the Company; or (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any Governmental Entity as of the date hereof.
2.13. No Defaults; Violations. No material default exists in the due performance and observance of any term, covenant or condition of any material license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the properties or assets of the Company is subject. The Company is not (i) in violation of any term or provision of its Charter or by-laws, or (ii) in violation of any franchise, license, permit, applicable law, rule, regulation, judgment or decree of any Governmental Entity, except in the cases of clause (ii) for such violations which would not reasonably be expected to cause a Material Adverse Change.
2.14. Corporate Power; Licenses; Consents.
2.14.1. Conduct of Business. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has all requisite corporate power and authority, and has all necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies that it needs as of the date hereof to conduct its business purpose as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, except for the absence of which would not reasonably be expected to result in a Material Adverse Change.
2.14.2. Transactions Contemplated Herein. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency, the Exchange or other body is required for the valid issuance, sale and delivery of the Units and the consummation of the transactions and agreements contemplated by this Agreement and the delivery of the Representative’s Warrants and as contemplated by the Registration Statement, the Pricing Disclosure Package and the Prospectus, except with respect to applicable Securities Act Regulations, state securities laws and the rules and regulations of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
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2.15. Director & Officers Questionnaires. To the Company’s knowledge, all information contained in the questionnaires (the “Questionnaires”) completed by each of the Company’s directors and officers immediately prior to the Offering (the “Insiders”) as supplemented by all information concerning the Company’s directors, officers and principal shareholders as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, as well as in the Lock-Up Agreement (as defined in Section 2.24 below), provided to the Underwriters, is true and correct in all material respects and the Company has not become aware of any information which would cause the information disclosed in the Questionnaires to become materially inaccurate and incorrect.
2.16. Litigation; Governmental Proceedings. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding pending or, to the Company’s knowledge, threatened against, or involving the Company or, to the Company’s knowledge, any executive officer or director that is required to be disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus which has not been disclosed.
2.17. Good Standing. The Company has been duly organized and is validly existing as a corporation and is in good standing under the laws of the State of Delaware as of the date hereof, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify, singularly or in the aggregate, would not have or reasonably be expected to result in a Material Adverse Change.
2.18. Insurance. The Company carries or is entitled to the benefits of insurance, (including, without limitation, as to directors and officers insurance coverage), with, to the Company’s knowledge, reputable insurers, in such amounts and covering such risks which the Company believes are adequate, and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change.
2.19. Transactions Affecting Disclosure to FINRA.
2.19.1. Finder’s Fees. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Units hereunder or any other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Underwriters’ compensation, as determined by FINRA.
2.19.2. Payments within Six (6) Months. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company; (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA member, within the six (6) months immediately prior to the original filing of the Registration Statement, other than the payment to the Underwriters as provided hereunder in connection with the Offering.
2.19.3. Use of Proceeds. None of the net proceeds of the Offering will be paid by the Company to any participating FINRA member or its affiliates, except as specifically authorized herein.
2.19.4. FINRA Affiliation. To the Company’s knowledge, and except as may otherwise be disclosed in FINRA questionnaires provided to the Representative’s Counsel, there is no (i) officer or director of the Company, (ii) beneficial owner of 5% or more of any class of the Company’s securities or (iii) beneficial owner of the Company’s unregistered equity securities which were acquired during the 180-day period immediately preceding the filing of the Registration Statement that is an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
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2.19.5. Information. To the Company’s knowledge, all information provided by the Company in its FINRA questionnaire to Representative’s Counsel specifically for use by Representative’s Counsel in connection with its Public Offering System filings (and related disclosure) with FINRA is true, correct and complete in all material respects.
2.20. Foreign Corrupt Practices Act. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) that (i) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, might have had a Material Adverse Change or (iii) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company has taken reasonable steps to ensure that its accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended.
2.21. Compliance with OFAC. None of the Company and its Subsidiaries or, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company and its Subsidiaries or any other person acting on behalf of the Company and its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
2.22. Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the best knowledge of the Company, threatened.
2.23. Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to you or to Representative’s Counsel shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
2.24. Lock-Up Agreements. The Company has caused each of its officers, directors and owners of 1% or more of the Company’s outstanding Common Stock (or securities convertible or exercisable into Common Stock) (collectively, the “Lock-Up Parties”) to deliver to the Representative an executed Lock-Up Agreement, in forms substantially similar to those attached hereto as Exhibit B-1 for officers and directors and Exhibit B-2 for non-insider stockholders (together, the “Lock-Up Agreements”), prior to the execution of this Agreement.
2.25. Subsidiaries. All Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not have a Material Adverse Change. The Company’s ownership and control of each Subsidiary is as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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2.26. Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Registration Statement, the Pricing Disclosure Package and the Prospectus that have not been described as required by the Securities Act Regulations.
2.27. Board of Directors. The Board of Directors of the Company is comprised of the persons set forth under the heading of the Pricing Prospectus and the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the board comply with the Exchange Act, the Exchange Act Regulations, the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder (the “Sarbanes-Oxley Act”) applicable to the Company and the listing rules of the Exchange. At least one member of the Audit Committee of the Board of Directors of the Company qualifies as an “audit committee financial expert,” as such term is defined under Regulation S-K and the listing rules of the Exchange. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent,” as defined under the listing rules of the Exchange.
2.28. Sarbanes-Oxley Compliance.
2.28.1. Disclosure Controls. Except as disclosed in the Registration Statement, Pricing Disclosure Package and the Prospectus, the Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act Regulations, and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents.
2.28.2. Compliance. The Company is, or at the Applicable Time and on the Closing Date or the Option Closing Date will be, in material compliance with the provisions of the Sarbanes-Oxley Act applicable to it, and has implemented or will implement such programs and has taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act.
2.29. Accounting Controls. Except as disclosed in the Registration Statement, Pricing Disclosure Package and the Prospectus, the Company maintains systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act Regulations) that comply in all material respects with the requirements of the Exchange Act and have been designed by, or under the supervision of, its respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company is not aware of any material weaknesses in its internal control over financial reporting, and, if applicable, with respect to such remedial actions disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company represents that it has taken all remedial actions set forth in such disclosure. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’ ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
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2.30. No Investment Company Status. The Company is not and, after giving effect to the Offering and the application of the proceeds thereof as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
2.31. No Labor Disputes. No labor dispute with the employees of the Company or any of its Subsidiaries exists or, to the knowledge of the Company, is imminent.
2.32. Intellectual Property Rights. The Company and each of its Subsidiaries owns or possesses or has valid rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, inventions, trade secrets and similar rights (“Intellectual Property Rights”) necessary for the conduct of the business of the Company and its Subsidiaries as currently carried on and as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus. To the knowledge of the Company, no action or use by the Company or any of its Subsidiaries necessary for the conduct of its business as currently carried on and as described in the Registration Statement and the Prospectus will involve or give rise to any infringement of, or license or similar fees for, any Intellectual Property Rights of others. Neither the Company nor any of its Subsidiaries has received any written notice alleging any such infringement, fee or conflict with asserted Intellectual Property Rights of others. Except as would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change (A) to the knowledge of the Company, there is no infringement, misappropriation or violation by third parties of any of the Intellectual Property Rights owned by the Company; (B) there is no pending or, to the knowledge of the Company, threatened action, suit, proceeding or claim by others challenging the rights of the Company in or to any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim, that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (C) the Intellectual Property Rights owned by the Company and, to the knowledge of the Company, the Intellectual Property Rights licensed to the Company have not been adjudged by a court of competent jurisdiction invalid or unenforceable, in whole or in part, and there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any such Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; (D) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company infringes, misappropriates or otherwise violates any Intellectual Property Rights or other proprietary rights of others, the Company has not received any written notice of such claim and the Company is unaware of any other facts which would form a reasonable basis for any such claim that would, individually or in the aggregate, together with any other claims in this Section 2.32, reasonably be expected to result in a Material Adverse Change; and (E) to the Company’s knowledge, no employee of the Company is in or has ever been in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and could reasonably be expected to result, individually or in the aggregate, in a Material Adverse Change. To the Company’s knowledge, all material technical information developed by and belonging to the Company which has not been patented has been kept confidential. The Company is not a party to or bound by any options, licenses or agreements with respect to the Intellectual Property Rights of any other person or entity that are required to be set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus and are not described therein. The Registration Statement, the Pricing Disclosure Package and the Prospectus contain in all material respects the same description of the matters set forth in the preceding sentence. None of the technology employed by the Company has been obtained or is being used by the Company in violation of any contractual obligation binding on the Company or, to the Company’s knowledge, any of its officers, directors or employees, or otherwise in violation of the rights of any persons.
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2.33. Taxes. Each of the Company and its Subsidiaries has filed all returns (as hereinafter defined) required to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof, except in any case in which the failure so to file would not reasonably be expected to cause a Material Adverse Change. Each of the Company and its Subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed and has paid all taxes imposed on or assessed against the Company or such respective Subsidiary, except for any such taxes that are currently being contested in good faith or as would not reasonably be expected to cause a Material Adverse Change. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. Except as disclosed in writing to the Underwriters, (i) no issues have been raised (and are currently pending) by any taxing authority in connection with any of the returns or taxes asserted as due from the Company or its Subsidiaries, and (ii) no waivers of statutes of limitation with respect to the returns or collection of taxes have been given by or requested from the Company or its Subsidiaries. The term “taxes” means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements and other documents required to be filed in respect to taxes.
2.34. ERISA Compliance. The Company is not subject to the Employee Retirement Income Security Act of 1974, as amended, or the regulations and published interpretations thereunder.
