UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2018

 

Commission File Number 001-36019

 

TONIX PHARMACEUTICALS HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

26-1434750

(State or other jurisdiction of incorporation 

or organization) 

 

(IRS Employer Identification No.)

 

 

 

509 Madison Avenue, Suite 1608 

New York, New York 

10022

(212) 980-9155

(Address of principal executive office)

(Zip Code)

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

The NASDAQ Stock Market LLC

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐    No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

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

 

Large accelerated filer ☐

 Accelerated filer ☐

Non-accelerated filer ☐

 Smaller reporting company ☒

 Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

 

The aggregate market value of the voting common equity held by non-affiliates as of June 30, 2018, based on the closing sales price of the common stock as quoted on The NASDAQ Global Market was $32,593,562. For purposes of this computation, all officers, directors, and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.

 

As of March 13, 2019, there were 6,089,728 shares of registrant’s common stock outstanding.  

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held in 2019, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

 

 

 

 

TABLE OF CONTENTS

 

 

 

PAGE

PART I

 

 

 

 

 

Item 1.

Business

3

Item 1A.

Risk Factors

39

Item 1B.

Unresolved Staff Comments

70

Item 2.

Properties

70

Item 3.

Legal Proceedings

71

Item 4.

Mine Safety Disclosures

71

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

71

Item 6.

Selected Financial Data

72

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

73

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

88

Item 8.

Financial Statements and Supplementary Data

F-1 – F-27

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

89

Item 9A.

Controls and Procedures

89

Item 9B.

Other Information

90

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

90

Item 11.

Executive Compensation

98

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

106

Item 13.

Certain Relationships and Related Transactions, and Director Independence

108

Item 14.

Principal Accounting Fees and Services

109

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

109

 

Signatures

112

 

 

 

PART I

 

ITEM 1 – BUSINESS

 

This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

Tonix Pharmaceuticals®, Tonmya®*, Protectic™, Angstro-Technology™ and other trademarks and intellectual property of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.

 

*Tonmya has been conditionally accepted by the U.S. Food and Drug Administration (FDA) as the proposed trade name for TNX-102 SL (cyclobenzaprine HCl sublingual tablets) for posttraumatic stress disorder, or PTSD. TNX-102 SL is an investigational new drug and has not been approved for any indication.

 

Business Overview

 

Tonix is a clinical-stage biopharmaceutical company focused on discovering and developing pharmaceutical products to treat serious neuropsychiatric conditions and biological products to improve biodefense through potential medical counter-measures. Our most advanced drug development program is focused on delivering a safe and effective long-term treatment for PTSD. PTSD is characterized by chronic disability, inadequate treatment options, high utilization of healthcare services, and significant economic burden. We have assembled a management team with significant industry experience to lead the development of our product candidates. We complement our management team with a network of scientific, clinical, and regulatory advisors that includes recognized experts in the fields of PTSD, other central nervous system disorders and biodefense. 

 

3 

 

In June 2017, the U.S. Food and Drug Administration, or FDA, conditionally accepted the proposed trade name Tonmya for TNX-102 SL, for the treatment of PTSD. The FDA’s final approval of Tonmya as a name for TNX-102 SL for the treatment of PTSD is subject to New Drug Application, or NDA, approval. The U.S. Patent and Trademark Office, or PTO, has granted the federal registration of the Tonmya mark.

 

Our lead product candidate, Tonmya, or TNX-102 SL, a proprietary low-dose cyclobenzaprine, or CBP, sublingual tablet, designed for bedtime administration, is in Phase 3 development as a potential treatment for PTSD. Tonix is also developing TNX-102 SL as a bedtime treatment for Fibromyalgia, or FM, and agitation in Alzheimer’s disease, or AAD, under separate INDs to support potential pivotal efficacy studies.   The agitation in Alzheimer’s disease IND has been designated a Fast Track development program by the FDA.  TNX-601 (tianeptine oxalate) is in the pre-IND application stage, also for the treatment of PTSD but using a different mechanism from TNX-102 SL and designed for daytime dosing. TNX-601 is also in development for a potential indication -neurocognitive dysfunction associated with corticosteroid use. Phase 1 clinical study of TNX-601 selected oral formulation will be conducted outside of the U.S. in 2019.  Tonix’s lead biologic candidate, TNX-801, is a potential smallpox-preventing vaccine based on a live synthetic version of horsepox virus, currently in the pre-IND application stage. TNX-701 is a biodefense development program for protection from radiation injury. We are currently not performing any activities and have no future plans related to TNX-301 an IND candidate for the treatment of alcohol use disorder. We hold worldwide development and commercialization rights to all of our product candidates.

 

Tonmya – Posttraumatic Stress Disorder

 

Tonmya is a small, rapidly disintegrating tablet containing CBP for sublingual administration. Tonmya employs a proprietary protective eutectic formulation of CBP, Protectic™, which enables rapid systemic exposure and increased bioavailability through transmucosal absorption. Based on the results of a Phase 2 study with Tonmya 2.8 mg and 5.6 mg in military-related PTSD, Tonmya 5.6 mg was studied in the first Phase 3 study which was discontinued after the results of the interim analysis, or IA, indicated a pre-defined threshold p-value for continuing enrollment was not achieved. Retrospective analysis of this Phase 3 study revealed a treatment effect in participants who experienced trauma less than or equal to 9 years prior to screening. This analysis defined an optimal treatment window for treatment with TNX-102 SL for PTSD of the first 9 years after the index trauma that resulted in PTSD and guided the design of the recently initiated new Phase 3 study.

 

An estimated 12 million adults annually in the U.S. suffer from PTSD, a chronic disorder that is characterized by hyperarousal, avoidance, emotional numbing, and sleep disturbances. People with PTSD suffer significant impairment in their functioning, including occupational activities and social relations, and are at elevated risk for impulsive, violent behaviors toward others and themselves, including suicide. Many patients fail to adequately respond to the medications approved for PTSD. Antidepressants, sedative-hypnotics and antipsychotics not approved for PTSD are commonly prescribed despite generally weak evidence in support of their use. Antianxiety drugs, also called anxiolytics, are not approved for PTSD, but are commonly prescribed despite the recommendations against their use by many experts. Anxiolytics and sedative-hypnotics are comprised of benzodiazepine and non-benzodiazepine drugs, which carry risks of tolerance and addiction and are also associated with potential serious side-effects, such as retrograde amnesia.

 

TNX-102 SL – Fibromyalgia

 

We are developing TNX-102 SL for the treatment of FM. In September 2016, we interrupted development of TNX-102 SL for the treatment of FM to focus on the treatment of PTSD. Our previous development efforts for TNX-102 SL in FM studied the 2.8 mg dose in a Phase 2 and a Phase 3 study. Based on our experience with TNX-102 SL 5.6 mg in PTSD, we are restarting the clinical program using TNX-102 SL 5.6 mg. We met with the FDA in March 2019 to discuss the clinical development plan for TNX-102 SL 5.6 mg and the next Phase 3 study to support the FM indication.

 

FM is a debilitating syndrome that occurs in five to 15 million U.S. adults and is associated with a substantial negative impact on social and occupational function, including disrupted relationships with family and friends, social isolation, reduced activities of daily living and leisure activities, avoidance of physical activity, and loss of career or inability to advance in careers or education. Many patients fail to adequately respond to the medications approved for FM or discontinue therapy due to poor tolerability. Prescription pain and sleep medications not approved for FM are frequently taken for symptomatic relief, despite the lack of evidence that such medications provide a meaningful or durable therapeutic effect.

 

4 

 

TNX-102 SL – Agitation in Alzheimer’s Disease

 

We are developing TNX-102 SL for the treatment of agitation in Alzheimer’s disease, which has been designated as a Fast Track development program by the FDA. FDA comments on the Phase 2 potential pivotal efficacy study protocol have been received.

 

An estimated 5.3 million people in the U.S suffer from Alzheimer’s disease, with more than half that number expected to be affected by agitation. Behavioral symptoms are a major clinical complication of Alzheimer’s disease. Sleep disturbances and agitation are common and co-morbid features of Alzheimer’s disease. Agitation in Alzheimer’s disease is associated with significant negative consequences for both patients as well as their caregivers. Development of agitation, or its worsening, is one of the most common reasons for patients having to transition to nursing homes and other long-term care settings. Currently, there is no FDA approved treatment for behavioral symptoms such as agitation and aggression which adversely affect the quality of life of both the patients and caregivers. Off-label use of atypical anti-psychotic medications for behavioral symptoms in Alzheimer’s disease is a common practice, despite the lack of evidence for their effectiveness and significant risks associated with their use in this population.

 

 Our Strategy

 

Our objective is to develop and commercialize our product candidates. The principal components of our strategy are to:

 

 

Develop Tonmya for PTSD and TNX-102 SL for FM and Other Indications. We currently are focusing on the development of Tonmya for PTSD. Our broader development strategy is to leverage the patented formulation to explore the clinical potential of TNX-102 SL in multiple other central nervous system disorders or neuropsychiatric conditions, including agitation in Alzheimer’s, that are either underserved by currently approved medications or have no approved treatment thus representing large unmet medical needs;

 

 

Maximize the commercial potential of Tonmya. We plan to commercialize Tonmya for PTSD, either on our own or through collaboration with partners. We believe Tonmya can be marketed to U.S. physicians either by an internal sales force that we will build or by a contract sales organization, which we would engage. An alternative strategy would be to enter into partnership agreements with drug companies that already have significant marketing capabilities in the same, or similar, therapeutic areas. If we determine that such a strategy would be more favorable than developing our own sales capabilities, we would seek to enter into collaborations with pharmaceutical or biotechnology companies for the commercialization of Tonmya;

 

 

 

 

Pursue a broad intellectual property strategy to protect our product candidates. We are pursuing a broad patent strategy for our product candidates, and we endeavor to generate new patent applications as supported by our innovations and conceptions as well as to advance their prosecution. In the cases of Tonmya and TNX-102 SL, we own patents and patent applications protecting its composition-of-matter, certain methods of its use, its formulation, and its pharmacokinetic properties. We plan to opportunistically apply for new patents to protect TNX-102 SL and our other product candidates;

 

 

 

 

Provide value propositions to merit market demand and reimbursement for our product candidates. We are designing the development programs for our product candidates to demonstrate their value propositions to patients, prescribers, and third-party payors. In the case of Tonmya, we have been engaged in market research and commercial assessment activities, the results of which we may use to inform future commercial strategy. We plan to continue these activities in tandem with our clinical development of Tonmya and to conduct similar work in relation to our other product candidates as they advance in their development; and

 

 

 

 

Pursue additional indications and commercial opportunities for our product candidates. We will seek to maximize the value of TNX-102 SL, and our other product candidates by pursuing other indications and commercial opportunities for such candidates. For example, we own rights related to the development and commercialization of CBP for fibromyalgia, generalized anxiety disorder, depression, and fatigue related to disordered sleep.

 

5 

 

Disease and Market Overview

 

Our product candidates address disorders that are not well served by currently available therapies or have no approved treatment which represent large potential commercial market opportunities. Background information on the disorders and related commercial markets that may be addressed by our clinical-stage product candidates is set forth below.

 

 Posttraumatic Stress Disorder

 

PTSD is a chronic condition that may develop after a person is exposed to one or more traumatic events, such as warfare, sexual assault, serious injury, or threat of imminent death. The core symptom clusters of PTSD are avoidance, emotional numbing, hyperarousal, and intrusion, where the triggering event is commonly re-experienced by the individual through intrusive, recurrent recollections, flashbacks, and nightmares. People with PTSD suffer significant impairment in their daily functioning, including occupational activities and social relations, and are at elevated risk for impulsive violent behaviors toward others and themselves, including suicide. Of those who experience significant trauma, approximately 20% of women and 8% of men develop PTSD. According to the U.S. Department of Veterans Affairs, the prevalence rate of PTSD in the military population is higher than that among civilians. As of 2012, there were approximately 638,000 veterans receiving treatment for PTSD in the Veterans Health Administration, or VHA. Based on March 2015 VHA data, more than 19% of military veterans involved in recent conflicts were seen at VHA facilities for potential or provisional PTSD.

 

The medications currently approved by the FDA for the treatment of PTSD show little evidence of a treatment effect in men, lack evidence of efficacy in those for whom the traumatic event was combat-related, and carry suicidality warnings. Sleep disturbances are central features of PTSD and are predictive of disease severity, depression, substance abuse, and suicidal ideation, yet are resistant to the approved medications and present a difficult therapeutic challenge. Current PTSD treatments include off-label use of anxiolytics, sedative-hypnotics, and antipsychotics, many of which lack reliable evidence of efficacy, and many have significant safety liabilities and dependence risk.

 

Fibromyalgia

 

FM is a chronic syndrome characterized by widespread musculoskeletal pain accompanied by fatigue, sleep, memory and mood issues. The peak incidence of FM occurs between 20-50 years of age, and 80-90% of diagnosed patients are female. FM may have a substantial negative impact on social and occupational function, including disrupted relationships with family and friends, social isolation, reduced activities of daily living and leisure activities, avoidance of physical activity, and loss of career or inability to advance in career or education. According to published estimates, there are approximately five to fifteen million people suffering from FM in the U.S. (Vincent et al, Arthritis Care Res 2013;65:786-792; Lawrence et al, Arthritis Rheum 2008;58:26-35). Based on our market research, last updated in 2015, we believe that sales in the U.S. of FDA-approved medications for FM were approximately $1.2 billion in 2014, representing approximately 5.6 million prescriptions.

 

According to a report by Frost and Sullivan that we commissioned, despite the availability of approved medications, the majority of patients fail therapy due to either insufficient efficacy or poor tolerability, or both. Prescription pain and sleep medications are frequently prescribed off-label for symptomatic relief, despite the lack of evidence that such medications provide a meaningful or durable therapeutic benefit, and many of these medications carry significant safety risks and risk of dependence. For example, approximately 30% of FM patients take chronic opioids, despite the lack of evidence for their effectiveness and the risk of addiction and toxicity, including overdose.

 

6 

 

Agitation in Alzheimer’s Disease

 

Alzheimer’s is a chronic neurodegenerative disease in which behavioral symptoms are a major clinical complication. Sleep disturbances and agitation are common and co-morbid features of Alzheimer’s disease. Agitation, which includes emotional lability, restlessness, irritability, and aggression, is one of the most distressing and debilitating of these behavioral complications of Alzheimer’s disease. Agitation is likely to affect more than half of the 5.3 million Americans who currently suffer from Alzheimer’s disease, and this number is expected to nearly triple by 2050. The presence of agitation nearly doubles the cost of caring for patients with Alzheimer’s disease, and agitation is estimated to account for more than 12 percent of the $256 billion in healthcare and societal cost of associated with Alzheimer’s disease for the year 2017 in the United States.

 

Agitation in Alzheimer’s disease is associated with significant negative consequences for both patients as well as their caregivers. Development of agitation, or its worsening, is one of the most common reasons for patients having to transition to nursing homes and other long-term care settings. Currently, there is no FDA approved treatment for behavioral symptoms such as agitation and aggression which affects the quality of life of both the patients and caregivers.

 

Off-label use of atypical anti-psychotic medications for behavioral symptoms in Alzheimer’s disease is a common practice, despite the lack of evidence for their effectiveness and significant risks associated with their use in this population.

 

Our Product Candidates

 

We currently are focused on developing a portfolio of product candidates, including one candidate in clinical development for registration in two indications. We believe that our product candidates offer innovative therapeutic approaches and may provide significant advantages relative to available therapies. The following table summarizes our most advanced product candidates, for which we plan to complete the required clinical studies to support their NDA approvals:

 

 

Product Candidate

 

Indication

 

Stage of Development

 

Commercialization Rights

Tonmya

 

Posttraumatic stress disorder

 

Phase 3

 

Worldwide

TNX-102 SL

 

Fibromyalgia

 

Phase 3

 

Worldwide

TNX-102 SL

 

Agitation in Alzheimer’s disease

 

Phase 2

 

Worldwide

 

Tonmya

 

Overview

 

 Tonmya or TNX-102 SL is a proprietary sublingual tablet formulation of CBP that efficiently delivers CBP across the oral mucosal membrane into the systemic circulation. We are developing Tonmya as a bedtime treatment for PTSD. We own all rights to Tonmya in all geographies, and we bear no obligations to third-parties for any future development or commercialization. Excipients used in Tonmya are approved for pharmaceutical use. Some of the excipients were specially selected to promote a local oral environment that facilitates mucosal absorption of CBP. 

 

 The current Tonmya sublingual tablets contain 2.8 mg of CBP. For the treatment of PTSD, Tonmya, 5.6 mg (two 2.8 mg tablets administered simultaneously) at bedtime, is in Phase 3 development. We selected this dose with the goal of providing a balance of efficacy, safety, and tolerability that would be acceptable as a first-line therapy and for long-term use, and in patient populations characterized by burdensome symptoms and sensitivity to medications.

 

The active ingredient in Tonmya, is cyclobenzaprine or CBP, a serotonin-2A and alpha-1 adrenergic receptor antagonist as well as an inhibitor of serotonin and norepinephrine reuptake. In addition, Tonmya acts upon other receptors in the central nervous system not targeted by products approved for PTSD, including the serotonin 2A, adrenergic alpha-1, muscarinic M1 and histaminergic H1 receptors.

 

7 

 

CBP is the active ingredient of two products that are approved in the U.S. for the treatment of muscle spasm: FLEXERIL® (5 mg and 10 mg oral immediate-release, or IR, tablet) and AMRIX® (15 mg and 30 mg oral extended-release capsule). The FLEXERIL brand of CBP IR tablet has been discontinued since May 2013. There are numerous generic versions of CBP IR tablets on the market. CBP-containing products are approved for short term use (two to three weeks) only as an adjunct to rest and physical therapy for relief of muscle spasm associated with acute, painful musculoskeletal conditions. IR CBP tablets are recommended for three times per day dosing, which results in relatively stable blood levels of CBP after several days of treatment. Extended-release CBP capsules taken once a day mimic, and flatten, the pharmacokinetic profile of three times per day IR CBP tablets.

 

We designed Tonmya to be administered once-daily at bedtime and intended for long-term use. We believe the selected dose of Tonmya and its pharmacokinetic profile will enable it to achieve a desirable balance of efficacy, safety, and tolerability in PTSD. Our Phase 1 comparative trials showed that, on a dose-adjusted basis, Tonmya results in faster systemic absorption and significantly higher plasma levels of CBP in the first hour following sublingual administration relative to oral IR CBP tablets. It also showed that the sublingual route of administration, which largely bypasses the “first pass” metabolism that swallowed medications undergo, results in a higher plasma ratio of CBP to its main active metabolite, norcyclobenzaprine. In clinical studies, Tonmya 2.8 mg and Tonmya 5.6 mg were generally well-tolerated, with no drug-related serious adverse events, or SAEs, reported in these studies. Some subjects experienced transient numbness of the tongue after Tonmya administration.

 

We have successfully completed the pivotal exposure bridging study with TNX-102 SL using AMRIX as the reference listed drug or RLD.  Results from this study support the approval of Tonmya and TNX-102 SL under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA. In general, the development timeline for a 505(b)(2) NDA is shorter and less expensive than an NDA developed under Section 505(b)(1), which is for new chemical entities, or NCEs, that have never been approved in the United States. We believe that Tonmya and TNX-102 SL have the potential to provide clinical benefit to this and possibly other CNS (central nervous system) indications that are underserved by currently marketed products or have no approved treatment.

 

On May 2, 2017, we were issued U.S. patent 9,636,408 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”, which includes compositions of CBP and methods of manufacturing the eutectic. The Protectic™ protective eutectic and Angstro-Technology™ formulation claimed in the patent are important elements of our proprietary Tonmya or TNX-102 SL composition. The patent is expected to provide Tonmya or TNX-102 SL with U.S. market exclusivity until 2034. Eutectic tablets containing CBP and mannitol eutectic have good pharmaceutical stability and manufacturability. A solid eutectic is a form of matter in which two solid crystals co-penetrate each other, such that the inter-molecular space between the units of one crystal lattice are occupied by the other crystal’s lattice. The distance between the molecular units is not changed.

 

 On September 13, 2017, we were issued European patent 2,501,234 “Methods and Compositions for Treating Symptoms Associated with PTSD Using Cyclobenzaprine”. This patent recites the use of CBP for the treatment of PTSD, which covers the use of Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP. The patent is expected to provide Tonmya with European market exclusivity until 2030.  

 

On December 15, 2017 we were issued Japanese Patent No. 6259452, “Compositions and Methods for Transmucosal Absorption,” by the Japanese Patent Office (JPO) relating to the pharmacokinetic profile of Tonmya, or TNX-102 SL.

 

 

8 

 

 On March 20, 2018, we were issued U.S. patent 9,918,948 “Methods and compositions for treating symptoms associated with PTSD using Cyclobenzaprine”. This patent protects the use of Tonmya for the treatment of PTSD as well as its active ingredient CBP for the treatment of PTSD. The patent is expected to provide Tonmya with U.S. market exclusivity until 2030. This method of use patent for Tonmya extends upon previously granted patents related to the composition of matter (U.S. Patent No. 9,636,408) and the active ingredient in Tonmya (European Patent No. 2,501,234) as described above.

 

On March 23, 2018, we were issued Japanese Patent No. 6310542 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride.” This patent recites pharmaceutical compositions comprising the eutectics and methods of manufacturing these eutectic formulations.

 

On May 1, 2018, we were issued U.S. Patent No. 9,956,188 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”. The patent recites a eutectic of cyclobenzaprine hydrochloride and mannitol and methods of making those eutectics. The patent is expected to provide Tonmya with U.S. market exclusivity until 2034.

 

 On November 6, 2018, we were issued U.S. Patent No. 10,117,936 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”. The patent recites pharmaceutical compositions of eutectics of cyclobenzaprine hydrochloride and mannitol and methods of making those compositions. The patent is expected to provide Tonmya with U.S. market exclusivity until 2034.

 

Tonmya – Posttraumatic Stress Disorder Program

 

We are developing Tonmya as a bedtime treatment of PTSD under an effective IND application. The approval of Tonmya for PTSD will be under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA.

 

Clinical Development Plan

 

Phase 3 HONOR Study

 

In the third quarter of 2018, we announced the results of a randomized, double-blind, placebo-controlled Phase 3 study of Tonmya, planned for enrollment of approximately 550 participants with military-related PTSD, which we refer to as the HONOR study. The primary efficacy endpoint of the HONOR study was the 12-week mean change from baseline in the severity of PTSD symptoms as measured by the Clinician-Administered PTSD Scale for DSM-5, or CAPS-5, between those treated with Tonmya and those receiving placebo. This study was an adaptive design study based on the results of the Phase 2 AtEase study. The study design was very similar to the Phase 2 AtEase study, except there was one planned IA and the involvement of an independent data monitoring committee, or IDMC, which reviewed the unblinded IA results. In addition, only one active dose (5.6 mg administered as 2 x 2.8 mg tablets) was investigated and the baseline severity entrance criterion was a CAPS-5 total score ≥ 33 in this Phase 3 study. The IA was conducted when approximately 50% of the initially planned participant enrollment was evaluable for efficacy. We received FDA acceptance of the Phase 3 HONOR study design in January of 2017. The HONOR study was conducted at approximately 40 U.S. sites. HONOR was discontinued after the results of the IA indicated a pre-defined threshold p-value for continuing enrollment was not achieved.  The modified Intent-to-Treat (mITT) population analyzed at the time of the IA included 252 participants.

 

The HONOR study demonstrated that Tonmya was well tolerated and that the 5.6 mg (administered as 2 x 2.8 mg tablets) dose showed meaningful improvement in overall PTSD symptoms at Week 4. At Week 4, the Tonmya treated group separated from placebo in CAPS-5 (p = 0.019) and in the Clinical Global Impression – Improvement (CGI-I) scale (p = 0.015), a key secondary endpoint. A CGI-I responder analysis, with responder defined as ‘much improved’ or ‘very much improved’ on the CGI-I, demonstrated significantly greater responders in the Tonmya group (29.1% v 45.6%; p=0.007) at Week 4.  Also, at Week 4, sleep quality improved as measured by both the PROMIS sleep disturbance scale (p=0.015) and the CAPS-5 sleep disturbance item (p=0.002), supporting the proposed mechanism of action of Tonmya. And the CAPS-5 reckless or self-destructive behavior item at Week 4 was significantly more improved (p=0.013). Safety data from these participants did not reveal any serious and/or unexpected adverse events. The most common adverse events were mostly related to local administration site reactions, such as oral hypoaesthesia (37.3%), abnormal product taste (11.9%), and oral paraesthesia (9.7%). The most common systemic adverse event was somnolence (15.7%).

 

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Retrospective analysis of the HONOR study revealed a treatment effect in participants who experienced trauma less than or equal to 9 years prior to screening. In the patients who experienced trauma within 9 years, the p-value of the primary endpoint at Week 12, using mixed model repeated measures with multiple imputation (MMRM with MI), was 0.039, with a least-squares mean difference from placebo of -5.9 units. In contrast, there was no benefit in the participants who experienced trauma more than 9 years prior to screening. This analysis defined an optimal treatment window for treatment with TNX-102 SL for PTSD of the first 9 years after the index trauma that resulted in PTSD and guided the design of the recently initiated Phase 3 RECOVERY study.

