UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10‑K

 

 

(Mark One)

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

For the fiscal year ended December 31, 2018

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

Commission File Number 001‑35182

 

 

AMPIO PHARMACEUTICALS, INC.

(www.ampiopharma.com)

NYSE American: AMPE

 

 

 

(720) 437‑6500

(Registrant’s telephone number, including area code)

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

 

 

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

 

 

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   ☒    No   ◻

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (check one):

 

 

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

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

The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2018 was $174.5 million based on the closing price of $2.20 as of that date.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of March 1, 2019, 111,127,878 shares of common stock were outstanding.

 

 

 

TABLE OF CONTENTS

 

Exhibit 23.1

Exhibit 23.2

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

This Report on Form 10‑K refers to trademarks, such as Ampio and Ampion, which are protected under applicable intellectual property laws and are our property. This Form 10‑K also contains trademarks, service marks, copyrights and trade names of other companies which are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this Form 10‑K may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.

Unless otherwise indicated or unless the context otherwise requires, references in this Form 10‑K to the “Company,” “Ampio,” “we,” “us,” or “our” are to Ampio Pharmaceuticals, Inc.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

Forward Looking Statements

This Annual Report on Form 10‑K, or Annual Report, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. All statements other than statements of historical facts contained in this Annual Report, including statements regarding our anticipated future clinical and regulatory events, future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. Forward looking statements are generally written in the future tense and/or are preceded by words such as “may,” “will,” “should,” “forecast,” “could,” “expect,” “suggest,” “believe,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” or similar words, or the negatives of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, without limitation, statements regarding the anticipated start dates, durations and completion dates, as well as the potential future results, of our ongoing and future clinical trials, the anticipated designs of our future clinical trials, anticipated future regulatory submissions and events, regulatory responses to our proposals, the potential future commercialization of our product candidate, Ampion, our anticipated future cash position and future events under our current and potential future collaborations. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including without limitation the risks described in “Risk Factors” in Part I, Item 1A of this Annual Report. These risks are not exhaustive. Other sections of this Annual Report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We assume no obligation to update or supplement forward-looking statements.

We obtained statistical data, market and product data, and forecasts used throughout this Form 10‑K from market research, publicly available information and industry publications. While we believe that the statistical data, industry data and forecasts and market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information.

AMPIO PHARMACEUTICALS, INC.

PART I

Item 1.Business

Overview

Our focus is on developing Ampion, which is a compound that decreases inflammation by inhibiting specific pro-inflammatory compounds.

Ampion has advanced through late-stage clinical trials in the United States. The U.S. Food and Drug Administration, or FDA, provided guidance that we should complete a trial of Kellgren Lawrence Grade 4, or KL 4, osteoarthritis patients with concurrent controls that would be carried out under a Special Protocol Assessment, or SPA, or otherwise with FDA feedback. An SPA is a process in which sponsors reach agreement with the FDA on the design and size of a proposed clinical trial to assure a study adequately addresses scientific and regulatory requirements to support marketing approval. However, the FDA still reserves the right to make changes at a future time which could include requiring additional trials.

AMPION

Ampion for Osteoarthritis and Other Inflammatory Conditions

Ampion is the < 5 kDa ultrafiltrate of 5% Human Serum Albumin, or HSA, an FDA, approved biologic product. Ampion is a non-steroidal, low molecular weight, anti-inflammatory biologic, which has the potential to be used in a wide variety of acute and chronic inflammatory conditions, as well as immune-mediated diseases. Ampion and its known components have demonstrated anti-inflammatory activity which supports the mechanism of action.

We are currently developing Ampion as an intra-articular injection to treat the signs and symptoms of severe osteoarthritis of the knee, or OAK, which is a growing epidemic in the United States. OAK is a progressive disease characterized by gradual degradation and loss of cartilage due to inflammation of the soft tissue and bony structures of the knee joint. Progression of the most severe form of OAK leaves patients with little to no treatment options other than a total knee arthroplasty. The FDA has stated that severe OAK is an ‘unmet medical need’ with no licensed therapies for this indication.  While we believe that Ampion could treat this ‘unmet medical need’, our ability to market this product is subject to FDA approval.

Market Opportunity

Osteoarthritis, or OA, is the most common form of arthritis, affecting over 30 million people in the United States. It is a progressive disorder of the joints involving degradation of the intra-articular cartilage, joint lining, ligaments, and bone. Certain risk factors in conjunction with natural wear and tear lead to the breakdown of cartilage. Osteoarthritis is caused by inflammation of the soft tissue and bony structures of the joint, which worsens over time and leads to progressive thinning of articular cartilage. Other progressive effects include narrowing of the joint space, synovial membrane thickening, osteophyte formation and increased density of the subchondral bone. The global market size for treatments that currently address moderate to moderately severe OA was valued at approximately $3.0 billion in 2016 and is expected to grow with a compound annual growth rate of 9.04% through 2025.  The global demand for osteoarthritis of the knee treatment is expected to be fueled by aging demographics and increased awareness of treatment options. Despite the size and growth of the osteoarthritis of the knee market, only a few treatment options currently exist, especially in the severely diseased patient population.

Ampion Development

Since our inception, we have conducted multiple clinical trials and have advanced through late-stage clinical trials in the United States, initially under the guidance of the FDA’s Office of Blood Research and Review, or OBRR, and most recently under the guidance of the FDA’s Office of Tissues and Advanced Therapies, or OTAT. 

Study AP-003-A was a U.S. multicenter, randomized, double-blind trial of 329 patients who were randomized 1:1 to receive Ampion or saline control via intra-articular injection. The study showed a statistically significant reduction in pain compared to the control, with an average of greater than 40% reduction in pain from baseline at 12 weeks. Patients who received Ampion also showed a significant improvement in function and quality of life (quality of life was assessed using the Patient Global Assessment, or PGA) compared to patients who received the saline control at 12 weeks. Furthermore, the trial included severely diseased patients (defined as KL 4). From this patient population, those patients who received Ampion had a significantly greater reduction in pain than those who received the saline control. Ampion was well tolerated with minimal adverse events reported across the Ampion and saline groups in the study. There were no drug-related serious adverse events.

The trial design of AP-003-C was initiated while we were under the guidance of OBRR and modified when guidance was transferred to OTAT in 2017. The study evaluated the responder rate of Ampion-treated patients as defined by the Osteoarthritis Research Society International (“OARSI”) Standing Committee for Clinical Trials Response Criteria Initiative (OMERACT), which included pain, function, and PGA in support of a label for the treatment of the signs and symptoms of severe OAK at 12 weeks.

 

Both OBRR and OTAT have confirmed that our successful pivotal phase III clinical trial, AP-003-A, was adequate and well-controlled and provided evidence of the effectiveness of Ampion and can contribute to the substantial evidence of effectiveness necessary for the approval of a Biologics License Application, or BLA. However, OTAT does not consider the AP-003-C trial to be an adequate and well-controlled pivotal trial and provided guidance that we should complete an additional trial of KL 4 osteoarthritis patients with concurrent controls that would be carried out under an SPA to obtain FDA concurrence on the trial design. An SPA would provide a written agreement between us and the FDA indicating concurrence by the FDA on the adequacy and acceptability of critical elements of the overall protocol design for a study intended to support a future marketing application. The existence of an SPA agreement does not guarantee that the FDA will accept a new BLA or that the trial results will be adequate to support marketing approval. Those issues are addressed during the review of a submitted application and are determined based on the adequacy of the overall submission. We do not plan to begin our clinical trial until we are awarded an SPA from the FDA. Should the FDA award the SPA, we plan to commence enrollment of patients. Even if this proposed trial is completed, the FDA may require additional clinical trials in the future. We cannot ensure that the data derived from a subsequent trial or trials will be sufficient to support marketing approval for Ampion. 

 

Ampion Manufacturing Facility

In December 2013, we entered into a ten-year lease of a multi-purpose facility containing approximately 19,000 square feet. This facility includes a clean room to manufacture Ampion, research laboratories and our corporate offices.  Ampion manufactured at our facilities is used in our clinical trials.

We moved into this manufacturing facility in the summer of 2014 and it was placed into service during the first quarter of 2016. Since then, we have implemented a quality system, validated the facility for human-use products and produced Ampion.  

Optina

In 2018, we reviewed our product portfolio and made the decision to delay the development of Optina or any other product in an effort to focus available resources on the development for Ampion.

 

Competition

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments. Significant competitive factors in our industry include product efficacy and safety; quality and breadth of an organization’s technology; skill of an organization’s employees and its ability to recruit and retain key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price of, products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and patent rights and their protection; and sales and marketing capabilities.

If we develop a successful product, we cannot guarantee it will be clinically superior or scientifically preferable to products developed or introduced by our competitors.

Among our smaller competitors, many of these companies have established co-development and collaboration relationships with larger pharmaceutical and biotechnology firms, which may make it more difficult for us to attract strategic partners. Our current and potential competitors include major multinational pharmaceutical companies, biotechnology firms, universities and research institutions. Some of these companies and institutions, either alone or together with their collaborators, have substantially greater financial resources and larger research and development staffs than do we. In addition, many of these competitors, either alone or together with their collaborators, have significantly greater experience than us in discovering, developing, manufacturing, and marketing pharmaceutical products. If one of our competitors realizes a significant advancement in a pharmaceutical drug or biologic that addresses the disease targeted by Ampion, our product could be rendered uncompetitive or obsolete.

Our competitors may also succeed in obtaining FDA or other regulatory approvals for their product candidates more rapidly than us, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights. Market acceptance of Ampion will depend on a number of factors, including: (i) potential advantages over existing or alternative therapies, (ii) the actual or perceived safety of similar classes of products, (iii) the effectiveness of sales, marketing, and distribution capabilities and (iv) the scope of any approval provided by the FDA or foreign regulatory authorities.

Although we believe Ampion possesses attractive attributes, we cannot assure that it will achieve regulatory or market acceptance, or that we will be able to compete effectively in the pharmaceutical drug markets. If Ampion fails to gain regulatory approvals and acceptance in its intended markets, we may not generate meaningful revenues or achieve profitability.

The available treatments for osteoarthritis of the knee include:

The American Academy of Orthopedic Surgeons, or AAOS, issued their second edition of clinical practice guidelines for the treatment of osteoarthritis of the knee in May 2013. The AAOS was unable to recommend for or against the use of intra-articular corticosteroid injections as studies designed to indicate efficacy are inconclusive. Further, the AAOS was also unable to recommend for or against the use of acetaminophen, opioids, or pain patches as the efficacy studies in this area are also inconclusive. Most importantly, the AAOS does not recommend (with a strong ‘strength of recommendation’) the use of hyaluronic acid injections as, in the AAOS’ assessment, the clinical evidence does not support their use. This clinical practice guideline emphasizes the ‘unmet medical need’ for osteoarthritis of the knee

given the few accepted and available treatments. We believe Ampion is a novel treatment option that, if approved, would be the first non-steroidal, non-hyaluronic-based intra-articular treatment available for pain due to osteoarthritis of the knee.

