Submitted
to the Securities and Exchange Commission on December 19,
2016
Registration
No.
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
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FORM
1-A (Amended d)
REGULATION
A OFFERING STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STOCOSIL
INC.
(Exact Name of
Issuer as Specified in Its charter)
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Delaware
(State or Other
Jurisdiction of Incorporation or Organization)
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17870
Castleton Street, Suite 250
City
of Industry, California 91748
(626)
964-5788
(Address, Including
Zip Code, and Telephone Number, Including Area Code, of
Issuer’s Principal Executive Office)
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Pyng
Soon
Chief
Executive Officer
Stocosil
Inc.
17870
Castleton Street, Suite 250
City
of Industry, California 91748
(626)
964-5788
(Name, Address,
Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
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2834
(Primary Standard
Industrial Classification Code Number)
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47-2620984
(IRS Employer
Identification Number)
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This
offering statement shall only be qualified upon order of the
Commission, unless a subsequent amendment is filed indicating the
intention to become qualified by operation of the terms of
Regulation A.
PART
II – INFORMATION REQUIRED IN OFFERING CIRCULAR
An
offering statement pursuant to Regulation A relating to these
securities has been filed with the Securities and Exchange
Commission. Information contained in this Preliminary Offering
Circular is subject to completion or amendment. These securities
may not be sold nor may offers to buy be accepted before the
offering statement filed with the Commission is qualified. This
Preliminary Offering Circular shall not constitute an offer to sell
or the solicitation of an offer to buy nor may there be any sales
of these securities in any state in which such offer, solicitation
or sale would be unlawful before registration or qualification
under the laws of any such state. We may elect to satisfy our
obligation to deliver a Final Offering Circular by sending you a
notice within two business days after the completion of our sale to
you that contains the URL where the Final Offering Circular or the
offering statement in which such Final Offering Circular was filed
may be obtained.
PRELIMINARY
OFFERING CIRCULAR
STOCOSIL
INC.
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Minimum
Offering:
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166,667 Shares
of Common Stock ($2,500,005)
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Maximum
Offering:
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733,340 Shares
of Common Stock ($11,000,100)
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Offering
Price:
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$15.00
per Share
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This is our
initial public offering. We are offering a minimum
of 166,667 Shares and a maximum of 733,340 Shares of
our common stock at a price of $15.00 per share.
This Offering is being conducted pursuant to an
exemption from registration under Regulation A of the Securities
Act of 1933, as amended. The disclosure we are providing
you herein contains the information required by the Offering
Circular format prescribed by Part II of Form 1-A (Amended
d).
Boustead
Securities, LLC (the “Placement Agent”) is acting as
Placement Agent for this Offering on a “best efforts”
basis. The Placement Agent has agreed to use its best
efforts to solicit potential purchasers for the shares of common
stock offered pursuant to this Offering Circular. The Offering must
receive subscriptions for the Minimum Offering if any shares are to
be sold. Potential purchasers will be able to access
the Offering through the Internet Website, www.TheASMX.com, which
is made available by ASMX Capital, LLC ("ASMX") under the
supervision of the Placement Agent. FOLIOfn Investments, Inc.
(“Folio”), a FINRA member and SEC-registered
broker-dealer, will process investor subscriptions and conduct
closings. The Offering will terminate upon the earlier
of: (i) a date mutually acceptable to us and our Placement Agent
following receipt of subscription for the Minimum Offering amount;
or (ii) May 31, 2017 (which date may be extended at our discretion)
(the “Offering Termination Date”). Until we
sell the minimum number of shares offered, all investor funds will
be held in accounts at Folio. No interest will be charged on these
funds. If we do not sell the Minimum Offering amount by May 31,
2017, no investor funds will be provided to us, and all
subscriptions will be cancelled promptly. Subscriptions may be
cancelled at any time prior to a closing by the investor or their
advisor with access to their account. Upon subscription of the
Minimum Offering the net proceeds of the Offering will be delivered
to us by the Offering Termination Date. Investor funds will be
transferred from the investors’ Folio accounts to the account
of the issuer at Folio. The company may undertake one or
more closings on a rolling basis. After each closing, funds
tendered by investors will be available to the
Company.
There is currently
no trading market for our common stock. We anticipate that the
Placement Agent for this Offering will apply for quoting of our
common stock on the OTC Markets or an approved secondary
marketplace upon the qualification of the Offering Statement of
which this Offering Circular forms a
part.
-i-
THE
SECURITIES UNDERLYING THIS OFFERING STATEMENT MAY NOT BE SOLD UNTIL
QUALIFIED BY THE SECURITIES AND EXCHANGE COMMISSION. THIS OFFERING
CIRCULAR IS NOT AN OFFER TO SELL, NOR SOLICITING AN OFFER TO BUY,
ANY SHARES OF OUR COMMON STOCK IN ANY STATE OR OTHER JURISDICTION
IN WHICH SUCH SALE IS PROHIBITED.
GENERALLY,
NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE
PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR
ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO
ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY
REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE
THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(D)(2)(I)(C) OF
REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE
ENCOURAGE YOU TO REFER TO WWW.INVESTOR.GOV.
INVESTMENT
IN SMALL BUSINESS INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD
TO LOSE THEIR ENTIRE INVESTMENT. SEE “RISK FACTORS” ON
PAGE 3 FOR CERTAIN RISKS YOU SHOULD CONSIDER BEFORE PURCHASING ANY
SHARES IN THIS OFFERING.
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Price to
Public
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Placement Agent
Fees (1)
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Proceeds, before
expenses (2)
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Per
share:
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$
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15.00
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$
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1.35
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$
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13.65
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Total
Minimum:
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$
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2,500,005
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$
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225,000
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$
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2,275,005
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Total
Maximum:
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$
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11,000,100
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$
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990,009
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$
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10,010,091
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_______________
(1) Does not
reflect Placement Agent’s right to acquire warrants to
purchase 3% of the aggregate shares of common stock sold in this
Offering at an exercise price of $17.25 per share. See
“Plan of Distribution” beginning on page
33. Also does not reflect up to $30,000 of accountable
expense reimbursement for the fees of underwriter’s counsel
related to filings made pursuant to FINRA Rule 5110.
(2) We
estimate Offering expenses will be $293,500 . See “Use
of Proceeds” beginning on page 38.
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THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON
THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE
TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR
COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION
MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION
FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS
NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED
ARE EXEMPT FROM REGISTRATION.
Our principal
executive office is located at 17870 Castleton Street, Suite 250,
City of Industry, California 91748. Our corporate
telephone phone number is (626) 964-5788. Our corporate
website is www.Stocosil.com.
THE
DATE OF THIS OFFERING CIRCULAR IS December 19,
2016.
-ii-
TABLE
OF CONTENTS
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Page
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Summary
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1
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Risk
Factors
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3
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Special Note
Regarding Forward-Looking Statements
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31
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Dilution
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32
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Plan of
Distribution
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33
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Use of
Proceeds
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38
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Business
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39
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Description of
Property
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51
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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52
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Directors,
Executive Officers and Significant Employees
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57
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Compensation of
Directors and Executive Officers
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58
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Security Ownership
of Management and Certain Security holders
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59
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Interest of
Management and Others in Certain Transactions
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60
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Securities Being
Offered
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61
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Financial
Statements
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F-1
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No person has been authorized to give any information or to make
any representation other than those contained in or incorporated by
reference in this Offering Circular. You should rely
only on the information contained in this Offering Circular and in
any “testing the waters” materials prepared by or on
behalf of us and delivered or made available to
you. Neither we nor any person acting on our behalf have
authorized anyone to provide you with additional or different
information. We are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers and
sales are permitted. The information contained in this
Offering Circular or any “testing the waters” materials
is accurate only as of its date, regardless of its time of delivery
or of any sale of shares of our common stock. Our
business, financial condition, operating results, and prospects may
have changed since that date.
Until ______ ,
2016 (90 days after qualification of the Offering Statement of
which this Offering Circular forms a part), all dealers that buy,
sell or trade shares of our common stock, whether or not
participating in this Offering, may be required to deliver a copy
Offering Circular subject to the provisions of Rule 251(d)(2)(ii)
under Regulation A.
-iii-
SUMMARY
This summary highlights information contained elsewhere in this
Offering Circular. This summary does not contain all of the
information you should consider before investing in our common
stock. You should read this entire Offering Circular carefully,
especially the section in this Offering Circular titled “Risk
Factors,” before making an investment
decision.
As used in this Offering Circular, references to
“Stocosil,” “the Company,”
“we,” “us,” or “our” refer to
Stocosil Inc.
Overview
Our
Company
The Company has
elected its fiscal year end to be June 30.
Stocosil was
founded by incubator Autotelic Inc. in December 2014 for the
purpose of licensing and commercializing ST-101, a fixed-dose
combination bilayer tablet of olmesartan medoxomil (an angiotensin
II receptor blocker) for the treatment of hypertension and
rosuvastatin calcium (a statin) for the treatment of
hypercholesterolemia.
ST-101 is currently
marketed in South Korea under the brand name Olostar® by
Daewoong Pharmaceuticals. Stocosil has licensed the rights
from Daewoong to commercialize ST-101 in the United States, Canada,
Japan, Taiwan and Australia, as well as several Latin American
countries. The license includes Daewoong’s patent
portfolio, comprising a key drug formulation patent.
Our business plan
is to develop and market ST-101 in the United States and other
countries in which we hold a license. No fixed-dose
combination of olmesartan medoxomil and rosuvastatin calcium
currently exists in the United States. Worldwide sales of the
branded versions of olmesartan medoxomil (Benicar®) and
rosuvastatin calcium (Crestor®) in 2014 were $1.2 billion and
$7.6 billion, respectively. Both Benicar® and
Crestor® are scheduled to go off patent in 2016.
Our pipeline
includes follow-on products of therapeutic drug monitoring
(“TDM”) for hypertension patients and tailored therapy
for optimal dosing (ST-102) and therapeutic drug (ST-103) for
treatment of Familial
Hypercholesterolemia, or “FH”, defined
below. Our management team has significant
experience in drug development.
Risks
Related to Our Business
Our
business and our
ability to execute our business strategy are subject to a number of
risks as more fully described in the section titled “Risk
Factors.” These risks include, among
others:
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We are a
development-stage company subject to all of the risks and
uncertainties of a new business, including the risk that we may
never develop, complete development or market any of our products
or generate product related revenues.
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We do not have any
products that are approved for commercial sale and therefore do not
expect to generate any revenues from product sales in the
foreseeable future, if ever.
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We are heavily
dependent on the success of ST-101 ST-102 and ST-103, and we cannot
give any assurance that any of our products will receive regulatory
approval, which is necessary before the products can be
commercialized.
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We expect to rely
on third parties to manufacture our clinical ST-101, ST-102 and
ST-103 supplies and we intend to rely on third parties to produce
commercial supplies of any approved product, and our
commercialization of any of our products could be stopped, delayed
or made less profitable if those third parties fail to obtain
approval of the FDA or comparable foreign regulatory authorities,
fail to provide us with sufficient quantities of products or fail
to do so at acceptable quality levels or
prices.
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Even if we receive
regulatory approval for any of our products, we will be subject to
ongoing obligations and continued regulatory review, which may
result in significant additional expense. Additionally, our
products, if approved, could be subject to labeling and other
restrictions and market withdrawal and we may be subject to
penalties if we fail to comply with regulatory requirements or
experience unanticipated problems with our
products.
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No active market
for our common stock exists or may develop, and you may not be able
to resell your common stock at or above the initial public offering
price.
-1-
Regulation
A+
We are offering our
common stock pursuant to recently adopted rules by the Securities
and Exchange Commission mandated under the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act. These offering
rules are often referred to as “Regulation
A+.” We are relying upon “Tier 2” of
Regulation A+, which allows us to offer of up to $50 million in a
12-month period.
In accordance with
the requirements of Tier 2 of Regulation A+, we will be required to
publicly file annual, semiannual, and current event reports with
the Securities and Exchange Commission after the qualification of
the offering statement of which this Offering Circular forms a
part.
The
Offering
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Common Stock
Offered By Us
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Minimum: 166,667 shares
Maximum: 733,340 shares
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Common Stock
Outstanding
After This
Offering
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Minimum: 5,982,170 shares*
Maximum: 6,548,843 shares*
*includes 1,360,958
shares we intend to issue upon conversion of outstanding
convertible notes upon the closing of this offering.
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Placement
Agent
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We have engaged
Boustead Securities, LLC, a Financial Industry Regulatory Authority
(“FINRA”) and Securities Investors Protection
Corporation (“SIPC”) broker dealer (“Boustead
Securities;” “Placement Agent”) as the
Placement Agent for this Offering. The Placement Agent
must sell the minimum number of shares offered if any are
sold. The Placement Agent is required to use only its
best efforts to sell the shares offered.
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Use of
proceeds
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We intend to use
the net proceeds of this offering to undertake commercial launch
activities for ST-101, to establish sales &
marketing capabilities, and for other research and product
development activities, working capital and general corporate
purposes. See “Use of Proceeds” for a more detailed
description of the intended use of proceeds from this
offering.
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Offering
price
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$15.00 per
share
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Gross
Proceeds
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Minimum: Offering:
$2,500,005
Maximum Offering:
$11,000,100
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Closing
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The offering will
terminate upon the earlier of: (i) a date mutually acceptable to us
and our Placement Agent after the minimum number of shares is sold,
or (ii) May 31, 2017 (which date may be extended at our discretion)
(the “Offering Termination Date”). If we do not
sell the minimum number of shares by May 31, 2017, all funds will
be promptly returned to investors without interest or deduction. If
we complete this offering, net proceeds will be delivered to us on
the closing date.
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Risk
Factors
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See “Risk
Factors” and other information included in this Offering
Circular for a discussion of factors that you should consider
carefully before deciding to invest in our common
stock.
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Secondary
Trading
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We anticipate that
the Placement Agent for this offering will apply for quoting of our
common stock on the OTC Markets or an approved secondary
marketplace upon the qualification of the offering statement of
which this Offering Circular forms a part.
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-2-
RISK FACTORS
Investing in our common stock involves a high degree of
risk. You should carefully consider the risks described
below, as well as the other information in this Offering Circular
before deciding whether to invest in our common
stock. The occurrence of any of the events or
developments described below could harm our financial condition,
results of operations, business and prospects. In such an event,
the market price of our common stock could decline, and you may
lose all or part of your investment. Additional risks
and uncertainties not presently known to us or that we currently
deem immaterial also may harm our business, financial conditions,
result of operations and prospects.
Risks
Related to Our Financial Position and Capital
Requirements
We are a development-stage company subject to all of the risks and
uncertainties of a new business, including the risk that we may
never develop, complete development or market any of our products
or generate product related revenues.
We are a
development-stage pharmaceutical company that began operating and
commenced research and development activities in
2014. Pharmaceutical product development is a highly
speculative undertaking and involves a substantial degree of risk.
There is no assurance that any of our potential products, ST-101,
ST-102 and ST-103 (“products”), will be suitable for
therapeutic use, or develop market and commercialize these
products. We do not expect any of the products to be commercially
available for a few years, if ever. We expect the
clinical development of our products will require significant
additional effort, resources, time and expenses. If we
are unable to make our products commercially available, we may not
be able to fund future operations. Even if we are able
to commercialize our potential products, there is no assurance that
the product (s) would generate revenues or that any revenues
generated would be sufficient for us to become profitable or
thereafter maintain profitability.
We do not have any products that are approved for commercial sale
and therefore do not expect to generate any revenues from product
sales in the foreseeable future, if ever.
We have not
generated any product related revenues to date, and do not expect
to generate any such revenues for at least the next several years,
if ever. To obtain revenues from sales of our potential products,
we must succeed, either alone or with third parties, in developing,
obtaining regulatory approval for, manufacturing and marketing
these products 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 have incurred significant losses since inception and anticipate
that we will incur continued losses for the foreseeable
future.
The Company was
incorporated on December 11, 2014. As of June 30, 2016, our
accumulated deficit was $3,648,939. Nevertheless, we will continue
to incur significant research and development and other expenses
related to our ongoing development of our products. We have
incurred operating losses since our inception, expect to continue
to incur significant operating losses for the foreseeable future,
and we expect these losses to increase as we: (i) conduct
preclinical and clinical testings, (ii) perform clinical
trials (iii) seek regulatory approvals for and (iv)
commercialization of our drug candidates (ST-101, ST-102 and
ST-103). These activities would require expansion of our
corporate infrastructure and headcounts, including the costs to
file this Form 1-A (Amended d) and audit associated
with being a future public company. As such, we are subject to all
risks incidental to the development of new pharmaceutical products
and related companion diagnostics, and we may encounter unforeseen
expenses, difficulties, complications, delays and other unknown
factors that may adversely affect our business. Our continuing
losses, combined with expected future losses, have had and will
continue to have an adverse effect on our stockholders’
equity and working capital.
-3-
We will require substantial additional funding which may not be
available to us on acceptable terms, or at all. If we fail to raise
the necessary additional capital, we may be unable to complete the
development and commercialization of our products, or continue our
development programs.
Our operations have
consumed substantial amounts of cash since inception. We expect to
significantly increase our spending to advance the development of
our products and launch and commercialize the products for which we
receive regulatory approval, including building our own commercial
organizations to address certain markets. We will require
additional capital for the further development and
commercialization of our products, as well as to fund our other
operating expenses and capital expenditures.
We cannot be
certain that additional funding will be available on acceptable
terms, or at all. If we are unable to raise additional capital in
sufficient amounts or on terms acceptable to us, we may have to
significantly delay, scale back or discontinue the development or
commercialization of one or more of our products. We may also seek
collaborators for the products at an earlier stage than otherwise
would be desirable or on terms that are less favorable than might
otherwise be available. Any of these events could significantly
harm our business, financial condition and prospects.
Our future capital
requirements will depend on many factors, including:
●
the progress of the
development of our products, ST-101, ST-102 and
ST-103;
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the time and costs
involved in obtaining regulatory approvals, including orphan drug
approval for ST-103 HoFH;
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the costs involved
in filing and prosecuting patent applications and enforcing or
defending patent claims;
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our plans to
establish sales, marketing and/or manufacturing
capabilities;
●
the effect of
competing technological and market
developments;
●
the terms and
timing of any collaborative, licensing and other arrangements that
we may establish;
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general market
conditions for offerings from pharmaceutical
companies;
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our ability to
establish, enforce and maintain selected strategic alliances and
activities required for product commercialization;
and
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our revenues, if
any, from successful development and commercialization of the
products.
In order to carry
out our business plan and implement our strategy, we anticipate
that we will need to obtain additional financing from time to time
and may choose to raise additional funds through strategic
collaborations, licensing arrangements, public or private equity or
debt financing, bank lines of credit, asset sales, government
grants, or other arrangements. We cannot be sure that any
additional funding, if needed, will be available on terms favorable
to us or at all. Furthermore, any additional equity or
equity-related financing may be dilutive to our stockholders, and
debt or equity financing, if available, may subject us to
restrictive covenants and significant interest costs. If we obtain
funding through a strategic collaboration or licensing arrangement,
we may be required to relinquish our rights to certain of our
products or marketing territories.
Our inability to
raise capital when needed would harm our business, financial
condition and results of operations, and could cause our stock
price to decline or require that we wind down our operations
altogether.
-4-
Risks
Related to Our Business and Industry
We are heavily dependent on the success of ST-101, ST-102 and
ST-103, and we cannot give any assurance that any of our products
will receive regulatory approval, which is necessary before the
products can be commercialized.
To date, we have
invested a significant portion of our efforts and financial
resources in the acquisition and development of the product
candidates. As an early stage company, we have limited experience
and have not yet demonstrated an ability to successfully overcome
many of the risks and uncertainties frequently encountered by
companies in new and rapidly evolving fields, particularly in the
pharmaceutical area. Our future success is substantially dependent
on our ability to successfully develop, obtain regulatory approval
for, and then successfully commercialize such products. The
products are currently in clinical development. Our business
depends entirely on the successful development and
commercialization of the products, which may never occur. We
currently generate no revenues from any sales, and we may never be
able to develop or commercialize a marketable drug.
The successful
development, and any commercialization, of our technologies and any
of the products would require us to successfully perform a variety
of functions, including:
●
developing both
ST-101, ST-102 and ST-103;
●
identifying,
developing, manufacturing and commercializing the
products;
●
entering into
successful licensing and other arrangements with product
development partners;
●
obtaining
regulatory approval for the products;
●
conducting sales
and marketing activities.
Our operations have
been limited to organizing our company, acquiring, developing and
securing our proprietary technology and identifying and obtaining
early preclinical data or clinical data for the products. These
operations provide a limited basis for you to assess our ability to
continue to develop ST-101, ST-102 and ST-103, to develop and
commercialize any other product that we are able to enter into
successful collaborative arrangements with other companies, as well
as for you to assess the advisability of investing in our
securities. Each of these requirements will require substantial
time, effort and financial resources.
Each of the
products will require additional preclinical and clinical
development, management of preclinical, clinical and manufacturing
activities, and obtaining regulatory approval in multiple
jurisdictions, obtaining manufacturing supply, building of a
commercial organization, and significant marketing efforts before
we generate any revenues from product sales. We are not permitted
to market or promote any of the products in the U.S. before we
receive regulatory approval from the U.S. Food and Drug
Administration, or FDA, or comparable foreign regulatory
authorities in the applicable territory, and we may never receive
such regulatory approval for any of the products, anywhere in the
world. In addition, TDM companion diagnostics are subject to
regulation as medical devices and must themselves be approved for
marketing in the U.S. by the FDA or certain other foreign
regulatory agencies in their respective territories before we may
commercialize ST-102.
Our
most rapid and cost effective access to market approval for our
products depends on meeting the conditions for approval under
Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act,
or FFDCA.
We are seeking
approval for our products under Section 505(b)(2) of the
FFDCA, enacted as part of the Drug Price Competition and Patent
Restoration Act of 1984, otherwise known as the Hatch-Waxman Act,
which permits applicants to rely in part on preclinical and
clinical data generated by third parties.
Specifically, with
respect to our products, we are relying in part on third party
data on olmesartan medoxomil and rosuvastatin calcium, which are
the active ingredients in our products and each are separately
approved products in the US. There can be no assurance that the FDA
will not require us to conduct additional preclinical or clinical
studies or otherwise obtain new supplementary data with respect to
some or all of the data upon which we may rely prior to approving
NDAs for our products.
-5-
Our NDA also relies
on prior FDA findings of safety and effectiveness of previously
approved reference drugs, and we will make certifications in our
NDA under Section 505(b)(2) requirements based on the listed
patents in the FDA publication “Approved Drug Products with
Therapeutics Equivalence Evaluations,” or the Orange Book,
for certain of these referenced products. In the event that one or
more patents is listed in the Orange Book for the referenced
product after our submission of additional information in support
of our NDA for FDC, we may also be required to evaluate the
applicability of these patents to our products and submit
additional certifications. A paragraph III certification, stating
that a listed patent has not expired, but will expire on a
particular date, may delay the approval of our products until the
expiration of the patent. A paragraph IV certification, stating
that a listed patent is invalid, unenforceable, or not infringed by
our products may require us to notify the patent owner and the
holder of the NDA for the referenced product of the existence of
the NDA for our particular product, and may result in patent
litigation against us and the entry of a 30-month stay of
FDA’s ability to issue final approval of the 505(b)(2) NDA
for such product.
Our success also
relies, in part, on obtaining Hatch-Waxman marketing exclusivity in
connection with any approval of a NDA for our product. Such
exclusivity protection would preclude the FDA from approving a
marketing application for a duplicate of our product, a
product that the FDA views as having the same conditions of
approval as our product (for example, the same
indication, the same route of delivery and/or other conditions of
use), or a 505(b)(2) NDA submitted to the FDA with our
product as the reference product, for a period of three years
from the date of our approval, although the FDA may
accept and commence review of such applications. This form of
exclusivity may not prevent FDA approval of an NDA that relies only
on its own data to support the change or innovation. Similarly, if,
prior to approval of the NDA for our product, another
company obtains approval for a product candidate under, in the view
of the FDA, the same conditions of approval that we are seeking
for our product, our product could be blocked until the
other company’s three-year Hatch-Waxman marketing exclusivity
expires.
Clinical drug development involves a lengthy and expensive process
with an uncertain outcome, and results of earlier studies and
trials may not be predictive of future trial results.
Clinical testing is
expensive and can take many years to complete, and its outcome is
inherently uncertain. Failure can occur at any time during the
clinical trial process. The results of preclinical studies and
early clinical trials of the products may not be predictive of the
results of later-stage clinical trials. The products in later
stages of clinical trials may fail to show the desired safety and
efficacy traits despite having progressed through preclinical
studies and initial clinical trials. It is not uncommon for
companies in the pharmaceutical industry to suffer significant
setbacks in advanced clinical trials due to lack of efficacy or
adverse safety profiles, notwithstanding promising results in
earlier trials. Our future clinical trial results may not be
successful.
Each
product’s development risk is heightened by any changes in
the planned clinical trials compared to the completed clinical
trials. As products are developed through preclinical to early and
late stage clinical trials towards approval and commercialization,
it is customary that various aspects of the development program,
such as manufacturing and methods of administration, are altered
along the way in an effort to optimize processes and results. While
these types of changes are common and are intended to optimize the
products for late stage clinical trials, approval and
commercialization, such changes do carry the risk that they will
not achieve these intended objectives.
We have not
previously initiated or completed a corporate-sponsored clinical
trial. Consequently, we may not have the necessary capabilities,
including adequate staffing, to successfully manage the execution
and completion of any clinical trials we initiate, including our
planned clinical trials of ST-101, ST-102 and ST-103, in a way that
leads to our obtaining marketing approval for the product
candidates in a timely manner, or at all.
In the event we are
able to conduct a pivotal clinical trial of our products, the
results of such trial may not be adequate to support marketing
approval. For any such pivotal trial, if the FDA disagrees with our
choice of primary endpoint or the results for the primary endpoint
are not robust or significant relative to control, are subject to
confounding factors, or are not adequately supported by other study
endpoints, including targeted BP and LDC-C levels, the FDA may
refuse to approve our products based on such
pivotal trial. The FDA may require additional clinical trials as a
condition for approving our products.
-6-
Delays in clinical testing could result in increased costs to us
and delay our ability to generate revenue.
Although we are
planning for certain clinical trials relating to ST-101, ST-102 and
ST-103, there can be no assurance that the FDA will accept our
proposed trial designs. We may experience delays in our clinical
trials and we do not know whether planned clinical trials will
begin on time, need to be redesigned, enroll patients on time or be
completed on schedule, if at all. Clinical trials can be delayed
for a variety of reasons, including delays related to:
●
obtaining
regulatory approval to commence a trial;
●
reaching agreement
on acceptable terms with prospective contract research
organizations, or CROs, and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary
significantly among different CROs and trial
sites;
●
obtaining
institutional review board, or IRB, approval at each
site;
●
recruiting suitable
patients to participate in a trial;
●
clinical sites
deviating from the clinical trial protocol or dropping out of a
trial;
●
having patients
complete a trial or return for post-treatment
follow-up;
●
developing and
validating TDM companion diagnostics on a timely
basis;
●
adding new clinical
trial sites; or
●
manufacturing
sufficient quantities of the products for use in clinical
trials.
Patient enrollment,
a significant factor in the timing of clinical trials, is affected
by many factors including the size and nature of the patient
population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, the design of the clinical
trial, competing clinical trials and clinicians’ and
patients’ perceptions as to the potential advantages of the
drug being studied in relation to other available therapies,
including any new drugs that may be approved for the indications we
are investigating. Furthermore, we intend to rely on CROs and
clinical trial sites to ensure the proper and timely conduct of our
clinical trials and we intend to have agreements governing their
committed activities, we will have limited influence over their
actual performance.
We could encounter
delays if a clinical trial is suspended or terminated by us, by the
IRBs of the institutions in which such trials are being conducted,
by the Data Safety Monitoring Board, or DSMB, for such trial or by
the FDA or other regulatory authorities. Such authorities may
impose such a suspension or termination due to a number of factors,
including failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols, inspection of
the clinical trial operations or trial site by the FDA or other
regulatory authorities resulting in the imposition of a clinical
hold, unforeseen safety issues or adverse side effects, failure to
demonstrate a benefit from using a drug, changes in governmental
regulations or administrative actions or lack of adequate funding
to continue the clinical trial.
If we experience
delays in the completion of, or termination of, any clinical trial
of the products, the commercial prospects of the products will be
harmed, and our ability to generate product revenues from any of
these products will be delayed. In addition, any delays in
completing our clinical trials will increase our costs, slow down
our product development and approval process and jeopardize our
ability to commence product sales and generate revenues. Any of
these occurrences may harm our business, financial condition and
prospects significantly. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of
clinical trials may also ultimately lead to the denial of
regulatory approval of the products.
-7-
Competition
for patients in conducting clinical trials may prevent or delay
product development and strain our limited financial
resources.
Many pharmaceutical
companies are conducting clinical trials in patients with the
disease indications that our potential products target. As a
result, we must compete with them for clinical sites, physicians
and the limited number of patients who fulfill the stringent
requirements for participation in clinical trials. Also, due to the
confidential nature of clinical trials, we do not know how many of
the eligible patients may be enrolled in competing studies and who
are consequently not available to us for our clinical trials. Our
clinical trials may be delayed or terminated due to the inability
to enroll enough patients. Patient enrollment depends on many
factors, including the size of the patient population, the nature
of the trial protocol, the proximity of patients to clinical sites
and the eligibility criteria for the study. The delay or inability
to meet planned patient enrollment may result in increased costs
and delays or termination of the trial, which could have a harmful
effect on our ability to develop products.
The regulatory approval processes of the FDA and comparable foreign
authorities are lengthy, time consuming and inherently
unpredictable, and if we are ultimately unable to obtain regulatory
approval for our products, our business will be substantially
harmed.
