Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-QSB
x QUARTERLY
REPORT
UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
quarterly period ended September 30, 2007
OR
o TRANSITION
REPORT
UNDER SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from _______ to _______
Commission
File Number 0-16686
VIOQUEST
PHARMACEUTICALS, INC.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
|
58-1486040
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
180
Mount
Airy Road, Suite 102, Basking Ridge, New Jersey 07920
(Address
of Principal Executive Offices)
(908)
766-4400
(Issuer’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed from last
report)
Check
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days. Yes x No
o
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes o No
x
As
of
November 14, 2007 there were 54,621,119 shares of the issuer’s common stock,
$0.001 par value, outstanding.
Traditional
Small Business Disclosure Format (check one): Yes o No x
Index
|
|
Page
|
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Unaudited
Condensed Consolidated Financial Statements
|
1
|
Item
2.
|
Management’s
Discussion and Analysis or
Plan of Operations
|
11 |
Item
3A(T).
|
Controls
and Procedures
|
16
|
PART
II
|
OTHER
INFORMATION
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
17
|
Item
5.
|
Other
Information
|
17
|
Item
6.
|
Exhibits
|
19
|
|
Signatures
|
19
|
|
Index
To Exhibits Filed With This Report
|
20
|
Forward-Looking
Statements
This
Quarterly Report on Form 10-QSB contains statements that are not historical,
but
are forward-looking in nature, including statements regarding the expectations,
beliefs, intentions or strategies regarding the future. In particular, the
“Management’s Discussion and Analysis or Plan of Operations” section in Part I,
Item 2 of this quarterly report includes forward-looking statements that reflect
our current views with respect to future events and financial performance.
We
use words such as we “expect,” “plan,” “anticipate,” “believe,” “intend” and
similar expressions to identify forward-looking statements. A number of
important factors could, individually or in the aggregate, cause actual results
to differ materially from those expressed or implied in any forward-looking
statements. Such factors include, but are not limited to, the
following:
|
·
|
the
possibility that the results of clinical trials will not be successful;
|
|
·
|
the
possibility that our development efforts relating to our product
candidates, including Lenocta™, VQD-002 and Xyfid™, will not be
successful;
|
|
·
|
the
inability to obtain regulatory approval of our product
candidates;
|
|
·
|
our
reliance on third-parties to develop our product
candidates;
|
|
·
|
our
lack of experience in developing and commercializing pharmaceutical
products;
|
|
·
|
the
possibility that our licenses to develop and commercialize our product
candidates may be terminated;
|
|
·
|
our
ability to obtain additional financing;
|
|
·
|
our
ability to protect our proprietary
technology.
|
Other
risks are described under the section entitled “Risk Factors” following Item 1
in Part I of our Annual Report on Form 10-KSB for the year ended December 31,
2006.
PART
I - FINANCIAL INFORMATION
Item
1. Unaudited Condensed Consolidated Financial Statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF SEPTEMBER 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006
|
|
September 30, 2007
(Unaudited)
|
|
December 31, 2006
(Note 1A)
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,456,639
|
|
$
|
2,931,265
|
|
Prepaid
clinical research costs
|
|
|
299,960
|
|
|
273,172
|
|
Deferred
financing costs
|
|
|
536,371
|
|
|
-
|
|
Other
current assets
|
|
|
111,011
|
|
|
168,841
|
|
Current
assets associated with discontinued operations
|
|
|
-
|
|
|
2,396,435
|
|
Total
Current Assets
|
|
|
3,403,981
|
|
|
5,769,713
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
37,466
|
|
|
43,378
|
|
SECURITY
DEPOSITS
|
|
|
15,232
|
|
|
15,232
|
|
TOTAL
ASSETS
|
|
$
|
3,456,679
|
|
$
|
5,828,323
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,032,514
|
|
$
|
1,031,458
|
|
Accrued
compensation and related taxes
|
|
|
299,434
|
|
|
245,475
|
|
Other
accrued expenses
|
|
|
708,462
|
|
|
180,440
|
|
Note
payable - Paramount BioSciences, LLC
|
|
|
-
|
|
|
264,623
|
|
Convertible
notes, net of unamortized debt discount of $1,223,451
|
|
|
2,550,549
|
|
|
-
|
|
Current
liabilities associated with discontinued operations
|
|
|
-
|
|
|
1,265,568
|
|
TOTAL
LIABILITIES
|
|
|
5,590,959
|
|
|
2,987,564
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
Preferred
stock; $0.001 par value: 10,000,000 shares authorized, 0 shares
issued and
outstanding at September 30, 2007 and December 31, 2006
|
|
|
-
|
|
|
-
|
|
Common
stock; $0.001 par value: 100,000,000 shares authorized at September
30,
2007 and December 31, 2006, 54,621,119 shares issued and outstanding
at
September 30, 2007 and December 31, 2006
|
|
|
54,621
|
|
|
54,621
|
|
Additional
paid-in capital
|
|
|
34,223,939
|
|
|
31,326,694
|
|
Accumulated
deficit
|
|
|
(36,412,840
|
)
|
|
(28,540,556
|
)
|
Total
Stockholders' Equity (Deficiency)
|
|
|
(2,134,280
|
)
|
|
2,840,759
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
$
|
3,456,679
|
|
$
|
5,828,323
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
|
|
For the Three
Months Ended
September 30,
2007
|
|
For the Three
Months Ended
September 30,
2006
|
|
For the Nine
Months Ended
September 30,
2007
|
|
For the Nine
Months Ended
September 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
1,473,937
|
|
$
|
273,876
|
|
$
|
3,793,592
|
|
$
|
933,599
|
|
Selling,
general and administrative
|
|
|
1,199,182
|
|
|
673,495
|
|
|
3,305,232
|
|
|
2,348,030
|
|
Total
Operating Expenses
|
|
|
2,673,119
|
|
|
947,371
|
|
|
7,098,824
|
|
|
3,281,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(2,673,119
|
)
|
|
(947,371
|
)
|
|
(7,098,824
|
)
|
|
(3,281,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
(EXPENSE) / INCOME, NET
|
|
|
(542,360
|
)
|
|
36,246
|
|
|
(510,285
|
)
|
|
85,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM CONTINUING OPERATIONS
|
|
|
(3,215,479
|
)
|
|
(911,125
|
)
|
|
(7,609,109
|
)
|
|
(3,196,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
(104,722
|
)
|
|
(973,892
|
)
|
|
(701,619
|
)
|
|
(2,368,847
|
)
|
Gain
on sale of business
|
|
|
438,444
|
|
|
-
|
|
|
438,444
|
|
|
-
|
|
INCOME
/ (LOSS) FROM DISCONTINUED OPERATIONS
|
|
|
333,722
|
|
|
(973,892
|
)
|
|
(263,175
|
)
|
|
(2,368,847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(2,881,757
|
)
|
$
|
(1,885,017
|
)
|
$
|
(7,872,284
|
)
|
$
|
(5,565,115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
$
|
(0.17
|
)
|
$
|
(0.08
|
)
|
DISCONTINUED
OPERATIONS
|
|
|
0.01
|
|
|
(0.03
|
)
|
|
(0.00
|
)
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE – BASIC AND DILUTED
|
|
$
|
(0.06
|
)
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
46,056,724
|
|
|
38,165,124
|
|
|
46,056,724
|
|
|
38,165,124
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
|
|
|
|
Common Stock
|
|
Additional
|
|
Accumulated
|
|
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Paid-In Capital
|
|
Deficit
|
|
(Deficiency)
|
|
Balance,
January 1, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$ |
31,326,694
|
|
$ |
|
) |
$ |
2,840,759
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
(7,872,284
|
)
|
|
(7,872,284
|
)
|
Fair
value of beneficial conversion feature and warrants issued in conjunction
with convertible notes
|
|
|
|
|
|
|
|
|
1,963,512
|
|
|
|
|
|
1,963,512
|
|
Stock-based
compensation to employees
|
|
|
|
|
|
|
|
|
868,016
|
|
|
|
|
|
868,016
|
|
Stock-based
compensation to consultants and finder
|
|
|
|
|
|
|
|
|
65,717
|
|
|
|
|
|
65,717
|
|
Balance,
September 30, 2007
|
|
|
54,621,119
|
|
$
|
54,621
|
|
$
|
34,223,939
|
|
$
|
(36,412,840
|
)
|
$
|
(2,134,280
|
)
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
|
|
For the Nine
Months Ended
September 30, 2007
|
|
For the Nine
Months Ended
September 30, 2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,872,284
|
)
|
$
|
(5,565,115
|
)
|
Loss
from discontinued operations
|
|
|
263,175
|
|
|
2,368,847
|
|
Loss
from continuing operations
|
|
|
(7,609,109
|
)
|
|
(3,196,268
|
)
|
Adjustments
to reconcile loss from continuing operations to net cash used in
continuing operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,499
|
|
|
3,804
|
|
Stock-based
compensation to employees
|
|
|
830,021
|
|
|
589,673
|
|
Stock-based
compensation to consultants and finder
|
|
|
62,632
|
|
|
33,119
|
|
Amortization
of debt discount and deferred financing fees
|
|
|
562,986
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Prepaid
clinical research costs
|
|
|
(26,788
|
)
|
|
(180,238
|
)
|
Other
assets
|
|
|
57,830
|
|
|
(79,109
|
)
|
Accounts
payable
|
|
|
1,001,056
|
|
|
336,967
|
|
Accrued
expenses
|
|
|
581,981
|
|
|
86,014
|
|
Net
Cash Used in Continuing Operating Activities
|
|
|
(4,532,892
|
)
|
|
(2,406,038
|
)
|
Discontinued
Operating Activities:
|
|
|
|
|
|
|
|
Gain
on sale of business
|
|
|
(438,444
|
)
|
|
-
|
|
Cash
used in discontinued operating activities
|
|
|
(348,809
|
)
|
|
(2,633,511
|
)
|
Net
Cash Used in Operating Activities
|
|
|
(5,320,145
|
)
|
|
(5,039,549
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments
for purchased equipment
|
|
|
(5,127
|
)
|
|
(14,987
|
)
|
Net
Cash Used in Continuing Investing Activities
|
|
|
(5,127
|
)
|
|
(14,987
|
)
|
Discontinued
Investing Activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of business
|
|
|
1,727,263
|
|
|
-
|
|
Other
cash used in discontinued investing activities
|
|
|
(26,698
|
)
|
|
(143,734
|
)
|
Net
Cash Provided By / (Used in) Investing Activities
|
|
|
1,695,438
|
|
|
(158,721
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Debt
activity:
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible notes with warrants, net of cash costs
of
$285,296
|
|
|
3,414,704
|
|
|
-
|
|
Repayment
of note payable
|
|
|
(264,623
|
)
|
|
-
|
|
Net
Cash Provided By Continuing Financing Activities
|
|
|
3,150,081
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(474,626
|
)
|
|
(5,198,270
|
)
|
CASH
AND CASH EQUIVALENTS – BEGINNING OF PERIOD
|
|
|
2,931,265
|
|
|
6,021,399
|
|
CASH
AND CASH EQUIVALENTS – END OF PERIOD
|
|
$
|
2,456,639
|
|
$
|
823,129
|
|
|
|
|
|
|
|
|
|
Supplemental
Schedule of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
Value
of warrants issued to the placement agent in connection with issuances
of
convertible notes
|
|
$
|
429,866
|
|
$
|
-
|
|
Value
of beneficial conversion feature related to convertible
notes
|
|
$
|
803,823
|
|
$
|
-
|
|
See
accompanying notes to condensed consolidated financial
statements.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
NOTE
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY
(A)
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly, the
financial statements do not include all information and footnotes required
by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect
all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31,
2007
or for any subsequent period. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Annual Report on Form 10-KSB of VioQuest
Pharmaceuticals, Inc. for the year ended December 31, 2006. The accompanying
condensed consolidated balance sheet as of December 31, 2006 has been derived
from the audited balance sheet as of that date included in the Form 10-KSB.