Government Regulation

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the Food and Drug Administration, or FDA. The Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, record keeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve a pending New Drug Application, or NDA, or Biologics License Application, or BLA, untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

Pharmaceutical and biologic product development in the United States typically involves:

Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease. Preclinical tests generally include laboratory evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certain animal studies to assess its potential safety and efficacy. Results of these preclinical tests, together with manufacturing information (in compliance with GLP and cGMP), analytical data and the clinical trial protocol (detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated), must be submitted to the FDA as part of an IND, which must become effective before human clinical trials can begin.

An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30‑day time period, raises concerns or questions about the intended conduct of the trial and imposes what is referred to as a clinical hold. Preclinical studies generally take several years to complete, and there is no guarantee that an IND based on those studies will become effective, allowing clinical testing to begin. In addition to the FDA review of an IND, each medical site that desires to participate in a proposed clinical trial must have the protocol reviewed and approved by an independent IRB or Ethics Committee, or EC, for sites located outside of the United States. The IRB considers, among other things, ethical factors, and the selection and safety of human subjects. Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practices, or GCP, requirements. The FDA and/or IRB/EC may order the temporary, or permanent, discontinuation of a clinical trial or a specific clinical trial site to be halted at any time, or impose other sanctions for failure to comply with requirements under the appropriate entity jurisdiction.

Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. Ampio is seeking a BLA for Ampion. In Phase I clinical trials, a product candidate is typically introduced either into healthy human subjects or patients with the medical condition for which the new drug is intended to be used. The main purpose of the trial is to assess a product candidate’s safety and the ability of the human body to tolerate the product candidate. Phase I clinical trials generally include less than 50 subjects or patients. During Phase II trials, a product candidate is studied in an exploratory trial or trials in a limited number of patients with the disease or medical condition for which it is intended to be used in order to: (i) further identify any possible adverse side effects and safety risks, (ii) assess the preliminary or potential efficacy of the product candidate for specific target diseases or medical conditions, and (iii) assess dosage tolerance and determine the optimal dose for Phase III trials. Phase III trials are generally undertaken to demonstrate clinical efficacy and to further test for safety in an expanded patient population with the goal of evaluating the overall risk-benefit relationship of the product candidate. Phase III trials will generally be designed to reach a specific goal or endpoint, the achievement of which is intended to demonstrate the product candidate’s clinical efficacy and provide adequate information for labeling of the biologic.

A drug being studied in clinical trials may be made available to individual patients in certain circumstances. Pursuant to the 21st Century Cures Act, or Cures Act, which was signed into law in December 2016, the manufacturer of an investigational drug for a serious disease or condition is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for individual patient access to such investigational drug. This requirement applies on the later of 60 calendar days after the date of enactment of the Cures Act or the first initiation of a Phase II or Phase III trial of the investigational drug.

After completion of clinical testing under an IND, a BLA is prepared and submitted to the FDA. FDA approval of the BLA is required before marketing of the product may begin in the United States. The BLA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting a BLA is substantial. Under federal law, the submission of most BLAs are subject to an application user fee, currently $2.6 million. However, the FDA will waive the application user fee for the first human drug application that a small business or its affiliate submits for review. Small businesses are defined as businesses with less than 500 employees, therefore Ampio is considered a small business. The manufacturer and/or sponsor under an approved BLA are also subject to an annual program fee, currently $310,000. The annual program fee replaced the product and establishment user fees that the FDA charged in prior years. These fees typically increase annually.

The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the FDA’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most such applications for standard biologic products are reviewed within ten months; most applications for priority biologics are reviewed in six months. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA may also refer applications for novel biologic products, or biologic products which present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving a BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities where the biologic is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the BLA contains data that provide substantial evidence that the biologic is safe and effective in the indication studied.

After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of the BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the biologic outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing,

dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug.  Product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

There are accelerated review processes at the FDA, including Fast Track Designation and Accelerated Approval, none of which Ampio is seeking.

Foreign Regulatory Approval

Outside of the United States, our ability to market Ampion will be contingent upon receiving marketing authorizations from the appropriate foreign regulatory authorities, whether or not FDA approval has been obtained. The foreign regulatory approval process in most industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval process. The requirements governing the conduct of clinical trials and marketing authorizations, and the time required to obtain the requisite approvals, may vary widely from country to country and differ from those required for FDA approval.

Under European Union, or EU, regulatory systems, marketing authorizations may be submitted either under a centralized or decentralized procedure.

The centralized procedure provides for the grant of a single marketing authorization that is valid for all EU member states. The centralized procedure is compulsory for human medicines that are derived from biotechnology processes, such as genetic engineering, that contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions, and officially designated orphan medicines. For medicines that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the European Commission following a favorable opinion by the European Medicines Agency, or EMA, as long as the medicine concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.

The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval. The mutual recognition process results in separate national marketing authorizations in the reference member state and each concerned member state. We will seek to choose the appropriate route of European regulatory filing in an attempt to accomplish the most rapid regulatory approvals for Ampion when ready for review. However, the chosen regulatory strategy may not secure regulatory approval of the chosen product indications. In addition, these approvals, if obtained, may take longer than anticipated. We can provide no assurance that Ampion will prove to be safe or effective, will receive required regulatory approvals, or will be successfully commercialized.

Biosimilars and Exclusivity

The Patient Protection and Affordable Care Act, or Affordable Care Act, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, which created an abbreviated approval pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed reference biological product. This amendment to the Public Health Services Act attempts to minimize duplicative testing. Biosimilarity, requires that there can be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, and can be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times. The biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

A novel biologic is granted twelve years of exclusivity from the time of first licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against other biologics submitting under the abbreviated approval pathway for the

lesser of (i) one year after the first commercial marketing, (ii) eighteen months after approval if there is no legal challenge, (iii) eighteen months after the resolution in the applicant’s favor of a lawsuit challenging the biologics’ patents if an application has been submitted, or (iv) 42 months after the application has been approved if a lawsuit is ongoing within the 42‑month period.

Post-Approval Regulation

If a product candidate receives regulatory approval, the approval is typically limited to specific clinical indications. Furthermore, after regulatory approval is obtained, subsequent discovery of previously unknown problems with a product may result in restrictions on its use or complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Further, biologic manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic inspections by the FDA and state agencies for compliance with cGMP, which impose rigorous procedural and documentation requirements upon us and our contract manufacturers. We cannot be certain that we or our present or future contract manufacturers or suppliers will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply with these requirements may result in, among other things, total or partial suspension of production activities, failure of the FDA to grant approval for marketing, and withdrawal, suspension, or revocation of marketing approvals.

If the FDA approves Ampion, we and the contract manufacturers of clinical supplies and commercial supplies must provide certain updated safety and efficacy information. Product changes, as well as certain changes in the manufacturing process or facilities where the manufacturing occurs or other post-approval changes may necessitate additional FDA review and approval. The labeling, advertising, promotion, marketing and distribution of a biologic product must also be in compliance with FDA and Federal Trade Commission, or FTC, requirements which include, among others, standards and regulations for direct-to-consumer advertising, industry sponsored scientific and educational activities, and promotional activities involving the Internet. In addition, we are prohibited from promoting our products off-label. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a warning letter or untitled letter directing us to correct deviations from regulatory requirements and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.

Other Regulatory Requirements

We are also subject to regulation by other regional, national, state and local agencies, including the U.S. Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services and other regulatory bodies. Our current and future partners are subject to many of the same requirements.

In addition, we are subject to other regulations, including regulations under the Occupational Safety and Health Act, regulations promulgated by the U.S. Drug Enforcement Administration, the Toxic Substance Control Act, the Resource Conservation and Recovery Act, and regulations under other federal, state and local laws.

Violations of any of the foregoing requirements could result in penalties being assessed against us.

Privacy

Most health care providers, including research institutions from whom we or our partners obtain patient information, are subject to privacy and security rules under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the amendments to HIPAA under the Health Information Technology for Economic and Clinical Health Act, or HITECH. Additionally, strict personal privacy laws in other countries affect pharmaceutical companies’ activities in those countries. Such laws include the EU Directive 95/46/EC on the protection of individuals with regard to the processing of personal data, as well as individual EU Member States implementing additional laws. Although our clinical development efforts are not barred by these privacy regulations, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a health care provider that has not satisfied HIPAA’s or the EU’s disclosure standards. Failure by EU clinical trial partners to obey requirements of national laws on private personal data, including laws implementing the EU Data Protection Directive, might result in liability and/or adverse publicity.

Information Systems

We believe that our Information Systems, or IS, capabilities are adequate to manage our core business.  In addition, our internal controls related to IS are operating effectively.

Intellectual Property Summary

Ampion

In 2018, we reviewed our patent portfolio relative to Ampion. We made the decision to focus available resources by limiting the maintenance of patent protection for Ampion based on the relative importance of technologies covered by patents, the geographic jurisdiction of patents and remaining patent term. This allowed us to reduce the overall number of patents while maintaining our strategic coverage. The portfolio primarily consists of seven families filed in the United States and throughout the world. 

 

The first family includes U.S. patents and a European patent, validated and being maintained in Germany, Great Britain and France with claims relating to methods of treating inflammatory disease and compositions of matter comprising diketopiperazine derivatives, including aspartyl-alanyl diketopiperazine, or DA-DKP. This family also includes issued patents in China, Hong Kong, and Japan. The standard 20-year expiration for patents in this family is in 2021.

 

The second family includes U.S. patents with claims directed to methods of treating inflammation and T-cell mediated or inflammatory diseases with compositions of matter comprising DA-DKP. This family also includes issued patents in Australia, China, New Zealand, Singapore, Hong Kong, Israel, Japan, South Africa and a European patent (validated in Germany, Great Britain, France, Italy, and the Netherlands) and pending applications in the United States, Canada, China, and Hong Kong. The standard 20-year expiration for patents in this family is in 2024.

 

The third family includes U.S. patents, a pending U.S. application, and issued patents in Australia, China, Eurasia (Russia), Israel, Japan, New Zealand, and Philippines and pending applications in Australia, Brazil, Canada, China, EPO, Hong Kong, Indonesia, Korea, Mexico, Malaysia, Singapore, United States, and South Africa. The claims in this family are directed to the use of DA-DKP for the treatment of degenerative joint diseases. The standard 20-year expiration for patents in this family is in 2032.

 

The fourth family includes a U.S. patent, a pending U.S. application and pending applications in Australia, Canada, China, EPO, Hong Kong, Japan, New Zealand with claims directed to the use of DA-DKP to mobilize, home, expand and differentiate stem cells in the treatment of subjects. The standard 20-year expiration for patents in this family is in 2034.