The time required
to obtain approval by the FDA and comparable foreign authorities is
unpredictable but typically takes many years following the
commencement of clinical trials and depends upon numerous factors,
including the substantial discretion of the regulatory authorities.
In addition, approval policies, regulations, or the type and amount
of clinical data necessary to gain approval may change during the
course of a products clinical development and may vary among
jurisdictions. We have not obtained regulatory approval for any of
our products and it is possible that none of our existing products
or any product we may seek to develop in the future will ever
obtain regulatory approval.
Our products could
fail to receive regulatory approval for many reasons, including the
following:
●
the FDA or
comparable foreign regulatory authorities may disagree with the
design or implementation of our clinical
trials;
●
we may be unable to
demonstrate to the satisfaction of the FDA or comparable foreign
regulatory authorities that our products are safe and effective for
its proposed indication;
●
the results of
clinical trials may not meet the level of statistical significance
required by the FDA or comparable foreign regulatory authorities
for approval;
●
the FDA or
comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical
trials;
●
the FDA or
comparable foreign regulatory authorities may fail to approve the
TDM companion diagnostics we contemplate developing with
partners;
●
the FDA may
disapprove the orphan drug designation for ST-103 HoFH;
and
●
the approval
policies or regulations of the FDA or comparable foreign regulatory
authorities may significantly change in a manner rendering our
clinical data insufficient for approval.
This lengthy
approval process as well as the unpredictability of future clinical
trial results may result in our failing to obtain regulatory
approval to market our products, which would significantly harm our
business, results of operations and prospects.
In addition, even
if we were to obtain approval, regulatory authorities may approve
any of our products for fewer or more limited indications than we
request, may not approve the price we intend to charge for our
products, may grant approval contingent on the performance of
costly post-marketing clinical trials, or may approve our products
with a label that does not include the labeling claims necessary or
desirable for the successful commercialization of our products. Any
of the foregoing scenarios could materially harm the commercial
prospects for our products.
We have not
previously submitted a New Drug Application, or NDA, to the FDA, or
similar drug approval filings to comparable foreign authorities,
for our products, and we cannot be certain that any of our products
will be successful in clinical trials or receive regulatory
approval. Further, our products may not receive regulatory approval
even if they are successful in clinical trials. If we do not
receive regulatory approvals for our products, we may not be able
to continue our operations. If the markets for patients that we are
targeting for our products are not as significant as we estimate,
we may not generate significant revenues from sales of such
products, if approved.
We plan to seek
regulatory approval to commercialize our products in the U.S.,
Canada, Japan, Taiwan, certain South American countries and
Australia. While the scope of regulatory approval is similar in
other countries, to obtain separate regulatory approval in many
other countries we must comply with numerous and varying regulatory
requirements of such countries regarding safety and efficacy and
governing, among other things, clinical trials and commercial
sales, pricing and distribution of our products, and we cannot
predict success in any jurisdictions.
-8-
Our
products may cause undesirable side effects or have other
properties that could delay or prevent their regulatory approval,
limit the commercial profile of an approved label, or result in
significant negative consequences following marketing approval, if
any.
Undesirable side
effects caused by our products could cause us or regulatory
authorities to interrupt, delay or halt clinical trials and could
result in a more restrictive label or the delay or denial of
regulatory approval by the FDA or other comparable foreign
authorities. The drug-related side effects could affect
patient recruitment or the ability of enrolled patients to complete
the trial or result in potential product liability claims. Any of
these occurrences may harm our business, financial condition and
prospects significantly.
Additionally if one
or more of our products receive marketing approval, and we or
others later identify undesirable side effects caused by such
products, a number of potentially significant negative consequences
could result, including:
●
regulatory
authorities may withdraw approvals of such
products;
●
regulatory
authorities may require additional warnings on the label for such
products;
●
we may be required
to create a medication guide outlining the risks of such side
effects for distribution to patients
●
we could be sued
and held liable for harm caused to patients;
and
●
our reputation may
suffer
Any of these events
could prevent us from achieving or maintaining market acceptance of
the particular product or for particular indications of a product,
if approved, and could significantly harm our business, results of
operations and prospects.
We
rely on third parties to conduct our preclinical and clinical
trials. If these third parties do not successfully perform their
contractual legal and regulatory duties or meet expected deadlines,
we may not be able to obtain regulatory approval for or
commercialize our products and our business could be substantially
harmed.
We plan to rely
upon third-party CROs to monitor and manage data for our
preclinical and clinical programs. We rely on these parties for
execution of our preclinical and clinical trials, and control only
certain aspects of their activities. Nevertheless, we are
responsible for ensuring that each of our studies is 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 current good clinical practices, or cGCP, which are
regulations and guidelines enforced by the FDA, or in foreign
jurisdictions, promulgated and enforced by the applicable
regulatory authorities of such foreign jurisdictions, for all of
our products in clinical development.
Regulatory
authorities enforce these cGCPs through periodic inspections of
trial sponsors, principal investigators and trial sites. If we or
any of our CROs fail to comply with applicable cGCPs, the clinical
data generated in our clinical trials may be deemed unreliable and
the FDA or comparable foreign regulatory authorities may require us
to perform additional clinical trials before approving our
marketing applications. We cannot assure you that upon inspection
by a given regulatory authority, such regulatory authority will
determine that any of our clinical trials comply with cGCP
regulations. In addition, our clinical trials must be conducted
with products produced under current good manufacturing practices,
or cGMP, regulations. Our failure to comply with these regulations
may require us to repeat clinical trials, which would delay the
regulatory approval process.
If any of our
relationships with our CROs terminate, we may not be able to enter
into arrangements with alternative CROs or to do so on commercially
reasonable terms. In addition, our CROs are not our employees, and
except for remedies available to us under our agreements with such
CROs, we cannot control whether or not they devote sufficient time
and resources to our clinical, nonclinical and preclinical
programs. If CROs do not successfully carry out their contractual
duties or obligations or meet expected deadlines, if they need to
be replaced or if the quality or accuracy of the data they obtain
is compromised due to the failure to adhere to our clinical
protocols, regulatory requirements or for other reasons, our
clinical trials may be extended, delayed or terminated and we may
not be able to obtain regulatory approval for or successfully
commercialize our products. As a result, our operations and the
commercial prospects for our products would be harmed, our costs
could increase and our ability to generate revenues could be
delayed.
-9-
Switching or adding
additional CROs involves additional cost and requires management
time and focus. In addition, there is a natural transition period
when a new CRO commences work. As a result, delays occur, which can
materially impact our ability to meet our desired clinical
development timelines. Though we carefully manage our relationships
with our CROs, there can be no assurance that we will not encounter
similar challenges or delays in the future or that these delays or
challenges will not have a material adverse impact on our business,
financial condition and prospects.
We expect to rely on third parties to manufacture our clinical
ST-101, ST-102 and ST-103 supplies and we intend to rely on third
parties to produce commercial supplies of any approved product, and
our commercialization of any of our products could be stopped,
delayed or made less profitable if those third parties fail to
obtain approval of the FDA or comparable foreign regulatory
authorities, fail to provide us with sufficient quantities of
products or fail to do so at acceptable quality levels or
prices.
We do not currently
have nor do we plan to acquire the infrastructure or capability
internally to manufacture our clinical supplies or products for use
in the conduct of our clinical trials, and we lack the resources
and the capability to manufacture any of our products on a clinical
or commercial scale. We do not control the manufacturing process
of, and are completely dependent on, our contract manufacturing
partners for compliance with the cGMP regulatory requirements for
manufacture of both active drug substances and finished drug
products. If our contract manufacturers cannot successfully
manufacture material that conforms to the strict regulatory
requirements of the FDA or other foreign regulatory authorities,
they will not be able to secure and/or maintain regulatory approval
for their manufacturing facilities. In addition, we have no control
over the ability of our contract manufacturers to maintain adequate
quality control, quality assurance and qualified personnel. If the
FDA or a comparable foreign regulatory authority does not approve
these facilities for the manufacture of our products or if it
withdraws any such approval in the future, we may need to find
alternative manufacturing facilities, which would significantly
impact our ability to develop, obtain regulatory approval for or
market our products , if approved.
With respect to
ST-101, we are solely dependent on and are required to purchase
from Daewoong all of our required supplies of ST-101, and there can
be no assurance that the product we receive from Daewoong is
manufactured in accordance with applicable regulatory requirements
or that Daewoong will provide us with all of the product that we
require. Our reliance on Daewoong and any failure of
Daewoong to supply ST-101, would impact our ability to further
develop and obtain approval for ST-101, ST-102 and ST-103, or to
successfully commercialize the products, even if
approved. Any failure of Daewoong in supplying ST-101 to
meet our requirements, including cGMP standards, would risk
significant delay and potential non-approvability of ST-101, which
would have a material adverse effect on our business and
operations.
If we terminate
Daewoong as our manufacturing CRO, we may not be able to enter into
arrangements with alternative CROs or to do so on commercially
reasonable terms. Switching or adding additional CROs involves
additional cost and requires management time and focus. In
addition, there is a natural transition period when a new CRO
commences work. As a result, delays occur, which can materially
impact our ability to meet our desired clinical development
timelines. Though we carefully manage our relationships with our
CROs, there can be no assurance that we will not encounter similar
challenges or delays in the future or that these delays or
challenges will not have a material adverse impact on our business,
financial condition and prospects.
Material necessary to manufacture our products may not be available
on commercially reasonable terms, or at all, which may delay the
development and commercialization of our products.
We rely on our
manufacturers to produce or purchase from third-party suppliers the
materials necessary to produce our products for our clinical
trials. There are a limited number of suppliers for raw materials
that we use to manufacture our drugs and there may be a need to
assess alternate suppliers to prevent a possible disruption of the
manufacture of the materials necessary to produce our products for
our clinical trials, and if approved, ultimately for commercial
sale. We do not have any control over the process or timing of the
acquisition of these raw materials by our manufacturers. Except for
the manufacture and supply of ST-101, we currently do not have any
agreements for the production of products. Any significant delay in
the supply of a product, or the raw material components thereof,
for an ongoing clinical trial due to the need to replace a
third-party manufacturer could considerably delay completion of our
clinical trials, product testing and potential regulatory approval
of our products. If our manufacturers or we are unable to purchase
these raw materials after regulatory approval has been obtained for
our product, the commercial launch of our product would be delayed
or there would be a shortage in supply, which would impair our
ability to generate revenues from the sale of our
product.
-10-
We expect to
continue to depend on third-party contract manufacturers for the
foreseeable future. We have not entered into long-term agreements
with any of our current contract manufacturers or with any
fill/finish suppliers, and though we intend to do so prior to
commercial launch of our products in order to ensure that we
maintain adequate supplies of finished product, we may be unable to
enter into such an agreement or do so on commercially reasonable
terms, which could have a material adverse impact upon our
business.
We currently have no sales and marketing organization. If we are
unable to establish a direct sales force in the U.S. to promote our
products, the commercial opportunity for our products may be
diminished.
We currently have
no sales and marketing organization. If any of our products are
approved by the FDA, The Company plans to commercialize ST-101
through the pharmaceutical distribution channels with partner(s)
either through an exclusive or non-exclusive distribution license
or partnership. The partner would already have
established footprint/sale force in the applicable territory with
menu of similar products, allowing us to rapidly launch our
products without incurring cost associated with building out a
sales and marketing team. The Company may build a core sales and
marketing team to oversee the sales and marketing of
ST-101. This core team will be responsible for the build
out of sales and marketing team to support the launch of ST-102 and
ST-103 and all subsequent products in its pipeline. We will incur
significant additional expenses and commit significant additional
management resources to establish our sales force. We may not be
able to establish these capabilities despite these additional
expenditures. We will also have to compete with other
pharmaceutical and biotechnology companies to recruit, hire and
train sales and marketing personnel. If we elect to rely on third
parties to sell our products in the U.S., we may receive less
revenue than if we sold our products directly. In addition,
although we would intend to diligently monitor their activities, we
may have little or no control over the sales efforts of those third
parties. In the event we are unable to develop our own sales force
or collaborate with a third party to sell our products, we may not
be able to commercialize our products which would negatively impact
our ability to generate revenue.
We may not be able
to enter into any marketing arrangements on favorable terms or at
all. If we are unable to enter into a marketing arrangement for our
products, we may not be able to develop an effective sales force to
successfully commercialize our products. If we fail to enter into
marketing arrangements for our products and are unable to develop
an effective sales force, our ability to generate revenue would be
limited.
We may need others to market and commercialize our product
candidates in international markets.
In the future, if
appropriate regulatory approvals are obtained, we may commercialize
our products in international markets. However, we have not decided
how we will commercialize our products in those markets. We may
decide to build our own sales force or sell our products through
third parties. If we decide to sell our products in international
markets through a third party, we may not be able to enter into any
marketing arrangements on favorable terms or at all. In addition,
these arrangements could result in lower levels of income to us
than if we marketed our products entirely on our own. If we are
unable to enter into a marketing arrangement for our products in
international markets, we may not be able to develop an effective
international sales force to successfully commercialize our
products in international markets. If we fail to enter into
marketing arrangements for our products and are unable to develop
an effective international sales force, our ability to generate
revenue would be limited.
Even if we receive regulatory approval for any of our products, we
will be subject to ongoing obligations and continued regulatory
review, which may result in significant additional expense.
Additionally, our products, if approved, could be subject to
labeling and other restrictions and market withdrawal and we may be
subject to penalties if we fail to comply with regulatory
requirements or experience unanticipated problems with our
products.
Any regulatory
approvals that we receive for our products may also be subject to
limitations on the approved indicated uses for which the product
may be marketed or to the conditions of approval, or contain
requirements for potentially costly post-marketing testing,
including Phase IV clinical trials, and surveillance to
monitor the safety and efficacy of the product. In addition, if the
FDA or a comparable foreign regulatory authority approves any of
our products, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising,
promotion and recordkeeping for the product will be subject to
extensive and ongoing regulatory requirements. These requirements
include submissions of safety and other post-marketing information
and reports, registration, as well as continued compliance with
cGMPs and cGCPs for any clinical trials that we conduct
post-approval. The future discovery of previously unknown problems
with a product, including adverse events of unanticipated severity
or frequency, or with our third-party manufacturers or
manufacturing processes, or failure to comply with regulatory
requirements, may result in, among other things:
-11-
●
restrictions on the
marketing or manufacturing of the product, withdrawal of the
product from the market, or voluntary or mandatory product
recalls;
●
fines, warning
letters or holds on clinical trials;
●
refusal by the FDA
to approve pending applications or supplements to approved
applications filed by us, or suspension or revocation of product
license approvals;
●
product seizure or
detention, or refusal to permit the import or export of products;
and
●
injunctions or the
imposition of civil or criminal penalties.
The FDA’s
policies may change and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of
our products. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance,
we may lose any marketing approval that we may have obtained, which
would adversely affect our business, prospects and ability to
achieve or sustain profitability.
We will need to obtain FDA approval of any proposed product brand
names, and any failure or delay associated with such approval may
adversely impact our business.
A pharmaceutical
product cannot be marketed in the U.S. or other countries until we
have completed rigorous and extensive regulatory review processes,
including approval of a brand name. Any brand names we intend to
use for our products will require approval from the FDA regardless
of whether we have secured a formal trademark registration from the
U.S. Patent and Trademark Office, or the PTO. The FDA typically
conducts a review of proposed product brand names, including an
evaluation of potential for confusion with other product names. The
FDA may also object to a product brand name if the FDA believes the
name inappropriately implies medical claims. If the FDA objects to
any of our proposed product brand names, we may be required to
adopt an alternative brand name for our products. We may
be required to expend significant resources in an effort to
identify a suitable product brand name that would qualify under
applicable trademark laws, not infringe the existing rights of
third parties and be acceptable to the FDA. We may be unable to
build a successful brand identity for a new trademark in a timely
manner or at all, which would limit our ability to commercialize
our products.
Our failure to successfully discover, acquire, develop and market
additional product candidates or approved products would impair our
ability to grow.
As part of our
growth strategy, we intend to develop and market additional
products and product candidates. We are pursuing various
therapeutic opportunities through our pipeline. We may spend
several years completing our development of any particular current
or future internal product candidate, and failure can occur at any
stage. The product candidates to which we allocate our resources
may not end up being successful. In addition, because our internal
research capabilities are limited, we may be dependent upon
pharmaceutical and biotechnology companies, academic scientists and
other researchers to sell or license products or technology to us.
The success of this strategy depends partly upon our ability to
identify, select, discover and acquire promising pharmaceutical
product candidates and products. Failure of this strategy would
impair our ability to grow.
The process of
proposing, negotiating and implementing a license or acquisition of
a product candidate or approved product is lengthy and complex.
Other companies, including some with substantially greater
financial, marketing and sales resources, may compete with us for
the license or acquisition of product candidates and approved
products. We have limited resources to identify and execute the
acquisition or in-licensing of third-party products, businesses and
technologies and integrate them into our current infrastructure.
Moreover, we may devote resources to potential acquisitions or
in-licensing opportunities that are never completed, or we may fail
to realize the anticipated benefits of such efforts. We may not be
able to acquire the rights to additional product candidates on
terms that we find acceptable, or at all.
-12-
In addition, future
acquisitions may entail numerous operational and financial risks,
including:
●
disruption of our
business and diversion of our management’s time and attention
to develop acquired products or technologies;
●
incurrence of
substantial debt, dilutive issuances of securities or depletion of
cash to pay for acquisitions;
●
higher than
expected acquisition and integration costs;
●
difficulty in
combining the operations and personnel of any acquired businesses
with our operations and personnel;
●
increased
amortization expenses;
●
impairment of
relationships with key suppliers or customers of any acquired
businesses due to changes in management and
ownership;
●
inability to
motivate key employees of any acquired businesses;
and
●
assumption of known
and unknown liabilities.
Further, any
product candidate that we acquire may require additional
development efforts prior to commercial sale, including extensive
clinical testing and approval by the FDA and applicable foreign
regulatory authorities. All product candidates are prone to risks
of failure typical of pharmaceutical product development, including
the possibility that a product candidate will not be shown to be
sufficiently safe and effective for approval by regulatory
authorities.
Our commercial success depends upon us attaining significant market
acceptance of our product candidates, if approved for sale, among
physicians, patients, healthcare payors and the medical
community.
Even if we obtain
regulatory approval for our products, the product may not gain
market acceptance among physicians, health care payors, patients
and the medical community, which are critical to commercial
success. Market acceptance of any product for which we receive
approval depends on a number of factors, including:
●
the efficacy and
safety as demonstrated in clinical trials;
●
the timing of
market introduction of such product candidate as well as
competitive products;
●
the clinical
indications for which the drug is approved;
●
acceptance by
physicians and patients of the drug as a safe and effective
treatment;
●
the safety of such
product seen in a broader patient group, including its use outside
the approved indications;
●
the availability,
cost and potential advantages of alternative treatments, including
individual generic drugs;
●
the availability of
adequate reimbursement and pricing by third-party payors and
government authorities;
●
the relative
convenience and ease of administration of ST-101 for clinical
practices;
●
the product
labeling or product insert required by the FDA or regulatory
authority in other countries;
●
the prevalence and
severity of adverse side effects; and
●
the effectiveness
of our sales and marketing efforts.
-13-
If any product
candidate that we develop does not provide a treatment regimen that
is as beneficial as, or is perceived as being as beneficial as, the
current standard of care or otherwise does not provide patient
benefit, that product, if approved for commercial sale by the FDA
or other regulatory authorities, likely will not achieve market
acceptance. Our ability to effectively promote and sell any
approved products will also depend on pricing and
cost-effectiveness, including our ability to produce a product at a
competitive price and our ability to obtain sufficient third-party
coverage or reimbursement. If any product is approved but does not
achieve an adequate level of acceptance by physicians, patients and
third-party payors, our ability to generate revenues from that
product would be substantially reduced. In addition, our efforts to
educate the medical community and third-party payors on the
benefits of our product candidates may require significant
resources, are subject to FDA rules and policies on product
promotion, and may never be successful.
If we cannot compete successfully against other biotechnology and
pharmaceutical companies, we may not be successful in developing
and commercializing our technology and our business will
suffer.
The biotechnology
and pharmaceutical industries are characterized by intense
competition and rapid technological advances, both in the U.S. and
internationally. Our products compete directly with current
marketed products, olmesartan medoxomil and rosuvastatin
calcium. Olmesartan medoxomil is already approved for
treating hypertension and rosuvastatin calcium is already approved
for treating hypercholesterolemia. Each drug
mentioned above will compete with our products. Specifically,
we will compete against fully integrated pharmaceutical companies
and smaller companies that are collaborating with larger
pharmaceutical companies, academic institutions, government
agencies and other public and private research organizations. Many
of these competitors have validated technologies with individual
drugs, which are already FDA-approved or are in various stages of
development. In addition, many of these competitors, either alone
or together with their collaborative partners, operate larger
research and development programs and have substantially greater
financial resources than we do, as well as significantly greater
experience in:
●
developing product
candidates and technologies generally;
●
undertaking
preclinical testing and clinical trials;
●
obtaining FDA and
other regulatory approvals of product
candidates;
●
formulating and
manufacturing product candidates; and
●
launching,
marketing and selling product candidates.
Many of our
competitors have substantially greater financial, technical and
other resources, such as larger research and development staff and
experienced marketing and manufacturing organizations. Additional
mergers and acquisitions in the biotechnology and pharmaceutical
industries may result in even more resources being concentrated in
our competitors. As a result, these companies may obtain regulatory
approval more rapidly than we are able and may be more effective in
selling and marketing their products as well. Smaller or
early-stage companies or generic pharmaceutical manufacturers may
also prove to be significant competitors, particularly through
collaborative arrangements with large, established companies.
Competition may increase further as a result of advances in the
commercial applicability of technologies and greater availability
of capital for investment in these industries. Our competitors may
succeed in developing, acquiring or licensing on an exclusive basis
certain drug products that are more effective or less costly than
any product that we are currently developing or that we may
develop. If approved, our products will face competition from
commercially available drugs as well as drugs that are in the
development pipelines of our competitors and later enter the
market.
Established
pharmaceutical companies may invest heavily to accelerate discovery
and development of novel compounds or to in-license novel compounds
that could make our products less competitive. In addition, any new
product that competes with an approved product must demonstrate
compelling advantages in efficacy, convenience, tolerability and
safety in order to overcome price competition and to be
commercially successful. Accordingly, our competitors may succeed
in obtaining patent protection, receiving FDA or other regulatory
approval or discovering, developing and commercializing medicines
before we do, which would have a material adverse impact on our
business. If our technologies fail to compete effectively against
third party technologies, our business will be adversely
impacted.
-14-
We expect that our
ability to compete effectively will depend upon our ability
to:
●
successfully and
efficiently complete clinical trials and submit for and obtain all
requisite regulatory approvals in a cost-effective
manner;
●
maintain a
proprietary position for our products and manufacturing processes
and other related product technology;
●
attract and retain
key personnel;
●
develop
relationships with physicians prescribing these products;
and
●
build an adequate
sales and marketing infrastructure for our product
candidates.
Because we will be
competing against significantly larger companies with established
track records, we will have to demonstrate that, based on
experience, clinical data, side-effect profiles and other factors,
our products, if approved, are competitive with other
products.
If approved, our products will face competition from less expensive
generic individual products of competitors and, if we are unable to
differentiate the benefits of our products over these less
expensive alternatives, we may never generate meaningful product
revenues.
Olmesartan
medoxomil and rosuvastatin calcium therapies will be sold
individually as generic products at lower prices in the near
future, when the patents covering them begin to expire in
approximately 2016 or earlier if the patents are successfully
challenged. We anticipate that, if approved, our products will
face increased competition in the form of generic versions of
branded products of competitors that have lost or will lose their
patent exclusivity. For example, ST-101, if approved, will
initially face competition from the less expensive generic forms of
olmesartan medoxomil and rosuvastatin calcium. If we are unable to
demonstrate to physicians, health care payors, patients and the
medical community that the key differentiating features of our
products translate to overall clinical benefit or lower cost of
care, we may not be able to compete with generic
alternatives.
Reimbursement may be limited or unavailable in certain market
segments for our products, which could make it difficult for us to
sell our products profitably.
There is
significant uncertainty related to the third-party coverage and
reimbursement of newly approved drugs. We intend to seek approval
to market our products in the United States, Canada, Australia,
Japan, Taiwan and certain South American countries. Market
acceptance and sales of our products in both domestic and
international markets will depend significantly on the availability
of adequate coverage and reimbursement from third-party payors for
any of our products and may be affected by existing and future
health care reform measures. Government and other third-party
payors are increasingly attempting to contain healthcare costs by
limiting both coverage and the level of reimbursement for new drugs
and, as a result, they may not cover or provide adequate payment
for our products. These payors may conclude that our products are
less safe, less effective or less cost-effective than existing or
future introduced products, and third-party payors may not approve
our products for coverage and reimbursement or may cease providing
coverage and reimbursement for these products.
Obtaining coverage
and reimbursement approval for a product from a government or other
third-party payor is a time consuming and costly process that could
require us to provide to the payor supporting scientific, clinical
and cost-effectiveness data for the use of our products. We may not
be able to provide data sufficient to gain acceptance with respect
to coverage and reimbursement. If reimbursement of our future
products is unavailable or limited in scope or amount, or if
pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability.
In some foreign
countries, the pricing of prescription pharmaceuticals is subject
to governmental control. In these countries, pricing negotiations
with governmental authorities can take considerable time after the
receipt of marketing approval for a product candidate. To obtain
reimbursement or pricing approval in some countries, we may be
required to conduct additional clinical trials that compare the
cost-effectiveness of our product candidates to other available
therapies. If reimbursement of our product candidates is
unavailable or limited in scope or amount in a particular country,
or if pricing is set at unsatisfactory levels, we may be unable to
achieve or sustain profitability of our products in such
country.
-15-
Healthcare reform measures could hinder or prevent our product
candidates’ commercial success.
In both the U.S.
and certain foreign jurisdictions, there have been and we expect
there will continue to be a number of legislative and regulatory
changes to the health care system that could impact our ability to
sell our products profitably. The U.S. government and other
governments have shown significant interest in pursuing healthcare
reform. In particular, the Medicare Modernization Act of 2003
revised the payment methodology for many products under the
Medicare program in the U.S. This has resulted in lower rates of
reimbursement. In 2010, the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation
Act, collectively, the Healthcare Reform Law, was enacted. The
Healthcare Reform Law substantially changes the way healthcare is
financed by both governmental and private insurers. Such
government-adopted reform measures may adversely impact the pricing
of healthcare products and services in the United States or
internationally and the amount of reimbursement available from
governmental agencies or other third-party payors.
There have been,
and likely will continue to be, legislative and regulatory
proposals at the federal and state levels directed at broadening
the availability of healthcare and containing or lowering the cost
of healthcare. We cannot predict the initiatives that may be
adopted in the future. The continuing efforts of the government,
insurance companies, managed care organizations and other payors of
healthcare services to contain or reduce costs of healthcare may
adversely affect the demand for any drug products for which we may
obtain regulatory approval, as well as our ability to set
satisfactory prices for our products, to generate revenues, and to
achieve and maintain profitability.
Failure to successfully validate, develop and obtain regulatory
approval for companion diagnostics could harm our long-term drug
development strategy.
As one of the key
elements of our clinical development strategy, we seek to identify
patients within a disease category or indication who may derive
selective and meaningful benefit from the products we are
developing. In collaboration with our partners, for example,
Autotelic Inc., we plan to develop TDM companion diagnostics to
help us to more accurately identify patients within a particular
category or indication, both during our clinical trials and in
connection with the commercialization of certain of our products.
TDM companion diagnostics are subject to regulation by the FDA and
comparable foreign regulatory authorities as medical devices and
require separate regulatory approval prior to commercialization. We
do not develop TDM companion diagnostics internally and thus we are
dependent on the sustained cooperation and effort of our
third-party collaborators in developing and obtaining approval for
these companion diagnostics. We and our collaborators may encounter
difficulties in developing and obtaining approval for the companion
diagnostics, including issues relating to selectivity/specificity,
analytical validation, reproducibility, or clinical validation. Any
delay or failure to develop or obtain regulatory approval of the
TDM companion diagnostics could delay or prevent approval of our
products. In addition, our collaborators may encounter production
difficulties that could constrain the supply of the TDM companion
diagnostics, and both they and we may have difficulties gaining
acceptance of the use of the TDM companion diagnostics in the
clinical community. If such companion diagnostics fail to gain
market acceptance, it would have an adverse effect on our ability
to derive revenues from sales of our products. In addition, the TDM
companion diagnostic company with whom we contract may decide to
discontinue selling or manufacturing the TDM companion diagnostic
that we anticipate using in connection with development and
commercialization of our products or our relationship with such
diagnostic company may otherwise terminate. We may not be able to
enter into arrangements with another diagnostic company to obtain
supplies of an alternative diagnostic test for use in connection
with the development and commercialization of our product
candidates or do so on commercially reasonable terms, which could
adversely affect and/or delay the development or commercialization
of our products.
Our product development efforts may not be successful.
Our product
development efforts for ST-101, ST-102 and ST-103 are designed to
focus on hypertension and hyperlipidemia, these approaches and
technologies that have not been widely studied. We are applying
these approaches and technologies in our attempt to discover new
treatments for conditions that are also the subject of research and
development efforts of many other companies. These approaches and
technologies may never be successful.
-16-
Our failure to find third party collaborators to assist or share in
the costs of product development could materially harm our
business, financial condition and results of
operations.
Our strategy for
the development and commercialization of our products may include
the formation of collaborative arrangements with third parties.
Potential third parties include biopharmaceutical, pharmaceutical
and biotechnology companies, academic institutions and other
entities. Third-party collaborators may assist us in:
●
funding research,
preclinical development, clinical trials and
manufacturing;
●
seeking and
obtaining regulatory approvals; and
●
successfully
commercializing any future product candidates.
