Certain statements in this
Annual Report on Form 10-K (the “Form 10-K”), including statements under “Item 1-Business,” “Item
1A-Risk Factors” and “Item 3-Legal Proceedings” in PART I and “Item 7-Management’s Discussion and
Analysis of Financial Condition and Result of Operations” in PART II, constitute “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform
Act of 1995. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking
terminology such as “believes”, “expects”, “may”, “will”, “should”,
or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. These statements involve known and unknown risks, uncertainties and other important
factors that may cause our actual results, performance or achievements to be materially different from any future results, performances
or achievements expressed or implied by the forward-looking statements. We can give no assurances that any of the events anticipated
by the forward-looking statements will occur or, if any of them do, what impact they will have on our business, results of operations
and financial condition. New factors emerge from time to time, and it is not possible for us to predict which will arise. We cannot
assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking statements. All statements other than statements of historical
fact included in this Form 10-K regarding our financial position, business strategy and plans or objectives for future operations
are forward-looking statements.
Among the factors that
could cause actual results to differ materially from those indicated in the forward-looking statements are risks and uncertainties
inherent in our business including, without limitation: our ability to adequately fund our projects, the potential therapeutic
effect of our products, the possibility of obtaining regulatory approval, our ability to find senior co-development partners with
the capital and expertise needed to commercialize our products and to enter into arrangements with them on commercially reasonable
terms, our ability to manufacture and sell any products, our ability to enter into arrangements with third party vendors, market
acceptance of our products, our ability to earn a profit from sales or licenses of any drugs, our ability to discover new drugs
in the future, changing market conditions, changes in laws and regulations affecting our industry, and issues related to our New
Brunswick, New Jersey facility. We have disclosed that in February 2013, we received a Complete Response from the U.S. Food and
Drug Administration (the “FDA”) declining to approve our Ampligen® New Drug Application (“NDA”) for
Chronic Fatigue Syndrome Treatment, sometimes referred to as myalgic encephalomyelitis/chronic fatigue syndrome (“ME/CFS”),
stating that we should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number
of data analyses. Accordingly, the remaining steps to potentially gain FDA approval of the Ampligen® NDA, the final results
of these and other ongoing activities could vary materially from our expectations and could adversely affect the chances for approval
of the Ampligen® NDA. These activities and the ultimate outcomes are subject to a variety of risks and uncertainties, including
but not limited to risks that (i) the FDA may ask for additional data, information or studies to be completed or provided; and
(ii) the FDA may require additional work related to the commercial manufacturing process to be completed or may, in the course
of the inspection of manufacturing facilities, identify issues to be resolved. With regard to our NDA for Ampligen® to treat
ME/CFS, we noted above that there are additional steps which the FDA has advised Hemispherx to take in our seeking approval. The
final results of these and other ongoing activities, and of the FDA review, could vary materially from Hemispherx’ expectations
and could adversely affect the chances for approval of the Ampligen® NDA. Any failure to satisfy the FDA’s requirements
could significantly delay, or preclude outright, approval of our drugs for commercial sale in the United States.
On August 18, 2016, we
received approval of our New Drug Application (“NDA”) from Administracion Nacional de Medicamentos, Alimentos y Tecnologia
Medica (“ANMAT”) for commercial sale of rintatolimod (U.S. tradename: Ampligen®) in the Argentine Republic for
the treatment of severe ME/CFS. The product will be marketed by GP Pharm, our commercial partner in Latin America.
We believe that this approval
provides a platform for potential commercial sales in certain countries within the European Union under regulations that support
cross-border pharmaceutical sales of licensed drugs. We and GP Pharm are now working to expand the approval of rintatolimod to
additional countries with a focus on Latin America. In Europe, approval in a country with a stringent regulatory process in place,
such as Argentina, should add further validation for the product as the Early Access Program as discussed below and underway in
Europe. ANMAT approval is only an initial, but important, step in the overall successful commercialization of our product. There
are a number of actions that must occur before we could be able to commence commercial sales in Argentina. Commercialization in
Argentina will require, among other things, an appropriate reimbursement level, appropriate marketing strategies, completion of
manufacturing preparations for launch (including possible requirements for approval of final manufacturing), and there are no assurances
as to whether or when such multiple subsequent steps will be successfully performed to result in an overall successful commercialization
and product launch. Approval of rintatolimod for ME/CFS in the Argentine Republic does not in any way suggest that the Ampligen®
NDA in the United States will obtain commercial approval.
On May 24, 2016, we entered
into an amended and restated agreement with Impatients, N.V. (“Impatients”), a Netherlands based company doing business
as myTomorrows, for the commencement and management of an Early Access Program (“EAP”) in Europe and Turkey (the “Territory”)
related to ME/CFS. Pursuant to the agreement, Impatients, as our exclusive service provider and distributor in the Territory, is
performing EAP activities directed to (a) the education of physicians and patients regarding the possibility of early access to
innovative medical treatments not yet the subject of a Marketing Authorization (regulatory approval) through named-patient use,
compassionate use, expanded access and hospital exemption, (b) patient and physician outreach related to a patient-physician platform,
(c) the securing of Early Access Approvals (exemptions and/or waivers required by regulatory authorities for medical treatments
prior to Marketing Authorization) for the use of such treatments, (d) the distribution and sale of such treatments pursuant to
such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f) the collection of data such as patient-reported
outcomes, doctor-reported experiences and registry data. No assurance can be given that activities under the EAP will result in
Marketing Authorization or the sale of substantial amounts of Ampligen® in the Territory.
Our overall objectives
include plans to continue seeking approval for commercialization of Ampligen® in the United States and abroad as well as seeking
to broaden commercial therapeutic indications of Alferon N Injection® presently approved in the United States and Argentina.
We continue to pursue senior co-development partners with the capital and expertise needed to commercialize our products and to
enter into arrangements with them on commercially reasonable terms. In addition, we have formed collaborations with multiple research
laboratories around the world to examine Ampligen®, an experimental therapeutic, and Alferon® N, an FDA-approved commercial
product (for refractory venereal warts (HPV)) as potential preventatives for, and treatments of, Ebola Virus Disease (EVD) among
others. Our ability to commercialize our products, widen commercial therapeutic indications of Alferon N Injection® and/or
capitalize on our collaborations with research laboratories to examine our products as potential preventatives for, and treatments
of, MERS, among others, are subject to a number of significant risks and uncertainties including, but not limited to our ability
to enter into more definitive agreements with some of the research laboratories and others that we are collaborating with, to fund
and conduct additional testing and studies, whether or not such testing is successful or requires additional testing and meets
the requirements of the FDA and comparable foreign regulatory agencies. We do not know when, if ever, our products will be generally
available for commercial sale for any indication.
We outsource certain components
of our manufacturing, quality control, marketing and distribution while maintaining control over the entire process through our
quality assurance and regulatory groups. We cannot provide any guarantee that the facility or our contract manufacturer will necessarily
pass an FDA pre-approval inspection for Alferon® manufacture.
The production of new Alferon®
API inventory will not commence until the validation phase is complete. While the facility is approved by FDA under the Biological
License Application (“BLA”) for Alferon®, this status will need to be reaffirmed by a successful Pre-Approval Inspection
by the FDA prior to commercial sale of newly produced inventory product. The validation phase was delayed because of the damage
caused by the flood that occurred on January 5, 2016 at the facility. At this time, the Company believes that all repairs to the
manufacturing facility have been completed. If and when the Company obtains a reaffirmation of FDA BLA status and has begun production
of new Alferon® API, it will need FDA approval as to the quality and stability of the final product to allow commercial sales
to resume. We most likely will need additional funds to finance the revalidation process in our facility to initiate commercial
manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary FDA approvals
related to the manufacturing process and/or final product of new Alferon® inventory, our operations most likely will be materially
and/or adversely affected. In light of these contingencies, there can be no assurances that the approved Alferon N Injection®
product will be returned to production on a timely basis, if at all, or that if and when it is again made commercially available,
it will return to prior sales levels.
On March 15, 2016, we received
written notice from the NYSE MKT LLC that we were not in compliance with its continued listing standards because our common stock
had been selling for a low price per share for a substantial period of time. The NYSE MKT determined that the continued listing
of our common stock was predicated on our effecting a reverse stock split of our common stock. Our stockholders approved a reverse
stock split, our Board effected a 12-to-1 reverse stock split effective August 26, 2016 and our reverse split shares started trading
on August 29, 2016. On September 15, 2016, we received written notice from the NYSE MKT LLC that we were back in compliance with
the continued listing standards set forth in Section 1003(f)(v) of the NYSE MKT Company Guide referenced in the Exchange’s
letter dated March 15, 2016. The Company will be subject to NYSE Regulation’s normal continued listing monitoring. However,
in accordance with Section 1009(h) of the Company Guide, if the Company is again determined to be below any of the continued listing
standards within 12 months of the date of this letter, NYSE MKT will examine the relationship between the two incidents of noncompliance
and re-evaluate the Company’s financial recovery from the first incident. NYSE Regulation will then take appropriate action,
which depending on the circumstances, may include truncating the compliance procedures described in Section 1009 of the Company
Guide or immediately initiate delisting procedures.
We do not undertake and
specifically decline any obligation to publicly release the results of any revisions which may be made to any forward-looking statement
to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated
events.
PART I
ITEM 1. Business
GENERAL
Hemispherx Biopharma, Inc.
and its subsidiaries (collectively, “Hemispherx”, “Company”, “we” or “us”) are
a specialty pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new drug
therapies based on natural immune system enhancing technologies for the treatment of viral and immune based disorders. We were
first formed in 1966 and in the early 1970s were doing contract research for the National Institutes of Health. Since that time,
we have established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural
interferon and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic
products for the treatment of certain chronic diseases. We have two domestic subsidiaries BioPro Corp., and BioAegean Corp., all
of which are incorporated in Delaware and are dormant. Our foreign subsidiary is Hemispherx Biopharma Europe N.V./S.A. which was
established in Belgium in 1998.
On February 17, 2016, our
Board, by majority vote, terminated the employment of Dr. William Carter, our Chairman of the Board, Chief Executive Officer and
Chief Scientific Officer. As a result, Dr. Carter is also no longer a director. Dr. William Mitchell, one of our independent directors,
was appointed Chairman of the Board.
On February 19, 2016, our
Board also made several changes to our executive management team in light of the termination of Dr. Carter, to provide effective
and competent leadership that will properly position us to achieve our commercial goals and increase stockholder value. In this
regard, Adam Pascale was named Chief Financial Officer in addition to his current responsibilities as Chief Accounting Officer.
Mr. Pascale has been employed with us for 21 years, with more than two decades of public accounting experience and prior public
company experience. He earned a Bachelor of Arts degree in Accounting and Finance from Rutgers University. Mr. Pascale served for
several years as a CPA prior to joining the Company, and is a member of both the American and the Pennsylvania Institutes of Certified
Public Accountants. Mr. Thomas Equels, our Chief Executive Officer (“CEO”) and President, resigned as Chief Financial
Officer to make way for Mr. Pascale.
On February 25, 2016,
our Board appointed Thomas Equels, our current President, as our CEO. In that capacity, he is our principal executive officer.
On June 16, 2016, Iraj Kiani resigned as a member of our Board. On September 30, 2016, Mr. Peter Rodino resigned as a member of
our Board to permit him to serve us in a new capacity. In this regard, effective October 1, 2016, we retained Mr. Rodino as our
Executive Director for Governmental Relations and as our General Counsel. In these capacities, Mr. Rodino will handle all government
affairs and litigation matters on a going forward basis. Mr. Rodino was also appointed Secretary of the Company in November
2016.
On April 20, 2016, we executed
a consulting agreement with Huron Consulting Group, a global consultancy with decades of experience in the life sciences market,
and have continued to work with Huron to advance our strategic plan to capitalize on business opportunities in the United States
and in target countries around the world.
Our flagship products include
Alferon N Injection® and the experimental therapeutic Ampligen®. Alferon N Injection® is approved for a category of
STD infection, and Ampligen® represents an experimental RNA being developed for globally important viral diseases and disorders
of the immune system. Hemispherx’ platform technology includes components for potential treatment of various severely debilitating
and life threatening diseases. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
The chart below provides
an overview of clinical indications for both Ampligen® and Alferon® currently under development.
We own and operate a 30,000
sq. ft. facility in New Brunswick, NJ with the ability to produce Alferon® and Ampligen®, and completed the construction
of our $8 million facility enhancement project in 2015 which, upon FDA approval, should provide for a higher capacity, more cost
effective manufacturing process for the production of Alferon N Injection®. As part of our objectives to achieve our commercial
goals and increase stockholder value, we are in the process of selling an underutilized building adjacent to our New Jersey manufacturing
facility site. We do not believe that the sale of this building will have an impact on the production of our products. We also
are exploring the possibility of mortgaging our facility or selling it if we can obtain a long term lease back on the facility
on acceptable terms. Please see “Manufacturing” section below.
On February 1, 2013, we
received a Complete Response Letter (“CRL”) from the FDA declining to approve our NDA for Ampligen® for Chronic
Fatigue Syndrome (“CFS”). Please see the discussion in “Our Products - Ampligen®” below for more detail.
We have taken significant
actions to focus on our business and management and reserve capital so the Company can better achieve its commercial goals, including,
but not limited to, a strict anti-nepotism policy, listing for sale underutilized assets, aggressively pursuing international sales
of clinical grade materials, and implementing a strong financial austerity plan. We are committed to a focused business plan oriented
toward finding senior co-development partners with the capital and expertise needed to commercialize the many potential therapeutic
aspects of our experimental drugs and our approved drug Alferon® N.
Our principal executive
office is located at One Penn Center, 1617 JFK Boulevard, Philadelphia, Pennsylvania 19103, and our telephone number is 215-988-0080.
AVAILABLE INFORMATION
We file our annual reports
on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange
Act electronically with the Securities and Exchange Commission, or SEC. The public may read or copy any materials we file with
the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address
of that site is http://www.sec.gov.
You may obtain a free copy
of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports
on the day of filing with the SEC on our website on the World Wide Web at http://www.hemispherx.net under the Investor Relations
tab for SEC Filings or by contacting the Investor Relations Department by calling 888-557-6480 or sending an e-mail message to
ir@hemispherx.net.
OUR PRODUCTS
Our primary pharmaceutical
product platform consists of our experimental compound, Ampligen®, our FDA approved natural interferon product, Alferon N Injection®,
and our experimental liquid natural interferon for oral administration, Alferon® LDO (Low Dose Oral).
Ampligen®
Ampligen® is approved
for sale in Argentina and is an experimental drug currently undergoing clinical development for the treatment of CFS in the United
States of America. As noted above and discussed below, the FDA in its Complete Response Letter (“CRL”) declined to
approve our NDA for the treatment of CFS with Ampligen®. Over its developmental history, Ampligen® has received various
designations, including Orphan Drug Product Designation (FDA), Treatment protocol (e.g., “Expanded Access” or “Compassionate”
use authorization) with Cost Recovery Authorization (FDA) and “promising” clinical outcome recognition based on the
evaluation of certain summary clinical reports (“AHRQ” or Agency for Healthcare Research and Quality). Ampligen®
represents the first drug in the class of large (macromolecular) RNA (nucleic acid) molecules to apply for NDA review. Based on
the results of published, peer reviewed pre-clinical studies and clinical trials, we believe that Ampligen® may have broad-spectrum
anti-viral and anti-cancer properties.
We believe that nucleic
acid compounds represent a potential new class of pharmaceutical products as they are designed to act at the molecular level for
treatment of human diseases. There are two forms of nucleic acids, DNA and RNA. DNA is a group of naturally occurring molecules
found in chromosomes, the cell’s genetic machinery. RNA is a group of naturally occurring informational molecules which orchestrate
a cell’s behavior which, in turn, regulates the action of groups of cells, including the cells which compromise the body’s
immune system. RNA directs the production of proteins and regulates certain cell activities including the activation of an otherwise
dormant cellular defense against viruses and tumors. Our drug technology utilizes specifically-configured RNA. Our double-stranded
RNA drug product, trademarked Ampligen®, is an experimental, unapproved drug, that would be administered intravenously. Ampligen®
has been assigned the generic name rintatolimod by the United States Adopted Names Council (USANC) and has the chemical designation
poly(I):poly(C
12
U).
Clinical trials of Ampligen®
already conducted by us include studies of the potential treatment of CFS, Hepatitis B, HIV and cancer patients with renal cell
carcinoma and malignant melanoma. All of these potential uses will require additional clinical trials to generate the safety and
effectiveness data necessary to support regulatory approval.
On February 1, 2013, we
received a CRL from the FDA declining to approve our New Drug Application (“NDA”) for Ampligen® for CFS. In its
CRL, the FDA communicated that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies
and perform a number of data analyses. The additional clinical study should address, among other things, Ampligen®’s
efficacy in treating CFS patients, be of sufficient size and duration to assess the safety of Ampligen® and be sufficient to
determine appropriate dosing. The FDA set forth the reasons for this action and provided recommendations to address certain outstanding
issues. The FDA stated that the submitted data does not provide substantial evidence of efficacy of Ampligen® for the treatment
of CFS and that the data does not provide sufficient information to determine whether the product is safe for use in CFS due to
the limited size of the safety database and multiple discrepancies within the submitted data. In addition to the safety and effectiveness
issues recommended to be addressed in at least one additional clinical trial, the CRL states that Hemispherx should conduct complete
rodent carcinogenicity studies in two species prior to approval and also conduct additional animal toxicology studies providing
more comprehensive evaluation of Ampligen® fragments and degradation products. The CRL also requests evaluation of variation
between lots of Ampligen® tested in the development process and recommends tighter control of the Ampligen® manufacturing
process.
In response to the CRL,
we continue to plan to avail ourselves of the opportunity for an “end-of-review” meeting with representatives of the
Office of Drug Evaluation II which issued the CRL, in order to clarify and seek to narrow the outstanding issues regarding the
further development of Ampligen® for the treatment of CFS.
FDA regulations provide
a formal dispute resolution process to obtain review of any FDA decision, including a decision not to approve an NDA, by raising
the matter with the supervisor of the FDA office that made the decision. The formal dispute resolution process exists to encourage
open, prompt discussion of scientific (including medical) disputes and procedural (including administrative) disputes that arise
during the drug development, new drug review, and post-marketing oversight processes of the FDA. Depending on the outcome of a
number of initiatives in the CFS community, including the FDA’s Patient Focused Drug Development Initiatives, forthcoming
drug guidance and other scientific initiatives by the Institute of Medicine, Center for Disease Control and National Institute
of Health, we will continue to examine the opportunity for an “end-of-review” meeting. Depending on the results of
these initiatives, we may request an “end-of-review” conference with the FDA as a precursor to a possible submission
of a formal appeal to the Office of New Drugs within the FDA’s Center for Drug Evaluation and Research regarding the FDA’s
decision. Please see “
Risks Associated with Our Business
” in Part I; Item 1A. Risk Factors below.
Until we undertake the
end-of-review conference(s), or otherwise reach an agreement with the FDA regarding the design of a confirmatory study, we are
unable to reasonably estimate the nature, costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any
additional clinical study or studies. Utilizing the industry norms for undertaking a Phase III clinical study, we estimate upon
acceptance of the study’s design that it would take approximately 18 months to three years to complete a new well-controlled
Ampligen® clinical study for resubmission to the FDA. Industry norms suggest that it will require three to six months to initiate
the study, one to two years to accrue and test patients, three to six months to close-out the study and file the necessary documents
with the FDA. The actual duration to complete the clinical study may be different based on the length of time it takes to design
the study and obtain FDA’s acceptance of the design, the final design of an acceptable Phase III clinical study, availability
of suitable participants and clinical sites along with other factors that could impact the implementation of the study, analysis
of results or requirements of the FDA and/or other governmental organizations. We anticipate that the time and cost to undertake
clinical trial(s), studies and data analysis are beyond our current financial resources without gaining access to additional funding.
Please see “Part I; Item 1A, Risk Factors: “
We may require additional financing which may not be available
.”
In May 1997, the FDA authorized
an open-label treatment protocol, (“AMP-511”), allowing patient access to Ampligen® for treatment in an open-label
safety study under which severely debilitated CFS patients have the opportunity to be on Ampligen® to treat this very serious
and chronic condition. The data collected from the AMP-511 protocol through a consortium group of clinical sites provide safety
information regarding the use of Ampligen® in patients with CFS. As of December 31, 2016, there were 27 patients participating
in this open-label treatment protocol taking treatment. We are establishing an enlarged data base of clinical safety information
which we believe will provide further documentation regarding the absence of autoimmune disease associated with Ampligen® treatment.
We believe that continued efforts to understand existing data, and to advance the development of new data and information, will
ultimately support our future filings for Ampligen® and/or the design of future clinical studies. In 1997, we calculated the
cost per dose (400mg) of Ampligen® to be $150 per dose consistent with the regulatory guidelines; however, we recently engaged
an independent certified public accountant to recalculate the cost per dose consistent with the current guidelines, utilizing the
costs to produce a vial in 2015. The independent analysis disclosed a cost per 200 mg dose of Ampligen® of $200 per vial. In
October 2016, the FDA granted our request to implement the new cost.
On July 12, 2012, we filed
a new drug application for Ampligen® with the ANMAT (Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica),
the agency responsible for the national regulation of drugs, foods and medical technology in Argentina, under the ANMAT’s
Orphan Drug regulations. We believe that the approval of Ampligen® as an Orphan Drug may allow reimbursement by the Health
Services Authority (SSS), the central health authority in Argentina for patients seeking treatment for CFS. On August 18, 2016,
we received approval of our New Drug Application (“NDA”) from ANMAT for commercial sale of rintatolimod (U.S. tradename:
Ampligen®) in the Argentine Republic for the treatment of severe myalgic encephalomyelitis/chronic fatigue syndrome (“ME/CFS”).
The product will be marketed by GP Pharm, our commercial partner in Latin America.
On January 11, 2017, we
announced that the rintatolimod European Early Access Program (“EAP”) through our agreement with Impatients designed
to enable access of Ampligen® to ME/CFS patients has been extended to pancreatic cancer patients beginning in the Netherlands.
Impatients, doing business as MyTomorrows, is our exclusive service provider in Europe and Turkey and will manage all EAP activities
relating to the pancreatic cancer extension of the program. A competent authority in the Netherlands has recently approved
50 patients for treatment in the EAP for pancreatic cancer including a funding mechanism to remunerate us for the use of Ampligen®
in the program.
Alferon N Injection®
Alferon N Injection®
is the registered trademark for our injectable formulation of natural alpha interferon, which was approved by the FDA in 1989 for
the treatment of certain categories of genital warts. Alferon® is the only natural-source, multi-species alpha interferon currently
approved for sale in the U.S. for the intralesional (within lesions) treatment of refractory (resistant to other treatment) or
recurring external genital warts in patients 18 years of age or older. Certain types of human papilloma viruses (“HPV”)
cause genital warts, a sexually transmitted disease (“STD”). The U.S. Centers for Disease Control and Prevention (“CDC”)
estimates that “
approximately twenty million Americans are currently infected with HPV with another six million becoming
newly infected each year. HPV is so common that at least 50% of sexually active men and women get it at some point in their lives.
”
Although they do not usually result in death, genital warts commonly recur, causing significant morbidity and entail substantial
health care costs.
Interferons are a group
of proteins produced and secreted by cells to combat diseases. Researchers have identified four major classes of human interferon:
alpha, beta, gamma and omega. Alferon® N Injection® contains a multi-species form of alpha interferon. The world-wide market
for injectable alpha interferon-based products has experienced rapid growth and various alpha interferon injectable products are
approved for many major medical uses worldwide. Alpha interferons are manufactured commercially in three ways: by genetic engineering,
by cell culture, and from human white blood cells. All three of these types of alpha interferon are or were approved for commercial
sale in the U.S. Our natural alpha interferon is produced from human white blood cells.
The potential advantages
of natural alpha interferon over recombinant (synthetic) interferon produced and marketed by other pharmaceutical firms may be
based upon their respective molecular compositions. Natural alpha interferon is composed of a family of proteins containing many
molecular species of interferon. In contrast, commercial recombinant alpha interferon products each contain only a single species.
Researchers have reported that the various species of interferons may have differing antiviral activity depending upon the type
of virus. Natural alpha interferon presents a broad complement of species, which we believe may account for its higher activity
in laboratory studies. Natural alpha interferon is also glycosylated (partially covered with sugar molecules). Such glycosylation
is not present on the currently U.S. marketed recombinant alpha interferons. We believe that the absence of glycosylation may be,
in part, responsible for the production of interferon-neutralizing antibodies seen in patients treated with recombinant alpha interferon.
Although cell culture-derived interferon is also composed of multiple glycosylated alpha interferon species, the types and relative
quantity of these species are different from our natural alpha interferon.
Alferon N Injection®
[Interferon alfa-n3 (human leukocyte derived)] is a highly purified, natural-source, glycosylated, multi-species alpha interferon
product. There are essentially no neutralizing antibodies observed against Alferon N Injection® to date and the product has
a relatively low side-effect profile. The recombinant DNA derived alpha interferon formulations have been reported to have decreased
effectiveness after one year, probably due to neutralizing antibody formation.
See “Manufacturing”
and “Marketing/Distribution” sections below for more details on the manufacture and marketing/distribution of Alferon
N Injection®.
Alferon® LDO (Low
Dose Oral)
Alferon® LDO [Low Dose
Oral Interferon Alfa-n3 (Human Leukocyte Derived)] is an experimental low-dose, oral liquid formulation of natural alpha interferon
and like Alferon® N Injection®, should not cause antibody formation, which is a problem with recombinant interferon. It
is an experimental immunotherapeutic believed to work by stimulating an immune cascade response in the cells of the mouth and throat,
enabling it to bolster systemic immune response through the body by absorption through the oral mucosa. Oral interferon could be
economically feasible for patients and logistically manageable globally for development programs for prevention and, or treatment
of pandemic influenza, seasonal influenza and other emerging viruses. Oral administration of Alferon® LDO, with its anticipated
affordability, low toxicity, no production of antibodies, and broad range of potential bioactivity, could be a breakthrough treatment
or preventative for viral diseases.
Hemispherx currently has
an FDA authorized protocol to conduct a Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study
of Alferon® LDO for the prophylaxis and treatment of seasonal influenza of more than 200 subjects. Our Phase II study has continued
to be delayed.
HISTORICAL COSTS RELATED TO OUR PRODUCTS
The following table sets
forth the costs related to our major products for each of the prior three years. Our aggregate expenses from the time that we first
started developing nucleic acid pharmaceutical technology in the mid 1980’s through March 2003 were substantially related
to the development of Ampligen®, and from that date through the current period were substantially related to Ampligen®
and Alferon®.
|
|
(dollars in thousands)
Year Ended December 31, 2016
|
|
|
|
|
Ampligen® NDA
|
|
|
|
Alferon N Injection®
|
|
|
|
Alferon® LDO
|
|
|
|
Other
|
|
|
|
Total
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
$
|
—
|
|
|
$
|
1,108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,108
|
|
Research and development
|
|
|
4,368
|
|
|
|
739
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,107
|
|
General and administrative
|
|
|
5,628
|
|
|
|
2,053
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,996
|
|
|
$
|
3,900
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,896
|
|
|
|
(dollars in thousands)
Year Ended December 31, 2015
|
|
|
|
|
Ampligen® NDA
|
|
|
|
Alferon N Injection®
|
|
|
|
Alferon® LDO
|
|
|
|
Other
|
|
|
|
Total
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
$
|
—
|
|
|
$
|
1,598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,598
|
|
Research and development
|
|
|
3,452
|
|
|
|
4,586
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,038
|
|
General and administrative
|
|
|
2,560
|
|
|
|
4,587
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,012
|
|
|
$
|
10,771
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,783
|
|
|
|
(dollars in thousands)
Year Ended December 31, 2014
|
|
|
|
Ampligen® NDA
|
|
|
Alferon N Injection®
|
|
|
Alferon®
LDO
|
|
|
Other
|
|
|
Total
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs
|
|
$
|
—
|
|
|
$
|
1,251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,251
|
|
Research and development
|
|
|
4,561
|
|
|
|
4,427
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,988
|
|
General and administrative
|
|
|
4,035
|
|
|
|
5,022
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,596
|
|
|
$
|
10,700
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,296
|
|
PATENTS AND NON-PATENT EXCLUSIVITY RIGHTS
As of December 31, 2016,
we had 50 patents worldwide with 8 additional pending patent applications comprising our intellectual property. Please see “Note
5: Patents, Trademark Rights and Other Intangibles (FASB ASC 350 General Intangibles Other than Goodwill)” under Notes to
Consolidated Financial Statements for more information on these patents.
We continually review our
patents’ rights to determine whether they have continuing value. Such review includes an analysis of the patent’s ultimate
revenue and profitability potential. In addition, Management’s review addresses whether each patent continues to fit into
our strategic business plans for Ampligen®, Alferon N Injection® and Alferon® LDO. One U.S. patent relating to our
Alferon® product expired on April 2, 2013 (#5,503,828) and another on October 14, 2014 (#5,676,942) (see discussion below on
patent #5,503,828 and #5,676,942).
In 2016, we received a
new Ampligen® composition of matter patent in the US (9,315,528 B2) and we received twenty-eight new patents in various EU
countries. In 2015, we were granted a new composition of matter patent (#2340307) by the European Patent Office. In 2014, we were
granted a new composition of matter patent in the United States (#8,722,874) covering Ampligen® formulations.
Alferon® composition
patent #5,503,828 which expired in April 2013, related to the manufacturing process for Alferon® Active Pharmaceutical Ingredient
(“API”), a complex mixture of natural interferon species that is manufactured from human leukocytes obtained from human
blood donors. In addition, while it is the current standard by the FDA to treat biological drug products like interferon as “Well
Characterized” biologics, a process for which chemical entities can have their identity, purity, impurities, potency, and
quality controlled by chemical testing, Alferon®, as a natural interferon, does not lend itself well to such testing. Moreover,
FDA continues to require that each lot of Alferon® we produce be tested and released by the FDA before it can be distributed
for commercial sales. Because of the complexity of the Alferon® manufacturing process and these additional regulatory requirements,
we believe that potential manufacturers of generic, or so-called “bio-similar,” drug products are focused on developing
recombinant interferon products, rather than natural interferon products. For these reasons, we believe the expiration of this
Alferon® composition patent in April 2013 should have no or little impact on the Company. Additionally, at the receipt of the
FDA certification for the revised Alferon® manufacturing process and techniques in New Brunswick, NJ, it is our intention to
file for additional patent protection.
Alferon® patent #5,676,942
which expired on October 14, 2014 and Alferon® patent #5,989,441 which was set to expire on December 22, 2017, but was allowed
to lapse beforehand, related to a manufacturing methodology which is no longer in use. For this reason, we believe the expiration
of these Alferon® patents should have no impact on the Company.
With respect to Ampligen®,
the main U.S. CFS treatment patent (#6,130,206) expires October 10, 2017 (we believe that the expiration of this patent will have
minimal impact on us; see detail on U.S. 8,722,874 below). Our main patents covering HIV treatment (#4,820,696, #5,063,209, and
#5,091,374) expired on April 11, 2006, November 5, 2008, and February 25, 2009, respectively. Our U.S. Ampligen® Trademark
(#73/617,687) has been renewed through December 6, 2018. New therapeutic use patent applications are pending. On May 13, 2014,
the United States Patent Office issued patent U.S. 8,722,874 titled “
Double-Stranded Ribonucleic Acids with Rugged Physiochemical
Structure and Highly Specific Biologic Activity
” to inventors Carter, et al. and assignee Hemispherx. The patent claims
a novel form of rugged dsRNA. Rugged dsRNA are nucleic acids with a unique composition and physical characteristic identified with
high specificity of binding to Toll-Like Receptor 3 (TLR3), thereby conveying an important range of therapeutic opportunities.
The newly discovered form of dsRNA has increased bioactivity and binding affinity to the TLR 3 receptor because of its reduced
tendency to form branched dsRNA which can inhibit receptor binding. Pharmaceutical formulations containing the newly discovered
nucleic acid as active ingredients, and methods of treatment with those formulations are also described in the issued patent. Hemispherx
believes that the issuance of U.S. Patent 8,722,874 will help ensure that Hemispherx retains patent protection for novel formulations
of Ampligen® products until at least 2029.
In September 2015, the
European Patent Office granted the European version of U.S. Patent 8,722,874 with the same title as shown above to inventors Carter,
et al. and assignee Hemispherx.
In addition to our patent
rights relating to Ampligen®, the FDA has granted “orphan drug status” to the drug for CFS, HIV/AIDS, renal cell
carcinoma and malignant melanoma. Orphan drug status grants us protection against the potential subsequent approval of other sponsors’
versions of the drug for these uses for a period of seven years following FDA approval of Ampligen® for each of these designated
uses. The first NDA approval for Ampligen® as a new chemical entity will also qualify for four or five years of non-patent
exclusivity during which abbreviated new drug applications seeking approval to market generic versions of the drug cannot be submitted
to the FDA. (See “Government Regulation” below.)
In May 2011, a new United
States Patent was granted for the use of Ampligen® as a vaccine adjuvant for use with seasonal influenza vaccine to induce
an enhanced immune response against H5N1 avian influenza.
RESEARCH AND DEVELOPMENT (“R&D”)
Our general focus during
the past three fiscal years has been on the clinical development of new drug therapies based on natural immune system enhancing
technologies for the treatment of viral and immune based disorders.
The following table summarizes
our research and development costs for the years 2016, 2015 and 2014 by project (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Ampligen® New Drug Application for the treatment of CFS
|
|
$
|
4,368
|
|
|
$
|
3,452
|
|
|
$
|
4,561
|
|
Alferon® LDO
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Alferon N Injection®
|
|
|
739
|
|
|
|
4,586
|
|
|
|
4,427
|
|
Other projects
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total research and development
|
|
$
|
5,107
|
|
|
$
|
8,038
|
|
|
$
|
8,988
|
|
Due to the inherent uncertainty
involved in the design and conduct of clinical trials and the applicable regulatory requirements, including the factors discussed
above in “OUR PRODUCTS”, we cannot predict what additional studies and/or additional testing or information may be
required by the FDA. Accordingly, we are unable to estimate the nature, timing, costs and necessary efforts to complete these projects
nor the anticipated completion dates. In addition, we have no basis for estimating when material net cash inflows may commence.
We have yet to generate significant revenues from the sale of these developmental products. As of December 31, 2016, we had approximately
$5,868,000 in Cash, Cash Equivalents and Marketable Securities, (inclusive of approximately $3,460,000 in Marketable Securities).
Please see ITEM 1A. Risk Factors; “
We may require additional financing which may not be available
” below.
In its CRL, the FDA communicated
that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number
of data analysis. Until we undertake the end-of-review conference(s) with the FDA, we are unable to reasonably estimate the nature,
costs, necessary efforts to obtain FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing
the industry norms for undertaking a Phase III clinical study, we estimate upon acceptance of the study’s design that it
would take approximately 18 months to three years to complete a new well-controlled Ampligen® clinical study for resubmission
to the FDA. It can be reasonably anticipated that the time and cost to undertake clinical trial(s), studies and data analysis are
beyond our current financial resources without gaining access to additional funding. The actual duration to complete the clinical
study may be different based on the length of time it takes to design the study and obtain FDA’s acceptance of the design,
the final design of an acceptable Phase III clinical study design, availability of suitable participants and clinical sites along
with other factors that could impact the implementation of the study, analysis of results or requirements of the FDA and/or other
governmental organizations. Please see “
We most likely will require additional financing which may not be available.
”
in Item 1A. Risk Factors below.
Chronic Fatigue Syndrome
(“CFS”)
Chronic Fatigue Syndrome
(“CFS”), also known as Chronic Fatigue Immune Dysfunction Syndrome (“CFIDS”) and Myalgic Encephalomyelitis
(“ME”), is a serious and debilitating chronic illness and a major public health problem. CFS is recognized by both
the government and private sector as a significant unmet medical need, including the U.S. National Institutes of Health (“NIH”),
FDA and the CDC. The CDC states on its website at
http://www.cdc.gov/cfs/index.html
that “
Chronic fatigue syndrome,
or CFS, is a devastating and complex disorder characterized by overwhelming fatigue that is not improved by bed rest and that may
be worsened by physical or mental activity. People with CFS most often function at a significantly lower level of activity than
they were capable of before the onset of illness.
”
Many severe CFS patients
become completely disabled or totally bedridden and are afflicted with severe pain and mental confusion even at rest. CFS is characterized
by incapacitating fatigue with profound exhaustion and extremely poor stamina, sleep difficulties and problems with concentration
and short-term memory. It is also accompanied by flu-like symptoms, pain in the joints and muscles, tender lymph nodes, sore throat
and new headaches. A distinctive characteristic of the illness is a worsening of symptoms following physical or mental exertion,
which do not subside with rest.
For their Case Definition,
the CDC states that the cause or causes of CFS have not been identified and no specific diagnostic tests are available. Therefore,
in order to be diagnosed with chronic fatigue syndrome, a patient must satisfy three criteria:
|
1.
|
The individual has had severe chronic fatigue for six or more consecutive months that is not due to ongoing exertion or other medical conditions associated with fatigue (these other conditions need to be ruled out by a doctor after diagnostic tests have been conducted);
|
|
|
|
|
2.
|
The fatigue significantly interferes with daily activities and work; and
|
|
|
|
|
3.
|
The individual concurrently has four or more of the following eight symptoms:
|
|
●
|
post-exertion malaise lasting more than twenty-four hour;
|
|
|
|
|
●
|
unrefreshing sleep;
|
|
|
|
|
●
|
significant impairment of short-term memory or concentration;
|
|
|
|
|
●
|
muscle pain;
|
|
|
|
|
●
|
pain in the joints without swelling or redness;
|
|
|
|
|
●
|
headaches of a new type, pattern, or severity;
|
|
|
|
|
●
|
tender lymph nodes in the neck or armpit; or
|
|
|
|
|
●
|
a sore throat that is frequent or recurring.
|
These symptoms should have
persisted or recurred during six or more consecutive months of illness and they cannot have first appeared before the fatigue.