2.35. Compliance with Laws. Except as otherwise disclosed in the Registration Statement, Pricing Disclosure Package and Prospectus and as could not, individually or in the aggregate, be expected to result in a Material Adverse Change, each of the Company and each Subsidiary, the Company: (A) is and at all times has been in compliance with all statutes, rules, or regulations applicable to the services provided by the Company (“Applicable Laws”), except as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change; (B) has not received any warning letter, untitled letter or other correspondence or notice from any other governmental authority alleging or asserting noncompliance with any Applicable Laws or any licenses, certificates, approvals, clearances, authorizations, permits and supplements or amendments thereto required by any such Applicable Laws (“Authorizations”); (C) possesses all material Authorizations and such material Authorizations are valid and in full force and effect and are not in material violation of any term of any such Authorizations; (D) has not received written notice of any claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any governmental authority or third party alleging that any product operation or activity is in violation of any Applicable Laws or Authorizations and has no knowledge that any such governmental authority or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding that if brought would result in a Material Adverse Change; (E) has not received written notice that any Governmental Entity has taken, is taking or intends to take action to limit, suspend, modify or revoke any Authorizations and has no knowledge that any such Governmental Entity is considering such action ; (F) has filed, obtained, maintained or submitted all material reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments as required by any Applicable Laws or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct in all material respects on the date filed (or were corrected or supplemented by a subsequent submission); and (G) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, market withdrawal or replacement, safety alert, post-sale warning, or other notice or action relating to the alleged lack of safety of any product or any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated, conducted or intends to initiate any such notice or action.
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2.36. Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment thereto, at the time of effectiveness of the Registration Statement and any amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the Securities Act Regulations) of the Units and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
2.37. Real Property. Except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its Subsidiaries have good and marketable title in fee simple to, or have valid rights to lease or otherwise use, all items of real or personal property which are material to the business of the Company and its Subsidiaries taken as a whole, in each case free and clear of all liens, encumbrances, security interests, claims and defects that do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has received any written notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease, which would result in a Material Adverse Change.
2.38. Contracts Affecting Capital. There are no transactions, arrangements or other relationships between and/or among the Company, any of its affiliates (as such term is defined in Rule 405 of the Securities Act Regulations) and any unconsolidated entity, including, but not limited to, any structured finance, special purpose or limited purpose entity that could reasonably be expected to materially affect the Company’s or its Subsidiaries’ liquidity or the availability of or requirements for their capital resources required to be described or incorporated by reference in the Registration Statement, the Pricing Disclosure Package and the Prospectus which have not been described or incorporated by reference as required.
2.39. Loans to Directors or Officers. There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees or indebtedness by the Company or its Subsidiaries to or for the benefit of any of the officers or directors of the Company, its Subsidiaries or any of their respective family members, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
2.40. Industry Data; Forward-looking Statements. The statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus are based on or derived from sources that the Company reasonably and in good faith believes are reliable and accurate or represent the Company’s good faith estimates that are made on the basis of data derived from such sources. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
2.41. Testing-the-Waters Communications. The Company has not (i) alone engaged in any Testing-the-Waters Communications and (ii) authorized anyone to engage in Testing-the-Waters Communications. The Company confirms that the Representative has been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any Written Testing-the-Waters Communications other than those listed on Schedule 2-C hereto. “Written Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act; “Testing-the-Waters Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
2.42. Emerging Growth Company. The Company has been and is an “emerging growth company,” as defined in Section 2(a) of the Securities Act.
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2.43. Electronic Road Show. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) of the Securities Act Regulations such that no filing of any “road show” (as defined in Rule 433(h) of the Securities Act Regulations) is required in connection with the Offering.
2.44. Margin Securities. The Company owns no “margin securities” as that term is defined in Regulation U of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), and none of the proceeds of Offering will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Common Stock to be considered a “purpose credit” within the meanings of Regulation T, U or X of the Federal Reserve Board.
2.45. Dividends and Distributions. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, no Subsidiary of the Company is currently prohibited or restricted, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary of the Company.
2.46. Lending Relationships. Except as disclosed in the Pricing Disclosure Package, Registration Statement and the Prospectus, the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of the Underwriters and (ii) does not intend to use any of the proceeds from the sale of the Securities hereunder to repay any outstanding debt owed to any affiliate of the Underwriters.
2.47. Regulatory Compliance. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company (A) has not received any unresolved FDA Form 483, notice of observations, warning letter, untitled letter or other written correspondence from the U.S. Food and Drug Administration (“FDA”), or any other court or arbitrator or federal, state, local or foreign governmental or regulatory authority, alleging or asserting noncompliance with the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 301 et seq.); (B) possesses all material licenses, certificates, registrations, approvals, clearances, authorizations, permits and supplements or amendments thereto, and has made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities (including, without limitation, state or other food and drug regulatory authorities) that are necessary for the ownership or lease of its properties or the conduct of its business as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and such Authorizations are valid and in full force and effect and the Company is not in material violation of any term of any such Authorizations; (C) has not received written notice of any ongoing claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any Governmental Entity or third party alleging that any product, operation or activity is in material violation of any FDA regulation or Authorizations and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (D) has not received written notice that any Governmental Entity has taken, is taking or intends to take action to suspend, revoke or restrict any Authorizations and has no knowledge that any such Governmental Entity is considering such action; (E) has filed, obtained, maintained or submitted all material reports, schedules, statements, filings, registrations, documents, forms, notices, applications, records, claims, submissions and supplements or amendments thereto as required by any FDA regulation or Authorizations and that all such reports, documents, forms, notices, applications, records, claims, submissions and supplements or amendments were complete and correct on the date filed (or were corrected or supplemented by a subsequent submission); (F) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, or market withdrawal or other notice or action relating to any alleged product defect or violation and, to the Company’s knowledge, no third party has initiated or conducted any such notice or action; (G) is not party to any corporate integrity agreement, deferred prosecution agreement, monitoring agreement, consent decree, settlement order, or similar agreements, or have any reporting obligations pursuant to any such agreement, plan or correction or other remedial measure entered into with any Governmental Entity; and (H) has not been convicted of any criminal offense relating to the delivery of any item or service reimbursable under a federal or state food and drug program.
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2.48. Clinical Trials. The clinical trials conducted by or on behalf of or sponsored by the Company or in which the Company or its product candidates have participated have been and, if still pending, are being conducted (i) in material compliance with all statutes, rules, regulations and guidance applicable thereto and (ii) in all material respects in accordance with medical and scientific research procedures that the Company reasonably believes are appropriate. The Company has not received any notices or other correspondence from the FDA or any other Governmental Entity requiring the termination, suspension or material modification of any clinical trials.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1. Amendments to Registration Statement. The Company shall deliver to the Representative, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Representative shall reasonably object in writing.
3.2. Federal Securities Laws.
3.2.1. Compliance. The Company, subject to Section 3.2.2, shall comply with the requirements of Rule 430A of the Securities Act Regulations, and will notify the Representative promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed; (ii) of the receipt of any comments from the Commission; (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information; (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Units and the Representative’s Warrants for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the Securities Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the Securities Act in connection with the Offering of the Units and Representative’s Warrants. The Company shall effect all filings required under Rule 424(b) of the Securities Act Regulations, in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and shall take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company shall use its reasonable best efforts to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof at the earliest possible moment.
3.2.2. Continued Compliance. The Company shall comply with the Securities Act, the Securities Act Regulations, the Exchange Act and the Exchange Act Regulations so as to permit the completion of the distribution of the Units as contemplated in this Agreement and in the Registration Statement, the Pricing Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Units is (or, but for the exception afforded by Rule 172 of the Securities Act Regulations (“Rule 172”), would be) required by the Securities Act to be delivered in connection with sales of the Units, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) amend or supplement the Pricing Disclosure Package or the Prospectus in order that the Pricing Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the Pricing Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the Securities Act or the Securities Act Regulations, the Company will promptly (A) give the Representative notice of such event; (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the Pricing Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representative with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representative or Representative’s Counsel shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representative notice of any filings made pursuant to the Exchange Act or the Exchange Act Regulations within 48 hours prior to the Applicable Time. The Company shall give the Representative notice of its intention to make any such filing from the Applicable Time until the Closing Date and the exercise in full or expiration of the Over-allotment Option specified in Section 1.2 hereof and will furnish the Representative with copies of the related document(s) a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall reasonably object.
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3.2.3. Exchange Act Registration. Until three years after the date of this Agreement, the Company shall use its commercially reasonable efforts to maintain the registration of the Common Stock under the Exchange Act.
3.2.4. Free Writing Prospectuses. The Company agrees that, unless it obtains the prior consent of the Representative, it shall not make any offer relating to the Units that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representative shall be deemed to have consented to each Issuer General Use Free Writing Prospectus set forth in Schedule 2-B. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Underwriters as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Underwriters and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
3.2.5. Testing-the-Waters Communications. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company shall promptly notify the Representative and shall promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such untrue statement or omission.
3.3. Delivery to the Underwriters of Registration Statements. The Company has delivered or made available or shall deliver or make available to the Representative and Representative’s Counsel, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and upon request will also deliver to the Underwriters, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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3.4. Delivery to the Underwriters of Prospectuses. The Company has delivered or made available or will deliver or make available to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the Securities Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Units is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
3.5. Effectiveness and Events Requiring Notice to the Representative. The Company shall use its commercially reasonable efforts to cause the Registration Statement covering the issuance of the shares of Common Stock underlying the Representative’s Warrants to remain effective with a current prospectus for at least nine (9) months after the Applicable Time, and shall notify the Representative immediately and confirm the notice in writing: (i) of the cessation of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the shares underlying the Representative’s Warrants for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 3.5 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement, the Pricing Disclosure Package or the Prospectus untrue or that requires the making of any changes in (a) the Registration Statement in order to make the statements therein not misleading, or (b) in the Pricing Disclosure Package or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company shall make every reasonable effort to obtain promptly the lifting of such order.
3.6. Review of Financial Statements. For a period of three (3) years after the date of this Agreement, the Company, at its expense, shall cause its regularly engaged independent registered public accounting firm to review (but not audit) the Company’s financial statements for each of the three fiscal quarters immediately preceding the announcement of any quarterly financial information.
3.7. Listing. The Company shall use its commercially reasonable efforts to maintain the listing of the Units and the shares of Common Stock underlying the Representative’s Warrant on the Exchange for at least three (3) years from the date of this Agreement.
3.8. Financial Public Relations Firm. As of the Effective Date, or promptly thereafter, the Company shall have retained a financial public relations firm reasonably acceptable to the Representative and the Company, which shall initially be [●], which firm shall be experienced in assisting issuers in initial public offerings of securities and in their relations with their security holders, and shall retain such firm or another firm reasonably acceptable to the Representative for a period of not less than two (2) years after the Effective Date.