If we are not able
to establish further collaboration agreements, we may be required
to undertake product development and commercialization at our own
expense. Such an undertaking may limit the number of products that
we will be able to develop, significantly increase our capital
requirements and place additional strain on our internal resources.
Our failure to enter into additional collaborations could
materially harm our business, financial condition and results of
operations.
In addition, our
dependence on licensing, collaboration and other agreements with
third parties may subject us to a number of risks. These agreements
may not be on terms that prove favorable to us and may require us
to relinquish certain rights in our products. To the extent we
agree to work exclusively with one collaborator in a given area,
our opportunities to collaborate with other entities could be
curtailed. Lengthy negotiations with potential new collaborators
may lead to delays in the research, development or
commercialization of product candidates. The decision by our
collaborators to pursue alternative technologies or the failure of
our collaborators to develop or commercialize successfully any
product candidate to which they have obtained rights from us could
materially harm our business, financial condition and results of
operations.
Adverse economic conditions may have material adverse consequences
on our business, results of operations and financial
condition.
Unpredictable and
unstable changes in economic conditions, including recession,
inflation, increased government intervention, or other changes, may
adversely affect our general business strategy. We rely upon our
ability to generate additional sources of liquidity and we may need
to raise additional funds through public or private debt or equity
financings in order to fund existing operations or to take
advantage of opportunities, including acquisitions of complementary
businesses or technologies. Any adverse event would have a material
adverse impact on our business, results of operations and financial
condition.
Because our development activities are expected to rely heavily on
sensitive and personal information, an area which is highly
regulated by privacy laws, we may not be able to generate, maintain
or access essential patient samples or data to continue our
research and development efforts in the future on reasonable terms
and conditions, which may adversely affect our
business.
We may have access
to very sensitive data regarding patients. This data will contain
information that is personal in nature. The maintenance of this
data is subject to certain privacy-related laws, which impose upon
us administrative and financial burdens, and litigation risks. For
instance, the rules promulgated by the Department of Health and
Human Services under the Health Insurance Portability and
Accountability Act, or HIPAA, create national standards to protect
patients’ medical records and other personal information in
the U.S. These rules require that healthcare providers and other
covered entities obtain written authorizations from patients prior
to disclosing protected health care information of the patient to
companies. If the patient fails to execute an authorization or the
authorization fails to contain all required provisions, then we
will not be allowed access to the patient’s information and
our research efforts can be substantially delayed. Furthermore, use
of protected health information that is provided to us pursuant to
a valid patient authorization is subject to the limits set forth in
the authorization (i.e., for use in research and in submissions to
regulatory authorities for product approvals). As such, we are
required to implement policies, procedures and reasonable and
appropriate security measures to protect individually identifiable
health information we receive from covered entities, and to ensure
such information is used only as authorized by the patient. Any
violations of these rules by us could subject us to civil and
criminal penalties and adverse publicity, and could harm our
ability to initiate and complete clinical studies required to
support regulatory applications for our proposed products. In
addition, HIPAA does not replace federal, state, or other laws that
may grant individuals even greater privacy protections. We can
provide no assurance that future legislation will not prevent us
from generating or maintaining personal data or that patients will
consent to the use of their personal information, either of which
may prevent us from undertaking or publishing essential research.
These burdens or risks may prove too great for us to reasonably
bear, and may adversely affect our ability to achieve profitability
or maintain profitably in the future.
-17-
We may be exposed to liability claims associated with the use of
hazardous materials and chemicals.
Our research and
development activities may involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these
materials comply with federal, state and local laws and
regulations, we cannot completely eliminate the risk of accidental
injury or contamination from these materials. 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. We do not currently
maintain hazardous materials insurance coverage. 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 harm our
business.
If we are unable to retain and recruit qualified scientists and
advisors, or if any of our key executives, key employees or key
consultants discontinues his or her employment or consulting
relationship with us, it may delay our development efforts or
otherwise harm our business.
We may not be able
to attract or retain qualified management and scientific and
clinical personnel in the future due to the intense competition for
qualified personnel among biotechnology, pharmaceutical and other
businesses, particularly in Southern California. Our industry has
experienced a high rate of turnover of management personnel in
recent years. If we are not able to attract, retain and motivate
necessary personnel to accomplish our business objectives, we may
experience constraints that will significantly impede the
successful development of any products, our ability to raise
additional capital and our ability to implement our overall
business strategy.
We are highly
dependent on key members of our management and scientific staff,
especially Vuong Trieu, Ph.D., President, Pyng Soon, CEO and Chulho
Park, Ph. D., CBO. Our success also depends on our ability to
continue to attract, retain and motivate highly skilled junior,
mid-level, and senior managers as well as junior, mid-level, and
senior scientific and medical personnel. The loss of any of our
executive officers, key employees or key consultants and our
inability to find suitable replacements could impede the
achievement of our research and development objectives, potentially
harm our business, financial condition and prospects. Furthermore,
recruiting and retaining qualified scientific personnel to perform
research and development work in the future is critical to our
success. We may be unable to attract and retain personnel on
acceptable terms given the competition among biotechnology,
biopharmaceutical, pharmaceutical and health care companies,
universities and non-profit research institutions for experienced
scientists. Certain of our current officers, directors, scientific
advisors and/or consultants or certain of the officers, directors,
scientific advisors and/or consultants hereafter appointed may from
time to time serve as officers, directors, scientific advisors
and/or consultants of other pharmaceutical, biopharmaceutical or
biotechnology companies. We do not maintain “key man”
insurance policies on any of our officers or employees. All of our
employees are employed “at will” and, therefore, each
employee may leave our employment at any time.
We may not be able
to attract or retain qualified management and scientific personnel
in the future due to the intense competition for a limited number
of qualified personnel among biopharmaceutical, biotechnology,
pharmaceutical and other businesses. Many of the other
pharmaceutical companies that we compete against for qualified
personnel have greater financial and other resources, different
risk profiles and a longer history in the industry than we do. They
also may provide more diverse opportunities and better chances for
career advancement. Some of these characteristics may be more
appealing to high quality candidates than what we have to offer. If
we are unable to continue to attract and retain high quality
personnel, the rate and success at which we can develop and
commercialize product candidates will be limited.
We plan to grant
stock options or other forms of equity awards in the future as a
method of attracting and retaining employees, motivating
performance and aligning the interests of employees with those of
our stockholders. If we are unable to implement and maintain equity
compensation arrangements that provide sufficient incentives, we
may be unable to retain our existing employees and attract
additional qualified candidates. If we are unable to retain our
existing employees, including qualified scientific personnel, and
attract additional qualified candidates, our business and results
of operations could be adversely affected.
-18-
Our employees may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and
requirements, which could have a material adverse effect on our
business.
We are exposed to
the risk of employee fraud or other misconduct. Misconduct by
employees could include intentional failures to comply with FDA
regulations, provide accurate information to the FDA, and comply
with manufacturing standards we have established, comply with
federal and state health-care fraud and abuse laws and regulations,
report financial information or data accurately or disclose
unauthorized activities to us. In particular, sales, marketing and
business arrangements in the healthcare industry are subject to
extensive laws and regulations intended to prevent fraud,
kickbacks, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing,
discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements. Employee
misconduct could also involve the improper use of information
obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. Stocosil
has adopted an employee manual which includes Code of Business
Conduct and Ethics., even though we do, it is not always possible
to identify and deter employee misconduct, and the precautions we
take to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or
regulations. If any such actions are instituted against us, and we
are not successful in defending ourselves or asserting our rights,
those actions could have a significant impact on our business and
results of operations, including the imposition of significant
fines or other sanctions.
We may be subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws and health
information privacy and security laws. If we are unable to comply,
or have not fully complied, with such laws, we could face
substantial penalties.
If we obtain FDA
approval for any of our products and begin commercializing those
products in the U.S., our operations may be directly or indirectly
through our customers, subject to various federal and state fraud
and abuse laws, including, without limitation, the federal
Anti-Kickback Statute and the federal False Claims Act. These laws
may impact, among other things, our proposed sales, marketing and
education programs. In addition, we may be subject to patient
privacy regulation by both the federal government and the states in
which we conduct our business. The laws that may affect our ability
to operate include:
●
the federal
Anti-Kickback Statute, which prohibits, among other things, persons
from knowingly and willfully soliciting, receiving, offering or
paying remuneration, directly or indirectly, to induce, or in
return for, the purchase or recommendation 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 and civil monetary penalty 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 payers that
are false or fraudulent;
●
HIPAA, which
created new federal criminal statutes that prohibit executing a
scheme to defraud any healthcare benefit program and making false
statements relating to healthcare matters;
●
HIPAA, as amended
by the Health Information Technology and Clinical Health Act, or
HITECH, and its implementing regulations, which imposes certain
requirements relating to the privacy, security and transmission of
individually identifiable health information;
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 payer, including commercial
insurers, and state laws governing the privacy and security of
health information in certain circumstances, many of which differ
from each other in significant ways and may not have the same
effect, thus complicating compliance efforts.
If our operations
are found to be in violation of any of the laws described above or
any other governmental regulations that apply to us, we may be
subject to penalties, including civil and criminal penalties,
damages, fines and the curtailment or restructuring of our
operations, any of which could adversely affect our ability to
operate our business and our results of operations.
-19-
If product liability lawsuits are brought against us, we may incur
substantial liabilities and may be required to limit
commercialization of our product candidates.
We face an inherent
risk of product liability as a result of the clinical testing of
our product candidates and will face an even greater risk if we
commercialize any products. For example, we may be sued if any
product we develop allegedly causes injury or is found to be
otherwise unsuitable during product testing, manufacturing,
marketing or sale. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a
failure to warn of dangers inherent in the product, negligence,
strict liability, and a breach of warranties. Claims could also be
asserted under state consumer protection acts. If we cannot
successfully defend ourselves against product liability claims, we
may incur substantial liabilities or be required to limit
commercialization of our product candidates, if approved. Even
successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
●
decreased demand
for our products;
●
injury to our
reputation;
●
withdrawal of
clinical trial participants;
●
initiation of
investigations by regulators;
●
costs to defend the
related litigation;
●
a diversion of
management’s time and our resources;
●
substantial
monetary awards to trial participants or
patients;
●
product recalls,
withdrawals or labeling, marketing or promotional
restrictions;
●
loss of revenues
from product sales; and
●
the inability to
commercialize our products.
Our inability to
obtain and retain sufficient product liability insurance at an
acceptable cost to protect against potential product liability
claims could prevent or inhibit the commercialization of products
we develop.
We will need to increase the size of our Company and may not
effectively manage our growth.
Our success will
depend upon growing our business and our employee base. Over the
next 12 months, we plan to add additional employees to assist us
with research and development. Our future growth, if any, may cause
a significant strain on our management, and our operational,
financial and other resources. Our ability to manage our growth
effectively will require us to implement and improve our
operational, financial and management systems and to expand, train,
manage and motivate our employees. These demands may require the
hiring of additional management personnel and the development of
additional expertise by management. Any increase in resources
devoted to research and product development without a corresponding
increase in our operational, financial and management systems could
have a material adverse effect on our business, financial
condition, and results of operations.
Any disruption in our research and development facilities could
adversely affect our business, financial condition and results of
operations.
Our principal
executive office, which houses our research and development
programs, is located in City of Industry,
California. Our facility may be affected by natural or
man-made disasters. Earthquakes are of particular significance
since our facility is located in an earthquake-prone area. We are
also vulnerable to damage from other types of disasters, including
power loss, attacks from extremist organizations, fire, floods and
similar events. In the event that our facility was affected by a
natural or man-made disaster, we may be forced to curtail our
operations and/or rely on third-parties to perform some or all of
our research and development activities. Although we believe we
possess adequate insurance for damage to our property and the
disruption of our business from casualties, such insurance may not
be sufficient to cover all of our potential losses and may not
continue to be available to us on acceptable terms, or at all. In
the future, we may choose to expand our operations in either our
existing facility or in new facilities. If we expand our worldwide
operation locations, there can be no assurance that this expansion
will occur without implementation difficulties, or at
all.
-20-
Our business and operations would suffer in the event of system
failures.
Despite the
implementation of security measures, our internal computer systems
and those of our CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access,
natural disasters, terrorism, war and telecommunication and
electrical failures. While we have not experienced any such system
failure, accident or security breach to date, if such an event were
to occur and cause interruptions in our operations, it could result
in a material disruption of our drug development programs. For
example, the loss of clinical trial data from completed or ongoing
or planned clinical trials could result in delays in our regulatory
approval efforts and significantly increase our costs to recover or
reproduce the data. To the extent that any disruption or security
breach was to result in a loss of or damage to our data or
applications, or inappropriate disclosure of confidential or
proprietary information, we could incur liability and the further
development of our product candidates could be
delayed.
If we raise additional capital through debt financing, the terms of
any new debt could further restrict our ability to operate our
business.
If we raise
additional capital, the loan and security agreement contains
customary affirmative and negative covenants and events of default.
The affirmative covenants may include, among others, covenants
requiring us to maintain our legal existence and governmental
approvals, deliver certain financial reports and maintain insurance
coverage. The negative covenants may include, among others,
restrictions on transferring collateral, changing our business,
incurring additional indebtedness, engaging in mergers or
acquisitions, paying dividends or making other distributions,
making investments and creating other liens on our assets, in each
case subject to customary exceptions. If we default under the loan
and security agreement, the lenders may accelerate all of our
repayment obligations and take control of our pledged assets, if
any, potentially requiring us to renegotiate our agreement on terms
less favorable to us or to immediately cease operations. Further,
if we are liquidated, the lender’s right to repayment would
be senior to the rights of the holders of our common stock to
receive any proceeds from the liquidation. The lenders could
declare a default upon the occurrence of any event that they
interpret as a material adverse change as defined under the loan
and security agreement, thereby requiring us to repay the loan
immediately or to attempt to reverse the declaration of default
through negotiation or litigation. Any declaration by the lenders
of an event of default could significantly harm our business and
prospects and could cause the price of our common stock to decline.
If we raise any additional debt financing, the terms of such
additional debt could further restrict our operating and financial
flexibility.
We may have and plan to continue to acquire businesses and
technologies and may fail to realize the anticipated benefits of
the acquisitions, and acquisitions can be costly and
dilutive.
In the future, we
may acquire businesses and technologies. The success of
any acquisitions depend on, among other things, our ability to
combine our businesses in a manner that does not materially disrupt
existing relationships and that allows us to achieve development
and operational synergies. If we are unable to achieve these
objectives, the anticipated benefits of the acquisition may not be
realized fully or at all or may take longer to realize than
expected. In particular, the acquisition may not be accretive to
our stock value or development pipeline in the near or long
term.
It is possible that
the integration process could result in the loss of key employees;
the disruption of our ongoing business or the ongoing business of
the acquired companies; or inconsistencies in standards, controls,
procedures, or policies that could adversely affect our ability to
maintain relationships with third parties and employees or to
achieve the anticipated benefits of the acquisition. Integration
efforts between the two companies will also divert
management’s attention from our core business and other
opportunities that could have been beneficial to our shareholders.
An inability to realize the full extent of, or any of, the
anticipated benefits of the acquisition, as well as any delays
encountered in the integration process, could have an adverse
effect on our business and results of operations, which may affect
the value of the shares of our common stock after the completion of
the acquisition. If we are unable to achieve these objectives, the
anticipated benefits of the acquisition may not be realized fully
or at all or may take longer to realize than expected. In
particular, the acquisition may not be accretive to our stock value
or development pipeline in the near or long term.
-21-
Risks
Related to Our Intellectual Property
Our ability to protect our intellectual property rights will be
critically important to the success of our business, and we may not
be able to protect these rights in the U.S. or abroad.
Our success,
competitive position and future revenues will depend in part on our
ability to obtain and maintain patent protection for our product
candidates, methods, processes and other technologies, to prevent
third parties from infringing on our proprietary rights and to
operate without infringing upon the proprietary rights of third
parties. We will be able to protect our proprietary rights from
unauthorized use by third parties only to the extent that our
proprietary rights are covered by valid and enforceable patents or
are effectively maintained as trade secrets. We attempt to protect
our proprietary position by maintaining trade secrets and by filing
U.S. and foreign patent applications related to our proprietary
technology, inventions and improvements that are important to the
development of our business.
We have commenced
generating a patent application portfolio of patents to protect
each product candidate in our pipeline. However, the patent
position of pharmaceutical companies involves complex legal and
factual questions, and therefore we cannot predict with certainty
whether any patent applications that we have filed or that we may
file in the future will be approved or any resulting patents will
be enforced. In addition, third parties may challenge, seek to
invalidate or circumvent any of our patents, once they are issued.
Thus, any patents that we own or license from third parties may not
provide any protection against competitors. Any patent applications
that we have filed or that we may file in the future, or those we
may license from third parties, may not result in patents being
issued. Also, patent rights may not provide us with adequate
proprietary protection or competitive advantages against
competitors with similar technologies.
In addition, the
laws of certain foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the US. If we
fail to apply for intellectual property protection or if we cannot
adequately protect our intellectual property rights in these
foreign countries, our competitors may be able to compete more
effectively against us, which could adversely affect our
competitive position, as well as our business, financial condition
and results of operations.
The intellectual property
protection for Olostar® is being managed and
controlled by Daewoong, the manufacturer.
We do not manage or
control the intellectual property protection for Olostar®. Therefore we cannot
provide any assurance that any of the patent applications in the
U.S. will ever issue or be granted. Moreover, there cannot be any
assurances that the families of patent applications that could
provide product protection for Olostar® will ever issue or be
granted, or even provide meaningful protection to prevent generic
Olostar®
protection.
If any of our trade secrets, know-how or other proprietary
information is disclosed, the value of our trade secrets, know-how
and other proprietary rights would be significantly impaired and
our business and competitive position would suffer.
Our success also
depends upon the skills, knowledge and experience of our scientific
and technical personnel and our consultants and advisors, as well
as our licensors. To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to
obtain, we rely on trade secret protection and confidentiality
agreements. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure or the lawful
development by others of such information. If any of our trade
secrets, know-how or other proprietary information is disclosed,
the value of our trade secrets, know-how and other proprietary
rights would be significantly impaired and our business and
competitive position would suffer.
Third party
competitors may seek to challenge the validity of our patents,
thereby rendering them unenforceable or we may seek to challenge
third party competitor patents if such third parties seek to
interpret or enforce a claim scope going well beyond the actual
enabled invention.
-22-
Claims that we infringe upon the rights of third parties may give
rise to costly and lengthy litigation, and we could be prevented
from selling products, forced to pay damages, and defend against
litigation.
Third parties may
assert patent or other intellectual property infringement claims
against us or our strategic partners or licensees with respect to
our technologies and potential products. If our products, methods,
processes and other technologies infringe upon 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, and may be non-exclusive, thereby giving our competitors
access to the same intellectual property licensed to
us;
●
redesign our
products or processes to avoid infringement;
●
stop using the
subject matter validly claimed in the patents held by
others;
●
pay damages;
and
●
defend litigation
or administrative proceedings which may be costly whether we win or
lose, and which could result in a substantial diversion of our
valuable management resources.
Even if we were to
prevail, any litigation could be costly and time-consuming and
would divert the attention of our management and key personnel from
our business operations. Furthermore, as a result of a patent
infringement suit brought against us or our strategic partners or
licensees, we or our strategic partners or licensees may be forced
to stop or delay developing, manufacturing or selling technologies
or potential products that are claimed to infringe a third
party’s intellectual property unless that party grants us or
our strategic partners’ or licensees’ rights to use its
intellectual property. Ultimately, we may be unable to develop some
of our technologies or potential products or may have to
discontinue development of a product candidate or cease some of our
business operations as a result of patent infringement claims,
which could severely harm our business.
The potential commercial launch of our products could be delayed in
the event that the patent holder of olmesartan medoxomil or
rosuvastatin calcium files a lawsuit against us.
Stocosil had
its EOP2 (End Of Phase II) meeting with the FDA for ST-101 in
December 2015 and FDA’s responses were very clear and
provided the Company with a defined 505(b)(2) pathway for the
product. Subsequently, Stocosil had its Pre New Drug Application
(PNDA) meeting with FDA in June 2016 and FDA confirms most of the
nonclinical, clinical, and Chemistry, Manufacturing, and Controls
(CMC) data for ST-101 to support a 505(b)(2) submission is
sufficient and the Company plans to submit the NDA for ST-101 in
the mid-year of 2017. The Company currently plans to
submit the ST-102 NDA in mid-year of 2020 or early 2021 and ST-103
NDA in late 2021.
As a result,
we will be required to file a subparagraph (iv) certification for
the Orange Book-listed patents for olmesartan medoxomil and
rosuvastatin calcium. The patent holder of olmesartan
medoxomil or rosuvastatin calcium may file a lawsuit against
us. In the event a lawsuit is filed against us the potential
commercial launch of our products could be delayed up to a maximum
of 30 months which would have a material adverse effect on our
business.
Our plans to file a NDA under Section 505(b)(2) means we will
have to file a subparagraph iv certification for the Orange
Book-listed patents for olmesartan medoxomil and rosuvastatin
calcium.
We believe that
making, using or selling our products will not infringe
any of the Orange Book- listed patents for either olmesartan
medoxomil or rosuvastatin calcium. There can be no assurance that
commercial launch of our products will not be delayed (up to a
maximum of 30 months) in case a lawsuit is filed by the patent
holders of olmesartan medoxomil or rosuvastatin
calcium.
-23-
Our position as a relatively small company may cause us to be at a
significant disadvantage in defending our intellectual property
rights and in defending against infringement claims by third
parties.
Litigation relating
to the ownership and use of intellectual property is expensive, and
our position as a relatively small company in an industry dominated
by very large companies may cause us to be at a significant
disadvantage in defending our intellectual property rights and in
defending against claims that our technology infringes or
misappropriates third party intellectual property rights. However,
we may seek to use various post-grant administrative proceedings,
including new procedures created under the America Invents Act, to
invalidate potentially overly-broad third party rights. Even if we
are able to defend our position, the cost of doing so may adversely
affect our ability to grow, generate revenue or become profitable.
Although we have not yet experienced patent litigation, we may in
the future be subject to such litigation and may not be able to
protect our intellectual property at a reasonable cost, or at all,
if such litigation is initiated. The outcome of litigation is
always uncertain, and in some cases could include judgments against
us that require us to pay damages, enjoin us from certain
activities or otherwise affect our legal or contractual rights,
which could have a significant adverse effect on our
business.
Third-party claims of intellectual property infringement may
prevent or delay our drug discovery and development
efforts.
Our commercial
success depends in part on our avoiding infringement of the patents
and proprietary rights of third parties. There is a substantial
amount of litigation involving patent and other intellectual
property rights in the biotechnology and pharmaceutical industries,
including Patent Office administrative proceedings, such as inter
parties' reviews, and reexamination proceedings before the
U.S. PTO or oppositions and revocations and other comparable
proceedings in foreign jurisdictions. Numerous U.S. and foreign
issued patents and pending patent applications, which are owned by
third parties, exist in the fields in which we are developing
products. As the biotechnology and pharmaceutical industries expand
and more patents are issued, the risk increases that our products
may give rise to claims of infringement of the patent rights of
others.
Despite safe harbor
provisions, third parties may assert that we are employing their
proprietary technology without authorization. There may be
third-party patents, of which we are currently unaware, with claims
to materials, formulations, methods of doing research, methods of
manufacture or methods for treatment related to the use or
manufacture of our product candidates. Because patent applications
can take many years to issue, there may be currently pending patent
published applications which may later result in issued patents
that our product may infringe. In addition, third parties may
obtain patents in the future and claim that use of our technologies
infringes upon these patents. If any third-party patents were held
by a court of competent jurisdiction to cover the manufacturing
process of any of our products, or any final product itself, the
holders of any such patents may be able to block our ability to
commercialize such products unless we obtain a license under the
applicable patents, or until such patents expire or they are
finally determined to be held invalid or unenforceable. Similarly,
if any third-party patent were held by a court of competent
jurisdiction to cover aspects of our formulations, processes for
manufacture or methods of use, including combination therapy or
patient selection methods, the holders of any such patent may be
able to block our ability to develop and commercialize the
applicable products unless we obtain a license, limit our uses, or
until such patent expires or is finally determined to be held
invalid or unenforceable. In either case, such a license may not be
available on commercially reasonable terms or at all.
Parties making
claims against us may obtain injunctive or other equitable relief,
which could effectively block our ability to further develop and
commercialize one or more of our products. Defense of these claims,
regardless of their merit, would involve substantial litigation
expense and would be a substantial diversion of employee resources
from our business. In the event of a successful claim of
infringement against us, we may have to pay substantial damages,
including treble damages and attorneys’ fees for willful
infringement, obtain one or more licenses from third parties, limit
our uses, pay royalties or redesign our infringing products, which
may be impossible or require substantial time and monetary
expenditure. We cannot predict whether any such license would be
available at all or whether it would be available on commercially
reasonable terms. Furthermore, even in the absence of litigation,
we may need to obtain licenses from third parties to advance our
research or allow commercialization of our products. We may fail to
obtain any of these licenses at a reasonable cost or on reasonable
terms, if at all. In that event, we would be unable to further
develop and commercialize one or more of our products, which could
harm our business significantly.
-24-
We may not be able to protect our intellectual property rights
throughout the Territory.
Pursuant to the
Daewoong Agreement our “Territory” for ST-101 and
ST-102 includes US, Canada, Australia, Japan, Taiwan and certain
South American countries. Filing, prosecuting and
defending patents on all of our product candidates throughout the
Territory would be prohibitively expensive. Competitors may use our
technologies in jurisdictions where we have not obtained patent
protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent
protection, but enforcement is not as strong as that in the U.S.
These products may compete with our products in jurisdictions where
we do not have any issued patents and our patent claims or other
intellectual property rights may not be effective or sufficient to
prevent them from so competing.
Many companies have
encountered significant problems in protecting and defending
intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing
countries, do not favor the enforcement of patents and other
intellectual property protection, particularly those relating to
pharmaceuticals, which could make it difficult for us to stop the
infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in
substantial cost and divert our efforts and attention from other
aspects of our business.
Confidentiality agreements with employees and others may not
adequately prevent disclosure of our trade secrets and other
proprietary information and may not adequately protect our
intellectual property, which could limit our ability to
compete.
Because we operate
in the highly technical field of research and development of drugs,
we rely in part on trade secret protection in order to protect our
proprietary trade secrets and unpatented know-how. However, trade
secrets are difficult to protect, and we cannot be certain that
others will not develop the same or similar technologies on their
own. We have taken steps, including entering into confidentiality
agreements with our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors, to protect
our trade secrets and unpatented know-how. These agreements
generally require that the other party keep confidential and not
disclose to third parties all confidential information developed by
the party or made known to the party by us during the course of the
party’s relationship with us. We also typically obtain
agreements from these parties which provide that inventions
conceived by the party in the course of rendering services to us
will be our exclusive property. However, these agreements may not
be honored and may not effectively assign intellectual property
rights to us. Enforcing a claim that a party illegally obtained and
is using our trade secrets or know-how is difficult, expensive and
time consuming, and the outcome is unpredictable. In addition,
courts outside the U.S. may be less willing to protect trade
secrets or know-how. The failure to obtain or maintain trade secret
protection could adversely affect our competitive
position.
If we breach any of the agreements under which we license
commercialization rights to our products from third parties, we
could lose license rights that are important to our
business.
We license the use,
development and commercialization rights for all of our products,
and may enter into similar licenses in the future. Under each of
our existing license agreements we are subject to commercialization
and development, diligence obligations, milestone payment
obligations, royalty payments and other obligations. If we fail to
comply with any of these obligations or otherwise breach our
license agreements, our licensing partners may have the right to
terminate the license in whole or in part.
Intellectual property rights do not necessarily address all
potential threats to our competitive advantage.
The degree of
future protection afforded by our intellectual property rights is
uncertain because intellectual property rights have limitations,
and may not adequately protect our business, or permit us to
maintain our competitive advantage. The following examples are
illustrative:
●
Others may be able
to make compounds that are similar to our products but that
are not covered by the claims of the patents that we own or have
exclusively licensed;
●
We or our licensors
or strategic partners might not have been the first to make the
inventions covered by the issued patent or pending patent
application that we own or have exclusively
licensed;
-25-
●
We or our licensors
or strategic partners might not have been the first to file patent
applications covering certain of our
inventions;
●
Others may
independently develop similar or alternative technologies or
duplicate any of our technologies without infringing our
intellectual property rights;
●
It is possible that
our pending patent applications will not lead to issued
patents;
●
Issued patents that
we own or have exclusively licensed may not provide us with any
competitive advantages, or may be held invalid or unenforceable, as
a result of legal challenges by our
competitors;
●
Our competitors
might conduct research and development activities in countries
where we do not have patent rights and then use the information
learned from such activities to develop competitive products for
sale in our major commercial markets;
●
We may not develop
additional proprietary technologies that are patentable;
and
The patents of
others may have an adverse effect on our business.
Should
any of
these events occur, they could significantly harm our business,
results of operations and prospects.
From time to time we may need to license patents, intellectual
property and proprietary technologies from third parties, which may
be difficult or expensive to obtain.
We may need to
obtain licenses to patents and other proprietary rights held by
third parties to successfully develop, manufacture and market our
products. As an example, it may be necessary to use a third
party’s proprietary technology to reformulate one of our
products in order to improve upon the capabilities of the product.
If we are unable to timely obtain these licenses on reasonable
terms, our ability to commercially exploit our products may be
inhibited or prevented.
Risks
Related to this Offering and Ownership of Our Common
Stock
No active market for our common stock exists or may develop, and
you may not be able to resell your common stock at or above the
initial public offering price.