CFS is a diagnosis of exclusion. Because no cause for CFS has been identified, current treatment programs are directed at relieving
symptoms, with the goal of the patient regaining some level of function and well-being.
While CFS strikes people
in all age, racial, ethnic, and socioeconomic groups, it is most prevalent amongst women. Research has shown that CFS is about
three times as common in women as men, a rate similar to that of many autoimmune diseases, such as multiple sclerosis and lupus.
In June 2012
,
U.S.
Senators Robert P. Casey, Richard Blumenthal and Kay R. Hagan sent a letter to Health and Human Services Secretary Kathleen Sebelius
requesting the FDA hold a stakeholders meeting on CFS. Senators Casey and Hagan serve on the Committee on Health, Education, Labor
& Pensions, which has Congressional oversight responsibility for FDA. The letter stated, “
CFS/ME represents a significant
unmet medical need, one that confers on patients a lifetime of illness. A stakeholder meeting would be of great benefit, as it
would offer an opportunity to examine existing treatment protocols known to FDA, address how risk/benefit determinations should
be made in relation to CFS/ME treatments and identify a path forward for regulatory science in this area
.”
In April 2013, the FDA
selected CFS to be the first disease in a series of meetings called Patient Focused Drug Development meetings. The two-day meeting
with key stakeholders resulted in a report called
The Voice of the Patient
, published in September of 2013. In March 2014,
FDA published the first ever Guidance for Industry Chronic Fatigue Syndrome/Myalgic Encephalomyelitis: Developing Drug Products
for Treatment.
In February 2015, the Institute
of Medicine (IOM) published a report, Beyond Myalgic Encephalomyelitis/Chronic Fatigue Syndrome; Redefining an Illness. The committee
was charged by HHS with evaluating the current criteria for the diagnosis of ME/CFS and recommend clinical diagnostic criteria
that would address the needs of health care providers, patients, and their caregivers. The primary message of the committee is
“
ME/CFS is a serious, chronic, complex, systemic disease that can profoundly affect the lives of patients
.”
The IOM since published a Report Guide for Clinicians. In October 2015, NIH Director Francis S. Collins, M.D., Ph.D. announced
that NIH is strengthening its efforts to advance research on ME/CFS. In an interview with ME Action, December 2015, Collins described
the range of possibilities – “
everything from basic science to clinical trials for promising approaches, including
Ampligen® and Rituximab
”.
Other Diseases
In July 2011, we received
FDA authorization to proceed with the initiation of a new clinical trial of intranasal Ampligen® to be used in conjunction
with commercially approved seasonal influenza vaccine. On April 16, 2012, a clinical trial was initiated in which Ampligen®
was nasally administered in conjunction with FluMist® to healthy human volunteers at the University of Alabama at Birmingham
under the auspices of Dr. Paul Goepfert, Associate Professor of Medicine in the Division of Infectious Diseases and Director of
the Alabama Vaccine Research Clinic. This study was the first use of Ampligen® with a seasonal vaccine in humans to assess
the safety of Ampligen® when nasally delivered as a vaccine adjuvant. Another objective of this study was to determine the
extent to which Ampligen® mobilizes potential protections against pandemic influenza by utilization of a seasonal flu vaccine.
The study would have evaluated the potential immunologic enhancement of Ampligen® by comparing immune parameters in the group
receiving Ampligen® plus FluMist® with another group receiving FluMist® plus placebo. Twenty-five subjects were enrolled;
twelve in Stage 1 and thirteen subjects in Stage 2. However, the Center for Disease Control and Prevention (CDC) has indicated
the nasal spray flu vaccine (live attenuated influenza vaccine or LAIV) should not be used during 2016-2017 (source: https://www.cdc.gov/flu/professionals/vaccination/);
therefore, the study has been closed.
In December 2013, we announced
that we are supporting the University of Pittsburgh’s National Institutes of Health funded study (grant 1PO1CA132714) currently
underway as part of the University’s Chemokine Modulation Research initiative which includes Ampligen® as an adjuvant.
As part of this collaboration, Hemispherx has supplied clinical grade Ampligen® (rintatolimod) to the University. The study,
under the leadership of Professor of Surgery Pawel Kalinski, M.D., Ph.D., involves the Chemokine Modulatory regimen developed by
Dr. Kalinski’s group and has successfully completed dose escalation in patients with resectable colorectal cancer under the
clinical leadership of Dr. Amer Zureikat, Assistant Professor of Surgery. To date, 15 patients have been treated in this study.
In addition, the University has initiated enrollment in an additional cancer study of peritoneal surface malignancies which includes
Ampligen® as an immune enhancer. To date, 46 patients have been treated. The University has initiated enrollment into another
cancer study of recurrent ovarian cancer patients which includes Ampligen® as a component of the treatment regimen. To date,
6 patients have been treated in the study (1 patient did not receive Ampligen). The University has received Institutional Review
Board (IRB) approval for another cancer study of subjects with chemo-refractory metastatic colorectal cancer which also includes
Ampligen® as an immune enhancer. Enrollment into this study has not yet been initiated.
In May 2014, we announced
that one of our advanced stage biological products, Alferon® N, significantly inhibited the replication of the MERS virus
in
vitro
. MERS-CoV is a human coronavirus responsible for the lethal pulmonary syndrome known as MERS (Middle East Respiratory
Syndrome). Testing in laboratories of the National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes
of Health, has revealed that Alferon® N was inhibitory to MERS-CoV both when used before test cells were exposed to MERS-CoV,
as well as after the cells were exposed to the deadly virus. NIAID researchers led the Alferon® N MERS-CoV experiments. They
treated monkey kidney cells with Alferon® N either 18 hours prior to infection with MERS-CoV (“pre-treatment”)
or 1 hour following infection with MERS-CoV (“post-treatment”). At Day 1 and Day 3, supernatants were collected from
cells and virus titers were thereafter measured. In both cases, Alferon® N showed significant dose-dependent inhibitory effects,
thus suggesting the potential of Alferon® N both as a preventive and a potential treatment. Laboratory (
in vitro
) studies
of potential antiviral agents are not necessarily predictive of clinical benefits. The Company was not involved in conducting the
experiments.
In June 2014, we announced
that we have confirmed that Alferon® N inhibits replication of the MERS virus
in vitro
. Chien-Te (Kent) Tseng, Ph.D.,
Associate Professor, Microbiology & Immunology at the University of Texas Medical Branch at Galveston, led the Alferon®
N MERS-CoV experiments. Calu-3 cells were treated with Alferon® N 24 hours prior to infection with MERS-CoV. At 36 hours, supernatants
were collected from cells and the virus titers were thereafter measured. Alferon® N showed significant dose-dependent inhibitory
effects, thus suggesting the potential of Alferon® N as a preventative. Laboratory (
in vitro
) studies of potential antiviral
agents are not necessarily predictive of clinical benefits. The Company supplied the Alferon® N, but was not directly involved
in conducting the experiments.
In July 2015, we submitted
an application for orphan drug designation to the European Medicines Agency (EMA) for Alferon® N to treat MERS and on January
6, 2016, the EMA forwarded to us both its Public Summary of Opinion and its record designation approving the Orphan Medicinal Products
Designation for Alferon® N Injection, also known as interferon alfa-n3, as a potential treatment of MERS.
On January 11, 2017, we
announced that the rintatolimod European Early Access Program (“EAP”) through our agreement with Impatients designed
to enable access of Ampligen® to ME/CFS patients has been extended to pancreatic cancer patients beginning in the Netherlands.
Impatients, doing business as MyTomorrows, is our exclusive service provider in Europe and Turkey and will manage all EAP activities
relating to the pancreatic cancer extension of the program. A competent authority in the Netherlands has recently approved
50 patients for treatment in the EAP for pancreatic cancer including a funding mechanism to remunerate us for the use of Ampligen®
in the program.
Ebola
We announced, in September
2014, a series of collaborations designed to determine the potential effectiveness of Alferon® N and Ampligen® as potential
preventative and/or therapeutic treatments for Ebola related disorders. Our two platform drugs Alferon® N and Ampligen®,
have certain unique structural attributes and developmental histories which suggest potential incremental value with respect to
inclusion in various Ebola therapeutic cocktails under development. These collaborations have resulted in the following reports
being issued:
|
●
|
November 2014 - We received a report from the United States Army Medical Research Institute of Infectious Diseases (“USAMRIID”) scientists stating that they had
in vitro
data indicating that Alferon®, the only multi-species, natural alpha interferon commercially approved in the U.S., successfully protected human cells against the Ebola virus (EBOV).
|
|
|
|
|
●
|
November 2014 - We announced that we had received a new research report from Professor Tramontano in the Department of Life and Environmental Sciences, University of Cagliari, Italy. This biochemical study demonstrated that Ampligen® successfully binded to the lethal Ebola Virus protein designated VP35. VP35 protein normally inactivates a patient’s immune/antiviral system by binding to viral dsRNA thereby sequestering a critical antiviral/immune activator of the body, which leads to high morbidity and death rates. Ampligen® competes with viral dsRNA for VP35 binding and this finding is consistent with studies at USAMRIID demonstrating that Ampligen® inhibits Ebola virus
infectivity in vitro
.
|
|
|
|
|
●
|
December 2014 - We announced that we received a new research report from researchers at Howard University, Washington DC. The report described a study in which Ampligen® strongly inhibited the Ebola mini-genome in the human embryonic kidney cell system.
|
|
●
|
February 2015 - We announced results of an efficacy study of Ampligen® in a mouse model of EBOV infection performed by scientists at the USAMRIID. Ampligen® was utilized with a mouse adapted Ebola virus using multiple groups of mice with varying dosage schedules of Ampligen® given every other day. The most effective dose, resulting in 100% percent survival at Day 21, corresponded to a human dose of approximately 400 mg, which has been used clinically approximately 50,000 times and has been generally well-tolerated when administered twice weekly. When higher doses of Ampligen® were used in the Ebola-infected mice, the survival rate dropped to 90%. The Ebola-infected mice treated with placebo had a 100% death rate by Day 7 post-infection. The EBOV data obtained from the
in vitro
and mouse infection studies using Ampligen® suggest a potential prophylactic and/or early onset therapeutic role in EVD. Previously published experimental results of animal studies using models of other lethal viral infections indicate possible similar applications to other lethal viral diseases. However,
in vitro
and animal testing is no assurance of human safety or efficacy for viral diseases. Clinical studies would be necessary to establish human efficacy and safety of Ampligen® for any treatment and/or prevention indication.
|
Positive results from a
non-human primate (“NHP”) study in all probability may be required before initiation of human clinical testing of Ampligen®
in patients with Ebola Virus Disease (“EVD”). Clinical studies would also be necessary to establish human safety and
efficacy of Ampligen® for either treatment and/or prevention of EVD. Clinical safety and tolerability data obtained for one
indication, for example, CFS, may be different for another disorder like EVD. Currently, because of the limited number of facilities
that can conduct EBOV studies in NHP, the scheduling of a NHP study has been delayed.
Our European subsidiary,
Hemispherx Biopharma Europe N.V./S.A., has been formally notified of a positive opinion from the COMP (Committee on Medical Products)
regarding its Orphan Medicinal Product Application for Ampligen®, an experimental therapeutic, to treat Ebola Virus Disease
(EVD). The European Medicines Agency (EMA) published on May 22, 2015 both its Public Opinion Summary and its record designation
approving the Orphan Medicinal Product Designation for Ampligen®, also known as rintatolimod experimental therapeutic, to treat
Ebola Virus Disease (EVD).
Our overall objectives
include plans to continue seeking approval for commercialization of Ampligen® in the United States and abroad as well as to
widen existing commercial therapeutic indications of Alferon® N Injection presently approved in the United States and Argentina.
Laboratory experiments do not necessarily indicate clinical benefit. Some of the research both past and present has been, and may
in the future be, sponsored in part by contracts or grants from us to various independent research entities.
MANUFACTURING
We had a Supply Agreement
with Jubilant Hollister-Stier Laboratories LLC of Spokane, Washington (“Jubilant”), pursuant to which Jubilant would
formulate and package Ampligen® from the key raw materials that Hemispherx would supply to them. This Supply Agreement expired
March 11, 2014. In October 2014, we entered into a purchase commitment with Jubilant for approximately $700,000 for the manufacture
of clinical batches of Ampligen®. On January 3, 2017, we entered into a purchase order to replace the previous purchase commitment
with Jubilant pursuant to which Jubilant will manufacture a commercial batch of Ampligen® for us. Pursuant to the new order,
Jubilant will perform tooling and validation activities as well as final fill and finish services.
On July 27, 2016, we reached
an agreement with Avrio Biopharmaceuticals, now Nitto Denko Avecia Inc. (“Avecia”) to serve as an additional contract
manufacturer of Hemispherx’s experimental drug, Ampligen®. The new cGMP lot was completed in December and was released in January
2017 for use in the Early Access Program (“EAP”) in Europe. Please see “Risks Associated with Our Business”
in Item 1A. Risk Factors below -
There are no long-term agreements with suppliers of required materials and services for Ampligen®
and there are a limited number of raw material suppliers. If we are unable to obtain the required raw materials and/or services,
we may not be able to manufacture Ampligen®.
The construction of the
$8 million facility enhancement project was completed in 2015 which, upon FDA approval, should provide for a higher capacity and
more cost effective manufacturing process for the production of Alferon N Injection®. Commercial sales of Alferon® and
Alferon® API internationally are projected to begin as soon as the necessary regulatory approvals are obtained. However, commercial
sales of Alferon® in the USA will not resume until new batches of commercial filled and finished product are produced and released
by the FDA. We are continuing the validation of Alferon® production and production of new Alferon® API inventory commenced
in February 2015. While the facility is approved by the FDA under the Biological License Application (“BLA”) for Alferon®,
this status will need to be reaffirmed by an FDA pre-approval inspection. We will also need the FDA’s approval to release
commercial product once we have submitted satisfactory stability and quality release data. We had anticipated that it would take
until at least the 2nd half of 2015 before we would have Alferon® approved for commercial sales; however, during the final
stage of the manufacturing process we encountered issues regarding a change in both the contract supplier of leukocytes and the
long term supply availability related to a reagent used in the formulation of Alferon®. We have resolved these issues through
engaging in multiple agreements with suppliers of leukocytes as well as entering into a licensing agreement with a foreign multinational
chemicals and biotechnology company that has been in business for over a century for the sourcing of the primary reagent allowing
us to manufacture Alferon®. However, due to the interruption of the required flow of leukocytes, production ceased, causing
parts to malfunction in the upstream process when the system was restarted for testing. We were working diligently to make the
necessary repairs to be able to restart the validation process; however, in the process of obtaining time estimates for the repairs
we experienced a flood within portions of our manufacturing facility. As a result, we are constrained in our ability to manufacture
product in the near future due to this flood in the upstream processing cleanroom that contains the bioreactor. The flood occurred
on the afternoon of January 5, 2016, caused by a malfunctioning water supply pipe for the sprinkler system covering a large amount
of the cleanroom in stagnant water and silt from the sprinkler system. Our facility insurer has been proactive in addressing and
covering the loss. While repairs have required preapproval by our insurer, activity moved forward quickly. The repairs noted below
required special action because of the need to keep this critical manufacturing room within International Organization for Standardization
(ISO) classifications and the need to certify that all the equipment that was exposed, or submerged, is in proper condition and
operating effectively following the corrective actions. All HEPA filters affected by the flood were tested by an outside contractor
and passed all required tests. The flooring that was damaged was repaired using a special epoxy that is used in cleanrooms. A large
portion of the walls in the ISO classified area were damaged. We had a damage mitigation company come in to stop any moisture from
seeping further into the ISO classified areas. Subsequently, all damaged walls and ceilings were replaced with cleanroom grade
materials and require no further repair. Six pumps that were affected by the flood were sent back to the manufacturer for inspection
and repair. Repairs that were required were completed on the pumps and they were reinstalled in the Alferon® manufacturing
facility after the floor repair work was completed. All pumps will need to be qualified for use in the manufacturing process prior
to the validation process for a Pre-Approval Inspection. All air ducts supplying the Alferon® manufacturing area were cleaned
and the insulation replaced along with ceiling tiles. All smaller pieces of machinery and equipment that could not be salvaged
have been replaced. We also completed the HVAC air balancing and qualification. At this time, we believe that all repairs to the
manufacturing facility have been completed.
We also are exploring the
possibility of mortgaging our facility or selling it if we can obtain a long term lease back on the facility on acceptable terms.
Currently, the manufacturing
process is on hold and there is no definitive timetable to have the facility back online. Due to the Company extending the timeline
of Alferon® production to an excess of one year, we reclassified Alferon® work-process-inventory to other assets within
our balance sheet as of December 31, 2016.
In addition,
due to the high cost estimates to bring
the facility back online, we most likely will need additional funds to finance the revalidation process in our facility to initiate
commercial manufacturing, thereby readying ourselves for an FDA Pre-Approval Inspection. If we are unable to gain the necessary
FDA approvals related to the manufacturing process and/or final product of new Alferon® inventory, our operations most likely
will be materially and/or adversely affected. In light of these contingencies, there can be no assurances that the approved Alferon
N Injection® product will be returned to production on a timely basis, if at all, or that if and when it is again made commercially
available, it will return to prior sales levels.
To formulate, fill, finish
and package (“fill and finish”) Alferon N Injection® drug product, we require a FDA approved third party Contract
Manufacturing Organization (“CMO”). In January 2012, we agreed to a Technology, Transfer, Validation and Commercial
Supply Agreement with Ajinomoto Althea, Inc., formerly Althea Technologies, Inc. (“Althea”) of San Diego, CA,
regarding the fill and finish process for Alferon® N Injection®. In November 2014, we entered into a purchase commitment
with Althea for approximately $622,000 for the production of validation batches of Alferon® N Injection for emergency use
and/or commercial sale. We have paid approximately $210,000 to Althea with regard to this open purchase commitment as of December
31, 2016 and has recorded this amount within Work-In-Process inventory.
MARKETING/DISTRIBUTION
Our marketing strategy
for Ampligen® reflects the differing health care systems around the world along with the different marketing and distribution
systems that are used to supply pharmaceutical products to those systems. We expect that, subject to receipt of FDA, ANMAT and/or
other regulatory approval, Ampligen® may be utilized in four medical arenas: physicians’ offices, clinics, hospitals,
and the home treatment setting. In preparation for the FDA’s consideration of our Ampligen® NDA, we undertook early stage
development of pre-launch and launch driven marketing plans focusing on audience development, medical support and payer reimbursement
initiatives which could facilitate product acceptance and utilization at the time of regulatory approval, if obtained. Similarly,
we continued to consider distribution scenarios for the Specialty Pharmacy/Infusion channel which could provide market access,
offer 3PL (third party logistics) capabilities and provide the requisite risk management control mechanisms. It is our intent to
utilize third party service providers to execute elements of both the marketing/sales and distribution plans. As a possible option,
we considered a plan to utilize a small group of Managed Market account managers to introduce the product to payor, employer and
government account audiences. We believe that this approach could establish a market presence and facilitate the generation of
revenue without incurring the substantial costs associated with a traditional sales force. Furthermore, Management believes that
any approach considered should enable us to retain multiple options for future marketing strategies.
In January 2010, we engaged
an Argentinean regulatory and business design entity to explore the possibility of initiating clinical trials of Alferon N Injection®,
Ampligen® and Alferon® LDO during the influenza season in Argentina. On June 14, 2010, we executed a five year exclusive
Sales, Marketing, Distribution and Supply Agreement for Argentina with GP Pharm Latinoamerica (“GP Pharm”), an affiliate
company of Spanish GP Pharm SA. Under this Agreement, GP Pharm is responsible for gaining regulatory approval in Argentina for
Ampligen® to treat CFS in Argentina and for commercializing Ampligen® for this indication in Argentina. We granted GP Pharm
the right to expand rights to sell this experimental therapeutic into other Latin America countries based upon GP Pharm achieving
certain performance milestones. We also granted GP Pharm an option to market Alferon N Injection® in Argentina and other Latin
America countries. Under these agreements, we will manufacture and supply Ampligen® and Alferon N Injection® to GP Pharm.
On November 15, 2010, we amended our June 15, 2010 agreement with GP Pharm to include Mexico in the Territory under the Sales,
Marketing, Distribution and Supply Agreement. Under this Agreement, GP Pharm Mexico will be responsible for seeking regulatory
approval in Mexico for Ampligen®, an experimental therapeutic, to treat CFS in Mexico and, if approval is obtained, for commercializing
Ampligen® for this indication in Mexico. On May 24, 2016, we entered into a five year exclusive Renewed Sales, Marketing, Distribution
and Supply Agreement (the “Agreement”) with GP Pharma whereby all material provisions within the Agreement remained
consistent with the original agreement.
In January 2012, the ANMAT
approved the sale and distribution of Alferon N Injection® (under the brand name “Naturaferon”) in Argentina. The
receipt of the ANMAT approval for HPV is the first step of a regulatory process towards the commercial sales of Naturaferon®.
On September 20, 2012, we filed with ANMAT an amended NDA for the use of Alferon N Injection® in patients with chronic hepatitis
C who have become refractory to recombinant interferon as a result of the appearance of neutralizing antibodies against recombinant
interferon. On February 6, 2013, we received the ANMAT approval for the treatment of refractory patients, that failed or were intolerant
to treatment with recombinant interferon, with Naturaferon® in Argentina.
On September 6, 2011, we
executed an amended agreement with Asembia, formerly Armada Healthcare, LLC, to undertake the marketing, education and sales of
Alferon N Injection® throughout the United States. This agreement also provides start-up along with ongoing sales and marketing
support to the Company. On July 31, 2015, it was mutually agreed upon to extend this agreement through August 14, 2017 subject
to the same terms and conditions. We previously extended this agreement for the previous three years also under the same terms
and conditions. Due to our manufacturing process for Alferon® being on hold and there being no definitive timetable to have
the facility back online, we will review our expiring agreement on August 14, 2017 with Asembia.
On September 6, 2011, we
executed a new agreement with specialty distributor, BioRidge Pharma, LLC (“BioRidge”) to warehouse, ship, and distribute
Alferon N Injection® on an exclusive basis in support of U.S. sales. On July 31, 2015, it was mutually agreed upon to extend
this agreement through August 14, 2017 subject to the same terms and conditions. We previously extended this agreement for the
previous three years also under the same terms and conditions. Due to our manufacturing process for Alferon® being on hold
and there being no definitive timetable to have the facility back online, we will review our expiring agreement on August 14, 2017
with Asembia.
On March 9, 2015, we executed
an agreement with Emerge Health Pty Ltd. (“Emerge”) to seek approval of Ampligen® for CFS in Australia and New
Zealand and to commence distribution of Ampligen® in both countries on a named-patient basis, where deemed appropriate. The
parties intend to collaborate on seeking regulatory approval from Australia’s Therapeutic Goods Administration (“TGA”)
and New Zealand’s Medicines and Medical Devices Safety Authority (“Medsafe”). Under this five-year exclusive
license to sell, market, and distribute Ampligen in Australia and New Zealand to treat CFS, Emerge will implement regulatory-compliant
programs to educate physicians about Ampligen® for CFS and seek orphan drug designation and approval of Ampligen® to treat
CFS. Hemispherx will support these efforts and will supply Ampligen® at a predetermined transfer price. We have the right to
buy out of the agreement at a price equal to three times Ampligen® sales for the preceding 12 months if exercised within the
first two years or two times such sales if exercised after year three. We have determined to maintain local expertise in handling
the regulatory aspects of treating patients with an unapproved product and have elected not to pursue individual patient use in
these territories and have subsequently terminated the agreement in 2017.
On May 24, 2016, we entered
into an amended and restated five year agreement (the “Impatients Agreement”) with Impatients, N.V. (“Impatients”),
a Netherlands based company doing business as myTomorrows, for the commencement and management of an Early Access Program (“EAP”)
in Europe and Turkey (the “Territory”) related to CFS. Pursuant to the agreement, Impatients, as our exclusive service
provider and distributor in the Territory, is performing EAP activities. These activities will be directed to (a) the education
of physicians and patients regarding the possibility of early access to innovative medical treatments not yet the subject of a
Marketing Authorization (regulatory approval) through named-patient use, compassionate use, expanded access and hospital exemption,
(b) patient and physician outreach related to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions
and/or waivers required by regulatory authorities for medical treatments prior to Marketing Authorization) for the use of such
treatments, (d) the distribution and sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug
safety) activities and/or (f) the collection of data such as patient-reported outcomes, doctor-reported experiences and registry
data. We are supporting these efforts and supplying Ampligen® to Impatients at a predetermined transfer price. In the event
that we receive Marketing Authorization in any country in the Territory, we will pay Impatients a royalty on products sold. Pursuant
to the Impatients Agreement, the royalty would be a percentage of Net Sales (as defined in the Impatients Agreement) of Ampligen®
sold in the Territory where Marketing Authorization was obtained, and the maximum royalty would be a percentage of Net Sales.
The formula to determine the percentage of Net Sales will be based on the number of patients that are entered into the EAP. The
parties established a Joint Steering Committee comprised of representatives of both parties to oversee the EAP. No assurance can
be given that activities under the EAP will result in Marketing Authorization or the sale of substantial amounts of Ampligen®
in the Territory. In 2017, the Company commenced sales of recently manufactured Ampligen® in international programs.
On
January 11, 2017, we announced that the rintatolimod European Early Access Program (“EAP”) through our agreement with
Impatients designed to enable access of Ampligen® to ME/CFS patients has been extended to pancreatic cancer patients beginning
in the Netherlands. Impatients, doing business as MyTomorrows, is our exclusive service provider in Europe and Turkey and will
manage all EAP activities relating to the pancreatic cancer extension of the program. A competent authority in the Netherlands has recently approved
50 patients for treatment in the EAP for pancreatic cancer including a funding mechanism to remunerate us for the use of Ampligen®
in the program.
On August 6, 2015, we executed
an agreement with Emerge to seek approval of Alferon N Injection® in Australia and New Zealand and to commence distribution
of Alferon® in both countries on a named-patient basis, for treating genital warts and other infections and diseases to which
patients in Australia and New Zealand have become refractory to recombinant interferon. Hemispherx and Emerge will collaborate
on seeking regulatory approval from Australia’s TGA and New Zealand’s Medsafe. Under a five-year exclusive license
to sell, market, and distribute Alferon N Injection® in Australia and New Zealand, Emerge will implement regulatory-compliant
programs to educate physicians about Alferon®. Hemispherx will support these efforts and will supply Alferon® at a predetermined
transfer price. We have the right to buy out of the agreement at a price equal to three times Alferon® sales for the preceding
12 months if exercised within the first two years or two times such sales if exercised after year three.
COMPETITION
RNA based products and
toll-like receptors (“TLRs”) have demonstrated great promise in pre-clinical and limited clinical applications resulting
in active research and development by large pharmaceutical companies and emerging biotech firms. As such, our potential competitors
are among the largest pharmaceutical companies in the world, are well known to the public and the medical community, and have substantially
greater financial resources, product development, and manufacturing and marketing capabilities than we have.
These companies and their
competing products may be more effective and less costly than our products. In addition, conventional drug therapy, surgery and
other more familiar treatments will offer competition to our products. Furthermore, our competitors have significantly greater
experience than we do in pre-clinical testing and human clinical trials of pharmaceutical products and in obtaining FDA (in the
US), European Medicines Agency (“EMA”) and Health Protection Branch (“HPB”) (in Canada), and other regulatory
approvals of products. Accordingly, our competitors may succeed in obtaining FDA, EMEA and HPB product approvals before we do.
If any of our products receive regulatory approvals and we commence commercial sales of our products, we will also be competing
with respect to manufacturing efficiency and marketing capabilities, areas in which we have no experience. Our competitors may
possess or obtain patent protection or other intellectual property rights that prevent, limit or otherwise adversely affect our
ability to develop or exploit our products.
The major pharmaceutical
competitors with biotech capabilities/vaccine franchises include Pfizer, GlaxoSmithKline, Merck & Co., Novartis and AstraZeneca.
Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics, AVI BioPharma and Genta. When we recommence
sales of Alferon N Injection®, it will compete with Intron® A, an injectable from Merck & Co., that attempts to kill
the virus and prevent reproduction along with topical treatments that are normally applied by a doctor that have a risk of damaging
the skin around the wart, such as:
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Aldara®, also known as Imiquimod®, is a cream which is marketed to boost the immune systems in an attempt to rid itself of genital warts;
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Veregen® is a herbal product made from green tea leaves which is self-administered as an ointment and is used to treat external genital warts in adult patients;
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Condylox® Solution (podofilox) and Podofin® (podophyllin resin) are liquids applied externally using a cotton applicator or finger which attempts to destroy genital warts by halting cell growth; and
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Trichloroacetic acid (TCA) or Bichloroacetic acid (BCA) are chemical treatments which attempt to externally “burn off” genital warts.
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GOVERNMENT REGULATION
Regulation by governmental
authorities in the U.S. and foreign countries is and will be a significant factor in the manufacture and marketing of Alferon®
products and our ongoing research and product development activities. Ampligen® and other products developed from the ongoing
research and product development activities will require regulatory clearances prior to commercialization. In particular, new drug
products for humans are subject to rigorous pre-clinical and clinical testing as a condition for clearance by the FDA and by similar
authorities in foreign countries. The lengthy process of seeking these approvals, and the ongoing process of compliance with applicable
statutes and regulations, has and will continue to require the expenditure of substantial resources. Any failure by us or our collaborators
or licensees to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect the marketing of any
products developed by us and our ability to receive product or royalty revenue. We have received Orphan Drug designation for certain
therapeutic indications, which we believe might under certain conditions, help to accelerate the process of drug development and
commercialization. Alferon N Injection® is only approved for use in intralesional treatment of refractory or recurring external
genital warts in patients 18 years of age or older. Use of Alferon N Injection® for other applications requires regulatory
approval.
We are subject to various
federal, state and local laws, regulations and recommendations relating to such matters as safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use of and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used in connection with our research work. Prior to
our construction phase, our laboratory and production facility in New Brunswick, New Jersey was approved for the manufacture of
Alferon N Injection®. While our facility had been granted approval of its BLA by the FDA for the manufacture of Alferon®,
this status will need to be reaffirmed as we have completed the facility’s enhancements and believe it will again be able
to obtain FDA approval. However, there can be no assurance that this facility, or facilities owned and operated by third parties
that are utilized in the manufacture of our products, will obtain and/or continue to maintain FDA approval. For information about
the current status of our Ampligen® NDA please see “Our Products; Ampligen®” above.
HUMAN RESOURCES
As of March 1, 2017, we
had personnel consisting of 32 full-time employees and 2 part-time employees. Twenty-three (23) of the combined personnel are engaged
in our research, development, clinical, and manufacturing effort with 11 performing regulatory, general administration, data processing,
including bio-statistics, financial and investor relations functions. We have no union employees.
While we have been successful
in attracting skilled and experienced scientific personnel, there can be no assurance that we will be able to attract or retain
the necessary qualified employees and/or consultants in the future.
DATA MONITORING COMMITTEE
We meet with experts from
time to time in areas of clinical and scientific interest.
In May 2010, we formed
a Data Monitoring Committee (“DMC”) that consists of two independent regulatory and medical experts along with a biostatistics
expert. The function of the DMC is to perform independent safety and efficacy analyses on our clinical trials. During 2014, 2015
and 2016, the DMC focused its attention on the clinical trial (AMP-600) in which Ampligen® is being nasally administered in
conjunction with FluMist® to healthy human volunteers at the University of Alabama at Birmingham under the auspices of Dr.
Paul Goepfert. As required by the study’s protocol, the DMC has held three meetings and has reviewed the safety data on the
first 12 subjects enrolled in Stage 1 and approved the study to proceed to Stage 2 which began in March 2014. As of December 31,
2016, the study is closed after enrolling 25 subjects in Stage 2. Closure of the study was due to the recommendation of CDC of
not using a live attenuated influenza vaccine during 2016-2017.
ITEM 1A: Risk Factors
The following cautionary
statements identify important factors that could cause our actual results to differ materially from those projected in the forward-looking
statements made in this Form 10-K. Among the key factors that have a direct bearing on our results of operations are:
Risks Associated with Our Business
No assurance of successful product development
and finding co-development partners.
Ampligen® and related
products. The development of Ampligen® and our other related products is subject to a number of significant risks. Ampligen®
may be found to be ineffective or to have adverse side effects, fail to receive necessary regulatory clearances, be difficult to
manufacture on a commercial scale, be uneconomical to market or be precluded from commercialization by proprietary right of third
parties. Our investigational products are in various stages of clinical and pre-clinical development and require further clinical
studies and appropriate regulatory approval processes before any such products can be marketed. We do not know when, if ever, Ampligen®
or our other products will be generally available for commercial sale for any indication. Generally, only a small percentage of
potential therapeutic products are eventually approved by the FDA for commercial sale (Please see the next Risk Factor and Part
1, Item I: “Business; Our Products; Ampligen®” for more information).
Alferon N Injection®.
Although Alferon N Injection® is approved for marketing in the United States for the intralesional treatment of refractory
or recurring external genital warts in patients 18 years of age or older, to date it has not been approved for other indications.
We face many of the risks discussed above, with regard to developing this product for use to treat other ailments (Please see the
next Risk Factor and Part 1, Item I: “Business; Our Products; Alferon N Injection®” above for more information).
We are committed to a focused
business plan oriented toward finding co-development partners with the necessary capital and expertise required to commercialize
the many therapeutic aspects of our experimental drugs and our FDA approved drug Alferon® N. If we are unable to find a suitable
co-development partner to assist in the product development and commercialization of our experimental drugs and our FDA approved
drug Alferon® N, we may be unable to continue or complete our development and commercialization of our products. In addition,
there can be no assurance that such co-development partnerships would be on acceptable terms, or that such partnerships, will be
acceptable from a profitability standpoint.
Our drug and related technologies are
investigational and subject to regulatory approval. If we are unable to obtain regulatory approval in a timely manner, or at all,
our operations will be materially harmed and our stock adversely affected.
All of our drugs and associated
technologies, other than Alferon N Injection®, are investigational in the U.S. and must receive prior regulatory approval by
appropriate regulatory authorities for commercial distribution and sale and are currently legally available only through clinical
trials in the U.S. with specified disorders. At present, Alferon N Injection® is approved for the intralesional treatment of
refractory or recurring external genital warts in patients 18 years of age or older. Use of Alferon N Injection® for other
indications will require regulatory approval in the U.S. and abroad.
Our products, including
Ampligen®, are subject to extensive regulation by numerous governmental authorities in the U.S. and other countries, including,
but not limited to, the FDA in the U.S., the Health Protection Branch (“HPB”) of Canada, the Agency for the European
Medicines Agency (“EMA”) in Europe and the Administracion Nacional de Medicamentos, Alimentos y Tecnologia Medica (“ANMAT”)
in Argentina. Obtaining regulatory approvals is a rigorous and lengthy process and requires the expenditure of substantial resources.
In order to obtain final regulatory approval of a new drug, we must demonstrate to the satisfaction of the regulatory agency that
the product is safe and effective for its intended uses and that we are capable of manufacturing the product to the applicable
regulatory standards. We require regulatory approval in order to market Ampligen® or any other proposed product and receive
product revenues or royalties. We cannot assure you that Ampligen® will ultimately be demonstrated to be safe and efficacious.
While Ampligen® is authorized for use in clinical trials in the U.S., we cannot assure you that additional clinical trial approvals
will be authorized in the United States or in other countries, in a timely fashion or at all, or that we will complete these clinical
trials. In addition, although Ampligen® has been authorized by the FDA for treatment use under certain conditions, including
provision for cost recovery, there can be no assurance that such authorization will continue in effect.
On February 1, 2013, we
received a CRL from the FDA declining to approve our Ampligen® NDA for the treatment of CFS. The FDA communicated that we should
conduct at least one additional clinical trial, complete various nonclinical studies and perform a number of data analysis. For
more detailed information about the current status of our Ampligen® NDA please see Part 1, Item I: “Business; Our Products;
Ampligen®” above.
The FDA’s regulatory
review and approval process is extensive, lengthy, expensive and inherently uncertain. To receive approval for a product candidate,
we must, among other things, demonstrate to the FDA’s satisfaction with substantial evidence from well-controlled pre-clinical
and clinical trials that the product candidate is both safe and effective for each indication for which approval is sought. Before
we can sell Ampligen® for any use, or promote Alferon® for any use other than as Alferon N Injection® for treatment
of refractory or recurring genital warts, we will need to file the appropriate NDA with the FDA in the U.S. and the appropriate
regulatory agency outside of the U.S. where we intend to market and sell such products. At present the only NDA we have filed with
the FDA is the NDA for the use of Ampligen® to treat CFS. As discussed in the prior paragraph, the FDA declined to approve
this NDA and indicated that we needed to conduct additional work. Therefore, ultimate FDA approval, if any, may be delayed by several
years and may require us to expend more resources than we have available. It is also possible that additional studies, if performed
and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable.
If any of these outcomes occur, we may be forced to abandon one or more of our future applications for approval, which might significantly
harm our business and prospects. As a result, we cannot predict if or when we might receive regulatory approval for the use of
Ampligen® to treat CFS or for the use of any other products. Even if regulatory approval from the FDA is received for the use
of Ampligen® to treat CFS or eventually, for the use of any other product, any approvals that we obtain could contain significant
limitations in the form of narrow indications, patient populations, warnings, precautions or contra-indications or other conditions
of use, or the requirement that we implement a risk evaluation and mitigation strategy. In such an event, our ability to generate
revenues from such products could be greatly reduced and our business could be harmed.