 

The fifth family includes a U.S. patent, a pending U.S. application and pending applications in Australia, Canada, China, Europe, Hong Kong, Israel, Japan, Korea and Russia with claims directed to the use of DA-DKP for the treatment of degenerative joint diseases in a multi-dose treatment regimen. The standard 20-year expiration for patents in this family is in 2035.

 

The sixth family includes a pending U.S. application and pending applications in Europe and Hong Kong with claims directed to the use of DA-DKP in the absence of cyclooxygenase-2, or COX-2 antagonist treatment. The standard 20-year expiration for patents in this family will be in 2036.

 

The seventh family includes a Patent Cooperation Treaty international application with claims directed to the use of N-acetyl-kynurenine for treatment of T-cell mediated diseases, degenerative joint disease and diseases mediated by platelet activating factor and composition of matter. The standard 20-year expiration for patents in this family will be 2037.

 

Optina

In 2018, we reviewed our patent portfolio relative to Optina. We made the decision to delay the development of Optina and allow existing patents and applications to lapse by non-payment of annuities and maintenance fees and non-responses to actions in the future in an effort to focus available resources on patent protection for Ampion.

 

Barriers to Entry – General

We also maintain trade secrets and proprietary know-how that we seek to protect through confidentiality and nondisclosure agreements. We expect to seek U.S. and foreign patent protection for our therapeutic product. These patents may not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of confidential and proprietary information. If we do not adequately protect our trade secrets and proprietary know-how, our competitive position and business prospects could be materially harmed.

The patent positions of companies such as ours involve complex legal and factual questions and, therefore, their enforceability cannot be predicted with any certainty. Our issued and licensed patents, and those that may be issued to us in the future, may be challenged, invalidated or circumvented, and the rights granted under the patents or licenses may not provide us with meaningful protection or competitive advantages. Our competitors may independently develop similar technologies or duplicate any technology developed by us, which could offset any advantages we might otherwise realize from our intellectual property. Furthermore, even if Ampion receives regulatory approval, the time required for development, testing, and regulatory review could mean that protection afforded to us by our patents may only remain in effect for a short period after commercialization. The expiration of patents or license rights we hold could adversely affect our ability to successfully commercialize our biologic, thus harming our operating results and financial position.

We will be able to protect our proprietary intellectual property rights from unauthorized use by third parties only to the extent that such rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. If we must litigate to protect our intellectual property from infringement, we may incur substantial costs and our officers may be forced to devote significant time to litigation-related matters. The laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

Our pending patent applications, or those we may file or license from third parties in the future, may not result in patents being issued. Until a patent is issued, the claims covered by an application for patent may be narrowed or removed entirely, thus depriving us of adequate protection. As a result, we may face unanticipated competition, or conclude that without patent rights the risk of bringing Ampion to market exceeds the returns we are likely to obtain. We are generally aware of the scientific research being conducted in the areas in which we focus our research and development efforts, but patent applications filed by others are maintained in secrecy for at least 18 months and, in some cases in the United States, until the patent is issued. The publication of discoveries in scientific literature often occurs substantially later than the date on which the underlying discoveries were made. As a result, it is possible that patent applications for products similar to our biologic candidate may have already been filed by others without our knowledge. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights, and it is possible that development of Ampion could be challenged by other pharmaceutical or biotechnology companies. If we become involved in litigation concerning the enforceability, scope and validity of the proprietary rights of others, we may incur significant litigation or licensing expenses, be prevented from further developing or commercializing Ampion, be required to seek licenses that may not be available from third parties on commercially acceptable terms, if at all, or subject us to compensatory or punitive damage awards. Any of these consequences could materially harm our business.

Research and Development

For the years ended December 31, 2018 and 2017, we recorded $6.8 million and $10.4 million, respectively, of research and development expenses. Research and development expenses represented 61.0% and 67.0% of total operating expenses in the years ended December 31, 2018 and 2017, respectively. More information regarding our research and development activities can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Annual Report.

Compliance with Environmental Laws

We believe we are in compliance with current environmental protection requirements that apply to us or our business. Costs attributable to environmental compliance are not currently material.

Product Liability and Insurance

The development, manufacture and sale of pharmaceutical products involve inherent risks of adverse side effects or reactions that can cause bodily injury or even death. Ampion, if we succeed in commercializing, could adversely affect consumers even after obtaining regulatory approval and, if so, we could be required to withdraw our product from the market or be subject to administrative or other proceedings. We obtain clinical trial liability coverage for human clinical trials, and will obtain appropriate product liability insurance coverage for Ampion that we manufacture and sell for human consumption. The amount, nature and pricing of such insurance coverage will likely vary due to a number of factors such as Ampion’s clinical profile, efficacy and safety record, and other characteristics. We may not be able to obtain sufficient insurance coverage to address our exposure to product recall or liability actions, or the cost of that coverage may be such that we will be limited in the types or amount of coverage we can obtain. Any uninsured loss we suffer could materially and adversely affect our business and financial position.

Employees

As of March 1, 2019, we had 22 full-time employees and utilized the services of a number of consultants on a temporary basis.

Available Information

Our principal executive offices are located at 373 Inverness Parkway, Suite 200, Englewood, Colorado 80112 USA, and our phone number is (720) 437‑6500.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, electronically with the U.S. Securities and Exchange Commission, or the SEC.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address of that site is http://www.sec.gov.

You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on From 10-Q, current reports on Form 8-K and amendments to those reports on our website at http://www.ampiopharma.com on the earliest practicable date following the filing with the SEC.  Information found on our website is not incorporated by reference into this report.

Our Code of Conduct and Ethics and the charters of our Nominating and Governance Committee, Audit Committee, Compensation Committee and Disclosure Committee of our Board of Directors may be accessed within the Investor Relations section of our website. Amendments and waivers of the Code of Conduct and Ethics will also be disclosed within four business days of issuance on the website. Information found on our website is neither part of this annual report on Form 10‑K nor any other report filed with the SEC.

Item 1A.Risk Factors

Risks Related to Our Business

Management has performed an analysis of our ability to continue as a going concern. In addition, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.

Based on their assessment, management has raised concerns about our ability to continue as a going concern. In addition, our independent registered public accounting firm expressed substantial doubt as to our ability to continue as a going concern in their report accompanying our audited financial statements. A “going concern” opinion could impair our ability to finance our operations through the sale of debt or equity securities or through bank financing. We have raised $139.0 million in net proceeds from equity financing in the past ten years and believe that we will be able to raise additional equity or debt financing in the future but the financing could be extremely dilutive to our current shareholders. Our ability to continue as a going concern will depend on our ability to obtain additional financing. Additional capital may not be available on reasonable terms, or at all. If adequate financing is not available, we would be required to terminate or significantly curtail our operations, or enter into arrangements with collaborative partners or others that may require us to relinquish rights to certain aspects of Ampion, or potential markets that we would not otherwise relinquish.

If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations.

We have incurred significant losses since inception, expect to incur net losses for at least the next several years and may never achieve or sustain profitability.

We are a development stage biopharmaceutical company that has not generated revenues or profits and have therefore incurred significant net losses totaling $171.0 million since our inception in December 2008. We expect to generate operating losses for the foreseeable future, but intend to try to limit the extent of these losses by entering into licensing, co-development or collaboration agreements with one or more strategic partners, which may provide us with potential milestone payments and royalties. Those arrangements, if obtained, will be our primary source of revenues for the coming years. We cannot be certain that any licensing, co-development or collaboration arrangements will be obtained, or that the terms of those arrangements will result in us receiving material revenues. To obtain revenues from Ampion, we must succeed, either alone or with others, in a range of challenging activities, including completing clinical trials, obtaining marketing approval, manufacturing, marketing and selling, satisfying any post-marketing requirements and obtaining reimbursement for our product from private insurance or government payors. We, and our collaborators, may never succeed in these activities and, even if we do, or one of our collaborators does, we may never generate revenues that are significant enough to achieve profitability.

We will need substantial additional capital to fund our operations. If we do not obtain the capital necessary to fund our operations, we will be unable to successfully develop, obtain regulatory approval of, and commercialize Ampion and may need to cease operations.

Developing pharmaceutical products is a very time-consuming, expensive and uncertain process that takes years to complete. We expect our expenses could increase in connection with our ongoing activities, particularly as we initiate new clinical trials, prepare to file our Ampion BLA with the FDA and seek marketing approval for Ampion.

As of December 31, 2018, we had $7.6 million of cash which we expect can fund our operation into the second quarter of 2019. To operate as planned in fiscal 2019 and into 2020 we will need to raise at least $16.0 million through equity offerings, debt or other financing tools.

Our future capital requirements will depend on and could increase significantly as a result of many factors including:

Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through collaboration arrangements, private or public sales of our securities, including under our “at-the-market”, or ATM, equity program, debt financings, or by licensing Ampion. We cannot be certain that additional funding will be available to us on acceptable terms, if at all, or that it will be adequate to execute our business strategy. If funds are not available, we may be required to delay, reduce the scope of, or eliminate development of Ampion, or substantially curtail or close our operations altogether.

Even if we obtain additional financing, it may be on terms not favorable to us, it may be costly and it may require us to agree to covenants or other provisions that will favor new investors over existing shareholders or other restrictions that may adversely affect our business. Additional funding, if obtained, may also result in significant dilution to our stockholders. Alternatively, we may have to obtain a collaborator for Ampion at an earlier stage of development than planned, which could lower our economic value.

Our business is highly dependent on the success of Ampion. If Ampion does not receive regulatory approval or is not successfully commercialized, our business is likely to be harmed.

 

A substantial portion of our business and future success depends on our ability to develop, obtain regulatory approval for and successfully commercialize Ampion. We currently have no products that are approved for commercial sale and may never be able to develop marketable products. We are devoting all of our resources to the development of Ampion. We cannot be certain that Ampion will be successful in ongoing or future clinical trials, receive regulatory approval or be successfully commercialized even if we receive regulatory approval.

 

Ampion will be undergoing clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is a high risk of failure. If clinical trials of Ampion fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, the FDA may require additional clinical trials and we, or our collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of Ampion.

 

Clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. It may take several years to complete clinical development necessary to commercialize a biologic, and delays or failure can occur at any stage. Success in pre-clinical testing and the results of earlier clinical trials do not necessarily predict clinical success, and larger and later-stage clinical studies may not produce the same results as earlier-stage clinical studies. In addition, clinical studies of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced.

We continue to work toward completion and analysis of clinical trials for Ampion. Any unfavorable outcomes of our trials for Ampion would be a major set-back for the development program and for us. Due to our limited financial resources, an unfavorable outcome in one or more of these trials may require us to delay, reduce the scope of, or eliminate the product development program, which could have a material adverse effect on our business and financial condition and on the value of our common stock.