Prior to this
offering, there has been no public market for shares of our common
stock. We anticipate that the Placement
Agent for this offering will apply for quoting of our common
stock on the OTC Markets or an approved secondary marketplace upon
the qualification of the offering statement of which this Offering
Circular forms a part. However, there can no assurance
that our shares will be quoted. If no active trading
market for our common stock develops or is sustained following this
offering, you may be unable to sell your shares when you wish to
sell them or at a price that you consider attractive or
satisfactory. The lack of an active market may also
adversely affect our ability to raise capital by selling securities
in the future, or impair our ability to license or acquire other
product candidates, businesses or technologies using our shares as
consideration.
Investors will not have use of funds subscribed during a portion of
the offering period.
We cannot assure
you that all or any shares will be sold. Our Placement Agent is
offering our shares on a best efforts minimum/maximum basis. We
have no firm commitment from anyone to purchase all or any of the
shares offered. During a portion of the offering period, until a
closing or a cancellation occurs, investors will not have use of
the funds they have provided to subscribe to the
offering. If a closing occurs, your funds, minus
applicable expenses, will be provided to us. If subscriptions for a
minimum of 166,667 shares are not received on or before May 31,
2017, the offering will be cancelled, no investor funds will be
provided to us, and you will promptly be provided with full access
to your funds.
-26-
The market price of our common stock may fluctuate significantly,
and investors in our common stock may lose all or a part of their
investment.
If a market for our
common stock develops following this offering, the trading price of
our common stock could be subject to wide fluctuations in response
to various factors, some of which are beyond our control. The
market prices for securities of pharmaceutical companies have
historically been highly volatile, and the market has from time to
time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The
market price of our common stock may fluctuate significantly in
response to numerous factors, some of which are beyond our control,
such as:
●
actual or
anticipated adverse results or delays in our clinical
trials;
●
our failure to
commercialize our products, if approved;
●
unanticipated
serious safety concerns related to the use of any of our
products;
●
adverse regulatory
decisions;
●
changes in laws or
regulations applicable to our product candidates, including but not
limited to clinical trial requirements for approvals;
●
legal disputes or
other developments relating to proprietary rights, including
patents, litigation matters and our ability to obtain patent
protection for our product candidates, government investigations
and the results of any proceedings or lawsuits, including patent or
stockholder litigation;
●
our decision to
initiate a clinical trial, not initiate a clinical trial or to
terminate an existing clinical trial;
●
our dependence on
third parties, including CROs;
●
announcements of
the introduction of new products by our competitors;
●
market conditions
in the pharmaceutical sectors;
●
announcements
concerning product development results or intellectual property
rights of others;
●
future issuances of
common stock or other securities;
●
the addition or
departure of key personnel;
●
failure to meet or
exceed any financial guidance or expectations regarding development
milestones that we may provide to the public;
●
actual or
anticipated variations in quarterly operating results;
●
our failure to meet
or exceed the estimates and projections of the investment
community;
●
overall performance
of the equity markets and other factors that may be unrelated to
our operating performance or the operating performance of our
competitors, including changes in market valuations of similar
companies;
●
introduction of new
products offered by us or our competitors;
●
announcements of
significant acquisitions, strategic partnerships, joint ventures or
capital commitments by us or our competitors;
●
issuances of debt
or equity securities;
-27-
●
sales of our common
stock by us or our stockholders in the future;
●
trading volume of
our common stock;
●
ineffectiveness of
our internal controls;
●
publication of
research reports about us or our industry or positive or negative
recommendations or withdrawal of research coverage by securities
analysts;
●
failure to
effectively integrate the acquired companies'
operations;
●
general political
and economic conditions;
●
effects of natural
or man-made catastrophic events; and
●
other events or
factors, many of which are beyond our control.
Further, price and
volume fluctuations result in volatility in the price of our common
stock, which could cause a decline in the value of our common
stock. Price volatility of our common stock might worsen if the
trading volume of our common stock is low. The realization of any
of the above risks or any of a broad range of other risks,
including those described in these “Risk Factors,”
could have a dramatic and material adverse impact on the market
price of our common stock.
We have not paid cash dividends in the past and do not expect to
pay cash dividends in the foreseeable future. Any return on
investment may be limited to the value of our common
stock.
We have never paid
cash dividends on our common stock and do not anticipate paying
cash dividends on our common stock in the foreseeable future. The
payment of dividends on our capital stock will depend on our
earnings, financial condition and other business and economic
factors affecting us at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may
be less valuable because a return on your investment will only
occur if the common stock price appreciates.
Our strategic investments
may result in losses.
We periodically
make strategic investments in various public and private companies
with businesses or technologies that may complement our business.
The market values of these strategic investments may fluctuate due
to market conditions and other conditions over which we have no
control. Other-than-temporary declines in the market price and
valuations of the securities that we hold in other companies would
require us to record losses related to our investment. This could
result in future charges to our earnings. It is uncertain whether
or not we will realize any long-term benefits associated with these
strategic investments.
A sale of a substantial number of shares of the common stock may
cause the price of our common stock to decline.
If our stockholders
sell, or the market perceives that our stockholders intend to sell
for various reasons, substantial amounts of our common stock in the
public market, including shares issued in connection with the
exercise of outstanding options or warrants, the market price of
our common stock could fall. Sales of a substantial number of
shares of our common stock may make it more difficult for us to
sell equity or equity-related securities in the future at a time
and price that we deem reasonable or appropriate. We may become
involved in securities class action litigation that could divert
management’s attention and harm our business.
The stock markets
have from time to time experienced significant price and volume
fluctuations that have affected the market prices for the common
stock of pharmaceutical companies. These broad market fluctuations
may cause the market price of our common stock to decline. In the
past, securities class action litigation has often been brought
against a company following a decline in the market price of our
securities. This risk is especially relevant for us because
pharmaceutical companies have experienced significant stock price
volatility in recent years. We may become involved in this type of
litigation in the future. Litigation often is expensive and diverts
management’s attention and resources, which could adversely
affect our business.
-28-
Our quarterly operating results may fluctuate
significantly.
We expect our
operating results to be subject to quarterly fluctuations. Our net
loss and other operating results will be affected by numerous
factors, including:
●
variations in the
level of expenses related to our development
programs;
●
the addition or
termination of clinical trials;
●
any intellectual
property infringement lawsuit in which we may become
involved;
●
regulatory
developments affecting our product candidates;
●
our execution of
any collaborative, licensing or similar arrangements, and the
timing of payments we may make or receive under these arrangements;
and
●
if any of our
products receive regulatory approval, the level of underlying
demand for that product and wholesalers’ buying
patterns.
If our quarterly
operating results fall below the expectations of investors or
securities analysts, the price of our common stock could decline
substantially. Furthermore, any quarterly fluctuations in our
operating results may, in turn, cause the price of our common stock
to fluctuate substantially.
Existing stockholders’ interest in us may be diluted by
additional issuances of equity securities and raising funds through
acquisitions, lending and licensing arrangements may restrict our
operations or require us to relinquish proprietary
rights.
We may issue
additional equity securities to fund future expansion and pursuant
to employee benefit plans. We may also issue additional equity for
other purposes. These securities may have the same rights as our
common stock or, alternatively, may have dividend, liquidation or
other preferences to our common stock. The issuance of additional
equity securities will dilute the holdings of existing stockholders
and may reduce the share price of our common stock.
If we raise
additional funds through collaboration, licensing or other similar
arrangements, it may be necessary to relinquish potentially
valuable rights to our product candidates, potential products or
proprietary technologies, or grant licenses on terms that are not
favorable to us. If adequate funds are not available, our ability
to achieve profitability or to respond to competitive pressures
would be significantly limited and we may be required to delay,
significantly curtail or eliminate the development of our product
candidates.
Directors, executive officers, principal stockholders and
affiliated entities own a significant percentage of our capital
stock, and they may make decisions that you do not consider to be
in your best interests or those of our other
stockholders.
As of June 30,
2016, our directors, executive officers and principal stockholders
beneficially owned, in the aggregate, substantially all of our
outstanding voting securities. As a result, if some or all of them
acted together, they would have the ability to exert significant
influence over the election of our board of directors and the
outcome of issues requiring approval by our stockholders. This
concentration of ownership may also have the effect of delaying or
preventing a change in control of our company that may be favored
by other stockholders. This could prevent transactions in which
stockholders might otherwise recover a premium for their shares
over current market prices.
Our ability to use our net operating loss carry forwards may be
subject to limitation.
Generally, a change
of more than 50% in the ownership of a company’s stock, by
value, over a three-year period constitutes an ownership change for
U.S. federal income tax purposes. An ownership change may limit our
ability to use our net operating loss carryforwards attributable to
the period prior to the change. As a result, if we earn net taxable
income, our ability to use our pre-change net operating loss
carryforwards to offset U.S. federal taxable income may become
subject to limitations, which could potentially result in increased
future tax liability for us.
-29-
Our certificate of incorporation, as amended, and bylaws provide
for indemnification of officers and directors at our expense and
limits their liability, which may result in a major cost to us and
hurt the interests of our stockholders because corporate resources
may be expended for the benefit of our officers and/or
directors.
Our certificate of
incorporation, as amended, bylaws and applicable Delaware law
provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against
attorney’s fees and other expenses incurred by them in any
litigation to which they become a party arising from their
association with or activities on our behalf. We will also bear the
expenses of such litigation for any of our directors, officers,
employees, or agents, upon such person’s promise to repay us,
therefore if it is ultimately determined that any such person shall
not have been entitled to indemnification. This indemnification
policy could result in substantial expenditures by us, which we
will be unable to recover. Insofar as indemnification
for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers and controlling
persons of our Company pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than
the payment by us of expenses incurred or paid by a director,
officer, or controlling person of our Company in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
Our securities may be traded on a closed trading system with
limited volume and liquidity.
Our securities may
not be freely quoted for trading on any stock exchange or through
any other traditional trading platform. Our digital securities may
be issued, available for purchase and may be traded exclusively on
a specific trading system that is registered with the SEC as an
alternative trading system, or ATS. We do not currently have any
plans to trade out securities on a specific ATS. Any
disruption to the operations of an ATS or a broker-dealer's
customer interface with an ATS would materially disrupt trading in,
or potentially result in a complete halt in the trading of, our
securities.
Because our
securities may be traded exclusively on a closed trading system, it
is a possibility that there will be a limited number of holders of
securities. In addition, an ATS is likely to experience limited
trading volume with a relatively small number of securities trading
on the ATS platform as compared to securities trading on
traditional securities exchanges or trading platforms. As a result,
this novel trading system may have limited liquidity, resulting in
a lower or higher price or greater volatility than would be the
case with greater liquidity. You may not be able to resell your
securities on a timely basis or at all.
The number of securities traded on an ATS may be very small, making
the market price more easily manipulated.
While we understand
that many ATS platforms have adopted policies and procedures such
that security holders are not free to manipulate the trading price
of securities contrary to applicable law, and while the risk of
market manipulation exists in connection with the trading of any
securities, the risk may be greater for our securities because the
ATS we choose may be a closed system that does not have the same
breadth of market and liquidity as the national market system.
There can be no assurance that the efforts by an ATS to prevent
such behavior will be sufficient to prevent such market
manipulation.
An ATS is not a stock exchange and has limited quoting requirements
for issuers or for the securities traded.
Unlike the more
expansive listing requirements, policies and procedures of the
Nasdaq Global Market and other NMS trading platforms, there are no
minimum price requirements and limited listing requirements for
securities to be traded on an ATS. As a result, trades of our
securities on an ATS may not be at prices that represent the
national best bid or offer prices of securities that could be
considered similar securities.
-30-
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offering
Circular contains forward-looking statements. All statements other
than statements of historical facts contained in this Offering
Circular, including statements regarding our future results of
operations and financial position, business strategy, prospective
products, product approvals, research and development costs, timing
and likelihood of success, commercialization plans and timing,
other plans and objectives of management for future operations, and
future results of current and anticipated products are
forward-looking statements. These statements involve known and
unknown risks, uncertainties and other important factors that may
cause our actual results, performance or achievements to be
materially different from any future results, performance or
achievements expressed or implied by the forward-looking
statements.
In some cases, you
can identify forward-looking statements by terms such as
“may,” “will,” “should,”
“expect,” “plan,” “aim,”
“anticipate,” “could,”
“intend,” “target,” “project,”
“contemplate,” “believe,”
“estimate,” “predict,”
“potential” or “continue” or the negative
of these terms or other similar expressions. The forward-looking
statements in this Offering Circular are only predictions. We have
based these forward-looking statements largely on our current
expectations and projections about future events and financial
trends that we believe may affect our business, financial condition
and results of operations. These forward-looking statements speak
only as of the date of this Offering Circular and are subject to a
number of risks, uncertainties and assumptions described under the
sections in this Offering Circular titled “Risk
Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and elsewhere in this Offering Circular. Forward-looking statements
are subject to inherent risks and uncertainties, some of which
cannot be predicted or quantified and some of which are beyond our
control. The events and circumstances reflected in our
forward-looking statements may not be achieved or occur and actual
results could differ materially from those projected in the
forward-looking statements. Moreover, we operate in a dynamic
industry and economy. New risk factors and uncertainties may emerge
from time to time, and it is not possible for management to predict
all risk factors and uncertainties that we may face. Except as
required by applicable law, we do not plan to publicly update or
revise any forward-looking statements contained herein, whether as
a result of any new information, future events, changed
circumstances or otherwise.
-31-
DILUTION
If you invest in
our common stock in this offering, your ownership interest will be
immediately diluted to the extent of the difference between the
initial public offering price per share of our common stock and the
pro forma as adjusted net tangible book value per share of our
common stock this offering.
As of June 30 2016
and 2015, we had a historical net tangible book value of
($2,296,455) and $83,594 respectively, or ($0.51553) and $ 0.01877
per share of common stock respectively. Our historical net tangible
book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of
common stock outstanding as of June 30, 2016 and 2015
respectively.
Our pro forma net
tangible book value as of June 30, 2016 and 2015 was ($2,296,455)
and $83,594 respectively or ($0.39510) and $0.01480 per share of
common stock respectively, after giving effect to the conversion of
outstanding convertible notes into 1,357,833 and
1,193,333 shares of common stock effective upon the closing of
this offering, assuming we raise at least $2,500,005 in this
offering.
If the
minimum 166,667 shares of common stock in this offering
at the initial public offering price of $15.00 per
share, after deducting Placement Agent fees and other
estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value as of June 30, 2016 and 2015 would
have been approximately ($344,950) and $2,035,099 , or ($0.07464)
and $0.44038 per share. This amount represents an
immediate increase in pro forma net tangible book value of $0.44089
and $0.42162 per share to our existing stockholders, and an
immediate dilution in pro forma net tangible book value of
approximately $15.07464 and $14.55962 per share to new investors
purchasing shares of common stock in this
offering.
If the
maximum 733,340 shares of common stock in this offering
at the initial public offering price of $15.00 per share,
after deducting Placement Agent fees and other estimated offering
expenses payable by us, our pro forma as adjusted net tangible book
value as of June 30, 2016 and 2015 would have been approximately
$7,390,136, and $9,770,185 respectively, or $1.42450 and
$1.88327 per share respectively. This amount represents
an immediate increase in pro forma net tangible book value of
$1.94003 and $1.86450 per share to our existing stockholders,
and an immediate dilution in pro forma net tangible book value of
approximately $13.57550 and $13.11673 per share to new
investors purchasing shares of common stock in this
offering.
Dilution per share
to new investors is determined by subtracting pro forma as adjusted
net tangible book value per share after this offering from the
initial public offering price per share paid by new
investors. The following table illustrates this
dilution:
|
Initial public
offering price per share
|
|
$ 15.00
|
(1)
|
|
$ 15.00
|
(2)
|
||
|
Historical net
tangible book value per share
|
|
$
|
(0.51553)
|
|
|
$
|
(0.51553)
|
|
|
Decrease
attributable to the conversion of all outstanding
notes
|
|
$
|
(0.14130)
|
|
|
$
|
(0.14130)
|
|
|
Pro forma net
tangible book value per share
|
|
$
|
(0.37423)
|
|
|
$
|
(0.37423)
|
|
|
Increase in net
tangible book value per share attributable to new
investors
|
|
$
|
(0.31950)
|
|
|
$
|
(1.44998)
|
|
|
Pro
forma as adjusted net tangible book value per share after this
offering
|
|
|
(0.05473)
|
|
|
|
1.07575
|
|
|
Dilution per share
to new investors
|
|
$
|
15.05473
|
|
|
$
|
13.92425
|
|
(1) Assumes
net proceeds of $1,951,505 from offering of 166,667 common shares,
calculated as follows: $15.00 offering, less Placement Agent of
fees of $225,000, less underwriter’s counsel expense of
$30,000 and offering expenses of $293,500.
(2) Assumes
net proceeds of $9,686,591 from offering of 733,340 common shares,
calculated as follows: $15.00 offering, less Placement Agent of
fees of $990,009, less underwriter’s counsel expense of
$30,000 and offering expenses of $293,500.
-32-
PLAN
OF DISTRIBUTION
We have
engaged Boustead Securities, LLC to conduct this Offering as
the Placement Agent on a “best efforts,
minimum/maximum” basis. The Offering is being made without a
firm commitment by the Placement Agent, which has no obligation or
commitment to purchase any of our shares. The Placement Agent is
under no obligation to take the securities and has not committed to
purchase any of the shares of common stock offered
herein.
Unless sooner
withdrawn or canceled by either us or the Placement Agent, the
Offering will continue until the earlier of (i) a date mutually
acceptable to us and the Placement Agent after which the minimum
offering is sold or (ii) May 31, 2017 (which date may
be extended at our discretion) (the “Offering Termination
Date”). The Placement Agent has agreed to comply
with the provisions of SEC Rule 15c2-4 as to all funds provided by
you for the purchase of the common shares. Those funds
will be deposited by you into an account with Folio where they will
stay until a closing or cancellation of the offering. On
the closing date for the offering, the funds in your account, minus
applicable expenses, will be delivered to our Company. If we do not
complete this offering before the Offering Termination Date, no
funds will be provided to us and the funds will stay in your
account.
Technology
& Closing Services
Folio has been
engaged to provide certain technology and closing services in
connection with this Offering. We have agreed to pay
Folio escrow-less closing fees equal to the greater of 0.45% of the
gross proceeds from the sale of the securities being offered, $30
per account purchase, or $10,000 (“Folio Escrow
Fees”). We have also agreed to pay Folio private
placement platform fees in the amount of 0.05% of the gross
proceeds from the sale of the securities being offered
(“Folio Platform Fees”). The aggregate Folio
Escrow Fees and Folio Platform Fees paid by us shall not exceed
$49,500. Investors must pay in full for all common
shares at the time of each closing. Investors may subscribe to the
common shares in this Offering by following the account opening
instructions on the ASMX platform. Investors will be directed to
the platform operated by Folio. Funds from subscriptions will be
held by Folio in customer accounts for the exclusive benefit of its
customers until such time as all conditions to each closing are
met. Prospective investors who meet the requirements and
abide by the investment limitations described in this Offering
Statement may subscribe for our common shares. The
Placement Agent will inform prospective purchasers of each
anticipated date of closing. Until
we sell the minimum number of shares offered, all investor funds
will be held in accounts at Folio. When a closing occurs,
investor funds will be transferred from the investors’ Folio
accounts to the account of the issuer at
Folio. This process complies with the
requirements of Rule 15c2-4 pursuant to a no-action
letter dated July 15, 2015 provided to Folio by staff of
the U.S. Securities Exchange Commission.
Funds provided for
the purchase of the shares may not be withdrawn by investors after
a date specified by the Company prior to the earlier of the closing
of the offering or the Offering Termination Date.
Investment
Threshold
Generally, no sale
may be made to you in this offering if the aggregate purchase price
you pay is more than 10% of the greater of your annual income or
net worth. Different rules apply to accredited investors
and non-natural persons. Before making any representation that your
investment does not exceed applicable thresholds, we encourage you
to review Rule 251(d)(2)(i)(C) of Regulation A. For
general information on investing, we encourage you to refer to
www.investor.gov.
Commissions
and Discounts
The Placement Agent
has advised us that it proposes to offer the common shares to the
public at the initial public offering price on the cover page of
this prospectus. The following table shows the public offering
price, Placement Agent fee to be paid by us to the Placement Agent
and the proceeds, before expenses, to us.
|
|
Per
Common Share
|
Minimum
Offering
|
Maximum
Offering
|
|
Public offering
price
|
$15.00
|
$2,500,005
|
$11,000,100
|
|
Placement agent
fees(1)
|
$1.35
|
$225,000
|
$990,009
|
|
Proceeds to us,
before expenses
|
$13.65
|
$2,275,005
|
$10,010,091
|
(1)
Does not include
reimbursable expenses or Placement Agent’s warrants, as
described below. Total Placement Agent compensation on the Offering
Proceeds is 10.9500% at the
minimum offering and 10.0227% at the maximum
offering.
After the initial
offering of the shares, the offering price and the other selling
terms may be subject to change. The offering of the shares is
subject to receipt and acceptance and subject to the right to
reject any order in whole or in part.
-33-
Engagement
Agreement with the Placement Agent
The term of
engagement of Boustead Securities as Placement Agent began on
November 8, 2016 and will continue until November 8, 2017 unless
one of the following events occurs prior to September 19, 2017, in
which case the engagement agreement would be terminated
early:
i.
we and the
Placement Agent mutually agree to terminate the engagement
agreement;
ii.
either we or the
Placement Agent unilaterally decide to terminate the engagement
agreement upon thirty days’ prior written notice to the other
party;
iii.
we fail to pay
Placement Agent for services provided within 30 days of the date
that payment is due.
iv.
we terminate the
engagement agreement due to the Placement Agent’s material
failure to provide the services contemplated by the engagement
agreement; or
v.
we decide not to
proceed with the offering or withdraw any offering statement filed
with the Commission.
Offering Expenses. We are responsible
for all Offering fees and expenses, including the following: (i)
fees and disbursements of our legal counsel, accountants, and other
professionals we engage; (ii) fees and expenses incurred in the
production of offering documents, including design, printing,
photograph, and written material procurement costs; (iii) all
filing fees, including FINRA and blue sky filing fees; (iv) all of
the legal fees related to the registration and qualification of the
Offered Shares under state securities laws and FINRA clearance (not
to exceed $30,000 in the aggregate, equaling 1.2% of the Offering
Proceeds at the minimum offering and 0.2727% of the Offering
Proceeds at the maximum offering); and (v) our transportation,
accommodation, and other roadshow expenses. To the extent that any
of our fees and expenses are paid by the Placement Agent
with our approval, we will, upon request, reimburse the Placement
Agent for such fees and expenses.
Reimbursable Expenses in the Event of
Termination. In the event the offering does not close or the
engagement agreement is terminated for any reason other than
because of the Placement Agent’s material failure to provide
the services contemplated by the engagement agreement, we have
agreed to reimburse the Placement Agent for all unreimbursed,
reasonable, documented, out-of-pocket fees, expenses, and
disbursements up to $500.00 (or greater with our prior written
approval).
Placement Commission. We have agreed to pay a
commission of 9.0% of the gross offering proceeds to the Placement
Agent as compensation immediately upon each closing of the
offering. The Placement Agent has agreed to reimburse us
out of its commissions received, any Folio Platform Fees we
pay.
Placement Agent’s
Warrants: Upon each
closing of this offering, we have agreed to issue to the Placement
Agent warrants to purchase a number of shares of our common stock
equal to 3.0% of the total shares of our common stock sold in such
closing (the “Placement Agent’s Warrants”). The
Placement Agent’s Warrants are exercisable commencing on as
of the date of their issuance, and will be exercisable until 5:00
pm on the date that is five (5) years from the date of
qualification of the offering statement of which this offering
circular is a part. The Placement Agent’s Warrants are not
redeemable by us. The exercise price for the Placement
Agent’s Warrants will be $17.25. The Warrants are valued at
0.75% of the offering proceeds.
The Placement
Agent’s Warrants and the shares of common stock underlying
the Placement Agent’s Warrants have been deemed compensation
by FINRA and are therefore subject to a 180-day lock-up pursuant to
Rule 5110(g)(1) of FINRA. The Placement Agent, or permitted
assignees under such rule, may not exercise, sell, transfer,
assign, pledge, or hypothecate the Placement Agent’s Warrants
or the shares of common stock underlying the Placement
Agent’s Warrants , nor will the Placement Agent, or permitted
assignees engage in any hedging, short sale, derivative, put, or
call transaction that would result in the effective economic
disposition of the Placement Agent’s Warrants or the
underlying shares of common stock for a period of 180 days from the
qualification date of the offering statement, except that they may
be transferred, in whole or in part, by operation of law or by
reason of our reorganization, or to any Placement Agent or selected
dealer participating in the offering and their officers or partners
if the Placement Agent’s Warrants or the underlying shares of
our common stock so transferred remain subject to the foregoing
lock-up restrictions for the remainder of the time period. The
Placement Agent’s Warrants will provide for adjustment in the
number and price of the Placement Agent’s Warrants and the
shares of common stock underlying such Placement Agent’s
Warrants in the event of recapitalization, merger, stock split, or
other structural transaction undertaken by us.
We expect our total
cash expenses for this offering to be approximately $300,000,
exclusive of the above commissions.
-34-
Pricing
Considerations
There is not an
established public market for our common stock. We negotiated with
our Placement Agent to determine the offering price of our common
stock in this offering based on current market conditions as well
as other considerations.
In addition to
prevailing market conditions, the factors considered in determining
the applicable multiples were:
●
the history of, and
the prospects for, our Company and the industry in which we
compete;
●
an assessment of
our management, its past and present operation, and the prospects
for, and timing of, our future revenues; and
●
the present state
of our development.
Lock-Up
Agreements
We and our
officers, directors, and holders of five percent or more of our
common stock (collectively, “Insiders”) have agreed, or
will agree, with the Placement Agent, subject to certain
exceptions, that, without the prior written consent of the
Placement Agent, we and they will not, directly or indirectly,
during the period ending 180 days after the date of the offering
circular for Insiders, and 90 days for “legacy
shareholders” (existing Company shareholders prior to this
offer):
●
offer, pledge,
sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or
warrant for the sale of, or otherwise dispose of or transfer any
shares of our common stock or any securities convertible into or
exchangeable or exercisable for our common stock, whether now owned
or hereafter acquired by the undersigned or with respect to which
the undersigned has or hereafter acquires the power of disposition;
or
●
enter into any swap
or any other agreement or any transaction that transfers, in whole
or in part, the economic consequence of ownership of our common
stock, whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or
otherwise.
This agreement does
not apply, in our case, to securities issued pursuant to existing
employee benefit plans or securities issued upon exercise of
options and other exceptions, and in the case of our officers,
directors and other holders of our securities, exercise of stock
options issued pursuant to a stock option or similar plans, and
other exceptions.
Pricing
of the Offering
Prior to the
offering, there has been no public market for the Offered Shares.
The initial public offering price was determined by negotiation
between us and the Placement Agent. The principal factors
considered in determining the initial public offering price
include:
|
●
|
the information set
forth in this Offering Circular and otherwise available to the
Placement Agent
|
|
●
|
our history and
prospects and the history of and prospects for the industry in
which we compete;
|
|
●
|
our prospects for
future earnings and the present state of our
development;
|
|
●
|
the general
condition of the securities markets at the time of this
offering;
|
|
●
|
the recent market
prices of, and demand for, publicly traded common stock of
generally comparable companies; and
|
|
●
|
other factors
deemed relevant by the Placement Agent and us.
|
-35-
Indemnification
and Control
We have agreed to
indemnify the Placement Agent against certain liabilities,
including liabilities under the Securities Act. If we are unable to
provide this indemnification, we will contribute to the payments
the Underwriter and its selling agents, affiliates and controlling
persons may be required to make in respect of these
liabilities.
The Placement Agent
and its affiliates are engaged in various activities, which may
include securities trading, commercial and investment banking,
financial advisory, investment management, investment research,
principal investment, hedging, financing and brokerage activities.
The Placement Agent and its affiliates may in the future perform
various financial advisory and investment banking services for us,
for which they will receive customary fees and
expenses.
Our
Relationship with the Placement Agent
In the ordinary
course of their various business activities, the Placement Agent
and its affiliates may make or hold a broad array of investments
and actively trade debt and equity securities (or related
derivative securities) and financial instruments (including bank
loans) for their own account and for the accounts of their
customers, and such investment and securities activities may
involve securities and/or instruments of the issuer. The Placement
Agent and its affiliates may also make investment recommendations
and/or publish or express independent research views in respect of
such securities or instruments, or recommend to clients that they
acquire, long and/or short positions in such securities and
instruments.
Secondary
Trading
Prior to this
offering, there has been no public market for our common
stock. We anticipate that the Placement Agent for this
offering will apply for quoting of our common stock on the OTC
Markets or an approved secondary marketplace upon the qualification
of the offering statement of which this Offering Circular forms a
part. An active trading market for our common shares may
not develop. It is possible that after this offering the common
shares will not trade in the public market at or above the initial
offering price.
Offering
Period and Expiration Date
This offering will
start on or after the date this Offering Circular is declared
qualified by the SEC and will terminate on the Offering Termination
Date.
Investment
Limitations
Generally,
no sale may be made to you in this offering if the aggregate
purchase price you pay is more than 10% of the greater of your
annual income or net worth. Different rules apply to
accredited investors and non-natural persons. Before
making any representation that your investment does not exceed
applicable thresholds, we encourage you to review Rule
251(d)(2)(i)(C) of Regulation A. For general information
on investing, we encourage you to refer to www.investor.gov.