Even if we believe that
data collected from our preclinical studies and clinical trials of our product candidate are promising, this data has not been,
and may not be in the future, sufficient to support marketing approval by the FDA, and regulatory interpretation of these data
and procedures may continue to be unfavorable.
To the extent that we are
required by the FDA, pursuant to the Ampligen® NDA, to conduct additional studies and take additional actions, approval of
any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available.
It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the
FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or
more of our future applications for approval, which might significantly harm our business and prospects. As a result, we cannot
predict when or whether regulatory approval will be obtained for any product candidate we develop.
Obtaining approval of a
NDA by the FDA, or a comparable foreign regulatory authority, is inherently uncertain. Even after completing clinical trials and
other studies, a product candidate could fail to receive regulatory approval for many reasons, including the following:
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not be able to demonstrate to the satisfaction of the FDA that our product candidate is safe and effective for any indication;
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the FDA may disagree with the design or implementation of our clinical trials or other studies;
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the results of the clinical trials or other studies may not demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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the FDA may disagree with our interpretation of data from clinical trials or other studies;
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the data collected from clinical trials and other studies of a product candidate may not be sufficient to support the submission of a NDA;
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the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical and other study data insufficient for approval; and
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the FDA may not approve the proposed manufacturing processes and facilities for a product candidate.
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In 2012, FDA reviewers
raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon®
Active Pharmaceutical Product (“API”), which would need to be released by the FDA before those materials could be used
in commercial product. After conducting all of the appropriate tests on samples of the inventory during 2013, we concluded that
we could not alleviate certain questions the FDA had about the older Work-In-Process Alferon N Injection®. Accordingly, these
lots were not submitted to the FDA to request release for commercial sale and their remaining dollar value was written-off. In
the absence of FDA approvals for product manufactured from existing inventory, commercial sales of Alferon® will not resume
until new batches of Alferon® inventory and API can be produced, filled and finished, and released by the FDA for commercial
sale. (Please see Part 1, Item I: “Business; Our Products; Manufacturing” above for more information).
Alferon® LDO has been
approved for pre-clinical testing for possible use as prophylaxis and treatment against influenza. While the studies to date have
been encouraging, preliminary testing in the laboratory and in animal models is not necessarily predictive of successful results
in clinical testing or human treatment. No assurance can be given that similar results will be observed in clinical trials. Use
of Alferon® as a possible treatment of influenza requires prior regulatory approval. In October 2009, we originally submitted
a protocol to the FDA proposing to conduct a Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging
study of Alferon® LDO for the prophylaxis and treatment of seasonal and pandemic influenza of more than 200 subjects. In December
2010, the FDA authorized this Phase II, double-blind, adaptive-design, randomized, placebo-controlled, dose-ranging study of Alferon®
LDO for the prophylaxis and treatment of seasonal and pandemic influenza of more than 200 subjects. Our Phase II study has been
delayed. The outcome of this confirmatory study, if and when resumed, will allow us to better evaluate the potential effectiveness
of this product and to proceed with this study of seasonal and pandemic influenza. We are unable to provide any assurances that
the Phase II Alferon® LDO study for the prophylaxis and treatment of seasonal and pandemic influenza will be undertaken.
If we are unable to gain
necessary FDA approvals related to Ampligen® and Alferon® on a timely basis, our operations most likely will be materially
and/or adversely affected. Additionally, if we are unable to generate the additional data, successfully complete inspections or
obtain approvals as required by the FDA on a timely manner, or at all, or determine that any of our clinical studies are not cost/justified
to undertake or if, for that or any other reason, Ampligen®, Alferon® or one of our other products or production processes
do not receive necessary regulatory approval in the U.S. or elsewhere:
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our ability to generate revenues to sustain our operations will be substantially impaired, which would increase the likelihood that we would need to obtain additional financing for our other development efforts;
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our reputation among investors might be harmed, which might make it more difficult for us to obtain equity capital on attractive terms or at all; and
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our profitability would be delayed, our business will be materially harmed and our stock price may be adversely affected.
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Biotechnology stock prices,
including our stock price, have declined significantly in certain instances where companies have failed to meet expectations with
respect to FDA approval or the timing for FDA approval.
We may continue to incur substantial
losses and our future profitability is uncertain.
We last reported net profit
from 1985 through 1987. Since 1987, with a major emphasis on new drug diagnostic and development, we have incurred substantial
operating losses, as we pursued our clinical trial effort to get our experimental drug, Ampligen®, approved. As of December
31, 2016, our accumulated deficit was approximately $300,501,000. We have not yet generated significant revenues from our products
and may incur substantial and increased losses in the future. We cannot assure that we will ever achieve significant revenues from
product sales or become profitable. We require, and will continue to require, the commitment of substantial resources to develop
our products. We cannot assure that our product development efforts will be successfully completed or that required regulatory
approvals will be obtained or that any products will be manufactured and marketed successfully, or be profitable.
We most likely will require additional
financing which may not be available.
The development of our
products requires the commitment of substantial resources to conduct the time consuming research, preclinical development, and
clinical trials that are necessary to bring pharmaceutical products to market. As of December 31, 2016, we had approximately $5,868,000
in cash, cash equivalents and marketable securities (inclusive of approximately $3,460,000 in Marketable Securities). However,
if we are unable to commercialize and sell Ampligen® or Alferon® LDO and/or recommence material sales of Alferon N Injection®,
our operations, financial position and liquidity may be adversely impacted.
In its CRL, the FDA communicated
that Hemispherx should conduct at least one additional clinical trial, complete various nonclinical studies and perform a number
of data analyses. Until we undertake the end-of-review conference(s) with the FDA or otherwise reach an agreement with the FDA
regarding the design of a confirmatory study, we are unable to reasonably estimate the nature, costs, necessary efforts to obtain
FDA clearance or anticipated completion dates of any additional clinical study or studies. Utilizing the industry norms for undertaking
a Phase III clinical study, we estimate upon acceptance of the study’s design that it would take approximately 18 months
to three years to complete a new well-controlled Ampligen® clinical study for resubmission to the FDA. It can be reasonably
anticipated that the time and cost to undertake clinical trial(s), studies and data analysis are beyond our current financial resources
without gaining access to additional funding. The actual duration to complete the clinical study may be different based on the
length of time it takes to design the study and obtain FDA’s acceptance of the design, the final design of an acceptable
Phase III clinical study design, availability of suitable participants and clinical sites along with other factors that could impact
the implementation of the study, analysis of results or requirements of the FDA and/or other governmental organizations.
Given the challenging economic
conditions, we continue to review every aspect of our operations for cost and spending reductions to assure our long-term financial
stability while maintaining the resources necessary to achieve our primary objectives of obtaining NDA approval of Ampligen®
along with the manufacturing, marketing and distribution of our products, including Alferon N Injection®. Due to the repair
issues mentioned above within our NJ facility and the high cost estimates to bring the facility back online, we most likely will
need additional funds to finance the revalidation process in our facility to initiate commercial manufacturing, thereby readying
ourselves for an FDA Pre-Approval Inspection. We may also need additional capital to eventually commercialize and sell Ampligen®
or Alferon® LDO and/or recommence and increase sales of Alferon N Injection® or our other products. We anticipate considering
multiple options in an attempt to secure funding, including but not limited to such methods as the sales of additional equity,
licensing agreements, partnering with other organizations, debt financing or other sources of capital.
We did raise approximately
$850,000 in February 2017 from the sale of our securities. However, if we are unable to obtain additional funding, through an Equity
Distribution Agreement (“EDA”), other sales of securities, the sale or mortgaging of our New Jersey properties and/or
otherwise, our ability to develop our products, commercially produce inventory or continue our operations may be materially adversely
affected.
Our Alferon N Injection® Commercial
Sales were halted due to lack of finished goods inventory. If we are unable to gain the necessary FDA approvals related to Alferon®,
our operations most likely will be materially and/or adversely affected.
Commercial sales of Alferon
N Injection® were halted in March 2008 when our finished goods inventory expired. The production of Alferon N Injection®
from the Work-In-Process Inventory was restarted in May 2010, continued into January 2011 with its conversion into API.
In April 2012, FDA reviewers
raised certain questions about the status of our existing lots of older Work-In-Process Alferon® materials and Alferon®
API, which would need to be released by the FDA before those materials could be used in commercial product. After conducting all
of the appropriate tests on samples of the inventory during 2013, we concluded that we could not alleviate certain questions the
FDA had about the older Work-In-Process Alferon N Injection® and their remaining dollar value has been written-off. Commercial
sales of Alferon® will not resume until new batches of Alferon® inventory and API can be produced, filled and finished,
and released by the FDA for commercial sale.
While our facility is FDA
approved under the BLA by the FDA for Alferon®, this status will need to be reaffirmed upon the completion of the facility’s
upgrades for Alferon®. We cannot provide any guarantee that the facility will necessarily pass a FDA pre-approval inspection
for Ampligen® or Alferon® manufacture, which are conducted in separately dedicated areas within the overall New Brunswick
manufacturing complex. Please see the Risk Factor “
There is no assurance that our manufacturing facility will again be
granted a BLA certification by the FDA upon completion of the manufacturing enhancements or return to commercial, large-scale production
.”
below for more information.
If we are unable to gain
the necessary FDA approvals related to the manufacturing process and/or final product of new Alferon® inventory, our operations
most likely will be materially and/or adversely affected. For more information on Alferon N Injection® regarding potential
commercial sales, please see Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results
of Operations Business; Manufacturing”.
In light of these contingencies,
there can be no assurances that the approved Alferon N Injection® product will be returned to production on a timely basis,
if at all, or that if and when it is again made commercially available, it will return to prior sales levels.
We may not be profitable unless we can
protect our patents and/or receive approval for additional pending patents.
We need to preserve and
acquire enforceable patents covering the use of Ampligen® for a particular disease in order to obtain exclusive rights for
the commercial sale of Ampligen® for such disease. We obtained all rights to Alferon N Injection®, and we plan to preserve
and acquire enforceable patents covering its use for existing and potentially new diseases. Our success depends, in large part,
on our ability to preserve and obtain patent protection for our products and to obtain and preserve our trade secrets and expertise.
Certain of our know-how and technology is not patentable, particularly the procedures for the manufacture of our experimental drug,
Ampligen®. We also have been issued a patent which affords protection on the use of Ampligen® in patients with Chronic
Fatigue Syndrome. We have not yet been issued any patents in the United States for the use of Ampligen® as a sole treatment
for any of the cancers which we have sought to target. For more information on Patents, please see PART I, Item I – “Business;
Patents”.
We cannot assure that our
competitors will not seek and obtain patents regarding the use of similar products in combination with various other agents, for
a particular target indication prior to our doing so. If we cannot protect our patents covering the use of our products for a particular
disease, or obtain additional patents, we may not be able to successfully market our products.
The patent position of biotechnology
and pharmaceutical firms is highly uncertain and involves complex legal and factual questions.
To date, no consistent
policy has emerged regarding the breadth of protection afforded by pharmaceutical and biotechnology patents. There can be no assurance
that new patent applications relating to our products, process or technology will result in patents being issued or that, if issued,
such patents will afford meaningful protection against competitors with similar technology. It is generally anticipated that there
may be significant litigation in the industry regarding patent and intellectual property rights. Such litigation could require
substantial resources from us and we may not have the financial resources necessary to enforce the patent rights that we hold.
No assurance can be made that our patents will provide competitive advantages for our products, process and technology or will
not be successfully challenged by competitors. No assurance can be given that patents do not exist or could not be filed which
would have a materially adverse effect on our ability to develop or market our products or to obtain or maintain any competitive
position that we may achieve with respect to our products. Our patents also may not prevent others from developing competitive
products or process using related technology.
There can be no assurance that we will
be able to obtain necessary licenses if we cannot enforce patent rights we may hold. In addition, the failure of third parties
from whom we currently license certain proprietary information or from whom we may be required to obtain such licenses in the future,
to adequately enforce their rights to such proprietary information, could adversely affect the value of such licenses to us.
If we cannot enforce the
patent rights we currently hold we may be required to obtain licenses from others to develop, manufacture or market our products.
There can be no assurance that we would be able to obtain any such licenses on commercially reasonable terms, if at all. We currently
license certain proprietary information from third parties, some of which may have been developed with government grants under
circumstances where the government maintained certain rights with respect to the proprietary information developed. No assurances
can be given that such third parties will adequately enforce any rights they may have or that the rights, if any, retained by the
government will not adversely affect the value of our license.
There is no guarantee that our trade
secrets will not be disclosed or known by our competitors.
To protect our rights,
we require all employees and certain consultants to enter into confidentiality agreements with us. There can be no assurance that
these agreements will not be breached, that we would have adequate and enforceable remedies for any breach, or that any trade secrets
of ours will not otherwise become known or be independently developed by competitors.
We have limited marketing and sales capability.
If we are unable to obtain additional distributors and our current and future distributors do not market our products successfully,
we may not generate significant revenues or become profitable.
We have limited marketing
and sales capability. We are dependent upon existing and, possibly future, marketing agreements and third party distribution agreements
for our products in order to generate significant revenues and become profitable. As a result, any revenues received by us will
be dependent in large part on the efforts of third parties, and there is no assurance that these efforts will be successful.
Our commercialization strategy
for Ampligen® for CFS, if and when it is approved for marketing and sale by the FDA, may include licensing/co-marketing agreements
utilizing the resources and capacities of a strategic partner(s). We continue to seek a world-wide marketing partner with the goal
of having a relationship in place before approval is obtained. In parallel to partnering discussions, appropriate pre-marketing
activities will be undertaken. It is our current intention to control manufacturing of Ampligen® on a world-wide basis.
Our commercialization strategy
for Alferon N Injection® may include the utilization of internal functions and/or licensing/co-marketing agreements that would
utilize the resources and capacities of one or more strategic partners. Accordingly, we have engaged Asembia, formerly Armada Healthcare,
LLC, to undertake the marketing, education and sales of Alferon N Injection® throughout the United States along with GP Pharm
for both Ampligen® and Alferon® in Argentina along with other South and Latin American countries.
We cannot assure that our
U.S. or foreign marketing strategy will be successful or that we will be able to establish future marketing or third party distribution
agreements on terms acceptable to us, or that the cost of establishing these arrangements will not exceed any product revenues.
Our inability to establish viable marketing and sales capabilities would most likely have a materially adverse effect on us. There
can be no assurances that the approved Alferon N Injection® product will be returned to prior sales levels.
There are no long-term agreements with
suppliers of required materials and services for Ampligen® and there are a limited number of raw material suppliers. If we
are unable to obtain the required raw materials and/or services, we may not be able to manufacture Ampligen®.
A number of essential raw
materials are used in the production of Ampligen® as well as packaging materials utilized in the fill and finish process. We
do not have, but continue to work towards having long-term agreements for the supply of such materials, when possible. There can
be no assurance we can enter into long-term supply agreements covering essential materials on commercially reasonable terms, if
at all.
There are a limited number
of suppliers in the United States and abroad available to provide the raw and packaging materials/reagents for use in manufacturing
Ampligen® and Alferon®. At present, we do not have any agreements with third parties for the supply of any of these materials
or we are relying on a limited source of reagent suppliers necessary for the manufacture of Alferon®. We have established
relevant manufacturing operations within our New Brunswick, New Jersey facility for the production of Ampligen® polymers from
raw materials in order to obtain a more consistent manufacturing basis in the quantities necessary for clinical testing. We had
a Supply Agreement with Jubilant Hollister-Stier LLC of Spokane, Washington (“Jubilant”), pursuant to which Jubilant
would formulate and package Ampligen® from the key raw materials that we would supply. This Supply Agreement expired March
11, 2014. On January 3, 2017, we entered into a purchase order with Jubilant pursuant to which Jubilant will manufacture a commercial
batch of Ampligen® for us. Pursuant to the new order, Jubilant will perform tooling and validation activities as well as final
fill and finish services. In July 2016, we reached an agreement with Avecia to serve as an additional contract manufacturer of
Ampligen® for use with clinical studies as well as the recently initiated Early Access Program (EAP) in Europe and Turkey.
Should there be an unanticipated delay in receiving new product from Hollister-Stier and/or Avecia at that time, or should we
experience an unexpected demand for Ampligen® in our clinical studies or pursuant to the EAP, our ability to supply Ampligen®
most likely will be adversely affected.
In addition, during the
final stage of the manufacturing process we encountered issues regarding a change in both the contract supplier of leukocytes and
the long term supply availability related to a reagent used in the formulation of Alferon®. We have substantially resolved
these issues through engaging in multiple agreements with suppliers of leukocytes as well as entering into a licensing agreement
with a foreign multinational chemicals and biotechnology company that has been in business for over a century for the sourcing
of the primary reagent allowing us to manufacture Alferon®. However, due to the interruption of the required flow of leukocytes,
production ceased, causing parts to malfunction in the upstream process when the system was restarted for testing. We were working
diligently to make the necessary repairs to be able to restart the validation process; however, in the process of obtaining time
estimates for the repairs we experienced a flood within portions of our manufacturing facility. As a result, we will be constrained
in our ability to manufacture product in the near future due to this flood in the upstream processing cleanroom that contains the
bioreactor. The flood occurred on the afternoon of January 5, 2016, caused by a malfunctioning water supply pipe for the sprinkler
system covering a large amount of the cleanroom in stagnant water and silt from the sprinkler system. Our facility insurer has
been proactive in addressing and covering the loss. While repairs have required preapproval by our insurer, activity moved forward
quickly. The repairs noted below required special action because of the need to keep this critical manufacturing room within International
Organization for Standardization (ISO) classifications and the need to certify that all the equipment that was exposed, or submerged,
is in proper condition and operating effectively following the corrective actions. All HEPA filters affected by the flood were
tested by an outside contractor and have passed all required tests. The flooring that was damaged has been repaired using a special
epoxy that is used in cleanrooms. A large portion of the walls in the ISO classified area were damaged. We had a damage mitigation
company come in to stop any moisture from seeping further into the ISO classified areas. Subsequently, all damaged walls and ceilings
have been replaced with cleanroom grade materials and need no further work. Six pumps that were affected by the flood were sent
back to the manufacturer for inspection and repair. Repairs that were required have been completed on the pumps and they were reinstalled
in the Alferon® manufacturing facility after the floor repair work was completed. All pumps will need to be qualified for use
in the manufacturing process prior to the validation process for a Pre-Approval Inspection. All air ducts supplying the Alferon®
manufacturing area were cleaned and the insulation replaced along with ceiling tiles. All smaller pieces of machinery and equipment
that could not be salvaged have been replaced. We also completed the HVAC air balancing and qualification. At this time, we believe
that all repairs to the manufacturing facility have been completed.
Currently, the manufacturing
process is on hold and there is no definitive timetable to have the facility back online. If we are unable to gain the necessary
FDA approvals related to the manufacturing process and/or final product of new Alferon® inventory, our operations most likely
will be materially and/or adversely affected. In light of these contingencies, there can be no assurances that the approved Alferon
N Injection® product will be returned to production on a timely basis, if at all, or that if and when it is again made commercially
available, it will return to prior sales levels.
If we are unable to obtain
or manufacture the required materials/reagents, and/or procure services needed in the final steps in the manufacturing process,
we may be unable to manufacture Ampligen®. The costs and availability of products and materials we need for the production
of Ampligen® are subject to fluctuation depending on a variety of factors beyond our control, including competitive factors,
changes in technology, ownership of intellectual property, FDA and other governmental regulations. There can be no assurance that
we will be able to obtain such products and materials on terms acceptable to us or at all. For more information on Ampligen®
manufacturing, please see Part 1, Item I: “Business; Our Products; Manufacturing” above.
There are a limited number of organizations
in the United States available to provide the final manufacturing steps of formulation, fill, finish and packing sets for Alferon
N Injection® and Ampligen®.
There are a limited number
of organizations in the United States available to provide the final steps in the manufacturing for Alferon N Injection® and
Ampligen®. To formulate, fill, finish and package our products (“fill and finish”), we require a FDA approved third
party CMO.
In January 2012, we agreed
to a Technology, Transfer, Validation and Commercial Supply Agreement with Althea regarding the fill and finish
process for Alferon N Injection®. As we no longer have any existing inventory, commercial sales of Alferon® will not resume
until new batches of Alferon® inventory and API can be produced, filled and finished, and released by the FDA for commercial
sale.
We had a Supply Agreement
with Jubilant Hollister-Stier LLC of Spokane, Washington (“Jubilant”), pursuant to which Jubilant would formulate
and package Ampligen® from the key raw materials that we would supply to them. This Supply Agreement expired March 11, 2014.
In October 2014, we entered into a purchase commitment with Jubilant for approximately $700,000 for the manufacture of clinical
batches of Ampligen®. On January 3, 2017, we entered into a purchase order to replace the previous purchase commitment with
Jubilant pursuant to which Jubilant will manufacture a commercial batch of Ampligen® for us. Pursuant to the new order, Jubilant
will perform tooling and validation activities as well as final fill and finish services. We are unable to provide any assurances
that the FDA will approve the inventory manufactured by us or produced by Jubilant. If this finish goods inventory is not
granted approval by the FDA, our operations may be materially adversely affected. This Supply Agreement expired on March 11, 2014.
We are working towards an amendment to the existing Supply Agreement which may contain additional fees as part of entering into
the extension. In July 2016, we reached an agreement with Avecia to serve as an additional contract manufacturer of Ampligen®
for use with clinical studies as well as the recently initiated Early Access Program (EAP) in Europe and Turkey. Should there be an unanticipated delay
in receiving new product or should we experience an unexpected demand for Ampligen® in our clinical studies or pursuant to
the EAP, our ability to supply Ampligen® most likely will be adversely affected.
If we are unable to procure
services needed in the final steps in the manufacturing process, we may be unable to manufacture Alferon N Injection® and/or
Ampligen®. The costs and availability of products and materials we need for the production of Ampligen® and the commercial
production of Alferon N Injection® and other products which we may commercially produce are subject to fluctuation depending
on a variety of factors beyond our control, including competitive factors, changes in technology, and FDA and other governmental
regulations and there can be no assurance that we will be able to obtain such products and materials on terms acceptable to us
or at all. For more information on Ampligen® and Alferon N Injection® manufacturing, please see Part 1, Item I: “Business;
Our Products; Manufacturing” above.
There is no assurance that our manufacturing
facility will again be granted a BLA certification by the FDA or return to commercial, large-scale production. In addition, our
inability to timely fix the issues caused by the 2016 flood in our manufacturing facility could hinder our ability sustain sales
of our products, if and when such sales commence.
We completed the construction
of our $8 million facility enhancement project in 2015 which, upon FDA approval, should provide for a higher capacity, more cost
effective manufacturing process for the production of Alferon N Injection®. The production of new Alferon® API inventory
commenced in February 2015. While the facility is approved by FDA under the BLA for Alferon®, this status will need to be reaffirmed
upon the completion of the facility’s enhancements prior to commercial sale of newly produced inventory product. If and when
we obtain a reaffirmation of FDA BLA status, we will need FDA approval to release the final product confirming the quality and
stability to allow commercial sales to resume. For more information, please see Part II, Item 7: “Management’s Discussion
and Analysis of Financial Condition and Results of Operations Business; Our Products; Manufacturing” above for more information.
There can be no assurance the BLA status will be recertified by the FDA upon the completion of the enhancement process or that
the manufacturing facility will return to commercial, large-scale production for Alferon®. Additionally, there can be no assurance
that any given product will be determined to be safe and effective, or capable of being manufactured under applicable quality standards
.
Only if and when our BLA
status is recertified by the FDA to produce Alferon® API at our enhanced manufacturing facility and Althea gains FDA’s
approval to formulate, fill and finish Alferon®, can batches of Alferon® be released by the FDA for commercial sales. We
are unable to provide any assurances that the FDA will approve our enhanced manufacturing process and/or newly created finish product
lots formulated, filled and finished at Althea. Without FDA approval, our Alferon N Injection® will not be considered suitable
for commercial sales.
Our ability to manufacture
at our manufacturing facility was also hampered and delayed by the flood. See Part I, Item 1. Business: “Marketing”.
In light of these contingencies,
there can be no assurances that the approved Alferon N Injection® product will be returned to commercial production or sale
on a timely basis, if at all, or that if and when it is again made commercially available, it will return to prior sales levels.
There is no assurance that upon successful
manufacture of a drug on a limited scale basis for investigational use will lead to a successful transition to commercial, large-scale
production.
Changes in methods of manufacturing,
including commercial scale-up, may affect the chemical structure of Ampligen® and other RNA drugs, as well as their safety
and efficacy. The transition from limited production of pre-clinical and clinical research quantities to production of commercial
quantities of our products will involve distinct management and technical challenges and may require additional management, technical
personnel and capital to the extent such manufacturing is not handled by third parties. While we believe that we could successfully
upgrade our production capability at our New Brunswick, NJ facility in a commercial scale-up of Ampligen®, there can be no
assurance that our manufacturing will be successful or that any given product will be determined to be safe and effective, or capable
of being manufactured under applicable quality standards, economically, and in commercial quantities, or successfully marketed.
We have limited manufacturing experience
for Ampligen® and Alferon®. We may not be profitable unless we can produce Ampligen®, Alferon® or other products
in commercial quantities at costs acceptable to us
.
Satisfactory inspection
by the FDA of both our Ampligen® and Alferon® manufacturing process is required before commercial sale of project would
be allowed. The CRL from the FDA on February 1, 2013, requests evaluation of variation between lots of Ampligen® tested in
the development process and recommends tighter control of the Ampligen® manufacturing process. We cannot provide any guarantee
that the facility will pass a FDA pre-approval inspection for Ampligen® or Alferon® manufacture, which are conducted in
separately dedicated areas within the overall New Brunswick manufacturing complex. The failure to obtain FDA approval for either
of our manufacturing process areas would most likely have a materially adverse impact upon us.
Ampligen® has been
produced to date in limited quantities for use in our clinical trials, and we are dependent upon a qualified third party supplier
for the manufacturing, filling, finish and packaging process. The failure to continue these arrangements or to achieve other such
arrangements on satisfactory terms could have a material adverse effect on us. In furtherance of the capital improvement program
at our New Brunswick, NJ facility to upgrade our manufacturing capability to produce bulk quantities of Alferon N Injection®
API, the validation phase of the Alferon® manufacturing project is currently underway. While the facility is approved by FDA
under the BLA for Alferon®, this status will need to be reaffirmed upon the completion of the facility’s enhancements
prior to commercial sale of newly produced inventory product. If and when we obtain a reaffirmation of FDA BLA status, we will
need FDA approval to release the final product confirming the quality and stability to allow commercial sales to resume. For more
information, please see Part 1, Item I: “Business; Our Products; Manufacturing” above. In light of these contingencies,
there can be no assurances that the approved Alferon N Injection® product will be returned to production on a timely basis,
if at all. The failure to obtain FDA approval of any of our manufacturing process would most likely have a materially adverse impact
upon us.
Also to be successful,
our products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs.
We believe, but cannot assure, that our enhancements to our manufacturing facilities will be adequate for our future needs for
the production of our proposed products for large-scale commercialization. We intend to ramp up our existing facility and/or utilize
third party facilities if and when the need arises or, if we are unable to do so, to build or acquire commercial-scale manufacturing
facilities. We will need to comply with regulatory requirements for such facilities, including those of the FDA pertaining to cGMP
requirements or maintaining our BLA status. There can be no assurance that such facilities can be used, built, or acquired on commercially
acceptable terms, or that such facilities, if used, built, or acquired, will be adequate for the production of our proposed products
for large-scale commercialization or our long-term needs.
We have never produced
Ampligen®, Alferon® or any other products in large commercial quantities. We must manufacture our products in compliance
with regulatory requirements in large commercial quantities and at acceptable costs in order for us to be profitable. We intend
to utilize third party manufacturers and/or facilities if and when the need arises or, if we are unable to do so, to build or acquire
commercial-scale manufacturing facilities. If we cannot manufacture commercial quantities of Ampligen® and/or Alferon®,
or continue to maintain third party agreements for its manufacture at costs acceptable to us, our operations will be significantly
affected. If and when the Ampligen® NDA is approved, we may need to find an additional vendor to manufacture the product for
commercial sales. Also, each production lot of Alferon N Injection® is subject to FDA review and approval prior to releasing
the lots to be sold. This review and approval process could take considerable time, which would delay our having product in inventory
to sell, nor can we provide any assurance as to the receipt of FDA approval of our finished inventory product. There can be no
assurances that the Ampligen® and/or Alferon® can be commercially produced at costs acceptable to us.
Rapid technological change may render
our products obsolete or non-competitive.
The pharmaceutical and
biotechnology industries are subject to rapid and substantial technological change. Technological competition from pharmaceutical
and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected
to increase. Most of these entities have significantly greater research and development capabilities than us, as well as substantial
marketing, financial and managerial resources, and represent significant competition for us. There can be no assurance that developments
by others will not render our products or technologies obsolete or noncompetitive or that we will be able to keep pace with technological
developments.
Our products may be subject to substantial
competition.
Ampligen®. Competitors
may be developing technologies that are, or in the future may be, the basis for competitive products. Some of these potential products
may have an entirely different approach or means of accomplishing similar therapeutic effects to products being developed by us.
These competing products may be more effective and less costly than our products. In addition, conventional drug therapy, surgery
and other more familiar treatments may offer competition to our products. Furthermore, many of our competitors have significantly
greater experience than we do in preclinical testing and human clinical trials of pharmaceutical products and in obtaining FDA,
HPB and other regulatory approvals of products. Accordingly, our competitors may succeed in obtaining FDA, HPB or other regulatory
product approvals more rapidly than us. There are no drugs approved for commercial sale with respect to treating CFS in the United
States. The dominant competitors with drugs to treat disease indications in which we plan to address include Pfizer, GlaxoSmithKline,
Merck & Co., Novartis and AstraZeneca. Biotech competitors include Baxter International, Fletcher/CSI, AVANT Immunotherapeutics,
AVI BioPharma and Genta. These potential competitors are among the largest pharmaceutical companies in the world, are well known
to the public and the medical community, and have substantially greater financial resources, product development, and manufacturing
and marketing capabilities than we have. Although we believe our principal advantage is the unique mechanism of action of Ampligen®
on the immune system, we cannot assure that we will be able to compete.
Alferon N Injection®.
Our competitors are among the largest pharmaceutical companies in the world, are well known to the public and the medical community,
and have substantially greater financial resources, product development, and manufacturing and marketing capabilities than we have.
Alferon N Injection® currently competes with Merck’s injectable recombinant alpha interferon product (Intron® A)
for the treatment of genital warts. In addition, other pharmaceutical firms offer self-administered topical cream, for the treatment
of external genital and perianal warts such as Graceway Pharmaceuticals (Aldara®), Watson Pharma (Condylox®) and MediGene
(Veregen®). Alferon N Injection® also competes with surgical, chemical, and other methods of treating genital warts. We
cannot assess the impact products developed by our competitors, or advances in other methods of the treatment of genital warts,
will have on the commercial viability of Alferon N Injection®. If and when we obtain additional approvals of uses of this product,
we expect to compete primarily on the basis of product performance. Our competitors have developed or may develop products (containing
either alpha or beta interferon or other therapeutic compounds) or other treatment modalities for those uses. There can be no assurance
that, if we are able to obtain regulatory approval of Alferon N Injection® for the treatment of new indications, we will be
able to achieve any significant penetration into those markets. In addition, because certain competitive products are not dependent
on a source of human blood cells, such products may be able to be produced in greater volume and at a lower cost than Alferon N
Injection®. Currently, our wholesale price on a per unit basis of Alferon N Injection® is higher than that of the competitive
recombinant alpha and beta interferon products. Please see risk factor “We may not be profitable unless we can protect our
patents and/or receive approval for additional pending patents” above for additional information.
General. Other companies
may succeed in developing products earlier than we do, obtaining approvals for such products from the FDA more rapidly than we
do, or developing products that are more effective than those we may develop. While we will attempt to expand our technological
capabilities in order to remain competitive, there can be no assurance that research and development by others or other medical
advances will not render our technology or products obsolete or non-competitive or result in treatments or cures superior to any
therapy we develop.
Possible side effects from the use of
Ampligen® or Alferon N Injection® could adversely affect potential revenues and physician/patient acceptability of our
product.
Ampligen®. We believe
that Ampligen® has been generally well tolerated with a low incidence of clinical toxicity, particularly given the severely
debilitating or life threatening diseases that have been treated. A mild flushing reaction has been observed in approximately 15-20%
of patients treated in our various studies. This reaction is occasionally accompanied by a rapid heartbeat, a tightness of the
chest, urticaria (swelling of the skin), anxiety, shortness of breath, subjective reports of “feeling hot”, sweating
and nausea. The reaction is usually infusion-rate related and can generally be controlled by reducing the rate of infusion. Other
adverse side effects include liver enzyme level elevations, diarrhea, itching, asthma, low blood pressure, photophobia, rash, visual
disturbances, slow or irregular heart rate, decreases in platelets and white blood cell counts, anemia, dizziness, confusion, elevation
of kidney function tests, occasional temporary hair loss and various flu-like symptoms, including fever, chills, fatigue, muscular
aches, joint pains, headaches, nausea and vomiting. These flu-like side effects typically subside within several months.
The FDA in its February
1, 2013 CRL, set forth the reasons for not approving Ampligen® at this time and provided recommendations to address certain
of the outstanding issues. The Agency stated that the submitted data do not provide substantial evidence of efficacy of Ampligen®
for the treatment of CFS and that the data do not provide sufficient information to determine whether the product is safe for use
in CFS due to the limited size of the safety database and multiple discrepancies within the submitted data.
If approved, one or more
of the potential side effects of the drug might deter usage of Ampligen® in certain clinical situations and therefore, could
adversely affect potential revenues and physician/patient acceptability of our product.
Alferon N Injection®.
At present, Alferon N Injection® is approved for the intralesional (within the lesion) treatment of refractory or recurring
external genital warts in adults. In clinical trials conducted for the treatment of genital warts with Alferon N Injection®,
patients did not experience serious side effects; however, there can be no assurance that unexpected or unacceptable side effects
will not be found in the future for this use or other potential uses of Alferon N Injection® which could threaten or limit
such product’s usefulness.
We may be subject to product liability
claims from the use of Ampligen®, Alferon N Injection®, or other of our products which could negatively affect our future
operations. We have limited product liability and clinical trial insurance.
We maintain a limited amount
of Products Liability and Clinical Trial insurance coverage world-wide for Ampligen® and Alferon® due to the minimal amount
of historical loss claims regarding these products in the marketplace. Any claims against our products, Ampligen®, Alferon
N Injection® and Alferon® LDO, could have a materially adverse effect on our business and financial condition.
We face an inherent business
risk of exposure to product liability claims in the event that the use of Ampligen®, Alferon N Injection® or other of our
products results in adverse effects. This liability might result from claims made directly by patients, hospitals, clinics or other
consumers, or by pharmaceutical companies or others manufacturing these products on our behalf. Our future operations may be negatively
affected from the litigation costs, settlement expenses and lost product sales inherent to these claims. While we will continue
to attempt to take appropriate precautions, we cannot assure that we will avoid significant product liability exposure.
With our recent development
on the collaborative agreement with myTomorrows to provide access to our natural alpha interferon for patients that have become
intolerant to treatment with recombinant interferon or where such treatment fails in South America and Europe, we have initiated
the process of enhancing our insurance coverage for any potential sales that may arise from this arrangement.
The loss of services of key personnel
could hurt our chances for success.
Our success is dependent
on the continued efforts of our staff, especially certain doctors and researchers. The loss of the services of personnel key to
our operations could have a material adverse effect on our operations and chances for success. The loss of key personnel or the
failure to recruit additional personnel as needed could have a materially adverse effect on our ability to achieve our objectives.
Uncertainty of health care reimbursement
for our products.
Our ability to successfully
commercialize our products will depend, in part, on the extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities, private health coverage insurers and other organizations.
Significant uncertainty exists as to the reimbursement status of newly approved health care products, and from time to time legislation
is proposed, which, if adopted, could further restrict the prices charged by and/or amounts reimbursable to manufacturers of pharmaceutical
products. We cannot predict what, if any, legislation will ultimately be adopted or the impact of such legislation on us. There
can be no assurance that third party insurance companies will allow us to charge and receive payments for products sufficient to
realize an appropriate return on our investment in product development.
There are risks of liabilities associated
with handling and disposing of hazardous materials.
Our business involves the
controlled use of hazardous materials, carcinogenic chemicals, flammable solvents and various radioactive compounds. Although we
believe that our safety procedures for handling and disposing of such materials comply in all material respects with the standards
prescribed by applicable regulations, the risk of accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident or the failure to comply with applicable regulations, we could be held liable for
any damages that result, and any such liability could be significant. We do not maintain insurance coverage against such liabilities.
We rely upon information technology and
any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm
our ability to operate our business effectively.
Despite the implementation
of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage
from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material
disruption of our business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss
of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover
or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data
or applications, or inappropriate public disclosure of confidential or proprietary information, we could incur liability and our
product development and commercialization efforts could be delayed.
Risks Associated with an Investment in Our
Common Stock:
The market price of our stock may be
adversely affected by market volatility.