 

Phase 2 AtEase Study

 

  In the second quarter of 2016, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 2 study of Tonmya in participants with military-related PTSD, which we refer to as the AtEase study. The primary objective of this study was to evaluate the potential clinical benefit of using Tonmya to treat military-related PTSD at a dose of 2.8 mg or 5.6 mg (2 x 2.8 mg tablets). The AtEase study demonstrated that Tonmya was well tolerated and that the 5.6 mg dose of Tonmya had a therapeutic effect as assessed by the CAPS-5 scale, a standardized structured clinician interview considered the gold standard in clinical research and regulatory approval for measuring the symptom severity of PTSD, which was statistically significant by MMRM with MI analysis (p-value = 0.031). The AtEase study also demonstrated that although the 2.8 mg dose trended in the direction of a therapeutic effect, it did not reach statistical significance on the primary endpoint, a 12-week mean change from baseline in the severity of PTSD symptoms as measured by the CAPS-5 scale.

 

Four distinct SAEs were reported in the AtEase study; three were in the placebo group, and one (proctitis/peri-rectal abscess) in the Tonmya arm, which was determined to be unrelated to Tonmya. The most common non dose-related adverse events were mild and transient local administration site conditions. Systemic adverse events that were potentially dose-related and occurred in greater than or equal to 5% of participants treated with the 2.8 mg or 5.6 mg dose included: somnolence (drowsiness), dry mouth, headache, insomnia, and sedation. For the participants treated with the 2.8 mg dose, the incidence of the most common systemic adverse events reported above were less frequent than participants treated with the 5.6 mg dose with the exception of insomnia, which was 8.5% in placebo, 7.5% in Tonmya 2.8 mg, and 6.0% in Tonmya 5.6 mg.

 

 The primary MMRM analysis of the AtEase study, which controlled for baseline severity, indicated greater response to Tonmya 5.6 mg in those with greater PTSD severity by CAPS-5 at baseline. As the first industry PTSD trial to employ the CAPS-5 (based on the DSM-5 published in 2013), it was not clear what was the ideal severity threshold for randomization into the study comparable to the standard threshold used in precedent studies that employed prior versions of the CAPS. Retrospective analysis imputing scores for all participants assuming a prior version of CAPS suggested a CAPS-5 baseline threshold for randomization of 33 or higher was equivalent to the threshold used in precedent PTSD studies on prior CAPS versions. 

 

A retrospective analysis of the subgroup of participants in AtEase with baseline CAPS-5 score of 33 or higher supported the hypothesized mechanism of sleep quality improvement, since sleep improvement at Week 4, measured by the PROMIS Sleep Disturbance instrument, predicted treatment response (by improvement in total CAPS-5 score without the sleep item) at Week 12 in the Tonmya 5.6 mg group (p = 0.01, linear regression), whereas these measures were not related in placebo.

 

Open-label Extension Study for AtEase

 

Participants who completed the AtEase study were eligible to enroll into a 12-week open-label extension study with Tonmya 2.8 mg. We conducted this open-label extension study to obtain additional safety information from participants in the AtEase study. Tonmya 2.8 mg was well tolerated for up to six months of treatment and no new safety signals were revealed in this open-label extension study.

 

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Ongoing Phase 3 RECOVERY Study

 

 We have commenced the RECOVERY study, a randomized, double-blind, placebo-controlled Phase 3 study of Tonmya in approximately 250 participants with military-related and civilian PTSD in the first quarter of 2019. The design of this study was guided based on the results of the Phase 3 HONOR study and Phase 2 AtEase study. The RECOVERY study design is similar to the Phase 3 HONOR study, except the new trial incorporates several new design features including restricting enrollment of study participants to individuals with PTSD who experienced an index trauma within 9 years of screening, instead of 2001 or later. The RECOVERY study will also include participants who have experienced civilian traumas in addition to those with military-related traumas.  The primary endpoint, mean change from baseline in the severity of PTSD symptoms as measured by the CAPS-5, is the same as that used in the Phase 3 HONOR study and the Phase 2 AtEase study, but the CAPS-5 primary endpoint will be assessed at Week 4 instead of at Week 12. CAPS-5 change at Week 12 will be the first key secondary endpoint. We received FDA acceptance of the Phase 3 RECOVERY study design in November 2018. The RECOVERY study is being conducted at approximately 30 U.S. sites.  

 

Long-Term Safety Exposure Study for Tonmya

 

In addition to the completed 12-week open-label extension study for HONOR, a 40-week open label extension study (TNX-CY-P306) is ongoing and contributing long term exposure safety data required for registration of Tonmya 5.6 mg for PTSD.  The goal of these open-label extension studies is to obtain adequate 6- and 12-month safety exposure data from Tonmya 5.6 mg to support its registration for the treatment of PTSD as it is a chronic psychiatric condition.

 

Regulatory Update

 

In May 2014, we submitted an IND for Tonmya indicated for the treatment of PTSD.

 

In December 2016, the FDA granted Breakthrough Therapy designation, or BTD, to Tonmya for the treatment of PTSD. The Breakthrough Therapy designation request was based on the preliminary clinical evidence of Tonmya 5.6 mg on military-related PTSD in the AtEase study. In March 2019, the BTD for Tonmya for PTSD was rescinded because the IA results of the HONOR study did not meet the criteria for the BTD granted in December 2016.  The rescission of BTD of Tonmya for PTSD does not alter our plan for developing and obtaining regulatory approval for Tonmya, and we expect it will have minimum impact on our future interactions with the FDA. 

 

In March 2017, we held the Initial Cross-Disciplinary Breakthrough Therapy Type B meeting with the FDA to discuss the opportunity to accelerate the development and submission of the Tonmya NDA for the treatment of PTSD. Due to the lack of evidence of potential abuse in clinical studies of Tonmya, the FDA agreed that studies in assessing abuse and dependency potential of Tonmya are not required to support the Tonmya NDA filing.

 

In June 2017, the FDA conditionally accepted the proposed trade name Tonmya for TNX-102 SL for the treatment of PTSD.

 

In September 2017, we had a Breakthrough Therapy Chemistry, Manufacturing and Controls (“CMC”) guidance meeting with the FDA regarding the CMC data required to support the Tonmya NDA and commercial product.  We received the FDA official meeting minutes from that meeting in October 2017 that reflect our readiness to manufacture Tonmya commercial product at production scale if an NDA could have been submitted based on the HONOR study. In principle, our proposed CMC data package to support Tonmya’s NDA approval and commercial manufacturing plans was acceptable to the FDA.

 

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In April 2018, we held a Breakthrough Therapy Type B Statistical Guidance teleconference meeting with the FDA to reach an agreement on the statistical methods in the Statistical Analysis Plan (SAP) and Interim SAP (ISAP) for the Phase 3 HONOR study. The final SAP and ISAP was accepted by the FDA in June 2018.

 

In October 2018, subsequent to reporting the Phase 3 HONOR study IA results, we held a Type B Clinical Guidance Meeting with the FDA in October 2018 to discuss the Phase 3 HONOR study results and the proposed design of the new Phase 3 RECOVERY study to support the registration of Tonmya for the treatment of PTSD and the remaining data package for the NDA filing. Tonix received FDA’s acceptance of the RECOVERY trial design in November 2018, including the expansion to study both civilian and military-related PTSD, enrollment restricted to index traumas within 9 years of screening, and primary endpoint of improvement of CAPS-5 from baseline as assessed at Week 4, with the first key secondary endpoint at Week 12. Topline data from the RECOVERY trial is expected in the first half of 2020.

 

In October 2018, we held a Breakthrough Therapy Type B CMC Guidance teleconference meeting with the FDA to seek acceptance of the proposed regulatory specifications for TNX-102 SL commercial product.

 

 Other NDA Requirements

 

An Agreed Initial Pediatric Study Plan, or Agreed iPSP, is required for the initial NDA submission. We submitted a revised iPSP in the first quarter of 2017, which incorporated the FDA comments received on our iPSP submitted in the third quarter of 2016. Additional comments from the FDA were received in second quarter of 2017 on our revised iPSP. We plan to submit an Agreed PSP once a therapeutic dose in adults is established. An acceptable Pediatric Study Plan will be determined at the time of the NDA approval.

 

Based on our discussions with the FDA and the FDA official meeting minutes, we will not have to conduct special populations (geriatric and renal/hepatic impaired), drug-drug interaction or cardiovascular safety studies to support the Tonmya NDA filing since the pivotal systemic exposure bridging study using AMRIX as the RLD has been successfully completed. Due to the well-established safety profile of CBP at much higher doses than we proposed for PTSD and the long-term safety data (up to 15 months) on Tonmya 2.8 mg in a prior fibromyalgia program, the FDA has not requested a risk management plan or medication guide for this product.

 

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Phase 1 Bioequivalence, Bridging PK, Food-Effect and Dose-Proportionality Studies

 

Completed Bioequivalence Study

 

We completed a Phase 1 bioequivalence study that compared the pharmacokinetic profiles of a single-dose of Tonmya 2.8 mg tablets manufactured at two facilities: (i) the facility used to produce Tonmya 2.8 mg tablets for the Phase 2 AtEase study; and (ii) the facility used to produce Tonmya 2.8.mg tablets for our clinical studies required to support the PTSD NDA submission and the to-be-marketed product. This bioequivalence study demonstrated that Tonmya, or TNX-102 SL, 2.8 mg tablets manufactured at these two facilities were bioequivalent, supporting the use of the AtEase study to support the Phase 3 studies.

 

Completed Multi-dose Bridging PK Study

 

We intend to seek FDA marketing approval for Tonmya and TNX-102 SL pursuant to Section 505(b)(2) of the FDCA using AMRIX® extended-release, or ER, capsules (30 mg) as our reference listed drug, or RLD. We completed a study of Tonmya 5.6 mg (2 x 2.8 mg tablets) in comparison to AMRIX 30 mg ER capsules in a randomized, open-label, parallel, multiple-dose bridging PK study to provide a systemic exposure bridge.  The Tonmya initial dose and at steady state exposures were less than the RLD maximum approved dose (30 mg) and the metabolic profile was similar to AMRIX. The results of this study provide the necessary systemic exposure bridge of Tonmya to AMRIX. The approval of Tonmya for PTSD can thus rely on the safety findings (clinical and nonclinical) and relevant labeling information in the approved AMRIX prescribing information.

 

Food Effect and Dose-proportionality Studies

 

To support the Tonmya product registration, a randomized, open-label, 3-way crossover, food-effect, dose-proportionality, comparative bioavailability study of Tonmya following a single dose in healthy subjects under fasting and fed conditions, and comparing Tonmya 2.8 mg to Tonmya 5.6 mg (administered as 2 x 2.8 mg tablets) in healthy subjects under fasting conditions will be completed for the Tonmya and TNX-102 SL NDA submission.

 

Cyclobenzaprine Hydrochloride Nonclinical Development

 

The FDA has accepted our proposed nonclinical data package to support our PTSD NDA filing. In October 2016, we completed the six-month repeated-dose toxicology study of the active ingredient, CBP, in rats and a nine-month repeated-dose toxicology study in dogs required for the NDA filing and to support Phase 3 clinical studies outside the U.S., if necessary. These chronic toxicity studies were requested by the FDA to augment the nonclinical information in the AMRIX prescribing information, or labeling, which is necessary to support the Tonmya or TNX-102 SL labeling for long-term use. Due to the lack of evidence of potential abuse in clinical studies of Tonmya, the FDA agreed that nonclinical study to assess CBP abuse and dependency potential is not required to support the Tonmya NDA filing.

 

Manufacturing

 

TNX-102 SL drug product for Phase 2 was manufactured in a small-scale cGMP facility that is licensed to manufacture clinical trial materials, but not equipped for large-scale commercial production. For the clinical trial materials for Phase 3 clinical and NDA required Phase 1 studies, and for the commercial product, we have engaged a commercial cGMP facility that is capable of manufacturing the registration batches to support the NDA. The product’s comparability is supported by the bioequivalence results of the single-dose pharmacokinetic study. FDA has accepted our proposed CMC data package to support Tonmya’s NDA approval and commercial manufacturing plans, reflecting our readiness to manufacture Tonmya commercial product at production scale.

 

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TNX 102 SL – Fibromyalgia program 

 

We are developing TNX-102 SL as a bedtime treatment for FM under an effective IND application. The approval of TNX-102 SL for FM will be under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FDCA.

 

Clinical Development Plan

 

Phase 3 AFFIRM Study

 

In the third quarter of 2016, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 3 study of TNX-102 SL in 519 participants with FM, which we refer to as the AFFIRM study. The primary objective of this study was to evaluate the potential clinical benefit of using TNX-102 SL to treat FM at a dose of 2.8 mg, administered sublingually once daily at bedtime for 12 weeks. The primary endpoint of the AFFIRM trial was the FDA-agreed upon 30% pain responder analysis in which a responder is defined as a subject for whom pain intensity was reduced by at least 30% at Week 12 as compared to baseline. AFFIRM did not achieve statistical significance at the primary endpoint (p=0.095). Yet, statistical significance was achieved when pain was analyzed instead as a continuous variable, either by MMRM (p<0.001) or by MMRM with multiple imputation for missing data (p=0.005), a generally accepted approach to pain data. TNX-102 SL also showed statistically significant improvements in the declared secondary analyses of the Patient Global Impression of Change, or PGIC (p=0.038) and the Fibromyalgia Impact Questionnaire-Revised, or FIQ-R (p<0.001). The study also showed statistically significant improvement with TNX-102 SL on measures of sleep quality, including the Patient-Reported Outcomes Measurement Information System, or PROMIS, Sleep Disturbance instrument (p<0.001). We believe that given the consistent results of the analyses of pain as a continuous endpoint, as well as the nominal significance shown on multiple key secondary endpoints, TNX-102 SL 2.8 mg taken daily at bedtime for 12 weeks showed meaningful clinical benefit in this typical fibromyalgia population. Although, in light of improved results in PTSD with the higher TNX-102 SL 5.6 mg dose, and also better effects on pain in PTSD of 5.6 mg over 2.8 mg, it was predicted that TNX-102 SL 5.6 mg would have a stronger effect on pain in FM.  Upon the re-initiation of the FM program in Fall of 2018, design of the next Phase 3 study in FM has been planned with the TNX-102 SL 5.6 mg dose.

 

TNX-102 SL was well tolerated in the AFFIRM trial. Among patients randomized to the active and control arms, 78% and 86%, respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 40% of participants on TNX-102 SL vs. 1% on placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.

 

Phase 2b BESTFIT Study

 

In the third quarter of 2014, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 2b study of TNX-102 SL in 205 participants with FM, which we refer to as the BESTFIT study. The primary objective of this study was to evaluate the potential clinical benefit of using TNX-102 SL to treat FM at a dose of 2.8 mg, administered sublingually once daily at bedtime for 12 weeks. The primary outcome measure of the BESTFIT trial was the mean change in week 12 average daily pain intensity from baseline on the 11-point Numeric Rating Scale (NRS), using a daily telephonic diary. BESTFIT did not achieve statistical significance in the primary outcome measure (p=0.172), whereas TNX-102 SL 2.8 mg did show a statistically significant effect on pain as measured by a 30% responder analysis of the primary pain data (p=0.033). The 30% response rate in the final analysis was 34.0% in the active treatment arm as compared to 20.6% in the control arm. The BESTFIT trial also showed statistically significant improvements with TNX-102 SL in the declared secondary analyses of the PGIC (p=0.025) and the FIQ-R (p=0.015). The study showed statistically significant improvement with TNX-102 SL on measures of sleep quality, including the PROMIS, Sleep Disturbance instrument (p=0.004). In addition, statistically significant improvements with TNX-102 SL were observed on several FIQ-R items (pain, sleep quality, anxiety, stiffness, and sensitivity) as well as on the overall symptom subdomain.

 

TNX-102 SL was well tolerated in the BESTFIT trial. Among patients randomized to the active and control arms, 86% and 83%, respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 44% of participants on TNX-102 SL vs. 2% on placebo, and bitter taste in 8% on TNX-102 SL compared to none on placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.

 

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Regulatory Update

 

In October 2011, we filed the first IND for TNX-102 SL 2.8 mg indicated for the management of FM.

 

In February 2013, we had a Type B End-of-Phase 2/Pre-Phase 3 meeting with the FDA to discuss the study design of the Phase 2b BESTFIT study and the proposed 505(b)(2) NDA package to support the approval of TNX-102 SL for FM.  In June 2013, we received FDA acceptance of the final Phase 2b BESTFIT study design, which was positioned as a pivotal efficacy study. 

 

In April 2015, we received FDA acceptance on the Phase 3 AFFIRM study design and in August 2016, we reached an agreement with the FDA on the AFFIRM statistical analysis plan.  

 

In May 2015, we received FDA conditional acceptance of the proposed proprietary name, Tonmya, for TNX-102 SL for FM.  

 

In September 2015, we reached an agreement with the FDA on the Initial Pediatric Study Plan for FM.  FDA has accepted our request to waive studies in pediatric patients from birth to 12 years of age.

 

In February 2016, we had a Type B End-of-Phase 2 CMC meeting with the FDA to review our proposed CMC data to support the NDA submission and discuss our plan to establish regulatory specifications for the commercial product.  Based on the FDA official meeting minutes received on in March 2016, FDA accepted our NDA CMC plan and proposal to establish regulatory specifications for commercial product.

 

In December 2016, we notified FDA in our IND annual update that the FM development program was put on hold for business reasons after the Phase 3 AFFIRM study topline data was reported in September 2016. 

 

In April 2017, we withdrew the proposed proprietary name, Tonmya, for TNX-102 SL for FM. 

 

In March 2019, we had a Type C Clinical Guidance meeting with the FDA to discuss the clinical development plan for TNX-102 SL 5.6 mg and the next Phase 3 study to support the FM indication.

 

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TNX 102 SL – Agitation in Alzheimer’s Disease

 

Regulatory Update

 

In November 2017, we held a pre-IND meeting with the FDA to discuss our proposed development of TNX-102 SL for the treatment of agitation in Alzheimer’s disease. We received the formal minutes from that meeting in December 2017 that reflect that Tonix has the data needed to file an IND to support a Phase 2 study which can potentially be one of the pivotal efficacy studies. In April 2018, the FDA cleared our IND to support a Phase 2 potential pivotal efficacy study

 

In July 2018, the FDA granted Fast Track Therapy designation to TNX-102 SL for the treatment of agitation in Alzheimer’s disease.

 

In September 2018, we received FDA comments on our proposed Phase 2 potential pivotal efficacy study protocol.

 

Additional Product Candidates

 

We also have a pipeline of other drug and biologic candidates, including two pre-IND candidates, TNX-601, a daytime treatment for PTSD and TNX-801, a biologic vaccine product for the prevention of smallpox

 

TNX-601

 

TNX-601 is a novel oral formulation of tianeptine oxalate in the pre-IND stage of development for the treatment for PTSD. Currently there is no tianeptine-containing product approved in the U.S., but tianeptine sodium (amorphous) has been marketed in Europe, Asia, and Latin America for the treatment of depression since 1987. It is effective in various depressive states and also improves depression-associated anxiety and somatic complaints. We have discovered a novel oxalate salt and polymorph, which we believe may provide improved stability, consistency, and manufacturability relative to the known forms of tianeptine. Like CBP, tianeptine shares structural similarities with classic tricyclic antidepressants, but it has unique pharmacological and neurochemical properties. Tianeptine modulates the glutamatergic system indirectly and reverses the neuroplastic changes that are observed during periods of stress and corticosteroid use. It is a weak mu-opioid receptor (MOR) agonist, but does not have significant affinity for other known neurotransmitter receptors. Due to its decades of use in Europe, Asia, and Latin America, tianeptine has an established safety profile. In addition to being used to treat depression, several published studies support the potential of tianeptine as an effective and safe therapy for patients with PTSD. Leveraging our development expertise in PTSD, TNX-601 is being developed for daytime usage as a first-line monotherapy for PTSD. Tianeptine’s reported pro-cognitive and anxiolytic effects as well as its ability to attenuate the neuropathological effects of excessive stress responses suggest that it may be used to treat PTSD by a different mechanism of action than Tonmya.

 

We intend to develop TNX-601 under Section 505(b)(1) of the FDCA as a potential daytime treatment for PTSD. TNX-601 will also be developed as a treatment for a potential indication neurocognitive dysfunction associated with corticosteroid use. Pharmaceutical development work on TNX-601 has been initiated.  We are planning to complete a non-IND formulation selection pharmacokinetic study in Europe by the end of 2019.

 

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TNX-801

 

TNX-801 is a novel potential smallpox-preventing vaccine based on a live synthetic version of horsepox virus, or HPXV, grown in cell culture. TNX-801 was synthesized by Professor David Evans and Dr. Ryan Noyce at the University of Alberta, Canada in collaboration with us. An article describing the work was published (Noyce RS, Lederman S, Evans DH (2018) Construction of an infectious horsepox virus vaccine from chemically synthesized DNA fragments. PLoS ONE 13(1): e0188453. https://doi.org/10.1371/journal.pone.0188453). HPXV has protective vaccine activity in mice, using a model of lethal vaccinia infection. Discussions regarding vaccine manufacturing activities have been initiated to support further nonclinical testing of TNX-801. We are developing TNX-801 as a potential smallpox-preventing vaccine for widespread immunization and for the U.S. strategic national stockpile. Though it shares structural characteristics with vaccinia-based vaccines, TNX-801 has unique virulence properties that we believe may suggest lower toxicity and potential safety advantages over existing vaccinia-based vaccines, which have been associated with adverse side effects such as myopericarditis. 

 

 We intend to meet with the FDA to discuss the most efficient and appropriate investigational plan, e.g., the application of the FDA Animal Efficacy Rule, or Animal Rule, or conducting active comparator studies using ACAM2000, the current licensed live vaccinia virus vaccine, to establish the safety and effectiveness evidence to support the licensure TNX-801. In the 1970s, vaccination against smallpox was discontinued in the U.S.; however, smallpox remains a material threat to national security. We recently filed a patent on the novel virus vaccine. In addition, 12 years of non-patent-based exclusivity is expected under the Patient Protection and Affordable Care Act, or PPACA. Following the recent passage of the 21st Century Cures Act, we believe TNX-801 qualifies as a medical countermeasure, and therefore should be eligible for a Priority Review Voucher upon receiving FDA licensure. However, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed. We are currently working to develop a vaccine that meets cGMP quality to support an IND study.

 

TNX-701

 

We own rights to intellectual property on a biodefense technology relating to the development of protective agents against radiation exposure, which we refer to as TNX-701. We have begun nonclinical research and development on TNX-701. We plan to develop TNX-701 under the Animal Rule, which is applicable when human efficacy studies are not ethical or feasible. We expect significant reduction in development costs and risks compared to the development of other NCEs or new biologic candidates.

 

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Competition

 

Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. We believe that key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety, tolerability, reliability, price and reimbursement level. Many of our potential competitors, including many of the organizations named below, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our product candidates obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our product candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Further, the development of new treatment methods for the conditions we are targeting could render our drugs non-competitive or obsolete.

 

The market for therapies to treat PTSD and other CNS conditions is well developed and populated with established drugs marketed by large and small pharmaceutical, biotechnology and generic drug companies. GlaxoSmithKline (Paxil®) and Pfizer (Zoloft®) market FDA-approved drugs for PTSD. Paxil and Zoloft lost their U.S. patent exclusivities in 2003 and 2006, respectively.

 

Certain other companies and institutions are known to be developing prescription medications for PTSD, including Bionomics (BNC-201), Otsuka/Lundbeck (Rexulti® [brexpiprazole]), Uniformed Services University of the Health Sciences (riluzole), the Multidisciplinary Association of Psychedelic Studies (methylenedioxymethamphetamine [MDMA]) and Aptinyx.

 

               BNC-201 completed a Phase 2 for PTSD and Bionomics announced that after reformulation a new Phase 2 will be started.  BNC-201 is an allosteric modulator of the alpha 7 nicotinic acetylcholine receptor. Rexulti is in Phase 3 for PTSD and is an atypical antipsychotic. Aptinyx drug (name) is Phase 2 for PTSD and is a modulator of the NMDA receptor.  Riluzole is in a Phase 2 trial for active duty military members and veterans with PTSD and is a blocker of certain sodium channels and a modulator of the glutamatergic system. MDMA is in Phase 3 for PTSD and is a DEA schedule 1 hallucinogen that is being studied for drug-assisted psychotherapy. MDMA was granted Breakthrough Therapy designation by the FDA in August 2017. Brainsway Ltd., a medical device company, is currently recruiting patients for a pivotal Phase 3 trial using a deep transcranial magnetic stimulation device for treatment of PTSD. A number of other companies and institutions have or may be developing prescription medications for PTSD, including: Aptinyx is developing NYX-783 which is in Phase I and targets the NMDA receptor, Mt. Sinai Hospital and Medical School in New York City is developing ketamine which is in Phase 2 and targets the NMDA receptor, Azevan Pharmaceuticals is developing SRX246 which is in Phase 2 and targets the vasopressin V1A receptor, University of California, San Diego (UCSD) is developing losartan which is in Phase 2 and is an angiotensin receptor blocker (ARB), Massachusetts General Hospital (MGH), University of California, San Francisco (UCSF) are developing oxytocin which is in Phase 2 and targets the oxytocin receptor, Nobilis Therapeutics is developing NBTX-001, a noble gas, which is in Phase 2, EpiVario is developing inhibitors of Acetyl CoA synthetase, which is in Phase 1 and Seelos Therapeutics (recently merged with Apricus Biosciences) is developing an intranasal racemic ketamine to PTSD and major depressive disorder (MDD).