In connection with clinical testing and trials, we face a number of risks, including:

If we do not successfully complete clinical development, we will be unable to market and sell products derived from Ampion and generate revenues. Even if we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed before a BLA is submitted to the FDA. Although there are a large number of biologics in the development stage in the United States and other countries, only a small percentage result in the submission of a BLA to the FDA, even fewer are approved for commercialization, and only a small number achieve widespread physician and consumer acceptance following regulatory approval. If our clinical studies are substantially delayed or fail to satisfactorily address the safety and effectiveness of Ampion in development, we may not receive regulatory approval of Ampion and our business and financial condition will be materially harmed.

Delays, suspensions and terminations in our clinical trials could result in increased costs to us and delay or prevent our ability to generate revenues.

Human clinical trials are very expensive, time-consuming, and difficult to design, implement and complete. We currently expect clinical trials of Ampion could take from 12 to 24 months to complete, however we cannot be certain we will successfully complete current or future clinical trials within any specific time period, if at all. If we experience delay, suspensions or terminations in a clinical trial, the commercial prospects for Ampion will be harmed, our ability to generate product revenues will be delayed and our business may be jeopardized.

The commencement and completion of clinical studies for Ampion may be delayed, suspended or terminated due to a number of factors, including:

Many of these factors may also ultimately lead to denial of regulatory approval of Ampion.

Furthermore, if we fail to comply with applicable FDA and other regulatory requirements at any stage during this regulatory process, we may encounter or be subject to:

If Ampion is not approved by the FDA, we will be unable to commercialize it in the United States.

We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing Ampion.

 

We rely, and will rely in the future, on medical institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data collection and analysis and other aspects of our clinical trials.

Our clinical trials conducted by third parties may be delayed, suspended, or terminated if:

Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of Ampion. If we seek alternative sources to provide these services, we may not be able to enter into replacement arrangements without incurring delays or additional costs.

If we do not receive marketing approval for Ampion, we may not realize the investment we have made in our manufacturing facility.

In December 2013, we entered into a ten-year lease of a multi-purpose facility containing approximately 19,000 square feet. We have spent approximately $10.8 million dollars to build out this facility in anticipation of receiving approval of

our BLA and commencing commercialization of Ampion. If the FDA does not approve our BLA for Ampion, or does not approve of our manufacturing operation, we will not be able to manufacture and commercialize Ampion in our facility and we will remain obligated to make payments under our lease, which is set to expire in 2024. Any delay or failure to receive BLA approval for Ampion could have a material adverse effect on the carrying value of the manufacturing facility as well as on our results of operations.

Relying on third-party suppliers may result in delays in our clinical trials and product introduction.

We currently obtain the Human Serum Albumin, or HSA, needed to produce Ampion for our clinical trials from one supplier in the United States. Our clinical trials and ultimately FDA approval may be delayed if we are unable to obtain a sufficient quantity of the HSA raw material needed to produce Ampion on a timely basis or if we need to establish an alternative source of supply for the raw material.

Once regulatory approval is obtained, a marketed product and its suppliers are subject to continual review. The discovery of previously unknown problems with a product or supplier may result in restrictions on the product, supplier or manufacturing facility, including withdrawal of the product from the market. Our raw material supplier for HSA is required to operate in accordance with FDA-mandated current good manufacturing practices, or cGMPs. A failure of any of our contract suppliers to establish and follow cGMPs and to document their adherence to such practices may lead to significant delays in the launch of Ampion into the market. Failure by third-party suppliers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, revocation or suspension of marketing approval for our product, seizures or recalls of our product, operating restrictions and criminal prosecutions.

If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages or fines.

The research and development activities conducted at our facility involve the controlled use of potentially hazardous substances, including chemical, biological and radioactive materials and produce hazardous waste products. Our manufacturing facility involves the controlled use of potentially hazardous substances and produces hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. If we experience a release of hazardous substances, it is possible that this release could cause personal injury or death, and require decontamination of the facility. In the event of an accident while manufacturing Ampion, we could be held liable for damages or face substantial penalties. We do not have any insurance for liabilities arising from the procurement, handling, or discharge of hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may delay our research, development and production efforts, which could harm the financial condition of our business or impair our operations.

Even if we obtain marketing approvals for Ampion, the terms of approvals and ongoing regulation of our product may limit how we, or our collaborators, manufacture and market our product, which could materially impair our ability to generate revenue.

Even if we receive regulatory approval for Ampion, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or the patient population that may utilize the product, or may require a warning in the labeling and on its packaging. Products with boxed warnings are subject to more restrictive advertising regulations than products without such warnings. These restrictions could make it more difficult to market Ampion effectively.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and reporting requirements. We, our contract manufacturers, our collaborators and their contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs.

Accordingly, assuming we, or our collaborators, receive marketing approval for Ampion, we, our collaborators and contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

Ampion for which we obtain marketing approval in the future could be subject to post-marketing restrictions or withdrawal from the market and we, and our collaborators, may be subject to substantial penalties if we, or they, fail to comply with regulatory requirements or if we, or they, experience unanticipated problems with our product following approval.

Ampion for which we, or our collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of Ampion is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA requirement to implement a Risk Evaluation and Mitigation Strategy to ensure that the benefits of a biological product outweigh its risks.

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our collaborators, do not market Ampion in accordance with the marketing approval received for the product’s approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA, the Public Health Service Act and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, the commercialization of Ampion may be delayed, our business will be harmed, and our stock price may decline.

We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

If we fail to achieve announced milestones in the timeframes we announce and expect, our business and results of operations may be harmed and the price of our stock may decline.

Even if collaborators with which we contract in the future successfully complete clinical trials of Ampion, our product may not be commercialized successfully for other reasons.

Even if we contract with collaborators that successfully complete clinical trials for Ampion, our product may not be commercialized for other reasons, including:

We might enter into agreements with collaborators to commercialize Ampion once we obtain regulatory approvals, which may affect the sales of our product and our ability to generate revenues.

We are not currently established to handle sales, marketing and distribution of pharmaceutical products and may contract with, or license, third parties to market Ampion if we receive regulatory approvals. Outsourcing sales and marketing in this manner may subject us to a variety of risks, including:

If we are unable to partner with a third party that has adequate sales, marketing, and distribution capabilities, we may have difficulty commercializing Ampion, which would adversely affect our business, financial condition, and ability to generate product revenues.

We face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving approval for, or commercializing products before or more successfully than us.

Our ability to succeed in the future depends on our ability to discover, develop and commercialize a pharmaceutical product that offers superior efficacy, convenience, tolerability, and safety when compared to existing treatment methodologies. We intend to do so by identifying a product candidate that is based on a modified active ingredient which previously received regulatory approval. Because our strategy is to develop a new product candidate primarily for the treatment of a disease that affects a large patient population, our product is likely to compete with a number of existing medicines or treatments, and a large number of product candidates that are being developed by others.

Many of our potential competitors have substantially greater financial, technical, personnel and marketing resources than we do. In addition, many of these competitors have significantly greater resources devoted to product development and pre-clinical research. Our ability to compete successfully will depend largely on our ability to:

Established pharmaceutical companies devote significant financial resources to discovering, developing or licensing novel compounds that could make Ampion obsolete. Our competitors may obtain patent protection, receive FDA approval, and commercialize medicines before us. Other companies are engaged in the discovery of compounds that may compete with Ampion.

Any new product that competes with a currently-approved treatment or medicine must demonstrate compelling advantages in efficacy, convenience, tolerability and/or safety to address price competition and be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of Ampion.

The risk that we may be sued on product liability claims is inherent in the development and commercialization of pharmaceutical products. Side effects of, or manufacturing defects in, the product that we develop which is commercialized by any collaborators could result in the deterioration of a patient’s condition, injury or even death. Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits increases. Claims may be brought by individuals seeking relief for themselves or by individuals or groups seeking to represent a class. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of Ampion.

We may be subject to legal or administrative proceedings and litigation other than product liability lawsuits which may be costly to defend and could materially harm our business, financial conditions and operations.

Although we maintain general liability and product liability insurance, this insurance may not fully cover potential liabilities. In addition, our inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to

otherwise protect against potential product or other legal or administrative liability claims could prevent or inhibit the commercial production and sale of Ampion that receives regulatory approval, which could adversely affect our business. Product liability claims could also harm our reputation, which may adversely affect our collaborators’ ability to commercialize our product successfully.

If Ampion is commercialized, this does not assure acceptance by physicians, patients, third-party payors, or the medical community in general.

We cannot be sure that Ampion, if and when approved for marketing, will be accepted by physicians, patients, third-party payors, or the medical community in general. Even if the medical community accepts a product as safe and efficacious for its indicated use, physicians may choose to restrict the use of the product if we or any collaborator are unable to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product is preferable to any existing medicines or treatments. We cannot predict the degree of market acceptance of Ampion once we receive marketing approval, which will depend on a number of factors, including, but not limited to:

Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues if we obtain regulatory approval to market our product.

The commercial success of Ampion will depend on the reimbursement rates from health maintenance, managed care, pharmacy benefit, government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, we, or our collaborators, may not be able to successfully commercialize Ampion. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or our collaborators, to establish or maintain pricing to realize a sufficient return on our or their investments.

The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care costs to contain or reduce costs of health care may adversely affect one or more of the following:

The 2010 enactments of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act are expected to significantly impact the provision of, and payment for, health care in the United States. Various provisions of these laws are designed to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide health care benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support for medical research. Additional legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could influence the purchase of medicines and reduce demand and prices for our products, if approved. This could harm our or our collaborators’ ability to market our product and generate revenues.

Cost containment measures that health care payors and providers are instituting and the effect of further health care reform could significantly reduce potential revenues from the sale of Ampion in the future, and could cause an increase in our compliance, manufacturing, or other operating expenses. In addition, in certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may in some cases be unavailable. We believe that pricing pressures at the federal and state level, as well as internationally, will continue and may increase, which may make it difficult for us to sell our potential product that may be approved in the future at a price acceptable to us or any of our future collaborators.

The approval process outside the United States varies among countries and may limit our ability to develop, manufacture and sell our product internationally. Failure to obtain marketing approval in international jurisdictions would prevent Ampion from being marketed abroad.

In order to market and sell our product in the EU and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedures vary among countries and can involve additional testing. We may conduct clinical trials for, and seek regulatory approval to market, Ampion in countries other than the United States. Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may decide to first seek regulatory approvals of Ampion in countries other than the United States, or we may simultaneously seek regulatory approvals in the United States and other countries. If we or our collaborators seek marketing approvals for Ampion outside the United States, we will be subject to the regulatory requirements of health authorities in each country in which we seek approvals. With respect to marketing authorizations in Europe, we will be required to submit a European marketing authorization application, or MAA, to the European Medicines Agency, or EMA, which conducts a validation and scientific approval process in evaluating a product for safety and efficacy. The approval procedure varies among regions and countries and can involve additional testing, and the time required to obtain approvals may differ from that required to obtain FDA approval. Obtaining regulatory approvals from health authorities in countries outside the United States is likely to subject us to all of the risks associated with obtaining FDA approval described above. In addition, marketing approval by the FDA does not ensure approval by the health authorities of any other country and approval by foreign health authorities does not ensure marketing approval by the FDA.