The market price of our
common stock has been and is likely to be volatile. This is especially true given the current significant instability in the financial
markets. In addition to general economic, political and market conditions, the price and trading volume of our stock could fluctuate
widely in response to many factors, including:
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announcements of the results of clinical trials by us or our competitors;
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announcements of availability or projections of our products for commercial sale;
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announcements of legal actions against us and/or settlements or verdicts adverse to us;
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adverse reactions to products;
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governmental approvals, delays in expected governmental approvals or withdrawals of any prior governmental approvals or public or regulatory agency comments regarding the safety or effectiveness of our products, or the adequacy of the procedures, facilities or controls employed in the manufacture of our products;
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changes in U.S. or foreign regulatory policy during the period of product development;
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developments in patent or other proprietary rights, including any third party challenges of our intellectual property rights;
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announcements of technological innovations by us or our competitors;
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announcements of new products or new contracts by us or our competitors;
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actual or anticipated variations in our operating results due to the level of development expenses and other factors;
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changes in financial estimates by securities analysts and whether our earnings meet or exceed the estimates;
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conditions and trends in the pharmaceutical and other industries;
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new accounting standards;
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overall investment market fluctuation;
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restatement of prior financial results;
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notice of NYSE MKT non-compliance with requirements; and
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occurrence of any of the risks described in these “Risk Factors”.
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Our common stock is listed
for quotation on the NYSE MKT. For the year ended December 31, 2016, the trading price of our common stock has ranged from $0.65
to $2.64 per share. We expect the price of our common stock to remain volatile. The average daily trading volume of our common
stock varies significantly.
Our stock price may be adversely affected
if a significant amount of shares is sold in the public market.
We may issue shares to
be used to meet our capital requirements or use shares to compensate employees, consultants and/or Directors. In this regard, we
have registered securities for public sale pursuant to a universal shelf registration statement and we had been selling shares
under this shelf registration statement and the EDA with Maxim. Effective December 15, 2015, we halted all future offers and sales
of our Common Stock under the EDA with Maxim and reduced the amount of potential future offers and sales under the EDA to $0.00.
Between July 23, 2012, the date of the EDA, and December 15, 2015, we sold an aggregate of 8,881,788 shares of Common Stock pursuant
to the EDA for aggregate gross proceeds of $47,453,220. On December 15, 2015, we filed a prospectus supplement related to the issuance
and sale of up to $7,941,000 of our common stock from time to time through our sales agent, Chardan Capital Markets, LLC. Effective
August 26, 2016, we halted all future offers and sales of its common stock under the Chardan Agreement and reduced the amount of
potential future offers and sales under the Chardan Agreement to $0.00. Between December 15, 2015, the date of the Chardan Agreement,
and August 26, 2016, we sold an aggregate of 114,394 shares of common stock pursuant to the Chardan Agreement for aggregate net
proceeds of approximately $74,000. On September 6, 2016, we entered into Securities Purchase Agreements with certain investors
for the sale by us of 3,333,334 shares of our common stock at a purchase price of $1.50 per share. Concurrently with the sale of
the common stock, pursuant to the Purchase Agreement, we also sold warrants to purchase 2,500,000 shares of common stock for aggregate
net proceeds of $4,520,000. We also issued placement agent warrants for the purchase of an aggregate of 166,667 shares of our common
stock. On February 1, 2017, we entered into Securities Purchase Agreements with certain investors for the sale by us of 1,818,185
shares of our common stock at a purchase price of $0.55 per share. Concurrently with the sale of the common stock, pursuant to
the Purchase Agreement, we also sold warrants to purchase 1,363,639 shares of common stock for aggregate net proceeds of approximately
$850,000. We also issued placement agent warrants for the purchase of an aggregate of 90,909 shares of our common stock. Please
see Item 7-Management’s Discussion and Analysis of Financial Condition and Result of Operations; Liquidity and Capital Resources”
in PART II.
We are unable to estimate
the amount, timing or nature of future sales of outstanding common stock or instruments convertible into or exercisable for our
common stock. Sales of substantial amounts of our common stock in the public market, including additional sale of securities pursuant
to the EDA with Chardan or otherwise under the universal shelf registration statement or upon exercise of outstanding options and
warrants, could cause the market price for our common stock to decrease. Furthermore, a decline in the price of our common stock
would likely impede our ability to raise capital through the issuance of additional shares of common stock or other equity securities.
Provisions of our Certificate of Incorporation
and Delaware law could defer a change of our Management which could discourage or delay offers to acquire us.
Provisions of our Certificate
of Incorporation and Delaware law may make it more difficult for someone to acquire control of us or for our stockholders to remove
existing management, and might discourage a third party from offering to acquire us, even if a change in control or in Management
would be beneficial to our stockholders. For example, our Certificate of Incorporation allows us to issue shares of preferred stock
without any vote or further action by our stockholders. Our Board of Directors has the authority to fix and determine the relative
rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further
stockholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would
grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the
redemption of our common stock. In this regard, on November 2, 2012, we amended and restated our Stockholder Rights Plan (“Rights
Plan”) and, under the Rights Plan, our Board of Directors declared a dividend distribution of one Right for each outstanding
share of Common Stock to stockholders of record at the close of business on November 29, 2002. Each Right initially entitles holders
to buy one-hundredth unit of preferred stock for $30.00 and may be redeemed prior to November 19, 2017, the expiration date, at
$0.001 per Right under certain circumstances. The Rights generally are not transferable apart from the common stock and will not
be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership
of 15% or more of our common stock.
Special Note Regarding Forward Looking
Statements
Because the risk factors
referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements
made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement
speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements
to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events.
New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements. Our research in clinical efforts may continue for
the next several years and we may continue to incur losses due to clinical costs incurred in the development of Ampligen® for
commercial application. Possible losses may fluctuate from quarter to quarter as a result of differences in the timing of significant
expenses incurred and receipt of licensing fees and/or cost recovery treatment revenue. Please see “Cautionary Statement
Regarding Forward-Looking Statements” set forth before Part I of this report.
ITEM 1B.
Unresolved Staff Comments.
None.
ITEM 2.
Properties.
We currently lease through
June 2018, our headquarters located in Philadelphia, Pennsylvania consisting of a suite of offices of approximately 6,760 square
feet.
We also own, occupy and
use our New Brunswick, New Jersey laboratory and production facility. These facilities consist of two buildings located on 2.8
acres. One building is a two story facility consisting of a total of approximately 30,000 square feet. This facility contains
offices, laboratories and production space. It also contains space designated for research and development, packaging, quality
assurance and quality control laboratories. Building Two has 11,670 square feet consisting of offices, laboratories, warehouse
space, shipping, receiving and packaging areas. The property has parking space for approximately 100 vehicles.
As part of our objectives
to achieve our commercial goals and increase stockholder value, we have initiated the sale of underutilized assets. As a result,
we are in the process of selling Building Two at its current market value. We also are exploring the possibility of mortgaging
our facility or selling it if we can obtain a long term lease back on the facility on acceptable terms.
ITEM 3.
Legal Proceedings.
(a)
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Mark Zicherman v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Iraj E. Kiani, William M. Mitchell, Richard C. Piani, David Strayer and Charles T. Bernhardt, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:13-cv-00243-WY.
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Michael Desclos v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, March 2013 Term, No. 110.
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(c)
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Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, April 2013 Term, No. 3458.
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Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Richard C. Piani, William M. Mitchell, Iraj E. Kiani and Robert E Peterson, Chancery Court of the State of Delaware, June 18, 2013, Case No. 8657.
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(e)
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Cato Capital, LLC v. Hemispherx Biopharma, Inc., U.S. District Court for the District of Delaware, Case No. 9-549-GMS.
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On January 15, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the United States District Court for the Eastern District of Pennsylvania. Purporting to assert claims on behalf of the Company, the Complaint in this action, Mark Zicherman v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On February 22, 2013, the Court entered an order temporarily staying this case pending the outcome of the securities class action defendants’ motion to dismiss that action. On July 3, 2013, Plaintiff filed an Amended Complaint, adding David R. Strayer, M.D., as a Defendant. On July 18, 2013, the Court entered an order staying the case as against Dr. Strayer pending the outcome of the motion to dismiss the securities class action. On January 24, 2014, the Court denied the defendants’ motion to dismiss the securities class action. On March 26, 2014, the Court entered an order to continue the temporary stay, and on March 27, 2014, the Court entered an order placing the action in the Civil Suspense File. On April 11, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On January 28, 2015, on request of the parties, the Court entered an Order continuing the temporary stay, subject to the requirement that the parties submit an updated joint status report within ten days of the court’s entry of an order granting or denying the securities class action parties’ motion for preliminary approval of their settlement agreement. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement in principle to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ Settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court entered an Order granting final approval of the parties’ settlement
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awarding the plaintiffs’ counsel $660,000 in attorneys’ fees, and dismissing the action and all claims alleged therein against all defendants with prejudice. The Settlement resolves all claims asserted in this action (“Zicherman”) and the two related consolidated state-court actions referenced below, Michael Desclos v. Hemispherx Biopharma, Inc. et al., and Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al. The Settlement does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies.
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(b)
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On March 4, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. Purporting to assert claims on behalf of the Company, the Complaint in this action, Michael Desclos v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On April 10, 2013, the Court entered an order temporarily staying this case pending the outcome of the securities class action defendants’ motion to dismiss that action. On January 24, 2013, the court in the federal securities class action denied the defendants’ motion to dismiss. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., described below. On March 26, 2014, the Court entered an order to continue the temporary stay. On June 9, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement in principle to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court in Zicherman entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court in Zicherman entered an Order granting final approval of the parties’ settlement and awarding the plaintiffs’ counsel $660,000 in attorneys’ fees. The Settlement, which resolves all claims asserted in this action (“Desclos”) and the two related actions, Zicherman, referenced above, and the state court action referenced below, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies. On December 2, 2016, the Court in this action removed the case from deferred status, and on December 5, 2016, the prothonotary entered the plaintiffs’ praecipe to mark the case settled, discontinued, and ended in its entirety, and with prejudice.
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(c)
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On April 23, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. Purporting to assert claims on behalf of the Company, the Complaint in this action, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On May 10, 2013, the Court entered an order staying this case pending the outcome of the ruling on the Federal Securities Class Action Defendants’ motion to dismiss. On January 24, 2014, the court in the federal securities class action denied the defendants’ motion to dismiss. On January 29, 2014, the Court entered an order consolidating this action with the shareholder derivative action, Michael Desclos v. Hemispherx Biopharma, Inc., et al., described above. On March 26, 2014, the Court entered an order to continue the temporary stay. On June 9, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court in Zicherman entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court in Zicherman entered an Order granting final approval of the parties’ settlement and awarding the plaintiffs’ counsel $660,000 in attorneys’ fees. The Settlement, which resolves all claims asserted in this action and the two related actions, Zicherman and Desclos, referenced above, does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies. On December 2, 2016, the Court in this action removed the case from deferred status, and on December 8, 2016, the prothonotary entered the plaintiffs’ praecipe to mark the case settled, discontinued, and ended in its entirety, and with prejudice.
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(d)
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On June 18, 2013, a Stockholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the Court of Chancery of the State of Delaware. The Complaint in this action, Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., et al., alleges breaches of fiduciary duties, waste of corporate assets and unjust enrichment. The Company’s Board of Directors appointed a Special Litigation Committee (“SLC”) to review the allegations set forth in the Complaint. On September 10, 2013, the Court entered a Stipulation and Order staying all proceedings in this action pending the SLC’s review and recommendation concerning the allegations contained in the Complaint. On December 20, 2013, the SLC issued its Report, in which it concluded that dismissing the Complaint would be in the best interests of Hemispherx and its stockholders. On January 20, 2014, the SLC moved to dismiss the Complaint. Following briefing and oral argument on the motion to dismiss, the Court denied the SLC’s motion on August 18, 2015, but did dismiss the claims against former officer Robert E. Peterson. On October 13, 2015, Plaintiffs filed a Verified Amended Derivative and Class Action Complaint (the “Amended Complaint”), asserting additional claims for breach of fiduciary duty against Board member Peter W. Rodino, declaratory judgment with respect to certain bonuses paid to officers of the Company, and a class action claim for breach of fiduciary duty against the current Board in connection with the solicitation of votes in advance of the Company’s 2015 annual meeting. The Amended Complaint also removed all of the dismissed claims against Mr. Peterson. The Company and all individual defendants except former Board member Richard C. Piani answered the Amended Compliant on November 19, 2015. The Court entered a scheduling order on December 2, 2015, but on January 5, 2016, the parties agreed to suspend all litigation for 60 days and to attempt to resolve the action through mediation. The parties engaged in a mediation on February 10, 2016, and reached an agreement in principle to settle all claims on April 27, 2016. That agreement was memorialized in a Stipulation and Agreement of Settlement (the “Settlement Stipulation”) which was filed with the Court on June 8, 2016. The settlement was subject to the Court’s finally approving the terms of the parties’ settlement agreement in all material respects. On June 8, 2016, concurrent with the filing of the Settlement Stipulation, the parties filed a joint proposed scheduling order, which the Court entered the same day (the “Scheduling Order”). The Scheduling Order preliminarily certified the class for settlement purposes, directed the Company to issue notice (in the form approved by the Court) to Company stockholders and members of the putative class, and scheduled a settlement approval hearing (the “Settlement Approval Hearing”) to occur on September 9, 2016. At the Settlement Approval Hearing on September 9 and September 19, 2016, the Court approved the settlement, awarded plaintiffs’ counsel $1.25 million in attorneys’ fees and expenses, and dismissed the action with prejudice. No stockholders or members of the putative class objected to the settlement. No Company funds were used to pay the settlement or attorneys’ fees award; the settlement and fee award were funded by Hemispherx’s insurance policies. The final settlement does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants.
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(e)
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Cato Capital, LLC (“Cato”) brought suit against the Company on July 31, 2009, in the United States District Court for the District of Delaware (the “Court”), alleging that under a November 2008 agreement between Cato and Hemispherx, Hemispherx owed Cato a placement fee arising from subsequent Hemispherx financing and investment transactions. Hemispherx disputed these allegations, asserting that Cato failed to comply with the provisions of its own contract. The Amended Complaint sought damages in the amount of $9,830,000.00 plus attorneys’ fees and punitive damages. Pursuant to an indemnification responsibility, Hemispherx has also retained this firm to undertake the defense of the Sage Group.
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The Parties had a Non-Jury
trial on March 4, 5 and 6, 2013 before the United States District Court for the District of Delaware. On September 29, 2014, the
Court found in favor of Hemispherx and Sage on all counts, and dismissed Cato’s claims in their entirety. On January 13,
2015, the Court granted the Company’s motion for attorney’s fees and costs and awarded the Company $770,852.76.
On October 24, 2014, Cato
filed a notice of appeal of the Court’s September 29, 2014 decision in the United States Court of Appeals for the Third Circuit
(the “Third Circuit”). On March 3, 2015, Cato filed its Brief in the Third Circuit. The Company’s Brief in Response
was filed on April 6, 2015, with a Reply Brief by Cato filed on April 19, 2015. The Court of Appeals conducted Oral Argument on
July 16, 2015. On August 21, 2015 the Court of Appeals affirmed the judgment of the District Court. On September 9, 2015 Cato sought
reconsideration of the decision through re-argument or re-hearing by the en banc Court of Appeals. On September 17, 2015 the Court
of Appeals denied Cato’s requests. On October 1, 2015 Hemispherx filed for additional costs and fees to be added to its existing
judgment. On February 10, 2016 the Court increased Hemispherx’ judgment by an additional $48,725.75 to reflect the costs
of defending the Cato appeal. On February 11, 2016 the Court of Appeals returned the mandate to the District Court. The Company
is pursuing collection of its judgment in the amount of $829,578.51.
ITEM 4.
Mine Safety Disclosures.
Not Applicable.
PART III
ITEM 10. Directors and Executive Officers and Corporate Governance.
The following sets forth
biographical information about each of our Directors and Executive Officers as of the date of this report:
Name
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Age
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Position
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Thomas K. Equels, Esq.
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64
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Executive Vice Chairman of the Board, Chief Executive Officer and President
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Peter W. Rodino III
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65
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Executive Director Gov’t Relations, General Counsel & Secretary
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William M. Mitchell, M.D., Ph.D.
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82
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Chairman of the Board and Director
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Stewart L. Appelrouth
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63
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Director
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Adam Pascale
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69
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Chief Financial Officer
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David R. Strayer, M.D.
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71
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Chief Scientific Officer and Medical Director
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Wayne S. Springate
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45
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Senior Vice President of Operations
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Each Director has been
elected to serve until the next annual meeting of stockholders, or until his earlier resignation, removal from office, death or
incapacity. Each Executive Officer serves at the discretion of the Board of Directors, subject to rights, if any, under contracts
of employment.
In February 2016, our Board
of Directors terminated the employment of Dr. Carter, our Chairman of the Board, Chief Executive Officer and Chief Scientific Officer.
As a result, Dr. Carter also was no longer a director. Dr. Mitchell was named Chairman of the Board. It also made several changes
to our executive management team. In this regard, Thomas K. Equels was named our Chief Executive Officer and Adam Pascale was named
Chief Financial Officer. Mr. Equels resigned as Chief Financial Officer to make way for Mr. Pascale.
In June 2016, Iraj Kiani
resigned as a member of our Board. On September 30, 2016, Mr. Rodino resigned as a member of our Board to permit him to serve
us in a new capacity. In this regard, effective October 1, 2016, we retained Mr. Rodino as our Executive Director for Governmental
Relations, and as our General Counsel. In that capacity, Mr. Rodino handles all government affairs and litigation matters on a
going forward basis. Mr. Rodino was also appointed Secretary of the Company in November 2016.
We believe our Board Members
represent a desirable diversity of backgrounds, skills, education and experiences, and they all share the personal attributes of
dedication to be effective directors. In recommending Board candidates, Corporate Governance and Nomination Committee considers
a candidate’s: (1) general understanding of elements relevant to the success of a publicly traded company in the current
business environment; (2) understanding of our business; and (3) diversity in educational and professional background. The Committee
also gives consideration to a candidate’s judgment, competence, dedication and anticipated participation in Board activities
along with experience, geographic location and special talents or personal attributes. The following are qualifications, experience
and skills for Board members which are important to Hemispherx’ business and its future:
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Leadership Experience:
We seek directors who have demonstrated strong leadership qualities. Such leaders bring diverse perspectives and broad business insight to our Company. The relevant leadership experience that we seek includes a past or current leadership role in a large or entrepreneurial company, a senior faculty position at a prominent educational institution or a past elected or appointed senior government position.
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Industry or Academic Experience:
We seek directors who have relevant industry experience, both with respect to the disease areas where we are developing new therapies as well as with the economic and competitive dynamics of pharmaceutical markets, including those in which our drugs will be prescribed.
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Scientific, Legal or Regulatory Experience:
Given the highly technical and specialized nature of biotechnology, we desire that certain of our directors have advanced degrees, as well as drug development experience. Since we are subject to substantial regulatory oversight, both here and abroad by the FDA and other agencies, we also desire directors who have legal or regulatory experience.
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Finance Experience:
We believe that our directors should possess an understanding of finance and related reporting processes, particularly given the complex budgets and long timelines associated with drug development programs.
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THOMAS K. EQUELS, Esq.,
has been a Director and serves as our Executive Vice Chairman (since 2008), Chief Executive Officer (since 2016) and
President (since 2015). Mr. Equels is the owner of and former President and Managing Director of the Equels Law Firm headquartered
in Miami, Florida that focuses on litigation. For over a quarter century, Mr. Equels has represented national and state governments
as well as companies in the banking, insurance, aviation, pharmaceutical and construction industries. Mr. Equels received his
Juris Doctor degree with high honors from Florida State University. He is a summa cum laude graduate of Troy University and also
obtained his Masters’ Degree from Troy. He is a member of the Florida Bar Association and the American Bar Association.
THOMAS K. EQUELS, Esq.
- Director Qualifications:
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Leadership
Experience –Owner and Former President, Managing Director of Equels Law Firm;
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Industry Experience –legal counsel to Hemispherx; and
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Scientific, Legal or Regulatory Experience - Law degree with over 25 years as a practicing attorney specializing in litigation.
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WILLIAM M. MITCHELL,
M.D., Ph.D.,
has been a Director since July 1998. On February 17, 2016, Dr. Mitchell was appointed as Chairman of the Board
upon Dr. Carter’s termination. Dr. Mitchell is a Professor of Pathology at Vanderbilt University School of Medicine and is
a board certified physician. Dr. Mitchell earned a M.D. from Vanderbilt and a Ph.D. from Johns Hopkins University, where he served
as House Officer in Internal Medicine, followed by a Fellowship at its School of Medicine. Dr. Mitchell has published over 200
papers, reviews and abstracts that relate to viruses, anti-viral drugs, immune responses to HIV infection, and other biomedical
topics. Dr. Mitchell has worked for and with many professional societies that have included the American Society of Investigative
Pathology, the International Society for Antiviral Research, the American Society of Clinical Oncology, the American Society of
Biochemistry and Molecular Biology and the American Society of Microbiology. Dr. Mitchell is a member of the American Medical Association.
He has served on numerous government review committees, among them the National Institutes of Health, AIDS and Related Research
Review Group. Dr. Mitchell previously served as one of our Directors from 1987 to 1989.
WILLIAM M. MITCHELL,
M.D., Ph.D. -
Director Qualifications:
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Leadership Experience – Professor at Vanderbilt University School of Medicine. He is a member of the Board of Directors for Chronix Biomedical and is Chairman of its Medical Advisory Board. Additionally, he has served on multiple governmental review committees of the National Institutes of Health, Centers for Disease Control and Prevention and for the European Union, including key roles as Chairman;
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Academic and Industry Experience – Well published medical researcher with extensive investigative experience on virus and immunology issues relevant to the scientific business of Hemispherx along with being a Director of an entrepreneurial diagnostic company (Chronix Biomedical) that is involved in next generation DNA sequencing for medical diagnostics; and
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Scientific, Legal or Regulatory Experience - M.D., Ph.D. and professor at a top ranked school of medicine, and inventor of record on numerous U.S. and international patents who is experienced in regulatory affairs through filings with the FDA.
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STEWART L. APPELROUTH,
CPA
was appointed as a director and head of the Audit Committee in August 2016 and is a certified public accountant and partner
at Appelrouth Farah & Co., P.A., Certified Public Accountants and Advisors. Mr. Appelrouth is also a certified forensic accountant
and possesses 40 years of experience in Accounting and Consulting. He is a member of or has affiliations with the AICPA, American
College of Forensic Examiners, Association of Certified Fraud Examiners, Florida Bar Grievance Committee, Florida Institute of
Certified Public Accountants and InfraGard Member, a national information sharing program between the Federal Bureau of Investigation
and the private sector.
Mr. Appelrouth graduated
from Florida State University in 1975 and received his Master’s Degree in Finance from Florida International University in
1980. The Board has determined Mr. Appelrouth to be an Independent Director as required under Section 803(2) of the NYSE: MKT Company
Guide and Rule 10A-3 under the Exchange Act.
STEWART L. APPELROUTH
- Director Qualifications:
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Leadership Experience –has served in leadership positions on numerous Boards and other organizations;
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Industry Experience – Partner at certified public accounting and advisory firm; Certified Public Accountant and Certified Fraud Examiner;
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Regulatory Experience – FINRA Arbitrator.
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Financial Expert – over 40 years of accounting and audit experience.
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ADAM PASCALE
was
promoted to Chief Financial Officer on February 22, 2016. He will continue to be the Company’s Chief Accounting Officer.
Mr. Pascale has been employed with the Company for 22 years, with more than two decades of public accounting experience and prior
public company experience. He earned a Bachelor of Arts degree in Accounting and Finance from Rutgers University. Mr. Pascale served
for several years as a CPA prior to joining Hemispherx, and is a member of both the American and the Pennsylvania Institutes of
Certified Public Accountants.
DAVID R. STRAYER, M.D.
has acted as our Medical Director since 1986. On February 19, 2016, Dr. Strayer was appointed as Chief Scientific Officer upon
Dr. Carter’s termination. He has served as Professor of Medicine at the Medical College of Pennsylvania and Hahnemann University.
Dr. Strayer is Board Certified in Medical Oncology and Internal Medicine with research interests in the fields of cancer and immune
system disorders. He has served as principal investigator in studies funded by the Leukemia Society of America, the American Cancer
Society, and the National Institutes of Health. Dr. Strayer attended the School of Medicine at the University of California at
Los Angeles where he received his M.D. in 1972.
PETER W. RODINO III
was appointed a Director in July 2013. On September 30, 2016, Mr. Rodino resigned as a member of our Board to permit him to
serve us in a new capacity. In this regard, effective October 1, 2016, we retained Mr. Rodino as our Executive Director for Governmental
Relations, and as our General Counsel. In that capacity, Mr. Rodino handles all government affairs and litigation matters on a
going forward basis. Mr. Rodino was also appointed Secretary of the Company in November 2016. Through September 30, 2016,
Mr. Rodino served as Lead Director and Chairman and Financial Expert of the Audit Committee, a member of the Compensation Committee
and a member of the Governance and Nomination Committee of the Board of Directors. Mr. Rodino has broad legal, financial, and
executive experience. In addition to being President of Rodino Consulting LLC and managing partner at several law firms during
his many years as a practicing attorney, he served as Chairman and CEO of Crossroads Health Plan, the first major Health Maintenance
Organization in New Jersey. He also has had experience as an investment executive in the securities industry and acted as trustee
in numerous Chapter 11 complex corporate reorganizations. For the past 17 years, as founder and president of Rodino Consulting,
Mr. Rodino has provided business and government relations consulting services to smaller companies with a focus on helping them
develop business plans, implement marketing strategies and acquire investment capital. Mr. Rodino holds a B.S. in Business Administration
from Georgetown University and a J.D. degree from Seton Hall University.
WAYNE S. SPRINGATE
was promoted to Senior Vice President of Operations on May 1, 2011. Mr. Springate joined Hemispherx in 2002 as Vice President of
Business Development when Hemispherx acquired Alferon N Injection® and its New Brunswick, NJ manufacturing facilities. He led
the consolidation of our Rockville facility to our New Brunswick location as well as coordinated the relocation of manufacturing
polymers from South Africa to our production facility in New Brunswick. He was also responsible for preparing and having a successful
Preapproval Inspection by the FDA for our New Brunswick manufacturing plant in connection with the filing of our Ampligen®
NDA. Currently he is managing a capital improvement budget to enhance our Alferon® facility in accordance with cGMP. Previously,
Mr. Springate served as President for World Fashion Concepts in New York and oversaw operations at several locations throughout
the United States and overseas. Mr. Springate assists the CEO in details of operations on a daily basis and is involved in all
aspects of manufacturing, warehouse management, distribution and logistics.
Compliance with Section 16(a) of the Exchange
Act
Section 16(a) of the Exchange
Act requires our Officers and Directors, and persons who own more than ten percent of a registered class of equity securities,
to file reports with the Securities and Exchange Commission reflecting their initial position of ownership on Form 3 and changes
in ownership on Form 4 or Form 5. Based solely on a review of the copies of such Forms received by us, we found that, during the
fiscal year ended December 31, 2016, all of our Officers and Directors had complied with all applicable Section 16(a) filing requirements
on a timely basis with regard to transactions occurring in 2016, execpt for Stewart Appelrouth, on of our Directors, who filed
a Form 3 and Form 4 late.
Audit Committee and Audit Committee Expert
The Audit Committee of
our Board of Directors consists of William Mitchell, M.D. and Stewart L. Appelrouth. Dr. Mitchell and Mr. Appelrouth are determined
by the Board of Directors to be Independent Directors as required under Section 803(2) of the NYSE: MKT Company Guide and Rule
10A-3 under the Exchange Act. The Board has determined that Mr. Appelrouth qualifies as an “audit committee financial expert”
as that term is defined by Section 803B(2) of the NYSE: MKT Company Guide and the rules and regulations of the SEC.
We believe Dr. Mitchell
and Mr. Appelrouth to be independent of management and free of any relationship that would interfere with their exercise of independent
judgment as members of this Committee. The principal functions of the Audit Committee are to (i) assist the Board in fulfilling
its oversight responsibility relating to the annual independent audit of our consolidated financial statements and internal control
over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent
registered public accounting firm’s qualifications, independence and performance; (ii) prepare the reports or statements
as may be required by NYSE MKT or the securities laws; (iii) assist the Board in fulfilling its oversight responsibility relating
to the integrity of our financial statements and financial reporting process and our system of internal accounting and financial
controls; (iv) discuss the financial statements and reports with management, including any significant adjustments, management
judgments and estimates, new accounting policies and disagreements with management; and (v) review disclosures by our independent
registered public accounting firm concerning relationships with us and the performance of our independent accountants.
This Committee formally
met seven times in 2016 with all committee members in attendance. Our General Counsel and Chief Financial Officer support the Audit
Committee in its work. The full text of the Audit Committee’s Charter, as approved by the Board, is available on our website:
www.hemispherx.net in the “Investor Relations” tab under “Corporate Governance”.
Prior to his appointment
as a Director of the Company, the Audit Committee engaged the services of Stewart L. Appelrouth in 2015. Mr. Appelrouth met the
SEC criteria of a Financial Expert to enhance the current structure and expertise of the Committee. Mr. Appelrouth, a Florida and
North Carolina licensed Certified Public Accountant, directly supported the efforts of the Audit Committee on an as-needed basis.
Scientific Advisory Board
In August 2016, the Company
formed the Scientific Advisory Board (the “SAB”). The SAB was established to leverage its member’s scientific
and pharmaceutical expertise and advice to advance our drug development programs by providing guidance on steering us forward and
capitalizing on business opportunities as well as interactions with the FDA. It is responsible for: (i) reviewing all submissions
made by us to the FDA and other regulators to ensure that the submissions fully, accurately, and timely describe the status of
any clinical trials, tests, or other studies or analyses of drug safety and efficacy undertaken by us, and any agreements, protocols,
or guidance provided by relevant regulatory agencies; and (ii) monitoring and supervising our relationship with the FDA. The SAB
shall have free and open access to our scientific and executive personnel, including the Chief Scientific Officer and the members
of our Board of Directors. The SAB is comprised of William Mitchell, M.D., Chairman, and Ronald Brus, M.D., W. Neal Burnette, M.D.,
and Christopher Nicodemus, M.D., all of whom are members. The SAB reports to the independent directors of the Company and closely
interacts with the Disclosure Controls Committee.
Disclosure Controls Committee
In August 2011, our Board
formed the Disclosure Controls Committee (“DCC”). The DCC reports to the Audit Committee and is responsible for procedures
and guidelines on managing disclosure information.
The purpose of the DCC
is to make certain that information required to be publicly disclosed is properly accumulated, recorded, summarized and communicated
to the Board and management. This process is intended to allow for timely decisions regarding communications and disclosures and
to help ensure that we comply with related SEC rules and regulations. Wayne Springate one of our Senior Vice Presidents, is the
DCC’s Investor Relations Coordinator and Chairperson. The other members of the DCC are Peter Rodino, our General Counsel,
William Mitchell, one of our Independent Directors, and Adam Pascale, our Chief Financial and Accounting Officer. Ann Marie Coverly,
Director of HR and Administration, serves the DCC as Deputy Investor Relations Coordinator. The DCC also closely interacts with
the SAB. The full text of the DCC’s Charter, as approved by the Board, is available on our website:
www.hemispherx.net
in the “Investor Relations” tab under “Corporate Governance”.
Executive Committee
In February 2016, our Board
formed the Executive Committee. The Executive Committee reports to the Board and its purpose is to aid the Board in handling matters
which, in the opinion of the Chairman of the Board, should not be postponed until the next scheduled meeting of the Board. Mr.
Equels, our Chief Executive Officer is the chairman of the Committee, along with two of our independent directors, Mr. Appelrouth
and Dr. Mitchell. The full text of the Executive Committee Charter, as approved by the Board, is available on our website:
www.hemispherx.net
in the “Investor Relations” tab under “Corporate Governance”. The Committee met three times in 2016.
Code of Ethics
Our Board of Directors
adopted a revision to the 2003 Code of Ethics and business conduct for officers, directors, employees, agents and consultants on
October 15, 2009. The principal amendments included broadening the Code’s application to our agents and consultants, adoption
of a regulatory compliance policy and adoption of a policy for protection and use of Company computer technology for business purposes
only. On an annual basis, this Code is reviewed and signed by each Officer, Director, employee and strategic consultants with none
of the amendments constituting a waiver of provision of the Code of Ethics on behalf of our Chief Executive Officer, Chief Financial
Officer, Controller, or persons performing similar functions.
You may obtain a copy of
this Code by visiting our web site at
www.hemispherx.net
(Investor Relations / Corporate Governance) or by written request
to our office at 1617 JFK Boulevard, Suite 500, Philadelphia, PA 19103.
ITEM 11. Executive Compensation.
COMPENSATION DISCUSSION AND ANALYSIS
This discussion and analysis
describes our executive compensation philosophy, process, plans and practices as they relate to our “Named Executive Officers”
(“NEO”) listed below and gives the context for understanding and evaluating the more specific compensation information
contained in the narratives, tables and related disclosures that follow. Please note that Dr. Carter’s employment was terminated
on February 17, 2016 and also that he is no longer a director. For the purposes of discussion and analysis Dr. Carter was included
in the narratives, tables and related disclosures that follow:
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Thomas K. Equels, Chief Executive Officer(“CEO”) and President;
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Adam Pascale, Chief Financial Officer (“CFO”); and
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Dr. David Strayer, Chief Scientific Officer (“CSO”) and Medical Director.
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Overview of Our Business Environment
Hemispherx is a specialty
pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new drug therapies
based on natural immune system enhancing technologies for the treatment of viral and immune based chronic disorders. We were first
formed in 1966 and in the early 1970s were doing contract research for the National Institutes of Health. Since that time, we have
established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon
and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic products
for the treatment of certain chronic diseases.
Our flagship products include
Alferon N Injection® and the experimental therapeutic Ampligen®. Alferon N Injection® is approved for a category of
STD infection, and Ampligen® represents an experimental RNA being developed for globally important viral diseases and disorders
of the immune system. Hemispherx’ platform technology includes components for potential treatment of various severely debilitating
and life threatening diseases. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
Governance of Compensation Committee
The Compensation Committee
consists of the following two directors, each of whom is “independent” under applicable NYSE MKT rules, a “Non-Employee
Director” as defined in Rule 16b-3 under the Exchange Act, and an “Outside Director” as defined under the U.S.
Treasury regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue
Code”): Dr. William Mitchell, M.D. (Chair) and Stewart L. Appelrouth. The Compensation Committee makes recommendations concerning
salaries and compensation for senior management and other highly paid professionals or consultants to Hemispherx. The full text
of the Compensation Committee’s Charter, as approved by the Board, is available on our website:
www.hemispherx.net
in the “Investor Relations” tab under “Corporate Governance”.
This Committee formally
met five times in 2016 and all committee members were in attendance for the meetings with the exception of one meeting. Our General
Counsel, Chief Financial Officer and Director of Human Resources support the Compensation Committee in its work.
Results of Stockholder Advisory Vote on
Executive Compensation
At the August 17, 2016
Annual Meeting of Stockholders, the Stockholders approved the annual, non-binding advisory vote on Executive Compensation.
Our Compensation Committee
reviews its executive compensation policies annually and takes into account the results of prior say-on-pay advisory votes.
The Committee reviewed
the results of the 2015 say-on-pay advisory vote and its executive compensation policies. In January 2016, in an effort to better
incentivize top management and align top management’s compensation with their performance on behalf of the Company, the Committee
created the 2016 Senior Executive Deferred Cash Performance Award Plan. See Item 7-Management’s Discussion and Analysis of
Financial Condition and Result of Operations; Liquidity and Capital Resources;
The Executive Plan
” in PART II.
Process
Our Compensation Committee
is responsible for determining the compensation of our NEO included in the “Summary Compensation Table” below. For
purposes of determining compensation for our NEO, our Compensation Committee takes into account the recommendation of our Chief
Executive Officer. The Compensation Committee is also responsible for overseeing our incentive compensation plans and equity-based
plans, under which stock option grants have been made to employees, including the NEO, as well as non-employee Directors and strategic
consultants.
The following table summarizes
the roles of each of the key participants in the executive compensation decision-making process:
Compensation Committee
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Fulfills the Board of Directors’ responsibilities relating to compensation of Hemispherx’ NEO, other non-officer Executives and non-Executives.
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Oversees implementation and administration of Hemispherx’ compensation and employee benefits programs, including incentive compensation and equity compensation plans.
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Reviews and approves Hemispherx’ goals and objectives and, in light of these, evaluates each NEO’s performance and sets their annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.
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Reviews and approves compensation for all other non-officer Executives of Hemispherx including annual base salary, annual incentive opportunity, long-term incentive opportunity and any special/supplemental benefits or payments.
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In consultation with the CEO and CFO, reviews the talent development process within Hemispherx to ensure it is effectively managed and sufficient to undertake successful succession planning.
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Reviews and approves employment agreements, severance arrangements, issuances of equity compensation and change in control agreements.
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Chairman and CEO
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Presents to the Compensation Committee the overall performance evaluation of, and compensation recommendations for, each of the NEO and other non-officer Executives.
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Chief Financial Officer and Director of Human Resources
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Reports directly or indirectly to the Chief Executive Officer.
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Assists the Compensation Committee with the data for competitive pay and benchmarking purposes.
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Reviews relevant market data and advises the Compensation Committee on interpretation of information, including cost of living statistics, within the framework of Hemispherx.
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Informs the Compensation Committee of regulatory developments and how these may affect Hemispherx’ compensation program.