As
used herein, the terms the “Company” or “VioQuest” refer to VioQuest
Pharmaceuticals, Inc.
The
accompanying consolidated financial statements include the accounts of VioQuest
Pharmaceuticals, Inc. and its current and former subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The functional currency of Chiral Quest, Ltd., Jiashan, China, formerly a
wholly-owned, discontinued subsidiary of the Company, was the United States
Dollar. As such, all transaction gains and losses were recorded in discontinued
operations.
On
September 29, 2006, the Company’s Board of Directors determined to seek
strategic alternatives with respect to the Company’s Chiral Quest, Inc.
subsidiary (“Chiral Quest”), which included a possible sale or other disposition
of the operating assets of that business. Accordingly, the chiral products
and
services operations and the assets of Chiral Quest are presented in these
financial statements as discontinued operations. On July 16, 2007, the Company
completed the sale of Chiral Quest to Chiral Quest Acquisition Corp. (“CQAC”)
for total cash consideration of approximately $1,700,000. As a result of this
transaction, the Company reported a gain of $438,444, which is included in
its
loss from discontinued operations for the three and nine months ended September
30, 2007. Chiral Quest had accounted for all sales of the Company from its
inception. The Company’s continuing operations, which have not generated any
revenues, will focus on the remaining drug development operations of VioQuest
Pharmaceuticals, Inc. and accordingly, the Company has only one segment. As
a
result of these reclassifications, the Company no longer provides segment
reporting. See Note 2 for a complete discussion on discontinued
operations.
The
consolidated balance sheets as of December 31, 2006 and the consolidated
statements of operations for the three and nine months ended September 30,
2007
and 2006 include reclassifications to reflect discontinued
operations.
(B)
Nature of Operations
Since
August 2004, the Company has focused on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and infectious diseases for which there are unmet medical
needs. Since October 2005, the Company has held license rights to develop and
commercialize its two oncology drug candidates, Lenocta™ (Sodium
Stibogluconate), formerly VQD-001, an inhibitor of specific protein tyrosine
phosphatases, and VQD-002 (Triciribine-Phosphate), an inhibitor of activated
Akt. The rights to these two oncology drug candidates, Lenocta™ and VQD-002, are
governed by license agreements with The Cleveland Clinic Foundation and the
University of South Florida Research Foundation, respectively. In March 2007,
the Company acquired license rights to develop and commercialize Xyfid™, an
adjunctive therapy for the treatment and prevention of Hand-Foot Syndrome
(“HFS”), a common and serious side effect of cancer chemotherapy. The Company’s
rights to Xyfid™ are governed by a license agreement with Asymmetric
Therapeutics, LLC and Onc Res, Inc., as assigned to the Company by Fiordland
Pharmaceuticals, Inc. See Note 3.
(C)
Liquidity
Since
inception, the Company has incurred an accumulated deficit of $36,412,840
through September 30, 2007. For the three and nine months ended September 30,
2007, the Company had losses from continuing operations of $3,215,479 and
$7,609,109,
respectively, and used $4,532,892 of cash in continuing operating activities
for
the nine months ended September 30, 2007.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
Management
expects the Company’s losses from continuing operations to increase over the
next several years, due to the expansion of its drug development business,
and
related costs associated with the clinical development programs of Lenocta™,
VQD-002 and Xyfid™. These matters raise substantial doubt about the ability of
the Company to continue as a going concern. The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of September
30,
2007, the Company had a working capital deficiency of $2,186,978 and cash and
cash equivalents of $2,456,639. The Company has incurred negative cash flow
from
operating activities since its inception. The Company has spent, and expects
to
continue to spend, substantial amounts in connection with executing its business
strategy, including planned development efforts relating to the Company’s drug
candidates, clinical trials and other research and development
efforts.
On
July
16, 2007 the Company completed the sale of Chiral Quest, which resulted in gross
proceeds to the Company of approximately $1,700,000, as well as the assumption
by the purchaser of approximately $807,000 of liabilities. See Note 2. On June
29, 2007 and July 3, 2007, the Company also received gross proceeds of
$3,700,000 from the sale of 8% convertible promissory notes. See Note 6. The
Company’s cash and cash equivalents at September 30, 2007 reflect the remaining
cash proceeds to the Company from those transactions. Management anticipates
that the Company’s remaining cash balances will be adequate to fund its
operations through the end of the fiscal year 2007. However, changes may occur
that would consume available capital resources before that time.
Management
also expects that additional financing will be required within the first quarter
of 2008 to fund continuing operations. The most likely sources of additional
financing include the private sale of the Company’s equity or debt securities,
including bridge loans to the Company from third party lenders. The Company’s
working capital requirements will depend upon numerous factors, which include
the progress of its drug development and clinical programs, including associated
costs relating to milestone payments, maintenance and license fees,
manufacturing costs, patent costs, regulatory approvals and the hiring of
additional employees.
Additional
capital that may be needed by the Company in the future may not be available
on
reasonable terms, or at all. If adequate financing is not available, the Company
may be required to terminate or significantly curtail its operations, or enter
into arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or potential markets
that the Company would not otherwise relinquish.
(D)
Stock-Based Compensation
The
Company issued options
and warrants to purchase an aggregate of 1,112,040
and
5,322,711
shares of
its
common
stock
during
the three and nine months ended September 30, 2007, respectively.
Generally,
stock options and warrants granted to employees and non-employee directors
during the three and nine months ended September 30, 2007 and 2006 vest as
to
33% of the shares on each of the first, second and third anniversaries of the
grant date. The exceptions to the vesting of shares over three years for options
granted to employees and non-employee directors were stock options to purchase
150,000 shares of common stock granted to a non-employee director in the first
quarter of 2006, of which 75,000 vested immediately and 75,000 vested on the
first anniversary of the grant date, and stock options to purchase 400,000
shares of common stock granted to four non-employee directors in the third
quarter of 2007, of which 33% vested immediately and 33% of the shares vest
on
each of the first and second anniversaries of the grant date.
Stock
options and warrants granted to parties other than employees and non-employee
directors vest over individually agreed upon terms. The Company issued 3,636,711
warrants that vested immediately to investors and placement agents that
participated in the June 29, 2007 and July 3, 2007 financings relating to the
issuance and sale of 8% convertible promissory notes. See Note 6.
During
July 2007, the Company also issued 100,000 warrants that vested immediately
to a
non-employee advisor as partial consideration for a finder’s fee for services
relating to the Company’s acquisition of rights under a license agreement for
Xyfid™, as well as certain technical analyses related to Xyfid™. During
September 2007, the Company also issued 3,334 stock options that vested
immediately to a non-employee scientific advisory board member.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
Following
the vesting periods, options are exercisable until the earlier of 90 days after
an employee’s employment with the Company
terminates or the tenth anniversary of the initial grant, subject to adjustment
under certain conditions. The
Company recorded total compensation charges in the three and nine months ended
September 30, 2007 related to the fair value of continuing and discontinued
employee and non-employee director stock option grants of $239,524 and $858,819,
respectively.