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3.9. Reports to the Representative.
3.9.1. Periodic Reports, etc. For a period of three (3) years after the date of this Agreement, the Company shall furnish or make available to the Representative copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities and also furnish or make available to the Representative: (i) a copy of each periodic report the Company shall be required to file with the Commission under the Exchange Act and the Exchange Act Regulations; (ii) a copy of every press release and every news item and article with respect to the Company or its affairs which was released by the Company; (iii) a copy of each Form 8-K prepared and filed by the Company; (iv) a copy of each registration statement filed by the Company under the Securities Act; and (v) such additional documents and information with respect to the Company and the affairs of any future subsidiaries of the Company as the Representative may from time to time reasonably request; provided the Representative shall sign, if requested by the Company, a Regulation FD compliant confidentiality agreement which is reasonably acceptable to the Representative and Representative’s Counsel in connection with the Representative’s receipt of such information. Documents filed with the Commission pursuant to its EDGAR system shall be deemed to have been delivered to the Representative pursuant to this Section 3.9.1.
3.9.2. Transfer Agent; Transfer Sheets. For a period of three (3) years after the date of this Agreement, the Company shall retain a transfer agent and registrar acceptable to the Representative (the “Transfer Agent”) and shall furnish to the Representative at the Company’s sole cost and expense such transfer sheets of the Company’s securities as the Representative may reasonably request, including the daily and monthly consolidated transfer sheets of the Transfer Agent and DTC. Vstock Transfer, LLC is acceptable to the Representative to act as Transfer Agent for the Common Stock.
3.9.3. Trading Reports. For a period of six (6) months after the date hereof, during such time as the Shares are listed on the Exchange, the Company shall provide to the Representative, at the Company’s expense, such reports published by the Exchange relating to price trading of the Shares, as the Representative shall reasonably request.
3.10. Payment of Expenses
3.10.1. General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Units to be sold in the Offering (including the Over-allotment Option) with the Commission; (b) all Public Filing System filing fees associated with the review of the Offering by FINRA; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of the Units under the securities laws of such foreign jurisdictions as the Representative may reasonably designate; (d) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors and other due diligence expenses; (e) the costs associated with receiving commemorative mementos and lucite tombstones; (f) fees and expenses of the Representative’s Counsel; (g) the Underwriters’ due diligence expenses; and (h) the Underwriters’ “road show” expenses for the Offering, with all of the Underwriters’ actual out-of-pocket expenses under subsections 3.10.1(d)-(h) not to exceed $255,000, of which $_____ has previously been paid. The Representative may deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or the Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters; provided, however, that in the event that the Offering is terminated, the Company agrees to reimburse the Underwriters pursuant to Section 8.3 hereof. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
3.10.2. Non-accountable Expenses. The Company further agrees that, in addition to the expenses payable pursuant to Section 3.10.1, on the Closing Date it shall pay to the Representative, by deduction from the net proceeds of the Offering contemplated herein, a non-accountable expense allowance equal to one percent (1.0%) of the gross proceeds received by the Company from the sale of the Firm Units.
3.11. Application of Net Proceeds. The Company shall apply the net proceeds from the Offering received by it in a manner consistent with the application thereof described under the caption “Use of Proceeds” in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
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3.12. Delivery of Earnings Statements to Security Holders. The Company will timely file such reports pursuant to the Exchange Act as are necessary in order to make generally available to its security holders as soon as practicable, an earnings statement (which need not be certified by independent registered public accounting firm unless required by the Securities Act or the Securities Act Regulations, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve (12) consecutive months beginning after the date of this Agreement.
3.13. Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or shareholders has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Units.
3.14. Internal Controls. Except to the extent disclosed in the Registration Statement, Pricing Disclosure Package and Prospectus, the Company shall maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
3.15. Accountants. As of the date of this Agreement, the Company has retained an independent registered public accounting firm reasonably acceptable to the Representative, and the Company shall continue to retain a nationally recognized independent registered public accounting firm for a period of at least three (3) years after the date of this Agreement. The Representative acknowledges that the Auditor is acceptable to the Representative.
3.16. FINRA. For a period of ninety (90) days from the later of the Closing Date or the Option Closing Date, the Company shall advise the Representative (who shall make an appropriate filing with FINRA) if it is or becomes aware that (i) any officer or director of the Company, (ii) any beneficial owner of 5% or more of any class of the Company’s securities or (iii) any beneficial owner of the Company’s unregistered equity securities which were acquired during the 180 days immediately preceding the filing of the original Registration Statement is or becomes an affiliate or associated person of a FINRA member participating in the Offering (as determined in accordance with the rules and regulations of FINRA).
3.17. No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual in nature and that none of the Underwriters or their affiliates or any selling agent shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement.
3.18. Company Lock-Up. The Company, on behalf of itself and any successor entity, agrees that, without the prior written consent of the Representative, it will not, for a period of six (6) months after the date of this Agreement (the “Lock-Up Period”), (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant or amend the terms of any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the Commission relating to the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company (other than pursuant to a registration statement on Form S-8 for employee benefit plans); or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company, whether any such transaction described in clause (i), (ii) or (iii) above is to be settled by delivery of shares of capital stock of the Company or such other securities, in cash or otherwise. The restrictions contained in this section shall not apply to (i) the Units, the Shares comprising the Units, the Representative’s Warrants and shares underlying the Representative’s Warrants to be sold hereunder; (ii) the issuance by the Company of Common Stock upon the exercise of an outstanding option or warrant or the conversion of a security outstanding on the date hereof or disclosed in the Registration Statement and the Pricing Disclosure Package; and (iii) the issuance of Common Stock pursuant to the Company’s existing stock option, equity incentive or bonus plans as disclosed in the Registration Statement and the Pricing Disclosure Package. The Company agrees not to accelerate the vesting of any option or warrant or the lapse of any repurchase right prior to the expiration of the Lock-Up Period.
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3.19. Release of D&O Lock-up Period. If the Representative, in its sole discretion, agrees to release or waive the restrictions set forth in the Lock-Up Agreements described in Section 2.24 hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three (3) Business Days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release through a major news service at least two (2) Business Days before the effective date of the release or waiver.
3.20. Blue Sky Qualifications. The Company shall use its reasonable best efforts, in cooperation with the Underwriters, if necessary, to qualify the Units for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representative may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Units; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
3.21. Reporting Requirements. The Company, during the period when a prospectus relating to the Units is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the Securities Act, will file all documents required to be filed with the Commission pursuant to the Exchange Act within the time periods required by the Exchange Act and Exchange Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Units as may be required under Rule 463 under the Securities Act Regulations.
4. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Units, as provided herein, shall be subject to (i) the continuing accuracy of the representations and warranties of the Company as of the date hereof and as of each of the Closing Date and the Option Closing Date, if any; (ii) the accuracy of the statements of officers of the Company made pursuant to the provisions hereof; (iii) the performance by the Company of its obligations hereunder; and (iv) the following conditions:
4.1. Regulatory Matters.
4.1.1. Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement has become effective not later than 5:00 p.m., Eastern time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Date and any Option Closing Date, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the Securities Act, no order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated by the Commission. The Company has complied with each request (if any) from the Commission for additional information. The Prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) (without reliance on Rule 424(b)(8)) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
4.1.2. FINRA Clearance. On or before the date of this Agreement, the Representative shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement.
4.1.3. Exchange Share Market Clearance. On the Closing Date, the Shares shall have been approved for listing on the Exchange, subject only to official notice of issuance.
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4.2. Company Counsel Matters.
4.2.1. Closing Date Opinions of Counsels. On the Closing Date, the Representative shall have received the favorable opinion of Michelman & Robinson LLP, counsel for the Company, in form and substance satisfactory to Representative’s Counsel addressed to the Representative and stating that such opinions may be relied upon by Representative’s Counsel.
4.2.2. Opinion of Company’s Intellectual Property Counsel. On the Closing Date, the Representative shall have received the favorable opinion of Morgan Lewis & Bockius, LLP, intellectual property counsel for the Company, in form and substance satisfactory to Representative’s Counsel addressed to the Representative and stating that such opinions may be relied upon by Representative’s Counsel.
4.2.3. Reliance. In rendering such opinions, such counsel may rely: (i) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Representative) of other counsel reasonably acceptable to the Representative, familiar with the applicable laws; and (ii) as to matters of fact, to the extent they deem proper, on certificates or other written statements of officers of the Company and officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Representative’s Counsel if requested.
4.3. Comfort Letters.
4.3.1. Cold Comfort Letter. At the time this Agreement is executed you shall have received a cold comfort letter containing statements and information of the type customarily included in accountants’ comfort letters with respect to the financial statements and certain financial information contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus, addressed to the Representative and in form and substance satisfactory in all respects to you and to the Auditor, dated as of the date of this Agreement.
4.3.2. Bring-down Comfort Letter. At each of the Closing Date and Option Closing Date, if any, the Representative shall have received from the Auditor a letter, dated as of the Closing Date or the Option Closing Date, as applicable, to the effect that the Auditor reaffirms the statements made in the letter furnished pursuant to Section 4.3.1, except that the specified date referred to shall be a date not more than three (3) Business Days prior to the Closing Date or the Option Closing Date, as applicable.
4.4. Officers’ Certificates.
4.4.1. Officers’ Certificate. The Company shall have furnished to the Representative a certificate, dated the Closing Date and any Option Closing Date (if such date is other than the Closing Date), of its Chief Executive Officer, its President and its Chief Financial Officer stating that (i) such officers have carefully examined the Registration Statement, the Pricing Disclosure Package, any Issuer Free Writing Prospectus and the Prospectus and, in their opinion, the Registration Statement and each amendment thereto, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date) did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Pricing Disclosure Package, as of the Applicable Time and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), any Issuer Free Writing Prospectus as of its date and as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the Prospectus and each amendment or supplement thereto, as of the respective date thereof and as of the Closing Date, did not include any untrue statement of a material fact and did not omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances in which they were made, not misleading, (ii) since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus, (iii) to the best of their knowledge after reasonable investigation, as of the Closing Date (or any Option Closing Date if such date is other than the Closing Date), the representations and warranties of the Company in this Agreement are true and correct in all material respects (except for those representations and warranties qualified as to materiality, which shall be true and correct in all respects and except for those representations and warranties which refer to facts existing at a specific date, which shall be true and correct as of such date) and the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date (or any Option Closing Date if such date is other than the Closing Date), and (iv) there has not been, subsequent to the date of the most recent audited financial statements included or incorporated by reference in the Pricing Disclosure Package, a Material Adverse Change.