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Objectives and Philosophy of Executive Compensation
The primary objectives
of the Compensation Committee of our Board of Directors with respect to Executive compensation are to attract and retain the most
talented and dedicated Executives possible, to tie annual and long-term cash and stock incentives to achievement of measurable
performance objectives, and to align Executives’ incentives with stockholder value creation. To achieve these objectives,
the Compensation Committee expects to implement and maintain compensation plans that tie a substantial portion of Executives’
overall compensation to key strategic financial and operational goals such as the establishment and maintenance of key strategic
relationships, the development of our products, the identification and advancement of additional products and the performance of
our common stock price. The Compensation Committee evaluates individual Executive performance with the goal of setting compensation
at levels the Committee believes are comparable with Executives in other companies of similar size and stage of development operating
in the biotechnology industry while taking into account our relative performance, our own strategic goals, governmental regulations
and the results of Stockholder Advisory Votes regarding executive compensation.
Use of Compensation Data
Our compensation plans
are developed by utilizing publicly available compensation data for national and regional companies in the biopharmaceutical industry
as well as web sites that specialize in compensation and/or employment data. We believe that the practices of this group of companies
and/or data obtained from employment industry organizations, provide us with appropriate compensation benchmarks necessary to review
the compensation recommendations by the CEO, CFO and/or Human Resources Department. Prior to 2016, the Committee did not engage
the services of an independent compensation consultant, but alternatively utilized web-based organizations and data bases such
as Salary.com, to help them analyze compensation data and compare our programs with the practices of similar national and/or regional
companies represented in the biopharmaceutical industry. In 2016, the Board of Directors, based upon the recommendation of the
Compensation Committee, engaged Steven Hall Partners, an independent compensation consultant, to review and improve executive compensation
arrangements and ensure they are in line with industry standards. The Compensation Committee recommended the consultant based upon
candidates suggested to it by its independent counsel and will review performance of the independent consultant at least annually.
Elements of Executive Compensation
The Compensation Committee
has adopted a mix among the compensation elements in order to further our compensation goals. The elements include:
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Base salary (impacted by cost of living adjustments);
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Variable compensation consisting of a cash bonus based upon individual and overall Company performance;
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Performance incentive bonus based on the accomplishment of Company sales milestones or activity;
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Long-term bonus incentive programs consisting of the Employee Bonus Pool Program;
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Stock option grants with exercise prices set in excess of fair market value at the time of grant and, effective December 2011, not vesting sooner than one year from the date of issuance; and
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Adoption of a policy to facilitate compliance with Dodd-Frank’s Claw-Back Compensation Recoupment provisions.
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Executive compensation consists
of the following elements:
Base Salary
Base salaries for our Executives
are established based on the scope of their responsibilities, taking into account competitive market compensation paid by other
companies for similar positions. Generally, we believe that Executive base salaries should be targeted near the median of the range
of salaries for executives in similar positions with similar responsibilities at comparable companies, in line with our compensation
philosophy. For those NEO with employment agreements, base salary is determined and set forth in the agreement and the Compensation
Committee reviews the base salary prior to renewal of such agreement. Base salaries for the other NEO are normally reviewed annually,
and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance
and experience. While this review process would normally occur in the fourth quarter of each year, in recent years this review
has occurred when NEO’s employment agreements required restatement, amendment or replacement. However, after analysis of
overall Company compensation, the Committee authorized a non-discriminatory and universally applied cost of living increase to
the base salaries of all full-time employees of record effective December 31, 2016, 2015 and 2014 at the rates of 0.0%, 0.0% and
1.5%, respectively. Additional changes to our NEO’s base salaries could be undertaken in a future determination by the Compensation
Committee at its discretion. During 2016 and 2015, none of the employment contracts of NEOs were created, amended or restated.
Mr. Equels employment agreement automatically extended for an additional three-year period upon his original agreement expiring
as of December 31, 2016. We are currently in negotiations with Mr. Equels on a new employment agreement. We are utilizing an independent
compensation consultant for assistance in negotiating the terms and conditions of this agreement. Dr. Strayer does not currently
have an employment agreement with the Company.
Senior Executive Deferred Cash Performance
Award Plan & Voluntary Incentive Stock Award Plan
On January 26, 2016, the
Board, based on the recommendation of its Compensation Committee, established two programs - the 2016 Senior Executive Deferred
Cash Performance Award Plan for Dr. William A. Carter and Thomas K. Equels, the Company’s two primary executive officers
(the “Executive Plan”), and the 2016 Voluntary Incentive Stock Award Plan for Company employees and Board members other
than Dr. Carter and Mr. Equels (the “Employee Plan”). Both Plans include a Base Pay Supplement provision.
The Executive Plan
The Executive Plan was
established to both conserve cash and create appropriate incentives for senior executives to be rewarded based upon the performance
of the Company. The two participants are Dr. William A. Carter, the Company’s former Chairman of the Board, Chief Executive
Officer and Chief Scientific Officer, and Thomas K. Equels, the Company’s current Chief Executive Officer, President and
Executive Vice Chairman of the Board (the “Executives”). Dr. Carter’s participation
in the Plan ended upon his termination of employment. The Executive Plan provides for a change to the amount to be withheld from
salary and director’s fees (collectively, “Compensation”) of Mr. Equels for the 3-month period commencing February
1, 2016 for the semi-monthly payroll period ended February 15, 2016 (the “Initial Period”) and thereafter. For the
payroll periods ended on February 15 and 29, 2016, 50% of Mr. Equels’ Compensation was withheld. For the remainder of the
Initial Period, 100% of Mr. Equels’ Compensation was withheld. Following the Initial Period and during any period the Executive
Plan is in effect, the percentage withheld from Mr. Equels’ Compensation would be at least 50% thereof, provided that any
amounts in excess of 50% would be as agreed upon by the Committee and Mr. Equels. Notwithstanding the foregoing, the amount of
Compensation to be withheld during any periods commencing on and after March 1, 2016 did not include the amount necessary, on
an after-tax basis, to fund applicable FICA, FUTA and other governmental welfare benefit taxes (both federal and state) and any
health or other insured benefits for which Mr. Equels contributes to the cost.
The Executive Plan was
in effect for three months beginning with the commencement of the Employee Plan described below and may be extended for additional
periods of three months thereafter subject to termination by the Company with the approval of the Board. The Executives participated
during each three-month period the Executive Plan was in effect (each such period, an “Executive Plan Period”). By
participating in the Executive Plan, each Executive authorized the Company to withhold 50% of the sum of his salary, consulting
and director’s fees on each semi-monthly payroll date (each, a “Withholding Date”) occurring during the applicable
Executive Plan Period. The Company established and maintained a record of the dollar amount withheld on each Withholding Date (each,
a “Withheld Dollar Amount”) and the closing price of a share of the Company’s common stock (the “Stock”)
on the NYSE MKT on the last trading day preceding the Withholding Date (each, a “Base Stock Price”).
On the 9-month anniversary
of each Withholding Date (each, a “Payment Date”), if the Payment Condition, as defined below, in respect of the Withheld
Dollar Amount on such Withholding Date is satisfied, the Company would pay the Executive an amount in cash (the “Performance
Cash Payment”) equal to (a) the product of the applicable Withheld Dollar Amount multiplied by a fraction, the numerator
of which was the closing price of the Stock on the NYSE MKT for the last trading date preceding the Payment Date (a “Payment
Stock Price”), and the denominator of which was the applicable Base Stock Price, less (b) the minimum withholding taxes due
in respect of such payment. The Payment Condition was that the closing price of the Stock for at least five (5) successive trading
days during the period beginning on the applicable Withholding Date and ending on the applicable Payment Date must have been at
least $0.20 per share. If the Payment Condition is not fully satisfied with respect to a Withheld Dollar Amount then the Performance
Cash Payment will be zero and the Senior Executives will lose the entire amount withheld. In 2016 Mr. Equels earned $131,000 in
accordance with item 5 of the Executive Plan, as the price of our stock has been above $.20 for 5 successive trading days.
The Company believes that
this combination of a large compensation holdback coupled with the Executives’ ability to recoup this amount and possibly
more aligns the Executives’ compensation to their performance and rewards them only if they are able to increase stockholder
value and penalizes them if they fail to achieve the minimum floor stock price of $.20 per share for several successive days. This
enhances the incentives related to improving the Company’s business and raising its stock price.
The Executive Plan was
administered and interpreted by the Compensation Committee. The Compensation Committee had the authority to make appropriate adjustments
to the Base Stock Price and the Payment Stock Price to reflect stock splits and stock combinations.
The Employee Plan
Pursuant to the Employee
Plan, all full-time employees and directors, other than Mr. Equels participated in the plan. The Employee Plan was in effect for
three months commencing on February 1, 2016 and may be extended for additional periods of three months thereafter subject to termination
by the Company with the approval of the Board. Eligible employees and directors may elect to participate during any three-month
period the Employee Plan is in effect (each, an “Employee Plan Period”) subject to election prior to the commencement
of any such period Employees and Directors who elect to participate in the Employee Plan (the “Participants”) may elect
to cease their participation at the end of any Employee Plan Period.
By electing to participate
in the Employee Plan, employees authorized the Company to withhold 20% of the employee’s salary on each semi-monthly payroll
date and the directors authorized the Company to withhold 20% of the director’s fee on each semi-monthly payment date (each
a “Withholding Date”) occurring during the applicable Employee Plan Period. On each Withholding Date, the Participant
was issued an Incentive Right for a number of shares of Stock, less applicable withholding taxes. The number of shares (the “Participant’s
Amount”) was computed by dividing the applicable salary/fee withheld for the period by the closing price of the Stock on
the NYSE MKT on the trading day immediately preceding the Withholding Date. The Company established and maintained a record of
the number of shares of Stock represented by each Incentive Right. Such number of shares of Stock represented by an Incentive Right
was subject to appropriate adjustment in the event of a stock split or stock consolidation.
Any employee earning salary
at a rate of less than $75,000 per year made an Election discussed above, to participate by authorizing the Company to withhold,
at the employee’s option, 10% or 20% of the employee’s salary during such Employee Plan Period.
Each Participant made an
Election in writing to receive the Participant’s Amount, on the 6-month, 9-month or 12-month anniversary of each Withholding
Date. In the absence of an election, the Participant was paid on the 6-month anniversary of the applicable Withholding Date.
On the anniversary date
on which the Participant was paid in accordance with his or her election (the “Payment Date”), the Company determined,
for tax withholding and basis purposes, the value of each Participant’s Amount for which payment was made. The value on the
Payment Date was based on the closing price of a share of Stock on the NYSE MKT for the trading day preceding the Payment Date.
On any date Stock was issued, the number of shares needed for sale to cover the related withholding taxes was determined by the
Company and communicated to the Participant. Unless the Participant elects prior to the commencement of the applicable Employee
Plan Period to pay the withholding tax dollar amount directly to the Company on or before the Payment Date, the Company will withhold
the required minimum withholding tax from any amounts due the Participant on such Payment Date by either, in its discretion, (a)
reducing the number of shares of Stock to be issued to the Participant by the number of shares of Stock having a value equal to
the applicable withholding taxes or (b) causing to be sold on the open market that number of shares of Stock issued to the Participant
which is necessary to fund the payment of the withholding tax.
The Employee Plan was administered
and interpreted by the Compensation Committee.
The Company arranged, at
its cost, for a registered brokerage firm to establish a trading account for each Participant. Shares of Stock being delivered
under the Employee Plan will be transferred to that account. Delivery of shares of Stock under the Employee Plan will constitute
taxable income to a Participant at the time the shares of Stock are delivered and will be subject to payroll taxes. The Company
will bear all costs related to selling shares of Stock awarded under the Employee Plan in such amount as necessary to pay any withholding
taxes. During the period a Participant remains an active employee or a Director, the Company will bear (i) the charges of the brokerage
firm for the maintenance of the account, (ii) any transaction costs related to the transfer of shares by the Company into the account
and (iii) transaction costs related to the sale of shares of Stock from the account.
All full-time employees
opted to participate in the Employee Plan.
Annual Bonus
Our compensation program
includes eligibility for an annual performance-based cash bonus in the case of all NEO and certain senior, non-officer Executives.
The amount of the cash bonus depends on the level of achievement of the stated corporate, department, and individual performance
goals, with a target bonus generally set as a percentage of base salary. As provided in their respective employment agreements,
during the year ended December 31, 2016, the following NEOs were eligible for an annual performance bonus based on their salaries,
the amount of which, if any, is determined by the Board of Directors in its sole discretion based on the recommendation of the
Compensation Committee:
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Thomas Equels, CEO & President (bonus opportunity up to 25%);
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Adam Pascale, Chief Financial Officer (bonus opportunity up to 25%).
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The Compensation Committee
utilizes annual incentive bonuses to compensate NEO and certain senior, non-officer executives (the “Executive Team”)
for attainment or success towards overall corporate financial and/or operational goals along with achieving individual annual performance
objectives. These objectives will vary depending on the individual Executive, but generally relate to strategic factors such as
establishment and/or maintenance of key strategic relationships, development of our products, identification, research and/or development
of additional products, enhancing financial factors such as raising capital, cost containment and/or improving the results of operations.
The Compensation Committee, in light of established individual and Company-wide goals and objectives, evaluated the performance
of each NEO, key executive and overall staff in order to determine each respective annual incentive opportunity including an analysis
by the Compensation Committee that provides the following information:
1.
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The Company-wide goals and objectives along with individual performance goals for each NEO used to determine annual bonuses for the fiscal year;
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2.
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How each goal individually or in totality was weighted, if applicable, to the extent that any of the performance goals were quantitatively and/or quantitatively measurable;
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3.
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The threshold, target, and maximum levels of achievement of each performance goal, if applicable;
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4.
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The intended relationship between the level of achievement of Company-wide performance goals and the amount of bonus to be awarded;
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5.
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The intended relationship between the level of achievement of each NEO’s individual performance goals and the amount of bonus to be awarded;
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6.
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The evaluation by the Committee of the level of achievement by each NEO of the Company-wide and individual performance goals applicable to him/her individually;
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7.
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If applicable, whether the Committee reviewed any report(s) from compensation consultant(s) and/or web based organizations and data bases;
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8.
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The adequate disclosure of the percentage of base salary awarded in the form of an incentive bonus to each NEO as a result of their or the Company’s performance; and
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9.
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If applicable, how the Company’s compensation policies and practices relate to the Company’s risk management.
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The Compensation Committee
also undertook the initial steps to review and reestablish goals and objectives for the Executive Team regarding bonuses. On an
overall basis, all bonus eligible member of the Executive Team would share the following Company-wide goals:
A.
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Regulatory approval and sales of Ampligen® for the treatment of Chronic Fatigue Syndrome in any country or regional jurisdiction;
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B.
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Significant regulatory advancement for the approval of Ampligen® for any non-CFS indication in any country jurisdiction. These indications include cancer vaccines, vaccines for infectious indications including bioterror/biowarfare, burns or other inducers of traumatic immunodeficiency;
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C.
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Regulatory approval and sales of Alferon® for the treatment of any non-CFS indication in any country jurisdiction;
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D.
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Any merger, acquisition, or partnership that quantitatively improves the value of the company;
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E.
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Any governmental grant and/or contact, singly or in the aggregate for R & D or commercial product;
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F.
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Continued productive interaction with the FDA concerning issues necessary for approval of Ampligen® for CFS;
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G.
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Continued progress towards non-USA approval of Ampligen® for Chronic Fatigue Syndrome;
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H.
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An overall strategic plan for Ampligen® and Alferon® to be submitted to the Board;
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I.
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Strategic plans for the marketing and partners for Ampligen® to be submitted to the Board;
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J.
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Continued development of enhancement of vaccines requiring Ampligen®;
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K.
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Success in the protection of Company Intellectual Property;
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L.
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Continued development of Alferon® LDO;
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M.
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Progress in the return to commercialization of Alferon N Injection®;
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N.
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Continued development of Ampligen® and Alferon N Injection® for treatment of influenza;
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O.
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Maintaining the overall financial strength of the Company and operations consistent with the budget;
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P.
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Implementation of research & development partnerships;
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Q.
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Implementation of Ampligen® clinical trials in cancer with commercial partner(s);
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R.
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Implementation of Ampligen® clinical trials in cancer with academic partner(s);
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S.
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Increase in clinical trials of Alferon N Injection® and additional indications; and,
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T.
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Acquisition of complimentary pharmaceutical technologies and/or drugs/vaccines.
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On an annual basis and
at the sole discretion of the Compensation Committee, with input from the CEO or the Executive’s direct supervisor, the Committee
evaluates the individual performance of each member of the Executive Team as to his/her achievement and/or contribution towards
meeting the overall Company-wide goals along with his/her accomplishments specific to his/her job description. The outcome of the
Committee’s analysis is utilized to determine if a bonus is warranted, and if so, the dollar amount or percentage of the
Executive Team member’s year-end base pay rate to be awarded.
Prior to year-end or during
the first fiscal quarter of the subsequent year, the Compensation Committee would complete their analysis utilizing any internal
and external documentation desired, including but not limited to reports from independent analysts and/or corporate benchmarking
organizations. Upon analysis completion, the Compensation Committee made formal recommendations to the Board based on their findings
with regard to bonuses for the respective year ended. Due to the subjective nature of the Company-wide goals regarding the success
and analysis of an Executive in meeting or exceeding elements of his/her specific job duties, the goals were not designed to be
weighted in value or quantitative in nature. The bonuses were designed to be awarded based on a subjective cumulate nature of the
goals deemed attainable, employee performance and progress towards achievement. The bonus threshold was designed to range from
zero percent to twenty-five percent, with a target bonus of approximately twenty or twenty-five percent, calculated from the individual’s
year-end base pay rate.
In June and July 2014,
the Compensation Committee reviewed the Executive Team’s Company-wide goals as detailed in the Committee’s March 2014
meeting minutes along with specific goals documented in each individual’s job description. Upon individual review of each
member of the Executive Team, the Committee concluded that the Executive Team members had excelled in meeting their goals and responsibilities
as documented in each individual’s job description as well as made significant progress in meeting corporate goals with outstanding
success. Additionally, the Committee observed that the employees had worked tirelessly over the first half of 2014 and that a performance
bonus would be desirable to acknowledge the persistence, loyalty, effort and dedication of the Senior Management team.
The Compensation Committee
in light of pre-established individual, along with position appropriate Company-wide goals (A. through T. as disclosed above) and
objectives, undertook a weighted-average evaluation of the performance of each key executive in order to determine respective annual
incentive opportunities considering base salary and fees, short and long-term incentive opportunity and any special/supplemental
benefits or payments. Based upon all the foregoing and the recommendation of the Compensation Committee, the Board approved the
following 2014 Performance Bonuses be granted to the following NEO at the rate of 25% of their respective 2014 year-end base compensation:
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Thomas
Equels (Executive Vice Chairman, current Chief Executive Officer and President) for $134,203;
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Adam Pascale (Chief Financial Officer)
for $33,459;
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David Strayer (Chief Scientific Officer & Medical Director) for $67,369.
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There were no Performance
Bonuses granted and/or paid to the NEO’s for the years ended 2016 and 2015.
Employee Appraisal and Merit Bonus Program
In 2012, the Compensation
Committee approved an Employee Appraisal and Merit Bonus Program for those employees not eligible for the key employee annual bonus.
This Program incorporates a team concept by conducting appraisals for eligible employees in each department throughout the calendar
year and then averaging the total scores per department in order to determine year-end, department-wide merit bonuses. This Program
is annually renewed and at the ultimate discretion of the Compensation Committee based on various factors, including the Company’s
overall accomplishment of milestones and access to Working Capital.
For the year ended 2016
and 2015, no bonuses related to this program were granted to employees. In 2014, bonuses related to this program were granted to
employees amounting to approximately $58,000.
Executive Performance Incentive Bonus
As an element of his employment
contract, Thomas Equels (Executive Vice Chairman, Chief Executive Officer and President) is eligible for a performance
incentive bonus based on a percent, 2.5% and 5.0% respectively, of the Gross Proceeds paid to the Company as a result of sales
of Alferon N Injection®, Alferon® LDO, Ampligen® or other Company products, or from any joint ventures or corporate
partnering arrangements. For bonus purposes, Gross Proceeds is defined as cash amounts paid to the Company by the other parties
to the joint venture or corporate partnering arrangement, but shall not include any amounts paid to the Company as reimbursement
of expenses incurred; and any amounts paid to the Company in consideration for the Company’s assets (i.e., plant, property,
equipment, investments, etc.), equity or other securities. After the termination of this Agreement, for any reason, Mr. Equels
shall be entitled to receive the incentive bonus based upon Gross Proceeds received by the Company during the three-year period
commencing on the termination of their Agreement with respect to any joint ventures or corporate partnering arrangements entered
into by the Company during the term of the Agreement. Furthermore, Mr. Equels shall be entitled to a 5% bonus related to any sale
of the Company, or any sale of a substantial portion of Company assets not in the ordinary course of its business. The aggregate
incentive bonus hereunder as set forth above shall be capped not to exceed $5,000,000 annually.
During 2012, the Compensation
Committee and Board of Directors sought out and received an opinion of independent legal counsel regarding the elements of the
Executive Performance Incentive Bonus created by the current employment contracts of William Carter and Thomas Equels in relation
to the shares of Company stock sold through the Maxim ATM. It was the opinion of independent counsel that Section 3(c)(ii) of Dr.
Carter and Mr. Equels respective agreements could reasonably be interpreted to require the Company to pay them a 5% bonus on the
net proceeds resulting from the sale of securities of the Maxim ATM Offering as either (a) constitutes any sale of the Company,
or (b) is a sale of substantial portion of Company assets not in the ordinary course of its business. On November 26, 2012, all
of the members of the Compensation Committee authorized the payment of bonus for the Company stock sold through the Maxim ATM based
on the contractual obligation and opinion of independent counsel. On November 23, 2015, Mr. Equels waived his rights under his
respective employment agreement to any future payment of any incentive bonus related to the sale of the Company’s stock or
other securities by, or on behalf of, the Company pursuant to the Maxim Equity Distribution Agreement or any similar or successor
ATM equity distribution agreement including the Chardan Agreement. Mr. Equels provided this waiver due to a litigation settlement
in 2016 as well as in an effort to preserve cash and to help the Company to ensure its short term commercialization goals. For
the years ended 2016, 2015 and 2014, compensation was granted or paid related to the Executive Performance Incentive Program, as
set forth in Section 3(c)(ii) of his respective Employment Agreement, for approximately $0, $262,000, and $641,000 to Mr. Equels.
In addition, Mr. Equels received, as set forth in Section 3(c)(ii) of his Employment Agreement, $39,000 for 5% of the Ampligen®
cost recovery sales for the last 5 years.
Long-Term Bonus Incentive Programs
The Compensation Committee
believes that team oriented performance by our NEO, non-officer Executive officers and all employees, consistent with our short
and long-term goals, can be achieved through the use of goal or result oriented bonus programs. For the year ending 2016, the Employee
Bonus Pool Program continued to exist to provide our employees, including our NEO and certain senior, non-officer Executives, with
incentives to help align their financial interests with that of Hemispherx and its stockholders. For the year ending 2016, no compensation
was granted or paid in relation to Long-Term Bonus Programs.
Base Pay Supplement and Employee Bonus Pool Programs
All Participants in the
Employee Plan and Executive Plan created in January 2016 will be awarded an amount (the “Approval Award”) equal to
30% of the pre-tax amount of their base annual salary as then in effect upon FDA Approval of Ampligen® (the “Approval”).
The Approval Award will be paid within three months following the Approval. In addition, all Participants in either plan will be
awarded an amount (the “Pre-Approval Award”) equal to 30% of the pre-tax amount of their annual salary as then in effect
upon the successful pre-approval inspection by the FDA of the Alferon® facility (the “Pre-Approval”). The Pre-Approval
Award will be paid within three months following the Pre-Approval. A Participant will not qualify for the Approval or Pre-Approval
Award if the Participant’s employment is terminated prior to such Approval or Pre-Approval due to (i) termination by the
Company for Cause or (ii) voluntary termination by the Participant. See Item 7-Management’s Discussion and Analysis of Financial
Condition and Result of Operations; Liquidity and Capital Resources;
Base Pay Supplement
” in PART II.
An element of the prior
2009’s Employee Wage or Hours Reduction Program was the establishment of a Bonus Pool (the “Pool”) in the case
of FDA Approval (“Approval”) of Ampligen®. This bonus is to award to each employee of record at January 1, 2009
a pretax sum of 30% in wages, calculated on their base salary per annum compensation at the time of the Approval, and awarded within
three months of Approval. Participants who terminate their employment prior to the Approval will not qualify for this bonus. For
the year ended 2016, no compensation was granted or paid related to the Employee Bonus Pool Program.
Stock Options
The Compensation Committee
believes that long-term performance is achieved through an ownership culture that encourages such performance by our NEO, non-officer
Executives and all employees through the use of stock and stock-based awards. Our stock plans have been established to provide
our employees, including our NEO and senior non-officer Executives, with incentives to help align their interests with the interests
of stockholders. Accordingly, the Compensation Committee believes that the use of stock and stock-based awards offers the best
approach to achieving long-term performance goals because:
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Stock options align the interests of Executives and employees with those of the stockholders, support a pay-for-performance culture, foster employee stock ownership, and focus the management team on increasing value for the stockholders;
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Stock options are performance based. All the value received by the recipient of a stock option is based on the growth of the stock price; and
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Stock options help to provide a balance to the overall executive compensation program as base salary and our discretionary annual bonus program focus on short-term compensation.
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We have historically elected,
and continue to use, stock options as the primary long-term equity incentive vehicle. We have adopted stock ownership guidelines
and our stock compensation plans have provided the principal method, other than through direct investment for our executives to
acquire equity in our Company. The Compensation Committee believes that the annual aggregate value of these awards should be set
near competitive median levels for comparable companies. However, in the early stage of our business, we provided a greater portion
of total compensation to our Executives through our stock compensation plans than through cash-based compensation.
In determining the number
of stock options to be granted to NEO, non-officer Executives and employees, we take into account the individual’s position,
scope of responsibility, ability to affect profits and stockholder value and the individual’s historic and recent performance
and the value of stock options in relation to other elements of the individual’s total compensation.
Our stock plans authorize
us to grant options to purchase shares of common stock to our NEO, employees, Directors and consultants. Our Compensation Committee
oversees the administration of our stock option plan. The Compensation Committee reviews and recommends approval by our Board of
Directors of stock option awards to NEO based upon a review of competitive compensation data, its assessment of individual performance,
a review of each Executive’s existing long-term incentives and retention considerations. Periodic stock option grants are
made at the discretion of the Board of Directors upon recommendation of the Compensation Committee to eligible NEO and employees
and, in appropriate circumstances, the Compensation Committee considers the recommendations of the CEO.
As a reinforcement to employees
that one of the Company’s priorities continues to be that of increasing shareholder value, the Compensation Committee and
Board have historically granted the replacement of expired stock options to all current employees at the same number of shares
and exercise price as had been originally issued.
Effective as of December
2011, the Compensation Committee mandated that the standard terms of options to be issued to individuals in their role as Company
employees to require that such options not vest sooner than one year from the date of issuance and that, to the extent that any
such options have not vested on the date of an Executive’s termination, the options shall be void as to such unvested portion.
The following Options were
issued to NEO in their role as employees during 2016:
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On June 8, 2016,
we granted options to Thomas K. Equels, Chief Executive Officer, consistent with his
employment agreement 25,000 ten year options to purchase common stock at $1.68 per share which vest in entirety in one year;
and
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On June 21, 2016, we granted 12,500 ten year options to purchase common stock at $1.56 per share which vest in entirety in one year options to Dr. Strayer, Chief Scientific Officer and Chief Medical Officer; and
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On June 21, 2016, we granted 12,500 ten year options to purchase common stock at $1.56 per share which vest in entirety in one year options to Adam Pascale, Chief Financial Officer;
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The following Options were
issued to NEO in their role as employees during 2015:
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On June 6, 2015,
we granted options to Thomas K. Equels, Chief Executive Officer consistent with his employment agreement 25,000 ten
year options to purchase common stock at $3.00 per share which vest in entirety in one year;
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The following Options were
issued to NEO in their role as employees during 2014:
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On June 6, 2014,
we granted options to Thomas K. Equels, Chief Executive Officer consistent with his employment agreement 25,000 ten
year options to purchase common stock at $4.32 per share which vest in entirety in one year; and
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The Equity Incentive Plan
of 2009 authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other
stock awards. A maximum of 1,250,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity
Incentive Plan of 2009. In September 2015, the Company’s stockholders approved the following amendments to the 2009 Plan:
(1) increased the number of shares authorized to be issued under the Equity Incentive Plan from 1,250,000 to 1,833,333; (2) required
a gradual vesting period of options issued under the Equity Incentive Plan over a one year period; (3) revised the definition of
“change in control” to make it less “liberal” by amending the provision that a change in control occurs
upon stockholder approval of a merger, consolidation or sale or disposition by the Company of all or substantially all of its assets
(a “Business Combination”) to state that such a change in control occurs upon the consummation of the Business Combination;
and (4) clarified that the definition of change in control has a double trigger – For a Participant to get the benefit resulting
from a change in control, such Participant must have been terminated other than for cause within a two year period. Unless sooner
terminated, the Equity Incentive Plan of 2009 will continue in effect for a period of 10 years from its effective date.
Claw-Back Compensation Recoupment Provisions
Effective December 2011,
all Executive compensation including and without limitation to base salary, bonuses, stock options, and fringe benefits, shall
be subject to recoupment from the Employee by the Company pursuant to the Company’s Executive Compensation Recoupment Policies
adopted December 1, 2011, as may be amended by the Company’s Board of Directors from time to time to remain in compliance
with the claw-back compensation recoupment provisions of the Dodd-Frank Act.
Other Compensation
We provide the following
benefits to our NEO generally on the same bases as benefits provided to all full-time employees:
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Health, vision and dental insurance;
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Life insurance;
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Short and long-term disability insurance; and
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401(k) with Company’s ability to match of up to 6% of employee’s contribution or to the extent of IRS regulations, whichever is lower.
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The Compensation Committee
believes that these benefits are consistent with those offered by other companies, specifically those provided by our peers. Occasionally,
certain Executives separately negotiate other benefits in addition to the benefits described above. The following additional benefits
were provided in 2012 NEO as an element of their respective employment:
Thomas Equels, General Counsel:
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Automobile allowance;
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Predetermined allowance for the Company’s utilization of Florida offices of Equels Law Firm;
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Reimbursement of home office, computer, internet, phone and telefax expenses;
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Health, vision and dental insurance fully paid by the Company; and
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Supplementary life and disability insurance policies.
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401(k) Plan
In December 1995, we established
a defined contribution plan, effective January 1, 1995, entitled the Hemispherx Biopharma employees 401(k) Plan and Trust Agreement.
All of our full-time employees are eligible to participate in the 401(k) plan following one year of employment. Subject to certain
limitations imposed by Federal Tax laws, participants are eligible to contribute up to 15% of their salary (including bonuses and/or
commissions) per annum. Through March 14, 2008, Participants’ contributions to the 401(k) plan were matched by Hemispherx
at a rate determined annually by the Board of Directors. Each participant immediately vests in his or her deferred salary contributions,
while our contributions will vest over one year.
Effective March 15, 2008
and continuing through December 31, 2009, we halted our matching of 401(k) contributions provided to the account for each eligible
participant. Effective January 1, 2010, our Compensation Committee reestablished Hemispherx’ 100% matching of up to 6% of
the 401(k) contributions provided to the account for each eligible participant, to the dollar extent permitted by IRS regulations,
including without exception each eligible Named Executive Officer. We halted our matching of 401(k) contributions as of January
1, 2016.
Severance
In determining whether
to approve and setting the terms of severance arrangements, the Compensation Committee recognizes that Executives, especially highly
ranked Executives, often face challenges securing new employment following termination. Upon termination of employment, the following
NEO currently are entitled to receive severance payments under their employment and/or engagement agreements:
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Thomas K. Equels, Executive Vice Chairman of
the Board, Chief Executive Officer and President.
|
The Compensation Committee
believes that severance agreements provided to these individuals are generally in line with severance packages offered to executive
officers of companies of similar size. Alternately, Dr. David Strayer and Adam Pascale are currently not covered under an existing
severance agreement. Any severance benefits payable to them under similar circumstances would be determined by the Compensation
Committee in its discretion. See “Estimated Payments Following Severance — Named Executive Officers”.
Conclusion
Our compensation policies
are designed to retain and motivate our Executive Officers, other non-officer Executives and non-Executives and to ultimately reward
them for outstanding individual and corporate performance.
COMPENSATION COMMITTEE REPORT
The Compensation Committee
of our Board of Directors oversees our compensation program on behalf of the Board. In fulfilling its oversight responsibilities,
the Committee reviewed and discussed with Management the Executive Compensation Discussion and Analysis set forth in this Form
10-K for the fiscal year ended December 31, 2016.
In reliance on the review
and discussions referred to above, the Committee recommended to the Board that the Compensation Discussion and Analysis be included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and Hemispherx’ Proxy Statement to be filed
in connection with Hemispherx’ 2017 Annual Meeting of Stockholders.
COMPENSATION COMMITTEE
Dr. William M. Mitchell, Committee Chairman
Stewart L. Appelrouth
The foregoing Compensation
Committee report shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, and
shall not otherwise be deemed filed under these acts, except to the extent we incorporate by reference into such filings.
Compliance with Internal Revenue Code Section
162(m) and 409A & 409(b)
One of the factors the
Compensation Committee considers in connection with compensation matters is the anticipated tax treatment to Hemispherx and to
the Executives of the compensation arrangements. The deductibility of certain types of compensation depends upon the timing of
an executive’s vesting in, or exercise of, previously granted rights. Moreover, interpretation of, and changes in, the tax
laws and other factors beyond the Compensation Committee’s control also affect the deductibility of compensation. Accordingly,
the Compensation Committee will not necessarily limit executive compensation to that deductible under Section 162(m) or 409A &
409(b) of the Code. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation
payments and benefits to the extent consistent with its other compensation objectives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Our Compensation Committee
of the Board of Directors, consisting of Dr. William M. Mitchell, the Committee Chair, and Stewart L. Appelrouth are independent
directors. There are no interlocking relationships.
EXECUTIVE COMPENSATION
The following table provides
information on the compensation during the fiscal years ended December 31, 2016, 2015 and 2014 of our Chief Executive Officer,
Chief Financial Officer, and Chief Scientific Officer/Medical Director constituting the Company’s Named Executive Officers,
based on the year ended 2016 for each fiscal year.