As a Tier 2,
Regulation A offering, investors must comply with the 10%
limitation to investment in the offering. The only
investor in this offering exempt from this limitation is an
accredited investor, an “Accredited Investor,” as
defined under Rule 501 of Regulation D. If you meet one
of the following tests you should qualify as an Accredited
Investor:
(i)
You are a natural
person who has had individual income in excess of $200,000 in each
of the two most recent years, or joint income with your spouse in
excess of $300,000 in each of these years, and have a reasonable
expectation of reaching the same income level in the current
year;
(ii)
You are a natural
person and your individual net worth, or joint net worth with your
spouse, exceeds $1,000,000 at the time you purchase Offered Shares
(please see below on how to calculate your net
worth);
(iii)
You are an
executive officer or general partner of the issuer or a manager or
executive officer of the general partner of the
issuer;
(iv)
You are an
organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, or the Code, a corporation, a
Massachusetts or similar business trust or a partnership, not
formed for the specific purpose of acquiring the Offered Shares,
with total assets in excess of $5,000,000;
-36-
(v)
You are a bank or a
savings and loan association or other institution as defined in the
Securities Act, a broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, an insurance company as defined by the Securities
Act, an investment company registered under the Investment Company
Act of 1940, as amended, or the Investment Company Act, or a
business development company as defined in that act, any Small
Business Investment Company licensed by the Small Business
Investment Act of 1958 or a private business development company as
defined in the Investment Advisers Act of 1940;
(vi)
You are an entity
(including an Individual Retirement Account trust) in which each
equity owner is an accredited investor;
(vii)
You are a trust
with total assets in excess of $5,000,000, your purchase of Offered
Shares is directed by a person who either alone or with his
purchaser representative(s) (as defined in Regulation D promulgated
under the Securities Act) has such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of the prospective investment, and you were not
formed for the specific purpose of investing in the Offered Shares;
or
(viii)
You are a plan
established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has
assets in excess of $5,000,000.
Procedures
for Subscribing
If you decide to
subscribe for Offered Shares in this offering, you
should:
Go to
www.TheAsmx.com/stocosil and click on the “Invest Now”
button and follow the procedures as described.
1.
Electronically
receive, review, execute and deliver to us a subscription
agreement; and
2.
Deliver funds to
your brokerage account with the Placement Agent or a participating
broker dealer.
ASMX is providing
the platform through which the Offering will be conducted.
ASMX's
sole responsibility in the Offering will be to provide the platform
website through which offering participants may subscribe to the
Offering. The platform website is a site that hosts due diligence
materials on our Company (as well as other Companies) to allow
investors and broker-dealers to review information on our Company.
The platform website will also redirect interested investors via an
“Invest Now” button to a site operated by
Foliofn, where investors
can receive, review, execute and deliver subscription agreements
electronically.
Right to Reject Subscriptions.
After you have agreed to the subscription agreement and placed the
funds required under the subscription agreement in the specified
account, we have the right to review and accept or reject your
subscription in whole or in part, for any reason or for no reason.
No funds will be provided to us from your account from rejected
subscriptions.
Acceptance of Subscriptions.
Upon our acceptance of a subscription agreement, subject to having
achieved the Minimum Offering threshold, we will issue the shares
subscribed at such closing. Once you submit the subscription
agreement and it is accepted, you may not revoke or change your
subscription or request your subscription funds. All accepted
subscription agreements are irrevocable.
-37-
USE
OF PROCEEDS
We estimate that
the net proceeds from our issuance and sale of shares of our common
stock in this offering will be a minimum of $1,951,505 and a
maximum of $9,686,591 , assuming an offering price of
$15.00 per share, after deducting Placement Agent fees and
estimated offering expenses payable by us.
We anticipate that
we will use the net proceeds of this offering as
follows:
Minimum
Offering (166,667 shares)
●
approximately $2.0
million for further development and filing NDA for
ST-101;
●
the remaining net
proceeds for other research and product development activities,
working capital and general corporate purposes.
Maximum
Offering (733,340 shares)
●
approximately $2.0
million for further development and filing NDA for
ST-101;
●
approximately $4.0
million to launch for ST-101;
●
approximately $2.3
million to support the operation for ST-101
●
approximately $1.4
million remits to Daewoong Pharmaceuticals Co. Ltd for milestone
payments;
●
the remaining net
proceeds for other research and product development activities,
working capital and general corporate purposes.
This expected use
of the net proceeds from this offering represents our intentions
based upon our current financial condition, results of operations,
business plans and conditions. As of the date of this
Offering Circular, we cannot predict with certainty all of the
particular uses for the net proceeds to be received upon the
closing of this offering or the amounts that we will actually spend
on the uses set forth above. The amounts and timing of
our actual expenditures may vary significantly depending on
numerous factors. As a result, our management will
retain broad discretion over the allocation of the net proceeds
from this offering.
We may also use a
portion of the net proceeds for the acquisition of, or investment
in, complementary business, products or technologies, although we
have no present commitments or agreements for any specific
acquisitions or investments. Pending our use of the net
proceeds from this offering, we intend to invest the net proceeds
in a variety of capital preservation investments, including
short-term, investment grade, interest bearing instruments and U.S.
government securities.
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BUSINESS
Organization
Overview
Stocosil was
incorporated on December 11, 2014. We are a development
stage pharmaceutical company focused on the research, development,
and commercialization of the next generation of products for the
treatment of high blood pressure (hypertension (HTN)) and high
cholesterol (dyslipidemia).
Strategy
Our business
strategy is to obtain FDA approval for the development and
marketing of a newly developed combination drug for the treatment
of hypertension and dyslipidemia.
High Blood Pressure (Hypertension)
Hypertension or
high blood pressure is a condition where an adult’s blood
pressure is above 140mmHgG systolic or above 90mmHg diastolic in a
resting state. Hypertension is generally classified as primary
hypertension or secondary hypertension. Secondary hypertension is
caused by an underlying medical condition affecting the blood
pressure but primary hypertension, which accounts for 95% of the
hypertension patients, has no direct cause. Although the cause of
primary hypertension is still poorly understood, it is believed
there are genetic and environmental factors that cause increased
cardiac output or peripheral vessel resistance which eventually
leads to hypertension. Environmental factors include, but is not
limited to, alcohol intake, smoking, insufficient exercise,
obesity, dietary salt intake, stress. Sustained hypertension is a
major risk factor that could lead to hypertensive heart disease,
coronary artery disease, stroke, aortic aneurysm, peripheral artery
disease, and chronic kidney disease (Lewington, et al.,
2002)).
In the United
States, 29% of the population (about 70 million adults) suffers
from hypertension and only 52% of them have their condition under
control (Nwankwo, et al., 2013). Hypertension is a contributing
cause of death for more than 360,000 Americans a year (Mozaffarian,
et al., 2015).
Treatment for
hypertension starts with lifestyle modifications and can be
escalated to drug intake if a patient’s condition does not
improve. Anti-hypertension drugs include diuretics, beta blockers,
ACE inhibitors, angiotensin II (Ang II) receptor blockers, calcium
channel blockers, alpha blockers, alpha-beta blockers, nervous
system inhibitors, and vasodilators. Olmesartan medoxomil is an
angiotensin II receptor blocker that treats hypertension by
selectively interacting with the receptor site of angiotensin to
block the renin-angiotensin system, limit conversion of angiotensin
I to Ang II, and decrease blood pressure (Burnier, et al.,
2000).
High Cholesterol (Hyperlipidemia/ Hypertriglyceridemia/
Dysbetalipoproteinemia/ Hypercholesterolemia/
Atherosclerosis)
High
Cholesterol/Hyperlipidemia is a condition where lipid levels in the
blood are elevated due to abnormal lipid metabolism of
triglycerides and cholesterol. High Cholesterol/Hyperlipidemia can
be caused by either genetic factors or secondary factors such as
hypothyroidism, jaundice, nephritic syndrome, and diabetes. Serum
lipids are mainly composed of cholesterol, triglycerides,
phospholipids, and free fatty acids that are transported in a
lipoprotein form. Lipoproteins are categorized into 4 types:
chylomicrons, very low density lipoproteins (VLDL), low density
lipoproteins (LDL), and high -density lipoproteins (HDL). VLDLs are
synthesized by the liver in fasting state and are responsible for
transferring triglycerides to peripheral tissues where some are
converted to LDLs. LDLs are the major carriers for delivering
cholesterol to peripheral tissues, however, they are also the major
risk factor for coronary arteriosclerosis. In the United States,
31.7% of the population (about 73.5 million adults) has high
low-density lipoprotein (LDL) and only 29.5% of them have the
condition under control. 48.1% of the adults that have
high LDL cholesterol are getting treatment to lower their levels.
People who have high cholesterol have almost twice the amount of
risk of developing heart disease compared to those with normal
cholesterol levels (CDC 2011a; CDC MMWR 2014; Mozaffarian, et al.,
2015).
Treatments for
hyperlipidemia involve lifestyle changes that include dietary
modifications, weight management, and physical activity to lower
LDL levels. Cholesterol-lowering medicines can be taken alongside
the lifestyle changes: statins, bile acid sequestrants, nicotinic
acid, fibrates, and ezetimibe. Rosuvastatin calcium is a statin
(HMG-CoA Reductase Inhibitor) that lowers LDL cholesterol by
inhibiting HMG-CoA reductase, which is in the metabolic pathway of
cholesterol production (Olsson, et al., 2002).
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The rationale for
ST-101 drug development is based on the universally accepted
independent risk factors in pathogenesis of cardiovascular
pathology and events in populations with hypertension and
dyslipidemia. Additionally, patient preference for a
single pill makes ST-101 a very useful drug for treating
hypertension and hyperlipidemia, common conditions with increasing
frequency in the aging population.
Hyperlipidemia and
hypertension are both independent risk factors for the development
of premature cardiovascular disease. Several studies have also
indicated that the presence of either condition predisposes an
individual to developing the other. Thus, the two
diseases commonly coexist. Because of the published
favorable outcomes associated with effective treatment of either
condition, professional organizations, including American Heart
Association (AHA), in the United States and Canada that provide
recommendations regarding the treatment of hyperlipidemia and
hypertension continue to advocate standard therapeutic targets that
need to be achieved when treating each indication if optimal
reduction of cardiovascular risks is to be
achieved. Furthermore, when both risk factors
coexist, the professional organizations recommended a more
aggressive approach to the treatment of either
condition.
In the United
States, forty to forty five percent (40%-45%) of hypertensive
patients are also diagnosed with hyperlipidemia another known risk
factor of premature cardiovascular disease (CVD), and hypertension
acts as an important risk factor for increase of cholesterol.
Consequently, which indicates that hypertension and hyperlipidemia
act respectively, as important independent risk factors of CVD and
at the same time when these diseases are accompanied concurrently,
such association brings strong synergy effects for CVD. Therefore,
effective control and treatment of these two diseases together are
of most importance.
Olmesartan
medoxomil is an angiotensin II receptor blocker (ARB) for the
treatment of hypertension alone or with other antihypertensive
agents, to lower blood pressure. Lowering blood pressure
reduces the risk of fatal and non-fatal cardiovascular events,
primarily strokes and myocardial infarctions.
Rosuvastatin
calcium is indicated as an adjunct to diet to reduce elevated Total
C, LDL-C, ApoB, non-HDL-C, and triglycerides and to increase HDL-C
in adult patients with hyperlipidemia or mixed
dyslipidemia.
The major
guidelines followed by physicians on the management of hypertension
and dyslipidemia (American College of Cardiology (ACC) and Joint
National Committee on the Prevention, Detection, Evaluation, and
Treatment of High Blood Pressure (JNC)) recommend the concomitant
treatment of these indications. Rosuvastatin calcium is strongly
recommended by the American College of Cardiology for the treatment
of dyslipidemia. ARBs are considered first line treatment for
hypertension.
The
co-administration treatment of ARB and Statin in patients with
hypertension associated with dyslipidemia concurrently is one of
the effective therapies.
Products
ST-101
ST-101 is being
developed for the treatment of combined hypercholesterolemia and
hypertension. Olmesartan medoxomil is marketed as
Benicar® tablets by Daiichi-Sankyo, Inc. and rosuvastatin
calcium is marketed as Crestor® tablets by AstraZeneca
Pharmaceuticals, LP. ST-101 is the same as Olostar®
which was developed and is now marketed in South Korea by Daewoong
Pharmaceuticals Co. Ltd.,– a company incorporated under the
laws of South Korea (“Daewoong”). The
dose strengths of ST-101 we intend to market in the United States
are 40/20, 20/20, 20/10 and 20/5 (mg of olmesartan medoxomil/mg of
rosuvastatin calcium), the same dose strengths of Olostar®
commercialized in South Korea.
In April 2014,
Daewoong’s fixed dose combination drug containing the active
pharmaceutical ingredients Olmesartan medoxomil and Rosuvastatin
calcium was approved in South Korea and is marketed by Daewoong as
Olostar®. The Company has recently obtained the
rights to Daewoong’s fixed dose combination drug containing
the active pharmaceutical ingredients Olmesartan medoxomil and
Rosuvastatin calcium for development and marketing of such drug in
the United States, Canada, Australia, Japan, Taiwan and certain
South American countries from Daewoong. Stocosil plans to submit a
505(b)(2) New Drug Application (NDA) to obtain regulatory approval
in the United States for the treatment of combined hypertension and
hyperlipidemia using data from three South Korean
clinical studies conducted by Daewoong as well as bridging studies
demonstrating similar
pharmacokinetics and pharmacodynamics (PK/PD) among
Caucasian and South Korean populations.
-40-
The three clinical
trials conducted by Daewoong to demonstrate suitability of
Olostar® in the treatment of combined hypertension and
hyperlipidemia are as follows:
Bioequivalence Test
The bioequivalence
trial is reported in the following publication: Clin Ther. 2013
Jul;35(7):915-22. Pharmacokinetics of Rosuvastatin/Olmesartan
fixed-dose combination: a single-dose, randomized, open-label,
2-period crossover study in healthy Korean subjects. Son H, Roh H,
Lee D, Chang H, Kim J, Yun C, Park K.
Background: Rosuvastatin, a
lipid-lowering agent, has been widely used with Olmesartan, a
long-acting angiotensin II receptor blocker, indicated for the
treatment of dyslipidemia accompanied by hypertension. A fixed-dose
combination (FDC) tablet of these 2 drugs was recently developed to
enhance the dosing convenience and to increase patient compliance
while yielding pharmacokinetic profiles comparable to
co-administration of each drug as individual tablets.
Objective: The goal of present study
was to compare the pharmacokinetic profiles of single-dose
administration of an FDC tablet containing Rosuvastatin/Olmesartan
20/40 mg (test formulation) with coadministration of a Rosuvastatin
20-mg tablet and a Olmesartan 40-mg tablet (reference formulation)
in healthy Korean male volunteers, for the purpose of determining
bioequivalence.
Methods: This single-dose, randomized,
open-label, 2-period crossover study enrolled subjects aged 20 to
50 years and within 20% of ideal body weight. Each subject received
a single dose of the test and reference formulations orally in a
fasted state, with a 7-day washout period between the
administrations. Blood samples were collected up to 72 hours after
dosing, and pharmacokinetic parameters were determined for
Rosuvastatin, its active metabolite (N-desmethyl Rosuvastatin), and
Olmesartan. Bioequivalence was concluded if the 90% CIs of the
geometric mean ratios for the primary pharmacokinetic parameters
were within the predetermined range of 80% to 125%. Adverse events
(AEs) were evaluated based on subject interviews and physical
examinations.
Results: Among the 58 enrolled
subjects, 54 completed the study. The 90% CIs of the geometric mean
ratios of the primary pharmacokinetic parameters were as follows:
Rosuvastatin: AUC (last), 85.60% to 97.40% and C(max), 83.16% to
98.21%; N-desmethyl Rosuvastatin: AUC(last), 82.08% to 93.45% and
C(max), 79.23% to 93.41%; and Olmesartan: AUC(last), 97.69% to
105.69% and C(max), 100.35% to 109.42%. The most frequently noted
AE was headache, occurring in 3 and 6 patients with the test and
reference formulations, respectively. All of the AEs were expected,
and there was no significant difference in the prevalence of
AEs
between the 2 formulations.
Conclusions: The pharmacokinetic
properties of the newly developed FDC tablet of
Rosuvastatin/olmesartan 20/40 mg suggest that it is bioequivalent
to coadministration of each drug as individual tablets in these
healthy Korean male subjects. The two formulations were well
tolerated, with no serious AEs observed. ClinicalTrials.gov
identifier: NCT01823900.
Drug Interactions
The drug
interactions trial is reported in the following publication: Clin
Ther. 2014 Aug 1;36(8):1159-70. Pharmacokinetic interaction between
Rosuvastatin and Olmesartan: a randomized, open-label, 3-period,
multiple-dose crossover study in healthy Korean male subjects. Roh
H, Son H, Lee D, Chang H, Yun C, Park K.
Purpose: Rosuvastatin has been widely
used in combination with Olmesartan for the treatment of
dyslipidemia accompanied by hypertension. With no information
currently available on the interaction between the 2 drugs, a
pharmacokinetic study was conducted to investigate the influence of
Rosuvastatin on Olmesartan and vice versa when the 2 drugs were
coadministered. The purpose of this study was to investigate the
pharmacokinetic profile of coadministration of the Rosuvastatin
20-mg tablet and the Olmesartan 40-mg tablet and the associated
drug-drug interaction in healthy South Korean male
volunteers.
Methods: This was a randomized,
open-label, 3-period, multiple-dose crossover study. Eligible
subjects were aged 20 to 50 years and within 20% of their ideal
body weight. After being randomly assigned to 6 groups of equal
number, subjects received each of the following 3 formulations once
a day for 7 consecutive days with an 8-day washout period between
the formulations: Rosuvastatin 20-mg tablet, Olmesartan 40-mg
tablet, and coadministration of the Rosuvastatin 20-mg tablet and
the Olmesartan 40-mg tablet. Blood samples were collected up to 72
hours after dosing, and pharmacokinetic parameters were determined
for Rosuvastatin, its active metabolite (N-desmethyl Rosuvastatin),
and Olmesartan. Adverse events were evaluated based on subject
interviews and physical examinations.
-41-
Findings: Among the 36 enrolled
subjects, 34 completed the study (mean [range] age, 28.6 [23-49] y;
mean [range] weight, 66.4 [52.2-78.7] kg). The 90% CIs of the
geometric mean ratios for the primary pharmacokinetic parameters
for the coadministration of the 2 drugs to the mono-administration
of each drug were 85.14% to 96.08% for AUCT and 81.41% to 97.48%
for Css,max for Rosuvastatin, and 77.55% to 89.48% for AUCT and
75.62% to 90.12% for Css,max for N-desmethyl Rosuvastatin; those
values were 95.61% to 102.57% for AUCT and 91.73% to 102.98% for
Css,max for Olmesartan. Dizziness was the most frequently noted
adverse drug reaction, occurring in 1 subject receiving
mono-administration of Rosuvastatin, 1 subject receiving
mono-administration of Olmesartan, and 4 subjects receiving
coadministration of Rosuvastatin and Olmesartan. All the adverse
events were expected, and there was no significant difference in
the incidence between the 2 formulations.
Implications: This study suggests that
Rosuvastatin and Olmesartan did not significantly influence each
other's pharmacokinetics when coadministered. Although the
pharmacokinetics of N-desmethyl Rosuvastatin were influenced by
Olmesartan, such interactions were considered clinically
insignificant. All 3 formulations were well tolerated, and no
serious adverse events or drug reactions were noted.
Safety and efficacy
This study was a
multi-institutional, randomized, double-bind, placebo-control,
factorial design, 4-Arms, 8 week administration, Phase 3 clinical
study for Korean patients with hypertension associated with
dyslipidemia at the age in between 20 and 80 years. The final
evaluation for efficacy endpoints was performed in 162 subjects who
were administered with the investigational products once or more
and satisfied the inclusion/exclusion criteria. An average rate of
changes (ROC) of LDL-C in ST-101 from baseline after 8 weeks was
-52.30%, an average ROC of LDL-C in Olmesartan 40 mg was -0.56%,
that in Rosuvastatin 20mg was -46.86% and that in placebo was
-3.19%. The difference of average ROC of LDL-C between ST-101 and
Olmesartan 40 mg after 8 weeks was -51.74%, and a decreasing rate
of LDL-C in ST-101 was statistically greater than in Olmesartan 40
mg (p-value<0.0001). An average change (LS Mean±SE) of DBP
in ST-101 from baseline after 8 weeks was -10.36(±1.20) mmHg,
and an average change (LS Mean±SE) of DBP in Rosuvastatin 20
mg as a placebo effect for change of DBP was 0.11(±1.55) mmHg.
The difference of average change of DBP (LS Mean
Difference±SE) between ST-101 and Rosuvastatin 20 mg after 8
weeks was -10.46(±1.83) mmHg, and a decreasing rate of DBP in
ST-101 was statistically greater than in Rosuvastatin 20 mg
(p-value<0.0001).
ST-102
Hypertension
affects approximately 1 billion people worldwide and is projected
to increase to 1.38 billion people by 2019. While
Hypertension can be controlled with drugs and lifestyle changes in
the majority of patients, uncontrolled or resistant hypertension is
a significant unmet clinical need in 22% of the hypertensive
population. The definition of resistant hypertension is defined as
the failure to reach controlled blood pleasure with more than 3
drugs regimen at optimal dosage that includes at least 1 diuretic.
According to The New England Journal of Medicine 2014 370:1393-1401
concluded that Renal Artery Denervation treatment, defined below,
for Resistant Hypertension has failed. In conclusion, without renal
denervation, there is no treatment option for resistant
Hypertension.
Renal denervation
is a novel therapy approved for uncontrolled
hypertension. The renal denervation system consists of a
generator and flexible catheter. During this minimally
invasive procedure, the interventionalist uses a catheter that
emits radio frequency (RF) energy across multiple
electrodes. The RF energy is delivered to a renal artery
via standard femoral artery access. A series of 1-minute
ablations are delivered along each renal artery to disrupt the
nerve.
SYMPLICITY HTN-3
clinical trial by Medtronic Inc.: Renal Artery Denervation Fails
for Resistant HTN. March 29, 2014 in this trial,
Medtronic attempted to prove the efficacy of renal denervation to
treat resistant hypertension. Resistant hypertension is defined as
high blood pressure not controlled on 3 or more drugs and one of
those being hydrochlorothiazide.
Despite meeting
primary safety endpoints, SYMPLICITY HTN-3 – the pivotal U.S.
trial examining renal denervation for treatment-resistant
hypertension – has fallen short of its secondary efficacy
goals, and failed to reach its primary efficacy endpoint as
announced earlier this year by the study's sponsor. The new data
was released March 29 as part of ACC.14 in Washington, DC, and
simultaneously published in the New England Journal of Medicine
(NEJM). (Bhatt, et al., 2014)
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In a study by
Stephanie Brinker, MD, Volume 63, issue 8 March 2014, Journal of
the American College of Cardiology, A therapeutic monitoring device
similar to TDM, was used in 56 resistant hypertension subjects in
whom all antihypertensive drugs prescribed were titrated to the
maximal or near-maximal doses at the time of evaluation. The
remaining 127 patients did not use the therapeutic monitoring
device, because of sub maximal dosages of the antihypertensive
drugs. The subjects who received the therapeutic device resulted in
additional decline in SBP and DBP, especially among non-adherent
patients. (Brinker, et al., 2014)
Therefore, ST-102
(ST-101 with TDM) is proposed to manage resistant hypertension for
which there is an unmet need.
We have developed
TDM, a point care device to maintain drug level below its toxicity
level and above its ineffective level, see further discussion in
Product/License TDM section, coupled with ST-101, which is intended
to address the unmet medical need for treatment of resistant
hypertension. This device will be used together with
ST-101 for the treatment of resistant hypertension. We
plan to conduct a clinical trial examining the safety and efficacy
of ST-102 for treatment of resistant hypertension.
ST-103
Familial
Hypercholesterolemia, or “FH”, is an inherited genetic
disorder that affects the body’s ability to manage
cholesterol. The result is very high levels of LDL, or
“bad” cholesterol, from birth. This protracted
exposure to high levels of LDL leads to a twenty fold increase in
the risk of premature cardiovascular disease.
The gene mutation
that causes FH is autosomal dominant. This means that a
parent with the disorder has a 50% chance of passing that gene to
each of his or her children. If a child inherits the gene,
because it is dominant, he or she will have the disorder. The
term autosomal vs x-linked refers to the fact that the gene is not
related to the sex chromosomes. It does not matter if it is
the mother or the father who has the gene, or if the child is a
girl or a boy. Autosomal dominant disorders, like FH, tend to
appear in each generation in a family. Because of this,
people with FH have a family history of heart disease or stroke.
However, if the child does not inherit the FH gene from his
or her affected parent, he or she will not have the disorder and
cannot pass it on to the next generation. There are
2 types of FH, including Heterozygous Familial Hypercholesterolemia
(HeFH) and Homozygous Familial Hypercholesterolemia
(HoFH),
Heterozygous
vs Homozygous FH
If the child
inherits the FH gene from one of the parent, the child will have
heterozygous FH, meaning the child have one FH gene and one normal
gene. About 1 in 250 people around the world have
heterozygous FH. Heterozygous FH is characterized by very
high LDL cholesterol (above 190 for adults or above 160 for
children) and a family history of high cholesterol, heart disease
or stroke.
If both of
the parents have FH and the child inherit the FH gene
from each of them, the child will have homozygous FH, meaning the
child have two FH genes. Having two FH genes makes the
disorder much more severe. Homozygous FH is very rare.
Approximately 1 in one million people worldwide has
homozygous FH. Homozygous FH is characterized by extremely
high levels of LDL cholesterol and symptoms can be seen in
childhood. Homozygous FH is much more difficult to treat
adequately and people with homozygous FH can suffer from cardiac
events even before the teen years.
Heterozygous FH: Signs, Symptoms and Treatment
People with FH have
elevated cholesterol from birth. Cholesterol screening in
children can identify people with probable FH based on an LDL-C
level above 160 and a family history of heart disease.
Cholesterol screening in adults can identify people with
probable FH based on and LDL cholesterol level above 190 and a
family history of heart disease. Many people with
heterozygous FH do not exhibit any other symptoms. Only 10%
of people with FH in the United States have been diagnosed, so some
people do not learn that they have it until they suffer a coronary
event such as myocardial infarction (MI) or sudden cardiac death.
Some people will have signs of elevated cholesterol such as
xanthomas (fatty deposits under the skin, often on the Achilles
tendon or on the joints of the hand), xanthalasmas (fatty deposits
under the skin on the eyelids) or corneal arcus (a grayish ring on
the periphery of the cornea).
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Homozygous
FH: Signs, Symptoms and Treatment
The signs and
symptoms of homozygous FH are the same as for heterozygous FH,
however they appear earlier, often in early childhood, and the
disease progresses much more aggressively. Cholesterol levels
into the 700’s or even 1,000 require an early, aggressive and
multi-pronged approach.
All of the
treatments used for heterozygous FH are also used to treat
homozygous FH. In addition, people with homozygous FH often
undergo LDL apheresis, a process by which blood is removed through
the patient’s vein and LDL is filtered out before the blood is
passed back into a different vein, similar to dialysis. Some
homozygous FH patients undergo a liver transplant in order to
normalize LDL levels.
ST-103 is expected
to reduce CVD risk associated with HeFH and HoFH through
simultaneous and synergistic control of BP and HCE. HCE
control needs maximum statin delivered by AUC dosing and BP control
needs low dose ARB. We plan to conduct a clinical trial
examining the safety and efficacy of ST-103 for treatment of HeFH
and HoFH.. ST-103 of HoFH will enjoy orphan drug status with 7
years of regulatory exclusivity because the ST-103
market size for HoFH is less than 200,000 patients in
US.
Affiliates
Daewoong
Pharmaceuticals Co. Ltd., a company incorporated under the laws of
South Korea (“Daewoong”), a leading pharmaceutical
company in South Korea, owns 10% of the common stock of Stocosil,
was established in 1945. Daewoong Pharmaceutical Co.,
Ltd. (KSE069620) has the largest prescription drug sales in South
Korea and envisions itself to become a top 50 global healthcare
company by 2020. In addition to its current product
portfolio, which includes 15 products, Daewoong has built strong
core competency for new drug development. Daewoong’s gross
sale was USD $626 million in 2013 and has 22 branches
worldwide.
Autotelic Inc., a
Delaware corporation (“Autotelic Inc.”) and Autotelic
LLC, a Delaware limited liability company (“Autotelic
LLC”), our affiliate companies, together owns 41% of the
common stock of Stocosil.
Autotelic Inc. is
experienced in conducting clinical trials and the development of
new drugs and incrementally modified drugs in the
U.S. Autotelic Inc. will provide certain services to
Stocosil, including but not limited to R&D research, FDA
regulatory compliance, CMC expertise, payroll and human resources
and other services to the Company. Autotelic Inc. will
perform such services pursuant to a Master Service Agreement
(“MSA”) to be executed by Autotelic Inc. and Stocosil
on June 18, 2015 and effective as of January 1, 2015, where the
Company will pay Autotelic Inc. an amount equal to the actual cost
plus 100% mark up on the actual labor hours and 20% mark up on the
contracted third party services on behalf of the Company for
providing the foregoing services to the Company. The
Company shall reimburse Autotelic Inc. for 100% of any
out-of-pocket expenses, including travel, office, rent, and
corporate professional fees incurred in connection with the Company
operations. As of June 30, 2016 and 2015, Stocosil Inc. has accrued
for such expenses approximately in the amount of USD $335,067 and
$373,456.
Autotelic Inc. and
Autotelic LLC possess certain know-how and intellectual property
rights to the proprietary Therapeutic Drug Monitoring device
(“TDM”) to test therapeutic drug
concentrations.
License
Autotelic Inc.
and the Company intend to enter into the Intra-Company License and
Development Agreement in the mid-year of 2017 (the
“Intra-Company License Agreement”), for the purpose of
developing Olostar® in combination with TDM, in the U.S.