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4.4.2. Secretary’s Certificate. At each of the Closing Date and the Option Closing Date, if any, the Representative shall have received a certificate of the Company signed by the Secretary of the Company, dated the Closing Date or the Option Closing Date, as the case may be, respectively, certifying: (i) that each of the Charter and Bylaws is true and complete, has not been modified and is in full force and effect; (ii) that the resolutions of the Company’s Board of Directors (and any pricing committee thereof) relating to the Offering are in full force and effect and have not been modified; and (iii) as to the incumbency of the officers of the Company. The documents referred to in such certificate shall be attached to such certificate.
4.5. No Material Changes. Prior to and on each of the Closing Date and the Option Closing Date, if any: (i) there shall have been no Material Adverse Change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (ii) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Insider before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may reasonably be expected to cause a Material Adverse Change, except as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement, the Pricing Disclosure Package and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the Securities Act Regulations and shall conform in all material respects to the requirements of the Securities Act and the Securities Act Regulations, and neither the Registration Statement, the Pricing Disclosure Package nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
4.6. Delivery of Agreements.
4.6.1. Lock-Up Agreements. On or before the date of this Agreement, the Company shall have delivered to the Representative executed copies of the Lock-Up Agreements.
4.6.2. Representative’s Warrant. On the Closing date, the Company shall have delivered to the Representative an executed copy of the Representative’s Warrant.
4.7. Additional Documents. At the Closing Date and at each Option Closing Date, if any, Representative’s Counsel shall have been furnished with such documents and opinions as they may require for the purpose of enabling Representative’s Counsel to deliver an opinion to the Underwriters, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Units and the Representative’s Warrants as herein contemplated shall be satisfactory in form and substance to the Representative and Representative’s Counsel.
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5. Indemnification.
5.1. Indemnification of the Underwriters.
5.1.1. General. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its affiliates and each of its and their respective directors, officers, members, employees, representatives, partners, shareholders, affiliates, counsel, and agents and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Underwriter Indemnified Parties” and each, an “Underwriter Indemnified Party”), against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries (a “Claim”), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, in (A) the Registration Statement, the Pricing Disclosure Package, any Preliminary Prospectus, the Prospectus, or in any Issuer Free Writing Prospectus or in any Written Testing-the-Waters Communication (as from time to time each may be amended and supplemented); (B) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the Offering, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (C) any application or other document or written communication (in this Section 5, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Units and Representative’s Warrants under the securities laws thereof or filed with the Commission, any state securities commission or agency, the Exchange or any other national securities exchange; unless, with respect to each subsection (A) through (C), such statement or omission was made in reliance upon, and in conformity with, the Underwriters’ Information. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement, Pricing Disclosure Package or Prospectus, the indemnity agreement contained in this Section 5.1.1 shall not inure to the benefit of any Underwriter Indemnified Party to the extent that any loss, liability, claim, damage or expense of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not given or sent to the person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Units to such person as required by the Securities Act and the Securities Act Regulations, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under Section 3.3 hereof. The Company also agrees that it will reimburse each Underwriter Indemnified Party for all reasonable fees and expenses (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between any of the Underwriter Indemnified Parties and the Company or between any of the Underwriter Indemnified Parties and any third party, or otherwise) (collectively, the “Expenses”), and further agrees wherever and whenever possible to advance payment of Expenses as they are incurred by an Underwriter Indemnified Party in investigating, preparing, pursuing or defending any Claim.
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5.1.2. Procedure. If any action is brought against an Underwriter Indemnified Party in respect of which indemnity may be sought against the Company pursuant to Section 5.1.1, such Underwriter Indemnified Party shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the approval of such Underwriter Indemnified Party (which approval shall not be unreasonably withheld)) and payment of actual expenses if an Underwriter Indemnified Party requests that the Company do so. Such Underwriter Indemnified Party shall have the right to employ its or their own counsel in any such case, and the fees and expenses of such counsel shall be at the expense of the Company and shall be advanced by the Company; provided, however, that the Company shall not be obligated to bear the reasonable fees and expenses of more than one firm of attorneys selected by the Underwriter Indemnified Party (in addition to local counsel). Notwithstanding anything to the contrary contained herein, and provided that the Company has timely honored its obligations under Section 5, the Underwriter Indemnified Party shall not enter into any settlement without the prior written consent (which shall not be unreasonably withheld) of the terms of any settlement by the Company. The Company shall not be liable for any settlement of any action effected without its prior written consent (which shall not be unreasonably delayed or withheld). In addition, the Company shall not, without the prior written consent of the Underwriters (which consent shall not be unreasonably withheld), settle, compromise or consent to the entry of any judgment in or otherwise seek to terminate any pending or threatened action in respect of which advancement, reimbursement, indemnification or contribution may be sought hereunder (whether or not such Underwriter Indemnified Party is a party thereto) unless such settlement, compromise, consent or termination (i) includes an unconditional release of each Underwriter Indemnified Party, acceptable to such Underwriter Indemnified Party, from all liabilities, expenses and claims arising out of such action for which indemnification or contribution may be sought and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Underwriter Indemnified Party.
5.2. Indemnification of the Company. Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and persons who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to the several Underwriters, as incurred, but only with respect to such losses, liabilities, claims, damages and expenses (or actions in respect thereof) which arise out of or are based upon untrue statements or omissions, or alleged untrue statements or omissions made in the Registration Statement, any Preliminary Prospectus, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in conformity with, the Underwriters’ Information. In case any action shall be brought against the Company or any other person so indemnified based on any Preliminary Prospectus, the Registration Statement, the Pricing Disclosure Package or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against any Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the several Underwriters by the provisions of Section 5.1.2. The Company agrees promptly to notify the Representative of the commencement of any litigation or proceedings against the Company or any of its officers, directors or any person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, in connection with the issuance and sale of the Units or in connection with the Registration Statement, the Pricing Disclosure Package, the Prospectus, or any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication.
5.3. Contribution. If the indemnification provided for in this Section 5 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 5.1 or Section 5.2 in respect of any liabilities and Expenses referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such liabilities and Expenses, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company, on the one hand, and each of the Underwriters, on the other hand, from the Offering, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other hand, in connection with the matters as to which such liabilities or Expenses relate, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other, with respect to such Offering shall be deemed to be in the same proportion as the total net proceeds actually received by the Company from the Offering of the Units purchased under this Agreement (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions actually received by the Underwriters in connection with the Offering, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company, on the one hand, and the Underwriters, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Underwriters, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement, omission, act or failure to act; provided that the parties hereto agree that the written information furnished to the Company through the Representative by or on behalf of any Underwriter for use in any Preliminary Prospectus, any Registration Statement or the Prospectus, or in any amendment or supplement thereto, consists solely of the Underwriters’ Information. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). Notwithstanding the above, no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from a party who was not guilty of such fraudulent misrepresentation.
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5.4. Limitation. The Company also agrees that no Underwriter Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with advice or services rendered or to be rendered by any Underwriter Indemnified Party pursuant to this Agreement, the transactions contemplated thereby or any Underwriter Indemnified Party’s actions or inactions in connection with any such advice, services or transactions, except to the extent that a court of competent jurisdiction has made a finding that liabilities (and related Expenses) of the Company have resulted from such Underwriter Indemnified Party’s fraud, bad faith, gross negligence or willful misconduct in connection with any such advice, actions, inactions or services or such Underwriter Indemnified Party’s breach of this Agreement or any obligations of confidentiality owed to the Company.
5.5. Survival and Third-Party Beneficiaries. The advancement, reimbursement, indemnity and contribution obligations set forth in this Section 5 shall remain in full force and effect regardless of any termination of, or the completion of any Underwriter Indemnified Party’s services under or in connection with, this Agreement. Each Underwriter Indemnified Party is an intended third-party beneficiary of this Section 5, and has the right to enforce the provisions of Section 5, as if he/she/it was a party to this Agreement.
6. Default by an Underwriter.
6.1. Default Not Exceeding 10% of Firm Units or Option Units. If any Underwriter or Underwriters shall default in its or their obligations to purchase the Firm Units or the Option Units, if the Over-allotment Options is exercised hereunder, and if the number of the Firm Units or Option Units with respect to which such default relates does not exceed in the aggregate 10% of the number of Firm Units or Option Units that all Underwriters have agreed to purchase hereunder, then such Firm Units or Option Units to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder.
6.2. Default Exceeding 10% of Firm Units or Option Units. In the event that the default addressed in Section 6.1 relates to more than 10% of the Firm Units or Option Units, you may in your discretion arrange for yourself or for another party or parties to purchase such Firm Units or Option Units to which such default relates on the terms contained herein. If, within one (1) Business Day after such default relating to more than 10% of the Firm Units or Option Units, you do not arrange for the purchase of such Firm Units or Option Units, then the Company shall be entitled to a further period of one (1) Business Day within which to procure another party or parties satisfactory to you to purchase said Firm Units or Option Units on such terms. In the event that neither you nor the Company arrange for the purchase of the Firm Units or Option Units to which a default relates as provided in this Section 6, this Agreement will automatically be terminated by you or the Company without liability on the part of the Company (except as provided in Section 5 and Section 8.3 hereof) or the several Underwriters (except as provided in Section 5 hereof); provided, however, that if such default occurs with respect to the Option Units, this Agreement will not terminate as to the Firm Units; and provided, further, that nothing herein shall relieve a defaulting Underwriter of its liability, if any, to the other Underwriters and to the Company for damages occasioned by its default hereunder.