Summary Compensation
Table
Name & Principal
Position
|
|
Year
|
|
|
Salary /
Fees (3)
|
|
|
Bonus
|
|
|
|
Stock
Awards
|
|
|
Option
Awards
(3) (9)
|
|
|
Non-Equity Incentive Plan Compensation
|
|
|
Change in Pension Valued and NQDC Earnings ($)
|
|
|
All Other
Compensation
|
|
|
Total (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas K. Equels
|
|
|
2016
|
|
|
$
|
503,081
|
|
|
$
|
170,261
|
(3)
|
|
|
|
—
|
|
|
$
|
27,297
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
84,521
|
(6)
|
|
$
|
785,160
|
|
CEO & President (2) (3)
|
|
|
2015
|
|
|
$
|
719,273
|
|
|
$
|
262,092
|
(3)
|
|
|
|
—
|
|
|
$
|
45,518
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
94,971
|
(6)
|
|
$
|
1,121,854
|
|
|
|
|
2014
|
|
|
$
|
719,273
|
|
|
$
|
774,990
|
(3)
|
(5)
|
|
|
—
|
|
|
$
|
69,199
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
104,987
|
(6)
|
|
$
|
1,668,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Pascale
|
|
|
2016
|
|
|
$
|
190,767
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
12,590
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
32,037
|
(8)
|
|
$
|
235,394
|
|
CFO
|
|
|
2015
|
|
|
$
|
154,000
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
38,264
|
(8)
|
|
$
|
192,264
|
|
|
|
|
2014
|
|
|
$
|
143,917
|
|
|
$
|
33,459
|
(5)
|
|
|
$
|
—
|
|
|
$
|
10,339
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
36,027
|
(8)
|
|
$
|
223,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer
|
|
|
2016
|
|
|
$
|
284,575
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
$
|
12,590
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
32,235
|
(7)
|
|
$
|
329,400
|
|
CSO & Medical Director
|
|
|
2015
|
|
|
$
|
269,475
|
|
|
$
|
—
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
44,865
|
(7)
|
|
$
|
314,340
|
|
|
|
|
2014
|
|
|
$
|
269,475
|
|
|
$
|
67,369
|
(7)
|
|
|
|
—
|
|
|
$
|
746
|
(4)
|
|
|
—
|
|
|
|
—
|
|
|
$
|
29,744
|
(7)
|
|
$
|
367,334
|
|
Notes:
(1)
|
Mr. Equels transitioned from the role of external to internal General Counsel and Litigation Counsel effective June 1, 2010 with an Employment Agreement of June 11, 2010, which was amended on July 15, 2010, then amended and restated December 6, 2011, that granted him the annual Option to purchase 25,000 shares of Hemispherx common stock as an element of his Employment Agreement.
|
|
|
(2)
|
For Named Executive Officers, who are also Directors that receive compensation for their services as a Director, the Salary/Fees and Option Awards columns include compensation that was received by them for their role as a member of the Board of Directors. As is required by Regulation S-K, Item 402(c), compensation for services as a Director have been reported within the “Summary Compensation Table” (above) for fiscal years of 2016, 2015 and 2014 as well as reported separately in the “Compensation of Directors” section (see below) for calendar year 2016.
|
|
|
(3)
|
On November 26, 2012, the Compensation Committee authorized the payment of a bonus of 5% on the net dollar proceeds resulting from the sale of Company stock sold through the Maxim ATM to Mr. Equels based on the contractual obligation and opinion of independent legal counsel, as set forth in Section 3(c)(ii) of their respective Employment Agreements. Amounts include for 2014, 2015 and 2016, compensation was granted or paid to Mr. Equels, pursuant to this bonus. On November 23, 2015, he waived his rights to any future payments of any incentive bonuses related to the sale of the Company’s stock pursuant to any ATM equity distribution agreement. In December 2016, the Compensation Committee authorized the payment of $39,419 for 5% of Ampligen® sales for the last 5 years, as stated in Thomas Equels’ employment contract and the payment of $130,842, as stated in the 2016 Senior Executive Deferred Cash Performance Award Plan for achieving the Company stock price of $0.20 for 5 successive trading days
|
(4)
|
On December 8, 2014, the Compensation Committee granted 10 year term replacement options to purchase 833 shares of our common stock at an exercise price of $22.80 per share that vest over a 12 month period to Dr. Strayer.
|
|
|
(5)
|
On July 3, 2014, our Compensation Committee of the Board of Directors awarded bonuses to certain NEO and senior, non-officer Executives in recognition for their achievement towards our Company-wide and individual goals in 2014.
|
|
|
(6)
|
Mr. Equels’ All Other Compensation consists of:
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Life and Disability Insurance
|
|
$
|
36,640
|
|
|
$
|
31,429
|
|
|
$
|
35,280
|
|
Healthcare Insurance
|
|
|
29,881
|
|
|
|
29,942
|
|
|
|
36,107
|
|
Car Expenses / Allowance
|
|
|
18,000
|
|
|
|
18,000
|
|
|
|
18,000
|
|
401(k) Matching Funds
|
|
|
—
|
|
|
|
15,600
|
|
|
|
15,600
|
|
|
|
$
|
84,521
|
|
|
$
|
94,971
|
|
|
$
|
104,987
|
|
(7)
|
Dr. Strayer’s All Other Compensation consists of:
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Life and Disability Insurance
|
|
$
|
3,571
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Healthcare Insurance
|
|
|
28,664
|
|
|
|
29,265
|
|
|
|
14,144
|
|
401(k) Matching Funds
|
|
|
—
|
|
|
|
15,600
|
|
|
|
15,600
|
|
|
|
$
|
32,235
|
|
|
$
|
44,865
|
|
|
$
|
29,744
|
|
(8)
|
Mr. Pascale’s All Other Compensation consists of:
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Life and Disability Insurance
|
|
$
|
3,373
|
|
|
$
|
3,353
|
|
|
$
|
3,187
|
|
Healthcare Insurance
|
|
|
28,664
|
|
|
|
25,671
|
|
|
|
22,178
|
|
401(k) Matching Funds
|
|
|
-
|
|
|
|
9,240
|
|
|
|
10,641
|
|
|
|
$
|
32,037
|
|
|
$
|
38,264
|
|
|
$
|
36,027
|
|
Grants of Plan Based Awards
|
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards(1)
|
|
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#)
|
|
|
All Other Option Awards: Number of Securities of Underlying Options (#)(2)
|
|
|
Exercise or Base Price of Option Awards ($/Sh)
|
|
|
Grant Date Fair Value of Stock and Option Awards ($)
|
|
Name
|
|
Grant Date (2)
|
|
|
Threshold ($)
|
|
|
Target
($)
|
|
|
Maximum ($)
|
|
|
Threshold ($)
|
|
|
Target ($)
|
|
|
Maximum ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas Equels,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO & President
|
|
|
6/6/2016
|
|
|
|
—
|
|
|
|
100,616
|
|
|
|
125,770
|
|
|
|
—
|
|
|
|
15,403
|
(3)
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
1.68
|
|
|
$
|
27,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Pascale,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CFO
|
|
|
|
|
|
|
—
|
|
|
|
38,153
|
|
|
|
47,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,500
|
|
|
$
|
1.56
|
|
|
$
|
12,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer,
|
|
|
|
|
|
|
—
|
|
|
|
56,915
|
|
|
|
71,144
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,500
|
|
|
$
|
1.56
|
|
|
$
|
12,590
|
|
CSO & Medical Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
(1)
|
For 2016, the Compensation Committee continued its practice of not establishing or estimating possible future payouts to the NEO under a Cash Bonus Plan. All Bonuses are at the discretion of the Compensation Committee. Utilizing existing Employment Agreements as a benchmark and the respective employees’ Base Salary at January 1, 2016, the “Target” was estimated at 20% of the Base Salary and “Maximum” was estimated at 25% of Base Salary.
|
|
|
(2)
|
Consists of stock options granted during 2016 under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the NYSE MKT closing market price of our common stock on the date of grant. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
(3)
|
Consists of stock options contractually required per the NEO’s respective Employment Agreement to be granted during 2017 under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the NYSE MKT closing market price of our common stock on the date of grant. For the purpose of this schedule, a NYSE MKT closing price at December 31, 2016 of $0.69 was assumed with an estimated exercise price of $0.76 for Mr. Equels. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
Outstanding Equity Awards at Fiscal Year
End
|
|
Option Awards
|
|
|
|
|
Stock Awards
|
|
Name
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
|
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
|
|
|
Option Exercise Price ($)
|
|
|
Option Expiration Date
|
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
|
|
Market Value of Shares or Units of Stock That Have Not Vested ($)
|
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested (#)
|
|
Thomas
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7.92
|
|
|
6/11/2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equels,
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.92
|
|
|
6/24/2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
President and Chief
|
|
|
8,333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.48
|
|
|
6/6/2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Executive Officer
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.72
|
|
|
6/11/2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.72
|
|
|
6/6/2023
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
12,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.00
|
|
|
8/2/2023
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4.32
|
|
|
6/6/2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.00
|
|
|
6/8/2025
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
1.68
|
|
|
6/8/2026
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam
|
|
|
83
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28.44
|
|
|
1/23/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pascale,
|
|
|
1,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.60
|
|
|
12/6/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Chief Financial
|
|
|
417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48.00
|
|
|
9/17/18
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Officer
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48.36
|
|
|
4/13/2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
4,167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.96
|
|
|
7/8/2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
12,500
|
|
|
|
—
|
|
|
|
1.56
|
|
|
6/21/2026
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
|
|
|
4,167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24.00
|
|
|
9/9/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stayer,
|
|
|
4,167
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48.00
|
|
|
2/18/2018
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CSO & Medical
|
|
|
833
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48.36
|
|
|
4/13/2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Director
|
|
|
1,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28.44
|
|
|
1/23/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
833
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22.80
|
|
|
12/8/2024
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,083
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15.60
|
|
|
12/6/2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
12,500
|
|
|
|
—
|
|
|
|
1.56
|
|
|
6/21/2026
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Option Exercises and Stock Vested
|
|
|
Option Awards
|
|
|
|
Stock Awards
|
|
Name and Principal Position
|
|
|
Number of Shares Acquired on Exercise (#)
|
|
|
|
Value Realized on Exercise ($)
|
|
|
|
Number of Shares Acquired on Vesting (#)
|
|
|
|
Value
Realized
on Vesting ($)
|
|
Thomas K. Equels,
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CEO & President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Pascale,
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer,
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CSO and Medical Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on Disability
At December 31, 2016, we
had an employment agreement with Mr. Equels which entitled him Base Salary and applicable benefits otherwise due and payable through
the last day of the month in which disability occurs and for an additional twelve-month period. Each current NEO, including Mr.
Pascale and Dr. Strayer, has the same short and long-term disability coverage which is available to all eligible employees. The
coverage for short-term disability provides up to six months of full salary continuation up to 60% of weekly pay, less other income,
with a $1,500 weekly maximum limit. The coverage for group long-term disability provides coverage at the exhaustion of short-term
disability benefits of full salary continuation up to 60% of monthly pay, less other income, with a $10,000 monthly maximum limit.
The maximum benefit period for the group long-term disability coverage is 60 months for those age 60 and younger at the time of
the claim with the coverage period proportionately reduced with the advanced age of the eligible employee to a minimum coverage
period of 12 months for those of 69 years old and older as of the date of the claim. For the period June 2010 through 2016 pursuant
to his respective employment agreement and payable by us, Mr. Equels is entitled to receive total disability coverage of $400,000.
Payments on Death
At December 31, 2016, we
had an employment agreement with Mr. Equels which entitled him Base Salary and applicable benefits otherwise due and payable through
the last day of the month in which death occurs and for an additional twelve-month period. Each NEO, including Mr. Pascale and
Dr. Strayer, has coverage of group life insurance, along with accidental death and dismemberment benefits, consistent to the dollar
value available to all eligible employees. The benefit is equal to two times current salary or wage with a maximum limit of $300,000,
plus any supplemental life insurance elected and paid for by the NEO. For the period June 2010 and through 2016 pursuant to his
respective employment agreements and payable by us, Mr. Equels is entitled to receive total death benefit coverage of $3,000,000.
Estimated Payments Following Severance —
Named Executive Officers
At December 31, 2016, we
had an employment agreement with Mr. Equels which entitled him to severance benefits on certain types of employment terminations
not related to a change in control. Dr. Strayer and Mr. Pascale are not covered by an employment severance agreement and therefore
would only receive severance as determined by the Compensation Committee in its discretion.
The dollar amounts below
assume that the termination occurred on January 1, 2017. The actual dollar amounts to be paid can only be determined at the time
of the NEO’s separation from Hemispherx based on their prevailing compensation and employment agreements along with any determination
by the Compensation Committee in its discretion.
Name
|
|
Event
|
|
Cash
Severance ($)
|
|
|
Value of Stock Awards That Will Become Vested (1) ($)
|
|
|
Continuation of Medical Benefits ($)
|
|
|
Additional Life Insurance ($)
|
|
|
Total ($)
|
|
Thomas K. Equels,
|
|
Involuntary (no cause)
|
|
|
554,811
|
|
|
|
6,737
|
|
|
|
—
|
|
|
|
—
|
|
|
|
561,548
|
|
CEO & President
|
|
Termination (for cause)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Death or disability
|
|
|
554,811
|
|
|
|
6,737
|
|
|
|
—
|
|
|
|
—
|
|
|
|
561,548
|
|
|
|
Termination by employee or retirement
|
|
|
554,811
|
|
|
|
6,737
|
|
|
|
—
|
|
|
|
—
|
|
|
|
561,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Pascale
|
|
Involuntary (no cause)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CFO
|
|
Termination (for cause)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Death or disability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Termination by employee or retirement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Strayer
|
|
Involuntary (no cause)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
CSO & Medical Director
|
|
Termination (for cause)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Death or disability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Termination by employee or retirement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Notes:
(1)
|
Consists of stock options contractually required per the employee’s respective Employment Agreement to be granted during each calendar year of the term under our 2009 Equity Incentive Plan. The stock options have a ten-year term and an exercise price equal to 110% of the closing market price of our common stock on the date of grant. For the purpose of this schedule, a NYSE MKT closing price at December 31, 2016 of $0.69 was utilized with an estimated exercise price of $0.76. The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
Payments On Termination in Connection with a Change in Control
Named Executive Officers
At December 31, 2016, we
had an employment agreement with Mr. Equels which entitled him to severance benefits on certain types of employment terminations
related to a change in control thereby the term of his respective agreement would automatically be extended for three additional
years. Dr. Strayer and Mr. Pascale are not covered by employment severance agreement and therefore would only receive severance
from a change in control as determined by the Compensation Committee in its discretion. Any specific benefits for these two NEO
would be determined by the Compensation Committee in its discretion.
The dollar amounts in the
chart below assume that change in control termination occurred on January 1, 2017, based on the employment agreements that existed
at that time. The actual dollar amounts to be paid can only be determined at the time of the NEO’s separation from Hemispherx
based on their prevailing compensation and employment agreements along with any determination by the Compensation Committee in
its discretion.
Estimated Benefits on Termination Following
a Change in Control — December 31, 2016
The following table shows
potential payments to the NEO if employment terminates following a change in control under contracts, agreements, plans or arrangements
at December 31, 2016. The amounts assume a January 1, 2017 termination date regarding base pay and use of the opening price of
$0.69 on the NYSE MKT for our common stock at that date.
Name
|
|
Aggregate Severance Pay ($)
|
|
|
PVSU Acceleration (2) ($)
|
|
|
Early Vesting of Restricted Stock (4) (5) ($)
|
|
|
Early Vesting of Stock Options and SARs (3) ($)
|
|
|
Acceleration and Vesting of Supplemental Award (5) ($)
|
|
|
Welfare Benefits Continuation ($)
|
|
|
Outplacement Assistance ($)
|
|
|
Parachute Tax Gross-up Payment ($)
|
|
|
Total ($)
|
|
Thomas K. Equels
|
|
|
2,219,244 (1)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,243 (4)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,274,487
|
|
Adam Pascale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
David Strayer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Notes:
(1)
|
This amount represents the base salary and benefits for remaining term of the NEO’s employment agreement plus a three-year extension in the term upon the occurrence of a termination from a change in control. The existing employment agreement with Mr. Equels has a term through December 31, 2016; however, this was automatically extended for an additional three-year period through December 31, 2019.
|
|
|
(2)
|
This amount represents the payout of all outstanding performance-vesting share units (“PVSU”) awarded on a change in control at the target payout level with each award then pro-rated based on the time elapsed for the applicable three-year performance period.
|
|
|
(3)
|
This amount is the intrinsic value [fair market value on January 1, 2017 ($0.69 per share) minus the per share exercise price of 110%] of all unvested stock options for each NEO, including Stock Appreciation Rights (“SAR”). Any option with an exercise price of greater than fair market value was assumed to be cancelled for no consideration and, therefore, had no intrinsic value.
|
|
|
(4)
|
This amount represents the options to be issued annually for the remaining term of the NEO’s employment agreement plus a three-year extension in the occurrence of termination from a change in control. The calculation was based on a NYSE MKT closing price for December 31, 2016 of $0.69 with an estimated exercise price of $0.76 (110% prior NYSE MKT closing value). The value was obtained using the Black-Scholes-Merton pricing model for stock-based compensation in accordance with FASB ASC 718 (formerly SFAS 123R).
|
|
|
(5)
|
Any purchase rights represented by the Option not then vested shall, upon a change in control, shall become vested.
|
Definition of “Change in Control”
for each agreement, a “Change in Control” is defined generally as any such event that requires a report to the SEC,
but includes any of the following:
●
|
Any person or entity other than Hemispherx, any of our current Directors or Officers or a Trustee or fiduciary holding our securities, becomes the beneficial owner of more than 50% of the combined voting power of our outstanding securities;
|
|
|
●
|
An acquisition, sale, merger or other transaction that results in a change in ownership of more than 50% of the combined voting power of our stock or the sale/transfer of more than 75% of our assets;
|
|
|
●
|
A change in the majority of our Board of Directors over a two-year period that is not approved by at least two-thirds of the Directors then in office who were Directors at the beginning of the period; or
|
|
|
●
|
Execution of an agreement with Hemispherx, which if consummated, would result in any of the above events.
|
Definition of “Constructive Termination”.
A “Constructive Termination” generally includes any of the following actions taken by Hemispherx without the Executive’s
written consent following a change in control:
●
|
Significantly reducing or diminishing the nature or scope of the executive’s authority or duties;
|
|
|
●
|
Materially reducing the executive’s annual salary or incentive compensation opportunities;
|
|
|
●
|
Changing the executive’s office location so that he must commute more than 50 miles, as compared to his commute as of the date of the agreement;
|
|
|
●
|
Failing to provide substantially similar fringe benefits, or substitute benefits that were substantially similar taken as a whole, to the benefits provided as of the date of the agreement; or
|
|
|
●
|
Failing to obtain a satisfactory agreement from any successor to Hemispherx to assume and agree to perform the obligations under the agreement.
|
However, no constructive termination occurs if the executive:
●
|
Fails to give us written notice of his intention to claim constructive termination and the basis for that claim at least 10 days in advance of the effective date of the executive’s resignation; or
|
|
|
●
|
We cure the circumstances giving rise to the constructive termination before the effective date of the executive’s resignation.
|
Available Information
Our Internet website is
www.hemispherx.net and you may find our SEC filings in the “Investor Relations” under “SEC Filings”. We
provide access to our filings with the SEC, free of charge through www.sec.gov, as soon as reasonably practicable after filing
with the SEC. Our Internet website and the information contained on that website, or accessible from our website, is not intended
to be incorporated into this Annual Report on Form 10-K or any other filings we make with the SEC.
Post-Employment Compensation
We have an agreement with
the following NEO who has benefits upon termination as a condition of his respective employment agreement: Thomas K. Equels, our
CEO.
The following is a description
of post-employment compensation payable to the respective NEO. If a NEO does not have a specific benefit, they will not be mentioned
in the subsection. In such event, the NEO does not have any such benefits upon termination unless otherwise required by law.
Termination for Cause
All of our NEOs can be
terminated for cause. For Mr. Equels, “Cause” means willful engaging in illegal conduct, gross misconduct or gross
violation of the Company’s Code of Ethics and Business Conduct for Officers which is demonstrably and materially injurious
to the Company. For purposes of his respective agreement, no act, or failure to act, on employee’s part shall be deemed “willful”
unless done intentionally by employee and not in good faith and without reasonable belief that employee’s action or omission
was in the best interest of the Company. Notwithstanding the foregoing, employee shall not be deemed to have been terminated for
Cause unless and until the Company delivers to the employee a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the Directors of the Board at a meeting of the Board called and held for such purpose (after reasonable
notice to employee and an opportunity for Employee, together with counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, employee was guilty of conduct set forth above and specifying the particulars thereof in detail. In
the event that his employment is terminated for Cause, the Company shall pay him, at the time of such termination, only the compensation
and benefits otherwise due and payable to them through the last day of their actual employment by the Company.
Termination Without Cause
Mr. Equels is entitled
to the compensation and benefits otherwise due and payable to him through the last day of the then current term of their respective
agreements
.
In the event that he is terminated at any time without “Cause” the Company shall pay to him, at
the time of such termination, the compensation and benefits otherwise due and payable through the last day of the then current
term of their Agreement. However, benefit distributions that are made due to a “separation from service” occurring
while he is a Named Executive Officer shall not be made during the first six months following separation from service. Rather,
any distribution which would otherwise be paid to him during such period shall be accumulated and paid to him in a lump sum on
the first day of the seventh month following the “separation from service”. All subsequent distributions shall be paid
in the manner specified.
Death or Disability
Mr. Equels can be terminated
for death or disability. For each, “Disability” means the inability to effectively carry out substantially all of his
duties under their agreement by reason of any medically determinable physical or mental impairment which can be expected to result
in death or which has lasted for a continuous period of not less than 12 months. In the event the employment is terminated due
to his death or disability, the Company will pay (or their respective estate as the case may be), at the time of such termination,
the Base Salary and applicable benefits otherwise due and payable through the last day of the month in which such termination occurs
and for an additional 12 month period.
Termination by Officer and Employee
All NEO employment agreements
have the right to terminate their respective agreement upon thirty (30) days or less of prior written notice of termination. In
such event, Mr. Equels is specifically entitled to fees due to him through the last day of the month in which such termination
occurs and for 12 months thereafter. All other NEOs are entitled to the fees due to them through the last day of the month in which
such termination occurs.
Change in Control
As an element of his employment
agreement, Mr. Equels is entitled to benefits upon a Change in Control or Constructive Termination that include that any unvested
Options immediately vest and the term of his respective employment agreement automatically extend for an additional three years.
In the event of a Change in Control, the Company is responsible for the base salary or benefits for remaining term of the NEO’s
employment agreement plus an automatic three-year extension in the term of the agreement. The existing employment agreement with
Mr. Equels had a term through December 31, 2016; however, this employment agreement automatically extended for an additional three-years
through December 31, 2019.
Compensation of Directors
Our Compensation, Audit
and Corporate Governance and Nomination Committees, consist of Dr. William M. Mitchell, Compensation and Corporate Governance and
Nomination Committee Chair, and Stewart L. Appelrouth, Audit Committee Chair, both of whom are independent Board of Director members.
Hemispherx reimburses Directors
for travel expenses incurred in connection with attending board, committee, stockholder and special meetings along with other Company
business-related expenses. Hemispherx does not provide retirement benefits or other perquisites to non-employee Directors under
any current program.
Commencing as of January
1, 2014, a 1.5% cost of living increase was granted to Board member Directors’ fee compensation, increasing 2014’s
annual retainer from $176,766 to $182,462 for 2014. There was no cost of living increase granted in 2015 or 2016. Directors’
fees will continue to be paid semi-monthly in cash.
All Directors have been
granted options to purchase common stock under our Stock Option Plans and/or Warrants to purchase common stock. We believe such
compensation and payments are necessary in order for us to attract and retain qualified outside directors. To the extent that share
compensation would exceed 83,333 shares in the aggregate for the ten-year period commencing January 1, 2003, as previously approved
by Resolution of the Board of September 9, 2003, shares for share compensation were issued under the our 2007 and 2009 Equity Incentive
Plans.
Director Compensation – 2016
Name and
Title of
Director
|
|
Fees Earned or Paid in Cash ($)
|
|
|
Stock Award ($)
|
|
|
Option Awards ($)
|
|
|
Non-Equity Incentive Plan Compensation ($)
|
|
|
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)
|
|
|
All Other Compensation As Director ($)
|
|
|
Total
($)
|
|
T. Equels, Executive Vice Chairman
|
|
|
20,410
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,410
|
|
W. Mitchell, Chairman of the Board (1)
|
|
|
182,462
|
|
|
|
—
|
|
|
|
12,590
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
195,052
|
|
Stewart L. Appelrouth, Director (1)
|
|
|
68,423
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
68,423
|
|
Notes:
(1)
|
Independent Director of the Company.
|
|
|
(2)
|
Only includes compensation received in the role as member of the Board of Directors and does not include compensation received in the capacity of a Named Executive Officer. As is required by Regulation S-K, Item 402(c), compensation as a Director has also been reported within the “Summary Compensation Table” regarding Named Executive Officer Compensation during fiscal years of 2016, 2015 and 2014 (see above). Mr. Equels stopped receiving Board fees in March 2016.
|
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.
The following table sets
forth as of March 10, 2017, the number and percentage of outstanding shares of common stock beneficially owned by:
●
|
Each person, individually or as a group, known to us to be deemed the beneficial owners of five percent or more of our issued and outstanding common stock;
|
|
|
●
|
Each of our Directors and the Named Executives Officers; and
|
|
|
●
|
All of our officers and directors as a group.
|
Name and Address of
Beneficial Owner
|
|
Shares Beneficially Owned
|
|
|
% Of Shares Beneficially Owned
|
|
Thomas K. Equels
|
|
|
457,222 (1)
|
|
|
|
1.73
|
%
|
|
|
|
|
|
|
|
|
|
Peter W. Rodino III
17400 Sterling Lake Drive
Fort Myers, FL 33967
|
|
|
25,000 (2)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
William M. Mitchell, M.D.
Vanderbilt University
Department of Pathology
Medical Center North
21st and Garland
Nashville, TN 37232
|
|
|
72,169 (3)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Stewart L. Appelrouth
999 Ponce de Leon., Suite 625
Coral Cables, FL 33134
|
|
|
15,750 (8)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Wayne S. Springate
783 Jersey Ave.
New Brunswick, NJ 08901
|
|
|
44,613 (4)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
David R. Strayer, M.D.
|
|
|
48,558 (5)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Adam Pascale
|
|
|
23,369 (6)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Sabby Management LLC
|
|
|
1,391,286 (7)
|
|
|
|
5.31
|
%
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (6 persons)
|
|
|
686,681
|
|
|
|
2.58
|
%
|
* Ownership of less than 1%
(1)
|
Mr. Equels is Executive
Vice Chairman of our Board of Directors, Chief Executive Officer and President, who beneficially owns 220,456
shares of common stock and beneficially owns 195,833 shares issuable or issued upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Price
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2009
|
|
|
6/11/2010
|
|
$
|
7.92
|
|
|
|
25,000
|
|
|
6/11/2020
|
|
|
|
2009
|
|
|
6/24/2011
|
|
$
|
4.92
|
|
|
|
25,000
|
|
|
6/24/2021
|
|
|
|
2009
|
|
|
6/5/2012
|
|
$
|
3.48
|
|
|
|
8,333
|
|
|
6/6/2022
|
|
|
|
2009
|
|
|
6/11/2012
|
|
$
|
3.72
|
|
|
|
25,000
|
|
|
6/11/2022
|
|
|
|
2009
|
|
|
6/6/2013
|
|
$
|
3.72
|
|
|
|
25,000
|
|
|
6/6/2023
|
|
|
|
2009
|
|
|
8/2/2013
|
|
$
|
3.00
|
|
|
|
12,500
|
|
|
8/2/2023
|
|
|
|
2009
|
|
|
6/6/2014
|
|
$
|
4.32
|
|
|
|
25,000
|
|
|
6/6/2024
|
|
|
|
2009
|
|
|
6/6/2015
|
|
$
|
3.00
|
|
|
|
25,000
|
|
|
6/6/2025
|
|
|
|
2009
|
|
|
6/8/2016
|
|
$
|
1.68
|
|
|
|
25,000
|
|
|
6/6/2025
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
195,833
|
|
|
|
Warrants
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Price
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
Total Warrants
|
|
|
2009
|
|
|
2/1/2009
|
|
$
|
6.12
|
|
|
|
40,933
|
|
|
2/1/2019
|
(2)
|
Mr. Rodino is our
General Counsel, Exec. Dir. of Governmental Relations and Secretary who beneficially owns 25,000 shares issuable
upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Price
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2009
|
|
|
8/2/2013
|
|
$
|
3.00
|
|
|
|
12,500
|
|
|
8/2/2023
|
|
|
|
2009
|
|
|
6/21/2016
|
|
$
|
1.56
|
|
|
|
12,500
|
|
|
6/21/2026
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
(3)
|
Dr. Mitchell is our Chairman of the Board who owns 8,697 shares of common stock and beneficially owns 46,833 shares issuable upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Price
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2004
|
|
|
9/10/2007
|
|
$
|
24.00
|
|
|
|
8,333
|
|
|
9/9/2017
|
|
|
|
2004
|
|
|
9/17/2008
|
|
$
|
72.00
|
|
|
|
1,000
|
|
|
9/17/2018
|
|
|
|
2009
|
|
|
6/5/2012
|
|
$
|
3.48
|
|
|
|
8,333
|
|
|
6/6/2022
|
|
|
|
2009
|
|
|
8/2/2013
|
|
$
|
3.00
|
|
|
|
12,500
|
|
|
8/2/2023
|
|
|
|
2009
|
|
|
9/9/2014
|
|
$
|
31.20
|
|
|
|
4,167
|
|
|
9/9/2024
|
|
|
|
2009
|
|
|
9/9/2014
|
|
$
|
1.56
|
|
|
|
12,500
|
|
|
9/9/2024
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
46,833
|
|
|
|
Dr. Mitchell beneficially
owns 16,639 shares of common stock of which 8,318 shares are held by Shirley Mitchell (Spouse), 4,098 shares are held by the Aesclepius
Irrevocable Trust (Shirley Mitchell Trustee), and 4,223 shares are held by the Aesclepius Irrevocable Trust II (William Mitchell
Trustee).
(4)
|
Mr. Springate is our Senior Vice President of Operations and owns 8,627 shares of common stock and beneficially owns 35,986 shares issuable upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Price
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2004
|
|
|
5/1/2007
|
|
$
|
21.36
|
|
|
|
1,667
|
|
|
5/1/2017
|
|
|
|
2004
|
|
|
12/6/2007
|
|
$
|
15.60
|
|
|
|
1,667
|
|
|
12/6/2017
|
|
|
|
2009
|
|
|
5/31/2011
|
|
$
|
6.60
|
|
|
|
7,500
|
|
|
5/31/2021
|
|
|
|
2009
|
|
|
6/5/2012
|
|
$
|
3.48
|
|
|
|
4,167
|
|
|
6/5/2022
|
|
|
|
2009
|
|
|
5/9/2013
|
|
$
|
2.88
|
|
|
|
4,167
|
|
|
5/9/2023
|
|
|
|
2009
|
|
|
6/6/2014
|
|
$
|
4.32
|
|
|
|
4,167
|
|
|
6/6/2024
|
|
|
|
2009
|
|
|
12/8/2014
|
|
$
|
22.80
|
|
|
|
151
|
|
|
12/8/2024
|
|
|
|
2009
|
|
|
6/21/2016
|
|
$
|
1.56
|
|
|
|
12,500
|
|
|
6/21/2026
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
35,986
|
|
|
|
(5)
|
Dr. Strayer is our Chief Scientific Officer and Chief Medical Director that has ownership of 23,975 shares of common stock and beneficially owns 24,583 shares issuable upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Issued
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2004
|
|
|
9/10/2007
|
|
$
|
24.00
|
|
|
|
4,167
|
|
|
9/9/2017
|
|
|
|
2004
|
|
|
12/6/2007
|
|
$
|
15.60
|
|
|
|
2,083
|
|
|
12/6/2017
|
|
|
|
2004
|
|
|
2/18/2008
|
|
$
|
48.00
|
|
|
|
4,167
|
|
|
2/18/2018
|
|
|
|
2009
|
|
|
4/13/2012
|
|
$
|
48.36
|
|
|
|
833
|
|
|
4/13/2022
|
|
|
|
2009
|
|
|
12/8/2014
|
|
$
|
22.80
|
|
|
|
833
|
|
|
12/8/2024
|
|
|
|
2009
|
|
|
6/21/2016
|
|
$
|
1.56
|
|
|
|
12,500
|
|
|
12/8/2024
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
24,583
|
|
|
|
(6)
|
Mr. Pascale is our Chief Financial Officer that has ownership of 4,535 shares of common stock and beneficially owns 18,834 shares issuable upon exercise of:
|
Options
|
|
Plan
|
|
|
Date Issued
|
|
Exercise Issued
|
|
|
Number Of Shares
|
|
|
Expiration
Date
|
|
|
|
2004
|
|
|
12/6/2007
|
|
$
|
15.60
|
|
|
|
1,250
|
|
|
12/6/2017
|
|
|
|
2004
|
|
|
9/17/2008
|
|
$
|
48.00
|
|
|
|
417
|
|
|
9/17/2018
|
|
|
|
2009
|
|
|
4/13/2012
|
|
$
|
48.36
|
|
|
|
500
|
|
|
4/13/2022
|
|
|
|
2009
|
|
|
7/8/2014
|
|
$
|
3.96
|
|
|
|
4,167
|
|
|
7/8/2024
|
|
|
|
2009
|
|
|
6/21/2016
|
|
$
|
1.56
|
|
|
|
12,500
|
|
|
6/21/2026
|
Total Options
|
|
|
|
|
|
|
|
|
|
|
|
|
18,834
|
|
|
|
(7)
|
Sabby Management, LLC beneficially owns 1,391,286 shares of common stock of which 850,769 shares are held by Sabby Healthcare Master Fund, Ltd. and 540,517 shares are held by Sabby Volatility Warrant Master Fund, Ltd
|
(8)
|
Mr. Appelrouth is
a Director and has ownership of 15,750 shares of common stock.
|
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence.
Review, Approval or Ratification of Transactions
with Related Persons
Our policy is to require
that any transaction with a related party required to be reported under applicable SEC rules, other than compensation related matters
and waivers of our code of business conduct and ethics, be reviewed and approved or ratified by a majority of independent, disinterested
Directors. We have adopted procedures in which the Audit Committee shall conduct an appropriate review of all related party transactions
for potential conflict of interest situations on an annual and case-by-case basis with the approval of this Committee required
for all such transactions.
We have employment agreements
with certain of our executive officers and have granted such Officers and Directors options and warrants to purchase our common
stock, as discussed under the headings, “ITEM 11. Executive Compensation”, and “ITEM 12. Security Ownership of
Certain Beneficial Owners and Management”, as noted above.
Thomas Equels was elected
to the Board of Directors at the Annual Stockholders Meeting on November 17, 2008 and joined the Company as General Counsel effective
June 1, 2010. Mr. Equels had provided external legal services for several years through May 31, 2010 and Equels Law Firm ceased
providing external legal services in 2016. In 2015 and 2014, the Company paid Equels Law Firm approximately $42,000 and $303,000,
respectively, for services rendered. Upon analysis in the Fall of 2011 by the Audit Committee’s Financial Expert, it was
deemed that the hourly rates charged by Equels Law to the Company were reasonable when compared to the fee structure of a possible
arms-length transaction from comparable firms in practice in the same market and of the similar size. The hourly rate fees from
Equels Law Firm remained the same 2014 and 2015. For his Board fees, Mr. Equels received approximately $20,000, $182,000 and
$182,000, respectively, for 2016, 2015 and 2014.
For the years ended 2016,
2015 and 2014, compensation was granted or paid related to the Executive Performance Incentive Program related to the ATM, as set
forth in Section 3(c)(ii) of his Employment Agreement, for approximately $0, $262,000, and $641,000 to Mr. Equels. Mr. Equels’
compensation related to this program was classified entirely as general and administrative expense.
ITEM 14. Principal Accountant Fees and Services.
All audit and professional
services are approved in advance by the Audit Committee to assure such services do not impair the auditor’s independence
from us. The total fees by RSM US LLP (“RSM”) for 2016 and 2015 were $279,500 and $327,000 respectively. The following
table shows the aggregate fees for professional services rendered during the year ended December 31, 2016 and 2015.
|
|
Amount ($)
|
|
|
|
2016
|
|
|
2015
|
|
Description of Fees:
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
272,000
|
|
|
$
|
269,000
|
|
Audit-Related Fees
|
|
|
7,500
|
|
|
|
58,000
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
279,500
|
|
|
$
|
327,000
|
|
Audit Fees
Audit fees include the
audit of our annual financial statements and the review of our financial statements included in our quarterly reports and services
in connection with statutory and regulatory filings.
Audit-Related Fees
Represents the fees for
assurance and related services that were reasonably related to the performance of the audit or review of our financial statements.
Audit-related fees include professional services related to the Company’s filing of SEC Form S-3 and S-8 (i.e., stock shelf
offering procedures).
The Audit Committee has
determined that RSM’s rendering of these audit-related services and all other fees were compatible with maintaining auditor’s
independence. The Board of Directors considered RSM to be well qualified to serve as our independent public accountants. The Committee
also pre-approved the charges for services performed in 2015 and 2014.
The Audit Committee pre-approves
all auditing and accounting services and the terms thereof (which may include providing comfort letters in connection with securities
underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the
applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor;
provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de
minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services
may be delegated to one or more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the
full Audit Committee at its first meeting following such decision.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
Hemispherx Biopharma, Inc. (“Company”)
is a specialty pharmaceutical company headquartered in Philadelphia, Pennsylvania and engaged in the clinical development of new
drug therapies based on natural immune system enhancing technologies for the treatment of viral and immune based disorders. The
Company was founded in the early 1970s doing contract research for the National Institutes of Health. Since that time, the Company
has established a strong foundation of laboratory, pre-clinical and clinical data with respect to the development of natural interferon
and nucleic acids to enhance the natural antiviral defense system of the human body and to aid the development of therapeutic
products for the treatment of certain chronic diseases.
The Company’s flagship products include
Alferon N Injection® and the experimental therapeutic Ampligen®. Alferon N Injection® is approved for a category of
STD infection, and Ampligen® represents an experimental RNA being developed for globally important viral diseases and disorders
of the immune system. Hemispherx’ platform technology includes components for potential treatment of various severely debilitating
and life threatening diseases. Alferon® LDO (Low Dose Oral) is a formulation under development targeting influenza.
The Company has incurred
numerous years of substantial operating losses as it pursued its clinical and pre-clinical development activities and appropriate
regulatory approval processes before any such products can be sold and marketed. As of December 31, 2016, our accumulated deficit
was approximately $300,501,000. The Company has not yet generated significant revenues from our products and may incur
substantial losses in the future. The Company evaluated these conditions and events that may raise substantial doubt about
the Company's ability to continue as a going concern; however, the Company believes that it has alleviated the substantial doubt
by implementing certain actions. During 2016, the Company reexamined its fundamental priorities in terms of direction, corporate
culture and its ability to fund operations. As a result, there were significant changes at the Company including the Company restructuring
its executive management team, initiating the pursuit of international sales of clinical grade materials, and implementing a cost
saving program which assisted the Company in gained efficiencies and eliminated redundancies within its workforce. In addition,
the Company is in the process of selling an underutilized building adjacent to its New Jersey manufacturing facility site and
exploring the possibility of mortgaging its facility or selling it if the Company can obtain a long term lease back on the facility
on acceptable terms. Also, the Company is committed to a focused business plan oriented toward finding senior co-development partners
with the capital and expertise needed to commercialize the many potential therapeutic aspects of our experimental drugs and our
approved drug Alferon N. Lastly, the Company plans to access the public equity markets to raise further capital.
The consolidated financial
statements include the financial statements of Hemispherx Biopharma, Inc. and its wholly-owned subsidiaries. The Company has two
domestic subsidiaries BioPro Corp. and BioAegean Corp., all of which are incorporated in Delaware and are dormant. The Company’s
foreign subsidiary, Hemispherx Biopharma Europe N.V./S.A., was established in Belgium in 1998. All significant intercompany balances
and transactions have been eliminated in consolidation.
(2) Summary
of Significant Accounting Policies
(a) Cash and Cash Equivalents
Cash and Cash Equivalents
consist of cash and money market accounts and total $2,408,000 and $2,115,000 at December 31, 2016 and 2015, respectively.
(b) Marketable Securities
The Company’s securities
are classified as available for sale and are stated at fair value. Unrealized gains and losses on securities available for sale
are excluded from results of operations and are reported as other comprehensive income (loss) on the Statements of Comprehensive
Loss, net of taxes. Securities classified as available for sale include securities that may be sold in response to changes in interest
rates, changes in prepayment risks or for portfolio management purposes. The cost of securities sold is determined on a specific
identification basis. Gains and losses on sales of securities are recognized in the statements of comprehensive loss on the date
of sale.