 

Several companies have clinical candidates for which PTSD is being considered as a secondary indication. Johnson and Johnson is developing CERC-501 which is in Phase 2 for depression, targeting the kappa opioid receptor, NeuroRx is developing NRX-101 which is in Phase 2 for bipolar depression and is a combination of ketamine, lurasidone, and d-cycloserine, Roche is developing RG7314 which is in Phase 3 for Autism and was granted Breakthrough Therapy designation by the FDA in August 2017, Rodin Therapeutics has a preclinical candidate for Alzheimer’s disease that targets histone deacetylase 2 (HDAC2 gene product), SpringWorks Therapeutics is developing PF-04457845 which is in Phase 2 for osteoarthritis and targets fatty acid amide hydrolase (FAAH).

 

18 

 

                In addition, approved medications that are used off-label for the treatment of PTSD include: anti-depressants, such as nefazodone and trazodone; the antihistamine cyproheptadine; and certain atypical antipsychotics, such as olanzapine and risperidone.

 

              Additionally, a number of companies are developing prescription medicines for FM, including Aptinyx (NYX-2925) and Innovative Medical Concepts (celecoxib and famciclovir or IMC-1). NYX-2925 is in Phase 2 for the treatment of FM and painful diabetic peripheral neuropathy (DPN) and has been granted a Fast Track Designation by the FDA for DPN. IMC-1 has completed a successful phase 2 trial and has been granted a Fast Track Designation by the FDA for the treatment of fibromyalgia. 

 

Additionally, a number of companies are developing prescription medicines for agitation in Alzheimer’s, including Otsuka/Lundbeck (Rexulti® or brexpiprazole), Avanir/Otsuka (deudextromethorphan), Axsome (dextromethorphan/buproprion) and InterCellular (lumateperone). Rexulti® has completed two pivotal studies in agitation in Alzheimer’s Disease. Deudextromethorphan is in Phase 3 for the treatment of agitation in patients with dementia of the Alzheimer’s type. Dextromethorphan/bupropion is in Phase 3 for the treatment of resistant depression and agitation in patients with Alzheimer’s disease. Lumateperone is in Phase 3 for treating behavioral disturbances associated with dementia.

 

Although a number of companies are marketing or developing prescription medicines for sleep disorders, including Merck & Co, Purdue Pharma, Eisai, GlaxoSmithKline, Johnson & Johnson and Sage Therapeutics, none of these sleep disorders drugs are approved for PTSD or AAD. Merck is marketing Belsomra® (suvorexant), which is a dual orexin receptor anatomist indicated for insomnia. Purdue and Eisai are developing lemborexant and GlaxoSmithKline is developing SB-649868 which are also dual orexin receptor antagonists. Johnson & Johnson and Minerva Neurosciences are developing seltorexant which is a selective orexin-2 antagonist. Sage Therapeutics is developing SAGE-217 which is a neurosteroid derivative that acts as a positive allosteric modulator of synaptic and extrasynaptic GABA receptors and was recently shown to increase sleep efficiency in a 5-hour phase advance model of insomnia.

 

Additionally, a number of companies are working on potential vaccines/treatments for smallpox, including Bavarian Nordic, SIGA Technologies and Chimerix. Bavarian Nordic is developing and has submitted an NDA for Imvamune® (or Modified Virus Ankara or MVA), which is a non-replicating vaccinia virus vaccine, which has been approved in other countries. SIGA received FDA approval for Arestvy®/TPOXX® (tecovirimat), which is an antiviral for smallpox. Chimerix is developing brincidofovir (CMX001), which is an antiviral.

 

Intellectual Property

 

We believe that we have an extensive patent portfolio and substantial know-how relating to Tonmya or TNX-102 SL and our other product candidates. Our patent portfolio, described more fully below, includes claims directed to Tonmya or TNX-102 SL compositions and methods of use. As of March 13, 2019, the patents we are either the owner of record of or own the contractual right to include nine issued U.S. patents and 88 issued non-U.S. patents. We are actively pursuing an additional 16 U.S. patent applications, of which three are provisional and 13 are non-provisional, three international patent applications, and 60 non-U.S./non-international patent applications.

 

We strive to protect the proprietary technology that we believe is important to our business, including our proprietary technology platform, our product candidates, and our processes. We seek patent protection in the United States and internationally for our products, their methods of use and processes of manufacture, and any other technology to which we have rights, where available and when appropriate. We also rely on trade secrets that may be important to the development of our business.

 

19 

 

 Our success will depend on 1) the ability to obtain and maintain patent and other proprietary rights in commercially important technology, inventions and know-how related to our business, 2) the validity and enforceability of our patents, 3) the continued confidentiality of our trade secrets, and 4) our ability to operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

 

We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications we may own or license in the future, nor can we be certain that any of our existing patents or any patents we may own or license in the future will be useful in protecting our technology. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors — Risks Relating to Our Intellectual Property.”

 

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the date of filing the first non-provisional priority application. In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the PTO in granting a patent or may be shortened if a patent is terminally disclaimed over another patent.  

 

The term of a U.S. patent that covers an FDA-approved drug or methods of making or using that drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act, is a federal law that encourages new drug research by restoring patent term lost to regulatory delays by permitting a patent term extension of up to five years beyond the statutory 20-year term of the patent for the approved product or its methods of manufacture or use if the active ingredient has not been previously approved in the U.S. The length of the patent term extension is related to the length of time the drug is under regulatory review. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and some other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of an NDA, we expect to apply for patent term extensions for patents covering our product candidates and their methods of use.

 

The patent portfolios for our proprietary technology platform and our five most advanced product candidates as of March 1, 2019 are summarized below.

 

TNX-102 SL — Central Nervous System Conditions

 

Our patent portfolio for TNX-102 SL include patent applications directed to compositions of matter of CBP, formulations containing CBP, and methods for treating CNS conditions, such as Tonmya for PTSD, and TNX-102 SL for agitation in neurodegenerative conditions, e.g. agitation in Alzheimer’s disease, utilizing these compositions and formulations.

 

 Certain eutectic compositions were discovered by development partners and are termed the “Eutectic Technology.” The patent portfolio for Tonmya and TNX-102 SL relating to the Eutectic Technology includes patent applications directed to eutectic compositions containing CBP, eutectic CBP formulations, methods for treating PTSD and other CNS conditions utilizing eutectic CBP compositions and formulations, and methods of manufacturing eutectic CBP compositions. The Eutectic Technology patent portfolio includes U.S. patent applications, such as U.S. Patent Application No. 14/214,433 (now U.S. Patent No. 9,636,408). If U.S. and non-U.S. patents claiming priority from those applications issue, those patents would expire in 2034 or 2035, excluding any patent term adjustments or extensions.

 

20 

 

The unique pharmacokinetic profile of Tonmya and TNX-102 SL, or the PK Technology, was discovered by Tonix and its development partners. The patent portfolio for Tonmya and TNX-102 SL relating to the PK Technology includes patent applications directed to compositions of matter of CBP, formulations containing CBP, methods for treating PTSD, agitation in neurodegenerative conditions, and other CNS conditions utilizing these compositions and formulations. The PK Technology patent portfolio includes U.S. Patent Application No. 13/918,692. If U.S. and non-U.S. patents claiming priority from those applications issue, those patents would expire in 2033, excluding any patent term adjustments or extensions.

 

U.S. Patent No. 9,636,408 entitled “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride” issued on May 2, 2017. The patent claims recite pharmaceutical compositions comprising the eutectic. The patent claims also recite methods of manufacturing the eutectic. Tablets containing CBP and mannitol eutectic have good pharmaceutical stability and manufacturability. A solid eutectic is a form of matter in which two solid crystals co-penetrate each other, such that the inter-molecular space between the units of one crystal lattice are occupied by the other crystal lattice. The distance between the molecular units is not changed.

 

On September 13, 2017, European patent 2,501,234, entitled “Methods and Compositions for Treating Symptoms Associated with PTSD Using Cyclobenzaprine”, issued. This patent recites the use of CBP for the treatment of PTSD, which covers the use of Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP and provides Tonmya with European market exclusivity until 2030 and may be extended based on the timing of the European marketing authorization of Tonmya for PTSD.

 

On December 15, 2017, Japanese Patent No. 6259452, entitled “Compositions and Methods for Transmucosal Absorption”, issued.  These claims relate to the pharmacokinetic profile of Tonmya or TNX-102 SL.

 

On March 20, 2018, U.S. Patent No. 9,918,948 entitled “Methods and Compositions for Treating Symptoms Associated with PTSD Using Cyclobenzaprine”, issued. The claims recite a method of using Tonmya’s active ingredient cyclobenzaprine to treat PTSD and provides Tonmya with US market exclusivity until 2030.

 

On March 23, 2018, Japanese Patent No. 6310542 entitled “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”, issued.  The claims recite pharmaceutical compositions comprising the eutectics and methods of manufacturing these eutectic formulations.

 

On May 1, 2018, U.S. Patent No. 9,956,188, entitled “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”, issued. The claims recite a eutectic of cyclobenzaprine hydrochloride and mannitol and methods of making those eutectics.

 

 On November 6, 2018, U.S. Patent No. 10,117,936, entitled “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”, issued. The claims recite pharmaceutical compositions of eutectics of cyclobenzaprine hydrochloride and mannitol and methods of making those compositions.

 

TNX-601 — Posttraumatic Stress Disorder and Neurocognitive Dysfunction

 

Our patent portfolio for tianeptine oxalate includes U.S. Patent Application No. 15/856,818 and International Patent Application PCT/IB2017/001709. It includes claims directed to crystalline tianeptine oxalate and compositions of those crystal forms, and disclosures directed to methods of using those crystalline forms and their compositions.

 

On February 27, 2019, European Patent No. 3,246,031 entitled “Method for Treating Neurodegenerative Dysfunction”, issued. The claims recite the use of TNX-601, or tianeptine oxalate and other salts, for treating neurocognitive dysfunction associated with corticosteroid treatment. This patent provides TNX-601 with European market exclusivity until April 2029 and may be extended based on the timing of the European market authorization of TNX-601 for neurocognitive disfunction associated with corticosteroid treatment.

  

 

21 

 

TNX-801 — Live HPXV Vaccine for Prevention of Smallpox

 

We own the rights to develop a potential biodefense technology, TNX-801, a live HPXV that is being developed as a new smallpox preventing vaccine, we have patent applications directed to synthetic chimeric poxviruses and methods of using these poxviruses     to protect individuals against smallpox. These applications include U.S. non-provisional Patent Application No. 15/802,189 and International Patent Application No. PCT/US2017/059782. We also own the rights to develop other vaccine candidates against smallpox.  With respect to these vaccine candidates, we own U.S. Patent Application No. 14/207,727 and related intellectual property rights. The smallpox vaccine technologies relate to proprietary forms of live HPXV and vaccinia vaccines which may be safer than ACAM2000, the    only currently available replication competent, live vaccinia vaccine to protect against smallpox disease. We believe that this technology, after further development, may be of interest to biodefense agencies in the U.S. and other countries.

 

TNX-701 — Radioprotection Biodefense Technology

 

We own the rights to develop a potential biodefense technology, which is a potential radioprotective therapy. For protection of our intellectual property, we have not disclosed the identity of the new development candidate.

 

Trade Secrets

 

In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. For example, significant aspects of our proprietary technology platform are based on unpatented trade secrets and know-how. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our contractors use intellectual property owned by others in their work for us, disputes may arise as to rights in related or resulting inventions and know-how.

 

22 

 

Issued Patents

 

Our current patents owned include:

 

Sublingual CBP/Amitriptyline   

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

6259452

 

Compositions and Methods for Transmucosal Absorption

 

Japan

 

June 14, 2033

631144

 

Compositions and Methods for Transmucosal Absorption

 

New Zealand

 

June 14, 2033

I590820

 

Compositions and Methods for Transmucosal Absorption

 

Taiwan

 

June 14, 2033

2013274003

 

Compositions and Methods for Transmucosal Absorption

 

Australia

 

June 14, 2033

I642429

 

Compositions and Methods for Transmucosal Absorption

 

Taiwan

 

June 14, 2033

726488

 

Compositions and Methods for Transmucosal Absorption

 

New Zealand

 

June 14, 2033

 

 

 

 

 

 

 

 

CBP - Depression  

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

2012225548

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

Australia

 

March 6, 2032

2016222412

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

Australia

 

March 6, 2032

614725

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

New Zealand

 

March 6, 2032

714294

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

New Zealand

 

March 6, 2032

 

 

23 

 

Low Dose CBP  

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

6,395,788

 

Methods for Treating Sleep Disturbances Using Very Low Doses of Cyclobenzaprine

 

U.S.A.

 

August 11, 2020

6,541,523

 

Methods for Treating or Preventing Fibromyalgia Using Very Low Doses of Cyclobenzaprine

 

U.S.A.

 

August 11, 2020

1202722; ATE299369T1 in Austria; 60021266.1 in Germany; ES 2245944 T3 in Spain

 

Uses Compositions for Treating or Preventing Sleep Disturbances Using Very Low Doses of Cyclobenzaprine

 

European Patent Office – Austria, Belgium, Switzerland, Germany, Spain, France, United Kingdom, Ireland, Luxembourg, Monaco, Portugal

 

August 11, 2020

1047691

 

Uses Compositions for Treating or Preventing Sleep Disturbances Using Very Low Doses of Cyclobenzaprine

 

Hong Kong

 

August 11, 2020

516749

 

Uses Compositions for Treating or Preventing Sleep Disturbances Using Very Low Doses of Cyclobenzaprine

 

New Zealand

 

August 11, 2020

 

 

 

 

 

 

 

 

Low Dose CBP - GAD 

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

6,358,944

 

Methods and Compositions for Treating Generalized Anxiety Disorder

 

U.S.A.

 

August 23, 2020

 

24 

 

CBP - PTSD

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

9,918,948

 

Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress Disorder Using Cyclobenzaprine

 

U.S.A.

 

November 18, 2030

2501234

 

(602010045270.0 in Germany; 502017000142469

in Italy; 56634 in Serbia; 201717905 in Turkey)

 

Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress Disorder Using Cyclobenzaprine

 

European Patent Office – Albania, Austria, Belgium, Bulgaria, Switzerland, Cyprus, Czechia, Germany, Denmark, Estonia, Spain, Finland, France, United Kingdom, Greece, Croatia, Hungary, Ireland, Iceland, Italy, Lithuania, Luxembourg, Latvia, Monaco, Macedonia, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Sweden, Slovenia, Slovakia, San Marino, Turkey

 

November 16, 2030

HK1176235

 

Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress Disorder Using Cyclobenzaprine

 

Hong Kong

 

November 16, 2030

 

CBP Fatigue

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

9,474,728

 

Methods and Compositions for Treating Fatigue Associated with Disordered Sleep Using Very Low Dose Cyclobenzaprine

 

U.S.A.

 

June 9, 2031

 

25 

Tianeptine - Neurocognitive Dysfunction

 

Patent No.   Title   Country / Region   Expiration 
Date
9,314,469   Method for Treating Neurocognitive Dysfunction   U.S.A.   September 24, 2030
2723688   Method for Treating Neurodegenerative Dysfunction   Canada   April 30, 2029
2299822 (602009047361.1 in Germany)   Method for Treating Neurodegenerative Dysfunction   Europe – Austria, Belgium, Switzerland, Germany, Spain, France, United Kingdom, Ireland, Luxembourg, Monaco, Portugal   April 30, 2029
3246031   Method for Treating Neurodegenerative Dysfunction   Europe – Austria, Belgium, Switzerland, Germany, Spain, France, United Kingdom, Ireland, Luxembourg, Monaco, Portugal   April 30, 2029

 

 

Eutectic CBP/Amitriptyline 

 

Patent No.

 

Title

 

Country / Region

 

Expiration 
Date

631152

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

New Zealand

 

March 14, 2034

 

 

 

 

 

 

 

9,636,408

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

 

March 14, 2034

 

 

 

 

 

 

 

9,956,188

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

 

March 14, 2034

 

 

 

 

 

 

 

10,117,936

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

 

March 14, 2034

 

 

 

 

 

 

 

6310542

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Japan

 

March 14, 2034

 

 

 

 

 

 

 

6088

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Saudi Arabia

 

March 14, 2034

 

 

 

 

 

 

 

IDP000055516

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Indonesia

 

March 14, 2034

 

 

 

 

 

 

 

 

26 

 

Pending Patent Applications

 

Our current pending patent applications are as follows:

 

CBP/Amitriptyline Eutectic Formulations

 

Application No.

 

Title

 

Country / Region

15/941,484

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

15/511,287

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride (Allowed)

 

U.S.A.

16/140,090

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

16/140,105

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

U.S.A.

2014233277

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Australia

2015317336

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Australia

BR112015022095-9

 

Pharmaceutical Composition, Method of Fabrication, Eutectic Composition and Use of Compositions Containing Cyclobenzaprine HCl and Mannitol

 

Brazil

BR112017005231-8

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Brazil

2,904,812

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Canada

2,961,822

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Canada

201480024011.1

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride (Allowed)

 

China

201580050140.2

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

China

14762323.5

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride (Allowed)

 

European Patent Office

15841528.1

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

European Patent Office

16106690.2

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Hong Kong

18101200.4

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Hong Kong

P00201702438

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Indonesia

P00201808623

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Indonesia

241353

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Israel

251218

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Methods of Producing Same

 

Israel

3392/KOLNP/2015

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

India

201717013182

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

India

2017-535609

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Japan

2018-27899

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Japan

 

27 

 

Application No.

 

Title

 

Country / Region

2018-173466

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride 

 

Japan

MX/a/2015/012622

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Mexico

MX/a/2017/003644

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Mexico

PI 2015703142

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Malaysia

PI 2017700889

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Malaysia

730379

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

New Zealand

747040

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

New Zealand

517381123

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Saudi Arabia

11201701995P

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

Singapore

10201707528W

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Singapore

2015/07443

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride (Allowed)

 

South Africa

2017/01637

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride

 

South Africa

103109816

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Taiwan

2014-000391

 

Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride

 

Venezuela

 

Sublingual CBP/Amitriptyline

 

Application No.

 

Title

 

Country / Region

13/918,692

 

Compositions and Methods for Transmucosal Absorption

 

U.S.A.

P20130102101

 

Compositions and Methods for Transmucosal Absorption

 

Argentina

2018241128

 

Compositions and Methods for Transmucosal Absorption

 

Australia

BR112014031394-6

 

Compositions and Methods for Transmucosal Absorption

 

Brazil

2,876,902

 

Compositions and Methods for Transmucosal Absorption

 

Canada

201380039522.6

 

Compositions and Methods for Transmucosal Absorption

 

China

13804115.7

 

Compositions and Methods for Transmucosal Absorption

 

European Patent Office

2013/24661

 

Compositions and Methods for Transmucosal Absorption

 

Gulf Cooperation Council

2013/37088   Compositions and Methods for Transmucosal Absorption   Gulf Cooperation Council

15110186.6

 

Compositions and Methods for Transmucosal Absorption

 

Hong Kong

P-00 2015 00202

 

Compositions and Methods for Transmucosal Absorption

 

Indonesia

236268

 

Compositions and Methods for Transmucosal Absorption

 

Israel

139/KOLNP/2015

 

Compositions and Methods for Transmucosal Absorption

 

India

2017-192713

 

Compositions and Methods for Transmucosal Absorption

 

Japan

MX/a/2014/015436

 

Compositions and Methods for Transmucosal Absorption

 

Mexico

PI 2014703784

 

Compositions and Methods for Transmucosal Absorption

 

Malaysia

10201605407T

 

Compositions and Methods for Transmucosal Absorption

 

Singapore

107117266

 

Compositions and Methods for Transmucosal Absorption

 

Taiwan

2013-000737

 

Compositions and Methods for Transmucosal Absorption

 

Venezuela

2015/00288

 

Compositions and Methods for Transmucosal Absorption

 

South Africa

 

28 

 

CBP - PTSD

 

Application No.

 

Title

 

Country / Region

15/915,688

 

Methods and Compositions for Treating Symptoms Associated with Post-Traumatic Stress Disorder Using Cyclobenzaprine

 

 

 

CBP - Sleep Disorder

 

Application No.

 

Title

 

Country / Region

15/266,035

 

Methods and Compositions for Treating Fatigue Associated with Disordered Sleep Using Very Low Dose Cyclobenzaprine

 

U.S.A.

 

CBP - Agitation in Neurodegenerative Condition

 

Application No.

 

Title

 

Country / Region

16/215,952

 

Cyclobenzaprine Treatment for Agitation, Psychosis and Cognitive Decline in Dementia and Neurodegenerative Conditions

 

U.S.A.

PCT/IB2018/001509    

 

Cyclobenzaprine Treatment for Agitation, Psychosis and Cognitive Decline in Dementia and Neurodegenerative Conditions

 

PCT

 

CBP - Depression

 

Application No.

 

Title

 

Country / Region

13/412,571

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

U.S.A.

2018204633

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

Australia

2,829,200

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine

 

Canada

12755254.5

 

Methods and Compositions for Treating Depression Using Cyclobenzaprine (Allowed)

 

European Patent Office

 

Tianeptine - Oxalate - Salts and Crystalline Forms

 

Application No.

 

Title

 

Country / Region

15/856,818

 

Tianeptine Oxalate Salts and Polymorphs

 

U.S.A.

PCT/IB2017/001709

 

Tianeptine Oxalate Salts and Polymorphs

 

PCT

 

Tianeptine Neurocognitive Dysfunction

 

Application No.

 

Title

 

Country / Region

15/064,196

 

Method for Treating Neurocognitive Dysfunction

 

U.S.A.

 

Novel Smallpox Vaccines  

 

Application No.

 

Title

 

Country / Region

14/207,727

 

Novel Smallpox Vaccines

 

U.S.A.

 

Synthetic Chimeric Poxviruses

 

Application No.

 

Title

 

Country / Region

15/802,189

 

Synthetic Chimeric Poxviruses

 

U.S.A.

P 20170103043

 

Synthetic Chimeric Poxviruses

 

Argentina

2017/34209

 

Synthetic Chimeric Poxviruses

 

Gulf Cooperation

106137976

 

Synthetic Chimeric Poxviruses

 

Council Taiwan

2017-000418

 

Synthetic Chimeric Poxviruses

 

Venezuela

PCT/US2017/059782

 

Synthetic Chimeric Poxviruses

 

PCT

 

 

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Synthetic Vaccinia Virus

 

Application No.   Title   Country / Region
62/665,973   Synthetic Chimeric Vaccinia Virus   U.S.A.

 

Stem Cells-scPV Treatment

 

Application No.   Title   Country / Region
62/666,013   Stem Cells Comprising Synthetic Chimeric Vaccinia Virus and Methods of Using Them   U.S.A.

 

CBP - ASD and PTSD

 

Application No.

 

Title

 

Country / Region

62/720,063

 

Methods of Treating Acute Stress Disorder and Posttraumatic Stress Disorder

 

U.S.A.

 

Trademarks and Service Marks

 

We seek trademark and service mark protection in the United States and outside of the United States where available and when appropriate. We are the owner of the following U.S. federally registered marks: TONIX PHARMACEUTICALS (Reg. No. 4656463, issued December 16, 2014) and TONMYA (Reg. No. 4868328, issued December 8, 2015).

 

We are the owner of the following marks for which applications for U.S. federal registration are currently pending: FYMRALIN (Serial No. 86/516046, filed January 27, 2015), MODALTIN (Serial No. 86/631228, filed May 15, 2015), RAPONTIS  (Serial  No.  86/631236, filed May 15, 2015), IMADAZIO (Serial No. 86/631242, filed May 15, 2015), PROTECTIC (Serial No. 86/636119, filed May   20, 2015), TONIX PHARMACEUTICALS (Serial No. 86/400401, filed September 19, 2014) and ANGSTRO-TECHNOLOGY (Serial No.86/713402, filed August 3, 2015).

 

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Research and Development

 

We have approximately 7 employees dedicated to research and development. Our research and development operations are located in New York, NY, San Diego, CA, Dublin, Ireland and Montreal, Canada. We have used, and expect to continue to use, third parties to conduct our nonclinical and clinical studies. 