Our drug development program to date has been dependent in large part upon the services of Dr. David Bar-Or, who retired as Chief Scientific Officer in September 2018.

Our drug development program to date has been dependent in large part upon the services of Dr. David Bar-Or, who retired from his full-time role as Chief Scientific Officer effective September 30, 2018. Although Dr. Bar-Or has continued to serve as a member of our Board of Directors and our Scientific Advisory Board, the loss of his services as our full-time Chief Scientific Officer could result in delays of other product development activities, and our ability to develop and commercialize new product candidates may be diminished.

 

Business interruptions could limit our ability to operate our business.

Our operations are vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of misappropriation, and similar events. We have not established a formal disaster recovery plan or back-up operations. Additionally, our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages and require us to curtail our operations.

While we are not aware of any cybersecurity incidents, the cybersecurity landscape continues to evolve and we may find it necessary to make further investments to protect our data and infrastructure.

We continuously work to install new and upgrade existing information technology systems and provide employee awareness training around phishing, malware and other cyber risks to ensure that we are protected, to the greatest extent possible, against cyber risks and security breaches.  Any actual or suspected security breach or other compromise of our security measures or those of our third-party vendors, whether as a result of hacking efforts, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks or otherwise, could harm our reputation and business, require us to expend significant capital and other resources to address the breach, and result in a violation of applicable laws, regulations or other legal obligations.

Risks Related to Our Intellectual Property

Our ability to compete may decline if we do not adequately protect our proprietary rights.

Our commercial success depends on obtaining and maintaining proprietary rights for Ampion including its compounds and uses. We must successfully defend these rights against third-party challenges. We will only be able to protect Ampion’s proprietary compounds, and its use from unauthorized use to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them.

Our ability to obtain patent protection for Ampion and its compounds is uncertain due to a number of factors, including:

Even if we have or obtain patents covering Ampion or its compounds, we may still be barred from making, using and selling Ampion or technologies because of the patent rights of others. Others have or may have filed, and in the future may file, patent applications covering compounds or products that are similar or identical to ours. There are many issued U.S. and foreign patents relating to chemical compounds and therapeutic products, and some of these relate to compounds we intend to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist. These could materially affect our ability to develop Ampion or sell our product if approved. Because patent applications can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that Ampion or its compounds may infringe. These patent applications may have priority over patent applications filed by us.

We periodically conduct searches to identify patents or patent applications that may prevent us from obtaining patent protection for our compounds or that could limit the rights we have claimed in our patents and patent applications. Disputes may arise regarding the source or ownership of our inventions. It is difficult to determine if and how such disputes would be resolved. Others may challenge the validity of our patents. If our patents are found to be invalid, we will lose the ability to exclude others from making, using or selling the compounds or products addressed in those patents.  We generally do not control the prosecution, maintenance or enforcement of patents covering licensed compounds or products.

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 drug discovery and development of therapies that can address inflammation and other conditions, we rely in part on trade secret protection to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors. 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 party’s relationship with us. These agreements also generally provide that inventions conceived by the party while rendering services for 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 is difficult, expensive and time consuming and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time consuming and costly, and an unfavorable outcome could harm our business.

There is significant litigation in the pharmaceutical industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that Ampion, technologies or activities infringe the intellectual property rights of others. There may be many patents relating to repositioned biologics or compounds used to treat inflammation. Some of these may encompass repositioned biologics or compounds that we utilize for Ampion. If our development activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. A patentee could prevent us from using the patented biologics or compounds. We may need to resort to litigation to enforce a patent issued to us, to protect our trade secrets, or to determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel or consultants formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We may not be able to afford the costs of litigation. Any legal action against us or our collaborators could lead to:

As a result, we could be prevented from commercializing Ampion.

Pharmaceutical patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.

The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions. For example, some of our patents and patent applications cover methods of use of repositioned drugs, while other patents and patent applications cover composition of a particular compound. The interpretation and breadth of claims allowed in some patents covering pharmaceutical compounds may be uncertain and difficult to determine, and are often affected materially by the facts and circumstances that pertain to the patented compound and the related patent claims. The standards of the United States Patent and Trademark Office, or USPTO, are sometimes uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if

issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings by the USPTO. Foreign patents may be subject to opposition or comparable proceedings in the corresponding foreign patent offices, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.

In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our discoveries or to develop and commercialize our technology and product without providing any compensation to us, or may limit the number of patents or claims we can obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, some countries do not grant patent claims directed to methods of treating humans and, in these countries, patent protection may not be available at all to protect Ampion. In addition, U.S. patent laws may change, which could prevent or limit us from filing patent applications or patent claims to protect our products and/or compounds.

If we fail to obtain and maintain patent protection and trade secret protection for Ampion and its’ proprietary compounds and their uses, we could lose our competitive advantage and the competition we face could increase, reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.

Risks Related to Our Common Stock

The price of our stock has been extremely volatile and may continue to be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.

The price of our common stock has been extremely volatile and may continue to be so. The stock market in general and the market for pharmaceutical companies have experienced extreme volatility that has often been unrelated to the operating performance of a particular company. The following factors, in addition to the other risk factors described in this section, may also have a significant impact on the market price of our common stock:

In addition, we believe there has been and may continue to be substantial off-market transactions in derivatives of our stock, including short selling activity or related similar activities, which are beyond our control and which may be beyond the full control of the SEC and Financial Institutions Regulatory Authority, or FINRA. While SEC and FINRA rules prohibit some forms of short selling and other activities that may result in stock price manipulation, such activity may nonetheless occur without detection or enforcement. We have held conversations with regulators concerning trading activity in our stock; however, there can be no assurance that should there be any illegal manipulation in the trading of our stock it will be detected, prosecuted or successfully eradicated. Significant short selling or other types of market manipulation could cause our stock trading price to decline, to become more volatile, or both.

The price of our stock may be vulnerable to manipulation.

Our common stock has been the subject of significant short selling by certain market participants. Short sales are transactions in which a market participant sells a security that it does not own. To complete the transaction, the market participant must borrow the security to make delivery to the buyer. The market participant is then obligated to replace the security borrowed by purchasing the security at the market price at the time of required replacement. If the price at the time of replacement is lower than the price at which the security was originally sold by the market participant, then the market participant will realize a gain on the transaction. Thus, it is in the market participant’s interest for the market price of the underlying security to decline as much as possible during the period prior to the time of replacement.

Because our unrestricted public float has been small relative to other issuers, previous short selling efforts have impacted, and may in the future continue to impact, the value of our stock in an extreme and volatile manner to our detriment and the detriment of our shareholders. In addition, market participants with admitted short positions in our stock have published, and may in the future continue to publish, negative information regarding us and our management team on internet sites or blogs that we believe is inaccurate and misleading. We believe that the publication of this negative information has led, and may in the future continue to lead, to significant downward pressure on the price of our stock to our detriment and the further detriment of our shareholders. These and other efforts by certain market participants to manipulate the price of our common stock for their personal financial gain may cause our stockholders to lose a portion of their investment, may make it more difficult for us to raise equity capital when needed without significantly diluting existing stockholders, and may reduce demand from new investors to purchase shares of our stock.

If we cannot continue to satisfy the NYSE American listing maintenance requirements and other rules, including the director independence requirements, our securities may be delisted, which could negatively impact the price of our securities.

Although our common stock is listed on the NYSE American, we may be unable to continue to satisfy the listing maintenance requirements and rules. If we are unable to satisfy the NYSE American criteria for maintaining our listing, our securities could be subject to delisting. To qualify for continued listing on the NYSE American, we must remain in compliance.  There can be no assurances that we will be able to continue to comply with the NYSE American listing requirements.

If the NYSE American delists our securities, we could face significant consequences, including:

In addition, we would no longer be subject to the NYSE American rules, including rules requiring us to have a certain number of independent directors and to meet other corporate governance standards.

Concentration of our ownership limits the ability of our shareholders to influence corporate matters.

As of March 1, 2019, holders of more than 5% of our common stock and our directors, executive officers and their affiliates beneficially owned 24.5% of our outstanding common stock. These shareholders may have significant effect on the outcome of actions taken by us that require shareholder approval.

Anti-takeover provisions in our charter and bylaws and in Delaware law could prevent or delay a change in control of Ampio.

Provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. These provisions include:

Increased costs associated with corporate governance compliance may significantly impact our results of operations.

As a public company, we incur significant legal, accounting, and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules implemented by the SEC, and the NYSE American. The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that have required the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our management and other personnel devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations, and as a result of the new corporate governance and executive compensation related rules, regulations, and guidelines prompted by the Dodd-Frank Act, and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules. These rules and regulations will cause us to incur significant legal and financial compliance costs and will make some activities more time-consuming and costly.

The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that we develop may become inadequate, and weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop or

maintain effective controls could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting, which we may be required to include in our periodic reports that we file with the SEC under Section 404 of the Sarbanes-Oxley Act, and could harm our operating results, cause us to fail to meet our reporting obligations, or result in a restatement of our prior period financial statements. If we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal controls over financial reporting are perceived as adequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results, and the price of our common stock could decline.

We are required to comply with certain of the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. This assessment needs to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting or if we are unable to complete our evaluation, testing, and any required remediation in a timely fashion, we will be unable to assert that our internal controls over financial reporting are effective.

These developments could make it more difficult for us to retain qualified members of our Board of Directors, or qualified executive officers. We are presently evaluating and monitoring regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result. To the extent these costs are significant, our general and administrative expenses are likely to increase.

We have no plans to pay cash dividends on our common stock.

We have no plans to pay cash dividends on our common stock. We intend to invest future earnings, if any, to fund our growth. Any payment of future dividends will be at the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations our Board of Directors deem relevant. Any future credit facilities or preferred stock financing we obtain may further limit our ability to pay cash dividends on our common stock.

 

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

We maintain our headquarters in leased space in Englewood, Colorado, for monthly rental payments of approximately $27,000. The lease expires in September 2024. We anticipate that the lease can be renewed on terms similar to those now in effect.