(c) Property and Equipment
|
|
(in thousands) December 31,
|
|
|
|
2016
|
|
|
2014
|
|
Land, buildings and improvements
|
|
$
|
10,530
|
|
|
$
|
11,603
|
|
Furniture, fixtures, and equipment
|
|
|
5,630
|
|
|
|
5,490
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
85
|
|
Total property and equipment
|
|
|
16,160
|
|
|
|
17,178
|
|
Less: accumulated depreciation and amortization
|
|
|
(6,646
|
)
|
|
|
(5,941
|
)
|
Property and equipment, net
|
|
$
|
9,514
|
|
|
$
|
11,237
|
|
Property and equipment
are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives
of the respective assets, ranging from three to thirty-nine years. The Company also reclassified an underutilized building as an
asset held for resale totaling $764,000 adjacent to its New Jersey manufacturing facility site that it is in the process of selling.
(d) Patent and Trademark Rights
Patents and trademarks
are stated at cost (primarily legal fees) and are amortized using the straight line method over the established useful life of
17 years. The Company reviews its patents and trademark rights periodically to determine whether they have continuing value or
their value has become impaired. Such review includes an analysis of the patent and trademark’s ultimate revenue and profitability
potential. Management’s review addresses whether each patent continues to fit into the Company’s strategic business
plans.
(e) Revenue
Revenue from the sale of
Ampligen® under a cost recovery, open-label treatment protocols approved by the FDA is recognized when the treatment is provided
to the patient.
Revenues from the sale
of Alferon N Injection® are recognized when the product is shipped and title is transferred to the customer. The Company has
no other obligation associated with its products once shipment has been shipped to the customer.
(f) Accounting for Income Taxes
Deferred income tax assets
and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The measurement of
deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be
realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such
tax rate changes are enacted.
The Company applies the
provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10
Uncertainty in Income Taxes. There has been no material change to the Company’s tax position as they have not paid any corporate
income taxes due to operating losses. All tax benefits will likely not be recognized due to the substantial net operating loss
carryforwards which will most likely not be realized prior to expiration. With no tax due for the foreseeable future, the Company
has determined that a policy to determine the accounting for interest or penalties related to the payment of tax is not necessary
at this time.
(g) Comprehensive loss
Comprehensive loss consists
of net loss, net unrealized gains (losses) on securities and is presented in the consolidated statements of comprehensive loss.
(h) Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results
could differ from those estimates. Accounts requiring the use of significant estimates include valuation allowances for inventory,
determination of other-than-temporary impairment on securities, valuation of deferred taxes, patent and trademark valuations, stock-based
compensation calculations, building valuation, fair value of warrants and contingency accruals.
(i) Recent Accounting Standards and Pronouncements
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09),
Revenue from Contracts
with Customers
. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under current U.S.
GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies
recognize revenue based on the value of transferred goods or services as they occur in the contract. ASU 2014-09 also will require
additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
ASU 2014-09 is effective for reporting periods beginning after December 15, 2017, and early adoption is not permitted. Entities
can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Upon the
Company realizing operating revenues from the sale of commercialized product, the Company’s adoption of this guidance may
have an impact on the Company’s financial statement presentation or disclosures.
In August 2014, the FASB
issued ASU 2014-15,
Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 explicitly requires management to evaluate, at each annual
or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity’s
ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after
December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. The Company will continue to evaluate
and monitor at each annual or interim reporting period whether there are conditions or events that exist pertaining to this guidance.
In January 2016, the (“FASB”)
has issued Accounting Standards Update (ASU) No. 2016-01,
Financial Instruments – Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities
. The new guidance is intended to improve the recognition and
measurement of financial instruments. The new guidance is effective for public companies for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption of the own credit provision.
The Company believes that the adoption of the guidance may have an impact on the Company’s financial statement presentation
or disclosures.
In
February 2016, the FASB issued ASU 2016-02 -
Leases,
which amends the existing accounting standards for lease accounting,
including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.
ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption of is permitted
as of the standard’s issuance date. ASU 2016-02 allows a modified retrospective transition approach for all leases existing
at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company has not
adopted ASU 2016-02 and believes such adoption
may have an impact on the Company’s financial statement presentation
or disclosures.
In August 2016,
the
FASB issued ASU 2016-15 -
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(a consensus of the Emerging Issues Task Force). The new guidance is intended to address the diversity in practice in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash
Flows, and other Topics. The guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity
in practice. The amendments apply to all entities, including both business entities and not-for-profit entities that are required
to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption
in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the
amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each
period presented. The Company believes that the adoption of the guidance may not have a material impact on the Company’s
financial statement presentation or disclosures.
In 2016, the FASB also
issued Accounting Standards Updates (“ASU”) 2016-03 through 2016-20 and in 2017 the FASB issued 2017-01 through 2017-07
These updates did not have a significant impact on the financial statements.
(j) Stock-Based Compensation
The Company accounts for
its stock-based compensation awards in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”,
which requires recognition of compensation expense related to stock-based compensation awards over the period during which an employee
is required to provide service for the award. Compensation expense is equal to the fair value of the award at the date of grant,
net of estimated forfeitures.
(k) Accounts Receivable
Concentration of credit
risk, with respect to accounts receivable, is limited due to the Company’s credit evaluation process. The Company does not
require collateral on its receivables. The Company did not have any receivables as of December 31, 2016 and 2015.
(l) Common Stock Per Share Calculation
Basic and diluted net loss
per share is computed using the weighted average number of shares of common stock outstanding during the period. Equivalent common
shares, consisting of stock options and warrants related to 4,032,851, 1,316,204 and 1,457,245 shares, are excluded from the calculation
of diluted net loss per share for the years ended December 31, 2016, 2015 and 2014, respectively, since their effect is antidilutive.
(m) Long-Lived Assets
The Company assesses long-lived assets for
impairment when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not
be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant under-performance
of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes
or planned changes in its use of the assets. The Company measures the recoverability of assets that it will continue to use in
its operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net
cash flows. If an asset grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset
grouping is considered to be impaired.
The Company measures the impairment by comparing
the difference between the asset grouping’s carrying value and its fair value. Long-lived assets are considered a non-financial
asset and are recorded at fair value only if an impairment charge is recognized. Impairments are determined for groups of assets
related to the lowest level of identifiable independent cash flows. The Company makes subjective judgments in determining the independent
cash flows that can be related to specific asset groupings. In addition, as the Company reviews its manufacturing process and other
manufacturing planning decisions, the Company must make subjective judgments regarding the remaining useful lives of assets. When
the Company determines that the useful lives of assets are shorter than the Company had originally estimated, it accelerates the
rate of depreciation over the assets’ new, shorter useful lives.
(3) Inventories
The Company uses the lower
of first-in, first-out (“FIFO”) cost or market method of accounting for inventory.
Inventories consist of the following:
|
|
(in thousands)
|
|
|
|
2016
|
|
|
2015
|
|
Inventory Work-In-Process, January 1
|
|
$
|
1,326
|
|
|
$
|
—
|
|
Production
|
|
|
—
|
|
|
|
1,443
|
|
Transfer to other assets
|
|
|
(1,326
|
)
|
|
|
—
|
|
Spoilage
|
|
|
—
|
|
|
|
(117
|
)
|
Inventory Work-In-Process, December 31
|
|
$
|
—
|
|
|
$
|
1,326
|
|
Commercial sales of Alferon®
will not resume until new batches of commercial filled and finished product are produced and released by the FDA. The Company is
continuing the validation of Alferon® production and production of new Alferon® API inventory commenced in February 2015.
While the facility is approved by the FDA under the Biological License Application (“BLA”) for Alferon®, this status
will need to be reaffirmed by an FDA pre-approval inspection. The Company will also need the FDA’s approval to release commercial
product once it has submitted satisfactory stability and quality release data. Due to the Company extending the timeline of Alferon®
production to an excess of one year, the Company reclassed Alferon® Work-In-Process inventory to other assets within the Company’s
balance sheet as of December 31, 2016.
(4) Marketable Securities
Marketable securities consist
of Mutual Funds. For the twelve months ended December 31, 2016 and 2015, it was determined that some of the Marketable Securities
had other than temporary impairments of approximately $0 and $315,000, respectively. At December 31, 2016 and 2015, all securities
were classified as available for sale investments and were measured as Level 1 instruments of the fair value measurements standard
(see Note 17: Fair Value).
Securities classified as
available for sale consisted of:
December 31, 2016
(in thousands)
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Short-Term
Investments
|
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
3,465
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
3,460
|
|
|
$
|
3,460
|
|
|
$
|
—
|
|
Totals
|
|
$
|
3,465
|
|
|
$
|
—
|
|
|
$
|
(5
|
)
|
|
$
|
3,460
|
|
|
$
|
3,460
|
|
|
$
|
—
|
|
December 31, 2015
(in thousands)
Securities
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Short-Term
Investments
|
|
|
Long Term
Investments
|
|
Mutual Funds
|
|
$
|
6,892
|
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
—
|
|
Totals
|
|
$
|
6,892
|
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
—
|
|
Unrealized losses on investments
Investments with continuous
unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:
December 31, 2016
(in thousands)
|
|
Total
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Totals
|
|
Securities
|
|
Number In
Loss
Position
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Total
Fair
Value
|
|
|
Total
Unrealized
Losses
|
|
Mutual Funds
|
|
|
1
|
|
|
$
|
1,853
|
|
|
$
|
(13
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,853
|
|
|
$
|
(13
|
)
|
Totals
|
|
|
1
|
|
|
$
|
1,853
|
|
|
$
|
(13
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,853
|
|
|
$
|
(13
|
)
|
December 31, 2015
(in thousands)
|
|
Total
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Totals
|
|
Securities
|
|
Number In
Loss
Position
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Fair
Values
|
|
|
Unrealized
Losses
|
|
|
Total
Fair
Value
|
|
|
Total
Unrealized
Losses
|
|
Mutual Funds
|
|
|
2
|
|
|
$
|
2,834
|
|
|
$
|
(159
|
)
|
|
$
|
2,041
|
|
|
$
|
(21
|
)
|
|
$
|
4,875
|
|
|
$
|
(180
|
)
|
Totals
|
|
|
2
|
|
|
$
|
2,834
|
|
|
$
|
(159
|
)
|
|
$
|
2,041
|
|
|
$
|
(21
|
)
|
|
$
|
4,875
|
|
|
$
|
(180
|
)
|
(5) Patents, Trademark Rights and Other
Intangibles (FASB ASC 350-30 General Intangibles Other than Goodwill)
During the years ended
December 31, 2016, 2015 and 2014, the Company decided not to pursue certain patents in various countries for strategic reasons
and recorded abandonment charges of $134,000, $215,000 and $446,000, respectively, which are included in research and development.
Amortization expense was $50,000, $34,000 and $31,000 in 2016, 2015 and 2014, respectively. The total cost of the patents was
$1,065,000 and $1,005,000 as of December 31, 2016 and 2015, respectively. The accumulated amortization as of December 31, 2016
and 2015 is $193,000 and $143,000, respectively. For the year ended December 31, 2016 and 2015, additions to patents costs were
$294,000 and $250,000, respectively.
Amortization of patents
and trademarks for each of the next five years is as follows: 2017 - $50,000; 2018 - $50,000; 2019 - $50,000; 2020 - $50,000 and
2021 - $50,000. No amortization expense is recognized related to patents that are pending.
(6) Accrued Expenses
Accrued expenses at December
31, 2016 and 2015 consists of the following:
|
|
(in thousands)
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Compensation
|
|
$
|
297
|
|
|
$
|
229
|
|
Professional fees
|
|
|
604
|
|
|
|
619
|
|
Clinical Trial expenses
|
|
|
158
|
|
|
|
143
|
|
Other Expenses
|
|
|
489
|
|
|
|
228
|
|
|
|
$
|
1,548
|
|
|
$
|
1,219
|
|
(7) Stockholders’
Equity
(a) Preferred Stock
The Company is authorized
to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences as may be determined
by the Board of Directors. There were no Preferred Shares issued and outstanding at December 31, 2016 and 2015.
(b) Common Stock
The Company’s stockholders
approved an amendment to the Company’s corporate Charter at the Annual Shareholder Meeting held in Philadelphia, PA that
concluded on December 8, 2011. This amendment increased the Company’s authorized shares from 200,000,000 to 350,000,000 with
specific limitations and restrictions on the usage of 75,000,000 of the 150,000,000 newly authorized shares.
On September 16, 2015,
the Company’s stockholders removed the limitations and restrictions on 5,583,000 shares. The Company’s stockholders
approved up to an additional 5,000,000 shares for use in capital raising transactions and 583,000 shares for use in the Equity
Plan of 2009. On August 29, 2016, the company affected a 12 to 1 reverse stock split on the outstanding shares, in order to become
compliant with the NYSE regulations. This did affect the number of authorized shares.
As of December 31, 2016
and 2015, 24,202,921 and 20,629,957 shares were outstanding, respectively, which reflect the 12 to 1 reverse stock split.
(c) Equity Financings
On July 23, 2012, the Company
entered into an equity distribution agreement with Maxim (the “EDA”) pursuant to which we may sell up to $75,000,000
worth of our shares of common stock from time to time through Maxim, as sales agent. Under the EDA, Maxim is entitled to a fixed
commission rate of 4.0% of the gross sales price of Shares sold under the EDA, up to aggregate gross proceeds of $10,000,000, and
thereafter, at a fixed commission rate of 3.0% of the gross sales price of Shares sold under the EDA. Sales of the Shares, if any,
may be made in transactions that are deemed to be “at-the-market” offerings as defined in Rule 415 under the Securities
Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on the NYSE MKT, at market
prices or as otherwise agreed with Maxim. The Company has no obligation to sell any of the Shares and may at any time suspend offers
under the EDA or terminate the EDA. Up until August 4, 2015, the shares were being sold pursuant to the Company’s Universal
Shelf Registration Statement on Form S-3, declared effective by the Securities and Exchange Commission on July 2, 2012. Since August
4, 2015, the shares are being sold pursuant to the Company’s Universal Shelf Registration Statement on Form S-3, declared
effective by the Securities and Exchange Commission on August 4, 2015 (the “2015 Universal Shelf”).
On August 4, 2015, the
Company and Maxim Group LLC amended their July 23, 2012 EDA solely for the purpose of adding the registrant’s new registration
statement on Form S-3 (File No 333-205228) to the definition of “registration statement” as the old registration statement
expired.
On August 5, 2015, the
Company filed an updated Prospectus Supplement to reflect that sales under the EDA are now being conducted pursuant to the 2015
Universal Shelf. In addition, On September 16, 2015, the Company’s stockholders removed the limitations and restrictions
on 67,000,000 shares. The Company’s stockholders approved up to an additional 60,000,000 shares for use in capital raising
transactions and 7,000,000 shares for use in the Equity Plan of 2009.
Through December 15, 2015,
the Company sold an aggregate of shares that resulted in net cash proceeds of approximately $45,930,000 after commissions
paid to Maxim for approximately $1,524,000. On December 15, 2015, the Company filed a Prospectus Supplement reducing all offerings
pursuant to its existing equity distribution agreement with Maxim Group LLC to $0.
On December 15, 2015, the
Company entered into an Equity Distribution Agreement with Chardan Capital Markets, LLC (the “Chardan Agreement”) to
create an at-the-market equity program under which it may sell shares of its common stock (the “Shares”) from time
to time through Chardan Capital Markets, LLC, as sales agent (“Chardan”). Under the Chardan Agreement, Chardan will
be entitled to a commission at a fixed commission rate of 3.0% of the gross sales price of Shares sold under the Chardan Agreement.
Effective August 26, 2016, the Company halted all future offers and sales of its common stock under the Chardan Agreement and reduced
the amount of potential future offers and sales under the Chardan Agreement to $0.00. Between December 15, 2015, the date of the
Chardan Agreement, and August 26, 2016, the Company sold an aggregate of 114,394 shares of common stock pursuant to the Chardan
Agreement for aggregate net proceeds of approximately $174,000.
On September 6, 2016, the
Company entered into Securities Purchase Agreements with certain investors for the sale by the Company of 3,333,334 shares (the
“Common Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”),
at a purchase price of $1.50 per share and sold warrants to purchase 2,500,000 shares of Common Stock (the “Warrants”)
for aggregate net proceeds of $4,520,000. Subject to certain ownership limitations, the Warrants are initially exercisable six-month
after issuance at an exercise price equal to $2.00 per share of Common Stock, subject to adjustments as provided under the terms
of the Warrants. The Warrants are exercisable for five years from the initial exercise date.
The Company received net
proceeds from the foregoing transaction (the “Offering”) of approximately $4,520,000 after deducting certain fees due
to the placement agent and the Company’s transaction expenses. The net proceeds received by the Company from the Offering
will be used for preparation for technology transfer opportunities, expenses related to Ampligen® manufacturing, working capital
and general corporate purposes.
The Common Shares were
offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was initially filed with
the Securities and Exchange Commission (the “SEC”) on June 25, 2015 and subsequently declared effective on August 4,
2015 (File No. 333-205228) (the “Registration Statement”), and the base prospectus dated as of August 4, 2015 contained
therein. The Company filed a prospectus supplement with the SEC on September 1, 2016 in connection with the sale of the Common
Shares.
Pursuant to an engagement
agreement dated July 26, 2016, the Company engaged Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (“Wainwright”),
to act as its exclusive placement agent in connection with the Offering. Pursuant to the engagement agreement, the Company paid
Wainwright an aggregate fee equal to 7% of the gross proceeds received by the Company from the sale of the securities in the Offering
and granted to Wainwright or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions
(the “Wainwright Warrants”) amounting to 166,667 warrants. The Wainwright Warrants have substantially the same terms
as the Warrants, except that the Wainwright Warrants will expire on September 1, 2021 and have an exercise price equal to $1.875
per share of Common Stock. The Wainwright Warrants and the shares issuable upon exercise of the Wainwright Warrants will be issued
in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as transactions not involving
a public offering and in reliance on similar exemptions under applicable state laws. The Wainwright Warrants, upon issuance, were
recorded at a fair value of approximately $164,000. The Company also paid Wainwright placement agent fees of $70,000 plus a management
fee equal to 1.0% of the gross proceeds raised in the Offering.
(d) Common Stock Options and Warrants
(i) Stock Options
The Equity Plan of 2004,
effective May 1, 2004, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted
stock and other stock awards. A maximum of 8,000,000 shares of common stock was reserved for potential issuance pursuant to awards
under the Equity Plan of 2004. The Equity Plan of 2004 continued in effect for a period of 10 years from its effective date. The
plan terminated on May 1, 2014.
The Equity Incentive Plan
of 2007, effective June 20, 2007, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights,
restricted stock and other stock awards. A maximum of 750,000 shares of common stock is reserved for potential issuance pursuant
to awards under the Equity Incentive Plan of 2007. Unless sooner terminated, the Equity Incentive Plan of 2007 will continue in
effect for a period of 10 years from its effective date.
The Equity Incentive Plan
of 2009, effective June 24, 2009, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights,
restricted stock and other stock awards. A maximum of 1,250,000 shares of common stock is reserved for potential issuance pursuant
to awards under the Equity Incentive Plan of 2009. In September 2015, the Company’s shareholders approved the following amendments
to the 2009 Plan: (1) increased the number of shares authorized to be issued under the Equity Incentive Plan from 1,250,000 to
1,833,333; (2) required a gradual vesting period of options issued under the Equity Incentive Plan over a three year period; (3)
revised the definition of “change in control” to make it less “liberal” by amending the provision that
a change in control occurs upon stockholder approval of a merger, consolidation or sale or disposition by the Company of all or
substantially all of its assets (a “Business Combination”) to state that such a change in control occurs upon the consummation
of the Business Combination; and (4) clarified that the definition of change in control has a double trigger. For a Participant
to get the benefit resulting from a change in control, such Participant must have been terminated other than for cause within a
two-year period. Unless sooner terminated, the Equity Incentive Plan of 2009 will continue in effect for a period of 10 years from
its effective date.
The Equity Plan of 2004
and the Equity Incentive Plans of 2007 and 2009 are administered by the Board of Directors. The Plans provide for awards to be
made to such Officers, other key employees, non-employee Directors, consultants and advisors of the Company and its subsidiaries
as the Board may select.
Stock options awarded under
the Plans may be exercisable at such times (not later than 10 years after the date of grant) and at such exercise prices (not less
than fair market value at the date of grant) as the Board may determine. The Board may provide for options to become immediately
exercisable upon a “change in control”, which is defined in the Plans to occur upon any of the following events: (a)
the acquisition by any person or group, as beneficial owner, of 20% or more of the outstanding shares or the voting power of the
outstanding securities of the Company; (b) either a majority of the Directors of the Company at the annual stockholders meeting
has been nominated other than by or at the direction of the incumbent Directors of the Board, or the incumbent Directors cease
to constitute a majority of the Company’s Board; (c) the Company’s stockholders approve a merger or other business
combination pursuant to which the outstanding common stock of the Company no longer represents more than 50% of the combined entity
after the transaction; (d) the Company’s stockholders approve a plan of complete liquidation or an agreement for the sale
or disposition of all or substantially all of the Company’s assets; or (e) any other event or circumstance determined by
the Company’s Board to affect control of the Company and designated by resolution of the Board as a change in control.
The fair value of each
option and equity warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model.
Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate
is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company uses historical
data to estimate expected dividend yield, life and forfeiture rates. The expected life of the options and equity warrants was estimated
based on historical option and equity warrant holders’ behavior and represents the period of time that options and equity
warrants are expected to be outstanding. The fair values of the options and equity warrants granted, were estimated based on the
following weighted average assumptions:
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
|
0.71%-1.23%
|
|
1.32%-1.72%
|
|
1.66%-1.72%
|
Expected dividend yield
|
|
0
|
|
0
|
|
0
|
Expected life
|
|
2.5-5 years
|
|
2.5-5 years
|
|
5 years
|
Expected volatility
|
|
85.18%-94.81%
|
|
83.840%-85.220%
|
|
84.497%-92.631%
|
Weighted average grant date fair value for options and equity warrants issued
|
|
$0.99
per option/warrant for 281,250 options/equity warrants
|
|
$1.80 per option for 68,750 options
|
|
$2.16 per option/warrant for 109,524 options/equity warrants
|
For stock options or equity
warrants granted to employees and non-employees, the Company measures fair value of the equity instruments utilizing the Black-Scholes-Merton
pricing method. The Company amortizes such cost over the related period of service.
The exercise price of all
stock options and equity warrants granted was equal to or greater than the fair market value of the underlying common stock on
the date of the grant.
Information regarding the
options approved by the Board of Directors under Equity Plan of 2004 is summarized below:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
540,078
|
|
|
|
15.60-72.00
|
|
|
$
|
32.16
|
|
|
|
488,719
|
|
|
|
15.60-72.00
|
|
|
$
|
32.28
|
|
|
|
388,225
|
|
|
|
15.60-72.00
|
|
|
$
|
34.56
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(51,359
|
)
|
|
|
22.80-41.28
|
|
|
$
|
30.96
|
|
|
|
(100,493
|
)
|
|
|
19.56-34.44
|
|
|
$
|
23.40
|
|
|
|
(104,698
|
)
|
|
|
25.32-46.32
|
|
|
$
|
38.08
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding, end of
year
|
|
|
488,719
|
|
|
|
15.60-72.00
|
|
|
$
|
32.28
|
|
|
|
388,225
|
|
|
|
15.60-72.00
|
|
|
$
|
34.56
|
|
|
|
283,527
|
|
|
|
15.60-72.00
|
|
|
$
|
33.20
|
|
Exercisable, end of
year
|
|
|
488,719
|
|
|
|
15.60-72.00
|
|
|
$
|
32.28
|
|
|
|
388,225
|
|
|
|
15.60-72.00
|
|
|
$
|
34.56
|
|
|
|
283,527
|
|
|
|
15.60-72.00
|
|
|
$
|
33.20
|
|
Weighted average remaining
contractual life (years)
|
|
|
1-4 years
|
|
|
|
|
|
|
|
|
|
|
|
1-3 years
|
|
|
|
|
|
|
|
|
|
|
|
1-2 years
|
|
|
|
|
|
|
|
|
|
Available for future
grants
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Information regarding the
options approved by the Board of Directors under Equity Plan of 2007 is summarized below:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding,
end of year
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
Exercisable,
end of year
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
|
|
129,167
|
|
|
|
8.64-36.60
|
|
|
|
26.04
|
|
Weighted average remaining
contractual life (years)
|
|
|
4-6 years
|
|
|
|
|
|
|
|
|
|
|
|
3-5 years
|
|
|
|
|
|
|
|
|
|
|
|
2-4 years
|
|
|
|
|
|
|
|
|
|
Available
for future grants
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
Information regarding the
options approved by the Board of Directors under Equity Plan of 2009 is summarized below:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Option
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
559,081
|
|
|
|
2.52-48.36
|
|
|
|
7.32
|
|
|
|
639,438
|
|
|
|
2.52-48.36
|
|
|
|
6.60
|
|
|
|
651,628
|
|
|
|
2.52-48.36
|
|
|
$
|
5.52
|
|
Granted
|
|
|
109,524
|
|
|
|
3.96-31.20
|
|
|
|
4.80
|
|
|
|
66,667
|
|
|
|
3.00
|
|
|
|
3.00
|
|
|
|
247,917
|
|
|
|
1.56-48.36
|
|
|
$
|
1.59
|
|
Forfeited
|
|
|
(29,167
|
)
|
|
|
3.72-33.72
|
|
|
|
17.40
|
|
|
|
(54,477
|
)
|
|
|
3.00-48.36
|
|
|
|
20.88
|
|
|
|
(204,483
|
)
|
|
|
1.56-22.80
|
|
|
$
|
3.53
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding,
end of year
|
|
|
639,438
|
|
|
|
2.52-48.36
|
|
|
|
6.60
|
|
|
|
651,628
|
|
|
|
2.52-48.36
|
|
|
|
5.52
|
|
|
|
695,061
|
|
|
|
1.56-48.36
|
|
|
$
|
4.70
|
|
Exercisable,
end of year
|
|
|
577,445
|
|
|
|
2.52-48.36
|
|
|
|
6.60
|
|
|
|
623,850
|
|
|
|
2.52-48.36
|
|
|
|
5.52
|
|
|
|
578,047
|
|
|
|
1.56-48.36
|
|
|
$
|
5.32
|
|
Weighted average remaining
contractual life (years)
|
|
|
5-10 years
|
|
|
|
|
|
|
|
|
|
|
|
4-10 years
|
|
|
|
|
|
|
|
|
|
|
|
3-10 years
|
|
|
|
|
|
|
|
|
|
Available
for future grants
|
|
|
123,962
|
|
|
|
|
|
|
|
|
|
|
|
695,106
|
|
|
|
|
|
|
|
|
|
|
|
532,920
|
|
|
|
|
|
|
|
|
|
Stock option activity during
the years ended December 31, 2014, 2015 and 2016 is as follows:
Stock option activity for employees:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding December 31, 2013
|
|
|
884,290
|
|
|
$
|
20.76
|
|
|
|
4.92
|
|
|
|
—
|
|
Granted
|
|
|
105,357
|
|
|
|
11.64
|
|
|
|
|
|
|
|
—
|
|
Forfeited
|
|
|
(48,990
|
)
|
|
|
21.36
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2014
|
|
|
940,657
|
|
|
$
|
19.68
|
|
|
|
4.61
|
|
|
|
—
|
|
Granted
|
|
|
66,667
|
|
|
|
3.00
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(113,553
|
)
|
|
|
15.72
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2015
|
|
|
893,771
|
|
|
$
|
18.96
|
|
|
|
4.02
|
|
|
|
—
|
|
Granted
|
|
|
185,417
|
|
|
|
1.58
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(242,932
|
)
|
|
|
13.06
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
836,256
|
|
|
$
|
16.82
|
|
|
|
4.47
|
|
|
|
—
|
|
Vested and expected to vest at December 31, 2016
|
|
|
836,256
|
|
|
$
|
16.82
|
|
|
$
|
4.47
|
|
|
|
—
|
|
Exercisable at December 31, 2016
|
|
|
745,630
|
|
|
$
|
17.39
|
|
|
|
3.03
|
|
|
|
—
|
|
The weighted-average grant-date fair value
of employee options granted during the year 2016 was $189,000 for 185,417 options at $0.99 per option, during the year 2015 was
$121,000 for 66,667 options at $1.80 per option, and during the year 2014 was $230,000 for 105,357 options at $2.16 per option.
Unvested stock option activity for employees:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Average
Remaining
Contracted
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding December 31, 2013
|
|
|
43,750
|
|
|
$
|
3.48
|
|
|
|
8.38
|
|
|
|
—
|
|
Granted
|
|
|
105,357
|
|
|
|
11.64
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(89,891
|
)
|
|
|
4.56
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2014
|
|
|
59,216
|
|
|
$
|
16.56
|
|
|
|
8.76
|
|
|
|
—
|
|
Granted
|
|
|
66,667
|
|
|
|
3.00
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(98,106
|
)
|
|
|
11.04
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2015
|
|
|
27,777
|
|
|
$
|
3.48
|
|
|
|
7.82
|
|
|
|
—
|
|
Granted
|
|
|
185,417
|
|
|
|
1.58
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(122,569
|
)
|
|
|
1.72
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
90,625
|
|
|
$
|
1.72
|
|
|
|
9.33
|
|
|
|
—
|
|
The weighted-average grant-date fair value
of employee unvested stock options granted during the year 2016 was $92,000 for 185,417 option at $0.50 per option,
during the year 2015 was $51,000 for 66,667 options at $0.76 per option, and during the year 2014 was $230,000 for
105,357 options at $2.16 per option.
Stock option activity for non-employees during
the year:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding December 31, 2013
|
|
|
344,036
|
|
|
$
|
17.76
|
|
|
|
5.01
|
|
|
|
—
|
|
Granted
|
|
|
4,167
|
|
|
|
31.20
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(31,536
|
)
|
|
|
33.36
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2014
|
|
|
316,667
|
|
|
$
|
16.32
|
|
|
|
4.75
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(41,417
|
)
|
|
|
22.32
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2015
|
|
|
275,250
|
|
|
$
|
15.48
|
|
|
|
4.31
|
|
|
|
—
|
|
Granted
|
|
|
62,500
|
|
|
|
1.64
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(66,250
|
)
|
|
|
23.22
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
271,500
|
|
|
$
|
10.41
|
|
|
|
4.66
|
|
|
|
—
|
|
Vested and expected to vest at December 31, 2016
|
|
|
271,500
|
|
|
$
|
10.41
|
|
|
|
4.66
|
|
|
|
—
|
|
Exercisable at December 31, 2016
|
|
|
244,417
|
|
|
$
|
11.36
|
|
|
|
4.05
|
|
|
|
—
|
|
The weighted-average grant-date fair value
of non-employee options granted during the year 2016 was $63,000 for 62,500 options at $1.01 per option, during the year 2015 was
zero, as no options were granted to non-employees in 2015, and during the year 2014 was $5,000 for 4,167 options at $1.20 per option.
Unvested stock option activity for non-employees:
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contracted
Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding December 31, 2013
|
|
|
39,236
|
|
|
$
|
3.00
|
|
|
|
9.61
|
|
|
|
—
|
|
Granted
|
|
|
4,167
|
|
|
|
31.20
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(40,625
|
)
|
|
|
3.96
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2014
|
|
|
2,778
|
|
|
$
|
31.20
|
|
|
|
9.08
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(2,778
|
)
|
|
|
31.20
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2015
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
62,500
|
|
|
|
1.62
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(23,611
|
)
|
|
|
1.63
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited
|
|
|
(12,500
|
)
|
|
|
1.56
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding December 31, 2016
|
|
|
26,389
|
|
|
$
|
1.65
|
|
|
|
8.61
|
|
|
|
—
|
|
Stock-based compensation
expense was approximately $410,000, $181,000 and $326,000 for the year ended December 31, 2016, 2015, and 2014, respectively resulting
in an increase in general and administrative expenses with no effect on earnings per share
As of December 31, 2016
and 2015, there was $266,000 and $199,000, respectively, of unrecognized stock-based compensation cost related to options granted
under the Equity Incentive Plans. Stock-based compensation related to options granted under the Equity Incentive Plans will be
recorded over the vesting period which is typically one year or upon reaching agreed upon company and/or individual performance
milestones being met which is indefinite.
(ii) Stock Warrants
Stock warrants are issued
as needed by the Board of Directors and have no formal plan.
The fair value of each
warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model. Expected volatility
is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury
issues with a term equal to the expected life of the warrant. The Company uses historical data to estimate expected dividend yield,
life and forfeiture rates. The expected life of the warrants was estimated based on historical option holder’s behavior and
represents the period of time that options are expected to be outstanding. There were 2,083 warrants granted during 2015 at $1.08
per warrant, and 2,700,000 granted in 2016 at $1.56 to $2.00 per warrant.
Information regarding warrants
outstanding and exercisable into shares of common stock is summarized below:
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
|
Shares
|
|
|
Warrant
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Warrant
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
|
|
|
Warrant
Price
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
beginning of year
|
|
|
1,102,354
|
|
|
|
3.00-24.00
|
|
|
$
|
15.12
|
|
|
|
199,922
|
|
|
|
3.00-24.00
|
|
|
$
|
6.72
|
|
|
|
147,183
|
|
|
|
1.08-24.00
|
|
|
$
|
5.73
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,083
|
|
|
|
1.08
|
|
|
$
|
1.08
|
|
|
|
2,700,000
|
|
|
|
1.56-2.00
|
|
|
$
|
1.99
|
|
Forfeited
|
|
|
(902,432
|
)
|
|
|
3.48-19.80
|
|
|
|
16.92
|
|
|
|
(54,822
|
)
|
|
|
6.12-18.60
|
|
|
|
9.24
|
|
|
|
(16,667
|
)
|
|
|
6.00
|
|
|
|
6.00
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding,
end of year
|
|
|
199,922
|
|
|
|
3.00
–24.00
|
|
|
$
|
6.72
|
|
|
|
147,183
|
|
|
|
3.00-24.00
|
|
|
$
|
5.76
|
|
|
|
2,830,516
|
|
|
|
1.08-24.00
|
|
|
$
|
2.16
|
|
Exercisable
|
|
|
199,922
|
|
|
|
3.00-24.00
|
|
|
$
|
6.72
|
|
|
|
147,183
|
|
|
|
3.00-24.00
|
|
|
$
|
5.76
|
|
|
|
2,830,516
|
|
|
|
1.08-24.00
|
|
|
$
|
2.16
|
|
Weighted average remaining contractual life
|
|
|
4.8 years
|
|
|
|
|
|
|
|
|
|
|
|
4.4 years
|
|
|
|
|
|
|
|
|
|
|
|
4.6 years
|
|
|
|
|
|
|
|
|
|
Years exercisable
|
|
|
2014-2023
|
|
|
|
|
|
|
|
|
|
|
|
2017-2023
|
|
|
|
|
|
|
|
|
|
|
|
2017-2023
|
|
|
|
|
|
|
|
|
|
Stock warrants are issued
at the discretion of the Board. In 2016, there were 2,666,667 warrants issued in conjunction with the August 2016 offering at an
average exercise price of $1.99 per share. In 2015, there were no warrants issued. In 2016, 33,333 warrants were issued at an average
exercise price of $1.74 per share. Certain of the stock warrants outstanding are subject to adjustments for stock splits and dividends.
No warrants were exercised during 2014, 2015 or 2016.
(e) Rights Offering
On November 19, 2002, the
Board of Directors of the Company declared a dividend distribution of one Right for each outstanding share of Common Stock to stockholders
of record at the close of business on November 29, 2002 (the “Record Date”). Each Right entitles the registered holder
to purchase from the Company a unit consisting of one one-hundredth of a share (a “Unit”) of Series A Junior Participating
Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) at a Purchase Price of $30.00 per Unit,
subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”)
between the Company and Continental Stock Transfer & Trust Company, as Rights Agent.
On November 2, 2012, the
Company executed an Amended and Restated Rights Agreement amending and restating the November 19, 2002 Rights Agreement between
the Company and Continental Stock Transfer & Trust Company, as Rights Agent (as amended, the “Amended Rights Agreement”).
The Amended Rights Agreement extends the term of the Rights Plan to November 18, 2017 and amends certain other provisions, as described
in the Company’s Amended Registration Statement on Form 8-A/A, filed on November 2, 2012 (the “Amended Form 8-A”).
The Amended Rights Plan entitles holders to buy one-hundredth unit of preferred stock for $30.00 and may be redeemed prior to November
19, 2017, the expiration date, at $0.001 per Right under certain circumstances. The Rights generally are not transferable apart
from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock.
(8) Segment and Related Information
The Company operates in
one segment, which performs research and development activities related to Ampligen® and other drugs under development, and
sales and marketing of Alferon®. The Company’s revenues for the three-year period ended December 31, 2016, were earned
in the United States.
The Company employs an insignificant
amount of net property and equipment in its foreign operations.
(9) Research, Consulting and Supply Agreements
On October 2, 2011, the
Company finalized their Fourth Amendment to a Supply Agreement, effective through March 11, 2014, with Jubilant Hollister-Stier
LLC of Spokane, Washington (“Jubilant”), pursuant to which Jubilant would formulate and package Ampligen®
from the key raw materials that Hemispherx would supply to them. This Supply Agreement expired March 11, 2014. The Company is
working towards an amendment to the existing Supply Agreement, which may contain additional fees as part of entering into the
extension. In October 2014, the Company entered into a purchase commitment with Jubilant for approximately $700,000 for
the manufacture of clinical batches of Ampligen® and no fees were incurred for the years ended 2015 and 2016, respectively,
pursuant to this agreement. On January 3, 2017, the Company entered into a purchase order to replace the previous purchase commitment
with Jubilant pursuant to which Jubilant will manufacture a commercial batch of Ampligen® for the Company. Pursuant
to the order, Jubilant will perform tooling and validation activities as well as final fill and finish services.