 

Manufacturing

 

We have contracted with third-party cGMP-compliant contract manufacturer organization, or CMOs, for the manufacture of Tonmya and TNX-102 SL drug substances and drug products for investigational purposes, including nonclinical and clinical testing. For Tonmya and TNX-102 SL, we have engaged a cGMP facility for manufacturing of to-be-marketed product for Phase 3 clinical and commercial. Our manufacturing operations are managed and controlled in Dublin, Ireland.

 

All of our small molecules drug candidates are synthesized using industry standard processes, and our drug products are formulated using commercially available pharmaceutical grade excipients.

 

Our smallpox-preventing vaccine candidate is a biologic and uses live form of HPXV. Both the drug substance (HPVX and the cell bank) and the drug product (vaccine) will be manufactured by contract cGMP-compliant facilities capable of manufacturing for nonclinical/clinical testing and licensed product.

 

Government Regulations

 

The FDA and other federal, state, local and foreign regulatory agencies impose substantial requirements upon the clinical development, approval, labeling, manufacture, marketing and distribution of drug products. These agencies regulate, among other things, research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, advertising and promotion of our product candidates. The regulatory approval process is generally lengthy and expensive, with no guarantee of a positive result. Moreover, failure to comply with applicable FDA or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.

 

The FDA regulates, among other things, the research, manufacture, promotion and distribution of drugs in the United States under the FDCA and other statutes and implementing regulations. The process required by the FDA before prescription drug product candidates may be marketed in the United States generally involves the following:

 

 

completion of extensive nonclinical laboratory tests, animal studies and formulation studies, all performed in accordance with the FDA’s Good Laboratory Practice regulations;

 

 

submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

 

performance of adequate and well-controlled human clinical trials in accordance with the FDA’s regulations, including Good Clinical Practices, to establish the safety and efficacy of the product candidate for each proposed indication;

 

 

submission to the FDA of an NDA for drug products, or a Biologics License Application, or BLA, for biologic products;

 

 

satisfactory completion of an FDA preapproval inspection of the manufacturing facilities at which the product is produced to assess compliance with cGMP regulations; and

 

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FDA review and approval of the NDA or BLA prior to any commercial marketing, sale or shipment of the drug.

 

The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

 

Nonclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animals and other animal studies. The results of nonclinical tests, together with manufacturing information and analytical data, are submitted as part of an IND to the FDA. Some nonclinical testing may continue even after an IND is submitted. The IND also includes one or more protocols for the initial clinical trial or trials and an investigator’s brochure. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to the proposed clinical trials as outlined in the IND and places the clinical trial on a clinical hold. In such cases, the IND sponsor and the FDA must resolve any outstanding concerns or questions before any clinical trials can begin. Clinical trial holds also may be imposed at any time before or during studies due to safety concerns or non-compliance with regulatory requirements. An independent Institutional Review Board, or IRB, at each of the clinical centers proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that center. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the consent form signed by the trial participants and must monitor the study until completed.

 

Clinical Trials

 

Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified medical investigators according to approved protocols that detail the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor participant safety. Each protocol for a U.S. study is submitted to the FDA as part of the IND.

 

Human clinical trials are typically conducted in three sequential phases, but the phases may overlap, or be combined.

 

 

Phase 1 clinical trials typically involve the initial introduction of the product candidate into healthy human volunteers. In Phase 1 clinical trials, the product candidate is typically tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.

 

 

Phase 2 clinical trials are generally conducted in a limited patient population to gather evidence about the efficacy of the product candidate for specific, targeted indications; to determine dosage tolerance and optimal dosage; and to identify possible adverse effects and safety risks. Phase 2 clinical trials, in particular Phase 2b trials, can be undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at geographically dispersed clinical trial sites.

 

 

Phase 3 clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at geographically dispersed clinical trial sites. The size of Phase 3 clinical trials depends upon clinical and statistical considerations for the product candidate and disease. Phase 3 clinical trials are intended to establish the overall risk-benefit ratio of the product candidate and provide an adequate basis for product labeling.

 

Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial approval. These clinical trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.

 

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Clinical testing must satisfy extensive FDA regulations. Reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted for serious and unexpected adverse events. Success in early-stage clinical trials does not assure success in later-stage clinical trials. The FDA, an IRB or we may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.

 

New Drug Applications

 

Assuming successful completion of the required clinical trials, the results of product development, nonclinical studies and clinical trials are submitted to the FDA as part of an NDA (or BLA, in the case of a biologic product). An NDA or BLA also must contain extensive manufacturing information, as well as proposed labeling for the finished product. An NDA or BLA applicant must develop information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with cGMP. The manufacturing process must be capable of consistently producing quality product within specifications approved by the FDA. The manufacturer must develop methods for testing the quality, purity and potency of the final product. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf life. Prior to approval, the FDA will conduct an inspection of the manufacturing facilities to assess compliance with cGMP.

 

The FDA reviews all NDAs and BLAs submitted before it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA or BLA must be resubmitted with the additional information and is subject to review before the FDA accepts it for filing. After an application is filed, the FDA may refer the NDA or BLA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers them carefully when making decisions. The FDA may deny approval of an NDA or BLA if the applicable regulatory criteria are not satisfied. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA may issue a complete response letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA or BLA. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct Phase 4 testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA or BLA approval, and may require surveillance programs to monitor the safety of approved products which have been commercialized. Once issued, the FDA may withdraw product approval if ongoing regulatory requirements are not met or if safety or efficacy questions are raised after the product reaches the market.

 

 Section 505(b) NDAs

 

There are two types of NDAs: the Section 505(b)(1) NDA, or full NDA, and the Section 505(b)(2) NDA. We intend to file Section 505(b)(2) NDAs for Tonmya for PTSD, and for certain other products, that might, if accepted by the FDA, save time and expense in the development and testing of our product candidates. We may need to file a Section 505(b)(1) NDA for certain other products in the future. A full NDA is submitted under Section 505(b)(1) of the FDCA, and must contain full reports of investigations conducted by the applicant to demonstrate the safety and effectiveness of the drug. A Section 505(b)(2) NDA may be submitted for a drug for which one or more of the investigations relied upon by the applicant was not conducted by or for the applicant and for which the applicant has no right of reference from the person by or for whom the investigations were conducted. A Section 505(b)(2) NDA may be submitted based in whole or in part on published literature or on the FDA’s finding of safety and efficacy of one or more previously approved drugs, which are known as reference drugs. Thus, the filing of a Section 505(b)(2) NDA may result in approval of a drug based on fewer clinical or nonclinical studies than would be required under a full NDA. The number and size of studies that need to be conducted by the sponsor depends on the amount and quality of data pertaining to the reference drug that are publicly available, and on the similarity of and differences between the applicant’s drug and the reference drug. In some cases, extensive, time-consuming, and costly clinical and nonclinical studies may still be required for approval of a Section 505(b)(2) NDA.

 

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                Our drug approval strategy for our new formulations of approved chemical entities is to submit Section 505(b)(2) NDAs to the FDA. As such, we plan to submit an NDA under Section 505(b)(2) for Tonmya for PTSD. The FDA may not agree that this product candidate is approvable for PTSD as a Section 505(b)(2) NDA. If the FDA determines that a Section 505(b)(2) NDA is not appropriate and that a full NDA is required for Tonmya, the time and financial resources required to obtain FDA approval for Tonmya could substantially and materially increase, and Tonmya might be less likely to be approved. If the FDA requires a full NDA for Tonmya, or requires more extensive testing and development for some other reason, our ability to compete with alternative products that arrive on the market more quickly than our product candidates would be adversely impacted. If CBP-containing products are withdrawn from the market by the FDA for a safety reason, we may not be able to reference such products to support our anticipated Tonmya 505(b)(2) NDA, and we may be required to follow the requirements of Section 505(b)(1).

 

Patent Protections

 

An applicant submitting a Section 505(b)(2) NDA must certify to the FDA with respect to the patent status of the reference drug upon which the applicant relies in support of approval of its drug. With respect to every patent listed in the FDA’s Orange Book, which is the FDA’s list of approved drug products, as claiming the reference drug or an approved method of use of the reference drug, the Section 505(b)(2) applicant must certify that: (1) there is no patent information listed in the orange book for the reference drug; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date; (4) the listed patent is invalid or will not be infringed by the manufacture, use, or sale of the product in the Section 505(b)(2) NDA; or (5) if the patent is a use patent, that the applicant does not seek approval for a use claimed by the patent. If the applicant files a certification to the effect of clause (1), (2) or (5), FDA approval of the Section 505(b)(2) NDA may be made effective immediately upon successful FDA review of the application, in the absence of marketing exclusivity delays, which are discussed below. If the applicant files a certification to the effect of clause (3), the Section 505(b)(2) NDA approval may not be made effective until the expiration of the relevant patent and the expiration of any marketing exclusivity delays.

 

If the Section 505(b)(2) NDA applicant provides a certification to the effect of clause (4), referred to as a paragraph IV certification, the applicant also must send notice of the certification to the patent owner and the holder of the NDA for the reference drug. The filing of a patent infringement lawsuit within 45 days of the receipt of the notification may prevent the FDA from approving the Section 505(b)(2) NDA for 30 months from the date of the receipt of the notification unless the court determines that a longer or shorter period is appropriate because either party to the action failed to reasonably cooperate in expediting the action. However, the FDA may approve the Section 505(b)(2) NDA before the 30 months have expired if a court decides that the patent is invalid or not infringed, or if a court enters a settlement order or consent decree stating the patent is invalid or not infringed.

 

 Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years certain brand-name pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged in court, the FDA may be required to change its interpretation of Section 505(b)(2) which could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit. The pharmaceutical industry is highly competitive, and it is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. Moreover, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.

 

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Marketing Exclusivity

 

Market exclusivity provisions under the FDCA can delay the submission or the approval of Section 505(b)(2) NDAs, thereby delaying a Section 505(b)(2) product from entering the market. The FDCA provides five-year marketing exclusivity to the first applicant to gain approval of an NDA for an NCE, meaning that the FDA has not previously approved any other drug containing the same active moiety. This exclusivity prohibits the submission of a Section 505(b)(2) NDA for any drug product containing the active ingredient during the five-year exclusivity period. However, submission of a Section 505(b)(2) NDA that certifies that a listed patent is invalid, unenforceable, or will not be infringed, as discussed above, is permitted after four years, but if a patent infringement lawsuit is brought within 45 days after such certification, FDA approval of the Section 505(b)(2) NDA may automatically be stayed until 7½ years after the NCE approval date. The FDCA also provides three years of marketing exclusivity for the approval of new and supplemental NDAs for product changes, including, among other things, new indications, dosage forms, routes of administration or strengths of an existing drug, or for a new use, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by FDA to be essential to the approval of the application. Five-year and three-year exclusivity will not delay the submission or approval of another full NDA; however, as discussed above, an applicant submitting a full NDA under Section 505(b)(1) would be required to conduct or obtain a right of reference to all of the nonclinical and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

 

Other types of exclusivity in the United States include orphan drug exclusivity and pediatric exclusivity. The FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Seven-year orphan drug exclusivity is available to a product that has orphan drug designation and that receives the first FDA approval for the indication for which the drug has such designation. Orphan drug exclusivity prevents approval of another application for the same drug for the same orphan indication, for a period of seven years, regardless of whether the application is a full NDA or a Section 505(b)(2) NDA, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Pediatric exclusivity, if granted, provides an additional six months to an existing exclusivity or statutory delay in approval resulting from a patent certification. This six-month exclusivity, which runs from the end of other exclusivity protection or patent delay, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.

 

Section 505(b)(2) NDAs are similar to full NDAs filed under Section 505(b)(1) in that they are entitled to any of these forms of exclusivity if they meet the qualifying criteria. They also are entitled to the patent protections described above, based on patents that are listed in the FDA’s Orange Book in the same manner as patents claiming drugs and uses approved for NDAs submitted as full NDAs.

 

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Breakthrough Therapy Designation

 

On July 9, 2012, the Food and Drug Administration Safety and Innovation Act, or FDASIA, was signed. FDASIA Section 902 provides for a new drug designation –Breakthrough Therapy. A Breakthrough Therapy is a drug:

 

 

intended alone or in combination with one or more other drugs to treat a serious or life-threatening disease or condition; and

 

 

preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

 

In December 2016, the FDA granted Breakthrough Therapy designation, or BTD, to Tonmya for the treatment of PTSD. The Breakthrough Therapy designation was granted based on the preliminary clinical evidence of Tonmya on military-related PTSD in the Phase 2 AtEase study.

 

In March 2019, the BTD for Tonmya for PTSD was rescinded because the IA results of the HONOR study did not meet the criteria for the BTD granted in December 2016.  The rescission of BTD of Tonmya for PTSD does not alter our plan for developing and obtaining regulatory approval for Tonmya, and we expect it will have minimum impact on our future interactions with the FDA. 

 

Fast Track Designation

 

A Fast Track is a designation by the FDA of an investigational drug which:

 

 

intended alone or in combination with one or more other drugs to treat a serious or life-threatening disease or condition; and

 

 

non-clinical or clinical data demonstrate the potential to address an unmet medical need

 

Fast track is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions and fill an unmet medical need. The benefits of a Fast Track designation include rolling submission of portions of the NDA for the drug candidate and eligibility for priority review of the NDA. Additionally, more frequent meetings and written communication with the FDA regarding the development plan and trial design for the drug candidate are encouraged throughout the entire drug development and review process, with the goal of having earlier drug approval and access for patients.

 

In April 2018, FDA cleared our IND for TNX-102 SL for treatment of AAD to support a Phase 2, potential pivotal efficacy study, and granted TNX-102 SL for the treatment of AAD Fast Track development program in July 2018.

 

Material Threat Medical Countermeasures

 

In 2016, the 21st Century Cures Act, or Act, was signed into law to support ongoing biomedical innovation. One part of the Act, Section 3086, is aimed at “Encouraging Treatments for Agents that Present a National Security Threat.” The Act created a new priority review voucher program for “material threat medical countermeasures.” The Act defines such countermeasures as drugs or vaccines intended to treat biological, chemical, radiological, or nuclear agents that present a national security threat or to treat harm from a condition that may be caused by administering a drug or biological product against such an agent. The Department of Homeland Security has identified 13 such threats, including anthrax, smallpox, Ebola/Marburg, tularemia, and botulism. A priority review voucher can be applied to any other product application; it shortens the FDA review timeline for a new application from 10-12 months to 6 months. The recipient of a priority review voucher may transfer it. We intend to seek a priority review voucher for TNX-801 licensure as a material threat medical countermeasure. However, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed.

 

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Other Regulatory Requirements

 

Maintaining substantial compliance with appropriate federal, state and local statutes and regulations requires the expenditure of substantial time and financial resources. Drug manufacturers are required to register their establishments with the FDA and certain state agencies, and after approval, the FDA and these state agencies conduct periodic unannounced inspections to ensure continued compliance with ongoing regulatory requirements, including cGMPs. In addition, after approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. The FDA may require post-approval testing and surveillance programs to monitor safety and the effectiveness of approved products that have been commercialized. Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including:

 

 

record-keeping requirements;

 

 

reporting of adverse experiences with the drug;

 

 

providing the FDA with updated safety and efficacy information;

 

 

reporting on advertisements and promotional labeling;

 

 

drug sampling and distribution requirements; and

 

 

complying with electronic record and signature requirements.

 

In addition, the FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. There are numerous regulations and policies that govern various means for disseminating information to health-care professionals as well as consumers, including to industry sponsored scientific and educational activities, information provided to the media and information provided over the Internet. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. 

 

The FDA has very broad enforcement authority and the failure to comply with applicable regulatory requirements can result in administrative or judicial sanctions being imposed on us or on the manufacturers and distributors of our approved products, including warning letters, refusals of government contracts, clinical holds, civil penalties, injunctions, restitution and disgorgement of profits, recall or seizure of products, total or partial suspension of production or distribution, withdrawal of approvals, refusal to approve pending applications, and criminal prosecution resulting in fines and incarceration. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. In addition, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.

 

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Coverage and Reimbursement

 

Sales of our product candidates, if approved, will depend, in part, on the extent to which such products will be covered by third-party payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly limiting coverage or reducing reimbursements for medical products and services. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any drug candidates that we develop will be made on a payor-by-payor basis. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of our product candidates, once approved, and have a material adverse effect on our sales, results of operations and financial condition.

 

Other Healthcare Laws

 

Because of our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors, we will also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we will conduct our business, including our clinical research, proposed sales, marketing and educational programs. Failure to comply with these laws, where applicable, can result in the imposition of significant civil penalties, criminal penalties, or both. The U.S. laws that may affect our ability to operate, among others, include: the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; certain state laws governing the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; the federal healthcare programs’ Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

 

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In addition, many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign laws.

 

The Impact of New Legislation and Amendments to Existing Laws

 

 The FDCA is subject to routine legislative amendments with a broad range of downstream effects. In addition to new legislation, such as the FDA Reauthorization Act of 2017 or the FDASIA in 2012, Congress introduces amendments to reauthorize drug user fees and address emerging concerns every five years. We cannot predict the impact of these new legislative acts and their implementing regulations on our business. The programs established or to be established under the legislation may have adverse effects upon us, including increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. In addition, the FDA’s regulations, policies and guidance are often revised or reinterpreted by the agency or the courts in ways that may significantly affect our business and our products. Additionally, the current legislative authority for the Prescription Drug User Fee Act expired in September 2017. The requirements and changes imposed by the legislation to reauthorize the act may make it more difficult, and more costly, to obtain and maintain approval for new pharmaceutical products, or to produce, market and distribute existing products. It is impossible to predict whether additional legislative changes will be enacted, or FDA regulations, guidance or interpretations will change, or what the impact of such changes, if any, may be.

 

We expect that additional federal and state, as well as foreign, healthcare reform measures will be adopted in the future, any of which could result in reduced demand for our products or additional pricing pressure.

 

Employees

 

As of March 13, 2019, we had 12 full-time employees, of whom three hold M.D. or Ph.D. degrees. We have seven employees dedicated to research and development. Our research and development operations are located in New York, NY, San Diego, CA, Dublin, Ireland and Montreal, Canada. We have used, and expect to continue to use, third parties to conduct our nonclinical and clinical studies as well as part-time employees. None of our employees are represented by a collective bargaining agreement, and we believe that our relations with our employees are good.

 

Corporate Information

 

We lease the space for our principal executive offices, which are located at 509 Madison Avenue, Suite 1608, New York, New York 10022, and our telephone number is (212) 980-9155. Our website addresses are www.tonixpharma.com, www.tonix.com, and www.krele.com. We do not incorporate the information on our websites into this annual report, and you should not consider such information part of this annual report.

 

We were incorporated on November 16, 2007 under the laws of the State of Nevada as Tamandare Explorations Inc. On October 11, 2011, we changed our name to Tonix Pharmaceuticals Holding Corp. 

 

Item 1A. Risk Factors

 

RISKS RELATED TO OUR BUSINESS  

 

We have a history of operating losses and expect to incur losses for the foreseeable future. We may never generate revenues or, if we are able to generate revenues, achieve profitability.

 

We are focused on product development, and we have not generated any revenues to date. We have incurred losses in each year of our operations, and we expect to continue to incur operating losses for the foreseeable future. These operating losses have adversely affected and are likely to continue to adversely affect our working capital, total assets and shareholders’ equity.

 

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                We and our prospects should be examined in light of the risks and difficulties frequently encountered by new and early-stage companies in new and rapidly evolving markets. These risks include, among other things, the speed at which we can scale up operations, our complete dependence upon development of our product candidates that currently have no market acceptance, our ability to establish and expand our brand name, our ability to expand our operations to meet the commercial demand of our clients, our development of and reliance on strategic and customer relationships and our ability to minimize fraud and other security risks.

 

The process of developing our products requires significant clinical, nonclinical and CMC development, laboratory testing and clinical studies. In addition, commercialization of our product candidates will require that we obtain necessary regulatory approvals and establish sales, marketing and manufacturing capabilities, either through internal hiring or through contractual relationships with others. We expect to incur substantial losses for the foreseeable future as a result of anticipated increases in our research and development costs, including costs associated with conducting preclinical and nonclinical testing and clinical studies, and regulatory compliance activities.

 

We expect to incur substantial additional operating expenses over the next several years as our research, development, preclinical and nonclinical testing, and clinical study activities increase. The amount of future losses and when, if ever, we will achieve profitability are uncertain. We have no products that have generated any commercial revenue, do not expect to generate revenues from the commercial sale of products in the near future, and might never generate revenues from the sale of products. Our ability to generate revenue and achieve profitability will depend on, among other things, successful completion of the development of our product candidates; obtaining necessary regulatory approvals from the FDA; establishing manufacturing, sales, and marketing arrangements with third parties; successfully commercializing our products; establishing a favorable competitive position; and raising sufficient funds to finance our activities. Many of these factors will depend on circumstances beyond our control. We might not succeed at any of these undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations may be materially adversely affected.

 

We have a limited operating history and we expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

 

We are a development-stage biopharmaceutical company with a limited operating history. Our operations to date have been primarily limited to developing our technology and undertaking preclinical and nonclinical testing and clinical studies of our clinical-stage product candidate, Tonmya for PTSD. We have not yet obtained regulatory approvals for Tonmya or any of our other product candidates. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or commercialized products. Our financial condition has varied significantly in the past and will continue to fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include other factors described elsewhere in this annual report and also include, among other things:

 

 

our ability to obtain additional funding to develop our product candidates;

 

 

delays in the commencement, enrollment and timing of clinical studies;

 

 

the success of our clinical studies through all phases of clinical development, including studies of our most advanced product candidate, Tonmya for PTSD;

 

 

any delays in regulatory review and approval of product candidates in clinical development;

 

 

our ability to obtain and maintain regulatory approval for our product candidate Tonmya for PTSD or any of our other product candidates in the United States and foreign jurisdictions;

 

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potential nonclinical toxicity and/or side effects of our product candidates that could delay or prevent commercialization, limit the indications for any approved drug, require the establishment of REMS, or cause an approved drug to be taken off the market;

 

 

our ability to establish or maintain collaborations, licensing or other arrangements;

 

 

market acceptance of our product candidates;

 

 

competition from existing products or new products that may emerge;

 

 

the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our products;

 

 

our ability to leverage our proprietary technology platform to discover and develop additional product candidates;

 

 

our ability and our licensors’ abilities to successfully obtain, maintain, defend and enforce intellectual property rights important to our business; and

 

 

potential product liability claims;

 

 Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.

 

RISKS RELATED TO PRODUCT DEVELOPMENT, REGULATORY APPROVAL, MANUFACTURING AND COMMERCILAIZATION

 

Our product candidates are novel and still in development.

 

We are a clinical-stage pharmaceutical company focused on the development of drug product candidates, all of which are still in development. Our drug development methods may not lead to commercially viable drugs for any of several reasons. For example, we may fail to identify appropriate targets or compounds, our drug candidates may fail to be safe and effective in clinical studies, or we may have inadequate financial or other resources to pursue development efforts for our drug candidates. Our drug candidates will require significant additional development, clinical studies, regulatory clearances and additional investment by us or our collaborators before they can be commercialized.

 

Further, we and our product candidates are subject to extensive regulation by the FDA and comparable regulatory authorities in other countries governing, among other things, research, testing, clinical studies, manufacturing, labeling, promotion, selling, adverse event reporting and recordkeeping. We are not permitted to market any of our product candidates in the United States until we receive approval of an NDA for a product candidate from the FDA or the equivalent approval from a foreign regulatory authority. Obtaining FDA approval is a lengthy, expensive and uncertain process. We currently have one product candidate, Tonmya, in Phase 3 development for the treatment of PTSD, and one product candidate, TNX-102 SL, ready to resume Phase 3 FM clinical development, the success of our business currently depends on its successful development, approval and commercialization. Any projected sales or future revenue predictions are predicated upon FDA approval and market acceptance of Tonmya. If projected sales do not materialize for any reason, it would have a material adverse effect on our business and our ability to continue operations.

 

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As we have no approved products on the market, we do not expect to generate any revenues from product sales in the foreseeable future, if at all.

 

To date, we have no approved product on the market and have generated no product revenues. We have funded our operations primarily from sales of our securities. We have not received, and do not expect to receive for at least the next couple of years, if at all, any revenues from the commercialization of our product candidates. To obtain revenues from sales of our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing drugs with commercial potential. We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations or achieve profitability.

 

We are largely dependent on the success of our clinical-stage product candidate, Tonmya for PTSD, and we cannot be certain that this product candidate will receive regulatory approval or be successfully commercialized.  

 

Tonmya has not completed the clinical development process; therefore, we have not yet submitted an NDA or foreign equivalent or received marketing approval for this product candidate anywhere in the world. The clinical development program for Tonmya for PTSD may not lead to commercial products for a number of reasons, including if we fail to obtain necessary approvals from the FDA or foreign regulatory authorities because our clinical studies fail to demonstrate to their satisfaction that this product candidate is safe and effective or a clinical program may be put on hold due to unexpected safety issues. We may also fail to obtain the necessary approvals if we have inadequate financial or other resources to advance our product candidates through the clinical study process. Any failure or delay in completing clinical studies or obtaining regulatory approvals for Tonmya for PTSD in a timely manner would have a material adverse impact on our business and our stock price.