(“ST-102” and
“ST-103”). During the term of the
Intra-Company License Agreement, Autotelic Inc. will
grant the Company a limited use license to TDM for the development,
including the conduct of clinical trials, for the testing for
treating uncontrolled Hypertension patients with ST-102 and FH with
ST-103. Under the terms of the Intra-Company License
Agreement, the data and all intellectual property generated from
the conduct of clinical trials as related to TDM will be owned by
Autotelic Inc.
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Therapeutic Drug
Monitoring (TDM) is used in personalized medicine to measure the
specific medication concentration in patient’s
blood. A full pharmacokinetic (PK) study is required to
determine whether patients are getting the appropriate and
efficient dosage. Personalized medicine without regard
to pharmacokinetic (PK) variability results in misclassification of
patients due to either too much drug exposure resulting in toxicity
among patients that would have benefitted from lower amount of the
drug, or too little drug exposure in a supposedly sensitive
population. Personalized medicine with Therapeutic Drug
Monitoring removes the PK variability and allows for the correct
classification of the patients according to
biomarkers. However, at the current state, a full
pharmacokinetic study requires not only multiple high-volume blood
draws and extended stays in the hospital but also testing method by
LC/MS/MS, an evaluation of Multidimensional Chromatography Coupled
with Tandem Mass Spectrometry for Large-Scale Protein Analysis,
which are both time-consuming and expensive. Point
of Care TDM device for PK guided dosing as a companion diagnostic
device consists of a quantitative lateral flow platform coupled to
a reader. Only small amount of blood is needed for the
test. Individual pharmacokinetic profiles can be
obtained and used to determine the suitable treatments. In
addition, the lateral flow PK quantitative assay can be deployed at
point-of care (in home, doctor’s office or central
lab).
Furthermore,
Autotelic LLC and the Company intend to enter an Intellectual
Property Transfer Agreement (the “IP Agreement”) in the
mid-year of 2017, for the know-how around the TDM device as set
forth below. Autotelic LLC also has rights to the data
for filing of additional IPs around the technology to protect
ST-102/ST-103 and the device. In return Stocosil will be able
to leverage, as needed, the patent portfolio of Autotelic LLC to
conduct its business.
The intellectual
property and technical know-how around the TDM device are part of
Autotelic LLC patent portfolio. The patent filings are
listed below.
|
Status (Filed, Provisional,
Approved)
|
Number
|
Title
|
Date
of Filing
|
Date
of US patent Expiration if granted (expected)
|
|
Filed PCT
Nationalized
|
PCT/US2013/046040
|
Methods and
compositions for personalized medicine by POC devices for FSH, LH,
hCG and BNP
|
06/15/2013
|
06/15/2033
|
|
United
States
|
14/407,715
|
|
|
|
|
Australia
|
2013274016
|
|
|
|
|
CA
|
2876486
|
|
|
|
|
Japan
|
2015517474
|
|
|
|
|
South
Korea
|
10-2015-7000756
|
|
|
|
|
India
|
2472/MUMNP/2014
|
|
|
|
|
EP
|
13805123.0
|
|
|
|
|
P.R.
China
|
2013800316648
|
|
|
|
|
Filed PCT
Nationalized
|
PCT/US2012/039993
|
Methods and
Compositions for Therapeutic Drug Monitoring and Dosing by
Point-of-Care Pharmacokinetic Profiling
|
05/30/2012
|
05/30/2032
|
|
United
States
|
13/261,786
|
|
|
|
|
Japan
|
2014513663
|
|
|
|
|
P.R.
China
|
201280038476.3
|
|
|
|
|
CA
|
2837331
|
|
|
|
|
Australia
|
2012262322
|
|
|
|
|
EP
|
12792802.2
|
|
|
|
|
India
|
2458/MUMNP/2013
|
|
|
|
|
Filed
PCT
|
PCT/US16/12884
|
Methods for
Olmesartan Dosing by AUC
|
1/11/2016
|
1/11/2036
|
|
United
States
|
14/992,898
|
|
|
|
|
Taiwan
|
105102921
|
|
|
|
|
South
Korea
|
10-2016-7002748
|
|
|
|
|
Filed
Provisional
|
62/277,406
|
Device and Method
for Improving Compliance in Treating Hypertension
|
1/11/2016
|
N/A- Not PCT
yet
|
-45-
Autotelic Inc., and
the Company intend to enter into License and Development Agreement
in the mid-year of 2017 (the “TDM License Agreement”),
for the purpose of developing Olostar® in combination with
TDM, in the U.S. (“ST-102”). During the term
of the License Agreement, Autotelic Inc. will grant the Company a
limited use license to TDM for the development, including the
conduct of the clinical trials, for the testing for treating
uncontrolled Hypertension patients, of ST-102. Under the
terms of the License Agreement, Autotelic Inc. will provide the
device to the Company at cost + 100% during its clinical
development and Autotelic Inc. is allowed to use the data generated
for its regulatory filing and commercialization of the
device.
Daewoong has
developed Olostar® (“ST-101”), the world’s
first complex incrementally modified drug (“IMD”)
consisting of ARB family, olmesartan medoxomil, and statin Family,
rosuvastatin calcium, which allows the management of both
hypertension and dyslipidemia at the same time.
On February 27,
2015, we, together with Autotelic Inc. and Autotelic LLC, entered
into a Product Development, License and Commercialization Agreement
(the “Daewoong Agreement”) with
Daewoong. Under the terms of the Daewoong Agreement, we
received the exclusive rights to develop and commercialize ST-101
in the U.S., Canada, Japan, Taiwan and certain South American
countries (“Stocosil Territory”). The
Daewoong Agreement grants the Company a license to use patents and
other intellectual property of Daewoong in connection with the
research, development, use, importing, manufacture, sale and offer
for sale of ST-101. Under the Daewoong Agreement, we are
responsible, among other things, for the development and
commercialization of ST-101 in the U.S. Canada, Japan, Taiwan and
certain South American countries. Under the terms of the
Daewoong Agreement, as consideration for the grant of the licenses,
we have agreed to: (i) pay Daewoong certain development milestone
payments upon achievement of certain development milestones for
ST-101 in the U.S; (ii) granted an unvested warrant to Daewoong to
purchase 500,000 shares of our common stock; (iii) pay Daewoong a
sales milestone payment upon achievement of $20,000,000 in net
sales of ST-101 and ST-102.
Under the terms of
the Daewoong Agreement, we have granted certain intellectual
property rights to Daewoong with respect to the data we generate
for ST-101 and to use patents and other intellectual property of
the Company in connection with the development and
commercialization of ST-102 outside the Stocosil
Territory. In consideration for such license, Daewoong
has agreed to: (i) pay us a royalty on net sales outside of the
Stocosil Territory of ST-101 in countries where Daewoong has used
our data to obtain regulatory approval; and (ii) pay us a royalty
on net sales of ST-102 outside the Stocosil Territory.
We intend to
develop the products and conduct clinical trials, to be conducted
by Autotelic Inc. pursuant to the MSA: (i) to obtain regulatory
approval to commercialize ST-101 in the U.S. in 2018; and (ii) to
obtain regulatory approval for ST-102 in the U.S. in 2021 or
2022.
Distribution
The Company,
following receipt of all necessary regulatory approval, plans to
commercialize ST-101, ST-102 and ST-103 through the pharmaceutical
distribution channels such as Amerisource Bergen, McKesson,
SymplMed and Cardinal Health. We do not have any
agreements in place with such distributors at this time and there
is no assurance that these companies will agree to distribute
ST-101, ST-102 or ST-103.
ST-101 will be the
only once-daily fixed dose combination of olmesartan medoxomil and
rosuvastatin calcium. It simplifies dosing for those
patients currently having to take multiple pills for both
diseases. The indication will be for hypertension and
hyperlipidemia in adults. The planned dosage strengths are 40/20
mg, 20/20 mg,20/10 mg, 20/5 mg once-a-day, regardless of
food. ST-101 will be submitted to the FDA as a NDA
505(b)(2) new drug application. As part of this NDA application,
ST-101 dosage forms in tablets will need to demonstrate
bioequivalence to the reference listed drugs
separately.
ST-102, the fixed
dose combination of olmesartan medoxomil and rosuvastatin calcium
is coupled with Autotelic Inc’s Therapeutic Drug Monitoring
(TDM) device for the treatment of uncontrolled resistant
hypertension. ST-102 is anticipated to provide an unmet
need for patients with resistant
hypertension. Personalized dosing can reduce variability
in pharmacokinetics, reduce toxicity, increase efficacy and improve
compliance. TDM guided counseling will provide better adherence to
medications in conjunction with ST-102 and increase effectiveness
in resistant hypertension.
ST-103, the fixed
dose combination of olmesartan medoxomil and rosuvastatin calcium
with different presentations specifically treats HeFH and HoFH.
ST-103 use TDM to allow for high dose Rosuvastatin therapy. The
planned dosage strengths are 5/10 mg, 5/20 mg,5/40 mg, once-a-day,
regardless of food. ST-103 will be submitted to the FDA
as a NDA 505(b)(2) new drug application around last quarter of
2020.
-46-
The ST-101 market
size of patients on olmesartan medoxomil who also have
hyperlipidemia is 445,000. The ST-102 market size of uncontrolled
hypertension is 7,190,260 patients. The ST-103 market
size for HoFH is less than 200,000 patients in US and more than 1
million patients for HeFH.
The Company plans
to commercialize ST-101 through the pharmaceutical distribution
channels with partner(s) either through an exclusive/non-exclusive
distribution license or partnership. The potential
partner would already have established footprint/sale force in the
applicable territory with menu of similar products, allowing us to
rapidly launch our products without incurring costs typically
associated with building out a sales and marketing
team. The Company will retain a core sales and marketing
team to oversee the process. This core team will also be
responsible for the build out of sales and marketing team to
support the launch of ST-102 and all subsequent products in its
pipeline.
Marketing
and Sales
The Company is a
development stage pharmaceutical company and we do not expect to
have any customers until our products are approved by the FDA for
commercialization in the US, or approved by other regulatory
authorities in their jurisdiction.
We currently do not
have any clinical or commercial manufacturing or sales
capabilities. We may or may not manufacture the products we
develop, if any. We intend to license to, or enter into strategic
alliances with, larger companies in the pharmaceutical business,
which are equipped to manufacture, market and/or sell our products,
if any, through their well-developed manufacturing capabilities and
distribution networks. We intend to license some or all of our
worldwide patent rights to more than one third party to achieve the
fullest development, marketing and distribution of any products we
develop.
Vendors
Daewoong is the
Company’s sole supplier of ST-101 pursuant to the terms of
the Daewoong Agreement.
Autotelic Inc. is
the Company’s sole supplier of TDM pursuant to the terms of
License and Development Agreement to be entered into in the fourth
quarter of 2016 (the “TDM License Agreement”), for the
purpose of developing ST-101 in combination with TDM, in the U.S.
(“ST-102”).
Our plan is to
retain Daewoong for supplying ST-103 for clinical trial as well as
marketing and distributions.
Drug
Development
Stocosil’s
drug development progress contains three programs, the first phase
is for ST-101, which is ST-101 drug development, the second phase
is for ST-102 and the third phase is ST-103, as a combination drug
and device (ST-101 with TDM). Stocosil had its EOP2 (End
Of Phase II) meeting with the FDA for ST-101 in December 2015 and
FDA’s responses were very clear and provided the Company with
a defined 505(b)(2) pathway for the
product. Subsequently, Stocosil had its Pre New Drug
Application (PNDA) meeting with FDA in June 2016 and FDA confirms
most of the nonclinical, clinical, and Chemistry, Manufacturing,
and Controls (CMC) data for ST-101 to support a 505(b)(2)
submission is sufficient and the Company plans to submit the
NDA for ST-101 in the mid-year of 2017. The Company
currently plans to submit the ST-102 NDA in the mid-year of 2020 or
early 2021 and ST-103 NDA in late 2021.
Autotelic Inc. has
been providing certain services to Stocosil, including but not
limited to R&D research, FDA regulatory compliance, CMC
expertise, payroll and human resources and other services to the
Company. Autotelic Inc. has performed such services
pursuant to a Master Service Agreement
(“MSA”). Currently, the accumulated amount
spent on developing ST-101 is approximately $3,648,939 as of June
30, 2016.
TDM device will be
provided by Autotelic Inc. during the phase III clinical trial,
which is expected to start upon sufficient funding is
secured. The Company plans to start the road show in the
mid-year of 2017 in association with ST-102 and
ST-103. The expenses spent on developing ST-102 are
minimal and none for ST-103 as of June 30, 2016.
-47-
Competition
Olostar® is an
ARB+statin complex developed independently by Daewoong. It is the
world's first drug consisting of olmesartan medoxomil of the ARB
series and rosuvastatin calcium of the statin series, a Fixed Dose
Combination (“FDC”), which is capable of treating both
hypertension and dyslipidemia at the same
time. Individual drugs with olmesartan medoxomil or
rosuvastatin calcium as the active pharmaceutical ingredient have
been sold in the United States for years. The Company
will have competition for patients that prefer to purchase a single
drug. Additionally, CADUET® is an FDC currently
marketed in the United States for the treatment of combined
hypertension and hyperlipidemia and is a direct competitor of
ST-101.
Once the Company is
granted with the orphan drug approval for ST-103, ST-103 will enjoy
orphan drug status with 7 years of regulatory exclusivity, waived
regulatory filing fees, and R&D credit.
Intellectual
Property
Currently,
Olostar® is protected by one issued PCT patent which has been
nationalized (including in the United States): Pub. No.:
WO/2013/147462; International Application No.: PCT/ KR2013/
002378; Publication Date: March 10, 2013; International Filing
Date: March 22, 2013 by Daewoong. The Korean patent will expire on
March 22, 2023. This patent is directed to compositions
for producing olmesartan medoxomil and rosuvastatin together in a
single dosage form.
The claims pending
in the Daewoong US patent application (Ser. No. 14/388,115), which,
if issued as a patent, would expire in March 22, 2033, and the
composition of the patent is described as follows:
●
A pharmaceutical
composition in a single dosage form comprising:
●
A compartment
comprising olmesartan medoxomil; and a compartment comprising
rosuvastatin or a salt thereof, each of the compartments being
formulated in a separate form, wherein the compartment comprising
olmesartan medoximil comprises low substituted hydroxyproply
cellulose, as a disintegrant, in an amount of 7.5 to 65% by weight
based on the total weight of the compartment,
and
●
The compartment
comprising rosuvastatin or a salt thereof comprises one or more
disintegrant selected from the group consisting of crospovidone,
low substituted hydroxypropyl cellulose, croscarmellose sodium, and
carboxymethylcellulose calcium, in an amount of 2 to 20% by weight
based on the total weight of the compartment.
This PCT is
licensed to the Company under the terms of the Daewoong
Agreement. Daewoong also filed the PCT in the following
countries:
|
Country
code
|
Status
|
Application
No.
|
Entry
Date
|
|
AU
|
Filed
|
2013240846
|
8/8/2014
|
|
CA
|
Filed
|
2866377
|
9/4/2014
|
|
EPO
|
Filed
|
20130769567
|
8/14/2014
|
|
JP
|
Filed
|
2015503112
|
9/29/2014
|
|
U.S.
|
Filed
|
14388115
|
9/25/2014
|
|
MX
|
Filed
|
2014011510
|
9/25/2014
|
|
PH
|
Filed
|
2013120145018
|
8/11/2014
|
|
HK
|
Filed
|
20150100605
|
|
|
CN
|
Filed
|
2013800180830
|
9/29/2014
|
|
CL
|
Filed
|
20140002581
|
|
|
KR
|
Granted
|
1020130030734
|
Filing date:
3/22/2013
|
-48-
Government
Regulation
Government
authorities in the U.S. (including federal, state and local
authorities) and in other countries, extensively regulate, among
other things, the manufacturing, research and clinical development,
marketing, labeling and packaging, storage, distribution,
post-approval monitoring and reporting, advertising and promotion,
pricing and export and import of pharmaceutical products, such as
those we are developing. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal,
state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources. Moreover,
failure to comply with applicable regulatory requirements may
result in, among other things, warning letters, clinical holds,
civil or criminal penalties, recall or seizure of products,
injunction, and disbarment, partial or total suspension of
production or withdrawal of the product from the market. Any agency
or judicial enforcement action could have a material adverse effect
on us.
U.S. Government Regulations
In the U.S., the
FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act,
or FDCA, and its implementing regulations. Drugs are also subject
to other federal, state and local statutes and regulations. The
process required by the FDA before drugs may be marketed in the
U.S. generally involves the following:
Pre-Clinical
Testing: Before beginning testing of any compounds with
potential therapeutic value in human subjects in the United States,
stringent government requirements for pre-clinical data must be
satisfied. Pre-clinical testing includes both in vitro,
or in an artificial environment outside of a living organism, and
in vivo, or within a living organism, laboratory evaluation and
characterization of the safety and efficacy of a drug and its
formulation.
Investigational New
Drug, IND, Applications, Pre-clinical testing results obtained from
in vivo studies in several animal species, as well as from in vitro
studies, are submitted to the FDA, or an international equivalent,
as part of an IND or equivalent, and are reviewed by the FDA prior
to the commencement of human clinical trials. The pre-clinical data
must provide an adequate basis for evaluating both the safety and
the scientific rationale for the initial clinical studies in human
volunteers.
Clinical Trials:
Clinical trials involve the administration of the drug to healthy
human volunteers or to patients under the supervision of a
qualified investigator pursuant to an FDA-reviewed protocol. Human
clinical trials typically are conducted in three sequential phases,
although the phases may overlap with one another. Clinical trials
must be conducted under protocols that detail the objectives of the
study, the parameters to be used to monitor safety, and the
efficacy criteria, if any, to be evaluated. Each protocol must be
submitted to the FDA as part of the IND.
Phase 1 clinical
trials—test for safety, dose tolerance, absorption,
bio-distribution, metabolism, excretion and clinical pharmacology
and, if possible, to gain early evidence regarding
efficacy.
Phase 2 clinical
trials—involve a small sample of the actual intended patient
population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose-response and the optimal
dose range and to gather additional information relating to safety
and potential adverse effects.
Phase 3 clinical
trials—consist of expanded, large-scale studies of patients
with the target disease or disorder to obtain definitive
statistical evidence of the efficacy and safety of the proposed
product and dosing regimen.
Phase 4 clinical
trials—conducted after a product has been approved. These
trials can be conducted for a number of purposes, including to
collect long-term safety information or to collect additional data
about a specific population. As part of a product approval, the FDA
may require that certain Phase 4 studies, which are called
post-marketing commitment studies, be conducted
post-approval.
Good Clinical
Practices: All of the phases of clinical studies must be conducted
in conformance with the FDA's bioresearch monitoring regulations
and Good Clinical Practices, which are ethical and scientific
quality standards for conducting, recording, and reporting clinical
trials to assure that the data and reported results are credible
and accurate, and that the rights, safety, and well-being of trial
participants are protected. The FDA may order the
temporary or permanent discontinuation of a clinical trial at any
time.
-49-
In order to obtain
marketing authorization for our products, we must submit to the FDA
the results of the pre-clinical and clinical testing, together
with, and among other things, detailed information on the
manufacture and composition of the product, in the form of a new
drug application.
Upon completion of
the clinical trials, the Company will send the FDA the evidence
from these tests to prove the product is safe and effective for its
intended use (505(b)2 New Drug Application (NDA) in the
US). The FDA will review these data and determine if we
have approval to market the product at the specified dose(s) and
formulation(s) for the specified indication(s).
Once regulatory
approval has been granted, the approved product and its
manufacturer are subject to continual review by the FDA. Any
regulatory approval that we receive for our products may be subject
to limitations on the indicated uses for which the product may be
marketed or contain requirements for potentially costly
post-marketing follow-up studies to monitor the safety and efficacy
of the product. In addition, if the FDA approves any of our
products, we will be subject to extensive and ongoing regulatory
requirements by the FDA and other regulatory authorities with
regard to the labeling, packaging, adverse event reporting,
storage, advertising, promotion and recordkeeping for our products.
In addition, manufacturers of our products are required to comply
with current cGMP regulations which include requirements related to
quality control and quality assurance, as well as the corresponding
maintenance of records and documentation. Further, regulatory
authorities must approve these manufacturing facilities before they
can be used to manufacture our products, and these facilities are
subject to continual review and periodic inspections by the FDA and
other regulatory authorities for compliance with cGMP
regulations.
We are also subject
to a variety of regulations governing clinical trials and potential
sales of our products outside the United States. Whether
or not FDA approval has been obtained, approval of conduct of a
clinical trial or authorization of a product by the comparable
regulatory authorities of foreign countries and regions must be
obtained prior to the commencement of marketing the product in
those countries. The approval process varies from one regulatory
authority to another and the time may be longer or shorter than
that required for FDA approval. In the E.U., Canada and Australia,
regulatory requirements and approval processes are similar, in
principle, to those in the United States.
Employees
We have a total of
4 part time employees. All of our administration,
regulatory, CMC, CMO, non-clinical and clinical works are all
provided by Autotelic Inc. pursuant to the Master Services
Agreement.
-50-
DESCRIPTION
OF PROPERTY
We do not have
laboratory facilities. We have outsourced our laboratory
work to third party vendor or affiliated company, Autotelic Inc.,
which is located at 940 South Coast Drive, Ste. 100, Costa Mesa, CA
92626. We do not intend to lease laboratory facilities
from Autotelic Inc.
On May 31, 2015
Stocosil entered into a sublease agreement effective as of January
1, 2015 with Autotelic Inc. for office space furnished by Autotelic
Inc. located at 17870 Castleton St., Ste. 250, City of Industry, CA
91748. For the period from July 1, 2015 to June 30, 2016
and from inception (December 11, 2104) to June 30, 2015, we
recorded $12,000 and $6,000 as an estimate of the fair value of the
rental of the office space. The gross rent for the
office space is $1,000 per month. The lease expires on
October 31, 2016.
On October 31,
2016, the Company has executed the sublease agreement with
Autotelic Inc. for additional twenty four (24) months from November
1, 2016 to October 31, 2018 with monthly payment in the amount of
one thousand dollars ($1,000), payable on the first day of each
month.
-51-
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and the related notes and other financial
information included elsewhere in this Offering Circular. Some of
the information contained in this discussion and analysis or set
forth elsewhere in this Offering Circular, including information
with respect to our plans and strategy for our business, includes
forward-looking statements that involve risks and uncertainties.
You should review the “Risk Factors” section of this
Offering Circular for a discussion of important factors that could
cause our actual results to differ materially from the results
described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
We are a
pharmaceutical company engaged in the discovery, acquisition,
development and commercialization of proprietary drug therapeutics
in the U.S. and foreign territories. Our primary
therapeutic focus is hypertension and
hypercholesterolemia. We currently have three clinical
development programs underway:
●
FDA approval of
ST-101;
●
FDA approval of the
ST-101 coupled with a therapeutic drug monitoring device (ST-102);
and
●
FDA approval of the
high dose ST-101 coupled with a therapeutic drug monitoring device
(ST-103).
Autotelic Inc., an
incubator, founded us in December 2014. Autotelic Inc.
is a medical technology company that possesses devices to test
therapeutic drug concentrations and the research and development
expertise. Autotelic Inc. has experience in clinical
trials and development of new drugs and incrementally modified
drugs in the U.S. We have entered into a Master Service
Agreement with Autotelic Inc. for the services of scientific and
administrative support personnel. We have four (4)
part-time employees other than through our Master Service Agreement
with Autotelic Inc.
We have licensed
the rights to Olostar® (ST-101) in the U.S., Canada, Taiwan,
Japan, Australia and certain part of Latin American from Daewoong
Pharmaceuticals Co. Ltd. Daewoong is a leading
pharmaceutical company in the South Korean prescription drug
market. Daewoong has a strong network of sales and
marketing specialists operating throughout the South Korean
Peninsula. We also hold the global right for resistant
Hypertension, (ST-102). We have licensed the rights,
(ST-102), for territories outside of US, Canada, Taiwan, Japan and
Australia to our partner Daewoong. In the future, we may
enter into additional sale and marketing licenses in additional
territories which could generate income in the form of upfront
& milestone payments as well as royalties.
We plan to develop
ST-103, a fixed-dose combination of olmesartan medoxomil and high
dose rosuvastatin calcium for the treatment of Familial
Hypercholesterolemia, or “FH”, is an inherited genetic
disorder that affects the body’s ability to manage
cholesterol. We plan to conduct clinical trial for ST-103
when the funding is available.
Plan
of Operations
We were
incorporated on December 11, 2014 and are considered a
development-stage company. We expect to continue to
incur significant research and development and other
expenses. Our net loss from inception through June 30,
2015 was $921,809 and our net loss for the year ended June 30, 2016
was $2,727,130. As of June 30, 2016, we had a total
accumulated stockholders’ deficit of $3,648,939. We expect to
continue to incur losses for the foreseeable future as we expand
our product development activities, seek necessary approvals for
our product candidates, and begin commercialization
activities.
Our plan of
operation for the twelve months following the commencement of this
offering is to continue our efforts to obtain FDA regulatory
approval for ST-101 and to establish a market alliance for
ST-101. Our plan of operations also includes starting
clinical trial for ST-102. We expect to move forward on
NDA submission with FDA for ST-101, in the mid-year of
2017.
-52-
The majority of our
operating expenses to date have been for research and development
activities related to ST-101, ST-102 and ST-103, and for costs
associated with our formation, including legal, recruiting, travel
and fundraising. Since inception through June 30, 2016,
the company incurred stock-based compensation by issuing warrants
to purchase 283,421 shares of our common stock to Autotelic Inc. as
part of the MSA described in the Interest of Management and Others
in Certain Transactions section, exercisable at a price of $5 per
share.
Deferred Income
The Company had
received an initial milestone down payment of $75,000 from a
pharmaceutical company for licensing rights of the Company's
product after FDA approval. When FDA approval is given,
this revenue will be recognized through the term of the
license.
Research and Development Expense
We expect R&D
expenses to be a substantial part of our costs in support of the
FDA approval procedure for ST-101, ST-102 and
ST-103. R&D expenses consist primarily of FDA
regulatory approval procedures and clinical studies performed by
contract research organizations, third party consultants, and
personnel costs, including salaries, benefits and overhead
allocations.
Research and
development costs are expensed as incurred. Research and
development expense consists primarily of third-party consultant
fees attributable to services received from Autotelic Inc. under
the Master Service Agreement and expenses related to our clinical
studies.
The following table
presents the components of research and development
expenses:
|
|
|
For
the Year Ended
June
30, 2016
(Audited)
|
|
|
For
the Period
from
Inception
(December
11, 2014)
to
June 30, 2015
(Audited)
|
|
||
|
Personnel
and related benefits
|
|
$
|
1,432,759
|
|
|
$
|
500,384
|
|
|
Third-party
consulting and service fees
|
|
|
937,725
|
|
|
$
|
187,020
|
|
|
Development
costs
|
|
|
81,000
|
|
|
$
|
67,057
|
|
|
Other
|
|
$
|
275,646
|
|
|
$
|
167,348
|
|
|
Total
|
|
$
|
2,727,130
|
|
|
$
|
921,809
|
|
Research and
development expense since inception include expenses associated
with services provided by Autotelic Inc. employees for Chemistry,
Manufacturing Controls services, regulatory planning, submission
services, clinical, nonclinical services, human resources,
accounting, forecasting, finance services, corporate compliance,
business commercialization services and IP services. In
addition, we also retained third-party consultants to assist us in
performing all the aforementioned services.
We expect research
and development expense to increase significantly as we add
personnel, commence additional clinical studies and other
activities to develop our drug product candidates. From
inception (December 11, 2014) to June 30, 2016, the Company had
spent approximately $3.6 million on research and development for
ST-101, ST-102 and ST-103.
The timing and
amount of our research and development expenses will depend largely
upon the outcomes of current and future trials for our drug product
candidates as well as the related regulatory requirements and
manufacturing costs. We cannot determine with certainty
the duration and completion costs of the current or future
development activities.
-53-
General and Administrative Expense
General and
administrative expense consists of personnel-related costs,
including salaries and benefits, and also includes expenses
attributable to services received from Autotelic Inc. under the
Master Service Agreement, rent and other facilities costs and
professional and consulting fees for legal, accounting, tax
services and other general business services. Since
inception through June 30, 2016, the company incurred stock-based
compensation by issuing warrants to purchase 283,421 shares of our
common stock to Autotelic Inc. as part of the MSA described in the
Interest of Management and Others in Certain Transactions section,
exercisable at a price of $5 per share. We expect general and
administrative expense to increase significantly as we incur
operating costs related to being a public company, including
building our corporate infrastructure.
Liquidity
and Capital Resources
Since our
inception, we have not generated any revenue and we have funded our
operations primarily through the issuance of equity securities and
convertible promissory notes. We have incurred losses
and negative cash flow from operations from inception to June 30,
2016, we had an accumulated deficit of $3,648,939. We anticipate
that we will continue to incur losses for the next several years
due to expenses relating to:
●
trials of our
products and product candidates;
●
establishing
manufacturing capabilities; and
●
commercialization
of our prescription drug product candidates, if
approved.
As of June 30,
2016, we had cash and cash equivalents of $115,340. In
February 2015, we received aggregate gross proceeds of $1,003,400
from the issuance of 4,454,545 shares of common stock, and also in
February 2015, we issued $716,000 aggregate principal amount of
convertible notes with maturity date as of January 31,
2017. On December 31, 2015, we issued additional
$750,000 aggregate principal amount of convertible notes with
maturity date as of January, 2017. The convertible notes
bear interest at 3% per annum and mature on January 31,
2017. On June 30, 2016, we issued additional $141,000
aggregate principal amount of convertible notes with maturity date
as of April 1, 2018. As of June 30, 2016, $116,000
borrowings under these notes were received. The
convertible notes bear interest at 3% per annum. Upon
the completion of an equity financing by us of at least $1,500,000,
or a sale of our company, we have the right to convert the
outstanding principal amount of the notes into shares of our common
stock at $0.60 for the February 2015 convertible notes and $5.00
and $8.00 for the December 2015 and June 2016 convertible
notes. Substantially all of the capital raised in the
February and December 2015 private placements was attributable to
sales to related parties including insiders and our
founders. These capital investments have allowed us to
pay third party contractors, consultants, regulatory affairs, legal
and accounting expenses, as well as fund daily operational
expenses.