On July 27, 2016, the Company
reached an agreement with Avecia to serve as an additional contract manufacturer of Hemispherx’s experimental drug, Ampligen®. The first cGMP lot was completed in December and was released in January 2017 for use in the Company’s Early Access Program
(“EAP”) in Europe and Turkey to treat pancreatic cancer patients.
To formulate, fill,
finish and package (“fill and finish”) Alferon N Injection® Drug Product, the Company requires a FDA approved
third party Contract Manufacturing Organization (“CMO”). In January 2012, the Company agreed to a Technology,
Transfer, Validation and Commercial Supply Agreement with Ajinomoto Althea, Inc., formerly Althea Technologies, Inc.
(“Althea”) of San Diego, CA, regarding the fill and finish process for Alferon N Injection®. In November
2014, the Company entered into a purchase commitment with Althea for approximately $622,000 for the production of validation
batches of Alferon® N Injection for emergency use and/or commercial sale. The Company has paid approximately $210,000 to
Althea with regard to this open purchase commitment as of December 31, 2016 and has recorded this amount within
Work-In-Process inventory.
On September 6, 2011, the
Company executed an amended agreement with Asembia, formerly Armada Healthcare, LLC to undertake the marketing, education and sales
of Alferon N Injection® throughout the United States. This agreement also provides start-up along with ongoing sales and marketing
support to the Company. On July 31, 2015, it was mutually agreed upon to extend this agreement through August 14, 2017 subject
to the same terms and conditions. The Company previously extended this agreement for the previous three years also under the same
terms and conditions. The Company incurred no fees for the years ended December 31, 2016, 2015 and 2014, pursuant to original and
amended agreements. Due to the Company’s manufacturing process for Alferon® being on hold and there being no definitive
timetable to have the facility back online, the Company will review its expiring agreement on August 14, 2017 with Asembia.
On September 6, 2011, the
Company executed a new agreement with specialty distributor, BioRidge Pharma, LLC (“BioRidge”) to warehouse, ship,
and distribute Alferon N Injection® on an exclusive basis in support of U.S. sales. On July 31, 2015, it was mutually agreed
upon to extend this agreement through August 14, 2017 subject to the same terms and conditions. The Company previously extended
this agreement for the previous three years also under the same terms and conditions. The Company incurred approximately fees of
$0, $2,000 and $21,000 for the years ended December 31, 2016, 2015 and 2014, respectively, pursuant to the agreement. Due to the
Company’s manufacturing process for Alferon® being on hold and there being no definitive timetable to have the facility
back online, the Company will review its expiring agreement on August 14, 2017 with BioRidge.
On March 9, 2015, the
Company executed an agreement with Emerge Health Pty Ltd. (“Emerge”) to seek approval of Ampligen® for CFS in
Australia and New Zealand and to commence distribution of Ampligen® in both countries on a named-patient basis, where deemed
appropriate. The parties intend to collaborate on seeking regulatory approval from Australia’s Therapeutic Goods Administration
(“TGA”) and New Zealand’s Medicines and Medical Devices Safety Authority (“Medsafe”). Under this
five year exclusive license to sell, market, and distribute Ampligen® in Australia and New Zealand to treat CFS, Emerge will
implement regulatory-compliant programs to educate physicians about Ampligen® for CFS and seek orphan drug designation and
approval of Ampligen® to treat CFS. Hemispherx will support these efforts and will supply Ampligen® at a predetermined
transfer price. The Company has the right to buy out of the agreement at a price equal to three times Ampligen® sales for
the preceding 12 months if exercised within the first two years or two times such sales if exercised after year three. The
Company has determined to maintain local expertise in handling the regulatory aspects of treating patients with an unapproved
product and has elected not to pursue individual patient use in these territories and has subsequently terminated the agreement
in 2017.
On August 3, 2015, the
Company executed a multi-year agreement with Impatients, N.V. (“Impatients”), a Netherlands based company doing business
as myTomorrows, for the commencement and management of an Early Access Program (“EAP”) in Europe, Turkey and Canada
(the “Territory”) related to Chronic Fatigue Syndrome. MyTomorrows, as Hemispherx’ exclusive service provider
and distributor in the Territory, will perform EAP activities. These activities will be directed to (a) the education of physicians
and patients regarding the possibility of early access to innovative medical treatments not yet the subject of a Marketing Authorization
(regulatory approval) through named-patient use, compassionate use, expanded access and hospital exemption (b) patient and physician
outreach related to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions and/or waivers required
by regulatory authorities for medical treatments prior to Marketing Authorization) for the use of such treatments, (d) the distribution
and sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug safety) activities and/or (f)
the collection of data such as patient-reported outcomes, doctor-reported experiences and registry data. Hemispherx will support
these efforts and will supply Ampligen® to myTomorrows at a predetermined transfer price. In the event that the Company receives
Marketing Authorization in any country in the Territory, the Company will pay myTomorrows a royalty on products sold. The parties
will establish a Joint Steering Committee composed of representatives of both parties to oversee the EAP.
On August 6, 2015, the
Company executed an agreement with Emerge to seek approval of Alferon N Injection® in Australia and New Zealand and to commence
distribution of Alferon® in both countries on a named-patient basis, for treating genital warts and other infections and diseases
to which patients in Australia and New Zealand have become refractory to recombinant interferon. The Company and Emerge will collaborate
on seeking regulatory approval from Australia’s TGA and New Zealand’s Medsafe. Under a five-year exclusive license
to sell, market, and distribute Alferon N Injection® in Australia and New Zealand, Emerge will implement regulatory-compliant
programs to educate physicians about Alferon®. The Company will support these efforts and will supply Alferon® at a predetermined
transfer price. The Company has the right to buy out of the agreement at a price equal to three times Alferon® sales for the
preceding 12 months if exercised within the first two years or two times such sales if exercised after year three.
On May 24, 2016, the Company
entered into an amended and restated five year agreement (the “Impatients Agreement”) with Impatients, N.V. (“Impatients”),
a Netherlands based company doing business as myTomorrows, for the commencement and management of an Early Access Program (“EAP”)
in Europe and Turkey (the “Territory”) related to CFS. Pursuant to the agreement, Impatients, as our exclusive service
provider and distributor in the Territory, is performing EAP activities. These activities will be directed to (a) the education
of physicians and patients regarding the possibility of early access to innovative medical treatments not yet the subject of a
Marketing Authorization (regulatory approval) through named-patient use, compassionate use, expanded access and hospital exemption,
(b) patient and physician outreach related to a patient-physician platform, (c) the securing of Early Access Approvals (exemptions
and/or waivers required by regulatory authorities for medical treatments prior to Marketing Authorization) for the use of such
treatments, (d) the distribution and sale of such treatments pursuant to such Early Access Approvals, (e) pharmacovigilance (drug
safety) activities and/or (f) the collection of data such as patient-reported outcomes, doctor-reported experiences and registry
data. We are supporting these efforts and supplying Ampligen® to Impatients at a predetermined transfer price. In the event
that the Company receives Marketing Authorization in any country in the Territory, the Company will pay Impatients a royalty on
products sold. Pursuant to the Impatients Agreement, the royalty would be a percentage of Net Sales (as defined in the Impatients
Agreement) of Ampligen® sold in the Territory where Marketing Authorization was obtained, and the maximum royalty would be
a percentage of Net Sales. The formula to determine the percentage of Net Sales will be based on the number of patients that are
entered into the EAP. The parties established a Joint Steering Committee comprised of representatives of both parties to oversee
the EAP. No assurance can be given that activities under the EAP will result in Marketing Authorization or the sale of substantial
amounts of Ampligen® in the Territory.
The Company has entered
into agreements for consulting services, which are performed at medical research institutions and by medical and clinical research
individuals. The Company’s obligation to fund these agreements can be terminated after the initial funding period, which
generally ranges from one to three years or on an as-needed monthly basis. During the years ending December 31, 2016, 2015 and
2014, the Company incurred approximately $285,000, $1,668,000 and $1,286,000, respectively, of consulting service fees under these
agreements. These costs are charged to research and development expense as incurred.
(10) 401(k) Plan
The Company has a defined
contribution plan, entitled the Hemispherx Biopharma Employees 401(k) Plan and Trust Agreement (the “401(k) Plan”).
Full time employees of the Company are eligible to participate in the 401(k) Plan following one year of employment. Subject to
certain limitations imposed by federal tax laws, participants are eligible to contribute up to 15% of their salary (including bonuses
and/or commissions) per annum. Participants’ contributions to the 401(k) Plan may be matched by the Company at a rate determined
annually by the Board of Directors.
Each participant immediately
vests in his or her deferred salary contributions, while Company contributions will vest over one year. A 6% Company matching contribution
was established, effective as of January 1, 2010 through December 31, 2015. As of January 1, 2016, the matching has been terminated.
For 2016, 2015 and 2014, the Company contributions towards the 401(k) Plan were $0, $167,000 and $170,000 respectively.
(11) Royalties, License and Employment Agreements
The Company had contractual
agreements with Named Executive Officers (“Officers”) in 2016, 2015 and 2014. The aggregate annual base compensation
for these Officers under their respective contractual agreements for 2016, 2015 and 2014 was $983,000, $2,259,000 and $2,249,000
respectively. In addition, certain of these Officers were entitled to receive performance bonuses of up to 25% or 20% of their
respective annual base salary, at the sole discretion of the Compensation Committee of the Board of Directors. In 2016, 2015 and
2014, Officers’ bonuses of $0, $0 and $386,000 respectively were granted.
On November 23, 2015, Mr.
Equels waived his rights under his employment agreement to any future payment of any incentive bonus related to the sale of the
Company’s stock or other securities by, or on behalf of, the Company pursuant to the Maxim Equity Distribution Agreement
or any similar or successor ATM equity distribution agreement. Mr. Equels voluntarily provided his waiver in an effort to preserve
cash and to help the Company to ensure its short term commercialization goals.
In 2016, equity was granted
as a form of compensation to these Officers:
|
●
|
Chief Executive Officer was granted 25,000 ten year options to purchase common stock at $1.68 per share which vest in entirety in one year; and
|
|
|
|
|
●
|
Chief Financial Officer was granted 12,500 ten year options to purchase common stock at $1.56 per share which vest in entirety in one year.
|
|
|
|
|
●
|
Chief Scientific Officer was granted 12,500 ten year options to purchase common stock at $1.56 per share which vest in entirety in one year.
|
In 2015, equity was granted
as a form of compensation to these Officers:
|
●
|
Chief Executive Officer was granted 25,000 ten year options to purchase common stock at $3.00 per share which vest in entirety in one year.
|
In 2014, equity was granted
as a form of compensation to these Officers:
|
●
|
Chief Executive Officer was granted 25,000 ten year options to purchase common stock at $4.32 per share which vest in entirety in one year.
|
The Company recorded stock
compensation expense of approximately $52,000, $121,000 and $223,000, respectively, during the years ended December 31,
2016, 2015 and 2014 respectively with regard to these issuances.
(12) Leases
The Company has a non-cancelable
escalating operating lease as amended, for the space in which its principal office is located. The term of the lease for the Philadelphia,
Pennsylvania offices is currently through July 1, 2018. Approximate future minimum payments under these operating lease obligations
are as follows:
For The Years Ending
|
|
|
|
December 31,
|
|
(In Thousands)
|
|
2017
|
|
|
161
|
|
2018
|
|
|
68
|
|
|
|
$
|
229
|
|
Rent expense charged to
operations for the years ended December 31, 2016, 2015 and 2014 amounted to approximately $178,000, $166,000 and $163,000 respectively.
(13) Income Taxes (FASB ASC 740 Income Taxes)
The Company applies the
provisions of FASB ASC 740-10 Uncertainty in Income Taxes. As a result of the implementation, there has been no material change
to the Company’s tax position as they have not paid any corporate income taxes due to operating losses. All tax benefits
will likely not be recognized due to the substantial net operating loss carryforwards which will most likely not be realized prior
to expiration.
As of December 31, 2014,
the Company has approximately $151,000,000 of federal net operating loss carryforwards (expiring in the years 2018 through 2034)
available to offset future federal taxable income. The Company also has approximately $36,000,000 of Pennsylvania state net operating
loss carryforwards (expiring in the years 2018 through 2033) and approximately $28,000,000 of New Jersey state net operating loss
carryforwards (expiring in the years 2033 and 2034) available to offset future state taxable income. In January 2015, the Company
effectively sold $14,300,000 of its New Jersey state net operating loss carryforward for the year 2013 for approximately $1,374,000.
As of December 31, 2015,
the Company has approximately $166,000,000 of federal net operating loss carryforwards (expiring in the years 2018 through 2035)
available to offset future federal taxable income. The Company also has approximately $36,000,000 of Pennsylvania state net operating
loss carryforwards (expiring in the years 2018 through 2033) and approximately $29,000,000 of New Jersey state net operating loss
carryforwards (expiring in the years 2034 and 2035) available to offset future state taxable income. In January 2016, the Company
effectively sold $16,000,000 of its New Jersey state net operating loss carryforward for the year 2014 for approximately $1,320,000,
and also sold New Jersey research and development credits for $241,000.
As of December 31, 2016,
the Company has approximately $174,000,000 of federal net operating loss carryforwards (expiring in the years 2018 through 2036)
available to offset future federal taxable income. The Company also has approximately $36,000,000 of Pennsylvania state net operating
loss carryforwards (expiring in the years 2018 through 2033) and approximately $8,000,000 of New Jersey state net operating loss
carryforwards (expiring in 2036) available to offset future state taxable income. In December 2016, the Company effectively sold
$14,000,000 of its New Jersey state net operating loss carryforward for the year 2015 for approximately $1,120,000, and also sold
New Jersey research and development credits for $189,000.
The utilization of certain
state net operating loss carryforwards may be subject to annual limitations. With no tax due for the foreseeable future, the Company
has determined that a policy to determine the accounting for interest or penalties related to the payment of tax is not necessary
at this time.
Under the Tax Reform Act
of 1986, the utilization of a corporation’s net operating loss carryforward is limited following a greater than 50% change
in ownership. Due to the Company’s prior and current equity transactions, the Company’s net operating loss carryforwards
may be subject to an annual limitation generally determined by multiplying the value of the Company on the date of the ownership
change by the federal long-term tax exempt rate. Any unused annual limitation may be carried forward to future years for the balance
of the net operating loss carryforward period.
Deferred income taxes reflect
the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes
and the carrying amounts used for income tax purposes. In assessing the realizability of deferred tax assets, Management considers
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of
deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences
representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s ability to realize
the benefit of the deferred tax asset, the deferred tax assets are fully offset by a valuation allowance at December 31, 2016 and
2015.
The components of the net deferred tax assets
and liabilities as of December 31, 2016 and 2015 consist of the following:
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net operating losses
|
|
$
|
59,200
|
|
|
$
|
56,300
|
|
Amortization & depreciation
|
|
|
132
|
|
|
|
88
|
|
Research and development costs
|
|
|
-
|
|
|
|
691
|
|
Stock compensation
|
|
|
139
|
|
|
|
62
|
|
Total deferred tax assets
|
|
|
59,741
|
|
|
|
57,141
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Research and development costs
|
|
|
(375
|
)
|
|
|
-
|
|
Deferred tax assets, net
|
|
|
59,096
|
|
|
|
57,141
|
|
Less: Valuation allowance
|
|
|
(59,096
|
)
|
|
|
(57,141
|
)
|
Deferred tax assets, net
|
|
|
—
|
|
|
|
—
|
|
(14) Contingencies
|
(a)
|
Mark Zicherman v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Iraj E. Kiani, William M. Mitchell, Richard C. Piani, David Strayer and Charles T. Bernhardt, U.S. District Court for Eastern District of Pennsylvania, Case No. 2:13-cv-00243-WY.
|
|
|
|
|
(b)
|
Michael Desclos v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, March 2013 Term, No. 110.
|
|
|
|
|
(c)
|
Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., William A. Carter, Charles T. Bernhardt, Thomas K. Equels, David R. Strayer, Richard C. Piani, William M. Mitchell, and Iraj E. Kiani, First Judicial District of Pennsylvania, Court of Common Pleas of Philadelphia, April 2013 Term, No. 3458.
|
|
|
|
|
(d)
|
Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., William A. Carter, Thomas K. Equels, Richard C. Piani, William M. Mitchell, Iraj E. Kiani and Robert E Peterson, Chancery Court of the State of Delaware, June 18, 2013, Case No. 8657.
|
|
|
|
|
(e)
|
Cato Capital, LLC v. Hemispherx Biopharma, Inc., U.S. District Court for the District of Delaware, Case No. 9-549-GMS.
|
(a)
|
On January 15, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the United States District Court for the Eastern District of Pennsylvania. Purporting to assert claims on behalf of the Company, the Complaint in this action, Mark Zicherman v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On February 22, 2013, the Court entered an order temporarily staying this case pending the outcome of the securities class action defendants’ motion to dismiss that action. On July 3, 2013, Plaintiff filed an Amended Complaint, adding David R. Strayer, M.D., as a Defendant. On July 18, 2013, the Court entered an order staying the case as against Dr. Strayer pending the outcome of the motion to dismiss the securities class action. On January 24, 2014, the Court denied the defendants’ motion to dismiss the securities class action. On March 26, 2014, the Court entered an order to continue the temporary stay, and on March 27, 2014, the Court entered an order placing the action in the Civil Suspense File. On April 11, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On January 28, 2015, on request of the parties, the Court entered an Order continuing the temporary stay, subject to the requirement that the parties submit an updated joint status report within ten days of the court’s entry of an order granting or denying the securities class action parties’ motion for preliminary approval of their settlement agreement. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement in principle to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ Settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court entered an Order granting final approval of the parties’ settlement
,
awarding the plaintiffs’ counsel $660,000 in attorneys’ fees, and dismissing the action and all claims alleged therein against all defendants with prejudice. The Settlement resolves all claims asserted in this action (“Zicherman”) and the two related consolidated state-court actions referenced below, Michael Desclos v. Hemispherx Biopharma, Inc. et al., and Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al. The Settlement does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies.
|
(b)
|
On March 4, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. Purporting to assert claims on behalf of the Company, the Complaint in this action, Michael Desclos v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On April 10, 2013, the Court entered an order temporarily staying this case pending the outcome of the securities class action defendants’ motion to dismiss that action. On January 24, 2013, the court in the federal securities class action denied the defendants’ motion to dismiss. On January 29, 2014, the court entered an order consolidating this action with the shareholder derivative action, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., described below. On March 26, 2014, the Court entered an order to continue the temporary stay. On June 9, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement in principle to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court in Zicherman entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court in Zicherman entered an Order granting final approval of the parties’ settlement and awarding the plaintiffs’ counsel $660,000 in attorneys’ fees. The Settlement, which resolves all claims asserted in this action (“Desclos”) and the two related actions, Zicherman, referenced above, and the state court action referenced below, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies. On December 2, 2016, the Court in this action removed the case from deferred status, and on December 5, 2016, the prothonotary entered the plaintiffs’ praecipe to mark the case settled, discontinued, and ended in its entirety, and with prejudice.
|
(c)
|
On April 23, 2013, a Shareholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the First Judicial District of Pennsylvania of the Court of Common Pleas of Philadelphia. Purporting to assert claims on behalf of the Company, the Complaint in this action, Richard J. Sussman and Douglas T. Lowe v. Hemispherx Biopharma, Inc., et al., alleges violations of state law, including breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment, arising from the alleged federal securities violations asserted in the securities class action. On May 10, 2013, the Court entered an order staying this case pending the outcome of the ruling on the Federal Securities Class Action Defendants’ motion to dismiss. On January 24, 2014, the court in the federal securities class action denied the defendants’ motion to dismiss. On January 29, 2014, the Court entered an order consolidating this action with the shareholder derivative action, Michael Desclos v. Hemispherx Biopharma, Inc., et al., described above. On March 26, 2014, the Court entered an order to continue the temporary stay. On June 9, 2014, the Court entered a Stipulated Protective Order, which will govern all confidential documents produced in discovery. On or about January 13, 2016, the parties agreed to attempt to resolve the action through mediation. On February 11, 2016, the parties engaged in a mediation and, at that mediation, reached an agreement to settle all claims. On April 27, 2016, the parties executed a Stipulation and Agreement of Settlement (“Settlement”). On May 27, 2016, the Court in Zicherman entered an order preliminarily approving the parties’ Settlement. On September 29, 2016, the Court held a final approval hearing to determine whether the parties’ settlement is fair, reasonable, adequate and in the best interests of Hemispherx. On October 4, 2016, the Court in Zicherman entered an Order granting final approval of the parties’ settlement and awarding the plaintiffs’ counsel $660,000 in attorneys’ fees. The Settlement, which resolves all claims asserted in this action and the two related actions, Zicherman and Desclos, referenced above, does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants. No Company funds were used to pay attorneys’ fees award, which was funded by Hemispherx’s insurance companies. On December 2, 2016, the Court in this action removed the case from deferred status, and on December 8, 2016, the prothonotary entered the plaintiffs’ praecipe to mark the case settled, discontinued, and ended in its entirety, and with prejudice.
|
(d)
|
On June 18, 2013, a Stockholder Derivative Complaint was filed against the Company, as nominal defendant, and certain of its current and former Officers and Directors in the Court of Chancery of the State of Delaware. The Complaint in this action, Rena A. Kastis and James E. Conroy v. Hemispherx Biopharma, Inc., et al., alleges breaches of fiduciary duties, waste of corporate assets and unjust enrichment. The Company’s Board of Directors appointed a Special Litigation Committee (“SLC”) to review the allegations set forth in the Complaint. On September 10, 2013, the Court entered a Stipulation and Order staying all proceedings in this action pending the SLC’s review and recommendation concerning the allegations contained in the Complaint. On December 20, 2013, the SLC issued its Report, in which it concluded that dismissing the Complaint would be in the best interests of Hemispherx and its stockholders. On January 20, 2014, the SLC moved to dismiss the Complaint. Following briefing and oral argument on the motion to dismiss, the Court denied the SLC’s motion on August 18, 2015, but did dismiss the claims against former officer Robert E. Peterson. On October 13, 2015, Plaintiffs filed a Verified Amended Derivative and Class Action Complaint (the “Amended Complaint”), asserting additional claims for breach of fiduciary duty against Board member Peter W. Rodino, declaratory judgment with respect to certain bonuses paid to officers of the Company, and a class action claim for breach of fiduciary duty against the current Board in connection with the solicitation of votes in advance of the Company’s 2015 annual meeting. The Amended Complaint also removed all of the dismissed claims against Mr. Peterson. The Company and all individual defendants except former Board member Richard C. Piani answered the Amended Compliant on November 19, 2015. The Court entered a scheduling order on December 2, 2015, but on January 5, 2016, the parties agreed to suspend all litigation for 60 days and to attempt to resolve the action through mediation. The parties engaged in a mediation on February 10, 2016, and reached an agreement in principle to settle all claims on April 27, 2016. That agreement was memorialized in a Stipulation and Agreement of Settlement (the “Settlement Stipulation”) which was filed with the Court on June 8, 2016. The settlement was subject to the Court’s finally approving the terms of the parties’ settlement agreement in all material respects. On June 8, 2016, concurrent with the filing of the Settlement Stipulation, the parties filed a joint proposed scheduling order, which the Court entered the same day (the “Scheduling Order”). The Scheduling Order preliminarily certified the class for settlement purposes, directed the Company to issue notice (in the form approved by the Court) to Company stockholders and members of the putative class, and scheduled a settlement approval hearing (the “Settlement Approval Hearing”) to occur on September 9, 2016. At the Settlement Approval Hearing on September 9 and September 19, 2016, the Court approved the settlement, awarded plaintiffs’ counsel $1.25 million in attorneys’ fees and expenses, and dismissed the action with prejudice. No stockholders or members of the putative class objected to the settlement. No Company funds were used to pay the settlement or attorneys’ fees award; the settlement and fee award were funded by Hemispherx’s insurance policies. The final settlement does not constitute any admission of fault or wrongdoing by Hemispherx or any of the individual defendants.
|
|
|
(e)
|
Cato Capital, LLC (“Cato”) brought suit against the Company on July 31, 2009, in the United States District Court for the District of Delaware (the “Court”), alleging that under a November 2008 agreement between Cato and Hemispherx, Hemispherx owed Cato a placement fee arising from subsequent Hemispherx financing and investment transactions. Hemispherx disputed these allegations, asserting that Cato failed to comply with the provisions of its own contract. The Amended Complaint sought damages in the amount of $9,830,000.00 plus attorneys’ fees and punitive damages. Pursuant to an indemnification responsibility, Hemispherx has also retained this firm to undertake the defense of the Sage Group.
|
The Parties had a
Non-Jury trial on March 4, 5 and 6, 2013 before the United States District Court for the District of Delaware. On September 29,
2014, the Court found in favor of Hemispherx and Sage on all counts, and dismissed Cato’s claims in their entirety. On January
13, 2015, the Court granted the Company’s motion for attorney’s fees and costs and awarded the Company $770,852.76.
On October 24, 2014,
Cato filed a notice of appeal of the Court’s September 29, 2014 decision in the United States Court of Appeals for the Third
Circuit (the “Third Circuit”). On March 3, 2015, Cato filed its Brief in the Third Circuit. The Company’s Brief
in Response was filed on April 6, 2015, with a Reply Brief by Cato filed on April 19, 2015. The Court of Appeals conducted Oral
Argument on July 16, 2015. On August 21, 2015 the Court of Appeals affirmed the judgment of the District Court. On September 9,
2015 Cato sought reconsideration of the decision through re-argument or re-hearing by the en banc Court of Appeals. On September
17, 2015 the Court of Appeals denied Cato’s requests. On October 1, 2015 Hemispherx filed for additional costs and fees to
be added to its existing judgment. On February 10, 2016 the Court increased Hemispherx’ judgment by an additional $48,725.75
to reflect the costs of defending the Cato appeal. On February 11, 2016 the Court of Appeals returned the mandate to the District
Court. The Company is pursuing collection of its judgment in the amount of $829,578.51
(15) Certain Relationships and Related Transactions
The Company has employment
agreements with certain of their Executive Officers and has granted such officers and directors options and warrants to purchase
their common stock. Please see details of these Employment Agreements in Note 11 - Royalties, License and Employment Agreements.
Thomas Equels our CEO,
was elected to the Board of Directors at the Annual Stockholders Meeting on November 17, 2008 and joined the Company as General
Counsel effective June 1, 2010. Mr. Equels had provided external legal services for several years through May 31, 2010 and Equels
Law Firm continued to support the Company through 2015. In 2016, 2015 and 2014, the Company paid Equels Law Firm approximately
$0, $42,000 and $303,000, respectively, for services rendered. Upon analysis in the Fall of 2011 by the Audit Committee’s
Financial Expert, it was deemed that the hourly rates charged by Equels Law to the Company were reasonable when compared to the
fee structure of a possible arms-length transaction from comparable firms in practice in the same market and of the similar size.
The hourly rate fees from Equels Law Firm remained the same for 2014 and 2015. There were no legal fees paid in 2016 to Equels
Law Firm. For his Board fees, Mr. Equels received approximately $20,000, $182,000 and $182,000 for 2016, 2015 and 2014, respectively.
Mr. Equels stopped receiving Board fees in March 2016.
For the years ended 2016,
2015 and 2014, compensation was granted or paid related to the Executive Performance Incentive Program related to the ATM, as set
forth in Section 3(c)(ii) of his Employment Agreement, for approximately $0, $262,000, and $641,000 to Mr. Equels. Mr. Equels’
compensation related to this program was classified entirely as general and administrative expense. Mr. Equels has agreed not to
receive any compensation in relation to current or future ATM sales.
In 2016 Mr. Equels also
earned, as set forth in Section 3(c)(ii) of his Employment Agreement, $39,000 for 5% of the Ampligen® cost recovery
sales for the last 5 years, and $131,000 in accordance with item 5 of the 2016 Senior Executive Deferred Cash Performance Award
Plan, as the price of our stock has been above $.20 for 5 successive trading days.
(16) Concentrations of Credit Risk
Financial instruments,
which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash equivalents, investments
and accounts receivable. The Company places its cash with high-quality financial institutions and, at times, such amounts in non-interest
bearing accounts may be in excess of Federal Deposit Insurance Corporation insurance limits. There was no credit based sales for
2016, 2015 or 2014.
(17) Fair Value
The Company is required
under GAAP to disclose information about the fair value of all the Company’s financial instruments, whether or not these
instruments are measured at fair value on the Company’s consolidated balance sheets.
The Company estimates that
the fair values of cash and cash equivalents, other assets, accounts payable and accrued expenses approximate their carrying values
due to the short-term maturities of these items. The Company also has certain warrants with a cash settlement feature in the unlikely
occurrence of a Fundamental Transaction. The fair value of the redeemable warrants related to the Company’s August 2016 Common
Stock and Warrant issuance, are calculated using a Monte Carlo Simulation. While the Monte Carlo Simulation is one of a number
of possible pricing models, the Company has determined it to be industry accepted and fairly presented the fair value of the Warrants.
As an additional factor to determine the fair value of the Put’s liability, the occurrence probability of a Fundamental Transaction
event was factored into the valuation.
The Company recomputes
the fair value of the Warrants at the issuance date and the end of each quarterly reporting period. Such value computation includes
subjective input assumptions that are consistently applied each period. If the Company were to alter its assumptions or the numbers
input based on such assumptions, the resulting fair value could be materially different.
The Company utilized the
following assumptions to estimate the fair value of the August 2016 warrants:
|
|
December 31, 2016
|
|
|
September 6, 2016
|
|
Underlying price per share
|
|
|
$0.69 to $1.26
|
|
|
$
|
1.39
|
|
Exercise price per share
|
|
|
$1.88 - $2.00
|
|
|
|
$1.88 - $2.00
|
|
Risk-free interest rate
|
|
|
1.86%
|
|
|
|
1.21%
|
|
Expected holding period
|
|
|
4.70
|
|
|
|
5.00
|
|
Expected volatility
|
|
|
85%
|
|
|
|
90%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
The significant assumptions
using the Monte Carlo Simulation approach for valuation of the Warrants are:
|
(i)
|
Risk-Free Interest Rate
. The risk-free interest rates for the Warrants are based on U.S. Treasury constant maturities for periods commensurate with the remaining expected holding periods of the warrants.
|
|
|
|
|
(ii)
|
Expected Holding Period
. The expected holding period represents the period of time that the Warrants are expected to be outstanding until they are exercised. The Company utilizes the remaining contractual term of the Warrants at each valuation date as the expected holding period.
|
|
|
|
|
(iii)
|
Expected Volatility
. Expected stock volatility is based on daily observations of the Company’s historical stock values for a period commensurate with the remaining expected holding period on the last day of the period for which the computation is made.
|
|
|
|
|
(iv)
|
Expected Dividend Yield
. Expected dividend yield is based on the Company’s anticipated dividend payments over the remaining expected holding period. As the Company has never issued dividends, the expected dividend yield is $-0- and this assumption will be continued in future calculations unless the Company changes its dividend policy.
|
|
|
|
|
(v)
|
Expected Probability of a Fundamental Transaction.
The possibility of the occurrence of a Fundamental Transaction triggering a Put right is extremely remote. As discussed above, a Put right would only arise if a Fundamental Transaction 1) is an all cash transaction; (2) results in the Company going private; or (3) is a transaction involving a person or entity not traded on a national securities exchange. The Company believes such an occurrence is highly unlikely because:
|
|
a.
|
The Company only has one product that is FDA approved but which will not be available for commercial sales for at least approximately 18 months;
|
|
|
|
|
b.
|
The Company may have to perform additional clinical trials for FDA approval of its flagship product;
|
|
|
|
|
c.
|
Industry and market conditions continue to include a global market recession, adding risk to any transaction;
|
|
|
|
|
d.
|
Available capital for a potential buyer in a cash transaction continues to be limited;
|
|
|
|
|
e.
|
The nature of a life sciences company is heavily dependent on future funding and high fixed costs, including Research & Development;
|
|
|
|
|
f.
|
The Company has minimal revenues streams which are insufficient to meet the funding needs for the cost of operations or construction at their manufacturing facility; and
|
|
|
|
|
g.
|
The Company’s Rights Agreement and Executive Agreements make it less attractive to a potential buyer.
|
With the above factors
utilized in analysis of the likelihood of the Put’s potential Liability, the Company estimated the range of probabilities
related to a Put right being triggered as:
Range of Probability
|
|
Probability
|
|
Low
|
|
|
0.5
|
%
|
Medium
|
|
|
1.0
|
%
|
High
|
|
|
5.0
|
%
|
The Monte Carlo Simulation
has incorporated a 5.0% probability of a Fundamental Transaction to date for the life of the securities.
|
(vi)
|
Expected Timing of Announcement of a Fundamental Transaction.
As the Company has no specific expectation of a Fundamental Transaction, for reasons elucidated above, the Company utilized a discrete uniform probability distribution over the Expected Holding Period to model in the potential announcement of a Fundamental Transaction occurring during the Expected Holding Period.
|
|
|
|
|
(vii)
|
Expected 100 Day Volatility at Announcement of a Fundamental Transaction
. An estimate of future volatility is necessary as there is no mechanism for directly measuring future stock price movements. Daily observations of the Company’s historical stock values for the 100 days immediately prior to the Warrants’ grant dates, with a floor of 100%, were utilized as a proxy for the future volatility.
|
|
|
|
|
(viii)
|
Expected Risk-Free Interest Rate at Announcement of a Fundamental Transaction
. The Company utilized a risk-free interest rate corresponding to the forward U.S. Treasury rate for the period equal to the time between the date forecast for the public announcement of a Fundamental Transaction and the Warrant expiration date for each simulation.
|
|
|
|
|
(ix)
|
Expected Time Between Announcement and Consummation of a Fundamental Transaction.
The expected time between the announcement and the consummation of a Fundamental Transaction is based on the Company’s experience with the due diligence process performed by acquirers, and is estimated to be six months. The Monte Carlo Simulation approach incorporates this additional period to reflect the delay Warrant Holders would experience in receiving the proceeds of the Put.
|
While the assumptions remain
consistent from period to period (e.g., utilizing historical stock prices), the numbers input change from period to period (e.g.,
the actual historical prices input for the relevant period). The carrying amount and estimated fair value of the above warrants
was approximately $940,000 at December 31, 2016 and $2,617,000 at September 6, 2016, the date of issuance.
The Company applies FASB
ASC 820 (formerly Statement No. 157
Fair Value Measurements
) that defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The guidance does
not impose any new requirements around which assets and liabilities are to be measured at fair value, and instead applies to asset
and liability balances required or permitted to be measured at fair value under existing accounting pronouncements. The Company
measures its warrant liability for those warrants with a cash settlement feature at fair value.
FASB ASC 820-10-35-37 (formerly
SFAS No. 157) establishes a valuation hierarchy based on the transparency of inputs used in the valuation of an asset or liability.
Classification is based on the lowest level of inputs that is significant to the fair value measurement. The valuation hierarchy
contains three levels:
|
●
|
Level 1 – Quoted prices are available in active markets for identical assets or liabilities at the reporting date. Generally, this includes debt and equity securities that are traded in an active market.
|
|
|
|
|
●
|
Level 2 – Observable inputs other than Level 1 prices such as quote prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Generally, this includes debt and equity securities that are not traded in an active market.
|
|
|
|
|
●
|
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or other valuation techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. As of September 30, 2016, the Company has classified the warrants with cash settlement features as Level 3. Management evaluates a variety of inputs and then estimates fair value based on those inputs. As discussed above, the Company utilized the Monte Carlo Simulation Model in valuing these warrants.
|
The table below presents the balances of assets
and liabilities measured at fair value on a recurring basis by level within the hierarchy as:
|
|
(in thousands)
As of December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
3,460
|
|
|
$
|
3,460
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
$
|
940
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
940
|
|
|
|
(in thousands)
As of December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities
|
|
$
|
6,795
|
|
|
$
|
6,795
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The changes in Level 3 Liabilities measured at fair value on a recurring
basis are summarized as follows:
|
|
(in thousands)
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at December 31, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14
|
|
Issuance of warrants
|
|
|
2,617
|
|
|
|
-
|
|
|
|
(14
|
)
|
Fair value adjustments
|
|
|
(1,677
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at December 31, 2016
|
|
$
|
940
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(18) Subsequent Events
The Company evaluated subsequent
events through the date on which these financial statements were issued.
The Company entered into
definitive agreements with several institutional investors for an offering of shares of common stock with net proceeds of approximately
$850,000 in a registered direct offering. In connection with the offering, the Company issued registered shares of common stock
at a purchase price of $0.55 per share. Concurrently in a private placement, for each share of common stock purchased by an investor,
such investor received from the Company an unregistered warrant to purchase 0.75 of a share of common stock. The warrants have
an exercise price of $0.75 per share, are exercisable six months after issuance, and will expire five years from the initial exercise
date. The Company also issued placement agent warrants for the purchase of an aggregate of 90,909 shares of our common stock. Rodman
& Renshaw, a unit of H.C. Wainwright & Co., LLC, acted as the exclusive placement agent in connection with this offering.
The Company intends to
use the net proceeds from the offering for preparation for technology transfer opportunities, expenses related to Ampligen®
manufacturing and for other working capital and general corporate purposes.