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6.3. Postponement of Closing Date. In the event that the Firm Units or Option Units to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date for a reasonable period, but not in any event exceeding five (5) Business Days, in order to effect whatever changes may thereby be made necessary in the Registration Statement, the Pricing Disclosure Package or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment to the Registration Statement, the Pricing Disclosure Package or the Prospectus that in the opinion of counsel for the Underwriter may thereby be made necessary. The term “Underwriter” as used in this Agreement shall include any party substituted under this Section 6 with like effect as if it had originally been a party to this Agreement with respect to such Firm Units or Option Units.
7. Additional Covenants.
7.1. Right of First Refusal. During the period ending two (2) years after the Closing Date, if and only if the closing of the purchase of the Firm Units hereunder actually occurs, the Company grants the Representative the right of first refusal to act as financial advisor or to act as joint financial advisor, on at least equal economic terms on any public or private financing (debt or equity), merger, business combination, recapitalization or sale of some or all of the equity or assets of the Company (collectively, “Future Services”). In the event the Company notifies Representative of its intention to pursue an activity that would enable Representative to exercise its right of first refusal to provide Future Services, Representative shall notify the Company of its election to provide such Future Services, including notification of the compensation and other terms to which Representative shall be entitled, within thirty (30) days of written notice by the Company. In the event the Company engages Representative to provide such Future Services, Representative will be compensated consistent with the compensation in this Agreement, unless mutually agreed otherwise by the Company and Representative.
8. Effective Date of this Agreement and Termination Thereof.
8.1. Effective Date. This Agreement shall become effective when both the Company and the Representative have executed the same and delivered counterparts of such signatures to the other party.
8.2. Termination. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Share Exchange or the Nasdaq Stock Market LLC shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a new war or an increase in major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets; or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Firm Units; or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder; or (viii) if the Representative shall have become aware after the date hereof of such a Material Adverse Change, or such adverse material change in general market conditions as in the Representative’s judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Units or to enforce contracts made by the Underwriters for the sale of the Units.
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8.3. Expenses. Notwithstanding anything to the contrary in this Agreement, except in the case of a default by the Underwriters, pursuant to Section 6.2 above, in the event that this Agreement shall not be carried out for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Underwriters their actual and accountable out-of-pocket expenses related to the transactions contemplated herein then due and payable up to the amounts set forth in Section 3.10.1 and upon demand the Company shall pay such amount thereof to the Representative on behalf of the Underwriters; provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement. Notwithstanding the foregoing, any advance received by the Representative will be reimbursed to the Company to the extent not actually incurred in compliance with FINRA Rule 5110(g)(4)(A).
8.4. Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 5 shall remain in full force and effect and shall not be in any way affected by, such election or termination or failure to carry out the terms of this Agreement or any part hereof.
8.5. Representations, Warranties, Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors or any person controlling the Company or (ii) delivery of and payment for the Units.
9. Miscellaneous.
9.1. Notices. All communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be mailed (registered or certified mail, return receipt requested), emailed, personally delivered, or sent by facsimile transmission and confirmed and shall be deemed given when so delivered or faxed and confirmed or if mailed, two (2) days after such mailing.
If to the Representative:
Boustead Securities, LLC
6 Venture, Suite 265
Irvine, California 92618
Attn: Mr. Keith Moore, CEO
Fax No.: (949) ___-____
Email: keith@boustead1828.com
With a copy (which shall not constitute notice) to:
Olshan Frome Wolosky LLP
1325 Avenue of the Americas, 15th Floor
New York, New York 10019
Attention: Spencer G. Feldman, Esq.
Fax No.: (212) 451-2222
Email: sfeldman@olshanlaw.com
If to the Company:
Shuttle Pharmaceuticals Holdings, Inc.
One Research Court, Suite 450
Rockville, Maryland 20850
Attention: Anatoly Dritschilo, M.D., Chief Executive Officer
Fax No. (___) ___-____
Email: dritscha@georgetown.edu
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With a copy (which shall not constitute notice) to:
Michelman & Robinson LLP
800 Third Avenue, 24th Floor
New York, New York 10020
Attention: Megan J. Penick, Esq.
Fax No.: (212) 730-7725
Email: mpenick@mrllp.com
9.2. Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.
9.3. Amendment. This Agreement may only be amended by a written instrument executed by each of the parties hereto.
9.4. Entire Agreement. This Agreement (together with the other agreements and documents being delivered pursuant to or in connection with this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof. Notwithstanding anything to the contrary set forth herein, it is understood and agreed by the parties hereto that all other terms and conditions of that certain engagement letter between the Company and Representative dated as of November 10, 2021 shall remain in full force and effect.
9.5. Binding Effect. This Agreement shall inure solely to the benefit of and shall be binding upon the Representative, the Underwriters, the Company and the controlling persons, directors and officers referred to in Section 5 hereof, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. The term “successors and assigns” shall not include a purchaser, in its capacity as such, of securities from any of the Underwriters.
9.6. Governing Law; Consent to Jurisdiction; Trial by Jury. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to conflict of laws principles thereof. The Company hereby agrees that any action, proceeding or claim against it arising out of, or relating in any way to this Agreement shall be brought and enforced in the Los Angeles, California, or in the United States District Court located in Los Angeles, California, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum. Any such process or summons to be served upon the Company may be served by transmitting a copy thereof by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 9.1 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the Company in any action, proceeding or claim. The Company agrees that the prevailing party(ies) in any such action shall be entitled to recover from the other party(ies) all of its reasonable attorneys’ fees and expenses relating to such action or proceeding and/or incurred in connection with the preparation therefor. The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its shareholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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9.7. Execution in Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto. Delivery of a signed counterpart of this Agreement by facsimile or email/pdf transmission shall constitute valid and sufficient delivery thereof.
9.8. Waiver, etc. The failure of any of the parties hereto to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way effect the validity of this Agreement or any provision hereof or the right of any of the parties hereto to thereafter enforce each and every provision of this Agreement. No waiver of any breach, non-compliance or non-fulfillment of any of the provisions of this Agreement shall be effective unless set forth in a written instrument executed by the party or parties against whom or which enforcement of such waiver is sought; and no waiver of any such breach, non-compliance or non-fulfillment shall be construed or deemed to be a waiver of any other or subsequent breach, non-compliance or non-fulfillment.
[Signature Page Follows]
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If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours, | ||
SHUTTLE PHARMACEUTICALS HOLDINGS, INC. | ||
By: | ||
Name: | Anatoly Dritschilo, M.D. | |
Title: | Chief Executive Officer |
Confirmed as of the date first written above mentioned, on behalf of itself and as Representative of the several Underwriters named on Schedule 1 hereto:
BOUSTEAD SECURITIES, LLC | ||
By: | ||
Name: | Keith Moore | |
Title: | Chief Executive Officer |
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SCHEDULE 1
Underwriter | Total Number of Firm Units to be Purchased | |
Boustead Securities, LLC | ||
TOTAL |
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SCHEDULE 2-A
Pricing Information
Number of Firm Units: 1,660,000
Public Offering Price per Firm Unit: $_____
Underwriting Discount per Firm Unit: $____
Non-Accountable Expense Allowance per Firm Unit: $____
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SCHEDULE 2-B
Issuer General Use Free Writing Prospectuses
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SCHEDULE 2-C
Written Testing-the-Waters Communications
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EXHIBIT A
Form of Representative’s Warrant
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EXHIBIT B
Forms of Lock-Up Agreements
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Exhibit 4.2
Form of Note
THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
10% PROMISORRY NOTE
Issuance Date: ____________ __, 2022 | Original Principal Amount: $_____________ |
Note No. __ |
FOR VALUE RECEIVED, Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (“Shuttle Pharma” or the “Maker”), hereby promises to pay to the order of _________________________ (the “Subscriber”), or its registered assigns (together with the Subscriber, the “Holder”), the amount set out above as the Original Principal Amount, as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise (the “Principal”), when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, upon the Maturity Date in accordance with the terms hereof.
The Original Principal Amount is _________________________ Dollars ($__________). For purposes hereof, the term “Outstanding Balance” means the Original Principal Amount, , plus any accrued but unpaid interest, collection and enforcements costs, and any other fees or charges incurred under this Note.
This Note is being issued pursuant to the terms of a subscription agreement dated as of ____ __, 2022 between the Maker and the Subscriber and exhibits thereto (collectively, the “Transaction Documents”). Unless otherwise defined herein, all capitalized terms, when used in this Note, shall have the same meaning as they are defined in the Transaction Documents.
1. GENERAL TERMS
(a) Payment of Principal. Unless previously converted into shares of the common stock, $0.00001par value, of Shuttle Pharma or the common stock of any successor in interest to the Maker (each the “Common Stock”) as contemplated hereby, this Note, together with all accrued interest hereon at the Interest Rate, shall be due and payable on the earlier of the Company’s completion of its IPO (as defined below) or July 31, 2023 (the “Maturity Date”). In the event that within 12 months of the Issuance Date, the Maker shall not have consummated an initial public offering of its Common Stock and the listing or trading of its Common Stock on a “Qualified Securities Market”, as defined below (the “IPO”).
(b) Interest. Interest shall accrue from the Issuance Date on the Original Principal Amount or other outstanding Principal at an annual rate of ten percent (10%) (the “Interest Rate”) and all accrued interest shall be fully paid on the Maturity Date (or sooner as provided herein) to the Holder or its assignee in whose name this Note is registered on the records of the Maker regarding registration and transfers of Notes in cash.
2. EVENTS OF DEFAULT.
Whenever used herein, an “Event of Default” means the occurrence and continuation of any one of the following events, whatever the reason, and whether it shall be voluntary or involuntary, or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body:
(a) The Maker’s failure to pay to the Holder any amount of Principal, Interest, or other amounts when and as due under this Note; or
(b) A material breach by Shuttle Pharma of any material representation, warranty or covenant contained in the Transaction Documents or a material breach by Shuttle Pharma of any material representation, warranty or covenant contained in the Purchase Agreement, that, if capable of cure, is not cured within 30 days from the date such breach has occurred; or
(c) The Maker or any subsidiary of the Maker shall commence, or there shall be commenced against the Maker or any subsidiary of the Maker under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Maker or any subsidiary of the Maker commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Maker or any subsidiary of the Maker or there is commenced against the Maker or any subsidiary of the Maker any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of ninety-one (91) days; or the Maker or any subsidiary of the Maker is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Maker or any subsidiary of the Maker suffers any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of ninety-one (91) days; or the Maker or any subsidiary of the Maker makes a general assignment for the benefit of creditors; or the Maker or any subsidiary of the Maker shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Maker or any subsidiary of the Maker shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Maker or any subsidiary of the Maker shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Maker or any subsidiary of the Maker for the purpose of effecting any of the foregoing.
3. PREPAYMENT. This Note may be prepaid by Shuttle Pharma without penalty.
4. REISSUANCE OF THIS NOTE.
Upon receipt by the Maker of evidence reasonably satisfactory to the Maker of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Maker in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Maker shall execute and deliver to the Holder a new Note representing the outstanding Principal.
5. NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms shall be handled according to the Notice clause in the Subscription Agreement.
The addresses for such communications shall be:
If to the Maker:
Dr. Anatoly Dritschilo, CEO
Shuttle Pharmaceuticals Holdings, Inc.
One Research Court, Suite 450
Rockville, MD 20850
Email: [ ]@shuttlepharma.com
If to the Holder:
6. APPLICABLE LAW AND VENUE. This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of laws thereof. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in New York County, in the State of New York. Both parties and the individuals signing this Agreement agree to submit to the jurisdiction of such courts.
7. WAIVER. Any waiver by the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.
8. MISCELLANEOUS
(a) Lawful Money; Costs of Collection. All amounts payable hereunder are payable in lawful money of the United States. Shuttle Pharma agrees to pay all costs of collection when incurred, including reasonable attorneys’ fees and costs, whether or not a suit or action is instituted to enforce this Note, including but not limited to court costs, appraisal fees, the cost of searching records, obtaining title reports and title insurance and trustee’s fees, to the extent permitted by applicable law.
(b) No Offset; Holder in Due Course. All payments under this Note made by or on behalf of Shuttle Pharma shall be made without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state, or local taxes. Shuttle Pharma waives any right of offset it now has or may hereafter have against Agent or Holder and its successors and assigns as to this Note (but retains any such rights as to any other prior or future transaction between these parties), and agrees to make the payments called for hereunder in accordance with the terms hereof. The holder hereof and all successors thereof shall have all the rights of a holder in due course as provided in the Delaware Uniform Commercial Code and other laws of the State of Delaware.
(c) Waivers. Shuttle Pharma and any endorsers, guarantors or sureties hereof severally waive presentment and demand for payment, notice of intent to accelerate maturity, protest or notice of protest or non-payment, bringing of suit and diligence in taking any action to collect any sums owing hereunder or in proceeding against any of the rights and properties securing payment hereunder; expressly agree that this Note, or any payment hereunder, may be extended from time to time; and consent to the acceptance of further security or the release of any security for this Note, all without in any way affecting the liability of Shuttle Pharma and any endorsers or guarantors hereof. No extension of time for the payment of this Note, or any installment hereof, made by agreement by the holder hereof with any person now or hereafter liable for the payment of this Note, shall affect the original liability under this Note of Shuttle Pharma, even if Shuttle Pharma (or any entity comprising Shuttle Pharma) is not a party to such agreement.
(d) Usury Protection. The parties hereto intend to conform strictly to the applicable usury laws. In no event, regardless of any provisions contained therein or in any other document executed or delivered in connection herewith, shall the holder hereof ever be deemed to have contracted for or be entitled to receive, collect or apply as interest on this Note, any amount in excess of the maximum amount permitted by applicable law (the “Maximum Rate”). In no event, whether by reason of demand for payment, prepayment, acceleration of the maturity hereof or otherwise, shall the interest contracted for, charged or received by the holder hereunder or otherwise exceed the Maximum Rate. If for any circumstance whatsoever interest would otherwise be payable to the holder in excess of the maximum lawful amount, the interest payable to the holder shall be reduced automatically to the Maximum Rate and any payment received in excess of such amount shall be applied to the outstanding principal balance of the Note.
(e) Entire Agreement. This Note, the other Transaction Documents, and all other documents and instruments contemplated hereby and thereby together constitute the entire agreement between and among the parties pertaining to the subject matter hereof. No supplement, modification or amendment of this Note shall be binding unless executed in writing by the parties. No waiver shall be binding unless executed in writing by the party making the waiver. No provision of this Note shall be interpreted for or against the drafting party.
(f) Commercial Purpose. Shuttle Pharma agrees that no funds advanced under this Note shall be used for personal, family or household purposes, and that all funds advanced hereunder shall be used solely for business, commercial, investment or other similar purposes.
(g) Successors and Assigns. All the terms and provisions of this Note shall be binding upon and inure to the benefit of the parties to this Note and their respective successors and assigns.
(h) Assignment. Shuttle Pharma may not, voluntarily or involuntarily, directly or indirectly, by operation of law or otherwise, sell, transfer, assign, hypothecate, pledge or in any way alienate this Note or any right or interest in this Note (each a “Transfer”) without Holder’s prior written consent, which Holder may withhold in its sole and absolute discretion. Any consent by Holder to any Transfer shall not constitute consent to any other Transfer. Holder may freely Transfer its interest, rights, or title in or to this Note or the other Transaction Documents in Holder’s sole and absolute discretion.
(i) Construction. Whenever used in this Note, the terms “including,” “include,” “includes” and the like are not intended as terms of limitation, and, hence, shall be deemed to be followed by “without limitation.”
(j) Severability. If any provision of this Note, as applied to any party or to any circumstance, shall be found by a court of competent jurisdiction to be void, invalid or unenforceable, the same shall in no way affect any other provision of this Note, the application of any such provision in any other circumstance, or the validity or enforceability of this Note, and any provision which is found to be void, invalid or unenforceable shall be curtailed and limited only to the extent necessary to bring such provision within the requirements of the law.
(k) Survival of Terms. The terms and provisions of this Note shall survive the Maturity Date until full payment of all amounts due hereunder.
(l) Preferential Payment. If at any time any payment made pursuant to this Note is deemed to have been a voidable preference, fraudulent conveyance or other similar conveyance or preferential payment under any bankruptcy, insolvency or other debtor relief or similar law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return of this Note to Shuttle Pharma and shall not be discharged or satisfied with any such payment or cancellation. Such payment shall instead remain a valid and binding obligation enforceable in accordance with the terms of this Note and shall be immediately due and payable.
(m) Relief From Stay. As an additional inducement to and material consideration for Holder agreeing to execute this this Note and the other Transaction Documents, Shuttle Pharma agrees that in the event a Bankruptcy or Judicial Action (as hereinafter defined in this Section 8(n)) is commenced which subjects Holder to any stay in the exercise of Holder’s rights and remedies under this Note or the other Transaction Documents, including, but not limited to, the automatic stay imposed by Section 362 of the United States Bankruptcy Code (individually and collectively, “Stay”), then Shuttle Pharma irrevocably consents and agrees that such Stay shall automatically be lifted and released against Holder, and Holder shall thereafter be entitled to exercise all of its rights and remedies against Shuttle Pharma that is or could be subject any Stay under this Note or the other Transaction Documents. Nothing contained herein shall limit or prevent Holder from exercising all of its rights and remedies against Shuttle Pharma that is not the subject any Stay under this Note or the other Transaction Documents. Shuttle Pharma acknowledges that it is knowingly, voluntarily, and intentionally waiving its rights to any Stay and agrees that the benefits provided to Shuttle Pharma under the terms of this Note are valuable consideration for such waiver. As used in this Section 8(n), the term “Bankruptcy or Judicial Action” shall mean any voluntary or involuntary case filed by or against a Shuttle Pharma under the United States Bankruptcy Code, or any voluntary or involuntary petition in composition, readjustment, liquidation, or dissolution, or any state and federal bankruptcy law action filed by or against a Shuttle Pharma, any action where a Shuttle Pharma is adjudicated as bankrupt or insolvent, any action for dissolution of a Shuttle Pharma, or any action in furtherance of any of the foregoing, or any other action, case, or proceeding that has the effect of staying (or in which a stay is being obtained against) the enforcement by Holder of its rights and remedies under the this Note or the other Transaction Documents.
Except to enforce the terms of the Transaction Documents, Shuttle Pharma shall not take any action and shall not fail to take any action which such action or omission will or might tend to interfere with, delay, enjoin or otherwise prohibit the commencement, continuation or completion of efforts by Holder to enforce its remedies under this Note or the other Transaction Documents, or applicable law. Without limiting the generality of the foregoing and except to enforce the terms of the Transaction Documents, each Shuttle Pharma waives its, his, or her rights, if any, to seek or obtain a stay, injunction or other form of order prohibiting in any way any act necessary or appropriate for the commencement or completion of Holder’s enforcement of its remedies under the this Note or the other Transaction Documents, or applicable law (without limiting the generality of the foregoing, such waiver extends to such rights which may exist under any statute or rule relating to bankruptcy cases, including, without limitation, 11 U.S.C. § 105, 11 U.S.C. § 301, 11 U.S.C. § 302, 11 U.S.C. § 303, 11 U.S.C. § 304, 11 U.S.C. § 362, 11 U.S.C. § 348, 11 U.S.C. § 706, 28 U.S.C. § 157, 28 U.S.C. § 158, Federal Rule of bankruptcy Procedure (“FRBP”) 3007, FRBP 3008, FRBP 3012, FRBP 8005, FRBP 9023, FRBP 9024, or FRBP 9029).
9. AMENDMENT AND WAIVER OF RIGHTS. This Note may be amended and the observance of any term hereof may be waived (either generally or in a particular instance either retroactively or prospectively) only by a written instrument executed by the Maker and the Holder.
10. WAIVER OF RIGHT TO TRIAL BY JURY.
EACH PARTY TO THIS NOTE HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE, THE OTHER TRANSACTION DOCUMENTS, OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY. THE PARTIES HERETO HEREBY AGREE THAT THE PROVISIONS CONTAINED HEREIN HAVE BEEN FAIRLY NEGOTIATED ON AN ARM’S-LENGTH BASIS, WITH BOTH SIDES AGREEING TO THE SAME KNOWINGLY AND BEING AFFORDED THE OPPORTUNITY TO HAVE THEIR RESPECTIVE LEGAL COUNSEL CONSENT TO THE MATTERS CONTAINED HEREIN. ANY PARTY TO THIS NOTE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY AND THE AGREEMENTS CONTAINED HEREIN REGARDING THE APPLICATION OF JUDICIAL REFERENCE IN THE EVENT OF THE INVALIDITY OF SUCH JURY TRIAL WAIVER.
IN WITNESS WHEREOF, each of the Maker has caused this Note to be duly executed by a duly authorized officer as of the date set forth above.
Shuttle Pharmaceuticals Holdings, Inc. | ||
By: | ||
Name: | Dr. Anatoly Dritschilo | |
Title: | Chief Executive Officer |
Note No. [ ]
Exhibit 4.3
Form of Warrant
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
Warrant No. _____ | Issue Date: _________2022 |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, [ ] or any registered assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time following the Issue Date (the “Initial Exercise Date”) and on or prior to the close of business on ____________, 20271 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), up to [ ] shares of Common Stock (the “Warrant Shares”). The purchase price of one share of Common Stock under this Warrant shall be the lower of $2.50 per share or 50% of the per share purchase price of the Company’s initial public offering.
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Warrant, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Subscription Agreement entered into by the Company and the Holder of even day herewith and (b) the following terms shall have the following meanings:
“Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Common Stock” means the shares of common stock, $0.00001 par value per share, of the Company.
“Common Stock Equivalents” means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive Common Stock.
1 Five years from the Issue Date
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“Exercise Period” shall have the meaning as that term is defined in Section 2(a) below.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Trading Day” means a day on which the New York Stock Exchange is open for business.
“Trading Market” means the following markets or exchanges on which the Common Stock may be listed or quoted for trading on the date in question: the NYSE MKT, LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange.
“Transfer Agent” means VStock Transfer LLC.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date (the “Exercise Period”) by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed notice of exercise (“Notice of Exercise”) form attached hereto as Exhibit A(i); and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error.
b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $1.00.
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c) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. Certificates for shares purchased hereunder shall be transmitted by the Company’s transfer agent (the “Transfer Agent”) to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is then a participant in such system and either (A) there is an effective registration statement for its initial public offering registering the Warrants Shares, in which case the Holder will simultaneously exercise this Warrant upon the effectiveness of such registration statement, (B) there is a registration statement permitting the resale of the Warrant Shares by the Holder or (C) the shares are eligible for resale without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery of certificates to the address specified by the Holder in the Notice of Exercise within four (4) Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (the “Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, have been paid. .
ii. Delivery of Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
v. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the assignment form (“Assignment Form”) attached hereto as Exhibit A(ii) duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
vi. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any Warrant Shares issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Calculations. All calculations under this Section 4 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 4, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
c) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 4, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.
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Section 4. Transfer of Warrant.
a) | Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. | |
b) | Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 5(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto. |
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
c) No Rights as Shareholder Until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.
d) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
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e) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
f) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock one hundred (100%) of the number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. In case such amount of Common Stock is insufficient at any time, the Company shall call and hold a special meeting to increase the number of authorized shares of common stock. Management of the Company shall recommend to shareholders to vote in favor of increasing the number of authorized shares of common stock.
The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its amended and restated certificate of incorporation, as amended, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
g) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the laws of the State of Delaware.
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h) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.
i) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
j) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the addresses provided by the Holder of this Warrant.
k) Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
l) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
m) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
n) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
o) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
p) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
[Signature Page Follows.]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
SHUTTLE PHARMACEUTICALS HOLDINGS, INC. | ||
By: | ||
Name: | Anatoly Dritschilo | |
Title: | Chief Executive Officer |
EXHIBIT A(i)
NOTICE OF EXERCISE
TO:
(1) The undersigned hereby elects to purchase_________ Warrant Shares of the Company pursuant to the terms of the attached Warrant and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
____________________________________
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
____________________________________
____________________________________
____________________________________
(3) Accredited Investor. The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.
[SIGNATURE OF HOLDER]
Name of Investing Entity:
____________________________________________________
Signature of Authorized Signatory of Investing Entity:
____________________________________________________
Name of Authorized Signatory:
____________________________________________________
Title of Authorized Signatory:
____________________________________________________
Date:
____________________________________________________
EXHIBIT A(ii)
ASSIGNMENT FORM
(To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [_____] all of or [_____] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
______________________________________________________whose address is
______________________________________________________________________.
_________________________________________________________________
Dated:____________________ , _____ | ||
Holder’s Signature: | _______________________ | |
Holder’s Address: | _______________________ | |
_______________________ |
Signature Guaranteed:
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
Exhibit 4.4
COMMON STOCK PURCHASE WARRANT
SHUTTLE PHARMACEUTICALS HOLDINGS, INC.
Warrant Shares: _______ | Initial Exercise Date: [___], 2023 |
Issue Date: August [___], 2022 |
THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, _____________ or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on ______________1 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), up to ______ shares (as subject to adjustment hereunder, the “Warrant Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated August [___], 2022, by and among the Company and the purchasers signatory thereto.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto as Annex A (the “Notice of Exercise”). Within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(c)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
1 Insert the date that is the five year anniversary of the Issue Date, provided that, if such date is not a Trading Day, insert the immediately following Trading Day.
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b) Exercise Price. The exercise price per share of Common Stock under this Warrant shall be $0.01, subject to adjustment hereunder (the “Exercise Price”).
c) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder. Upon delivery of the Notice of Exercise, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price is received within the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”), the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the third Trading Day after the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Exercise.
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“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (“Bloomberg”) (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(c)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
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iv. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
v. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form annexed hereto as Annex B duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vi. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
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d) Holder’s Exercise Limitations. The Company shall not affect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or 9.99% at the election of the Purchaser) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(d) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
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b) Reserved.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company or any Subsidiary, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock or 50% or more of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires 50% or more of the outstanding shares of Common Stock or 50% or more of the voting power of the common equity of the Company (each a “Fundamental Transaction”), then, at the time of such Fundamental Transactoin, the Holder’s Warrant shall automatically be deemed exercised and such Holder will recieve the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(d) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s Board of Directors, the Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable contemplated Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the public announcement of the applicable contemplated Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(e) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Termination Date and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five Business Days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company (or any of its Subsidiaries) is a party, any sale or transfer of all or substantially all of its assets, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by email to the Holder at its last email address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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h) Voluntary Adjustment By Company. Subject to the rules and regulations of the Trading Market, the Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the board of directors of the Company.
Section 4. Transfer of Warrant.
a) Transferability. This Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
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c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Stockholder Until Exercise; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(c)(i), except as expressly set forth in Section 3. In no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
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Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
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h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
12 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
SHUTTLE PHARMACEUTICALS HOLDINGS, INC. | ||
By: | ||
Name: | Anatoly Dritschilo | |
Title: | Chief Executive Officer |
13 |
ANNEX A
NOTICE OF EXERCISE
To: SHUTTLE PHARMACEUTICALS
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of lawful money of the United States.
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE OF HOLDER]
Name of Investing Entity: ______________________________________________________________________
Signature of Authorized Signatory of Investing Entity: ________________________________________________
Name of Authorized Signatory: __________________________________________________________________
Title of Authorized Signatory: ___________________________________________________________________
Date: ______________________________________________________________________________________
ANNEX B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
Name: | |||
(Please Print) | |||
Address: | |||
(Please Print) | |||
Phone Number: | |||
Email Address: | |||
Dated: _______________ __, ______ | |||
Holder’s Signature: ___________________________ | |||
Holder’s Address: ____________________________ |
Exhibit 5.1
New York Office 800 Third Avenue, 24th Floor New York, NY 10022 P 212.730.7700 F 212.730.7725 www.mrllp.com |
August 18, 2022
Shuttle Pharmaceuticals Holdings, Inc.
One Research Court, Suite 450
Rockville, MD 20850
Re: | Shuttle Pharmaceuticals Holdings, Inc. | |
Registration Statement on Form S-1/A |
Ladies and Gentlemen:
We have acted as counsel to Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Company”), in connection with the Registration Statement on Form S-1 (Registration No. 333-265429), as amended (the “Registration Statement”), filed with the Securities and Exchange Commission (the “Commission”) for purposes of registering for sale under the Securities Act of 1933, as amended (the “Act”), of: (i) up to 1,660,000 units, with each unit consisting of one share of common stock, par value $0.0001 per share (the “Common Stock”), and one warrant to purchase one share of Common Stock at an exercise price of $0.01 per share (the Common Stock and the warrants together, the “Shares”), of the Company, which includes 249,000 units are subject to the underwriter’s over-allotment option (the “Over-allotment Option”), as described in the Registration Statement, (ii) up to 232,500 shares (the “Underwriter Shares”) of Common Stock underlying the underwriter’s warrants issuable in connection with the sale of the Shares, including any shares issuable in the event of the underwriter’s exercise of the Over-allotment Option, and (iii) the resale of an aggregate of 913,334 shares (the “Resale Shares”) of Common Stock which are being sold by certain selling stockholders.
This opinion letter is furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act and cannot be relied on for any other purpose.
In connection with this opinion letter, we have examined the Registration Statement and originals, or copies certified or otherwise identified to our satisfaction, of (i) the Certificate of Incorporation of the Company, as amended to date (the “Certificate of Incorporation”), (ii) the By-Laws of the Company, as amended to date (the “Bylaws”), (iii) certain resolutions of the Company’s board of directors (the “Board of Directors”) relating to the Registration Statement, and (iv) such other documents, records and other instruments as we have deemed appropriate for purposes of the opinions set forth herein.
We have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of the documents submitted to us as originals, the conformity with the originals of all documents submitted to us as certified, facsimile or photostatic copies, the authenticity of the originals of all documents submitted to us as copies and the persons identified as officers are actually serving as such and that any certificates representing the securities will be properly executed by one or more such persons. With respect to matters of fact relevant to our opinions as set forth below, we have relied upon certificates of officers of the Company, representations made by the Company in documents examined by us, and representations of officers of the Company. We have also obtained and relied upon such certificates and assurances from public officials as we have deemed necessary for the purposes of our opinions set forth below.