 

 Successful development of our products is uncertain.

 

Our development of current and future product candidates is subject to the risks of failure and delay inherent in the development of new pharmaceutical products, including: delays in product development, clinical testing, or manufacturing; unplanned expenditures in product development, clinical testing, or manufacturing; failure to receive regulatory approvals; emergence of superior or equivalent products; inability to manufacture on its own, or through any others, product candidates on a commercial scale; and failure to achieve market acceptance.

 

Because of these risks, our research and development efforts may not result in any commercially viable products. If a significant portion of these development efforts are not successfully completed, required regulatory approvals are not obtained or any approved products are not commercially successfully, our business, financial condition, and results of operations may be materially harmed.

 

Clinical studies required for our product candidates are expensive and time-consuming, and their outcome is uncertain.

 

In order to obtain FDA approval to market a new pharmaceutical product, we must demonstrate proof of safety and effectiveness in humans. To meet these requirements, we must conduct “adequate and well controlled” clinical studies. Conducting clinical studies is a lengthy, time-consuming, and expensive process. The length of time may vary substantially according to the type, complexity, novelty, and intended use of the product candidate, and often can be several years or more per study. Delays associated with products for which we are directly conducting clinical studies may cause us to incur additional operating expenses. The commencement and rate of completion of clinical studies may be delayed by many factors, including, for example: inability to manufacture sufficient quantities of stable and qualified materials under cGMP, for use in clinical studies; slower than expected rates of patient recruitment; failure to recruit a sufficient number of patients; modification of clinical study protocols; changes in regulatory requirements for clinical studies; the lack of effectiveness during clinical studies; the emergence of unforeseen safety issues; delays, suspension, or termination of the clinical studies due to the ITB responsible for overseeing the study at a particular study site; and government or regulatory delays or “clinical holds” requiring suspension or termination of the studies.

 

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The results from early clinical studies are not necessarily predictive of results obtained in later clinical studies. Accordingly, even if we obtain positive results from early clinical studies, we may not be able to confirm the results in future clinical studies. For example, in the Phase 3 AFFIRM trial for a product candidate for fibromyalgia, we were not able replicate the results we had in the Phase 2b BESTFIT trial using TNX-102 SL 2.8 mg dose in September 2016, and as a result temporarily discontinued this program but subsequently resumed the clinical development using the 5.6 mg dose in March 2019. Clinical studies may not demonstrate sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates.

 

Our clinical studies may be conducted in patients with CNS conditions, and in some cases, our product candidates are expected to be used in combination with approved therapies that themselves have significant adverse event profiles. During the course of treatment, these patients could suffer adverse medical events or die for reasons that may or may not be related to our product candidates. We cannot ensure that safety issues will not arise with respect to our product candidates in clinical development. 

 

The failure of clinical studies to demonstrate safety and effectiveness for the desired indications could harm the development of that product candidate and other product candidates. This failure could cause us to abandon a product candidate and could delay development of other product candidates. Any delay in, or termination of, our clinical studies would delay the filing of our NDAs with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenues. Any change in, or termination of, our clinical studies could materially harm our business, financial condition, and results of operations.

 

We are subject to extensive and costly government regulation.

 

Product candidates employing our technology are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services, the United States Department of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and nonclinical testing and clinical studies, manufacture, safety, effectiveness, record-keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of biopharmaceutical products. The FDA regulates small molecule chemical entities as drugs, subject to an NDA under the FDCA. The FDA applies the same standards for biologics, requiring an IND application, followed by a Biologic License Application, or BLA, prior to licensure. Other products, such as vaccines, are also regulated under the Public Health Service Act. FDA has conflated the standards for approval of NDAs and BLAs so that they require the same types of information on safety, effectiveness, and CMCs. If products employing our technologies are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding United States regulation.

 

Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling our products. The regulatory review and approval process, which includes preclinical and nonclinical testing and clinical studies of each product candidate, is lengthy, expensive, and uncertain. We or our collaborators must obtain and maintain regulatory authorization to conduct clinical studies. We or our collaborators must obtain regulatory approval for each product we intend to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements. Securing regulatory approval requires the submission of extensive preclinical, nonclinical and clinical data and other supporting information for each proposed therapeutic indication in order to establish the product’s safety and efficacy, and in the case of biologics also potency and purity, for each intended use. The development and approval process takes many years, requires substantial resources, and may never lead to the approval of a product.

 

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Even if we are able to obtain regulatory approval for a particular product, the approval may limit the indicated medical uses for the product, may otherwise limit our ability to promote, sell, and distribute the product, may require that we conduct costly post-marketing surveillance, and/or may require that we conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes or revised labeling, may require further regulatory review and approval. Once obtained, any approvals may be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety issue.

 

If we, our collaborators, or our CMOs fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance could result in, among other things delays in the approval of applications or supplements to approved applications; refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved applications; warning letters; fines; import and/or export restrictions; product recalls or seizures; injunctions; total or partial suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.

 

We do not have, and may never obtain, the regulatory approvals we need to market our product candidates.

 

Following completion of clinical studies, the results are evaluated and, depending on the outcome, submitted to the FDA in the form of an NDA or BLA in order to obtain FDA approval of the product and authorization to commence commercial marketing. In responding to an NDA, the FDA may require additional testing or information, may require that the product labeling be modified, may impose post-approval study and other commitments or reporting requirements or other restrictions on product distribution, or may deny the application. The FDA has established performance goals for review of NDAs or BLAs: six months for priority applications and ten months for standard applications. However, the FDA is not required to complete its review within these time periods. The timing of final FDA review and action varies greatly but can take years in some cases and may involve the input of an FDA advisory committee of outside experts. Product sales in the United States may commence only when an NDA or BLA is approved.

 

To date, we have not applied for or received the regulatory approvals required for the commercial sale of any of our products in the United States or in any foreign jurisdiction. None of our product candidates have been determined to be safe and effective, and we have not submitted an NDA or BLA to the FDA or an equivalent application to any foreign regulatory authorities for any of our product candidates.

 

It is possible that none of our product candidates will be approved for marketing. Failure to obtain regulatory approvals, or delays in obtaining regulatory approvals, may adversely affect the successful commercialization of any drugs or biologics that we or our partners develop, may impose additional costs on us or our collaborators, may diminish any competitive advantages that we or our partners may attain, and/or may adversely affect our receipt of revenues or royalties.

 

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We have never submitted an NDA before, and may be unable to do so for Tonmya or other product candidates we are developing.

 

We initiated a Phase 3 study in civilian and military-related PTSD in the first quarter of 2019. As this study is intended to provide efficacy and safety evidence to support marketing approval by the FDA, it is considered a pivotal, confirmatory or registration, study. The conduct of pivotal clinical studies and the submission of a successful NDA is a complicated process. Although members of our management team have extensive industry experience, including in the development and clinical testing of drug candidates and the commercialization of drug, we have conducted only two pivotal clinical study before (the HONOR study in PTSD participants and the AFFIRM study in fibromyalgia participants), have limited experience in preparing, submitting and prosecuting regulatory filings, and have not submitted an NDA before. Consequently, we may be unable to successfully and efficiently execute and complete this planned clinical study in a way that leads to NDA submission and approval of Tonmya and other product candidates we are developing. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical studies would prevent or delay commercialization of Tonmya and other product candidates we are developing. 

 

Our product candidates may cause serious adverse events, or SAEs, or undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.

 

SAEs or undesirable side effects from Tonmya or any of our other product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. The results of future clinical studies, including Tonmya, may show that our product candidates cause SAEs or undesirable side effects, which could interrupt, delay or halt clinical studies, resulting in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.

 

If Tonmya or any of our other product candidates cause SAEs or undesirable side effects or suffer from quality control issues:

 

 

regulatory authorities may impose a clinical hold or risk evaluation and mitigation strategies, or REMS, which could result in substantial delays, significantly increase the cost of development, and/or adversely impact our ability to continue development of the product;

 

 

regulatory authorities may require the addition of statements, specific warnings, or contraindications to the product label, or restrict the product’s indication to a smaller potential treatment population;

 

 

we may be required to change the way the product is administered or conduct additional clinical studies;

 

 

we may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on our ability to commercialize the product; 

 

 

we may be required to limit the participants who can receive the product;

 

 

we may be subject to limitations on how we promote the product;

 

 

we may, voluntarily or involuntarily, initiate field alerts for product recall, which may result in shortages;

 

 

sales of the product may decrease significantly;

 

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regulatory authorities may require us to take our approved product off the market;

 

 

we may be subject to litigation or product liability claims; and

 

 

our reputation may suffer.

 

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products. 

 

If we are unable to file for approval of Tonmya under Section 505(b)(2) of the FDCA or if we are required to generate additional data related to safety and efficacy in order to obtain approval under Section 505(b)(2), we may be unable to meet our anticipated development and commercialization timelines.

 

Our current plans for filing NDAs for our product candidates include efforts to minimize the data we will be required to generate in order to obtain marketing approval for our product candidates and therefore reduce the development time. We held a pre-IND meeting with the FDA in October 2012 to discuss the development of Tonmya in PTSD. Following the results of the AtEase Study, we held an End-of-Phase 2/Pre-Phase 3 meeting with the FDA in August 2016 to discuss our most advanced development program, in which we are developing Tonmya for the treatment of PTSD. In March 2017, we had our initial Cross-disciplinary Breakthrough Therapy meeting with the FDA to discuss ways to expedite the development and NDA submission of Tonmya. Although our interactions with the FDA have encouraged our efforts to continue to develop Tonmya for PTSD notwithstanding the FDA’s BTD rescission in March 2019 of its previously granted Breakthrough Therapy designation for Tonmya, there is no assurance that we will satisfy the FDA’s requirements for approval in this indication. The timeline for filing and review of our NDA for Tonmya for PTSD is based on our plan to submit this NDA under Section 505(b)(2) of the FDCA, which would enable us to rely in part on data in the public domain or elsewhere. We have not yet filed an NDA under Section 505(b)(2) for any of our product candidates. Depending on the data that may be required by the FDA for approval, some of the data may be related to products already approved by the FDA. If the data relied upon is related to products already approved by the FDA and covered by third-party patents, we would be required to certify that we do not infringe the listed patents or that such patents are invalid or unenforceable. As a result of the certification, the third-party would have 45 days from notification of our certification to initiate an action against us.

  

In the event that an action is brought in response to such a certification, the approval of our NDA could be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the approval of our product candidates. Even if no exclusivity periods apply to our applications under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety and efficacy of our product candidates to supplement third-party data on which we may be permitted to rely. In either event, we could be required, before obtaining marketing approval for any of our product candidates, to conduct substantial new research and development activities beyond those we currently plan to engage in order to obtain approval of our product candidates. Such additional new research and development activities would be costly and time consuming.

 

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In the event that an action is brought in response to such a certification, the approval of our NDA could be subject to a stay of up to 30 months or more while we defend against such a suit. Approval of our product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until we successfully challenge the applicability of those patents to our product candidates. Alternatively, we may elect to generate sufficient additional clinical data so that we no longer rely on data which triggers a potential stay of the approval of our product candidates. Even if no exclusivity periods apply to our applications under Section 505(b)(2), the FDA has broad discretion to require us to generate additional data on the safety and efficacy of our product candidates to supplement third-party data on which we may be permitted to rely. In either event, we could be required, before obtaining marketing approval for any of our product candidates, to conduct substantial new research and development activities beyond those we currently plan to engage in order to obtain approval of our product candidates. Such additional new research and development activities would be costly and time consuming.

 

We may not be able to realize a shortened development timeline for Tonmya for PTSD, and the FDA may not approve our NDA based on their review of the submitted data. If CBP-containing products are withdrawn from the market by the FDA for any safety reason, we may not be able to reference such products to support a 505(b)(2) NDA for Tonmya, and we may need to fulfill the more extensive requirements of Section 505(b)(1). If we are required to generate additional data to support approval, we may be unable to meet our anticipated development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of our lead product candidate.

 

Any fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory review or approval process, nor will it assure FDA approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify for priority review vouchers.

 

We have received fast track designation for TNX-102 SL for the treatment of agitation in Alzheimer’s disease and may seek fast track designation for other product candidates or priority review of applications for approval of our product candidates for certain indications. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. If a product candidate offers major advances in treatment, the FDA may designate it eligible for priority review. The FDA has broad discretion whether or not to grant these designations, so even if we believe a particular product candidate is eligible for these designations, we cannot assure you that the FDA would decide to grant them. Even if we do receive fast track designation or priority review, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.

 

Even if approved, our products will be subject to extensive post-approval regulation.

 

Once a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved NDA is subject to periodic and other FDA monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical studies.

 

Depending on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.

 

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Even if we obtain regulatory approval to market our product candidates, our product candidates may not be accepted by the market.

 

Even if the FDA approves one or more of our product candidates, physicians and patients may not accept it or use it. Even if physicians and patients would like to use our products, our products may not gain market acceptance among healthcare payors such as managed care formularies, insurance companies or government programs such as Medicare or Medicaid. Acceptance and use of our products will depend upon a number of factors including: perceptions by members of the health care community, including physicians, about the safety and effectiveness of our drug or device product; cost-effectiveness of our product relative to competing products; availability of reimbursement for our product from government or other healthcare payors; and effectiveness of marketing and distribution efforts by us and our licensees and distributors, if any.

 

The degree of market acceptance of any pharmaceutical product that we develop will depend on a number of factors, including:

 

 

cost-effectiveness;

 

 

 

 

the safety and effectiveness of our products, including any significant potential side effects (including drowsiness and dry mouth), as compared to alternative products or treatment methods;

 

 

 

 

the timing of market entry as compared to competitive products;

 

 

 

 

the rate of adoption of our products by doctors and nurses;

 

 

 

 

product labeling or product insert required by the FDA for each of our products;

 

 

 

 

reimbursement policies of government and third-party payors;

 

 

 

 

effectiveness of our sales, marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners, if any; and

 

 

 

 

unfavorable publicity concerning our products or any similar products.

 

Because we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure of these products to find market acceptance would harm our business and could require us to seek additional financing.

 

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

 

Because we have limited financial and human resources, we are currently focusing on the regulatory approval of Tonmya for PTSD. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on existing and future product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

 

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RISKS RELATED TO OUR FINANCIAL CONDITION AND CAPITAL REQUIREMENTS; COMPETITION

 

We received a report from our independent registered public accounting firm with an explanatory paragraph for the year ended December 31, 2018 with respect to our ability to continue as a going concern.

 

In their report dated March 18, 2019, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern as we have incurred losses since inception, have a negative cash flow from operations, and require additional financing to fund future operations. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities

 

We will need additional capital. If additional capital is not available or is available at unattractive terms, we may be forced to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations.

 

In order to develop and bring our product candidates to market, we must commit substantial resources to costly and time-consuming research, preclinical and nonclinical testing, clinical studies and marketing activities. We anticipate that our existing cash and cash equivalents will enable us to maintain our current operations for at least the next 12 months. We anticipate using our cash and cash equivalents to fund further research and development with respect to our lead product candidate. We will, however, need to raise additional funding sooner if our business or operations change in a manner that consumes available resources more rapidly than we anticipate. Our requirements for additional capital will depend on many factors, including:

 

 

successful commercialization of our product candidates;

 

 

the time and costs involved in obtaining regulatory approval for our product candidates;

 

 

costs associated with protecting our intellectual property rights;

 

 

development of marketing and sales capabilities;

 

 

payments received under future collaborative agreements, if any; and

 

 

market acceptance of our products.

 

To the extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in dilution to our shareholders. In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or curtail our operations. In addition, we may be required to obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves or license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available.

 

We will require substantial additional funds to support our research and development activities, and the anticipated costs of preclinical and nonclinical testing and clinical studies, regulatory approvals and eventual commercialization. Such additional sources of financing may not be available on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to commence or complete clinical studies or obtain approval of any product candidates from the FDA and other regulatory authorities. In addition, we could be forced to discontinue product development, forego sales and marketing efforts and forego attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity securities, which will have a dilutive effect on our shareholders.

 

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There is no assurance that we will be successful in raising the additional funds needed to fund our business plan. If we are not able to raise sufficient capital in the near future, our continued operations will be in jeopardy and we may be forced to cease operations and sell or otherwise transfer all or substantially all of our remaining assets.

 

We face intense competition in the markets targeted by our product candidates. Many of our competitors have substantially greater resources than we do, and we expect that all of our product candidates under development will face intense competition from existing or future drugs.

 

We expect that all of our product candidates under development, if approved, will face intense competition from existing and future drugs marketed by large companies. These competitors may successfully market products that compete with our products, successfully identify drug candidates or develop products earlier than we do, or develop products that are more effective, have fewer side effects or cost less than our products.

 

Additionally, if a competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our product candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor of patents covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such as our current drug product candidate, Tonmya, can extend up to three and one-half years.

 

These competitive factors could require us to conduct substantial new research and development activities to establish new product targets, which would be costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.

 

Competition and technological change may make our product candidates and technologies less attractive or obsolete.

 

We compete with established pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same or similar indications we are pursuing and that have greater financial and other resources. Other companies may succeed in developing products earlier than us, obtaining FDA approval for products more rapidly, or developing products that are more effective than our product candidates. Research and development by others may render our technology or product candidates obsolete or noncompetitive, or result in treatments or cures superior to any therapy we develop. We face competition from companies that internally develop competing technology or acquire competing technology from universities and other research institutions. As these companies develop their technologies, they may develop competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would result in a decrease in the revenue we would be able to derive from the sale of any products.

 

There can be no assurance that any of our product candidates will be accepted by the marketplace as readily as these or other competing treatments. Furthermore, if our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA. Even if our products are successfully developed and approved for use by all governing regulatory bodies, there can be no assurance that physicians and patients will accept our product(s) as a treatment of choice.

 

Furthermore, the pharmaceutical research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are numerous and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us from forecasting revenues or income with certainty or even confidence.

 

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RISKS RELATED TO OUR INTELLECTUAL PROPERTY RIGHTS AND REGULATORY EXCLUSIVITY  

 

If we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would be negatively affected.

 

Our success will depend in part on our ability to obtain patents and maintain adequate protection of our technologies and products. If we do not adequately protect our intellectual property, competitors may be able to use our technologies to produce and market drugs using our technologies and patents in direct competition with us and erode our competitive advantage. Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. Many companies have had difficulty protecting their proprietary rights in these foreign countries. We may not be able to prevent misappropriation of our proprietary rights and intellectual property rights in these and other countries.

 

We have received, and are currently seeking, patent protection for numerous compounds and methods of treating diseases. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents related to them. These risks and uncertainties include the following: patents that may be issued or licensed may be challenged, invalidated, or circumvented, or otherwise may not provide us any competitive advantage; our competitors, many of which have substantially greater resources than we and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential products either in the United States or in international markets; there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for treatments that prove successful as a matter of public policy regarding worldwide health concerns; and countries other than the United States may have less robust patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products using our technologies and patents.

 

Moreover, any patents issued to us may not provide us with meaningful protection, or others may challenge, circumvent or narrow our patents. Third parties may also independently develop products similar to our products, duplicate our unpatented products or design around any patents or propriety technologies on products we develop. Additionally, extensive time is required for development, testing and regulatory review of a potential product. While extensions of patent term due to regulatory delays may be available, it is possible that, before any of our product candidates can be commercialized, any related patent, even with an extension, may expire or remain in force for only a short period following commercialization, thereby reducing any advantages to us of the patent.

 

In addition, the PTO and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the innovations specifically exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated.

 

Our success depends on our patents and patent applications that may be licensed exclusively to us and other patents and patent applications to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications or published literature that may affect our business either by blocking our ability to commercialize our product candidates, by preventing the patentability of our product candidates to us or our licensors, or by covering the same or similar technologies. These patents, patent applications, and published literature may limit the scope of our future patent claims or adversely affect our ability to market our product candidates.

 

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               In addition to patents, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions, and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets or other proprietary information. If they do not adequately protect our rights, third parties could use our technology, and we could lose any competitive advantage we may have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to our trade secrets, which could impair any competitive advantage we may have.

 

Patent protection and other intellectual property protection is crucial to the success of our business and prospects, and there is a substantial risk that such protections will prove inadequate.

 

We may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.

 

The pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies have employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement claims or litigation arising out of present and future patents and other proceedings of our competitors. The defense and prosecution of intellectual property suits are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary to determine the enforceability, scope, and validity of the proprietary rights of others. An adverse determination in litigation to which we may become a party could subject us to significant liabilities, require us to obtain licenses from third parties, or restrict or prevent us from selling our products in certain markets. Although patent and intellectual property disputes might be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial and could include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms or at all.

 

Competitors may infringe our patents, and we may file infringement claims to counter infringement or unauthorized use. Third parties may assert that our patents are invalid and/or unenforceable in these proceedings. Such litigation can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly.

 

Third parties may also assert that our patents are invalid in patent office administrative proceedings. These proceedings include oppositions in the European Patent Office and inter partes review and post-grant review proceedings in the PTO. The success rate of these administrative challenges to patent validity in the United States is higher than it is for validity challenges in litigation.

 

Interference or derivation proceedings brought before the PTO may be necessary to determine priority of invention with respect to innovations disclosed in our patents or patent applications. During these proceedings, it may be determined that we do not have priority of invention for one or more aspects in our patents or patent applications and could result in the invalidation in part or whole of a patent or could put a patent application at risk of not issuing. Even if successful, an interference or derivation proceeding may result in substantial costs and distraction to our management.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or interference or derivation proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these results to be negative, the price of our common stock could be adversely affected.

 

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                There are no unresolved communications, allegations, complaints or threats of litigation related to the possibility that our patents are invalid or unenforceable. Any litigation or claims against us, whether or not merited, may result in substantial costs, place a significant strain on our financial resources, divert the attention of management and harm our reputation. An adverse decision in litigation or administrative proceedings could result in inadequate protection for our product candidates and/or reduce the value of any license agreements we have with third parties.

 

If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against litigation.

 

If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product candidate; redesign our products or processes to avoid infringement; stop using the subject matter claimed in the patents held by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a substantial diversion of our financial and management resources.

 

GENERAL COMPANY-RELATED RISKS

 

If preclinical and nonclinical testing or clinical studies for our product candidates are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines.

 

We rely and expect to continue to rely on third parties, including contract research organizations, or CROs, and outside consultants, to conduct, supervise or monitor some or all aspects of preclinical and nonclinical testing and clinical studies involving our product candidates. We have less control over the timing and other aspects of these preclinical and nonclinical testing activities and clinical studies than if we performed the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our preclinical and nonclinical testing and clinical studies on our anticipated schedule or, for clinical studies, consistent with a clinical study protocol. Delays in preclinical and nonclinical testing, and clinical studies could significantly increase our product development costs and delay product commercialization. In addition, many of the factors that may cause, or lead to, a delay in the clinical studies may also ultimately lead to denial of regulatory approval of a product candidate.

 

The commencement of clinical studies can be delayed for a variety of reasons, including delays in:

 

 

demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical study;

 

 

reaching agreement on acceptable terms with prospective CROs and study sites;

 

 

developing a stable formulation of a product candidate;

 

 

manufacturing sufficient quantities of a product candidate; and

 

 

obtaining institutional review board, or IRB, approval to conduct a clinical study at a prospective site.

 

Once a clinical study has begun, it may be delayed, suspended or terminated by us or the FDA or other regulatory authorities due to a number of factors, including:

 

 

ongoing discussions with the FDA or other regulatory authorities regarding the scope or design of our clinical studies;

 

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failure to conduct clinical studies in accordance with regulatory requirements;

 

 

lower than anticipated recruitment or retention rate of patients in clinical studies;

 

 

inspection of the clinical study operations or study sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;

 

 

lack of adequate funding to continue clinical studies;

 

 

negative results of clinical studies;

 

 

investigational drug product out-of-specification; or

 

 

nonclinical or clinical safety observations, including adverse events and SAEs.

 

If clinical studies are unsuccessful, and we are not able to obtain regulatory approvals for our product candidates under development, we will not be able to commercialize these products, and therefore may not be able to generate sufficient revenues to support our business.

 

We rely on third parties to conduct, supervise and monitor our clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.

 

We rely on CROs and clinical study sites to ensure the proper and timely conduct of our clinical studies. While we have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that our clinical studies are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.

 

We and our CROs are required to comply with the FDA’s cGCP for conducting, recording and reporting the results of clinical studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical study participants are protected. The FDA enforces these cGCPs through periodic inspections of study sponsors, principal investigators and clinical study sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical studies may be deemed unreliable and the FDA may require us to perform additional clinical studies before approving any marketing applications. Upon inspection, the FDA may determine that our clinical studies did not comply with cGCPs. In addition, our clinical studies, including our ongoing Phase 3 RECOVERY study, will require a sufficiently large number of participants to evaluate the effectiveness and safety of Tonmya in PTSD. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of participants, our clinical studies may be delayed or we may be required to repeat such clinical studies, which would delay the regulatory approval process.