The
Company uses the Black-Scholes option pricing model to calculate the fair value
of options and warrants granted under Statement
of Financial Accounting Standards (“SFAS”) No. 123R, Share-based Payment
(“SFAS 123R”).
The key
assumptions for this valuation method include the expected term of the option,
stock price volatility, risk-free interest rate, dividend yield, exercise price
and forfeiture rate. Many of these assumptions are judgmental and highly
sensitive in the determination of compensation expense. Under the assumptions
set forth below, the weighted average fair values of the stock options issued
at
the dates of grant in the three and nine months ended September 30, 2007 were
$0.38 and $0.48, respectively.
The
table
below sets forth the key assumptions used in the valuation calculations for
options granted in the three and nine months ended September 30, 2007 and
2006:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Term
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
|
7
years
|
|
Volatility
|
|
|
240-259
|
%
|
|
217
|
%
|
|
232-259
|
%
|
|
210-217
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
Risk-free
interest rate
|
|
|
4-5
|
%
|
|
5
|
%
|
|
4-5
|
%
|
|
4.4-5
|
%
|
Forfeiture
rate
|
|
|
22
|
%
|
|
25
|
%
|
|
22
|
%
|
|
22-25
|
%
|
The
following table summarizes information about the Company’s stock options as of
and for the nine months ended September 30, 2007:
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average
Remaining Contractual
Life (Years)
|
|
Aggregate
Intrinsic Value
|
|
Balance,
January 1, 2007
|
|
|
5,384,807
|
|
$
|
0.99
|
|
|
|
|
|
|
|
Granted
|
|
|
1,386,000
|
|
$
|
0.50
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
(1,229,918
|
)
|
$
|
1.20
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
5,540,889
|
|
$
|
0.80
|
|
|
7.50
|
|
|
-
|
|
Exercisable
at September 30, 2007
|
|
|
2,223,791
|
|
$
|
0.96
|
|
|
7.00
|
|
|
-
|
|
Upon
the
sale of Chiral Quest, all of the unvested options held by Chiral Quest employees
were forfeited. The expired unvested options have been considered in our
determination of the forfeiture rate.
As
of
September 30, 2007, there was $791,594 of unrecognized compensation costs
related to stock options. These costs are expected to be recognized over a
weighted average period of approximately 1.75 years.
As
of
September 30, 2007, an aggregate of 1,959,111 shares remained available for
future grants and awards under the Company’s stock incentive plan, which covers
stock options and restricted stock awards. The Company issues unissued shares
to
satisfy stock option exercises and restricted stock awards.
(E)
Warrants Issued With Convertible Debt
The
Company accounts for the value of warrants and the intrinsic value of beneficial
conversion rights arising from the issuance of convertible debt instruments
with
nondetachable conversion rights that are in-the-money at the commitment date
pursuant to the consensuses for EITF Issue No. 98-5, EITF Issue No. 00-19 and
EITF Issue No. 00-27. Such values are determined by allocating an appropriate
portion of the proceeds received from the debt instruments to the debt and
warrants based on their relative fair value. The fair value allocated to the
warrants is recorded as additional paid-in capital and as debt discount, which
is charged to interest expense over the term of the debt instrument. The
intrinsic value of the beneficial conversion rights at the commitment date
may
also be recorded as additional paid-in capital and debt discount as of that
date
or, if the terms of the debt instrument are contingently adjustable, may only
be
recorded if a triggering event occurs and the contingency is
resolved.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
(F)
Net Loss Per Share
Basic
net
loss per share is calculated by dividing net loss by the weighted-average number
of common shares outstanding for each period presented excluding 8,564,395
common shares held in escrow to be released based upon the achievement of
clinical milestones of Lenocta™ and VQD-002, as a result of the acquisition of
Greenwich Therapeutics, Inc. in 2005. Diluted net loss per share is the same
as
basic net loss per share, since potentially dilutive shares from the assumed
exercise of stock options and stock warrants would have had an antidilutive
effect because the Company incurred a net loss during each period presented.
At
September 30, 2007, there were 34,367,379 potentially dilutive shares excluded
from the calculation, which was comprised of 20,262,095 warrants, 8,564,395 shares
held in escrow,
and
5,540,889 stock options. At September 30, 2006, there were 26,852,366 shares
excluded.
NOTE
2 DISCONTINUED
OPERATIONS
As
explained in Note 1, the Company determined that it would dispose of Chiral
Quest on September 29, 2006 and accordingly, the operations and assets of Chrial
Quest have been presented in these financial statements as discontinued
operations. On July 16, 2007, the Company completed the sale of Chiral Quest
to
CQAC for total cash consideration of approximately $1,700,000. As a result
of
this transaction, the Company reported a gain of $438,444 in the third quarter
of 2007, which is included in its loss from discontinued operations for the
three and nine months ended September 30, 2007.
At
July
16, 2007 and December 31, 2006, the total assets of discontinued operations
was
$1,898,702
and
$2,396,435 respectively, which consisted of accounts receivable, inventories,
prepaid expenses, fixed assets, net of accumulated depreciation, patents, net
of
accumulated amortization, security deposits and prepaid rent. Total liabilities
as of July 16, 2007 and December 31, 2006 associated with discontinued
operations totaled $806,644 and $1,265,568 respectively, which consisted of
accounts payable, accrued expenses and deferred revenues. The gain on sale
of
Chiral Quest was $438,444. Retention bonuses of $106,761 and accrued severance
of $90,000 paid to certain Chiral Quest employees have been offset against
the
gain on sale. Revenues from discontinued operations for the three months ended
September 30, 2007 were immaterial and for the nine months ended September
30,
2007 were $1,484,584 and revenues for the three and nine months ended September
30, 2006 totaled $857,320 and $1,456,196, respectively. Loss from discontinued
operations (which excludes the gain on sale of Chiral Quest) for the three
and
nine months ended September 30, 2007, which consisted of revenues less cost
of
goods sold, management and consulting fees, research and development, selling,
general and administrative expenses and depreciation and amortization, totaled
$104,722 and $701,619, respectively. Loss from discontinued operations for
the
three and nine months ended September 30, 2006, totaled $410,900 and $1,260,677,
respectively.
On
July
16, 2007, the Company entered into a sublease agreement with CQAC that will
expire on May 30, 2008 to lease its office and laboratory space, which was
utilized by Chiral Quest before it was sold to CQAC. CQAC, the subtenant, agreed
to make all payments of base rent and additional rent totaling approximately
$28,000 per month for a total commitment of $224,000 remaining on the sublease
agreement payable directly to the landlord. If CQAC were to default on payment
during the sublease agreement’s term, the Company would be obligated to provide
payment on behalf of CQAC through the remainder of the original lease term,
and
the Company will have the right to cancel and terminate the sublease with CQAC
upon five days notice to subtenant. As of September 30, 2007, CQAC has fully
complied with the sublease agreement with the Company.
NOTE
3 LICENSE
AGREEMENT
On
March
29, 2007, the Company acquired exclusive license rights to Xyfid™, a
pharmaceutical product candidate being developed for the treatment and
prevention of HFS, a common, often dose-limiting and potentially
life-threatening complication of several chemotherapy drugs. The Company’s
rights
to
Xyfid™ are governed by a license agreement with Asymmetric Therapeutics, LLC and
Onc Res, Inc., as assigned to the Company by Fiordland Pharmaceuticals, Inc.,
an
entity affiliated with Dr. Lindsay A. Rosenwald, who is a substantial
stockholder of the Company. In
consideration for the rights under the license agreement, the Company paid
to
the licensor an aggregate $300,000 for license related fees, and $37,000 for
patent prosecution costs. In addition, the Company paid to a third party finder
a cash fee of $20,000 and five-year warrants to purchase 300,000 shares of
the
Company’s common stock at an exercise price of $0.50 per share. The right to
purchase the shares under the warrants vests in three equal installments of
100,000 each, with the first installment being immediately exercisable, and
the
remaining two installments vesting upon the achievement of certain clinical
development and regulatory milestones relating to Xyfid™. The Company recognized
approximately $50,000 of expense in the first quarter of 2007 when the first
100,000 warrants vested. In consideration of the license, the Company is
required to make payments upon the achievement of various clinical development
and regulatory milestones, which total up to $6.2 million in the aggregate.
The
license agreement further requires the Company to make payments of up to an
additional $12.5 million in the aggregate upon the achievement of various
commercialization and net sales milestones. The Company will also be obligated
to pay a royalty on net sales of the licensed product.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
NOTE
4 EMPLOYMENT
AGREEMENT
On
February 1, 2007 the Company entered into an employment agreement with Edward
C.
Bradley, M.D., as its Chief Scientific Officer. The agreement is for an
indefinite term beginning on February 1, 2007 and provides for an initial base
salary of $330,000, plus an annual target bonus of up to 20% of base salary
based upon his personal performance and an additional amount of up to 10% of
base salary based upon Company performance. Pursuant to the employment
agreement, Dr. Bradley received stock options to purchase 700,000 shares of
the
Company’s common stock. The options vest in three equal annual installments,
commencing in February 2008 and will be exercisable at a price per share equal
to $0.55. The stock options had an approximate fair value of $363,000 at the
date of grant based on the Black-Scholes option pricing model, which is being
amortized over three years. The employment agreement also entitles Dr. Bradley
to certain severance benefits. In the event that the Company terminates Dr.
Bradley’s employment without cause, then Dr. Bradley is entitled to receive his
then annualized base salary for a period of six months. If Dr. Bradley’s
employment is terminated without cause, and within a year of a change of
control, then Dr. Bradley is entitled to receive his then annualized base salary
for a period of one year, and he is entitled to receive any bonuses he has
earned at the time of his termination.
NOTE
5 NOTE
PAYABLE
On
October 18, 2005, as a result of the Company’s acquisition of Greenwich
Therapeutics, Inc. (“Greenwich”), a New York-based biotechnology company, the
Company assumed outstanding indebtedness of Greenwich of $823,869, all of which
was payable to Paramount BioSciences, LLC (“Paramount BioSciences”), an
affiliate of Paramount BioCapital, Inc. (“Paramount”), pursuant to a promissory
note dated October 17, 2005. Dr. Lindsay A. Rosenwald is the Chairman, CEO
and
sole stockholder of Paramount and a substantial stockholder of the Company.
On
July 17, 2007, the Company paid the outstanding balance under the promissory
note.
NOTE
6 CONVERTIBLE
NOTES
On
June
29, 2007 and July 3, 2007, the Company issued and sold a series of 8%
convertible promissory notes (the “Bridge Notes”) in the aggregate principal
amount of $3,700,000 with a term of one year from the date of final closing.
Investors may, at any time during the term, elect to convert all unpaid
principal plus any accrued but unpaid interest thereon on the Bridge Notes
into
shares of the Company’s common stock. In the event that the investors do not
elect to convert the Bridge Notes, all unpaid principal plus any accrued
interest automatically convert into the Company’s common stock upon the
completion of an equity financing or series of related equity financings by
the
Company resulting in aggregate gross cash proceeds to the Company of at least
$7,000,000. If the Bridge Notes and accrued interest are not converted into
shares of the Company’s common stock, all unpaid principal plus any accrued
interest shall be due and payable on the first anniversary of the final
closing.
The
face
value of the Bridge Notes issued on June 29, 2007 and July 3, 2007, was
$2,967,500 and $732,500, respectively. The Company incurred commissions and
related costs in association with the Bridge Notes of $245,450 and $50,750
(as
explained below) for the June 29, 2007 and July 3, 2007 closings, respectively.
The Company also issued to investors five-year warrants (“Bridge Warrants”) to
purchase an aggregate of approximately 2,430,000 (1,950,000 and 480,000 for
the
June 29, 2007 and July 3, 2007 closings, respectively) shares of the Company’s
common stock at an exercise price of $0.40 per share, which had a fair value
of
$736,935 and $172,301 as of June 29, 2007 and July 3, 2007, respectively. The
Company allocated proceeds from the sale to the Bridge Warrants of $590,334
and
$139,489 as of June 29, 2007 and July 3, 2007, respectively, based on their
relative fair values to the fair value of the Bridge Notes, which was recorded
as a discount to the Bridge Notes. Gross proceeds allocated to the Bridge Notes
were $2,377,166 for the June 29, 2007 issuances, and $593,011 for the July
3,
2007 issuances. The discount associated with the value of the warrants will
be
amortized to interest expense over the term of the Bridge Notes.
As
a
result of the allocation of proceeds to the Bridge Warrants, the Bridge Notes
contained a Beneficial Conversion Feature (“BCF”) of $590,334 for the June 29,
2007 closing, and $139,489 for the July 3, 2007 closing, which were attributable
to an effective conversion price for the Company’s common stock that was less
than the market values on the dates of issuance. Additional BCF’s are recorded
as convertible interest is accrued. These amounts are recorded as additional
debt discount and additional paid-in capital, which reduces the initial carrying
value of the Bridge Notes. The discount associated with the BCF will also be
amortized to interest expense over the term of the Bridge
Notes.
VIOQUEST
PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007 (UNAUDITED)
The
following table summarizes information about the Bridge Notes and debt
discount
as of September 30, 2007:
Face
value of convertible notes
|
|
$
|
3,700,000
|
|
Accrued
but unpaid interest
|
|
|
74,000
|
|
|
|
|
|
|
Gross
value of convertible notes
|
|
|
3,774,000
|
|
|
|
|
|
|
Debt
discount, Bridge Warrants
|
|
|
729,823
|
|
BCF,
Bridge Warrants
|
|
|
729,823
|
|
BCF,
convertible interest
|
|
|
74,000
|
|
Less:
Amortization of debt discount
|
|
|
(310,195
|
)
|
|
|
|
|
|
Unamortized
debt discount
|
|
$
|
1,223,451
|
|
|
|
|
|
|
Convertible
notes, net of unamortized debt discount
|
|
|
2,550,549
|
|
In
connection with the Bridge Notes, the Company issued five-year warrants to
placement agents to purchase an aggregate of 1,202,500 shares of common stock,
which are exercisable at a price of $0.42 per share. Based on the Black-Scholes
option pricing model, the warrants had a fair value of $356,425 for the June
29,
2007 closing and $73,441 for the July 3, 2007 closing. Additionally, the
Company incurred commissions of $205,450, a non-accountable expense allowance
of
$24,271 to the placement agents and escrow fees of $5,000 for the June 29,
2007
closing and commissions of $50,575 for the July 3, 2007 closing. The Company
engaged Paramount as one of its placements agents. Dr. Lindsay A. Rosenwald
is
the Chairman, CEO and sole stockholder of Paramount and a substantial
stockholder of the Company. Stephen C. Rocamboli, the Company’s chairman, was
employed by Paramount at the time of the Company’s engagement. Of the total
consideration provided to the placement agents, the Company issued warrants
to
Paramount to purchase 450,000 shares of common stock and paid commissions of
approximately $119,700. The fair value of the warrants, commissions and fees
totaling $591,146 for the June 29, 2007 closing and $124,016 for the July 3,
2007 closing have been recognized as deferred financing costs, which will be
amortized to interest expense over the term of the Bridge Notes.
The
following table summarizes information about the deferred financing costs as
of
September 30, 2007:
Deferred
financing costs
|
|
$
|
715,162
|
|
Less:
Accumulated amortization
|
|
|
(178,791
|
)
|
|
|
|
|
|
Deferred
financing costs, net
|
|
$
|
536,371
|
|
The
following assumptions were used for the Black-Scholes calculations for the
warrants related to the Bridge Notes:
Term
|
|
|
5
years
|
|
Volatility
|
|
|
240
|
%
|
Dividend
yield
|
|
|
0.0
|
%
|
Risk-free
interest rate
|
|
|
4.9-5.0
|
%
|
NOTE
7 SUBSEQUENT EVENT
On
November 14, 2007, the Company and Daniel Greenleaf, the Company’s former
President and Chief Executive Officer, entered into a Separation and Release
Agreement (the “Separation Agreement”). Pursuant to the Separation Agreement,
the parties mutually agreed that Mr. Greenleaf’s employment with the Company
terminated as of November 9, 2007, and that Mr. Greenleaf resigned from all
positions as officer and director of the Company. The Separation Agreement
provides for the following compensation to be paid to Mr. Greenleaf following
his separation from the Company: (i) Mr. Greenleaf will receive his annualized
base salary of $360,000 through November 15, 2007; (ii) Mr. Greenleaf will
receive his annualized base salary of $360,000 for a period of 6 months
commencing on or about May 10, 2008; (iii) Mr. Greenleaf will receive a lump
sum
payment of $70,000 payable on or before March 31, 2008; and (iv) the Company
will reimburse Mr. Greenleaf for health insurance for a period of up to 12
months. Under the Separation Agreement, the parties agreed to release each
other
from certain legal claims, known or unknown, as of the date of the agreement,
and the Company also released Mr. Greenleaf from the covenant not to compete
contained in his employment agreement with the Company dated February 1,
2005.
On
November 11, 2007, the Company and Michael D. Becker entered into an Employment
Agreement (the “Employment Agreement”) pursuant to which Mr. Becker will serve
as the Company’s President and Chief Executive Officer, effective November 21,
2007. Mr. Becker was also appointed to the Company’s Board of Directors
effective as of such date. The Employment Agreement provides for a term of
4
years. Under the Employment Agreement, Mr. Becker is entitled to an annualized
base salary of $358,400, plus cash bonuses based upon the Company receiving
gross proceeds from the sale of its securities in addition to obtaining certain
market capitalization milestones.
In
addition, the Employment Agreement provides that the
Company will grant to Mr. Becker two stock options pursuant to the Company’s
2003 Stock Option Plan. The first stock option grant will provide Mr. Becker
with the right to purchase 5,013,343 shares of the Company’s common stock at a
price equal to the closing sale price of the common stock on November 21, 2007
(the “Initial Option”). The Initial Option will have a 10-year term and will
vest in four equal annual installments commencing on the first anniversary
of
Mr. Becker’s employment commencement date, or November 21, 2008. The second
option will provide Mr. Becker with the right to purchase 856,440 shares of
the
Company’s common stock at a price equal to the closing sale price of the common
stock on November 21, 2007 (the “Merger Option” and together with the Initial
Option, the “Stock Options”). The Merger Option will also have a 10-year term
and will vest in four equal annual installments commencing on the first
anniversary of Mr. Becker’s commencement date; however, to the extent vested,
Mr. Becker is only able to exercise the Merger Option to the extent the
8,564,395 shares held in escrow in accordance with the terms of our acquisition
of Greenwich Therapeutics, Inc. are released.