Item 3.Legal Proceedings

On August 25, 2018 and August 31, 2018, two purported stockholders of the Company brought putative class action lawsuits in the United States District Court for the Central District of California, Shi v. Ampio Pharmaceuticals, Inc., et al., Case No. 2:18-cv-07476-SJO-RAO, and in the United States District Court for the District of Colorado, Shaffer v. Ampio Pharmaceuticals, Inc., et al., Case No. 1:18-cv-02252-KLM, together, the “Securities Class Actions”. Plaintiffs in the Securities Class Actions allege that the Company and certain of its current officers violated federal securities laws by misrepresenting and/or omitting information regarding the AP-003 Phase III clinical trials of Ampion. Plaintiffs assert claims under Sections 10(b) and 20(a) and Rule 10b-5 under the Securities Exchange Act of 1934, on behalf of a putative class of purchasers of the Company’s common stock from December 14, 2017 through August 7, 2018. The Securities Class Actions seek unspecified damages, interest, and attorneys’ fees and costs. On October 24, 2018, certain purported stockholders filed motions to be appointed as lead plaintiff in the Shi case. On November 6, 2018, the Shaffer case was voluntarily dismissed.

 

On September 10, 2018, a purported stockholder of the Company brought a derivative action in the United States District Court for the Central District of California, Cetrone v. Macaluso, et al., Case No. 2:18-cv-05970-SJO-RAO, alleging primarily that the directors and officers of Ampio breached their fiduciary duties because of their alleged misstatements and/or omissions regarding the AP-003 Phase III clinical trial of Ampion. On November 16, 2018, the case was stayed pending proceedings in the Shi case.

 

On October 5, 2018, a purported stockholder of the Company brought a derivative action in the United States District Court for the District of Colorado, Theise v. Macaluso, et al., Case No. 1:18-cv-02558-RBJ, which closely parallels the allegations in the Cetrone case. On November 14, 2018, a purported stockholder of the Company brought a second derivative action in the United States District Court for the District of Colorado, Lewis v. Macaluso, et al., Case No. 1:18-cv-02932-SKC, which also closely parallels the allegations in the Cetrone case. On December 19, 2018, the court consolidated the Theise and Lewis derivative actions, and the consolidated action is captioned In re Ampio Pharmaceuticals, Inc. Stockholder Derivative Litigation, Case No. 1:18-cv-02558-RBJ. On January 3, 2019, this consolidated derivative action was stayed pending proceedings in the Shi case.

 

The Company believes these claims are without merit and intends to defend these lawsuits vigorously. The Company currently believes the likelihood of a loss contingency related to these matters is remote and, therefore, no provision for a loss contingency is required.

 

Item 4.Mine Safety Disclosures.

Not applicable.

PART II

Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Data

On June 17, 2013, our common stock began trading on the NYSE American under the ticker symbol “AMPE”. It was previously quoted on the NASDAQ Capital Market under the same ticker symbol “AMPE”.

Holders of Common Stock

As of March 1, 2019, there were approximately 11,000 holders of record of our common stock.

Dividend Policy

We have never paid cash dividends and have no plans to pay cash dividends in the near future. We intend to utilize all available resources to develop Ampion. If we issue any preferred stock or obtain financing from a bank in the future, the terms of those financings may contain restrictions on our ability to pay dividends as long as the preferred stock or bank financing is outstanding.

Unregistered Sales of Equity Securities and Use of Proceeds

Information regarding unregistered sales of equity securities and use of proceeds is incorporated by reference to Item 15 of Part IV, Notes to Financial Statements – Note 7 – Common Stock of this annual report on Form 10-K.

 

Equity Compensation Plan Information

Information regarding our Equity Compensation Plan information is contained in Note 8 to the Financial Statements.

 

 

Item 6.Selected Financial Data

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

 

Item 7.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 appearing elsewhere in this report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financings, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Form 10‑K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

EXECUTIVE SUMMARY

We are a development stage biopharmaceutical company focused on the development of Ampion, our product candidate, to treat prevalent inflammatory conditions for which there are limited treatment options.

The pharmaceutical market is a competitive industry with strict regulations that are time intensive and costly. However, we are committed to offer a compelling therapeutic option for the patients most in need of new treatment options, and we operate every day to advance Ampion.

Since we are in the research and development phase, we have not generated revenue to date. Our operations are funded through equity raises, which occur from time to time. To proceed with our operations, we will need to raise additional funds to support the advancement of Ampion.

Moving forward, we plan to maintain a lean and efficient operating model by streamlining our operations and continuing to allocate all our resources towards commercializing Ampion.

Discussion regarding our business is contained in Part I, Item 1. Business.

 

Recent Financing Activities

Information regarding our Recent Financing Activities is contained in Note 7 to the Financial Statements.

Known Trends or Future Events; Outlook

We are a clinical stage company that has not generated revenues and have therefore incurred significant net losses totaling $171.0 million since our inception in December 2008. We expect to generate operating losses for the foreseeable future as we continue the development of, and seek regulatory approval for Ampion. However, we intend to try to limit the extent of these losses by entering into co-development or collaboration agreements with one or more strategic partners. As of December 31, 2018, we had $7.6 million of cash which we expect can fund our operation into the second quarter of 2019. To operate as planned in fiscal 2019 and into 2020 we will need to raise at least $16.0 million through equity offerings, debt or other financing tools.

On September 1, 2017, we received a letter from the NYSE American stating that they had determined that we were not in compliance with Sections 1003(a)(ii) and (iii) of the NYSE American Company Guide, or the Guide, since we reported stockholders’ equity of $3,734,756 as of June 30, 2017 and net losses in our five most recent fiscal years ended December 31, 2016. Prior to this, we were exempt from Section 1003(a) of the Guide since our market capitalization was above $50 million. We submitted a plan on October 2, 2017 advising the NYSE American of the actions that would be taken to regain compliance with the continued listing standards by March 19, 2019. On November 9, 2017, we received a letter from the NYSE American stating that the NYSE American had accepted our plan to regain compliance with the continued listing standards. On April 12, 2018, we received a letter from the NYSE American stating that we

are again in compliance with all the NYSE American continued listing standards set forth in Part 10 of the Guide, specifically Sections 1003(a)(ii) and (iii). Going forward, we will be subject to continued listing monitoring.

 

Although we have raised net proceeds of over $139 million in the past ten years through the sale of common stock and warrants, we cannot be assured that we will be able to secure additional financing, if needed, or that it will be adequate to execute our business strategy. Even if we obtain additional financing, it may be costly and may require us to agree to covenants or other provisions that will favor new investors over existing shareholders.

Our primary focus for fiscal 2019 is raising additional capital and advancing the clinical development and BLA preparation of Ampion.

Significant Accounting Policies and Estimates

Information regarding our Significant Accounting Policies and Estimates is contained in Note 2 to the Financial Statements.

Recent Accounting Pronouncements

Information regarding recently issued accounting standards (adopted and not adopted as of December 31, 2018) is contained in Note 2 to the Financial Statements.

Stockholders’ Equity – Year Ended December 31, 2018 and 2017

For the year ended December 31, 2018, we had stockholders’ equity of $5.2 million. Our total net income for the year was $34.0 million. The net income is primarily attributable to the non-cash derivative gain of $45.3 million that was recognized, which is offset by the operating expenses of $11.2 million during the year ended December 31, 2018. The decrease in our stock price from $4.07 as of December 31, 2017 to $0.39 as of December 31, 2018 significantly decreased the value of our outstanding warrants, causing a derivative gain to be recognized.

For the year ended December 31, 2017, we had a deficit in stockholders’ equity of $34.2 million.  Our total net loss for the year was $51.9 million.  The net loss was primarily attributable to the non-cash derivative loss of $36.2 million, along with $15.7 million in operating losses during the year ended December 31, 2017.  The increase in our stock price from $0.90 as of December 31, 2016 to $4.07 as of December 31, 2017 significantly increased the value of our outstanding warrants, causing a derivative loss to be recognized.

Results of Operations—Year Ended December 31, 2018 and 2017

We recognized net income for the year ended December 31, 2018 of $34.0 million compared to a net loss of $51.9 million for the same period in 2017. As noted above, the net income during the 2018 period is attributable to the non-cash derivative gain of $45.3 million that was recognized, which was offset by the operating expenses of $11.2 million. The net loss during the 2017 period was attributable to the non-cash derivative loss of $36.2 million that was recognized, in addition to the operating expenses of $15.7 million. The investor warrant exercises and decrease in our stock price from $4.07 as of December 31, 2017 to $0.39 as of December 31, 2018 caused the valuation of the warrant liability to decrease resulting in a derivative gain during the 2018 period. The increase in our stock price from $0.90 as of December 31, 2016 to $4.07 as of December 31, 2017 caused the valuation of the warrant liability to increase resulting in a derivative loss during the 2017 period. The operating expenses decreased $4.5 million from the 2017 period to the 2018 period primarily due to a $3.6 million decrease in research and development costs and a $900,000 decrease in general and administrative costs, which is further explained below.

 

Research and Development

Research and development costs consist of clinical trials and sponsored research, labor, stock-based compensation, consultants and sponsored research – related party. These costs relate solely to research and development without an allocation of general and administrative expenses and are summarized as follows:

 

Comparison of Years Ended December 31, 2018 and 2017

Research and development costs decreased $3.6 million, or 34.5%, for the year ended December 31, 2018 compared to the same period in 2017. The decrease is primarily attributable to lower costs related to clinical trials and sponsored research expense, labor costs and stock-based compensation, as well as the sponsored research-related party. Our clinical trial costs decreased from the 2017 period to the 2018 period. During the 2017 period, we incurred initial costs and clinical trial development expenses related to the AP-003-C study. During the 2018 period, we only incurred clinical trial development expenses related to the OLE study, which was considered an extension of the AP-003-C study. Due to the OLE study being an extension study, we did not incur initial costs during the 2018 period.  In addition, the number of patients enrolled in the OLE study was less than the AP-003-C study, causing the expenses for the OLE study to be lower. The OLE study was terminated during August 2018, with close-out costs being incurred through the beginning of fiscal 2019. Labor costs for the 2018 period decreased from the 2017 period primarily due to the elimination of the bonus accrual because of a one-time option repricing, which is further discussed in Notes 2 and 8 of our financial statements. The elimination of the PTO carryover also decreased the 2018 period labor costs. In addition, Dr. Bar-Or retired from his full-time role as our Chief Scientific Officer, effective September 30, 2018.  Therefore, we only incurred nine months of his salary during the 2018 period compared to twelve months during the 2017 period. The decrease in stock-based compensation is a result of fewer options being granted at lower stock prices and previously awarded high priced options becoming fully vested during 2018. With high priced options becoming fully vested during 2018, we did not recognize a full year of stock-based compensation expense for those options during the 2018 period, whereas we did recognize a full year of stock-based compensation expense for those options during the 2017 period. In addition, the sponsored research – related party expense also contributed to the decrease in the research and development costs due to the termination of the Trauma Research Agreement during the 2017 period with no costs incurred during the 2018 period. Consultants and other costs increased as we incurred costs related to discussions with the FDA surrounding our clinical trials.