Our recurring
losses from operations raise substantial doubt about our ability to
continue as a going concern. The accompanying financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. We may never become profitable, or if we
do, we may not be able to sustain profitability on a recurring
basis.
We believe the net
proceeds from this offering, together with our existing cash and
cash equivalent, will be sufficient to fund our operating plan
through at least the next twelve months and through the anticipated
approval and launch of one or more of our product candidates,
ST-101, ST-102 and ST-103. However, our operating plan may change
due to many factors currently unknown to us, and we may need to
seek additional funds sooner than planned, through public or
private equity or debt financings or other sources, such as
strategic collaborations. Such financing may result in dilution to
stockholders, imposition of debt covenants and repayment
obligations or other restrictions that may affect our business. In
addition, we may seek additional capital due to favorable market
conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating
plans.
Further, although
we do not have any current capital commitments, we expect that we
will increase our expenditures following the closing of this
offering once we have additional capital on hand in order to
continue our efforts to develop and commercially launch ST-101 by
mid-year 2017 and continue development of ST-102 and ST-103 in the
near term. However, we do not have any definitive plans
as to the exact amounts or particular uses at this time, and the
exact amounts and timing of any expenditure may vary significantly
from our current intentions.
-54-
Cash Flows
The following table
shows a summary of cash flows for the periods set forth
below:
|
|
For
the Year ended
June
30, 2016
(Audited)
|
For
the Period from
December
11, 2014
(inception)
to
June 30, 2015
(Audited)
|
|
Net
Loss
|
$(2,727,130)
|
$(921,809)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
$347,081
|
$1,403
|
|
Change in operating
assets and liabilities
|
$283,232
|
$547,442
|
|
Net cash used in
operating activities
|
$(2,096,817)
|
$(372,964)
|
|
Net cash used in
investing activities
|
$(479)
|
$-
|
|
Net cash provided
by financing activities
|
$866,000
|
$1,719,600
|
|
Cash at beginning
of period
|
$1,346,636
|
$-
|
|
Cash at end of
period
|
$115,340
|
$1,346,636
|
Net Cash Used in Operating Activities
For the period from
inception through June 30, 2016, net cash used in operating
activities was the result of our net loss of $3,648,939, which is
offset by increase in change in operating asset and liability items
of $830,674 and adjustments to reconcile net loss to net cash used
in operating activities of $348,484.
For the period from
inception through June 30, 2016, net cash used in operating
activities was the result of developing ST-101.
Net Cash Provided by (Used in) Investing
Activities
During the period
from inception through June 30, 2016, net cash used in investing
activities consist of investment in Autotelic Taiwan.
Net Cash Provided by Financing Activities
During the period
from inception through June 30, 2016, net cash provided by
financing activities primarily consisted of the gross proceeds from
the issuance of common stock and convertible notes in February
2015, December 2015, and June 2016.
Commitments
and Contingencies
The following table
summarizes our contractual obligations as of June 30,
2016:
|
|
|
Payments
Due by Period
|
|
|||||||||||||||||
|
|
|
Total
|
|
|
Less
than 1
Year
|
|
|
1
to 3
Years
|
|
|
3
to 5
Years
|
|
|
More
Than
5
Years
|
|
|||||
|
Sublease
Agreement
|
|
$
|
28,000
|
|
|
$
|
12,000
|
|
|
$
|
16.000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
License
Agreement
|
|
$
|
5,900,000
|
|
|
$
|
500,000
|
|
|
$
|
4,400,000
|
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
|
Master Service
Agreement
|
|
$
|
334,391
|
|
|
$
|
334,391
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Total
|
|
$
|
6,262,391
|
|
|
$
|
846,391
|
|
|
$
|
4,416,000
|
|
|
$
|
-
|
|
|
$
|
1,000,000
|
|
The Company entered
into a sublease agreement with Autotelic Inc. for an office unit in
the amount of $1,000 per month commencing on January 1, 2015 and
ending on October 31, 2016. The Company has renewed the
sublease on October 2016 and it will expire on October 31, 2018,
with the monthly payment of $1,000 per month.
-55-
The Company also
entered into a Master Service Agreement (MSA) with Autotelic Inc.,
whereas, Autotelic Inc. shall use its own personnel, third party
contractors, furnishings, equipment and other assets to provide
Services, including but not limited to chemistry, manufacturing and
controls services, regulatory planning, submission, and meeting
with regulatory agencies globally to obtain regulatory guidance,
concurrence, and approval for clinical trial, regulatory approval
path way and ultimately marketing approval, nonclinical services to
support the design, execution and submission of nonclinical studies
to support IND/NDA approval, human resources, accounting,
forecasting and finance functions, corporate compliance functions,
business commercialization services, IP services, and other
services as Company may request. During the period
commencing January 1, 2015 (the “Effective Date”) and
until the date that Company has completed an equity offering of
either common or preferred stock in which the gross proceeds
therefrom is no less than $10,000,000 (the “Equity Financing
Date”), Company shall pay Autotelic Inc. the following
compensation: cash in an amount equal to the Actual Labor Cost
(paid on a monthly basis), plus warrants for shares of
the Company’s common stock with a strike price no less than
the fair market value of the Company’s common stock at the
time said warrants are issued. The Company is not
obliged to any minimum payments, nevertheless, the outstanding
debts pursuant to the MSA is $334,391 as of June 30,
2016.
In addition, under
our Product Development, License and Commercialization Agreement,
we have agreed to pay Daewoong in the amount of $4,900,000 upon the
completion of certain milestones. In addition, the Company will pay
Daewoong $1,000,000 upon the Company achieving aggregate net sales
of $20,000,000.
Income
Taxes
As of June 30,
2016, we had net operating loss carry forwards for federal and
state income tax purposes of $3,350,286, which will begin to expire
in 2034 to 2035.
We account for
income taxes under the asset and liability method, which requires
the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included
in the financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the
financial statements and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date.
We record net
deferred tax assets to the extent we believe these assets will more
likely than not be realized. In making such determination, we
consider all available positive and negative evidence, including
future reversals of existing taxable temporary differences,
projected future taxable income, tax planning strategies and recent
financial operations. In the event we were to determine that we
would be able to realize our deferred income tax assets in the
future in excess of their net recorded amount, we would make an
adjustment to the valuation allowance, which would reduce the
provision for income taxes.
-56-
DIRECTORS,
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following are
our executive officers and directors and their respective ages and
positions as of June 30, 2016:
|
Name
|
Position
|
Age
|
Term
of Office
|
Approximate
hours per week for part-time employees
|
|
Executive
Officers:
|
|
|
|
|
|
Vuong
Trieu, Ph.D.
|
President and Chief
Regulatory Officer
|
54
|
Since December
2014
|
13.3
|
|
Pyng
Soon, Esq., CPA
|
Chief Executive
Officer, Chief Financial Officer, Secretary
|
54
|
Since December
2014
|
13.3
|
|
Chulho
Park, Ph.D.
|
Chief Business
Officer
|
51
|
Since December
2014
|
13.3
|
|
Directors:
|
|
|
|
|
|
Vuong
Trieu, Ph.D.
|
Director
|
54
|
Since December
2014
|
–
|
|
Significant
Employees:
|
|
|
|
|
|
Osmond
D’Cruz, PH.D
|
Sr. Director of
Drug Safety
|
63
|
Since December
2014
|
20
|
During the past
five years, none of the persons identified above has been involved
in any bankruptcy or insolvency proceeding or convicted in a
criminal proceeding, excluding traffic violations and other minor
offenses. There is no arrangement or understanding
between the persons described above and any other person pursuant
to which the person was selected to his or her office or
position
Executive
Officers and Directors
Vuong Trieu,
Ph.D. has been the President and sole director of Stocosil
since its incorporation in December 2014. Dr. Trieu has
been involved in drug discovery and development for over 20 years
and has directly supported seven drug candidates from preclinical
to clinical to commercialization. From September 2013 to May 2014,
he served as the Chief Scientific Officer of Sorrento Therapeutics,
Inc. From May 2012 to August 2013, he served as Chief Executive
Officer at IgDraSol Inc. From November 2002 to July 2011, he was
Senior Director of Pharmacology/Biology at Abraxis
Bioscience/Celgene, supporting the Abraxis pipeline and development
of its commercial product, Abraxane®. Previously, Dr. Trieu
held positions at Genetic Therapy/Sandoz, leading the adenoviral
gene therapy program against atherosclerosis, Applied Molecular
Evolution/Lily leading the expression, purification, and
preclinical testing of mAb therapeutics, and Parker Hughes Center
as director of Cardiovascular Biology program that evaluated a
series of small molecules and biologics against preclinical models
of atherosclerosis, dyslipidemia, stroke, ALS, and restenosis. Dr.
Trieu has 34 peer-reviewed scientific articles and has 25 issued
patents and 62 patent applications. Dr. Trieu obtained his
doctorate in Microbiology/Molecular Biology from the University of
Oklahoma in 1989 and he completed postdoctoral training at
University of Chicago’s pediatric transplantation unit and
Oklahoma Medical Research Foundation lipoprotein
department.
Pyng Soon has been
our Chief Executive Officer, Chief Financial Officer and Secretary
since December 2014. From July 2009 to December 31, 2014, he was an
in house general counsel of EFT Holdings, Inc., a public company
traded in OTC BB. Mr. Soon has previously held positions with large
public companies and accounting firms, including Yokohama Tire
Corporation, KPMG, and Murchison and Cumming, LLP.
Chulho Park, Ph.D.
has been our Chief Business Officer since our incorporation in
December 2014. Previously, he was President and Chief
Executive Officer of MabPrex (Jan 2010 – Jan
2013), leading the pharmaceutical development of therapeutic
drug candidates such as monoclonal antibodies. Also, he was
the President of Pharmaceutical Development at IgDraSol (Jan 2013
– Sep 2013) leading the CMC group and bringing manufacturing
of drug products to FDA standards. Dr. Park also has held
positions at Applied Molecular Evolution (2001 – 2003), Eli
Lilly (2003 – 2008) and aTyr Pharma (2008 – 2009) and
has more than fifteen years of biologics R&D and leadership
experience across diverse biotech and pharma settings. Dr. Park
received his doctorate in Biochemistry from the Korea University
and he completed postdoctoral training at Stanford University
School of Medicine.
Osmond
D’Cruz, Ph.D. has been our Senior Director of Drug Safety
since December 2014. Dr. D'Cruz has over 15 years preclinical drug
development experience in academic and biopharmaceutical
settings. Dr. D'Cruz has held positions at Abraxis
BioScience (2007-2010), Celgene (2010-2011), Children's Hospital
Los Angeles (2011-2013), Igdrasol/Sorrento Therapeutics (2014), and
Paradigm Pharmaceuticals (2001-2007). He has over 120 peer-reviewed
scientific publications, 95 scientific presentations in national
and international meetings, 18 issued US patents and 13
peer-reviewed research grants from the NIH.
-57-
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
We are a
development stage company. From December 11, 2014
[inception] through December 31, 2014, we did not pay any
compensation to our director or any of our executive
officers.
From January 1
through June 15, 2015, the officers and significant employee were
compensated via MSA by Autotelic Inc. Commencing June
16, 2015, based on their weekly working hours, the officers and
significant employee have been compensated by the
Company. The annualized salaries indicated below are
calculated based on each officer's working hours, 13.3 or 20 hours
per week. The table below is for salaries for the year ended
June, 30, 2016:
|
|
|
|
Annual
Salary
|
|
|
|
Vuong Trieu
|
President
|
|
$
|
56,667
|
|
|
|
|
|
|
|
|
|
Pyng Soon
|
CEO/CFO/Secretary
|
|
$
|
56,667
|
|
|
|
|
|
|
|
|
|
Chulho Park
|
CBO
|
|
$
|
56,667
|
|
|
|
|
|
|
|
|
|
Osmond D’Cruz
|
Director of Drug
Safety
|
|
$
|
35,000
|
|
We currently do not
have employment agreements for our executive officers; we intend to
enter into such agreements by the fourth quarter of 2016. The
Company provides a non-discriminate employee health benefit plans
via Autotelic Inc., which includes health and dental insurance
plans. Each of the officers/significant employee may join the plans
at will, the participant is obliged to pay his/her benefit plan and
there is no contribution by the Company. The average cost of
these plans is approximately $1,000 per month.
-58-
SECURITY
OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table
presents certain information as of June 30, 2016 regarding the
ownership by: (i) principal stockholders who beneficially own more
than 10% of our common stock; (ii) each director and executive
officer who beneficially owns more than 10% of our common stock;
and (iii) our director and all of our executive officers as a
group.
Unless otherwise
noted, percentage ownership is based on 4,454,545 shares of our
common stock outstanding as of June 30, 2016.
The address of each
beneficial owner listed below is 17870 Castleton Street, Suite 250
City of Industry, California 91748. Unless otherwise
noted, the nature of beneficial ownership for each person is direct
ownership.
|
Name
|
|
Amount
and nature of beneficial ownership
|
|
|
Amount
of beneficial ownership acquirable
|
|
|
Percent
of class
|
|
|||
|
Autotelic
LLC
|
|
|
1,625,000
|
|
|
|
–
|
|
|
|
36.48
|
%
|
|
Autotelic
Inc.
|
|
|
500,000
|
|
|
|
–
|
(2)
|
|
|
11.22
|
%
|
|
Vuong
Trieu
|
|
|
2,829,545
|
(1)
|
|
|
–
|
(3)
|
|
|
63.52
|
%
|
|
Pyng
Soon
|
|
|
500,000
|
|
|
|
–
|
(4)
|
|
|
11.22
|
%
|
|
Chulho
Park
|
|
|
1,000,000
|
|
|
|
–
|
|
|
|
22.45
|
%
|
|
Director and Officers as a group
|
|
|
4,329,545
|
|
|
|
–
|
(5)
|
|
|
97.19
|
%
|
(1)
Includes 704,545
directly owned and 2,125,000 indirectly beneficially owned by Mr.
Trieu. Of the shares indirectly beneficially owned, 1,625,000
shares are directly owned by Autotelic LLC as reflected in the
table and 500,000 shares are directly owned by Autotelic Inc. as
reflected in the table. Mr. Trieu is Chief Executive Officer
of Autotelic Inc. and owns 64% of the common stock of Autotelic
Inc. and 50% of Autotelic LLC. As a result, Mr. Trieu may be
deemed the beneficial owner of shares held by Autotelic LLC and
Autotelic Inc.
(2)
As described in the
Interest of Management and Others in Certain Transactions section
below, Autotelic Inc. directly beneficially owns 283,421 shares
issuable upon exercise of a warrant which is expected to become
exercisable in connection with this offering. Assuming the
exercise of such warrant, then Autotelic Inc. will beneficially own
5.78% of our common stock if the minimum number of 166,667 shares
are sold in this offering and 5.18% of our common stock if the
maximum number of 733,340 shares are sold in this
offering.
(3)
As described in
footnote (1), Mr. Trieu may be deemed the beneficial owner of
shares held by Autotelic Inc. and thus the indirect beneficial
owner of the 283,421 shares issuable upon exercise of the warrant
held by Autotelic Inc. described in footnote (2). Assuming
the exercise of such warrant, then Mr. Trieu will beneficially own
5.78 % of our common stock if the minimum number of 166,667 shares
are sold in this offering and 5.18% of our common stock if the
maximum number of 733,340 shares are sold in this
offering.
(4)
Mr. Soon directly
beneficially owns 70,000 shares issuable upon conversion of
convertible note. Assuming the conversion of all convertible
notes, including Mr. Soon’s convertible note, expected to
convert in connection with this offering, then Mr. Soon will
beneficially own 1.49% of our common stock if the minimum number of
166,667 shares are sold in this offering and 1.33% of our common
stock if the maximum number of 733,340 shares are sold in this
offering.
(5)
Assuming the
exercise of the warrant described in footnotes (2) and (3) and the
convertible notes described in footnote (3), then our director and
officers as a group will beneficially own 7.10% of our common stock
if the minimum number of 166,667 shares are sold in this offering
and 6.38% of our common stock if the maximum number of 733,340
shares are sold in this offering.
-59-
INTEREST
OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The following
includes a summary of transactions or currently proposed
transactions since our inception to which we were or will be a
participant and the amount involved exceeded or will exceed the
lesser of $120,000 or 1% of our total assets, and in which any
director, nominee for election as director, executive officer, 10%
beneficial owner, promoter (or immediate family member of the
foregoing persons) of Stocosil had or will have a direct or
indirect material interest.
Product Development, License and
Commercialization Agreement
The rights to the
drugs olmesartan medoxomil and rosuvastatin calcium have been
granted to Stocosil, as the primary party, through a Product
Development, License and Commercialization Agreement with Daewoong
Pharmaceuticals Co., Ltd., and Autotelic, LLC and Inc., as the
secondary parties, described in the Business section of this
Offering Circular. Under the terms of the agreement, we
are obligated to make $4,900,000 as milestone payments to
Daewoong. Further, TDM devise for recalcitrant or
resistant HTN is owned by Autotelic Inc. who will be responsible
for its manufacturing/ sales & marketing. Vuong
Trieu, our President and director, is also a 64% shareholder and
chief executive officer of Autotelic Inc. and 50% member of
Autotelic LLC.
Master
Service Agreement
We have entered
into a Master Services Agreement ("MSA") on May 1, 2015, with a
retroactive effective date to January 1, 2015, with Autotelic Inc.
for the custom research and development and consulting in
connection with obtaining FDA approval of the ST-101 drug for
hypertension and dyslipidemia, ST-102 drug for recalcitrant
hypertension, along with a proprietary monitoring and delivery
device for which Autotelic Inc. owns the rights, and ST-103
drug/device combination for treatment of HeFH and
HoFH. We will pay Autotelic Inc. for the costs of
personnel services, manpower, and equipment it provides to us with
certain markup. As of June 30, 2016, we
recorded $283,421 in expense for the value of the services under
terms of the agreement. For details please see Management’s
Discussion and Analysis of Financial Condition and Results of
Operations Section: Commitments and Contingencies.
Pursuant to MSA,
during the period commencing January 1, 2015 and until the date
that Stocosil, Inc. has completed an equity offering of either
common or preferred stock in which the gross proceeds therefrom is
no less than $10,000,000, Stocosil shall pay Autotelic Inc. the
following compensation: cash in an amount equal to the Actual Labor
Cost (paid on a monthly basis), plus warrants
of Stocosil's common stock with a strike price no less
than the fair market value of the Stocosil’s common stock at
the time said warrants were issued.
On June 18, 2015,
the Company has issued 116,757 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00, which is no less than the fair market value of the
Company’s common stock at the time said warrants are issued,
as partial consideration for the personnel services provided from
January 1 to May 31, 2015.
On August 31, 2015,
the Company has issued 33,621 warrants to Autotelic Inc. for shares
of the Company’s common stock with a strike price at $5.00
which equals to the fair market value of the Company’s common
stock at the time said warrants are issued, representing the 100%
markup of the personnel services from June 1, 2015 to June 30,
2015.
On November 17,
2015, the Company has issued 69,559 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from July 1, 2015 to October
31, 2015.
On January 29,
2016, the Company has issued 63,484 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from November 1, 2015 to
December 31, 2015.
Piggyback
Registration Rights
If we propose to
register any shares of our common stock under the Securities Act
after this initial public offering, subject to certain exceptions,
certain holders of our securities, including Autotelic Inc., will
be entitled to notice of such registration and to include their
shares of registrable securities in the registration. If such
demand is made by the holders of registrable securities, we must
use commercially reasonable efforts to include such holders’
shares in the registration. If our proposed registration involves
an underwriting, the managing underwriter of such offering will
have the right to limit the number of shares to be underwritten for
reasons related to the marketing of the shares.
-60-
Financings
In February 2015,
we received aggregate gross proceeds of $1,003,400 from the
issuance of 4,454,545 shares of common stock. Each of
executive officers, Messrs. Trieu, Soon, and Park, invested in the
offerings and received the shares they currently own in Stocosil as
listed in the Security Ownership of Management and Certain Security
holders section above. With the exception of 204,545
shares of common stock issued to Mr. Trieu, each of the remaining
shares was issued at a price of $0.0008 per share for aggregate
cash consideration of $3,400. The remaining 204,545
shares of common stock subsequently issued to Mr. Trieu were issued
at a price of $4.8889 per share for total proceeds of
$1,000,000.
In February and
December 2015, we issued convertible promissory notes with an
aggregate principal balance of $716,000 and $750,000 respectively
to multiple parties. The notes issued in February 2015,
we issued $42,000 aggregate principle amount of convertible notes
to Pyng Soon with maturity date as of January 31, 2017. The
convertible notes bear interest at 3% per annum. Upon
the completion of certain funding events, we have the right to
convert the outstanding principal amount of these notes into shares
of the Company’s common stock at $0.60 for the February
convertible notes and $5.00 for the December convertible notes per
share respectively.
In April 2016, we
issued convertible promissory notes with an aggregate principal
balance of $141,000 respectively to multiple parties. As
of June 30, 2016, $116,000 borrowings under these notes were
received. The convertible notes bear interest at 3% per
annum. Upon the completion of certain funding events, we
have the right to convert the outstanding principal amount of these
notes into shares of the Company’s common stock at $8.00 per
share.
-61-
SECURITIES
BEING OFFERED
General
The following is a
summary of the rights of our common stock and of certain provisions
of our amended and restated certificate of incorporation and
bylaws. For more detailed information, please see the
amended and restated certificate of incorporation and bylaws which
are filed as 2.2s to the offering statement of which this Offering
Circular is a part.
Our authorized
capital stock consists solely of 75,000,000 shares of common stock,
with a par value of $0.0001 per share.
Upon the closing of
this offering, we intend to convert our outstanding convertible
notes into an aggregate of 1,360,958 shares of common
stock.
Additionally,
warrants to purchase an aggregate of 750,000 shares of common stock
at an exercise price of $0.0008 per share will remain outstanding
upon the closing of the offering as follows:
●
warrants to
purchase 250,000 shares, one-third of which are exercisable on each
of March 7, 2016, 2017, and 2018 and which expire on March 7, 2023,
are held by Tae Hun Kim, a citizen of South Korea;
and
●
warrants to
purchase 500,000 shares, exercisable commencing upon the submission
of ST-101 to the FDA and expiring five years thereafter, are held
by Daewoong Pharmaceuticals Co., Ltd.
In April 2016, the
Company issued a stock purchase warrant of 37,500 common shares to
Hok Shing Tang for service consideration of $99,750, at an exercise
price of $5 per share. The Company had recognized a
consultant fee of $49,875 for the year ended June 30,
2016. The fair value of the warrants was recorded based
on the fair value of the warrants as warrants are a more reliable
measurement than service cost.
In June 2016, the
Company entered into an agreement to issue 835 common stocks to
Angel Marketing, LLC for service consideration of $12,500 per month
for July 2016 to October 2016. In August 2016, the
Company had terminated the agreement. As of October
2016, the Company had not issued any common stock to Angle
Marketing. The Company had accrued $25,000 of
liabilities for July and August 2016. The fair value of
the service was recorded as the cost of the service is a more
reliable measurement than the common stock value in accordance with
ASC 505-50.
We further issued
warrants to purchase 283,421 shares of our common stock to
Autotelic Inc. as part of the MSA described in the Interest of
Management and Others in Certain Transactions section, exercisable
at a price of $5 per share.
Common
Stock
If the minimum
number of 166,667 shares of common stock is sold in this
offering, based on (i) 4,454,545 shares of common stock outstanding
as of December 31, 2015 and (ii) the conversion of convertible
notes into 1.360,958 shares of common stock upon the closing of
this offering, assuming proceeds of at least $2,500,005 in this
offering there will be 5,982,170 shares of common stock
outstanding upon the closing of this offering.
If the maximum
number of 733,340 shares of common stock is sold in this
offering, based on (i) 4,454,545 shares of common stock outstanding
as of December 31, 2015 and (ii) the conversion of convertible
notes into 1,360,958 shares of common stock upon the closing of
this offering, assuming proceeds of at least $11,000,100 in this
offering; there will be 6,548,843 shares of common stock
outstanding upon the closing of this offering.
As of June 30,
2016, assuming the conversion of all convertible notes into common
stock upon the closing of this offering, we had 45 record holders
of common stock.
-62-
As of June 30,
2016, there were 750,000 shares of common stock subject to
outstanding warrants with an aggregate exercise price of $600, none
of which are presently exercisable.
As of June 30,
2016, there were 37,500 shares of common stock subject to
outstanding warrants with an aggregate exercise price of
$187,500.
As of June 30,
2016, there were 283,421 shares of common stock subject to
outstanding warrants with an aggregate exercise price of
$1,417,105, none of which are presently exercisable.
As of June 30,
2016, no options to purchase shares of common stock were
outstanding.
Voting
Holders of our
common stock are entitled to one vote per share on all matters to
be voted on by our stockholders.
Dividends
Holders of common
stock are entitled to receive dividends, if any, as may be declared
from time to time by our board of directors out of legally
available funds.
Liquidation
In the event of our
liquidation, dissolution or winding up, holders of common stock
will be entitled to share ratably in the net assets legally
available for distribution to stockholders after the payment of all
of our debts and other liabilities.
Rights and Preferences
Holders of common
stock have no preemptive, conversion, subscription or other rights,
and there are no redemption or sinking fund provisions applicable
to the common stock.
Fully Paid and Nonassessable
All of our
outstanding shares of common stock are, and the shares of common
stock to be issued pursuant to this offering, when paid for, will
be fully paid and nonassessable.
Anti-Takeover
Effects of Delaware Law and Our Amended and Restated Certificate of
Incorporation and Bylaws
Delaware Law
Certain provisions
of Delaware law and our amended and restated certificate of
incorporation and bylaws that will become effective upon the
closing of this offering contain provisions that could have the
effect of delaying, deferring or discouraging another party from
acquiring control of us. These provisions, which are summarized
below, are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids. These provisions
are also designed in part to encourage anyone seeking to acquire
control of us to negotiate with our board of directors. We believe
that the advantages gained by protecting our ability to negotiate
with any unsolicited and potentially unfriendly acquirer outweigh
the disadvantages of discouraging such proposals, including those
priced above the then-current market value of our common stock,
because, among other reasons, the negotiation of such proposals
could improve their terms.
-63-
Amended and Restated Certificate of Incorporation
Our amended and
restated certificate of incorporation to become effective in
connection with this offering includes provisions
that:
●
Unless and except to the extent that the
by-laws of the corporation shall so require, the election of
directors of this Corporation need not be by written
ballot.
●
In furtherance and not in limitation of
the powers conferred by the laws of the State of Delaware, the
Board of Directors of this Corporation is expressly authorized to
make, alter and repeal the by-laws of the Corporation, subject to
the power of the stockholders of the corporation to alter or repeal
any by-law whether adopted by them or otherwise.
●
No director of the
Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director, for any act or omission, except that a director may be
liable (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper
personal benefit.
●
This Corporation is
authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents of this
Corporation (and any other persons to which the DGCL permits this
Corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145
of the DGCL, whether involving criminal, civil, administrative,
investigative or any other matters.
Delaware Anti-Takeover Statute
We are subject to
the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. In general,
Section 203 prohibits a publicly-held Delaware corporation
from engaging, under certain circumstances, in a business
combination with an interested stockholder for a period of three
years following the date the person became an interested
stockholder unless:
●
prior to the date
of the transaction, our board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested
stockholder;
●
upon the closing of
the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining
the voting stock outstanding, but not for determining the
outstanding voting stock owned by the interested stockholder,
(1) shares owned by persons who are directors and also
officers, and (2) shares owned by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
●
at or subsequent to
the date of the transaction, the business combination is approved
by our board of directors of the corporation and authorized at an
annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested
stockholder.
Generally, a
business combination includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the
interested stockholder. An interested stockholder is a person who,
together with affiliates and associates, owns or, within three
years prior to the determination of interested stockholder status,
did own 15% or more of a corporation’s outstanding voting
stock. We expect the existence of this provision to have an
anti-takeover effect with respect to transactions our board of
directors does not approve in advance. We also anticipate that
Section 203 may discourage business combinations or other
attempts that might result in the payment of a premium over the
market price for the shares of common stock held by our
stockholders.
-64-
Indemnification
Agreements
We have entered
into agreements to indemnify our director and executive officers.
With certain exceptions, these agreements provide for
indemnification for related expenses including, among others,
attorneys' fees, judgments, fines and settlement amounts incurred
by any of these individuals in any action or proceeding. We believe
that these indemnification agreements are necessary to attract and
retain qualified persons to direct and manage our company. We also
maintain directors' and officers' liability insurance.
Transfer
Agent and Registrar
The
transfer agent and registrar, for our common stock is Computershare Trust Company,
N.A.
The
transfer agent and registrar’s address is at 250 Royall
Street, Canton, MA 02021. The transfer agent’s telephone
number is (866) 595-6048.
-65-
INDEX
TO FINANCIAL STATEMENTS
|
|
|
|
Report of
Independent Registered Public Accounting Firm
|
F-2
|
|
|
|
|
Balance Sheets as
of June 30, 2016 and June 30, 2015
|
F-3
|
|
|
|
|
Statements of
Operations for the year ended June 30, 2016
|
|
|
and
for the period from inception (December 11, 2014) to June 30,
2015
|
F-4
|
|
|
|
|
Statement of
Stockholder’s Deficit for the year ended June 30,
2016
|
|
|
and
for the period from inception (December 11, 2014) to June 30,
2015
|
F-5
|
|
|
|
|
Statements of Cash
Flows for the year ended June 30, 2016
|
|
|
and for
the period from inception (December 11, 2014) to June 30,
2015
|
F-6
|
|
|
|
|
Notes to Financial
Statements
|
F-7
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors
Stocosil
Inc.
City of Industry,
CA
We have audited the
accompanying balance sheets of Stocosil, Inc. (the
“Company”) as of June 30, 2016 and June 30, 2015 and
the related statements of operations, shareholders’ deficit,
and cash flows for the twelve months ended June 30, 2016 and for
the period from inception (December 11, 2014) to June 30, 2015.
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our
audit.
We conducted our
audit in accordance with standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatements. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, 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. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the
financial statements referred to above present fairly, in all
material respects, the financial position of Stocosil Inc. as of
June 30, 2016 and 2015 and the related results of its operations
and its cash flows for the twelve months ended June 30, 2016 and
for the period from inception (December 11, 2014) to June 30, 2015
in conformity with accounting principles generally accepted in the
United States of America.
The accompanying
financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered a net loss from
operations and was not able to generate cash from operating
activities. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
Management’s plans in regards to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ MaloneBailey,
LLP
www.malone-bailey.com
Houston,
Texas
November 10,
2016
F-2
Stocosil
Inc.
Balance
Sheets
|
|
June
30, 2016
|
June
30, 2015
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash and cash
equivalents
|
$115,340
|
$1,346,636
|
|
Other current
assets
|
6,441
|
5,318
|
|
Total
current assets
|
121,781
|
1,351,954
|
|
|
|
|
|
Investment
|
479
|
-
|
|
Total
Assets
|
$122,260
|
$1,351,954
|
|
|
|
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts
payable
|
$11,710
|
$1,000
|
|
Accrued
liabilities
|
357,486
|
79,244
|
|
Interests
payables
|
42,129
|
8,194
|
|
Foreign tax
payable
|
15,000
|
15,000
|
|
Accounts payable
and accrual - related party
|
335,390
|
373,922
|
|
Total
current liabilities
|
761,715
|
477,360
|
|
|
|
|
|
Noncurrent
Liabilities
|
|
|
|
Convertible
debt
|
1,540,000
|
674,000
|
|
Convertible debt -
related party
|
42,000
|
42,000
|
|
Deferred
revenue
|
75,000
|
75,000
|
|
Total
noncurrent liabilities
|
1,657,000
|
791,000
|
|
|
|
|
|
Total
Liabilities
|
2,418,715
|
1,268,360
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
Common stock,
$0.0001 par value; 75,000,000 shares authorized; 4,454,545 shares
issued and outstanding at June 30, 2016 and June 30,
2015
|
445
|
445
|
|
Additional
paid-in-capital
|
1,352,039
|
1,004,958
|
|
Accumulated
deficit
|
(3,648,939)
|
(921,809)
|
|
Total
stockholders' equity
|
(2,296,455)
|
83,594
|
|
Total
Liabilities and Stockholders' Equity
|
$122,260
|
$1,351,954
|
The accompanying
notes are an integral part of these financial
statements.
F-3
Stocosil
Inc.
Statements
of Operations
|
|
For
the Year Ended
June
30, 2016
|
For
the Period
from
Inception
(December
11,
2014)
to
June
30, 2015
|
|
Operating Expenses:
|
|
|
|
General and
administrative
|
$2,695,241
|
$915,482
|
|
Total operating
expenses
|
2,695,241
|
915,482
|
|
|
|
|
|
Operating
Loss
|
(2,695,241)
|
(915,482)
|
|
|
|
|
|
Other
Expense
|
|
|
|
Interest expense,
net
|
(31,889)
|
(5,527)
|
|
|
|
|
|
Loss
Before Income Taxes
|
(2,727,130)
|
(921,009)
|
|
Provision For
Income Taxes
|
-
|
800
|
|
|
|
|
|
Net
Loss
|
$(2,727,130)
|
$(921,809)
|
|
Net
loss per share – basic and diluted
|
$(0.61)
|
$(0.21)
|
|
Weighted
average shares outstanding – basic and diluted
|
4,454,545
|
4,376,575
|
The accompanying
notes are an integral part of these financial
statements.
F-4
Stocosil
Inc.
Statements
of Stockholders' Deficit
|
|
Common
Stock
|
Additional
Paid-In
|
Accumulated
|
|
|
|
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
Balance
at December 11, 2014 (date of inception)
|
-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(921,809)
|
(921,809)
|
|
Issuance of
founders' common stock
|
4,250,000
|
425
|
2,975
|
-
|
3,400
|
|
Issuance of common
stock for cash
|
204,545
|
20
|
999,980
|
-
|
1,000,000
|
|
Issuance of
warrants for cash
|
-
|
-
|
600
|
-
|
600
|
|
Warrants
expenses
|
-
|
-
|
1,403
|
-
|
1,403
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2015
|
4,454,545
|
$445
|
$1,004,958
|
$(921,809)
|
$83,594
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
(2,727,130)
|
(2,727,130)
|
|
Issuance of
warrants for service
|
|
-
|
49,875
|
-
|
49,875
|
|
Warrants
expenses
|
-
|
-
|
297,206
|
-
|
297,206
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2016
|
4,454,545
|
$445
|
$1,352,039
|
$(3,648,939)
|
$(2,296,455)
|
The accompanying
notes are an integral part of these financial
statements.
F-5
Stocosil
Inc.
Statements
of Cash Flows
|
|
For
the Year Ended
June
30,
2016
|
For
the Period
from
Inception
(December
11, 2014)
to
June 30,
2015
|
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
loss
|
$(2,727,130)
|
$(921,809)
|
|
Adjustments to
reconcile net income (loss) to net cash used in operating
activities:
|
|
|
|
Shares issued for
services
|
49,875
|
-
|
|
Warrants
expenses
|
297,206
|
1,403
|
|
Changes in
operating asset and liabilities:
|
|
|
|
Other current
assets
|
(1,124)
|
(4,918)
|
|
Accounts
payable
|
10,710
|
1,000
|
|
Accrued
liabilities
|
278,243
|
79,244
|
|
Interests
payable
|
33,935
|
8,194
|
|
Foreign tax
payable
|
-
|
15,000
|
|
Accounts payable
and accrual - related party
|
(38,532)
|
373,922
|
|
Deferred
revenue
|
-
|
75,000
|
|
Net cash used in
operating activities
|
(2,096,817)
|
(372,964)
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
Proceeds from
convertible debt
|
866,000
|
674,000
|
|
Proceeds from
convertible debt - related party
|
-
|
42,000
|
|
Proceeds from sales
of stock and warrants
|
-
|
1,003,600
|
|
Net cash provided
by financing activities
|
866,000
|
1,719,600
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
Purchases of
investment
|
(479)
|
-
|
|
Net cash used in
financing activities
|
(479)
|
-
|
|
|
|
|
|
|
|
|
|
Net
(decrease)/increase in cash and cash equivalents:
|
(1,231,296)
|
1,346,636
|
|
Cash and cash
equivalents, beginning of period
|
1,346,636
|
-
|
|
Cash and cash
equivalents, end of period
|
$115,340
|
$1,346,636
|
|
|
|
|
|
Supplemental
disclosure information:
|
|
|
|
Income taxes
paid
|
$-
|
$800
|
The accompanying
notes are an integral part of these financial
statements.
F-6
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
1. ORGANIZATION
AND BUSINESS OPERATIONS
Stocosil
Inc. (the “Company”) is a biotechnology company that
focuses on marketing a fixed dose combination drug treating
hypertension and hyperlipidemia in the United States, Canada,
Japan, Taiwan, Australia and South America. The Company is also
working on combining the drug (the “Product”) with a
therapeutic drug monitoring technology from Autotelic Inc., an
affiliated company, to develop a drug/device combination (the
“Optional Product”) that will treat resistant
hypertension.
The
Company was incorporated on December 11, 2014, and is based in City
of Industry, California. The Company has elected its
fiscal year end on June 30.
Basis of Presentation
The
accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United State
of America (“GAAP”). The summary of significant
accounting policies presented in Note 2 is designed to assist in
understanding the Company’s financial
statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to
the current year presentation.
Going Concern and Plan of Operations
In February and December 2015, the Company raised capital from its
founders, and other individuals through a private placement under
Regulation 506. Capital was raised capital through the
issuance of restricted shares in the amount of $1,003,400 as well
as through private debentures in the amount of
$1,466,000. In April 2016, the Company raised in a
private debentures in the amount of $116,000. Management
is actively seeking additional funding that will allow the Company
to maintain operations for the next twelve months.
If
the Company pursues additional clinical trials other than those
planned for current product candidates, or if the Company adds
additional product candidates prior to the end of 2016, the Company
will need to raise additional capital. Also, to fund future
operations to the point where the Company is able to generate
positive cash flow from the sales or out-licensing of drug
candidates, the Company will need to raise additional capital. The
amount and timing of future funding requirements will depend on
many factors, including the timing and results of development
efforts, the potential expansion of current development programs,
potential new development programs and related general and
administrative support, as well as the overall condition of capital
markets including capital markets for development-stage
biopharmaceutical companies. Management anticipates that the
Company will seek to fund operations through public and private
equity and debt financings or other sources, such as potential
collaboration agreements. The Company cannot assure that
anticipated additional financing will be available on favorable
terms, or at all. Although the Company was successful in obtaining
financing through equity securities offerings in February 2015,
December 2015, and June 2016, there can be no assurance
that the Company will be able to do so in the future.
No
assurance can be given that additional financing will be available
when needed or that such financing will be available on terms
acceptable to the Company. If adequate funds are not available, the
Company may be required to delay or terminate expenditures for
certain programs that it would otherwise seek to develop and
commercialize. This would have a material adverse effect on the
Company and would raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going
concern.
F-7
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of
the accompanying financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during
the reported period. Actual results could differ from such
estimates under different assumptions or
circumstances.
Cash Equivalents
The Company
considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
There were no cash equivalent as of June 30, 2016 and June 30,
2015.
Embedded Conversion Feature
The Company has
issued convertible instruments which contain embedded conversion
features. The Company evaluates the embedded conversion feature
within its convertible debt instruments under Financial Accounting
Standards Board (“FASB”) Accounting Standards
(“ASC”) 815-15, Embedded Derivatives, and ASC 815-40,
Contracts in Entity’s Own
Equity, to determine if the conversion feature meets the
definition of a liability and therefore need to bifurcate the
conversion feature and account for it as a separate derivative
liability.
If the embedded
conversion feature does not meet the definition of a liability, the
Company evaluates the conversion feature under ASC 815-40 for a
beneficial conversion feature at inception.
Stock-Based Compensation
The Company
accounts for stock-based compensation in accordance with ASC 718,
Compensation- Stock
Compensation. ASC 718 requires companies to measure the cost
of employee services received in exchange for an award of equity
instruments, including stock options, based on the grant date fair
value of the award and to recognize it as compensation expense over
the period the employee is required to provide service in exchange
for the award, usually the vesting period.
Recent Accounting Pronouncements
There are no new
accounting pronouncements issued or effective that had, or are
expected to have, a material impact of the Company’s
financial statements.
3. AGREEMENTS
Product Development, Licensing and Commercialization
Agreement
In February 2015,
the Company entered into a Product Development, License and
Commercialization Agreement (the “Agreement”) with
Daewoong Pharmaceuticals Co. Ltd. (“Daewoong”), a
company incorporated under the laws of the Republic of
Korea. This Agreement shall remain in full force for a
period of ten years from the first date of commercial sale of the
Optional Product in any country. Thereafter, it will be
automatically renewed on an annual basis unless either party gives
a termination notice at least six months in advance of the renewal
date of the Agreement.
In accordance with
the Agreement, the Company is required to remit Daewoong payments
in the amount of $4,900,000 upon the completion of certain
milestones. In addition, the Company will pay Daewoong $1,000,000
upon the Company achieving aggregate net sales of
$20,000,000.
F-8
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
3. AGREEMENTS
(Continued)
Master Service Agreement
The company entered
into a Master Services Agreement with a related party, Autotelic
Inc. effective January 1, 2015. This agreement states
that Autotelic Inc. will provide business functions and services to
the company and allows Autotelic Inc. to charge the company for
these expenses paid on its behalf.
The agreement
includes personnel costs allocated based on amount of time incurred
and other services such as consultant fees, clinical studies,
conferences and other operating expenses incurred on behalf of the
company.
During the period
commencing January 1, 2015 (the “Effective Date”) and
ending on the date that Company has completed an equity offering of
either common or preferred stock in which the gross proceeds
therefrom is no less than $10,000,000 (the “Equity Financing
Date”), Company shall pay Autotelic the following
compensation: cash in an amount equal to the Actual Labor Cost
(paid on a monthly basis), plus 100% markup of the actual labor
cost by warrants for shares of the Company’s
common stock with a strike price equal to the fair market value of
the Company’s common stock at the time said warrants are
issued. The Company shall also pay Autotelic for the Services
provided by third party contractors plus 20% mark up.
After the Equity
Financing Date, the Company shall pay Autotelic a cash amount equal
to the Actual Labor Cost plus 100% mark up of providing the
Services and 20% mark up of providing the Services by third party
contractors or material used in connection with the performance of
the contracts, including but not limited to clinical trial,
non-clinical trial, CMO, FDA regulatory process, CRO and
CMC.
On June 18, 2015,
the Company has issued 116,757 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00, which is no less than the fair market value of the
Company’s common stock at the time said warrants are issued,
as partial consideration for the personnel services provided from
January 1 to May 31, 2015. See Note 7.
On August 31, 2015,
the Company has issued 33,621 warrants to Autotelic Inc. for shares
of the Company’s common stock with a strike price at $5.00
which equals to the fair market value of the Company’s common
stock at the time said warrants are issued, representing the 100%
markup of the personnel services from June 1, 2015 to June 30,
2015. See Note 7.
On November 17,
2015, the Company has issued 69,559 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from July 1, 2015 to October
31, 2015. See Note 7.
On January 29,
2016, the Company has issued 63,484 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5.00 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from November 1, 2015 to
December 31, 2015. See Note 7.
In addition, the
Company incurred in the total amount of $1,595,062 and $722,747
(including $5,901 of prepaid insurance) for the actual
service performed pursuant to the MSA for the year ended June 30,
2016 and the period from inceptions (December 11, 2014) to June 30,
2015, respectively. The total amount of service expense were
$786,980 and $293,135 for the year ended June 30, 2016 and the
period from December 11, 2014 to June 30, 2015, among which
$585,827 and $118,040 were expenses that had 20% markup, and the
markup was $117,165 and $23,608 for the respective
period.
F-9
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
3. AGREEMENTS
(Continued)
Sublease Agreement
The Company entered
into a Sublease Agreement with a related party, Autotelic Inc.
effective January 1, 2015 to pay $1,000 per month for approximately
400 square footage rent in the City of Industry. The term is 22
months ending October 31, 2016 which includes all
utilities. On October 31, 2016, the Company has executed
the sublease agreement with Autotelic Inc. for additional twenty
four (24) months from November 1, 2016 to October 31, 2018 with
monthly payment in the amount of one thousand dollars ($1,000),
payable on the first day of each month
Rent expenses for
the year end June 30, 2016 and the period (December 11, 2014) to
June 30, 2015 were $12,000 and $6,000.
The following is a
schedule by year of future minimum lease payments required under
the operating lease agreement:
|
Years ending June
30
|
|
Future
minimum
lease
payments
|
|
|
|
2017
|
|
$
|
12,000
|
|
|
2018
|
|
|
12,000
|
|
|
2019
|
|
|
4,000
|
|
|
Total
|
|
$
|
28,000
|
|
4.
RELATED PARTY TRANSACTIONS
ASC 850,
Related Party Disclosures,
requires that financial statements shall include disclosures of
material related party transactions, other than compensation
arrangements, expense allowances, and other similar items in the
ordinary course of business. A related party transaction includes a
party or entity who can significantly influence the management or
operating policies of the other to an extent that one of the
transacting parties might be prevented from fully pursuing its own
separate interests.
Autotelic Inc. and
Autotelic LLC, owns Stocosil Inc. 11.22 % and 36.48% respectively,
are related parties of the Company because management of Autotelic
Inc. and Autotelic LLC have significant influence on the management
and operating policies of the Company. Dr. Vuong Trieu,
individually owns 63.97% of Autotelic Inc. 15.82% of Stocosil Inc.
and 50% of Autotelic LLC, is considered to be a related party, that
directly own and indirectly through one or more intermediaries,
that control or are under common control with the reporting
entity.
F-10
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
4.
RELATED
PARTY TRANSACTIONS (CONTINUED)
For the year ended
June 30, 2016 and the period from inception (December 11, 2014) to
June 30, 2015, Autotelic Inc. paid operating expenses on behalf of
the company. Costs were as follows:
|
|
|
For
the
Year Ended
June 30,
2016
|
|
|
For the
Period
from
Inception
(December 11,
2014)
to June 30,
2015
|
|
||
|
|
|
|
|
|
|
|
||
|
Personnel
costs
|
|
$
|
678,916
|
|
|
$
|
400,004
|
|
|
Rent
|
|
|
12,000
|
|
|
|
6,000
|
|
|
Service
expenses
|
|
|
904,146
|
|
|
|
310,842
|
|
|
Insurance
expenses
|
|
|
-
|
|
|
|
5,901
|
|
|
Total
|
|
$
|
1,595,062
|
|
|
$
|
722,747
|
|
The total accounts
payable and accrued liabilities owed to Autotelic as of June 30,
2016 and 2015 was $335,067 and $373,456. The remaining $323 and
$466 included in the accounts payable and accrued liabilities
balance as of June 30, 2016 and 2015 is payable due to Pyng Soon,
the Company CEO and CFO.
For the warrants
issued for 100% markup of the personnel cost, please refer to Note
3 Master Service Agreement.
The Company had
issued convertible promissory notes in February 2015, $42,000 of
which was to Pyng Soon. The convertible bear interest at
3% per annum and mature on January 31, 2017. Upon the
completion of certain funding events, the Company has the right to
convert the outstanding principal amount of this note into shares
of the Company’s common stock at $0.60 per
share.
5.
DEFERRED INCOME
In June 2016 and
2015 the Company had received an initial milestone payment of
$75,000 from a pharmaceutical company for licensing rights of the
Company's product after FDA approval. When FDA approval is given,
this revenue will be recognized through the term of the
license.
6.
LONG TERM DEBT
Convertible Notes Payable
In February 2015
the Company issued convertible promissory notes with an aggregated
principal balance of $716,000 to multiple parties. Borrowings under
each of these convertible notes bear interest rate at 3% per annum
and mature on January 31, 2017. Upon the completion of certain
funding events, the Company has the right to convert the
outstanding principal amount of these notes into shares of the
Company’s common stock at $0.60 per share.
In December 2015,
the Company issued convertible promissory notes with total
principal amount of $750,000 to multiple parties. Borrowing under
each of these convertible notes bear interest rate at 3% per annum
and mature on January 31, 2017. Upon the completion of certain
funding events, the Company has the right to convert the
outstanding principal amount of these notes into shares of the
Company’s common stock at $5 per share.
In April 2016, the
Company issued convertible promissory note with an aggregate
principal balance of $141,000 to multiple
parties. Borrowings under this convertible note bear
interest at 3% per annum and mature on April 1,
2018. Upon the completion of certain funding events, the
Company has the right to convert the outstanding principal amount
of this note into shares of the Company’s common stock at
$8.00 per share. As of June 30, 2016, $116,000 borrowings under
these notes were received. Subsequent to June 30, 2016,
the Company received the remaining $25,000 of the convertible
promissory note.
The Company
analyzed the conversion option of the instruments for derivative
accounting consideration under ASC 815-15 and noted
none.
The Company also
evaluated the instruments for consideration of any beneficial
conversion features under ASC 815-40. The Company determined the
beneficial conversion feature to be $0.
F-11
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
7. EQUITY
Common Stock
The company has
filed the Amended Certificate of Incorporation, in June 2015, to
the Delaware Secretary of State, increasing its authorized capital
common stock from 10,000,000 shares to 75,000,000
shares.
In February 2015,
4,250,000 restricted shares of common stock were issued to the
Company’s founders at $0.0008 per share, for total cash
consideration of $3,400. The proceeds from the issuance of the
restricted stock were received in February 2015.
In February 2015,
the Company entered into a stock purchase agreement and issued
204,545 shares of common stock to one of its founders, a majority
stockholder, in a private placement transaction, at $4.8889 per
share for total proceeds of $1,000,000.
As a result of
these issuances, the Company has 4,545,545 shares issued and
outstanding as of June 30, 2016 and 2015,
respectively.
Warrants
In February 2015,
the Company issued a stock purchase warrant for 500,000 common
shares to Daewoong Pharmaceutical Co., Ltd, a South Korea-based
bioengineering company for cash consideration of $400, which was
not received yet as of December 31, 2015, at an exercise price of
$0.0008 per share. These shares shall be exercisable in whole or in
part, during the term commencing from the submission of a New Drug
Application, and will expire five years thereafter.
In March 2015, the
Company issued a stock purchase warrant of 250,000 common shares to
Kim Hun Tai, a Korean citizen, for cash consideration of $200, at
an exercise price of $0.0008 per share. One third of these shares
shall be exercisable on each anniversary date commencing March 7,
2015 for a three year period and the warrant will expire March 7,
2023.
In April 2016, the
Company issued a stock purchase warrant of 37,500 common shares to
Hok Shing Tang for service consideration of $99,750, at an exercise
price of $5 per share. The Company had recognized a
consultant fee of $49,875 for the year ended June 30, 2016 in
accordance with ASC 505-50, Equity
– Based Payments to Non-Employees. The fair
value of the warrants was recorded based on the fair value of the
warrants as warrants are a more reliable measurement than service
cost.
On June 18, 2015,
the Company has issued 116,757 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from January 1, 2015 to May
31, 2015.
On August 31, 2015,
the Company has issued 33,621 warrants to Autotelic Inc. for shares
of the Company’s common stock with a strike price at $5 which
equals to the fair market value of the Company’s common stock
at the time said warrants are issued, representing the 100% markup
of the personnel services from June 1, 2015 to June 30,
2015.
On November 17,
2015, the Company has issued 69,559 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from July 1, 2015 to
September 30, 2015.
On January 29,
2016, the Company has issued 63,484 warrants to Autotelic Inc. for
shares of the Company’s common stock with a strike price at
$5 which equals to the fair market value of the Company’s
common stock at the time said warrants are issued, representing the
100% markup of the personnel services from October 1, 2015 to
December 31, 2015.
Due to the
relationship the Company has with Autotelic Inc. as described in
Note 4, the Company treated the employees shared with Autotelic
Inc. to be the equivalents as the Company’s own employees.
Accordingly, the stock-based compensation for the personnel
services are treated as stock-based compensation for employee
services under ASC 718.
Using Black-Scholes
to value these 283,421 warrants by a third party specialist, the
Company amortized $ $297,206 and $1,403 in warrant expense for the
year ended June 30, 2016 and for the period from inception
(December 11, 2014) to June 30, 2015 based on a 2-year vesting
period, defined below, of the fair value of these warrants of
$753,900. This is based on the expectation that the
Company will be able to get $10 million through an equity offering
within 2 years of the issue date, which pursuant to the warrant
agreement is the vesting period for the warrants. When the Company
obtained an equity offering of $10 million, the Company will
recognize the remaining unamortized expenses of $455,291 on the day
the equity offering reached $10 million. Equity offering
fall below $10 million, then the Company expects to have amortize
warrant expense of $371,451 and $83,840 for June 30, 2017 and
2018. The purchase rights represented
by this Warrant are exercisable by the Holder in whole or in part
any time after the Company has completed an equity offering of
either common or preferred stock in which gross proceeds is no less
than $10 million and thereafter within 5 years after the exercise
period. The main assumptions used in the Black-Scholes model
include: dividend yield of 0%, average volatility of 75%, average
risk free rate of 1.27%, and an expected term of 3.5
years.
F-12
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
8.
COMMITMENTS
AND CONTINGENCIES
Litigation
Because of the
nature of the Company’s activities, the Company is subject to
claims and/or threatened legal actions, which arise out of the
normal course of business. Management is currently not aware of any
pending lawsuits.
9. INCOME
TAXES
As of June 30, 2016
and 2015, the Company accounts for income taxes using the asset and
liability method.
Income tax expenses
by jurisdiction consist of the following:
|
|
For
the Year ended
June
30, 2015
|
For
the Period from Inception (December 11, 2014) to June 30,
2015
|
|
Current
|
|
|
|
U.S. federal
|
$-
|
$-
|
|
U.S. state and local
|
-
|
800
|
|
|
|
|
|
Total current
income tax expense
|
$-
|
$800
|
The Company
recognizes the tax effects of transactions in the year in which
such transactions enter into the determination of net income,
regardless of when reported for tax purposes. Deferred taxes
are provided in the financial statements under ASC 740,
Accounting for Income
Taxes, to give effect to the resulting temporary differences
which may arise from differences in the bases of fixed assets,
depreciation methods, allowances, and start-up costs based on the
income taxes expected to be payable in future years.
The components of
the provision for income taxes consisted of the
following:
|
|
June
30,
2016
|
June
30,
2015
|
|
|
|
|
|
Current
|
$-
|
$800
|
|
Deferred
taxes
|
(1,507,629)
|
(322,126)
|
|
|
|
|
|
Income tax
provision
|
(1,507,629)
|
(321,326)
|
|
Valuation
allowance
|
1,507,629
|
322,126
|
|
|
|
|
|
Total provision for
income taxes
|
$-
|
$800
|
F-13
STOCOSIL
INC.
NOTES
TO FINANCIAL STATEMENTS
9.
INCOME TAXES (CONTINUED)
Deferred income
taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes. The Company’s total deferred tax liabilities
at June 30, 2016 and 2015 were $0, respectively. The
Company’s deferred tax assets consist of the tax effect of
net operating loss (“NOL”) for U.S. Federal and state,
which is estimated to be $3,350,286 and $920,361 at June 30, 2016
and 2015, respectively, and expiring in 2034
to 2035, respectively. The Company has provided a full
valuation allowance on the deferred tax assets because of the
uncertainty regarding its realizability.
The Company’s
major tax jurisdictions are the United States and California. The
Company is not currently under examination by any taxing authority
nor has it been notified of an impending examination.
As of June 30,
2016, management believes the Company had no uncertain tax
positions and no interest and penalties related to any uncertain
tax positions.
10.
SUBSEQUENT EVENTS
In June 2016, the
Company entered into an agreement to issue 835 common stocks to
Angel Marketing, LLC for service consideration of $12,500 per month
for July 2016 to October 2016. In August 2016, the
Company had terminated the agreement. As of October
2016, the Company had not issued any common stock to Angle
Marketing. The Company had accrued $25,000 of
liabilities for July and August 2016. The fair value of
the service was recorded as the cost of the service is a more
reliable measurement than the common stock value in accordance with
ASC 505-50.
F-14
Part
III – EXHIBITS
|
Exhibit
No.
|
Description
|
|
1.1
|
Placement Agent
Agreement with Boustead Securities, LLC.
|
|
2.1
|
Amended and
Restated Certificate of Incorporation of Stocosil Inc.
|
|
2.2
|
Bylaws of the
Registrant
|
|
3.1
|
Specimen common
stock certificate of Stocosil Inc.
|
|
4.1
|
Consulting
Agreement with ASMX Capital
|
|
6.1
|
Product
Development, License and Commercialization Agreement
|
|
6.2
|
Master Services
Agreement
|
|
6.3
|
Form of Convertible
Note February 2015
|
|
6.4
|
Form of Convertible
Note December 2015
|
|
6.5
|
Form of Convertible
Note April 2016
|
|
6.6
|
Warrant for 250,000
Common Shares
|
|
6.7
|
Warrant for 500,000
Common Shares
|
|
6.8
|
Warrant for 116,757
Common Shares
|
|
6.9
|
Warrant for 33,621
Common Shares
|
|
6.10
|
Warrant for 69,559
Common Shares
|
|
6.11
|
Warrant for 63,484
Common Shares
|
|
9.1
|
Indemnification
Agreement: Vuong Trieu
|
|
9.2
|
Indemnification
Agreement: Pyng Soon
|
|
9.3
|
Indemnification
Agreement: Chulho Park
|
|
9.4
|
Indemnification
Agreement: Osmond D'Cruz
|
|
11.1
|
Consent of Malone
Bailey, LLP
|
|
11.2
|
Consent of Pyng
Soon (contained in Exhibit 12.1 below)
|
|
12.1
|
Opinion of Pyng
Soon
|
|
15.1
|
Escrow Services and
Custody Agreement
|
III-1
Pursuant to the
requirements of Regulation A, the issuer certifies that it has
reasonable grounds to believe that it meets all of the requirements
for filing on Form 1-A (Amended d) and has duly caused
this offering statement to be signed on behalf by the undersigned,
thereunto duly authorized, in the City of Industry, State of
California, on December 19, 2016.
|
|
STOCOSIL
INC.
By: /s/
Pyng Soon
Name: Pyng Soon, Esq., CPA
Title: Chief
Executive Officer, Chief Financial Officer,
Secretary
|
This offering
statement has been signed by the following persons in the
capacities and on the date indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Vuong
Trieu
|
President and Chief
Regulatory Officer
|
December 19,
2016
|
|
Vuong
Trieu
|
|
|
|
|
|
|
|
/s/ Pyng
Soon
|
Chief Executive
Officer, Chief Financial Officer, Secretary
|
December
19,
2016
|
|
Pyng
Soon
|
|
|
|
|
|
|
|
/s/ Chulho Park
|
Chief Business
Officer
|
December
19,
2016
|
|
Chulho
Park
|
|
|
|
|
|
|
|
|
|
|
III-2