Los Angeles | Orange County | San Francisco | Dallas | Houston | Chicago | New York
Shuttle Pharmaceuticals Holdings, Inc.
August 18, 2022
Page 2
Based on the foregoing, we are of the opinion that (i) the Shares and the Underwriter Shares, when issued and sold by the Company, and delivered against payment in accordance with the manner described in the Registration Statement, will be validly issued, fully paid and non-assessable and (ii) the Resale Shares, are validly issued, fully paid and non-assessable; provided, however, with respect to the 943,334 shares to be sold by certain of the Selling Stockholders that will be issued upon the conversion of convertible notes or exercise of warrants prior to such sale, such shares will be validly issued, fully-paid and nonassessable upon such conversion of convertible notes or exercise of warrants pursuant to which such shares are to be issued prior to the completion of this offering.
We do not express any opinion herein concerning any law other than the General Corporation Law of the State of Delaware. We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to us under the caption “Legal Matters” in the Prospectus and to the references to us in the Registration Statement. In giving such consents, we do not hereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Commission thereunder.
Very truly yours, | |
/s/ Michelman & Robinson, LLP | |
MICHELMAN & ROBINSON, LLP |
Exhibit 10.32
AMENDMENT NO. 1 TO 7.5% PROMISSORY NOTE
ORIGINALLY DATED JUNE 21, 2021
WHEREAS, on June 21, 2021, Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Obligor”), issued a $120,000 promissory note (the “Note”), in favor of Joy Dritschilo (the “Payee”), bearing interest at the rate of 7.5% per annum; the Note was originally due June 30, 2022 (the “Maturity Date”); and
WHEREAS, the Obligor and the Payee, now wish to amend the terms of the Note to extend the Maturity Date by 12 months to June 30, 2023 (the “New Maturity Date”), to provide additional time for the Company to repay the Note and for the accrual of interest on the principal amount of the Note during such extension.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration the sufficiency of which is hereby acknowledged, the Obligor and the Payee hereby agree that the unpaid principal balance of the Note shall be due and payable on the New Maturity Date, along with any accrued interest through that date. All other terms and conditions of the Note shall remain unchanged.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Obligor and acknowledged by the Payee as of the 29th day of July 2022.
SHUTTLE PHARMACEUTICALS, INC. | ||
By: | /s/ Anatoly Dritschilo | |
Name: | Anatoly Dritschilo | |
Title: | Chief Executive Officer |
Acknowledged and Agreed: | |
/s/ Joy Dritschilo | |
Joy Dritschilo |
Exhibit 10.33
AMENDMENT NO. 2 7.5% PROMISSORY NOTE
ORIGINALLY DATED DECEMBER 1, 2020
WHEREAS, on December 1, 2020, Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Obligor”), issued a $424,035.65 unsecured promissory note (the “Note”), in favor of Joy Dritschilo (the “Payee”), bearing interest at the rate of 7.5% per annum; the Note was originally due December 31, 2021, and was amended to extend the maturity date to June 30, 2022 (the “Maturity Date”); and
WHEREAS, the Obligor and the Payee wish to further amend the terms of the Note to extend the Maturity Date by 12 months to June 30, 2023 (the “New Maturity Date”) to provide additional time for the Company to repay the Note and for the accrual of interest on the principal amount of the Note during such extension.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration the sufficiency of which is hereby acknowledged, the Obligor and the Payee hereby agree that the unpaid principal balance of the Note shall be due and payable on the New Maturity Date, along with any accrued interest through that date. All other terms and conditions of the Note shall remain unchanged.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Obligor and acknowledged by the Payee as of the 29th day of July 2022.
SHUTTLE PHARMACEUTICALS, INC. | ||
By: | /s/ Anatoly Dritscholo | |
Name: | Anatoly Dritschilo | |
Title: | Chief Executive Officer |
Acknowledged and Agreed: | |
/s/ Joy Dritschilo | |
Joy Dritschilo |
Exhibit 10.34
AMENDMENT NO. 2 TO 7.5% PROMISSORY NOTE
ORIGINALLY DATED DECEMBER 1, 2020
WHEREAS, on December 1, 2020, Shuttle Pharmaceuticals Holdings, Inc., a Delaware corporation (the “Obligor”), issued a $138,448.20 unsecured promissory note (the “Note”), in favor of Anatoly Dritschilo (the “Payee”), bearing interest at the rate of 7.5% per annum; the Note was originally due December 31, 2021, as amended to June 30, 2022 (the “Maturity Date”); and
WHEREAS, the Obligor and the Payee, now wish to amend the terms of the Note to extend the Maturity Date by 12 months to June 30, 2023 (the “New Maturity Date”), to provide additional time for the Company to repay the Note and for the accrual of interest on the principal amount of the Note during such extension.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration the sufficiency of which is hereby acknowledged, the Obligor and the Payee hereby agree that the unpaid principal balance of the Note shall be due and payable on the New Maturity Date, along with any accrued interest through that date. All other terms and conditions of the Note shall remain unchanged.
IN WITNESS WHEREOF, this Amendment has been duly executed by the Obligor and acknowledged by the Payee as of the 29th day of July 2022.
SHUTTLE PHARMACEUTICALS, INC. | ||
By: | /s/ Anatoly Dritschilo | |
Name: | Anatoly Dritschilo | |
Title: | Chief Executive Officer |
Acknowledged and Agreed: | |
/s/ Anatoly Dritschilo | |
Anatoly Dritschilo |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Shuttle Pharmaceuticals Holdings, Inc. Limited
We consent to the inclusion in the Amendment No. 3 to the Form S-1 Registration Statement of Shuttle Pharmaceuticals Holdings, Inc. (File No. 333-265429) of our report dated June 3, 2022 (except for the effects on the financial statements of the restatement described in Note 9, as to which the date is June 23, 2022), relating to our audit of the balance sheets as of December 31, 2021 and 2020, and statements of operations, stockholders’ equity and cash flows for the years ended December 31, 2021 and 2020.
We also consent to the reference to us under the caption “Experts” in the Registration Statement.
/s/ BF Borgers CPA PC
Certified Public Accountants
Lakewood, Colorado
August 18, 2022
Exhibit 107
Calculation of Filing Fee Tables
S-1
(Form Type)
Shuttle Pharmaceuticals Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered Securities
Security Type | Security Class Title | Fee Calculation or Carry Forward Rule | Amount Registered | Proposed Maximum Offering Price Per Share | Proposed Maximum Offering Price Per Share | Fee Rate | Amount of Registration Fee | |||||||||||||||||||||
Newly Registered Securities | ||||||||||||||||||||||||||||
Fees to Be Paid | Equity | Units, each consisting of one share of common stock, par value $0.00001 per share, and one Warrant | 457 | (o) | 1,660,000 | (1) | $ | 6.00 | $ | 9,960,000 | $92.70 per $1,000,000 | $ | 923.29 | |||||||||||||||
Fees to Be Paid | Equity | Shares of common stock, par value $0.00001 per share, included in the Units | 457 | (i) | - | - | (2 | ) | - | - | ||||||||||||||||||
Fees to Be Paid | Equity | Warrants included in the Units | 457 | (i) | - | - | (2 | ) | - | - | ||||||||||||||||||
Fees to Be Paid | Equity | Shares of common stock, par value $0.00001 per share, underlying the Warrants | 457 | (o) | 1,660,000 | (1) | $ | 6.00 | $ | 9,960,000 | $92.70 per $1,000,000 | $ | 923.29 | |||||||||||||||
Fees to be Paid | Equity | Shares of common stock, par value $0.00001 per share, registered for resale | 457 | (a) | 196,967 | (3) | $ | 6.00 | $ | 1,181,802 | $92.70 per $1,000,000 | $ | 109.55 | |||||||||||||||
Fees to be Paid | Equity | Resale Warrants | 457 | (g) | - | - | (4 | ) | - | - | ||||||||||||||||||
Fees to be Paid | Equity | Shares of common stock, par value $0.00001 per share, underlying the Resale Warrants | 457 | (g) | 196,967 | (3) | $ | 6.00 | $ | 1,181,802 | $92.70 per $1,000,000 | $ | 109.55 | |||||||||||||||
Fees to be Paid | Equity | Resale Warrants | 457 | (g) | - | - | (4 | ) | - | - | ||||||||||||||||||
Fees to be Paid | Equity | Shares of common stock, par value $.00001 per share, underlying the Resale Warrants | 457 | (g) | 520,000 | (3) | $ | 6.00 | $ | 3,120,000 | $92.70 per $1,000,000 | $ | 289.24 | |||||||||||||||
Fees to be Paid | Equity | Underwriter’s Warrants | 457 | (g) | - | - | (4 | ) | - | - | ||||||||||||||||||
Fees to be Paid | Equity | Shares of common stock, par value $0.00001 per share, underlying the Underwriter’s Warrants | 457 | (g) | 232,400 | (5) | $ | 6.00 | $ | 1,394,400 | $92.70 per $1,000,000 | $ | 129.26 | |||||||||||||||
Total Offering Amounts | $ | 26,798,004 | $ | 2,484.18 | ||||||||||||||||||||||||
Total Fees Previously Paid | $ | 1,710.96 | ||||||||||||||||||||||||||
Total Fee Offset | ||||||||||||||||||||||||||||
Net Fee Due | $ | 773.22 |
(1) | Pursuant to a primary offering at $6.00 per unit for 1,660,000 units with each unit consisting of (i) one share of common stock and (ii) one warrant to purchase one share of common stock. |
(2) | No additional registration fee is payable pursuant to Rule 457(i) under the Securities Act. |
(3) | Pursuant to a resale offering at a presumed offering price of $6.00 per share consisting of (i) 196,967 shares of common stock and warrants to purchase 196,967 shares of common stock, and (ii) warrants to purchase 520,000 shares of common stock, with 520,000 shares of common stock underlying the warrants. |
(4) | No additional registration fee is payable pursuant to Rule 457(g) under the Securities Act. |
(5) | The Registrant has agreed to issue, at the closing of this offering, shares of common stock to the representative of the underwriters a number of shares of common stock equal to seven percent (7%) of the aggregate number of units sold in the primary offering. |