General and Administrative

General and administrative expenses consist of labor, director fees, stock-based compensation, patents and intellectual property, professional fees which include legal, auditing and accounting, occupancy, travel and other which includes rent, insurance, investor/public relations and professional subscriptions. These costs are summarized as follows:

 

Comparison of Years Ended December 31, 2018 and 2017

General and administrative costs decreased $900,000, or 17.1%, for the year ended December 31, 2018 compared to the same period in 2017. The decrease is primarily attributable to lower occupancy, travel and other expenses, labor and stock-based compensation. Occupancy, travel and other expense decreased due to the termination of a contractual agreement that was intended to assist us with potential partnerships, as well as a decrease in insurance premiums from the 2018 period compared to the 2017 period. Occupancy, travel and other expense also decreased as we did not incur costs related to media outreach during the 2018 period compared to the 2017 period. In addition, we incurred less travel costs during the 2018 period compared to the 2017 period. As noted in the Research and Development section above, labor costs decreased for the 2018 period compared to the 2017 period primarily due to the elimination of the bonus accrual related to the option repricing, further discussed in Notes 2 and 8 of our financial statements. The elimination of the PTO carryover also decreased the 2018 period labor costs. The decrease in stock-based compensation is a result of fewer options being granted at lower stock prices and previously awarded high priced options becoming fully vested during 2018. With high priced options becoming fully vested during 2018, we did not recognized a full year of stock-based compensation expense for those options during the 2018 period, whereas we did recognize a full year of stock-based compensation expense for those options during the 2017 period. Director fees also decreased as there were fewer board meetings during the 2018 period. There was an increase in professional fees due to an increase in legal fees related to litigation and an increase in accounting fees, as well as the amortization of a retainer related to a debt financing deal that did not occur.

Net Cash Used in Operating Activities

During 2018, our operating activities from continuing operations used $12.1 million in cash, which was less than the net income of $34.0 million primarily due to the $45.3 million non-cash gain from the warrant derivative, a decrease of $2.5 million in accounts payable and accrued compensation and $180,000 increase in prepaid expenses. These amounts were offset by stock-based compensation, depreciation and amortization, loss from disposal of fixed assets and common stock issued for services.

During 2017, our operating activities from continuing operations used $11.4 million in cash, which was less than the net loss of $51.9 million primarily due to the $36.2 million non-cash loss from the warrant derivative, as well as the stock-based compensation, depreciation and amortization and amortization of the prepaid research and development. Cash used in operating activities also included a $332,000 decrease in accrued compensation, which was offset by a $2.1 million increase in accounts payable and accrued expenses and a decrease in prepaid expenses.

Net Cash Used in Investing Activities

During 2018, cash was used to purchase $564,000 of equipment.

During 2017, cash was used to purchase $72,000 of equipment.

Net Cash from Financing Activities

During 2018, we received $4.9 million from option and warrant exercises. We also received gross proceeds from the sale of common stock in a confidentially marketed public offering of $8.0 million, which was offset by offering costs of $844,000.

During 2017, we received gross proceeds from the sale of common stock in registered direct offerings of $13.3 million, which was offset by offering costs of $1.3 million. We also received $2.8 million from option and warrant exercises.

Contractual Obligations and Commitments

Information regarding Contractual Obligations and Commitments is contained in Note 6 to the Financial Statements.

Liquidity and Capital Resources

We have not generated revenue or profits.  Our primary activities are focused on research and development, advancing Ampion and raising capital. As of December 31, 2018, we had $7.6 million of cash which we expect will fund our

operation into the second quarter of 2019. To operate as planned in fiscal 2019 and into 2020 we will need to raise at least $16.0 million through equity offerings, debt or other financing tools. This projection is based on many assumptions that may prove to be wrong, and we could exhaust our available cash and cash equivalents earlier than presently anticipated. We will be required to seek additional capital to expand our clinical and commercial development activities for Ampion. We intend to evaluate the capital markets from time to time to determine whether to raise additional capital in the form of equity, convertible debt or otherwise, depending on market conditions relative to our need for funds at such time.

 

We have prepared a budget for 2019 which reflects cash requirements for fixed, on-going expenses such as payroll, legal and accounting, patents and overhead at an average cash burn rate of approximately $700,000 per month. Additional funds are planned for regulatory approvals, clinical trials, outsourced research and development and commercialization consulting. Accordingly, it will be necessary to raise additional capital and/or enter into licensing or collaboration agreements. At this time, we expect to satisfy our future cash needs through private or public sales of our securities, debt financings or our Controlled Equity Offering Sales Agreement that we agreed to in February 2016 with respect to our ATM. We cannot be certain that financing will be available to us on acceptable terms, or at all. Volatility in the financial markets has adversely affected the market capitalizations of many pharmaceutical companies, particularly small capitalization companies, and generally made equity and debt financing more difficult to obtain. This volatility, coupled with other factors, may limit our access to additional financing.

If we cannot raise adequate additional capital in the future when we require it, we will be required to delay, reduce the scope of, or eliminate the development program for Ampion or our future commercialization efforts or suspend operations for a period until we are able to raise additional capital. We also may be required to relinquish greater or all rights to Ampion, at an earlier stage of development or on less favorable terms than we would otherwise choose. This may lead to impairment or other charges, which could materially affect our balance sheet and operating results.

Off Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “variable interest entities.”

Impact of Inflation

In general, we believe that our operating expenses can be negatively impacted by increases in the cost of clinical trials due to inflation and rising health care costs.

Item 7A.        Quantitative and Qualitative Disclosures about Market Risks

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

Item 8.         Financial Statements and Supplementary Data

The Financial Statements and Supplementary Data required by this item are in Item 15 of Part IV, “Index to Financial Statements” at page F‑1 of this annual report on Form 10‑K and are incorporated herein by reference.

Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Effective October 1, 2018, EKS&H LLLP (“EKS&H”), the independent registered public accounting firm for Ampio Pharmaceuticals, Inc. (the “Company”), combined with Plante & Moran PLLC (“Plante Moran”). As a result of this transaction, on October 1, 2018, EKS&H resigned as the independent registered public accounting firm for the Company. Concurrent with such resignation, the Company’s Audit Committee approved the engagement of Plante Moran as the new independent registered public accounting firm for the Company.

 

The audit reports of EKS&H on the Company’s financial statements for the years ended December 31, 2017 and 2016 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles except, the audit report of EKS&H on the Company’s financial statements for the years ended

December 31, 2017 and 2016 contained an explanatory paragraph indicating that there was substantial doubt about the ability of the Company to continue as a going concern. 

 

During the two most recent fiscal years ended December 31, 2017 and 2016 and through the subsequent interim period preceding EKS&H’s resignation, there were no disagreements between the Company and EKS&H on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of EKS&H would have caused them to make reference thereto in their reports on the Company’s financial statements for such years.

 

During the two most recent fiscal years ended December 31, 2017 and 2016 and through the subsequent interim period preceding EKS&H’s resignation, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

During the two most recent fiscal years ended December 31, 2017 and 2016 and through the subsequent interim period preceding Plante Moran’s engagement, the Company did not consult with Plante Moran on either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that may be rendered on the Company’s financial statements, and Plante Moran did not provide either a written report or oral advise to the Company that Plante Moran concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K.

 

Item 9A.      Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such terms are defined in Rules 13a‑15(e) and 15d‑15(e) of the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of senior management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a‑15(b) and 15d‑15(b). Based upon this evaluation, the chief executive officer and the chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as such term is defined in Rules 13a‑15(f) under the Exchange Act). Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2018. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Our management has concluded that, as of December 31, 2018, our internal controls over financial reporting are effective based on these criteria.

Plante Moran PLLC, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial reporting, which is included herein at F-2.

 

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting, known to the chief executive officer or the chief financial officer that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B.          Other Information

None.

PART III

Item 10.        Directors and Executive Officers, and Corporate Governance

The following table sets forth the names, ages and positions of our directors and executive officers as of March 10, 2019.

 

 

Family Relationships

There are no family relationships between any of our directors. Raphael Bar-Or, a non-executive officer, is the son of David Bar-Or, our former Chief Scientific Officer and a Director.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own greater than 10% of our Common Stock to file certain reports, Forms 3, 4 and 5, with the SEC with respect to ownership and changes in ownership of our Common Stock. To our knowledge, we have one shareholder who beneficially owns more than 10% of our Common Stock.  See Item 12 for further information on beneficial ownership. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe during the period from January 1, 2018 to December 31, 2018, all filing requirements applicable to our officers, directors and 10% beneficial owners were complied with.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that is applicable to all our employees, officers and directors. The code is available on our web site, www.ampiopharma.com, under the “Investor Relations” tab. We intend to disclose future amendments to, or waivers from, certain provisions of our code of ethics, if any, on the above website within four business days following the date of such amendment or waiver.

Meetings

During the year ended December 31, 2018, there were (i) eight meetings of the Board of Directors, (ii) four meetings of the Audit Committee, (iii) seven meetings of the Compensation Committee, (iv) one meeting of the Nominating and Governance Committee, and (v) no meetings of the Disclosure Committee insofar as the committee was not formally established until late 2018. No incumbent director attended fewer than seventy-five percent (75%) of the aggregate of

(1) the total number of meetings of the Board, and (2) the total number of meetings held by all committees of the Board during the period that such director served.

Annual Meeting Attendance, Executive Sessions and Shareholder Communications

Since 2011, our policy has been that our directors attend the annual meeting of stockholders. We previously did not have a policy concerning director attendance at annual meetings. Commencing in 2011, our policy has also been that our non-employee directors are required to meet in separate sessions without management on a regularly scheduled basis four times a year. Generally, these meetings are expected to take place in conjunction with regularly scheduled meetings of the Board throughout the year.  Our 2018 annual meeting was attended by four of the five directors serving on our Board.

We have not implemented a formal policy or procedure by which our shareholders can communicate directly with our Board of Directors. Nevertheless, every effort has been made to ensure that the views of shareholders are heard by the Board of Directors or individual directors, as applicable, and that appropriate responses are provided to shareholders in a timely manner. We believe that we are responsive to shareholder communications, and therefore have not considered it necessary to adopt a formal process for shareholder communications with our Board. During the upcoming year, our Board will continue to monitor whether it would be appropriate to adopt such a policy. Communications will be distributed to the Board, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the communications. Items that are unrelated to the duties and responsibilities of the Board may be excluded, such as:

In addition, any material that is unduly hostile, threatening, or illegal in nature may be excluded, provided that any communication that is excluded will be made available to any outside director upon request.

Involvement in Certain Legal Proceedings

No director, executive officer, promoter or person of control of our Company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any Federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding of any violation with respect to such law, nor (iii) any bankruptcy petition been filed by or against the business of which such person was an executive officer or a general partner, whether at the time of the bankruptcy or for the two years prior thereto.

We are not engaged in, nor are we aware of any pending or threatened litigation in which any of our directors, executive officers, affiliates or owner of more than 5% of our common stock is a party adverse to us or has a material interest adverse to us.