On
November 12, 2007, the Company appointed Brian Lenz, currently its Chief
Financial Officer, to serve as its interim Chief Executive Officer until
the
effective date of Mr. Becker’s appointment.
Item
2. Management’s
Discussion and Analysis or Plan of Operations.
Overview
Through
our drug development business, we acquire, develop, and commercialize innovative
products for the treatment of key unmet medical needs in cancer and
immunological diseases. Through our acquisition of Greenwich Therapeutics,
Inc.
in October 2005, we obtained the rights to develop, manufacture, use,
commercialize, lease, sell and/or sublicense Lenocta™ (Sodium Stibogluconate)
and VQD-002 (Triciribine Phosphate) through license agreements with The
Cleveland Clinic Foundation and the University of South Florida Research
Foundation, respectively. We have initiated four Phase I/IIa clinical trials
since acquiring the license rights to Lenocta™ and VQD-002. In March 2007, we
obtained an exclusive, worldwide license to certain patents relating to Xyfid™
from Fiordland Pharmaceuticals, Inc.
|
·
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Lenocta™
(Sodium Stibogluconate).
Lenocta™ is a pentavalent antimonial drug that has been in use for over 50
years in parts of Africa and Asia for the treatment of leishmaniasis
(a
protozoan disease). According to the World Health Organization
leishmaniasis currently threatens 350 million men, women, and children
in
88 countries around the world. This drug is currently being used
to treat
U.S. military personnel serving in parts of the world where leishmaniasis
is prevalent. In collaboration with the U.S. Army, we are pursuing
development of Lenocta™ in the treatment of leishmaniasis and anticipate
filing a new drug application, or NDA, with the U.S. Food and Drug
Administration, or FDA, in the first half of 2008. In December 2006,
Lenocta™ received orphan drug designation by the FDA for the treatment of
leishmaniasis. In addition to the treatment for leishmaniasis, several
preclinical studies, especially those conducted at the Cleveland
Clinic,
have showed that Lenocta™ is an inhibitor of multiple protein tyrosine
phosphatases (PTPases), specifically the SRC homology PTPase (SHP-1
&
SHP-2) and PTB-1B. These intracellular enzymes are involved in signaling
pathways of many receptor-linked tyrosine kinases which are involved
in
growth, proliferation and differentiation of cancer cells. Inhibition
of
these enzymes with Lenocta™ can trigger apoptosis, or cell death, of
cancerous tumors. This cytotoxic effect, coupled with its potential
ability to enhance the body’s immune system, through improved cytokine
signaling and t-cell formation, suggest that Lenocta™ has potential as an
anti-cancer agent. It is well known that one major mechanism of regulating
the proliferation, growth and apoptosis of cancer cells involves
activation of cellular pathways, especially protein tyrosine kinase
pathways; the Jak/Stat pathway is a particularly important protein
tyrosine kinase pathway. It is also known that interferon and other
cytokines exert their anti-cancer effects via the Jak/Stat pathway.
We
filed with the FDA an IND for Lenocta™, which the FDA allowed in August
2006, allowing us to commence clinical trials of Lenocta™. Lenocta™ is
currently being evaluated in combination with IFN a-2b
in a 24-patient investigator-sponsored Phase I clinical trial at
the
Cleveland Clinic Taussig Cancer Center in refractory solid tumors,
lymphoma and myeloma. We are also currently evaluating the safety,
tolerability and activity of Lenocta™ in a separate, company-sponsored
study of up to a 54-patient Phase I/IIa clinical trial at M.D. Anderson
Cancer Center in patients with solid tumors. In October 2007, we
completed
patient enrollment in our Phase I clinical trials. Recently, data
was
presented from our Phase I open-label dose escalation trial where
a total
of 17 patients were enrolled at the M.D. Anderson center, which were
comprised of 4 melanoma, 3 colon, 4 pancreas, 1 neuroendocrine, 1
ovarian,
2 head and neck adenocarcinoma, 1 head and neck squamous cell and
1
mesothelioma. One patient with melanoma achieved stable disease after
two
cycles of treatment. Asymptomatic hypokalemia was the only dose limiting
toxicity (DLT) observed. In addition to reaching the maximum tolerated
dose (MTD), dose dependent activities were observed in protocol-specified
surrogate biomarkers in both cellular and humoral immunologic functions.
Further analysis of the data showed an increase in pharmacodynamic
activities as demonstrated by an increase in the activities of natural
killer, CD8 and type II dendritic cells. During the fourth quarter
of
2007, we expect to initiate Phase II clinical
trials.
|
|
·
|
VQD-002
(Triciribine-Phosphate). VQD-002,
a nucleoside, was previously advanced into clinical trials by the
National
Cancer Institute in the 1980s and early 1990s, and showed anti-cancer
activities. More recently, investigators at the Moffitt Cancer Center
of
the University of South Florida were able to demonstrate from preclinical
studies that VQD-002’s mechanism of action is the inhibition of Akt
phosphorylation (protein kinase - B), which is found to be over activated
and over-expressed in various malignancies including breast, ovarian,
colorectal, and pancreatic lymphoma and leukemias. Clinically, the
over
expression of phosphorylated Akt is associated with poor prognosis,
resistance to chemotherapy and shortened survival time of cancer
patients.
We filed with the FDA an IND relating to VQD-002, which was allowed
in
April 2006. Pursuant to this IND, we are currently evaluating the
safety,
tolerability and activity of VQD-002 and its ability to reduce Akt
phosphorylaion in two Phase I/IIa clinical trials, including one
at the
Moffitt Cancer Center in up to 42 patients with hyper-activated,
phosphorylated Akt in colorectal, pancreatic, breast and ovarian
tumors
and a second clinical trial, with up to 40 patients, at the M.D.
Anderson
Cancer Center in hematological tumors, with particular attention
in
leukemia. In the second half of 2007, we expect to complete patient
enrollment in our Phase I clinical trials and expect to initiate
Phase II
clinical trials. Recently, the Company provided data from its Phase
I dose
escalation study of VQD-002 at the H. Lee Moffitt Cancer Center in
Tampa,
FL where 13 patients with advanced solid tumors refractory to standard
therapy and whose tumors had high-levels of p-Akt were enrolled to
date
and 8 patients were evaluable for response. The data showed that
VQD-002
was well-tolerated when administered on a weekly schedule. One patient
with melanoma achieved stable disease for 8 months. No drug related
toxicities were observed. The study had three dosing cohorts in which
patients were dosed intravenously weekly over one hour on days 1,
8 and
15, every 28 days at doses of 15, 25 and 35 mg/m2.
At the 35mg/m2 dose, Akt modulation was observed in two out of three
patients evaluable, and there was a reduction of Akt IHC scores from
+2 to
0 and +2 to +1. Additionally, one patient at the 15mg/m2 and one
patient
dosed at 25mg/m2 experienced stable disease for three months. Over
the
next several months, we expect to initiate Phase II combination clinical
trials.
|
|
·
|
Xyfid™.
Xyfid™
is a topical, adjunctive therapy which has shown early clinical promise
in
the treatment and prevention of Hand-Foot Syndrome, or HFS, a common,
often dose-limiting and potentially life-threatening complication
of
several drug regimens, commonly used in the treatment of patients
with
breast, colon, and other cancers. HFS, also known as palmar-plantar
erythrodysesthesia syndrome, is commonly seen in patients receiving
capecitabine (Xeloda™) and has been associated with other
fluoropyrimidines and anthracyclines. In addition, HFS is being seen
in
patients receiving some of the newer tyrosine kinase class of therapies
sorafenib (Nexavar™). Incidence of HFS can be as high as 50% in patients
receiving initial chemotherapy with higher dose regimens of capecitabine.
In the first half of 2008, we expect to initiate Phase II clinical
trials.
|
To
date,
we have not received approval for the sale of any drug candidates in any market
and, therefore, have not generated any revenues from our drug candidates. The
successful development of our product candidates is highly uncertain. Product
development costs and timelines can vary significantly for each product
candidate and are difficult to accurately predict. Various laws and regulations
also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of each product. The lengthy process of seeking these
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Any failure
by us
to obtain, or any delay in obtaining, regulatory approvals could materially
adversely affect our business.
Developing
pharmaceutical products is a lengthy and very expensive process. Assuming we
do
not encounter any unforeseen safety issues during the course of developing
our
product candidates, we do not expect to complete the development of a product
candidate until approximately 2008 for the treatment of leishmaniasis, 2010
for
Xyfid™,
and 2011
for oncology indications of VQD-002 and then 2011for oncology indications of
Lenocta™,
if ever.
In addition, as we continue the development of our product candidates, our
research and development expenses will significantly increase. To the extent
we
are successful in acquiring additional product candidates for our development
pipeline, our need to finance further research and development will continue
to
increase. Accordingly, our success depends not only on the safety and efficacy
of our product candidates, but also on our ability to finance the development
of
these product candidates. Our major sources of working capital have been
proceeds from various private financings, primarily private sales of our common
stock and other equity securities.
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for clinical
development, legal expenses resulting from intellectual property protection,
business development and organizational affairs and other expenses relating
to
the acquiring, design, development, testing, and enhancement of our product
candidates, including milestone payments for licensed technology. We expense
our
research and development costs as they are incurred.
Results
of Operations – For the Three Months Ended September 30, 2007 vs. September
30, 2006
Continuing
Operations:
The
Company has had no revenues from its continuing operations through September
30,
2007.
Research
and development, or R&D, expenses for the three months ended September 30,
2007 were $1,473,937 as compared to $273,876 during the three months ended
September 30, 2006. R&D expense consists of clinical development costs,
milestone license fees, maintenance fees paid to our licensing institutions,
outside manufacturing costs, outside clinical research organization costs,
regulatory and patent filing costs associated with our three oncology compounds,
Lenocta™,
VQD-002
and Xyfid™.
The
increase in R&D expenses for the three months ended September 30, 2007 is
primarily attributable to the increased clinical development costs related
to
our oncology drug candidates: VQD-002, Lenocta™
and
Xyfid™
of
approximately $720,000, $656,000 and $98,000, respectively. Our R&D expense
for the third quarter 2007 is primarily composed of outside clinical research
organization costs of approximately $683,000, outside regulatory and legal
fees
of approximately $281,000 and employee costs of approximately $264,000, which
have been allocated to each of our three pharmaceutical product candidates.
For
the remainder of the year, and going forward, we expect R&D spending related
to our existing product candidates Lenocta™,
VQD-002
and Xyfid™ to continue increasing as we expand our clinical trials.
Selling,
general and administrative, or SG&A, expenses for the three months ended
September 30, 2007 were $1,199,182 as compared to $673,495 during the three
months ended September 30, 2006. This increase in SG&A expenses was
primarily due to an increase in legal fees related to the sale of Chiral Quest
and the issuance of the Bridge Notes, additional payroll for new employees
and
bonus accruals, employee and non-employee director stock option expense in
accordance with SFAS 123R and increased investor relations
costs.
Interest
expense, net of interest income for the three months ended September 30, 2007
was $542,360 as compared to interest income, net of interest expense for the
three months ended September 30, 2006 of $36,246. Interest expense for the
three
months ended September 30, 2007 was primarily composed of interest on the Bridge
Notes of approximately $563,000, which was offset by interest income of
approximately $21,000.
Our
loss
from continuing operations for the three months ended September 30, 2007 was
$3,215,479 as compared to $911,125 for the three months ended September 30,
2006. The increased loss from continuing operations for the three months ended
September 30, 2007 as compared to the three months ended September 30, 2006
was
attributable primarily to increased R&D expenses, which were related to our
drug development costs, including increased patient enrollment compared to
the
three months ended September 30, 2006, increased outside clinical research
organization and manufacturing costs, maintenance and licensing fees provided
to
the institutions we licensed Lenocta™
and
VQD-002 from, in addition to other clinical development costs for the
Lenocta™
and
VQD-002 programs. Additionally, R&D expense increased as a result of
acquiring the worldwide license to certain patents for Xyfid™
in March
2007. SG&A expenses also contributed to the increased net loss for the three
months ended September 30, 2007 as compared to the three months ended September
30, 2006, primarily due to an increase in legal fees, additional payroll for
new
employees and bonus accruals, employee and non-employee director stock option
expense in accordance with SFAS 123R and increased investor relations
costs.
Discontinued
Operations:
Our
income from discontinued operations for the three months ended September 30,
2007 was $333,722, as compared to a loss of $973,892 for the three months ended
September 30, 2006. The gain from discontinued operations was due to the sale
of
Chiral Quest to Chiral Quest Acquisition Corp. for total cash consideration
of
approximately $1,700,000. As a result of this transaction, the Company reported
a gain on sale of $438,444. The gain was offset by operating expenses of
approximately $105,000 incurred through the sale date.
Results
of Operations – For the Nine Months Ended September 30, 2007 vs. September
30, 2006
Continuing
Operations:
The
Company has had no revenues from its continuing operations through September
30,
2007.
R&D
expenses for the nine months ended September 30, 2007 were $3,793,592 as
compared to $933,599 during the nine months ended September 30, 2006. R&D
expense consists of clinical development costs, milestone license fees,
maintenance fees paid to our licensing institutions, outside manufacturing
costs, outside clinical research organization costs, regulatory and patent
filing costs associated to our two oncology compounds Lenocta™
and
VQD-002 currently in clinical trials, in addition to the license acquisition
costs of Xyfid™
in
March 2007.
The
Company incurred clinical development costs for its oncology drug candidates
VQD-002 of approximately $1,694,000, Lenocta™
of approximately $1,539,000 and Xyfid™ of approximately $560,000.
The
increase in R&D expenses for the nine months ended September 30, 2007 is
primarily attributable to the increased clinical development costs related
to
our clinical trials and the license acquisition costs for Xyfid™ of
approximately $435,000, which consists of license fees, patent costs, stock
options issued as part of a finder’s fee, and diligence analysis costs.
Additionally, the increased R&D expense for the nine months ended September
30, 2007 is attributable to outside clinical research organization costs of
approximately $1,230,000, employee costs of approximately $630,000, outside
regulatory and legal fees of approximately $596,000 and outside manufacturing
costs of approximately $29,000, which have been allocated to each of our three
pharmaceutical product candidates. For the remainder of the year, and going
forward, we expect R&D spending related to our existing product candidates
Lenocta™,
VQD-002
and Xyfid™ to continue increasing as we expand our clinical trials.
SG&A
expenses for the nine months ended September 30, 2007 were $3,305,232 as
compared to $2,348,030 during the nine months ended September 30, 2006. This
increase in SG&A expenses was primarily due to an increase in legal fees
related to the sale of Chiral Quest and the issuance of the Bridge Notes,
additional payroll for new employees, recruiting fees and bonus accruals,
employee and non-employee director stock option expense in accordance with
SFAS
123R, increased investor relations costs and higher auditing fees.
Interest
expense, net of interest income for the nine months ended September 30, 2007
was
$510,285 as compared Interest income, net of interest expense for the nine
months ended September 30, 2006 of $85,361. Interest expense for the nine months
ended September 30, 2007 was primarily composed of interest expense of
approximately $563,000 for the Bridge Notes and approximately $5,000 for the
debt owed to Paramount BioSciences, which was repaid on July 17, 2007. Interest
expense was offset by interest income of approximately $53,000.
Our
loss
from continuing operations for the nine months ended September 30, 2007 was
$7,609,109 as compared to $3,196,268 for the nine months ended September 30,
2006. The increased loss from continuing operations for the nine months ended
September 30, 2007 as compared to the nine months ended September 30, 2006
was
attributable to higher R&D costs related to our drug development efforts,
including outside clinical research organization and manufacturing costs,
maintenance and licensing fees provided to the institutions we licensed
Lenocta™
and
VQD-002 from and acquiring the worldwide license to certain patents for
Xyfid™
in March
2007, in addition to other clinical development costs for the Lenocta™,
VQD-002
and Xyfid™
programs. Additionally, SG&A expense increased as a result of legal fees,
additional payroll for new employees, recruiting fees and bonus accruals,
employee and non-employee director stock option expense in accordance with
SFAS
123R, increased investor relations costs and higher auditing fees.
Discontinued
Operations:
Our
loss
from discontinued operations for the nine months ended September 30, 2007 was
$263,175 as compared to $2,368,847 for the nine months ended September 30,
2006.
The decreased loss from discontinued operations for the nine months ended
September 30, 2007 as compared to September 30, 2006 was primarily attributable
to the sale of Chiral Quest to Chiral Quest Acquisition Corp. for total cash
consideration of approximately $1,700,000. As a result of this transaction,
the
Company reported a gain on sale of $438,444.
Liquidity
and Capital Resources
In
August
2004, we decided to focus on acquiring technologies for
purposes
of development and commercialization of pharmaceutical drug candidates for
the
treatment of oncology and antiviral diseases and disorders for which there
are
unmet medical needs. In accordance with this business plan, in October 2005,
we
acquired Greenwich Therapeutics, Inc., a privately-held New York-based
biotechnology company that held exclusive rights to develop and commercialize
two oncology drug candidates: Lenocta™
and
VQD-002. The rights to these two oncology drug candidates are governed by
license agreements with The Cleveland Clinic Foundation and the University
of
South Florida Research Foundation, respectively. As a result of our acquisition
of Greenwich Therapeutics, we hold exclusive rights to develop, manufacture,
use, commercialize, lease, sell and/or sublicense Lenocta™
and
VQD-002. In March 2007, we acquired license rights to develop and commercialize
Xyfid™
an
adjunctive therapy for a common and serious side effect of cancer chemotherapy.
Our rights to Xyfid™ are governed by a license agreement with Asymmetric
Therapeutics, LLC and Onc Res, Inc., as assigned to us by Fiordland
Pharmaceuticals, Inc., an entity affiliated with Dr. Rosenwald, who is a
significant stockholder of our Company.
As
a
result of acquiring the license rights to Lenocta™,
VQD-002
and Xyfid™,
we
immediately undertook funding their development, which has significantly
increased our expected cash expenditures and will continue to increase our
expenditures over the next 12 months and thereafter. The completion of
development of Lenocta™,
VQD-002
and Xyfid™,
all of
which are only in early stages of clinical development, is a very lengthy and
expensive process. Until such development is complete and the FDA (or the
comparable regulatory authorities of other countries) approves Lenocta™,
VQD-002,
or Xyfid™
for
sale, we will not be able to sell these products.
Since
inception, we have incurred an accumulated deficit of $36,412,840 through
September 30, 2007. For the three and nine months ended September 30, 2007,
we
had losses from continuing operations of $3,215,479 and $7,609,109,
respectively, and used $4,532,892 in cash from continuing operating activities.
As of September 30, 2007, we had a working capital deficiency of $2,186,978
and
cash and cash equivalents of $2,456,639. Management expects our losses to
increase over the next several years, due to the expansion of its drug
development business, costs associated with the clinical development of
Lenocta™,
VQD-002
and Xyfid™.
These
matters raise substantial doubt about our ability to continue as a going
concern.
We
anticipate that our capital resources will be adequate to fund our operations
through the end of the fiscal year 2007. Additional financing will be required
within the first quarter of 2008 in order to continue to fund continuing
operations. The other most likely sources of additional financing include the
private sale of our equity or debt securities. However, changes may occur that
would consume available capital resources before that time. Our working capital
requirements will depend upon numerous factors, which include, the progress
of
our drug development and clinical programs, including associated costs relating
to milestone payments, maintenance and license fees, manufacturing costs, patent
costs, regulatory approvals, and the hiring of additional
employees.
Our
net
cash used in continuing operating activities for the nine months ended September
30, 2007 was $4,532,892. Our net cash used in continuing operating activities
primarily resulted from a net loss of $7,872,284 offset by a loss from
discontinued operations of $263,175, non-cash items consisting of the impact
of
expensing employee and director stock options in accordance with SFAS 123R
of
$830,021, the impact of expensing scientific advisory board member consultants’
options and non-employee finder’s fee options related to the license acquisition
of Xyfid™
in
accordance with Emerging Issues Task Force (“EITF”) 96-18 for $62,632,
amortization of the discount on our bridge note of 562,986 and depreciation
of
$6,499. Other uses of cash in continuing operating activities include a decrease
in other assets of $57,830, offset by an increase in prepaid clinical research
organization costs of $26,788 attributed to our three oncology compounds’
development. Additional increases in cash from continuing operations included
an
increase in accounts payable of $1,001,056 and accrued expenses of $581,981,
which was attributed to clinical development costs, professional fees and
compensation.
Our
net
cash used in continuing investing activities for the nine months ended September
30, 2007 totaled $5,127, which resulted from capital expenditures which were
attributable to the purchases of computer and office equipment for the Basking
Ridge, New Jersey facility.
Our
net
cash provided by continuing financing activities for the nine months ended
September 30, 2007 was $3,150,081, which was primarily attributed to a series
of
notes issued to investors for $3,414,704, net of placement agents’ commissions
and other related costs associated with issuing the such notes, in addition
to
the repayment of debt for $264,623 owed to Paramount BioSciences, which was
attributable to the acquisition of Greenwich Therapeutics, Inc. in
2005.
As
part
of our plan for additional employees, we anticipate hiring additional full-time
employees in the medical, clinical and business development functions. In
addition, we intend to and will continue to use senior advisors, consultants,
clinical research organizations and third parties to perform certain aspects
of
our products’ development, manufacturing, clinical and preclinical development,
and regulatory and quality assurance functions.
At
our
current and desired pace of clinical development of our two products, currently
in Phase I/IIa clinical trials, over the next 12 months we expect to spend
approximately $14.3 million on clinical trials and research and development
(including milestone payments that we expect to be triggered under the license
agreements relating to our product candidates, maintenance fees payments that
we
are obligated to pay to the institutions we licensed our two oncology compounds
from, salaries and consulting fees, pre-clinical and laboratory studies),
approximately $159,000 on facilities, rent and other facilities costs, and
approximately $3.1 million on general corporate and working
capital.
On
June
29, 2007 and July 3, 2007 we issued a series of convertible promissory notes
resulting in aggregate gross proceeds of $3.7 million. We also issued to
investors five-year warrants to purchase an aggregate of approximately 2.43
million shares of the Company’s common stock at an exercise price of $0.40 per
share. Based upon the Black-Scholes option pricing model, the investor warrants
are estimated to be valued at approximately $909,000. In connection with the
offering, we engaged Paramount as one of our placements agents. Dr. Lindsay
A.
Rosenwald is the Chairman, CEO and sole stockholder of Paramount and a
substantial stockholder of the Company. Stephen C. Rocamboli, a director of
the
Company, was employed by Paramount at the time of the Company’s engagement. In
consideration for the placement agents’ services, we paid an aggregate of
approximately $256,000 in commissions to the placement agents in connection
with
the offering, of which $119,700 was paid to Paramount. We also paid to placement
agents approximately $24,000 as a non-accountable expense allowance. In
addition, we issued placement agents five-year warrants to purchase an aggregate
of approximately 1.2 million shares of common stock, of which 450,000 shares
of
common stock were issued to Paramount, which are exercisable at a price of
$0.42
per share. Based upon the Black-Scholes option pricing model, the placement
agents’ warrants are estimated to be valued at approximately
$430,000.
On
July
16, 2007, we completed the sale of our discontinued operations Chiral Quest,
Inc., and received $1.7 million in gross proceeds, of which we recognized
$197,000 in accrued compensation costs related to a severance agreement and
retention bonuses payable to certain key employees. Additionally, the purchaser
assumed liabilities in the aggregate amount of approximately $807,000 pursuant
to the purchase agreement.
Our
working capital requirements will depend upon numerous factors. For example,
with respect to our drug development business, our working capital requirements
will depend on, among other factors, the progress of our drug development and
clinical programs, including associated costs relating to milestone payments,
license fees, manufacturing costs, regulatory approvals, and the hiring of
additional employees. Additional capital that we may need in the future may
not
be available on reasonable terms, or at all. If adequate financing is not
available, we may be required to terminate or significantly curtail our
operations, or enter into arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our technologies, or
potential markets that we would not otherwise relinquish.
Item
3A(T). Controls and Procedures.
As
of
September 30, 2007, the Company carried out an evaluation, under the supervision
and with the participation of the Company’s Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that as of
that date the Company’s disclosure controls and procedures were effective in
alerting them on a timely basis to material information required to be disclosed
in the Company’s periodic reports to the Securities and Exchange Commission.
During the three months ended September 30, 2007, there was no change in the
Company’s internal control over financial reporting that materially affected, or
is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II – OTHER INFORMATION
Item
4. Submission of Matters to a Vote of Security Holders.
The
Company held a Special Meeting of Stockholders at the Somerset Hills Hotel,
200
Liberty Corner Road in Warren, New Jersey on September 12, 2007. The sole
purpose of the meeting was to consider a proposal to amend the Company’s
certificate of incorporation to increase the number of shares of common stock
authorized for issuance from 100 million to 200 million. At the meeting, the
stockholders approved such amendment. There were 30,195,999 shares cast for
the
proposal; 1,023,817 shares cast against the proposal; and 15,896 shares
abstained.
Item
5. Other Information
Assignment
of Chiral Quest
Lease
In
connection with the sale of the Company’s Chiral Quest Subsidiary, on July 16,
2007, the Company entered into a sublease agreement with Chiral Quest
Acquisition Corp. (“CQAC”), which purchased Chiral Quest, to lease office and
laboratory space in Monmouth Junction, New Jersey used in Chiral Quest’s
business. The sublease agreement provides for a term that will expire on May
30,
2008. CQAC agreed to make all payments of base rent and additional rent that
the
Company is obligated to pay under its lease agreement for such space. CQAC’s
total commitment as of July 16, 2007 under the sublease agreement was $224,000,
or approximately $28,000 per month. If CQAC were to default on payment during
the sublease agreement’s term, the Company would be obligated to provide payment
to its landlord on behalf of CQAC through the remainder of the original lease
term, and the Company will have the right to cancel and terminate the sublease
with CQAC upon 5 days notice to subtenant. To date, CQAC has fully complied
with
the sublease agreement with the Company.
Separation
Agreement with Former Chief Executive Officer
On
November 14, 2007, the Company and Daniel Greenleaf, the Company’s former
President & Chief Executive Officer, entered into a Separation and Release
Agreement (the “Separation Agreement”). Pursuant to the Separation Agreement,
the parties mutually agreed that Mr. Greenleaf’s employment with the Company
terminated as of November 9, 2007, and that Mr. Greenleaf resigned from all
positions as officer and director of the Company. The Separation Agreement
provides for the following compensation to be paid to Mr. Greenleaf: (i)
Mr.
Greenleaf will receive his annualized base salary of $360,000 through November
15, 2007; (ii) Mr. Greenleaf will receive his annualized base salary of $360,000
for a period of 6 months commencing on or about May 10, 2008; (iii) Mr.
Greenleaf will receive a lump sum payment of $70,000 payable on or before
March
31, 2008; and (iv) the Company will reimburse Mr. Greenleaf for health insurance
for a period of up to 12 months. Under the Separation Agreement, the parties
agreed to release each other from certain legal claims, known or unknown,
as of
the date of the agreement, and the Company also released Mr. Greenleaf from
the
covenant not to compete contained in his employment agreement with the Company
dated February 1, 2005.
Appointment
of President and Chief Executive Officer
On
November 11, 2007, the Company and Michael D. Becker entered into an Employment
Agreement (the “Employment Agreement”) pursuant to which Mr. Becker will serve
as the Company’s President and Chief Executive Officer, effective November 21,
2007. Mr. Becker was also appointed to the Company’s Board of Directors
effective as of such date. The Employment Agreement provides for a term of
4
years.
Under
the
Employment Agreement, Mr. Becker is entitled to an annualized base salary
of
$358,400, plus cash bonuses payable as follows:
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· |
A
bonus of $150,000 payable when the Company receives gross proceeds
from
the sale of its securities in one or a series of related
transactions;
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· |
A
bonus of $125,000 payable when the Company’s aggregate market
capitalization (determined by multiplying the closing sale price
of the
Company’s common stock by the number of shares issues and outstanding at
a
given time) exceeds $125 million for a period of 15 consecutive
trading
days.
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· |
A
bonus of $500,000 payable when the Company’s aggregate market
capitalization (determined by multiplying the closing sale price
of the
Company’s common stock by the number of shares issues and outstanding at
a
given time) exceeds $250 million for a period of 15 consecutive
trading
days.
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· |
A
bonus of $1,000,000 payable when the Company’s aggregate market
capitalization (determined by multiplying the closing sale price
of the
Company’s common stock by the number of shares issues and outstanding at
a
given time) exceeds $500 million for a period of 15 consecutive
trading
days.
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· |
A
bonus of $2,000,000 payable when the Company’s aggregate market
capitalization (determined by multiplying the closing sale price
of the
Company’s common stock by the number of shares issues and outstanding at
a
given time) exceeds $1 billion for a period of 15 consecutive trading
days.
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In
addition, the Employment Agreement provides that the Company will grant to
Mr.
Becker two stock options pursuant to the Company’s 2003 Stock Option Plan. The
first stock option grant will provide Mr. Becker with the right to purchase
5,013,343 shares of the Company’s common stock at a price equal to the closing
sale price of the common stock on November 21, 2007 (the “Initial Option”). The
Initial Option will have a 10-year term and will vest in four equal annual
installments commencing on the first anniversary of Mr. Becker’s employment
commencement date, or November 21, 2008. The second option will provide Mr.
Becker with the right to purchase 856,440 shares of the Company’s common stock
at a price equal to the closing sale price of the common stock on November
21,
2007 (the “Merger Option” and together with the Initial Option, the “Stock
Options”). The Merger Option will also have a 10-year term and will vest in four
equal annual installments commencing on the first anniversary of Mr. Becker’s
commencement date. However, the Merger Option is only exercisable to the
extent
that the shares of the Company’s common stock currently held in an escrow
account in favor of the former stockholders of Greenwich Therapeutics, Inc.
in
connection with the Company’s October 2005 acquisition of Greenwich are released
from escrow. The Employment Agreement further provides that Mr. Becker will
be
eligible to receive additional stock options beginning on the second anniversary
of the agreement, in the discretion of the Board.
Notwithstanding
the 4-year term of the Employment Agreement, either party has the right to
terminate the agreement and Mr. Becker’s employment sooner. In the event the
Company terminates his employment upon a “change of control” or for a reason
other than for “cause” or Mr. Becker’s death or disability, or if Mr. Becker
terminates his employment for “good reason,” then the Company will continue pay
to Mr. Becker his base salary and will provide health insurance coverage
for a
period of 12 months. In addition, the unvested portions of the Stock Options
that are scheduled to vest on the next anniversary date of Mr. Becker’s
employment shall accelerate and be deemed vested as of the termination date
and
shall remain exercisable for a period of 90 days. However, to the extent
any
portion of the Merger Option has not become exercisable because all or a
portion
of the Greenwich escrowed shares have not been released from escrow, then
the
Merger Option, or any such portion, will be forfeited. Notwithstanding the
foregoing, if Mr. Becker’s employment is terminated by the Company in connection
with specified change of control transactions, then all Stock Options shall
accelerate and be deemed vested as of such termination date.
If
the
Company terminates Mr. Becker’s employment for “cause” or if Mr. Becker
terminates his employment for a reason other that “good reason,” then the
Company is only obligated to pay to Mr. Becker his accrued and unpaid base
salary through the date of termination. If Mr. Becker’s employment is terminated
as a result of his death or disability, then the Company will also pay to
Mr.
Becker or his estate his annualized base salary for a period of 6 months
and
will provide health insurance for a period of 12 months from such
termination.
The
term
“cause” under the Employment Agreement means the following conduct or actions
taken by Mr. Becker: (i) his willful and repeated failure or refusal to perform
his material duties or obligations; (ii) any willful, intentional or grossly
negligent act having the effect of injuring, in a material way (whether
financial or otherwise), the Company’s business or reputation; (iii) willful
misconduct by in respect of his material duties or obligations; (iv) his
indictment of any felony involving a crime of moral turpitude; (v) the
determination by the Company that Mr. Becker engaged in material harassment
or
discrimination prohibited by law; (vi) any misappropriation or embezzlement
of
the Company’s property; (vii) a breach of the non-solicitation, non-competition,
invention assignment and confidentiality provisions of the Employment Agreement;
or (viii) a material breach of any other material provision of the Employment
Agreement that is not cured within 30 days after written notice thereof is
given
by the Company.
The
term
“change of control” under the Employment Agreement means any of the following:
(A) the direct or indirect acquisition by a person in one or a series of
related
transactions of Company securities representing more than 50% of its combined
voting power; (B) a merger, consolidation, reorganization or share exchange
involving the Company, or the sale of all or substantially all of the Company’s
assets, unless the beneficial owners of the Company’s securities immediately
prior to such transaction continue to hold more than 50% of the combined
voting
power of the then-outstanding securities.
The
term
“good reason” means (1) a material reduction by the Company of Mr. Becker’s
compensation or benefits; (2) a material reduction or change in Mr. Becker’s
duties, responsibilities or position; (3) a material breach by the Company
of
any material term of the Employment Agreement; or (4) a relocation of the
principal place of employment by more than 50 miles without Mr. Becker’s
consent.
The
employment Agreement also provides for customary covenants that preclude
Mr.
Becker from disclosing the Company’s confidential information, require him to
assign certain inventions to the Company, restrict his ability to compete
with
the Company during his employment and for a 12-month period thereafter, and
prohibit Mr. Becker from soliciting Company employees to leave the Company’s
employ during the 12-month period following his employment
termination.
Prior
to
joining the Company, from December 2002 to November 2007, Mr. Becker, age
38,
served as President and Chief Executive Officer and a director of Cytogen
Corporation, a publicly-held biotechnology company based in Princeton, New
Jersey. Mr. Becker joined Cytogen in April 2001 and served in
positions of increasing responsibility, including Chief Executive Officer
of its
AxCell Biosciences subsidiary and Vice President, Business Development and
Industry Relations. Prior to Cytogen, Mr. Becker was employed by Wayne
Hummer Investments LLC, a Chicago-based regional brokerage firm, from
July 1996 to April 2001, where he held senior positions as a
biotechnology analyst, investment executive and portfolio manager in addition
to
participating in sales management activities. From October 1998 to
April 2001, Mr. Becker also served on the board of directors for the
Chicago Biotech Network, a nonprofit trade association for the biotechnology
industry in Illinois. Mr. Becker attended DePaul University in Chicago,
Illinois. In January 2007, Mr. Becker was named Chairman of the
Biotechnology Council of New Jersey, Inc. Mr. Becker is a member of
the Governing Body of Biotechnology Industry Organization’s (BIO) Emerging
Companies Section.
Interim
Appointment of Chief Executive Officer
On
November 12, 2007, the Company appointed Brian Lenz, currently its Chief
Financial Officer, to serve as its interim Chief Executive Officer until
the
effective date of Mr. Becker’s appointment.
Amendment
to 2003 Stock Option Plan
On
November 12, 2007, the Company’s Board of Directors adopted an amendment to the
Company’s 2003 Stock Option Plan increasing the number of shares of common stock
available for issuance thereunder from 7,500,000 to 13,500,000
shares.
Item
6. Exhibits
Exhibit No.
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Description
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4.1
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Form
of senior convertible promissory note issued by VioQuest Pharmaceuticals,
Inc. on June 29, 2007 and July 3, 2007 (incorporated by reference
to
Exhibit 4.1 of the Company’s Form 8-K filed July 6, 2007)
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4.2
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Form
of warrant issued to investors by VioQuest Pharmaceuticals, Inc.
on June
29, 2007 and July 3, 2007 (incorporated by reference to Exhibit 4.1
of the
Company’s Form 8-K filed July 6, 2007)
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10.1
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Form
of Note and Warrant Purchase Agreement between VioQuest Pharmaceuticals
and various investors accepted as of June 29, 2007 and July 3, 2007
(incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed
July 6, 2007)
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10.2
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Sublease
dated July 16, 2007 between the Company and Chiral Quest Acquisition
Corp.
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31.1
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Certification
of Chief Executive Officer
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31.2
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Certification
of Chief Financial Officer
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32.1
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Certifications
of Chief Executive and Chief Financial Officer pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
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SIGNATURES
In
accordance with the requirements of the Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
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VIOQUEST
PHARMACEUTICALS, INC.
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Date:
November 14, 2007
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By:
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/s/
Brian Lenz
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Brian
Lenz
Interim
Chief Executive Officer and Chief
Financial
Officer
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INDEX
TO EXHIBITS FILED WITH THIS REPORT
Exhibit
No.
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Description
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10.2
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Sublease
dated July 16, 2007 between the Company and Chiral Quest Acquisition
Corp.
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31.1
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Certification
of Interim Chief Executive Officer and Chief Financial
Officer
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32.1
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Certifications
of Chief Executive and Chief Financial Officer pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
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