 

Our CROs are not our employees, and we are not able to control whether or not they devote sufficient time and resources to our clinical studies. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies, or other drug development activities which could harm our competitive position.

 

If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical studies may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for such product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

 

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We also rely on other third parties to store and distribute drug products for our clinical studies. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, if approved, producing additional losses and depriving us of potential product revenue.

 

We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.

 

As we advance our product candidates through preclinical and nonclinical testing and clinical studies, and develop new product candidates, we will need to increase our product development, scientific, regulatory and compliance and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:

 

 

successfully attract and recruit new employees with the expertise and experience we will require;

 

 

manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;

 

 

develop a marketing, distribution and sales infrastructure in addition to a post-marketing surveillance program if we seek to market our products directly; and

 

 

continue to improve our operational, manufacturing, quality assurance, financial and management controls, reporting systems and procedures.

 

If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.

 

Our executive officers and other key personnel are critical to our business, and our future success depends on our ability to retain them.

 

Our success depends to a significant extent upon the continued services of Dr. Seth Lederman, our President and Chief Executive Officer and Dr. Gregory M. Sullivan, our Chief Medical Officer. Dr. Lederman has overseen Tonix Pharmaceuticals, Inc., a wholly-owned subsidiary, since inception and provides leadership for our growth and operations strategy as well as being an inventor on many of our patents. Dr. Sullivan has served as our Chief Medical Officer since 2014 and directed the Phase 2 AtEase study, Phase 3 HONOR study and is directing the Phase 3 RECOVERY study. Loss of the services of Drs. Lederman or Sullivan would have a material adverse effect on our growth, revenues, and prospective business. The loss of any of our key personnel, or the inability to attract and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives and could materially adversely affect our business, financial condition and results of operations.

 

Any employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In addition, we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also depend in part on the continued service of our key scientific and management personnel and our ability to identify, hire, and retain additional personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Moreover, competition for personnel with the scientific and technical skills that we seek is extremely high and is likely to remain high. Because of this competition, our compensation costs may increase significantly.

 

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If we are unable to hire additional qualified personnel, our ability to grow our business may be harmed.

 

Over time we will need to hire additional qualified personnel with expertise in drug development, product registration, clinical, preclinical and nonclinical research, quality compliance, government regulation, formulation and manufacturing, financial matters and sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and we cannot be certain that our search for such personnel will be successful. Attracting and retaining qualified personnel will be critical to our success.

 

We rely on third parties to manufacture the compounds used in our studies, and we intend to rely on them for the manufacture of any approved products for commercial sale. If these third parties do not manufacture our product candidates in sufficient quantities and at an acceptable cost, clinical development and commercialization of our product candidates could be delayed, prevented or impaired.

 

We have no manufacturing facilities, and we have no experience in the clinical or commercial-scale manufacture of drugs or in designing drug manufacturing processes. We intend to rely on CMOs to manufacture some or all of our product candidates in clinical studies and our products that reach commercialization. Completion of our clinical studies and commercialization of our product candidates requires the manufacture of a sufficient supply of our product candidates. We have contracted with outside sources to manufacture our development compounds, including Tonmya. If, for any reason, we become unable to rely on our current sources for the manufacture of our product candidates, either for clinical studies or, at some future date, for commercial quantities, then we would need to identify and contract with additional or replacement third-party manufacturers to manufacture compounds for nonclinical, preclinical, clinical, and commercial purposes. Although we are in discussions with other manufacturers we have identified as potential alternative CMOs of Tonmya or TNX-102 SL, we may not be successful in negotiating acceptable terms with any of them.

 

We believe that there are a variety of manufacturers that we may be able to retain to produce these products. However, once we retain a manufacturing source, if our manufacturers do not perform in a satisfactory manner, we may not be able to develop or commercialize potential products as planned. Certain specialized manufacturers are expected to provide us with modified and unmodified pharmaceutical compounds, including finished products, for use in our preclinical and nonclinical testing and clinical studies. Some of these materials are available from only one supplier or vendor. Any interruption in or termination of service by such sole source suppliers could result in a delay or interruption in manufacturing until we locate an alternative source of supply. Any delay or interruption in manufacturing operations (or failure to locate a suitable replacement for such suppliers) could materially adversely affect our business, prospects, or results of operations. We do not have any short-term or long-term manufacturing agreements with many of these manufacturers. If we fail to contract for manufacturing on acceptable terms or if third-party manufacturers do not perform as we expect, our development programs could be materially adversely affected. This may result in delays in filing for and receiving FDA approval for one or more of our products. Any such delays could cause our prospects to suffer significantly.

 

Failure by our third-party manufacturers to comply with the regulatory guidelines set forth by the FDA with respect to our product candidates could delay or prevent the completion of clinical studies, the approval of any product candidates or the commercialization of our products.

 

Such third-party manufacturers must be inspected by FDA for cGMP compliance before they can produce commercial product. We may be in competition with other companies for access to these manufacturers’ facilities and may be subject to delays in manufacture if the manufacturers give other clients higher priority than they give to us. If we are unable to secure and maintain third-party manufacturing capacity, the development and sales of our products and our financial performance may be materially affected. 

 

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Manufacturers are obligated to operate in accordance with FDA-mandated requirements. A failure of any of our third-party manufacturers to establish and follow cGMP requirements and to document their adherence to such practices may lead to significant delays in the availability of material for clinical studies, may delay or prevent filing or approval of marketing applications for our products, and may cause delays or interruptions in the availability of our products for commercial distribution following FDA approval. This could result in higher costs to us or deprive us of potential product revenues.

 

Drug manufacturers are subject to ongoing periodic unannounced inspections by the FDA, the Drug Enforcement Administration, or DEA, and corresponding state and foreign agencies to ensure strict compliance with cGMP requirements and other requirements under Federal drug laws, other government regulations and corresponding foreign standards. If we or our third-party manufacturers fail to comply with applicable regulations, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure by the government to grant marketing approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions and criminal prosecutions.

 

Corporate and academic collaborators may take actions to delay, prevent, or undermine the success of our products.

 

Our operating and financial strategy for the development, clinical testing, manufacture, and commercialization of drug candidates is heavily dependent on our entering into collaborations with corporations, academic institutions, licensors, licensees, and other parties. Our current strategy assumes that we will successfully establish these collaborations, or similar relationships; however, there can be no assurance that we will be successful establishing such collaborations. Some of our existing collaborations are, and future collaborations may be, terminable at the sole discretion of the collaborator. Replacement collaborators might not be available on attractive terms, or at all. The activities of any collaborator will not be within our control and may not be within our power to influence. There can be no assurance that any collaborator will perform its obligations to our satisfaction or at all, that we will derive any revenue or profits from such collaborations, or that any collaborator will not compete with us. If any collaboration is not pursued, we may require substantially greater capital to undertake development and marketing of our proposed products and may not be able to develop and market such products effectively, if at all. In addition, a lack of development and marketing collaborations may lead to significant delays in introducing proposed products into certain markets and/or reduced sales of proposed products in such markets.

 

Data provided by collaborators and others upon which we rely that has not been independently verified could turn out to be false, misleading, or incomplete. 

 

We rely on third-party vendors, scientists, and collaborators to provide us with significant data and other information related to our projects, clinical studies, and our business. If such third parties provide inaccurate, misleading, or incomplete data, our business, prospects, and results of operations could be materially adversely affected. 

 

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Our product candidates may face competition sooner than expected.

 

We intend to seek data exclusivity or market exclusivity for our product candidates provided under the FDCA and similar laws in other countries. We believe that TNX-801 could qualify for 12 years of data exclusivity under the Biologics Price Competition and Innovation Act of 2009, or BPCIA, which was enacted as part of the Patient Protection and Affordable Care Act. Under the BPCIA, an application for a biosimilar product or BLA cannot be submitted to the FDA until four years, or if approved by the FDA, until 12 years, after the original brand product identified as the reference product is approved under a BLA. The BPCIA provides an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The new abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. The new law is complex and is only beginning to be interpreted and implemented by the FDA. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for any of our product candidates that are biologics. There is also a risk that President Trump’s administration could repeal or amend the BPCIA to shorten this exclusivity period, potentially creating the opportunity for biosimilar competition sooner than anticipated after the expiration of our patent protection. Although there is no current discussion of repeal or modification of the BPCIA, the future remains uncertain. Moreover, the extent to which a biosimilar, once approved, will be substituted for any reference product in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

 

Our product candidates that are not, or are not considered, biologics that would qualify for exclusivity under the BPCIA may be eligible for market exclusivity as drugs under the FDCA. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to gain approval of an NDA for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA, submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent.

 

Even if, as we expect, our product candidates are considered to be reference products eligible for 12 years of exclusivity under the BPCIA or five years of exclusivity under the FDCA, another company could market competing products if the FDA approves a full BLA or full NDA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of the products. Moreover, an amendment or repeal of the BPCIA could result in a shorter exclusivity period for our product candidates, which could have a material adverse effect on our business.

 

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If we fail to establish marketing, sales and distribution capabilities, or fail to enter into arrangements with third parties, we will not be able to create a market for our product candidates.

 

Our strategy with our product candidates is to control, directly or through contracted third parties, all or most aspects of the product development process, including marketing, sales and distribution. Currently, we do not have any sales, marketing or distribution capabilities. In order to generate sales of any product candidates that receive regulatory approval, we must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or make arrangements with third parties to perform these services for us. The acquisition or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of our management and key personnel and defer our product development efforts.

 

To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to develop sales, marketing and distribution channels, or enter into arrangements with third parties, we will experience delays in product sales and incur increased costs.

 

Sales of pharmaceutical products largely depend on the reimbursement of patients’ medical expenses by government health care programs and private health insurers. Without the financial support of the government or third-party payors, the market for our products will be limited. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. Recent proposals to change the health care system in the United States have included measures that would limit or eliminate payments for medical products and services or subject the pricing of medical treatment products to government control. Significant uncertainty exists as to the reimbursement status of newly approved health care products. Third-party payors may not reimburse sales of our products or enable our collaborators to sell them at profitable prices.

 

Our business strategy might involve out-licensing product candidates to or collaborating with larger firms with experience in marketing and selling pharmaceutical products. There can be no assurance that we will be able to successfully establish marketing, sales, or distribution relationships; that such relationships, if established, will be successful; or that we will be successful in gaining market acceptance for our products. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product revenues will be lower than if we marketed and sold our products directly, and any revenues we receive will depend upon the efforts of such third-parties. If we are unable to establish such third-party sales and marketing relationships, or choose not to do so, we will have to establish and rely on our own in-house capabilities.

 

We, as a company, have no experience in marketing or selling pharmaceutical products and currently have no sales, marketing, or distribution infrastructure. To market any of our products directly, we would need to develop a marketing, sales, and distribution force that both has technical expertise and the ability to support a distribution capability. The establishment of a marketing, sales, and distribution capability would significantly increase our costs, possibly requiring substantial additional capital. In addition, there is intense competition for proficient sales and marketing personnel, and we may not be able to attract individuals who have the qualifications necessary to market, sell, and distribute our products. There can be no assurance that we will be able to establish internal marketing, sales, or distribution capabilities. If we are unable to, or choose not to establish these capabilities, or if the capabilities we establish are not sufficient to meet our needs, we will be required to establish collaborative marketing, sales, or distribution relationships with third parties.

 

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Our relationships with customers, physicians, and third-party payors will be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

 

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and state fraud and abuse laws and other health care laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:

 

 

the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

 

 

federal civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

 

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private);

 

 

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, and as amended again by the final HIPAA omnibus rule, Modifications to the HIPAA Privacy, Security, Enforcement, and Breach Notification Rules Under HITECH and the Genetic Information Nondiscrimination Act; Other Modifications to HIPAA, published in January 2013, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, such as health plans, health care clearinghouses and health care providers, and their respective business associates;

 

 

federal transparency laws, including the federal Physician Payments Sunshine Act, which is part of PPACA, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to: (i) payments or other “transfers of value’’ made to physicians and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members;

 

 

state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or to adopt compliance programs as prescribed by state laws and regulations, or that otherwise restrict payments that may be made to healthcare providers; and

 

 

state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

 

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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

 

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations.

 

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

 

Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for us to sell profitably, if approved.

 

Market acceptance and sales of any drug candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any drug candidates that we develop will be made on a payor-by-payor basis. One payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our drugs unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drugs.

 

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our current and any future drug candidates that we develop.

 

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Healthcare legislative reform measures may have a negative impact on our business and results of operations.

 

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any drug candidates for which we obtain marketing approval.

 

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the PPACA was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expands the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) establishes a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of the PPACA. The Budget Resolution is not a law, however, it is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. The PPACA remains subject to legislative efforts to repeal, modify or delay the implementation of the law. Recent efforts to repeal, modify or delay implementation of the ACA have resulted in some level of success. If the PPACA is repealed or further modified, or if implementation of certain aspects of the PPACA are delayed, such repeal, modification or delay may materially adversely impact our business, strategies, prospects, operating results or financial condition. We are unable to predict the full impact of any repeal, modification or delay in the implementation of the PPACA on us at this time. Due to the substantial regulatory changes that will need to be implemented by CMS and others, and the numerous processes required to implement these reforms, we cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on our business.

 

Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will be fully implemented in 2019. At this time, it is unclear how the introduction of the Medicare quality payment program will impact overall physician reimbursement. Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

 

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We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs.

 

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or additional pricing pressures.

 

If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

 

If Tonmya or any of our other product candidates are approved for commercialization outside of the United States, we intend to enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to entering into international business relationships, including:

 

 

different regulatory requirements for drug approvals;

 

 

reduced protection for intellectual property rights, including trade secret and patent rights;

 

 

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

 

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

 

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

 

foreign taxes, including withholding of payroll taxes;

 

 

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

 

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

 

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

 

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, hurricanes, floods and fires; and

 

 

difficulty in importing and exporting clinical study materials and study samples.

 

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We face the risk of product liability claims and may not be able to obtain insurance.

 

Our business exposes us to the risk of product liability claims that are inherent in the development of drugs. If the use of one or more of our or our collaborators’ drugs harms people, we may be subject to costly and damaging product liability claims brought against us by clinical study participants, consumers, health care providers, pharmaceutical companies or others selling our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with collaborators. While we currently carry clinical study insurance and product liability insurance, we cannot predict all of the possible harms or side effects that may result and, therefore, the amount of insurance coverage we hold now or in the future may not be adequate to cover all liabilities we might incur. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our drug candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. If we are unable to obtain insurance at an acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. If we are sued for any injury allegedly caused by our or our collaborators’ products, our liability could exceed our total assets and our ability to pay the liability. A product liability claim or series of claims brought against us would decrease our cash and could cause our stock price to fall.

 

We use hazardous chemicals in our business. Potential claims relating to improper handling, storage or disposal of these chemicals could affect us and be time consuming and costly.

 

Our research and development processes and/or those of our third party contractors may involve the controlled use of hazardous materials and chemicals. These hazardous chemicals are reagents and solvents typically found in a chemistry laboratory. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. While we attempt to comply with all environmental laws and regulations, including those relating to the outsourcing of the disposal of all hazardous chemicals and waste products, we cannot eliminate the risk of contamination from or discharge of hazardous materials and any resultant injury. In the event of such an accident, we could be held liable for any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations.

 

Compliance with environmental laws and regulations may be expensive. Current or future environmental regulations may impair our research, development or production efforts. We might have to pay civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous materials. We are not insured against these environmental risks.

 

If we enter into collaborations with third parties, they might also work with hazardous materials in connection with our collaborations. We may agree to indemnify our collaborators in some circumstances against damages and other liabilities arising out of development activities or products produced in connection with these collaborations.

 

In addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially adversely affect our business, financial condition and results of operations.

 

Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant uninsured liabilities.

 

 We carry insurance for most categories of risk that our business may encounter, however, we may not have adequate levels of coverage. We currently maintain general liability, clinical study, property, workers’ compensation, products liability and directors’ and officers’ insurance, along with an umbrella policy, which collectively costs approximately $1,000,000 per annum. We cannot provide any assurances that we will be able to maintain existing insurance at current or adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

 

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If we retain collaborative partners and our partners do not satisfy their obligations, we will be unable to develop our partnered product candidates.

 

In the event we enter into any collaborative agreements, we may not have day-to-day control over the activities of our collaborative partners with respect to any of these product candidates. Any collaborative partner may not fulfill its obligations under these agreements. If a collaborative partner fails to fulfill its obligations under an agreement with us, we may be unable to assume the development of the products covered by that agreement or enter into alternative arrangements with a third party. In addition, we may encounter delays in the commercialization of the product candidate that is the subject of the agreement. Accordingly, our ability to receive any revenue from the product candidates covered by these agreements will be dependent on the efforts of our collaborative partner. We could also become involved in disputes with a collaborative partner, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. In addition, any such dispute could diminish our collaborators’ commitment to us and reduce the resources they devote to developing and commercializing our products. Conflicts or disputes with our collaborators, and competition from them, could harm our relationships with our other collaborators, restrict our ability to enter future collaboration agreements and delay the research, development or commercialization of our product candidates. If any collaborative partner terminates or breaches its agreement, or otherwise fails to complete its obligations in a timely manner, our chances of successfully developing or commercializing these product candidates would be materially and adversely affected. We may not be able to enter into collaborative agreements with partners on terms favorable to us, or at all. Our inability to enter into collaborative arrangements with collaborative partners, or our failure to maintain such arrangements, would limit the number of product candidates that we could develop and ultimately, decrease our sources of any future revenues.

 

We may be unsuccessful in obtaining a priority review voucher for material threat medical countermeasures.

 

In 2016, the 21st Century Cures Act, or the Act, was signed into law to support ongoing biomedical innovation. One part of the Act, Section 3086, is aimed at “Encouraging Treatments for Agents that Present a National Security Threat.” The Act created a new priority review voucher program for “material threat medical countermeasures.” The Act defines such countermeasures as drugs or vaccines intended to treat biological, chemical, radiological, or nuclear agents that present a national security threat or to treat harm from a condition that may be caused by administering a drug or biological product against such an agent. The Department of Homeland Security has identified 13 such threats, including anthrax, smallpox, Ebola/Marburg, tularemia, and botulism. A priority review voucher can be applied to any other product; it shortens the FDA review timeline for a new application from 10-12 months to 6 months. The recipient of a priority review voucher may transfer it.

 

We intend to seek a priority review voucher for TNX-801 as a material threat medical countermeasure. However, the structure of voucher programs limits the number of medical countermeasures eligible for a priority review voucher. Further, the medical countermeasure must qualify for priority review in order to be eligible and may not include any commercially approved indication. Moreover, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed. As such, the market for the TNX-801 will be limited if we are successful in obtaining a priority review voucher, assuming that the Priority Review Voucher Program is in effect at the time TNX-801 is available for licensing.

 

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There may not be market interest in TNX-801.

 

The government is the only market for most medical countermeasures. This is because unlike other drugs and vaccines, these products are not sold to doctors, hospitals, or pharmacies. The BioShield Special Reserve Fund, or SRF, has been the sole medical countermeasures market for the last decade; a 10 year advance appropriation of $5.6 billion was available to procure successful candidate medical countermeasures. The SRF expired in 2013 and all funds were used to add 12 new medical countermeasures to the national stockpile. Congress reauthorized the SRF but adequate funding has not yet followed; the SRF is now appropriated annually and has not kept pace with the need for purchasing products ready for stockpiling. Further, similar products are being developed by other companies, such as Bavarian Nordic, which is developing Modified Virus Ankara, or MVA under the tradename Imvamune®, which may compete with TNX-801. As such, even if TNX-801 were to receive FDA licensure, the commercial success of TNX-801 remains uncertain.

 

If technology developed for the purposes of developing new medicines or vaccines can be applied to the creation or development of biological weapons, then our technology may be considered “dual use” technology and be subject to limitations on public disclosure or export.

 

Together with the University of Alberta, we are consulting with government authorities before publishing work that describes the synthesis of poxviruses, including TNX-801. Our research collaboration is dedicated not only to creating tools that better protect public health but also to safeguarding any information with broad, dual-use potential that could be inappropriately applied. “Dual use research” is research conducted for legitimate purposes that generates knowledge, information, technologies, and/or products that can be reasonably anticipated to provide knowledge, information, products, or technologies that could be directly misapplied to pose a significant threat to public health, agricultural crops, or national security. Because variola, the agent that causes smallpox, is a pox virus, the technology we created could be considered dual use and could be subject to export control, for example under the Wassenaar Arrangement. Further, if federal authorities determine that our research is subject to institutional oversight, we will need to implement a risk-management plan developed in collaboration with the institutional review entity. Failure to comply with the plan may result in suspension, limitation, or termination of federal funding or loss of future federal funding opportunities for any of our or the University of Alberta’s research.

 

We face risks in connection with existing and future collaborations with respect to the development, manufacture, and commercialization of our product candidates.

 

We face a number of risks in connection with our current collaborations, including the University of Alberta. Our collaboration agreements are subject to termination under various circumstances. Our collaborators may change the focus of their development and commercialization efforts or may have insufficient resources to effectively assist in the development of our products. Any future collaboration agreements may have the effect of limiting the areas of research and development that we may pursue, either alone or in collaboration with third parties. Further, disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or the preferred course of development, might cause delays, might result in litigation or arbitration, or might result in termination of the research, development or commercialization of our products. Any such disagreements would divert management attention and resources and be time-consuming and costly.

 

We face risks in connection with the production and storage of the TNX-801 vaccine.

 

The TNX-801 vaccine candidate is a live form of HPXV. We have initiated vaccine-manufacturing activities to support further nonclinical testing of TNX-801. While it is potentially safer and possibly better tolerated than existing smallpox-preventing vaccines, the production and storage of the synthesized HPXV virus stock may carry risk of infection and harm to individuals. HPXV, an equine disease caused by a virus and characterized by eruptions in the mouth and on the skin, is believed to be eradicated. No true HPXV outbreaks have been reported since 1976, at which time the United States Department of Agriculture obtained the viral sample used for the sequence published in 2006 that allowed the synthesis of TNX-801.

 

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RISKS RELATED TO OUR STOCK

 

Sales of additional shares of our common stock could cause the price of our common stock to decline.

 

Sales of substantial amounts of our common stock in the public market, or the availability of such shares for sale, by us or others, including the issuance of common stock upon exercise of outstanding options and warrants, could adversely affect the price of our common stock. We and our directors and officers may sell shares into the market, which could adversely affect the market price of shares of our common stock.

 

An active trading market for our common stock may not be sustained.

 

Although our common stock is listed on the NASDAQ Global Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, the current level of trading may not be sustained in the future. The lack of an active market for our common stock may impair investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.

 

The market price for our common stock may be volatile, and your investment in our common stock could decline in value.

 

The stock market in general has experienced extreme price and volume fluctuations. The market prices of the securities of biotechnology and specialty pharmaceutical companies, particularly companies like ours without product revenues and earnings, have been highly volatile and may continue to be highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 

 

announcements of technological innovations or new products by us or our competitors;

 

 

announcement of FDA approval, disapproval or delay of approval of our product candidates or other product-related actions;

 

 

developments involving our discovery efforts and clinical studies;

 

 

developments or disputes concerning patents or proprietary rights, including announcements of infringement, interference or other litigation against us or our potential licensees; 

 

 

developments involving our efforts to commercialize our products, including developments impacting the timing of commercialization;

 

 

announcements concerning our competitors, or the biotechnology, pharmaceutical or drug delivery industry in general;

 

 

public concerns as to the safety or efficacy of our product candidates or our competitors’ products;

 

 

changes in government regulation of the pharmaceutical or medical industry;

 

 

changes in the reimbursement policies of third party insurance companies or government agencies;

 

 

actual or anticipated fluctuations in our operating results;

 

 

changes in financial estimates or recommendations by securities analysts;

 

67 

 

  

developments involving corporate collaborators, if any;

 

 

changes in accounting principles; and

 

 

the loss of any of our key scientific or management personnel.

 

In the past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Whether or not meritorious, litigation brought against us could result in substantial costs and a diversion of management’s attention and resources, which could adversely affect our business, operating results and financial condition.

 

We do not anticipate paying dividends on our common stock and, accordingly, shareholders must rely on stock appreciation for any return on their investment.

 

We have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration of dividends is subject to the discretion of our board of directors and will depend on various factors, including our operating results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment will likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable. There is no guarantee that our common stock will appreciate in value.

 

We expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline.

 

Our quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline. The nature of our business involves variable factors, such as the timing of the research, development and regulatory pathways of our product candidates, which could cause our operating results to fluctuate.

 

Due to the possibility of fluctuations in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

 

The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

 

Our articles of incorporation give our board of directors the right to create new series of preferred stock. As a result, the board of directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be utilized as a method of discouraging, delaying or preventing a change of control. The possible impact on takeover attempts could adversely affect the price of our common stock. Although we have no present intention to issue any shares of preferred stock or to create a series of preferred stock, we may issue such shares in the future.

 

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If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures, or if we discover material weaknesses and deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

 

                If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting. If material weaknesses or significant deficiencies are discovered or if we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

 

Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.

 

As of March 13, 2019, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and their respective affiliates, beneficially own approximately 26% of our outstanding shares of common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

 

 

delaying, deferring or preventing a change in corporate control;

 

 

impeding a merger, consolidation, takeover or other business combination involving us; or

 

 

discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

 

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

 

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to provisions under our corporate charter and bylaws, as well as Nevada law.

 

Provisions in our articles of incorporation, our bylaws, and under Nevada law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders. Our articles of incorporation and bylaws contain the following provisions, among others, which may inhibit an acquisition of our company by a third party:

 

 

advance notification procedures for matters to be brought before stockholder meetings 

 

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a limitation on who may call stockholder meetings 

 

 

a limitation on the removal of directors 

 

 

the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without a stockholder vote

 

We are also subject to provisions of Nevada law that prohibit us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns 10 percent or more of our stock cannot acquire us for a period of time after the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors and stockholders. 

 

 ITEM 1B – UNRESOLVED STAFF COMMENTS

 

There are no unresolved staff comments at December 31, 2018.

 

ITEM 2 – PROPERTIES

 

We maintain our principal office at 509 Madison Avenue, Suite 1608, New York, New York 10022. Our telephone number at that office is (212) 980-9155 and our fax number is (212) 923-5700. On December 6, 2018, we entered into a lease amendment, whereby we agreed to lease new office space, commencing January 15, 2019 and expiring on November 30, 2020. In connection therewith, we maintain a letter of credit, which has a remaining balance of $99,479 as of December 31, 2018, and such amount is deposited into the restricted cash account maintained at the bank that issued the letter of credit. The total square footage of our principal office space is approximately 2,658.

 

On July 27, 2015, we entered into a lease for approximately 132 square feet of office space in Montreal, Canada, whereby we agreed to lease premises, commencing August 1, 2015 and expiring on July 31 on an annual renewal basis. In connection therewith, we paid a security deposit of $800.

 

On August 24, 2015, we entered into a lease for approximately 2,762 square feet of office space in San Diego, California, whereby we agreed to lease premises, commencing September 1, 2015 and expiring on August 31, 2019. In connection therewith, we paid a security deposit of $11,272.

 

On August 22, 2017, we entered into a lease for approximately 450 square feet of office space in Dublin, Ireland, whereby we agreed to lease premises, commencing November 20, 2017 and expiring on November 30, 2018. In connection therewith, we paid a security deposit of $7,067. In November 2018, we signed a one-year extension, expiring on November 30, 2019.

 

Future minimum lease payments are as follows (in thousands):

 

Year Ending December 31,

 

 

 

2019

 

$

341

 

2020

 

 

200

 

 

 

$

541

 

 

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We believe that our existing facilities are suitable and adequate to meet our current business requirements.

 

ITEM 3 – LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, operating results or cash flows.

 

ITEM 4 – MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Price Range of Common Stock

 

Our common stock is listed on The NASDAQ Global Market under the symbol “TNXP”. The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by The NASDAQ Stock Market, after giving effect to the 1-for-10 reverse stock split, which was effected on November 28, 2018.

 

 

 

Fiscal Year 2018

 

 

 

High

 

 

Low

 

First Quarter

 

$

43.50

 

 

$

29.00

 

Second Quarter

 

$

51.10

 

 

$

27.00

 

Third Quarter

 

$

48.00

 

 

$

5.80

 

Fourth Quarter

 

$

9.88

 

 

$

1.70

 

 

 

 

Fiscal Year 2017

 

 

 

High

 

 

Low

 

First Quarter

 

$

94.00

 

 

$

33.01

 

Second Quarter

 

$

58.10

 

 

$

38.00

 

Third Quarter

 

$

47.70

 

 

$

28.50

 

Fourth Quarter

 

$

49.90

 

 

$

33.10

 

 

On March 13, 2019, the closing sale price of our common stock, as reported by The NASDAQ Stock Market, was $2.58 per share. On March 13, 2019, there were 104 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

 

71 

 

Dividend Policy

 

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.

 

Equity Compensation Information

 

The following table summarizes information about our equity compensation plans as of December 31, 2018.

 

Plan Category

 

Number of Shares
of Common Stock
to be Issued
upon Exercise
of Outstanding
Options
(a)

 

 

Weighted-Average
Exercise Price of
Outstanding Options
(b)

 

 

Number of Options
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding securities
reflected in column (a))
(c)

 

Equity compensation plans approved by stockholders

 

 

137,145

 

 

$

143.09

 

 

 

118,496

 

Equity compensation plans not approved by stockholders

 

 

 

 

 

 

 

 

 

Total

 

 

137,145

 

 

$

143.09

 

 

 

118,496

 

 

Recent Sales of Unregistered Securities

 

None.  

 

Repurchases of Equity Securities by the Issuer and Affiliated Purchasers

 

We did not purchase any of our registered securities during the period covered by this Annual Report.

 

ITEM 6 – SELECTED FINANCIAL DATA

 

Not required under Regulation S-K for “smaller reporting companies.” 

 

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ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which such statements are based and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under “Risk Factors.”.

 

Business Overview

 

Tonix is a clinical-stage biopharmaceutical company focused on discovering and developing pharmaceutical products to treat serious neuropsychiatric conditions and biological products to improve biodefense through potential medical counter-measures. Our most advanced drug development program is focused on delivering a safe and effective long-term treatment for posttraumatic stress disorder, or PTSD. PTSD is characterized by chronic disability, inadequate treatment options, high utilization of healthcare services, and significant economic burden. We have assembled a management team with significant industry experience to lead the development of our product candidates. We complement our management team with a network of scientific, clinical, and regulatory advisors that includes recognized experts in the fields of PTSD, other central nervous system disorders and biodefense.

 

In June 2017, the U.S. Food and Drug Administration, or FDA, conditionally accepted the proposed trade name Tonmya for TNX-102 SL, for the treatment of PTSD. The FDA’s final approval of Tonmya as a name for TNX-102 SL for the treatment of PTSD is subject to a New Drug Application, or NDA, approval. The U.S. Patent and Trademark Office, or PTO, has granted the federal registration of the Tonmya mark.

 

Our lead product candidate, Tonmya, or TNX-102 SL, a proprietary low-dose cyclobenzaprine, or CBP, sublingual tablet, designed for bedtime administration, is in Phase 3 development as a potential treatment for PTSD. Tonix is also developing TNX-102 SL as a bedtime treatment for Fibromyalgia, or FM, and agitation in Alzheimer’s disease, or AAD, under separate INDs to support potential pivotal efficacy studies.   The agitation in Alzheimer’s disease IND has been designated a Fast Track development program by the FDA.  TNX-601 (tianeptine oxalate) is in the pre-IND application stage, also for the treatment of PTSD but using a different mechanism from TNX-102 SL and designed for daytime dosing. TNX-601 is also in development for a potential indication: neurocognitive dysfunction associated with corticosteroid use. Phase 1 clinical study of TNX-601 selected oral formulation will be conducted outside of the U.S. in 2019.  Tonix’s lead biologic candidate, TNX-801, is a potential smallpox-preventing vaccine based on a live synthetic version of horsepox virus, currently in the pre-IND application stage. TNX-701 is a biodefense development program for protection from radiation injury. We are currently not performing any activities and have no future plans related to TNX-301 an IND candidate for the treatment of alcohol use disorder. We hold worldwide development and commercialization rights to all of our product candidates.

 

Posttraumatic Stress Disorder Program

 

Clinical Development Plan

 

Phase 3 HONOR Study

 

In the third quarter of 2018, we announced the results of a randomized, double-blind, placebo-controlled Phase 3 study of Tonmya, planned for enrollment of approximately 550 participants with military-related PTSD, which we refer to as the HONOR study. The primary efficacy endpoint of the HONOR study was the 12-week mean change from baseline in the severity of PTSD symptoms as measured by the Clinician-Administered PTSD Scale for DSM-5, or CAPS-5, between those treated with Tonmya and those receiving placebo. This study was an adaptive design study based on the results of the Phase 2 AtEase study. The study design was very similar to the Phase 2 AtEase study, except there was one planned interim analysis, or IA, and the involvement of an independent data monitoring committee, or IDMC, which reviewed the unblinded IA results. In addition, only one active dose (5.6 mg administered as 2 x 2.8 mg tablets) was investigated and the baseline severity entrance criterion was a CAPS-5 total score ≥ 33 in this Phase 3 study. The IA was conducted when approximately 50% of the initially planned participant enrollment was evaluable for efficacy. The HONOR study was conducted at approximately 40 U.S. sites. The HONOR study was discontinued after the results of the IA indicated a pre-defined threshold p-value for continuing enrollment was not achieved.  The modified Intent-to-Treat (mITT) population analyzed at the time of the IA included 252 participants.

 

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The HONOR study demonstrated that Tonmya was well tolerated and that the 5.6 mg dose (administered as 2 x 2.8 mg tablets) showed meaningful improvement in overall PTSD symptoms at Week 4. At Week 4, the Tonmya treated group separated from placebo in CAPS-5 (p = 0.019) and in the Clinical Global Impression – Improvement (CGI-I) scale (p = 0.015), a key secondary endpoint. A CGI-I responder analysis, with responder defined as ‘much improved’ or ‘very much improved’ on the CGI-I, demonstrated significantly greater responders in the Tonmya group (29.1% v 45.6%; p=0.007) at week 4.  Also, at Week 4, sleep quality improved as measured by both the PROMIS sleep disturbance scale (p=0.015) and the CAPS-5 sleep disturbance item (p=0.002), supporting the proposed mechanism of action of Tonmya. And the CAPS-5 reckless or self-destructive behavior item at week 4 was significantly more improved (p=0.013). Safety data from these participants did not reveal any serious and/or unexpected adverse events. The most common adverse events were mostly related to local administration site reactions, such as oral hypoaesthesia (37.3%), abnormal product taste (11.9%), and oral paraesthesia (9.7%). The most common systemic adverse event was somnolence (15.7%).

 

Retrospective analysis of the HONOR study revealed a treatment effect in participants who experienced trauma less than or equal to 9 years prior to screening. In the patients who experienced trauma within 9 years, the p-value of the primary endpoint at Week 12, using mixed model repeated measures with multiple imputation (MMRM with MI), was 0.039, with a least-squares mean difference from placebo of -5.9 units. In contrast, there was no benefit in the participants who experienced trauma more than 9 years prior to screening. This analysis defined an optimal treatment window for treatment with TNX-102 SL for PTSD of the first 9 years after the index trauma.

 

Phase 2 AtEase Study

 

 In the second quarter of 2016, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 2 study of Tonmya in participants with military-related PTSD, which we refer to as the AtEase study. The primary objective of this study was to evaluate the potential clinical benefit of using Tonmya to treat military-related PTSD at a dose of 2.8 mg or 5.6 mg (2 x 2.8 mg tablets). The AtEase study demonstrated that Tonmya was well tolerated and that the 5.6 mg dose of Tonmya had a therapeutic effect as assessed by the CAPS-5 scale, a standardized structured clinician interview considered the gold standard in clinical research and regulatory approval for measuring the symptom severity of PTSD, which was statistically significant by MMRM with MI analysis (p-value = 0.031). AtEase also demonstrated that although the 2.8 mg dose trended in the direction of a therapeutic effect, it did not reach statistical significance on the primary endpoint, a 12-week mean change from baseline in the severity of PTSD symptoms as measured by the CAPS-5 scale.

 

Four distinct SAEs were reported in the AtEase study; three were in the placebo group, and one (proctitis/peri-rectal abscess) in the Tonmya arm, which was determined to be unrelated to Tonmya. The most common non-dose-related adverse events were mild and transient local administration site conditions. Systemic adverse events that were potentially dose-related and occurred in greater than or equal to 5% of participants treated with the Tonmya 2.8 mg or 5.6 mg dose included: somnolence (drowsiness), dry mouth, headache, insomnia, and sedation. For the participants treated with the 2.8 mg dose, the incidence of the most common systemic adverse events reported above were less frequent than participants treated with the 5.6 mg dose with the exception of insomnia, which was 8.5% in placebo, 7.5% in Tonmya 2.8 mg, and 6.0% in Tonmya 5.6 mg.

 

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The primary MMRM analysis of the AtEase study, which controlled for baseline severity, indicated greater response to Tonmya 5.6 mg in those with greater PTSD severity by CAPS-5 at baseline. As the first industry PTSD trial to employ the CAPS-5 (based on the DSM-5 published in 2013), it was not clear what was the ideal severity threshold for randomization into the study comparable to the standard threshold used in precedent studies that employed prior versions of the CAPS. Retrospective analysis imputing scores for all participants assuming a prior version of CAPS suggested a CAPS-5 baseline threshold for randomization of 33 or higher was equivalent to the threshold used in precedent PTSD studies on prior CAPS versions. 

 

A retrospective analysis of the subgroup of participants in AtEase with baseline CAPS-5 score of 33 or higher supported the hypothesized mechanism of sleep quality improvement, since sleep improvement at Week 4, measured by the PROMIS Sleep Disturbance instrument, predicted treatment response (by improvement in total CAPS-5 score without the sleep item) at week 12 in the Tonmya 5.6 mg group (p = 0.01, linear regression), whereas these measures were not related in placebo.

 

Ongoing Phase 3 RECOVERY Study

 

We recently commenced the RECOVERY study, a randomized, double-blind, placebo-controlled Phase 3 study of Tonmya in approximately 250 participants with military-related and civilian PTSD in the first quarter of 2019. The design of this study was guided based on the results of the Phase 3 HONOR study and Phase 2 AtEase study. The RECOVERY study design is similar to the Phase 3 HONOR study, except the new trial incorporates several new design features including restricting enrollment of study participants to individuals with PTSD who experienced an index trauma within 9 years of screening, instead of 2001 or later. The RECOVERY study will also include participants who have experienced civilian traumas in addition to those with military-related traumas.  The primary endpoint, mean change from baseline in the severity of PTSD symptoms as measured by the CAPS-5, is the same as that used in the Phase 3 HONOR study and the Phase 2 AtEase study, but the CAPS-5 primary endpoint will be assessed at Week 4 instead of at Week 12. CAPS-5 change at Week 12 will be the first key secondary endpoint. We received FDA acceptance of the Phase 3 RECOVERY study design in November 2018. The RECOVERY study is being conducted at approximately 30 U.S. sites with topline data expected in the first half of 2020.  

 

Regulatory Update

 

Subsequent to reporting the Phase 2 AtEase study topline result, we held an End-of-Phase 2/Pre-Phase 3 meeting with the FDA in August 2016 to review the Phase 2 AtEase study results and discuss the Phase 3 study required to support the registration of Tonmya for the treatment of PTSD and the remaining data package for the NDA filing.

 

In December 2016, Tonmya for the treatment of PTSD was designated as a Breakthrough Therapy by the FDA based on the preliminary clinical evidence of Tonmya on military-related PTSD in the Phase 2 AtEase study.  In March 2019, the BTD for Tonmya for PTSD was rescinded because the IA results of the HONOR study did not meet the criteria for the BTD granted in December 2016. The rescission of BTD of Tonmya for PTSD does not alter our plan for developing and obtaining regulatory approval for Tonmya.

 

In March 2017, we held the Initial Cross-Disciplinary Breakthrough Therapy Type B meeting with the FDA to discuss the opportunity to accelerate the development and submission of the Tonmya NDA for the treatment of PTSD. Due to the lack of evidence of potential abuse in clinical studies of Tonmya, the FDA agreed that studies in assessing abuse and dependency potential of Tonmya are not required to support the Tonmya NDA filing.

 

In September 2017, we had a Breakthrough Therapy Chemistry, Manufacturing and Controls (“CMC”) guidance meeting with the FDA regarding the CMC data required to support the Tonmya NDA and commercial product. In principle, our proposed CMC data package to support Tonmya’s NDA approval and commercial manufacturing plans was acceptable to the FDA.

 

Subsequent to reporting the Phase 3 HONOR study IA results, we held a Type B Clinical Guidance Meeting with the FDA in October 2018 to discuss the Phase 3 HONOR study results and the proposed design of the new Phase 3 RECOVERY study to support the registration of Tonmya for the treatment of PTSD and the remaining data package for the NDA filing. We received FDA’s acceptance of the RECOVERY trial design in November 2018.

 

In October 2018, we held a Breakthrough Type B CMC Guidance teleconference meeting with the FDA to seek acceptance of the proposed regulatory specifications for TNX-102 SL commercial product. 

 

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Fibromyalgia program

 

We are developing TNX-102 SL as a bedtime treatment of FM. FM is a chronic syndrome characterized by widespread musculoskeletal pain accompanied by fatigue, sleep, memory and mood issues. The peak incidence of FM occurs between 20 to 50 years of age, and 80 to 90% of diagnosed patients are female. FM may have a substantial negative impact on social and occupational function. TNX-102 SL 2.8 mg for FM has been in Phase 3 development since 2015. However, based on the more promising efficacy results in PTSD with the higher TNX-102 SL 5.6 mg dose in the Phase 2 AtEase study, especially on pain in PTSD with the 5.6 mg (2 x 2.8 mg tablets) dose over the 2.8 mg dose, we temporary discontinued the FM clinical development with the 2.8 mg dose in September 2016 for business reasons.

 

Supported by the encouraging pain data with TNX-102 SL 5.6 mg in PTSD, we are continuing the TNX-102 SL FM clinical development with the 5.6 mg dose.

 

Clinical Development Plan

 

Phase 3 AFFIRM Study

 

In the third quarter of 2016, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 3 study of TNX-102 SL in 519 participants with FM, which we refer to as the AFFIRM study. The primary objective of this study was to evaluate the potential clinical benefit of using TNX-102 SL to treat FM at a dose of 2.8 mg, administered sublingually once daily at bedtime for 12 weeks. The primary endpoint of the AFFIRM trial was the FDA-agreed upon 30% pain responder analysis in which a responder is defined as a subject for whom pain intensity was reduced by at least 30% at week 12 as compared to baseline. AFFIRM did not achieve statistical significance at the primary endpoint (p=0.095). Yet, statistical significance was achieved when pain was analyzed instead as a continuous variable, either by MMRM (p<0.001) or by MMRM with multiple imputation for missing data (p=0.005), a generally accepted approach to pain data. TNX-102 SL also showed statistically significant improvements in the declared secondary analyses of the Patient Global Impression of Change, or PGIC (p=0.038) and the Fibromyalgia Impact Questionnaire-Revised, or FIQ-R (p<0.001). The study also showed statistically significant improvement with TNX-102 SL on measures of sleep quality, including the Patient-Reported Outcomes Measurement Information System, or PROMIS, Sleep Disturbance instrument (p<0.001). TNX-102 SL was well tolerated in the AFFIRM study.  Among patients randomized to the active and control groups, 78% and 86%, respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 40% of participants on TNX-102 SL vs. 1% on placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.

 

We believe that given the consistent results of the analyses of pain as a continuous endpoint, as well as the nominal significance shown on multiple key secondary endpoints, TNX-102 SL 2.8 mg taken daily at bedtime for 12 weeks can be beneficial in this typical fibromyalgia population. However, based on the more promising efficacy results in PTSD with the higher TNX-102 SL 5.6 mg dose in the Phase 2 AtEase study, especially on pain in PTSD  with the 5.6 mg (2 x 2.8 mg tablets) dose over the 2.8 mg dose, we temporary discontinued the FM clinical development with the 2.8 mg dose in September 2016 for business reasons.  

 

76 

 

TNX-102 SL was well tolerated in the AFFIRM trial. Among patients randomized to the active and control arms, 78% and 86%, respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 40% of participants on TNX-102 SL vs. 1% on placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.

 

Phase 2b BESTFIT Study

 

In the third quarter of 2014, we announced the results of a randomized, double-blind, placebo-controlled, 12-week Phase 2b study of TNX-102 SL in 205 participants with FM, which we refer to as the BESTFIT study. The primary objective of this study was to evaluate the potential clinical benefit of using TNX-102 SL to treat FM at a dose of 2.8 mg, administered sublingually once daily at bedtime for 12 weeks. The primary outcome measure of the BESTFIT trial was the mean change in week 12 average daily pain intensity from baseline on the 11-point Numeric Rating Scale (NRS), using a daily telephonic diary. BESTFIT did not achieve statistical significance in the primary outcome measure (p=0.172), whereas TNX-102 SL 2.8 mg did show a statistically significant effect on pain as measured by a 30% responder analysis of the primary pain data (p=0.033). The 30% response rate in the final analysis was 34.0% in the active treatment arm as compared to 20.6% in the control arm. The BESTFIT trial also showed statistically significant improvements with TNX-102 SL in the declared secondary analyses of the PGIC (p=0.025) and the FIQ-R (p=0.015). The study showed statistically significant improvement with TNX-102 SL on measures of sleep quality, including the PROMIS, Sleep Disturbance instrument (p=0.004). In addition, statistically significant improvements with TNX-102 SL were observed on several FIQ-R items (pain, sleep quality, anxiety, stiffness, and sensitivity) as well as on the overall symptom subdomain.

 

TNX-102 SL was well tolerated in the BESTFIT trial. Among patients randomized to the active and control arms, 86% and 83%, respectively, completed the 12-week dosing period. The most common adverse events were local in nature, with transient tongue or mouth numbness occurring in 44% of participants on TNX-102 SL vs. 2% on placebo, and bitter taste in 8% on TNX-102 SL compared to none on placebo. These local adverse events did not appear to affect either rates of retention of study participants or their compliance with taking TNX-102 SL. Systemic adverse events were similar between TNX-102 SL and placebo. No serious adverse events were reported.

 

Regulatory Update

 

In December 2016, we notified FDA in our IND annual update that the FM development program was put on hold for business reasons after the Phase 3 AFFIRM study topline data was reported in September 2016. 

 

In April 2017, we withdrew the proposed proprietary name, Tonmya, for TNX-102 SL for FM. 

 

In March 2019, we had a Type C Clinical Guidance meeting with the FDA to discuss our plan to resume the clinical development of the TNX-102 SL 5.6 mg dose for the treatment of FM. The design of the planned Phase 3 study was discussed with the FDA.

 

Agitation in Alzheimer’s Disease Program

 

TNX-102 SL is also being developed as a bedtime treatment for agitation in Alzheimer’s disease, or AAD, under a separate Investigational New Drug application or IND.

 

Regulatory Update

 

In November 2017, we held a pre-IND meeting with the FDA to discuss our proposed development of TNX-102 SL for the treatment of agitation in Alzheimer’s disease. In April 2018, the FDA cleared our IND to support a Phase 2 potential pivotal efficacy study.

 

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In July 2018, the FDA granted Fast Track Therapy designation to TNX-102 SL for the treatment of agitation in Alzheimer’s disease.

 

In September 2018, we received FDA comments on our proposed Phase 2 potential pivotal efficacy study protocol.

 

Patent update

 

On May 2, 2017, we were issued U.S. patent 9,636,408 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”, which includes compositions of CBP and methods of manufacturing the eutectic. The Protectic™ protective eutectic and Angstro-Technology™ formulation claimed in the patent are important elements of our proprietary Tonmya or TNX-102 SL composition. The patent is expected to provide Tonmya or TNX-102 SL with U.S. market exclusivity until 2034. Eutectic tablets containing CBP and mannitol eutectic have good pharmaceutical stability and manufacturability. A solid eutectic is a form of matter in which two solid crystals co-penetrate each other, such that the inter-molecular space between the units of one crystal lattice are occupied by the other crystal’s lattice. The distance between the molecular units is not changed.

 

On September 13, 2017, we were issued European patent 2,501,234 “Methods and Compositions for Treating Symptoms Associated with PTSD Using Cyclobenzaprine”. This patent recites the use of CBP for the treatment of PTSD, which covers the use of Tonmya for the treatment of PTSD, since the active ingredient in Tonmya is CBP. The patent is expected to provide Tonmya with European market exclusivity until 2030.

 

On December 15, 2017 we were issued Japanese Patent No. 6259452, “Compositions and Methods for Transmucosal Absorption,” by the Japanese Patent Office (JPO) relating to the pharmacokinetic profile of Tonmya, or TNX-102 SL.

  

On March 20, 2018, we were issued U.S. patent 9,918,948 “Methods and compositions for treating symptoms associated with PTSD using Cyclobenzaprine”. This patent protects the use of Tonmya for the treatment of PTSD as well as its active ingredient CBP for the treatment of PTSD. A The patent is expected to provide Tonmya with U.S. market exclusivity until 2030 for the allowed claims when the patent is issued. This method of use patent for Tonmya extends upon previously granted patents related to the composition of matter (U.S. Patent No. 9,636,408) and the active ingredient in Tonmya (European Patent No. 2,501,234) as described above.

 

On March 23, 2018, we were issued Japanese Patent No. 6310542 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride. This patent recites pharmaceutical compositions comprising the eutectics and methods of manufacturing these eutectic formulations.

 

On May 1, 2018, we were issued U.S. Patent No. 9,956,188 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”. The patent recites a eutectic of cyclobenzaprine hydrochloride and mannitol and methods of making those eutectics. The patent is expected to provide Tonmya with U.S. market exclusivity until 2034.

 

 On November 6, 2018, we were issued U.S. Patent No. 10,117,936 “Eutectic Formulations of Cyclobenzaprine Hydrochloride and Amitriptyline Hydrochloride”. The patent recites pharmaceutical compositions of eutectics of cyclobenzaprine hydrochloride and mannitol and methods of making those compositions. The patent is expected to provide Tonmya with U.S. market exclusivity until 2034.

 

On February 27, 2019, European Patent No. 3,246,031 entitled “Method for Treating Neurodegenerative Dysfunction”, issued. The claims recite the use of TNX-601, or tianeptine oxalate and other salts, for treating neurocognitive dysfunction associated with corticosteroid treatment. This patent provides TNX-601 with European market exclusivity until April 2029 and may be extended based on the timing of the European market authorization of TNX-601 for neurocognitive disfunction associated with corticosteroid treatment.

 

Additional Product Candidates

 

We also have a pipeline of other drug and biologic candidates, including two pre-IND candidates, TNX-601 (tianeptine oxalate) for PTSD and neurocognitive dysfunction, and TNX-801, a potential smallpox-preventing vaccine, an IND candidate, and TNX-701, a biodefense development program for protection from radiation injury. We are currently not performing any activities and have no future plans related to TNX-301 an IND candidate for the treatment of alcohol use disorder. We hold worldwide development and commercialization rights to all of our product candidates.  

 

TNX-601 is a novel oral formulation of tianeptine oxalate in the pre-IND stage of development for the daytime treatment for PTSD and neurocognitive dysfunction. We have discovered a novel salt and polymorph, which we believe may provide improved stability, consistency, and manufacturability relative to the known forms of tianeptine. Leveraging our development expertise in PTSD, TNX-601 is being developed as a first-line monotherapy for PTSD for daytime use. Tianeptine’s reported pro-cognitive and anxiolytic effects as well as its ability to attenuate the neuropathological effects of excessive stress responses suggest that it may be used to treat PTSD by a different mechanism of action than Tonmya. On April 19, 2016, we were issued U.S. patent 9,314,469 B2 “Method for treating neurocognitive dysfunction” which includes using tianeptine for cognitive dysfunction associated with corticosteroid use. We intend to develop TNX-601 under Section 505(b)(1) of the FDCA as a potential daytime treatment for PTSD and cognitive dysfunction associated with corticosteroid use. Pharmaceutical development work on TNX-601 has been initiated.

 

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TNX-801 is a novel potential smallpox-preventing vaccine based on a live synthetic version of HPXV grown in cell culture. Professor David Evans and Dr. Ryan Noyce at the University of Alberta, Canada in collaboration with us, synthesized the HPVX, which demonstrated protective vaccine activity in mice, using a model of lethal vaccinia infection (Noyce RS, et. al. 2018 PLoS ONE 13(1)). We are developing TNX-801 as a potential smallpox-preventing vaccine for widespread immunization and for the U.S. strategic national stockpile. Though it shares structural characteristics with vaccinia-based vaccines, TNX-801 has unique virulence properties that we believe may suggest lower toxicity and potential safety advantages over existing vaccinia-based vaccines, which have been associated with adverse side effects such as myopericarditis. We intend to meet with the FDA to discuss the most efficient and appropriate investigational plan, e.g., the application of the Animal Rule, or conducting active comparator study using ACAM2000, to establish the safety and effectiveness evidence to support the licensure TNX-801. In the 1970s, vaccination against smallpox was discontinued in the U.S.; however, smallpox remains a material threat to national security. We recently filed a patent on the novel virus vaccine. In addition, 12 years of non-patent-based exclusivity is provided under the Patient Protection and Affordable Care Act, or PPACA. It is unknown if a replacement for the repeal of the Affordable Care Act, if enacted, would contain the 12-year exclusivity provision. Following the recent passage of the 21st Century Cures Act, we believe TNX-801 qualifies as a medical countermeasure, and therefore should be eligible for a Priority Review Voucher upon FDA approval. However, the Priority Review Voucher program provision of the 21st Century Cures Act is set to expire in 2023. If TNX-801 does not receive FDA licensure by 2023, we may not be able to capitalize on the incentives contained in the 21st Century Cures Act unless the provision allowing for the Priority Review Voucher Program is extended until such time as TNX-801 is licensed. We are currently working to develop a vaccine that meets cGMP quality to support an IND study.

 

In addition, we own rights to intellectual property on a biodefense technology relating to the development of protective agents against radiation exposure, which we refer to as TNX-701. We have begun nonclinical research and development on TNX-701. We plan to develop TNX-701 under the Animal Rule. We expect significant reduction in development costs and risks compared to the development of other NCEs or new biologic candidates.

 

Current Operating Trends

 

 Our current research and development efforts are focused on developing Tonmya for PTSD, but we also expend effort on our other pipeline programs, including TNX-601, and TNX-801. Our research and development expenses consist of manufacturing work and the cost of drug ingredients used in such work, fees paid to consultants for work related to clinical trial design and regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results of such studies, and for other medical research addressing the potential efficacy and safety of our drugs. We believe that significant investment in product development is a competitive necessity, and we plan to continue these investments in order to be in a position to realize the potential of our product candidates and proprietary technologies.

 

We expect that all of our research and development expenses in the near-term future will be incurred in support of our current and future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology and efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical trials for each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants, contracts or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products. Completion of clinical trials may take several years, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

 

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The commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy during clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays. In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in, or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur. 

 

Results of Operations

 

We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of our research and development efforts and the timing and outcome of regulatory submissions. Due to these uncertainties, accurate predictions of future operations are difficult or impossible to make.

 

Fiscal year Ended December 31, 2018 Compared to Fiscal year Ended December 31, 2017

 

Research and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2018 were $17.6 million, an increase of $4.3 million, or 32%, from $13.3 million for the fiscal year ended December 31, 2017. This increase is predominately due to the continued development work related to the PTSD program which resulted in a $3.9 million and $0.2 million increase in clinical and manufacturing expenses, respectively.

 

 General and Administrative Expenses. General and administrative expenses for the fiscal year ended December 31, 2018 were $8.8 million, an increase of $0.8 million, or 10%, from $8.0 million incurred in the fiscal year ended December 31, 2017. This increase is primarily due to an increase in legal fees of $0.6 million predominately due to increased patent prosecution costs and an increase in investor and public relations expenses of $0.2 million due to increased investor meetings.

 

Net Loss. As a result of the foregoing, the net loss for the year ended December 31, 2018 was $26.1 million, compared to a net loss of $21.1 million for the year ended December 31, 2017.

 

Liquidity and Capital Resources

 

 As of December 31, 2018, we had working capital of $23.4 million, comprised primarily of cash and cash equivalents of $25.0 million and prepaid expenses and other of $1.0 million, offset by $1.4 million of accounts payable and $1.3 million of accrued expenses. A significant portion of the accounts payable and accrued expenses are due to work performed in relation to our Phase 3 clinical trial of Tonmya in PTSD. For the years ended December 31, 2018 and 2017, we used approximately $24.0 million and $19.1 million of cash in operating activities, respectively, which represents cash outlays for research and development and general and administrative expenses in such periods. The decrease in cash outlays principally resulted from a reduction in clinical, non-clinical, manufacturing and regulatory cost activities. For the year ended December 31, 2018, net proceeds from financing activities were $23.5 million, predominately from the sale of our common stock and warrants. In the comparable 2017 period, approximately $18.5 million was raised through the sale of shares of common stock.  

 

 Cash used by investing activities for the year ended December 31, 2018 was approximately $6,000, related to the purchase of furniture and fixtures. Cash provided by investing activities for the year ended December 31, 2017 was $7.2 million which was predominately related to the maturity of marketable securities.

 

80 

 

We believe that our cash resources will be sufficient to meet our projected operating requirements through the end of 2019, but we do not have enough resources to meet our operating requirements for the one-year period from the date of filing of this Form 10-K.

 

We continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due to changes we may make in our research and development spending plans. These factors raise substantial doubt about our ability to continue as a going concern for the one year period from the date of filing of this Form 10-K. We have the ability to obtain additional funding through public or private financing or collaborative arrangements with strategic partners to increase the funds available to fund operations. Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

 

December 2018 Financing

 

On December 7, 2018, we entered into an underwriting agreement with Alliance Global Partners (“AGP”) and Dawson James Securities, Inc. (“Dawson”) (collectively “the Underwriters”) pursuant to which we sold securities consisting of 861,710 Class A Units at a public offering price of $3.50 per unit, with each unit consisting of one share of Common Stock and a Warrant to purchase one share of Common Stock, and 11,984 Class B Units at a public offering price of $1,000 per unit, with each unit consisting of one share of Series A Convertible Preferred Stock, with a conversion price of $3.50 per share, and Warrants to purchase 285.7143 shares of Common Stock. The Warrants have an exercise price of $3.50, are exercisable upon issuance and expire five years from the date of issuance.

 

We also granted the underwriters a 45-day option to purchase up to 642,856 shares of common stock and/or additional Warrants to purchase up to 642,856 additional shares of common stock.

 

The December 2018 Financing closed on December 11, 2018. The Underwriters purchased the Units at a seven-percent discount to the public offering price, for an aggregate discount of approximately $1.1 million. We received net proceeds from the December 2018 Financing of approximately $13.6 million, after deducting the underwriting discount and other offering expenses of approximately $0.4 million. Additionally, the Underwriters fully exercised the over-allotment option related to the warrants and purchased additional warrants to acquire 640,000 shares of common stock for net proceeds of approximately $6,000.

 

On December 13, 2018, the 2018 Underwriters partially exercised the over-allotment option and purchased 250,000 shares of common stock for net proceeds of approximately $0.8 million, net of an aggregate discount of $0.1 million (or $0.24 per share).

 

After allocating proceeds to the warrants issued with the Series A convertible preferred stock, the effective conversion price of the Series A convertible preferred Stock, after the bifurcation of the warrants, was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a beneficial conversion feature (“BCF”) at that date. Since the Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF was charged to additional paid in capital as a “deemed dividend” and impacted earnings per share. We recognized a one-time non-cash deemed dividend of $3.3 million for the beneficial conversion feature resulting from the intrinsic value of the conversion options of the preferred stock.

 

During the year ended December 31, 2018, 2,128 shares of Series A convertible preferred stock were converted into 608,000 shares of common stock. As of March 13, 2019, all Series A convertible preferred stock has been converted into common stock.

 

81 

 

2018 At-the-Market Offering

 

On May 1, 2018, we entered into a sales agreement (the “Sales Agreement”), with Cowen and Company, LLC., (“Cowen”), pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to $9.5 million in at-the-market offerings (“ATM”) sales. On the same day, we filed a prospectus supplement under its existing shelf registration relating to the Sales Agreement. Cowen acted as sales agent and was paid a 3% commission on each sale under the Sales Agreement. Our common stock was sold at prevailing market prices at the time of the sale, and, as a result, prices varied. 

 

During the year ended December 31, 2018, we sold an aggregate of approximately 593,000 shares of common stock using the ATM, resulting in net proceeds of $6.9 million, net of expenses of approximately $0.2 million of Cowen’s commission.

 

2018 Lincoln Park Transaction

 

On October 18, 2018, we entered into a purchase agreement (the “2018 Purchase Agreement”) and a registration rights agreement (the “2018 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the 2018 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $15,000,000 of our common stock (subject to certain limitations) from time to time during the term of the 2018 Purchase Agreement. Pursuant to the terms of the 2018 Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the 2018 Purchase Agreement.

 

Pursuant to the terms of the 2018 Purchase Agreement, at the time we signed the 2018 Purchase Agreement and the 2018 Registration Rights Agreement, we issued 35,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2018 Purchase Agreement. The commitment shares were valued at $245,000 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2018 Purchase Agreement.

 

Regular Purchases

 

Under the 2018 Purchase Agreement, on any business day selected by us, we may direct Lincoln Park to purchase up to 7,500 shares of our common stock on any such business day (a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 10,000 shares, provided that the closing sale price is not below $7.50 on the purchase date, (ii) the Regular Purchase may be increased to up to 12,500 shares, provided that the closing sale price is not below $10.00 on the purchase date, (iii) the Regular Purchase may be increased to up to 15,000 shares, provided that the closing sale price is not below $12.50 on the purchase date, (iv) the Regular Purchase may be increased to up to 17,500 shares, provided that the closing sale price is not below $20.00 on the purchase date. In each case, the maximum amount of any single Regular Purchase may not exceed $1,000,000 per purchase.

 

Accelerated Purchases

 

In addition to Regular Purchases described above, we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice and the closing sale price of our common stock is not below $7.50 (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the 2018 Purchase Agreement), to purchase an additional amount of our common stock on the next business day (an “Accelerated Purchase”), not to exceed the lesser of:

 

 

30% of the aggregate shares of our common stock traded during normal trading hours on the purchase date; and

 

 

Three (3) times the number of purchase shares purchased pursuant to the corresponding Regular Purchase.

 

Additional Purchases

 

In addition to the Regular Purchases and Accelerated Purchases described above, from time to time we may also direct Lincoln Park, on any business day that the closing price of our common stock is not below $7.50 (subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the 2018 Purchase Agreement), to purchase additional amounts of our common stock (an “Additional Accelerated Purchase”), not to exceed the lesser of:

 

 

96% of the volume weighted average price of our common stock during the applicable Additional Accelerated Purchase Measurement Period on the applicable Additional Accelerated Purchase date; and

 

 

the closing sale price of our common stock on the applicable Additional Accelerated Purchase date.

 

82 

 

Tranche Purchases

 

In addition to the Regular Purchases, Accelerated Purchases and the Additional Accelerated Purchases described above, from time to time we may also direct Lincoln Park, on any business day that the closing price of ours common stock is not below $1.00, to purchase additional amounts of its common stock (a “Tranche Purchase”), provided, however, that any single Tranche Purchase shall not exceed $400,000, and shall not exceed $2,000,000 in the aggregate, not to exceed the lesser of:

 

 

$55.00 and

 

 

96% of the lower of (i) the lowest sale price of our common stock on the Tranche Purchase date and (ii) the arithmetic average of the three (3) lowest closing sale prices for our common stock during the ten consecutive business days ending on the day immediately preceding the Tranche Purchase date (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction that occurs on or after the date of this Agreement).

 

Future Liquidity Requirements

 

We expect to incur losses from operations for the near future. We expect to incur increasing research and development expenses, including expenses related to additional clinical trials. We will not have enough resources to meet our operating requirements for the one-year period from the date of this report.

 

Our future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success in developing markets for our product candidates.

 

We will need to obtain additional capital in order to fund future research and development activities. Future financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

 

If additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.

 

Stock Compensation

 

Stock Options

 

We have issued awards under our 2012 Incentive Stock Option Plan, 2014 Stock Incentive Plan, 2016 Stock Incentive Plan and 2017 Stock Incentive Plan (collectively, the “Prior Plans”). No future awards are issuable under these Prior Plans.

 

83 

 

On June 8, 2018, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2018 Stock Incentive Plan (the “2018 Plan” and together with the Prior Plans, the “Plans”). As a result of adoption of the 2018 Plan by the stockholders, no further grants may be made under the Prior Plans.

 

 Under the terms of the 2018 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2018 Plan provides for the issuance of up to 132,000 shares of common stock, which amount was (a) reduced by awards granted under the Prior Plans after March 1, 2018, and (b) will be increased to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in the 2018 Plan). In terms of calculating how many shares are reduced or increased based on activity under the Prior Plans after March 1, 2018, the calculation shall be based on one share for every one share that was subject to an option or SAR and 1.23 shares for every one share that was subject to an award other than an option or SAR. The Board of Directors determines the exercise price, vesting and expiration period of the grants under the 2018 Plan. However, the exercise price of an incentive stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration period of grants under the 2018 Plan may not more than ten years. We reserved 132,000 shares of our common stock for future issuance under the terms of the 2018 Plan. As of December 31, 2018, 118,496 shares were available for future grants under the 2018 Plan.

 

We measure the fair value of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions discussed in the following paragraph, and the closing market price of our common stock on the date of the grant. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. Most stock options granted pursuant to the Plans typically vest 1/3rd 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten years from the date of grant. In addition, we issue options to directors which vest over a one-year period. In addition, we also issue performance-based options to executive officers, which options vest when the target parameters are met, subject to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized over the applicable vesting period using the straight-line method.

 

The weighted-average grant-date fair value of stock options granted was $27.78 in 2018 and $29.20 in 2017.

 

Stock-based compensation expense relating to options granted of $1.6 million and $1.7 million was recognized for the years ended December 31, 2018 and 2017, respectively.

 

As of December 31, 2018, we had approximately $1.8 million of total unrecognized compensation cost related to non-vested awards granted under the Plans, which we expect to recognize over a weighted average period of 1.87 years.

 

Employee Stock Purchase Plan

 

We have issued awards under our 2014 Employee Stock Purchase Plan (the “2014 ESPP”).

 

On June 8, 2018, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2018 Employee Stock Purchase Plan (the “2018 ESPP”). As a result of adoption of the 2018 ESPP by the stockholders, no further grants may be made under the 2014 ESPP.

 

The 2018 ESPP allows eligible employees to purchase up to an aggregate of 30,000 shares of our common stock. Under the 2018 ESPP, on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering period, which allows the eligible employees to purchase shares of our common stock at the end of the offering period. Each offering period under the 2018 ESPP is for six months, which can be modified from time-to-time. Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the 2018 ESPP, subject to the statutory limit under the Code.

 

84 

As of December 31, 2018, there were 28,242 shares available for future issuance under the 2018 ESPP after taking into account the shares issued below.

 

The 2018 ESPP and 2014 ESPP are considered compensatory plans with the related compensation cost written off over the six-month offering period. The compensation expense related to the 2018 ESPP for the year ended December 31, 2018 was $32,000.  The compensation expense related to the 2014 ESPP for the year ended December 31, 2017 was $36,000. As of December 31, 2018, approximately $38,000 of employee payroll deductions, which have been withheld since July 1, 2018, the commencement of the offering period ending December 31, 2018, are included in accrued expenses in the accompanying balance sheet. In January 2019, 1,758 shares that were purchased as of December 31, 2018, were issued under the 2018 ESPP, and approximately $3,000 of employee payroll deductions accumulated at December 31, 2018, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $35,000 was returned to the employees. In July 2017, 1,776 shares that were purchased as of June 30, 2017, were issued under the 2014 ESPP, and approximately $64,000 of employee payroll deductions accumulated at June 30, 2017, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. In January 2017, 2,496 shares that were purchased as of December 31, 2016, were issued under the 2014 ESPP, and approximately $10,000 of employee payroll deductions accumulated at December 31, 2016, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. No employee deductions were withheld during 2017. 

 

Restricted Stock Units

 

In February 2017, a total of 563 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash, with a one-year vesting from the grant date and a fair value of $38.10 at the date of grant. 563 shares of our common stock were issued upon the vesting of such RSU’s during the quarter ended March 31, 2017.

 

In May 2017, a total of 563 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash, with a one-year vesting from the grant date and a fair value of $22.90 at the date of grant. 488 shares of our common stock were issued upon the vesting of such RSU’s during the year ended December 31, 2017. The remaining 75 shares of common stock were issued during the three months ended March 31, 2018.

 

Stock-based compensation expense related to RSU grants was $0 and $72,000 for the three and twelve months ended December 31, 2017, respectively.  There is no stock-based compensation related to RSU’s in 2018.

 

Commitments

 

Research and Development Contracts

 

We have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $5.5 million at December 31, 2018 for future work to be performed.

 

Operating Leases

 

Future minimum lease payments under operating leases were as follows (in thousands):

 

Year Ending December 31,

 

 

 

2019

 

$

413

 

2020

 

 

212

 

2021

 

 

6

 

 

 

$

631

 

 

85 

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Research and Development. We outsource our research and development efforts and expense the related costs as incurred, including the cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related to particular research and development projects and had no alternative future uses.

 

We estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants and clinical research organizations and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We account for trial expenses according to the progress of the trial as measured by participant progression and the timing of various aspects of the trial. We determine accrual estimates that take into account discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Our clinical trial accruals and prepaid assets are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

 

Stock-Based Compensation. All stock-based payments to employees and to nonemployee directors for their services as directors consisted of grants of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the condensed consolidated statements of operations as compensation expense over the relevant vesting period. Restricted stock payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are nonforfeitable, the measurement date is the date the award is issued.

 

Income Taxes. Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. We record an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized. We recognized a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

 

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On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%, a move from a worldwide tax system to a territorial system, a change in the treatment of operating loss carryforwards as well as other changes. As a result of enactment of the legislation, the Company anticipates a one-time change to its deferred tax assets and related valuation allowance. As the Company has a full valuation allowance such change is not expected to impact the Company’s results of operations or financial position. All impacts of the Tax Act have been measured in the Company’s income tax provision.

 

Accounting for sale of Class B Units in December 2018 including beneficial conversion feature. In connection with the December 2018 underwritten offering, we issued warrants to purchase our common stock and convertible preferred stock. To account for the transaction, we had to calculate the relative fair value of each instrument issued in the financing.   We also had to determine if a beneficial conversion feature existed.   A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment date.  A conversion feature is in the money if its conversion price is less than the current fair value of the share.  For purposes of measuring a beneficial conversion feature, the effective conversion price should be based on the proceeds allocated to the convertible instrument.

 

We determine the fair value of the warrant, using a Monte Carlo simulation, which is a statistical method used to generate a defined number of share price paths to develop a reasonable estimate of the range of future expected share prices. Estimates and assumptions impacting the fair value measurement include the warrant’s callable feature, the number of shares for which the warrants are exercisable, remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying common shares. We estimate expected share volatility based on our historical volatility for a term equal to the contractual term of the warrants adjusted for a discount that a market participant would have taken when pricing the instrument. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. We estimated a 0% expected dividend yield based on the fact that we have never paid or declared dividends and do not intend to do so in the foreseeable future. In general, the assumptions used in calculating the fair value of the warrant represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment.  We determine the fair value of the convertible preferred stock utilizing the price of the common stock on the commitment date.  We then allocated the relative fair value between the preferred shares and the warrants.  Since the effective conversion price of the Preferred Stock is less than the fair value of the underlying common stock at the date of commitment, there is a beneficial conversion feature at the commitment date.  Since the Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the beneficial conversion feature was charged to additional paid in capital as a “deemed dividend” and impacted earnings per share.

 

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Recently Issued Accounting Pronouncements

 

In February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. We adopted the new standard on January 1, 2019.

 

The new standard provides a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permit us not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to us.

 

The new standard will have a material effect on our financial statements. The most significant effects of adoption relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant new disclosures about its leasing activities.

 

Upon adoption, we will recognize operating lease liabilities of approximately $0.3 million based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. We expect to recognize corresponding ROU assets of approximately $0.3 million.

 

The new standard also provides practical expedients for an entity’s ongoing accounting. We will elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Beginning in 2019, we expect changes to our disclosed lease recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard. These revised disclosures will be made in our first quarterly report in 2019.

 

Off-Balance Sheet Arrangements

 

Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.

 

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required under Regulation S-K for “smaller reporting companies.” 

 

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ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

TONIX PHARMACEUTICALS HOLDING CORP.

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

 

 

Consolidated balance sheets as of December 31, 2018 and 2017

 

F-3

 

 

 

Consolidated statements of operations for the years ended December 31, 2018 and 2017

 

F-4

 

 

 

Consolidated statements of comprehensive loss for the years ended December 31, 2018 and 2017

 

F-5

 

 

 

Consolidated statements of stockholders’ equity for the years ended December 31, 2018 and 2017

 

F-6 – F-7

 

 

 

Consolidated statements of cash flows for the years ended December 31, 2018 and 2017

 

F-8

 

 

 

Notes to consolidated financial statements

 

F-9 – F-27

 

F-1 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders 

Tonix Pharmaceuticals Holding Corp.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has continuing losses and negative cash flows from operating activities which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ EisnerAmper LLP

 

We have served as the Company’s auditor since 2010.

 

EISNERAMPER LLP  

New York, New York

 

March 18, 2019

 

 

F-2 

 

TONIX PHARMACEUTICALS HOLDING CORP.  

CONSOLIDATED BALANCE SHEETS  

DECEMBER 31, 2018 AND 2017  

(In Thousands, Except Par Value and Share Amounts)

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

                  25,034

 

 

$

                25,496

 

Prepaid expenses and other

 

 

1,022

 

 

 

947

 

Total current assets

 

 

26,056

 

 

 

26,443

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

43

 

 

 

91

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

100

 

 

 

89

 

Intangible Asset

 

 

120

 

 

 

120

 

Security deposits

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

                  26,319

 

 

$

                26,754

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

                    1,404

 

 

$

                  1,296

 

Accrued expenses

 

 

1,251

 

 

 

830

 

Total current liabilities

 

 

2,655

 

 

 

2,126

 

 

 

 

 

 

 

 

 

 

Deferred rent payable

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

Total liabilities