Leadership Structure of the Board

The Board of Directors does not currently have a policy on whether the same person should serve as both the Chief Executive Officer and Chairman of the Board or, if the roles are separate, whether the chairman should be selected from the non-employee directors or should be an employee. The Board believes that it should have the flexibility to make these determinations in a way that it believes provides the best leadership for the Company. Our current chairman, Michael Macaluso, was appointed our Chief Executive Officer effective January 2012. Mr. Macaluso has served as a member of our Board since March 2010 and had been a member of the Board of Directors of Life Sciences from December 2009.

Risk Oversight

The Board oversees risk management directly and through its committees associated with their respective subject matter areas. Generally, the Board oversees risks that may affect our business, including operational matters. The Audit Committee is responsible for oversight of our accounting and financial reporting processes and discusses with management our financial statements, internal controls and other accounting and auditing matters. The Compensation Committee oversees certain risks related to compensation programs and the Nominating and Governance Committee oversees certain corporate governance risks. The Disclosure Committee assists in establishing, implementing, maintaining and evaluating controls or other procedures to ensure that the information required to be disclosed in the Company’s reports furnished or filed under the Securities Exchange Act of 1934 is properly communicated to the chief executive officer and the chief financial officer. As part of their roles in overseeing risk management, these committees periodically report to the Board regarding briefings provided by management and advisors as well as the committees’ own analysis and conclusions regarding certain risks faced by us. Management is responsible for implementing the risk management strategy and developing policies, controls, processes and procedures to identify and manage risks.

Committees of the Board

Our Board of Directors has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee, and a Disclosure Committee, each of which has the composition and the responsibilities described below. The Audit Committee, Compensation Committee, Nominating and Governance Committee, and Disclosure Committee all operate under charters approved by our Board of Directors, which charters are available on our website.

Audit Committee. Our Audit Committee oversees our corporate accounting and financial reporting process.  This committee also assists the Board of Directors in monitoring our financial systems and our legal and regulatory compliance. Our Audit Committee is responsible for, among other things:

The members of our Audit Committee are Messrs. Giles, Coelho and Stevens. Mr. Giles is our Audit Committee chairman and was appointed to our Audit Committee in August 2010. Our Board of Directors has determined that each member of the Audit Committee meets the financial literacy requirements of the national securities exchanges and the SEC, and Mr. Giles qualifies as our Audit Committee financial expert as defined under SEC rules and regulations. Our Board of Directors has concluded that the composition of our Audit Committee meets the requirements for independence under the current requirements of the NYSE American and SEC rules and regulations. We believe that the functioning of our Audit Committee complies with the applicable requirements of SEC rules and regulations, and applicable requirements of the NYSE American.

Compensation Committee. Our Compensation Committee oversees our corporate compensation policies, plans and programs. The Compensation Committee is responsible for, among other things:

The members of our Compensation Committee are Messrs. Coelho, Giles and Stevens. Mr. Coelho is the chairman of our Compensation Committee. Each member of our Compensation Committee is a non-employee director, as defined in Rule 16b‑3 promulgated under the Exchange Act, is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, and satisfies the independence requirements of the NYSE American. We believe that the composition of our Compensation Committee meets the requirements for independence under, and the functioning of our Compensation Committee complies with, any applicable requirements of the NYSE American and SEC rules and regulations.

Our Compensation Committee and the Board of Directors have not yet established a succession plan for our Chief Executive Officer. Mr. Macaluso is in excellent health and is performing to the satisfaction of the Board of Directors. Therefore, the Compensation Committee does not believe there is a pressing need to have a succession plan for the CEO position.

In fulfilling its responsibilities, the Committee is permitted under the Compensation Committee charter to delegate any or all of its responsibilities to a subcommittee comprised of members of the Compensation Committee or the Board, except that the Committee may not delegate its responsibilities for any matters that involve compensation of any officer or any matters where it has determined such compensation is intended to comply with Section 162(m) of the Code or is intended to be exempt from Section 16(b) under the Exchange Act pursuant to Rule 16b‑3 by virtue of being approved by a committee of independent or nonemployee directors.

Nominating and Governance Committee. Our Nominating and Governance Committee oversees and assists our Board of Directors in reviewing and recommending corporate governance policies and nominees for election to our Board of Directors. The Nominating and Governance Committee is responsible for, among other things:

The members of our Nominating and Governance Committee are currently Messrs. Giles, Stevens and Coelho. Mr. Coelho is the chairman of our Nominating and Governance Committee. Our Board of Directors has determined that

each member of our Nominating and Governance Committee is independent within the meaning of the independent director guidelines of the NYSE American.

Disclosure Committee. Our Disclosure Committee provides assistance to the CEO and the CFO, or the Senior Officers, in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of such disclosures. The Disclosure Committee is responsible for, among other things:

The members of our Disclosure Committee are currently Messrs. Macaluso, Chilcott, Giles, Coelho and Dr. Stevens, as well as Ms. Cherevka. Dr. Stevens is the chairman of our Disclosure Committee.

Our Board of Directors may from time to time establish other committees.

Non-Employee Director Compensation

Our Compensation Committee established the following fees for payment to members of our Board of Directors or committees, for the fiscal year ended December 31, 2018:

 

The Non-Employee Director Compensation for fiscal 2018 included a grant to each Director of options to purchase 30,000 shares of our common stock on the date of our annual shareholder meeting of stockholders, vesting monthly over the succeeding twelve months. The 2018 annual meeting occurred on December 15, 2018.

Director Compensation for 2018

The table below summarizes the compensation paid by us to non-employee directors for the year ended December 31, 2018. Our employee directors do not receive additional compensation for their services as a member of our Board of Directors.

Item 11.Executive Compensation

Executive Compensation

Named Executive Officers

For our fiscal year ended December 31, 2018, our Named Executive Officers were: (i) Michael Macaluso, our Chief Executive Officer, who has served as our Chief Executive Officer since January 2012, (ii) Thomas E. Chilcott, our Chief Financial Officer, who has served as our Chief Financial Officer, Secretary and Treasurer since June 2017, (iii) David Bar-Or, M.D., our former Chief Scientific Officer, who served as our Chief Scientific Officer from March 2010 to September 2018, and (iv) Holli Cherevka, our current Chief Operating Officer, who has served as our Chief Operating Officer since September 2017. We had no other executive officers serving during the year ended December 31, 2018.

The following table shows for the fiscal years ended December 31, 2018 and December 31, 2017, compensation awarded to, paid to, or earned by our Name Executive Officers.

Summary Compensation of Named Executive Officers

 

Our executive officers are reimbursed by us for any out-of-pocket expenses incurred in connection with activities conducted on our behalf.

Employment Agreements

We entered into an employment agreement with Mr. Michael Macaluso, our Chief Executive Officer, effective January 9, 2012.  This agreement provided for an annual salary of $195,000, with an initial term ending January 9, 2015. On October 1, 2013, we increased Mr. Macaluso’s annual salary from $195,000 to $300,000. On December 20, 2014, we extended the employment agreement of Mr. Macaluso for three additional years, expiring January 9, 2017. On March 9, 2017, we extended his employment agreement for another three years until January 9, 2020. In connection with his 2017 Amendment, Mr. Macaluso was awarded 400,000 options to purchase our common stock at an exercise price of $0.81 vesting annually over three years beginning on March 9, 2018.

In August 2010, we entered into an employment agreement with Dr. David Bar-Or, our former Chief Scientific Officer, or CSO. The employment agreement with Dr. Bar-Or superseded his prior agreement with Life Sciences. The agreement had an initial term ending July 31, 2013. The agreement provided for an annual salary of $300,000. On July 15, 2013, we extended the employment agreement of Dr. David Bar-Or for one additional year, expiring July 31, 2014. In connection with this amendment, Dr. Bar-Or was awarded 300,000 options to purchase our common stock at an exercise price of $6.15 with 50% vesting upon grant and 50% after one year. On August 11, 2014, we extended the employment agreement of Dr. Bar-Or for one additional year, expiring July 31, 2015. In connection with this amendment, Dr. Bar-Or was awarded 300,000 options to purchase our common stock at an exercise price of $6.48 with 50% vesting upon grant and 50% after one year. On August 3, 2015, we extended the employment agreement of Dr. Bar-Or for one additional year, expiring July 31, 2016. In connection with this amendment, Dr. Bar-Or was awarded 300,000 options to purchase our common stock at an exercise price of $2.60 with such options vesting on the date that we meet all endpoints in connection with the Ampion clinical trial as determined in the sole discretion of our Compensation Committee. We did not meet the primary end point on the Ampion trial, so the options granted to Dr. Bar-Or in July 2015 expired unvested on June 30, 2016. On August 1, 2016, we extended the employment agreement of Dr. Bar-Or for one additional year, which expired on July 31, 2017. On June 30, 2017, we extended the Employment Agreement of Dr. Bar-Or for one additional year, expiring July 1, 2018. In connection with this agreement, Dr. Bar-Or was awarded 133,000 options to purchase our common stock at an exercise price of $0.50 with 100% vesting immediately.  In July 2018, we extended the employment agreement of Dr. Bar-Or for an additional month. On August 29, 2018, Dr. Bar-Or notified us of his decision to retire from his role as CSO, effective September 30, 2018. Dr. Bar-Or will continue to serve as a member of the Board of Directors and the Scientific Advisory Board.

We entered into an employment agreement with Mr. Thomas Chilcott, our Chief Financial Officer, on August 23, 2017, which provided for an annual salary of $200,000 and a term ending August 16, 2019. In connection with this employment agreement, Mr. Chilcott was awarded 200,000 options to purchase common stock at an exercise price of

$0.48, with 50% vesting upon grant and 50% after one year.  On December 29, 2017, the Compensation Committee approved a salary increase for Mr. Chilcott of $25,000, effective January 1, 2018. 

We entered into an employment agreement with Ms. Holli Cherevka, our Chief Operating Officer, on September 19, 2017, which provided for an annual salary of $200,000 and a term ending September 19, 2019. In connection with this employment agreement, Ms. Cherevka was awarded 200,000 options to purchase common stock at an exercise price of $0.55, with 50% vesting upon grant and 50% after one year.

Each officer is eligible to receive a discretionary annual bonus each year that will be determined by the Compensation Committee of the Board of Directors based on individual achievement and Company performance objectives established by the Compensation Committee. Included in those objectives, as applicable for the responsible officer, are (i) obtaining successful clinical trial results, (ii) preparation and compliance with a fiscal budget, (iii) the sale of intellectual property not selected for clinical trials by us at prices, and times, approved by the Board of Directors and (iv) making significant scientific discoveries acceptable to the Board of Directors. The targeted amount of the annual bonus for Mr. Macaluso, Mr. Chilcott and Ms. Cherevka is 50% of the applicable base salary, although the actual bonus may be higher or lower.

 

Outstanding Equity Awards

The following table provides a summary of equity awards outstanding for each of the Named Executive Officers as of December 31, 2018: